Transcript coal - Southern Coals Conference

Southern Coals Conference
March 5, 2009
More Challenges for Big Coal
Tim Light
Senior Vice President
Fuel, Emissions, and Logistics
“Safe Harbor” Statement under the Private
Securities Litigation Reform Act of 1995
This presentation contains forward-looking statements, which are subject to risks and uncertainties. These factors include electric load
and customer growth; weather conditions, including storms; available sources and costs of, and transportation for, fuels and
performance of fuel suppliers and transporters; availability of generating capacity and performance of generating plants; the ability to
recover regulatory assets and stranded costs in connection with deregulation; the ability to recover increases in fuel and other energy
costs through regulated or competitive electric rates; the ability to build or acquire generating capacity (including our ability to obtain
any necessary regulatory approval and permits) when needed at acceptable prices and terms and to recover those costs (including the
costs of projects that are cancelled) through applicable rate cases or competitive rates; new legislation, litigation and government
regulation, including requirements for reduced emissions of sulfur, nitrogen, mercury, carbon, soot or particulate matter and other
substances; timing and resolution of pending and future rate cases, negotiations and other regulatory decisions (including rate or other
recovery of new investments in generation, distribution and transmission service and environmental compliance); resolution of litigation
(including disputes arising from the bankruptcy of Enron Corp. and related matters); our ability to constrain operation and maintenance
costs; the economic climate and growth or contraction in our service territory and changes in market demand and demographic
patterns; inflationary and interest rate trends; volatility in the financial markets, particularly developments affecting the availability of
capital on reasonable terms and developments impacting our ability to refinance existing debt at attractive rates; our ability to develop
and execute a strategy based on a view regarding prices of electricity, natural gas, coal, nuclear fuel and other energy related
commodities; changes in the creditworthiness of the counterparties with whom we have contractual arrangements, including
participants in the energy trading market; actions of rating agencies, including changes in the ratings of debt; volatility and changes in
markets for electricity, natural gas and other energy-related commodities; changes in utility regulation, including the implementation of
the recently-passed utility law in Ohio and the allocation of costs within regional transmission organizations; accounting
pronouncements periodically issued by accounting standard-setting bodies; the impact of volatility in the capital markets on the value of
the investments held by our pension, other postretirement benefit plans and nuclear decommissioning trust and the impact on future
funding requirements; prices for power we generate and sell at wholesale; changes in technology, particularly with respect to new,
developing or alternative sources of generation; other risks and unforeseen events, including wars, the effects or terrorism (including
increased security costs), embargoes and other catastrophic events; and other factors discussed in the reports, including Forms 10-K
and 10-Q, filed from time to time by the company with the SEC.
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Company Overview
Nat.
Gas/Oil
Coal/Lignite
66%
Nuclear
6%
23%
Pumped Storage/
Hydro/Wind
5%
AEP’s Generation Fleet
38,721 MW Capacity
5.1 million customers in 11 states
Industry-leading size and scale of assets:
Asset
Domestic Generation
Transmission
Distribution
Size
~38,700 MW
~39,000 miles
~213,000 miles
Industry
Rank
#2
#1
#1
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Coal Procurement – 2009 Projected
AEP burns ~ 77 million tons of
coal per year
Total AEP System
Colorado/Utah 2%
Illinois Basin 1%
Lignite 6%
AEP East
Illinois Basin 1%
Colorado/Utah 3%
Northern
Appalachia
39%
Powder
River Basin
23%
Northern
Appalachia
30%
Powder River Basin
35%
Central Appalachia
34%
Central
Appalachia
26%
AEP West
Lignite 25%
Coal Stats:
 98+% contracted for 2009
 Avg. delivered price ~ $47/ton in 2008
 Projecting 15% increase in 2009 ~
$52/ton
Powder
River Basin
75%
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Controlled Assets

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Approximately 9,100 Railcars - owned & leased
Approximately 2,800 Barges - commercial & captive
82 Boats - commercial & captive
Cook Coal Terminal with an annual transload capacity of
approximately 18 Million Tons
Alliance Railcar Maintenance Facility maintains
approximately 7,000 railcars annually
Dolet Hills Lignite Company with approximately 3.3 Million
tons production annually
Conesville Coal Preparation Plant with approximately 2
Million tons processed annually
Central Coal Lab with approximately 28,000 samples
processed annually
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The New Administration—
Energy and the Environment

Energy Legislation -- A First Priority


Climate Legislation -- Also a Priority


For electric utilities: Federal RPS likely
Passage is complex
Further Air Emissions Requirements -- SO2, NOx,
and Hg???
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The Coal Gap
(Electric Perspectives – 3rd Quarter 2008 Survey)

69% of those surveyed think of climate change
as fact

72% of these believe the matter is urgent

Coal only accounts for ~20% of power
generation

Climate change can be addressed through
renewables and energy efficiency, and

2/3 think climate change can be addressed
“without serious negative consequences”
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Our Position On Climate Change
The scientific community, led largely by the Intergovernmental
Panel on Climate Change, has provided scientific evidence that
human activity has contributed to global warming. AEP is
helping to lead the discussion nationally and internationally to
find a reasonable, achievable approach and enact federal
energy policy that is realistic in time frame and does “not”
seriously harm the U.S. economy. We also are developing
advanced coal technologies so that “coal” can continue to be
the important energy resource it is today. We support the
adoption of an economy wide, cap-and-trade greenhouse gas
reduction program that allows us to provide reliable, reasonably
priced electricity to our customers and that fosters the
international participation that is necessary to make meaningful
progress.
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A Portfolio is Needed and CCS is Key
3500
Achieving all targets is aggressive, but potentially feasible
3000
U.S. Electric Sector
CO2 Emissions (million metric tons)
EIA Base Case 2007
2500
2000
Technology
EIA 2007 Reference
Target
Load Growth ~ +1.5%/yr
Load Growth ~ +1.1%/yr
30 GWe by 2030
70 GWe by 2030
12.5 GWe by 2030
64 GWe by 2030
No Existing Plant Upgrades
40% New Plant Efficiency
by 2020–2030
150 GWe Plant Upgrades
46% New Plant Efficiency
by 2020; 49% in 2030
CCS
None
Widely Deployed After 2020
PHEV
None
10% of New Vehicle Sales by 2017;
+2%/yr Thereafter
< 0.1% of Base Load in 2030
5% of Base Load in 2030
Efficiency
Renewables
1500
Nuclear Generation
Advanced Coal Generation
1000
500
DER
0
1990
1995
2000
2005
2010
2015
2020
2025
2030
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AEP’s GHG Reduction Portfolio
Renewables
(e.g. 800 Mw of Existing Wind
1000 Mw New Wind PPA by 2011
Biomass Co-firing)
Offsets & GHG Markets
(e.g. Chicago Climate Exchange,
Forest Preservation and Tree Planting,
Methane Capture from Livestock,
2.5 MM CO2eTons/yr by 2011 Goal)
Efficiency
(e.g. Coal Plant Heat Rate Improvements
DSM and Energy Efficiency)
New Technology:
Clean Coal/CCS
(e.g. Chilled Ammonia Retrofit, IGCC)
AEP is investing in a portfolio of GHG reduction alternatives
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The Challenge: CCS is Expensive
$50+
$/ton CO2e
$0

CCS w/ Geologic Sequestration

Other renewable, advanced geothermal
and/or solar

Carbon Capture for Enhanced Oil
Recovery

New Biomass Generation

Dispatch of additional gas vs.
inefficient coal

Biomass Co-firing

Forestry

New Wind

Nuclear

Energy Efficiency

Methane Offsets
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Key Points

Expected federal environmental policy will require
further emissions reductions from existing and future
coal and natural gas fired power plants

No silver bullet – Portfolio mix of resources will be
required to satisfy future energy needs

Carbon capture and storage and enhanced oil and
natural gas recovery are critically needed technologies
for baseload generation to comply with anticipated
federal CO2 emissions reduction requirements
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Mind the Gap !!!
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