October 2009October 2009

GASIFICATION TECHNOLOGIES CONFERENCE 2009

Tenaska OverviewTenaska Overview

T k h d l d 9 000 MW f ti f iliti d

Ranked 24th largest privately held US company by Forbes in 2008

• Tenaska has developed 9,000 MW of generating facilities and currently operates or oversees 17 power plants in the US totaling more than 12,000 MW that are owned in partnership with other companies p

• Headquarters in Omaha, Nebraska– Regional offices in Dallas, TX; Denver, CO; and Calgary, Canada– Over 680 employees– Approximately $16 billion in gross operating revenues (2008)

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Taylorville Energy Center - Overview

• 730 MW (gross) hybrid integrated gasification combined cycle (“Hybrid IGCC”) plant located in the coal fields of

Chicago

cycle ( Hybrid IGCC ) plant located in the coal fields of central Illinois

• Illinois law mandates that Illinois electric utilities and other retail suppliers enter into long term contracts to buy power St. Louis

TEC

retail suppliers enter into long-term contracts to buy power from the TEC pursuant to a FERC-approved formula rate

• Hybrid IGCC technology allows coal to be used to generate l l t lpower as cleanly as natural gas.

• Illinois is home to approximately 20% of recoverable US coal reserves

Illinois Proven Coal Deposits (1)

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___________________________1. Source: Illinois State Geological Society, December 2008.

1. Source: John Lewis, Ph.D., Northern Illinois University Regional Development Institute.

Selected SiteSelected Site

• TEC will be located in Central Illinois, northeast of the town

Coun

E 1800 N Rd N 1400

N 1500 ,

of Taylorville• 713 acres currently owned or

under option (additional 173 acres of buffer property to be acquired)

TEC

nty Highw

ay 22 / N

E 1700 N Rd

0 E R

d

0 E R

d

• Located near Ameren and ComEd transmission lines

• Located within 12 miles of KMP (Rocky Mountain Express) and Southern Union

N 1250 E R

d N 1600

Route 104

E 1600 N RdE 1600 N Rd

Express) and Southern Union (Panhandle Eastern) owned interstate gas pipelines

• Interconnection with PJM (ComEd)

Coun

E R

d

Lincoln Trail

• Significant state and local support

• Excellent rail and highway infrastructure

LakeTaylorville

nty Highw

ay 1100

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___________________________Source: US Geological Survey, SNL.

LakeTaylorville

Technical Description

• TEC will manufacture pipeline quality SNG to be used to fuel a conventional 2x1 “F” Class power block

• Power production (after CO2 compression) is expected to be 730 MW gross when both gas turbines are operating and 405730 MW gross when both gas turbines are operating and 405 MW gross when one gas turbine is operating

Artist’s rendition of TEC

• Excess steam that is a by-product of the gasification/methanation process will contribute additional energy to the steam turbineadd o a e e gy o e s ea u b e

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H b id IGCC PHybrid IGCC Process

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M j Diff IGCC d H b id IGCCMajor Differences: IGCC and Hybrid IGCCThe following are major design differences between conventional IGCC and Hybrid IGCC configurations:

• An IGCC configuration typically involves air side integration between the air separation unit and the combustion turbine (“CT”). This integration is eliminated in the TEC Hybrid IGCC design

• The nitrogen (N2) integration between the air separation unit and the CT for emission control purposes is eliminated since low-NOx burners can be used on CTs that burn natural gas

• TEC employs a quench gasification design that has more operating hours experience than the radiant designs suggested for some IGCC plants

• The CTs in the TEC design will burn pipeline quality SNG (methane), while conventional IGCC projects burn synthesis gas (carbon monoxide and hydrogen (H2))burn synthesis gas (carbon monoxide and hydrogen (H2))

• The TEC design allows the power block to be efficiently operated independently even if the gasification and / or SNG islands are shut down for maintenance

– In the case of conventional IGCC, the power block can still be operated on natural gas, but because the CTs are designed to burn syngas, the efficiency is significantly reducedg y g , y g y

• Simplification of design leads to a higher expected facility availability

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Regulatory and Political Frameworkg y

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St St t d L l S t• The Illinois Clean Coal Portfolio Standard Law

(“ICCPSL”), also known as SB1987, was signed into law in January 2009

• “…[the legislation that supports TEC] provides a unique opportunity for Illinois to become the national leader in the effort to build the kind of

Strong State and Local Support

signed into law in January 2009

• Creates a framework for developing coal gasification projects with CO2 capture and storage, requiring emissions from these electric generation facilities to be as clean as

national leader in the effort to build the kind of green economy championed by [President] Obama.” Lisa Madigan, Illinois Attorney General

• “Construction of the [TEC] will be an economic catalyst to kick-start our economy, creating good-g

natural gas generators

• Requires electric utilities and other electric retail suppliers in Illinois to purchase 100% of the electric output from clean coal facilities

d 30 S i A t

catalyst to kick start our economy, creating goodpaying jobs that help bolster working families.” Michael Carrigan, Illinois AFL-CIO President

• “[TEC] is a perfect example of a project that uses coal in an environmentally responsible manner. We

under 30 year Sourcing Agreements. Contracting with these electricity providers provides a built-in customer base for the plant

• Law allows Tenaska to pass through its operating costs and recover capital costs

urge others to support this project." Angela Tin, Director of environmental programs for American Lung Association of Illinois

• “Coal gasification plants like the TEC are a win-win-win for Illinois They are good for economicoperating costs and recover capital costs

using hypothetical capital structure (55% debt / 45% equity) and a return on equity (“ROE”) of up to 11.5%. Similar to other cost-of-service rate base frameworks

win for Illinois. They are good for economic development and good for the environment. And if financed correctly with cost-based rates, they are a good deal for consumers too.” David Kolata, Executive Director, Citizens Utility Board

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Illi i Edit i l S t• “We hope that a deal can be worked out that would allow Illinois, and the nation, to reap the benefits of

building a clean coal plant in Taylorville at a reasonable cost to consumers… Illinois has much to gain as the center of clean coal. The Taylorville plant would produce enough power to serve hundreds of

Illinois Editorial Support

as the center of clean coal. The Taylorville plant would produce enough power to serve hundreds of thousands of homes. The gains in clean air also would be significant.” Chicago Tribune, Editorial: “Don’t forget Taylorville”, Feb. 1, 2008

• “The St. Louis region's future and that of the nation rest on two seemingly contradictory challenges: our growing appetite for energy and the pressing need to slash emissions of heat-trapping greenhouse g g pp gy p g pp g ggases that are released when we produce it. It's a Gordian knot of a problem, but Illinois is poised to lead the country toward at least a partial solution – if the General Assembly in Springfield is smart enough to recognize the opportunity…

…Whatever other political dramas are unfolding in Springfield, legislators need to get this work [SB 1987] done right away… Once gasification technology has proved itself, IGCC plants eventually could produce power while producing few pollutants and capturing and storing up to 90 percent of the carbon dioxide. That's a solution we all could live with.” St. Louis Post-Dispatch, Editorial: “The future, now”, July 19, 2007

• Editorial Support from: Chicago Tribune St. Louis Post-DispatchThe State Journal-Register (Springfield) Daily Herald (Chicago metro)Herald & Review (Central Illinois) Chicago Sun-Times

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Mandatory Purchase Obligation

ILLINOIS CLEAN COAL PORTFOLIO STANDARD LAW

• Requires Illinois electric utilities and Alternative Retail Electric Suppliers (“ARES”) to enter into 30 year Sourcing Agreements to collectively buy 100% of the electric power output from the “Initial Clean Coal Facility”

• The amount of power each of the utilities and ARES purchases will be based on their respective share of the Illinois retail electric market

FERC Role

• Sourcing Agreements are wholesale contracts subject to exclusive FERC jurisdiction

• Form of Sourcing Agreement will be filed as a tariff

• Cost-of-service treatment is a well accepted FERC standard for “just and reasonable” rates

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ICCPSLCost Recovery

ICCPSL

• Legislation allows TEC to pass through all operating costs on a monthly basis

• Allows TEC to recover capital costs using a capital structure of 55% debt / 45% equity and an ROE of up to 11.5% (to be determined by FERC and approved by the Illi i G l A bl i t fi i l l )Illinois General Assembly prior to financial close)

Requirements

• Provides that the initial clean coal facility must: (1) capture and sequester at leastProvides that the initial clean coal facility must: (1) capture and sequester at least 50% of the CO2 either (i) in an EOR application or (ii) geologically or (2) buy annually up to $15 million in carbon offsets (with the cost of such offsets not being passed through in rates)

• Illinois General Assembly to approve TEC after receipt of final Facility Cost Report

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FEED St d C t tFEED Study Contractor

• Tenaska has engaged Kiewit Energy Company and Burns & McDonnell Engineering• Tenaska has engaged Kiewit Energy Company and Burns & McDonnell Engineering Company (“KBM”) to perform the FEED study and Facility Cost Report

• FEED study required as part of the Facility Cost Report contemplated in ICCPSL

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Ai P it St tAir Permit Status• Project has a final air permit, with application to for an 18 month extension pending

before the Illinois Environmental Protection Agencybefore the Illinois Environmental Protection Agency

• Further amendments will be required to reflect final design– Removal of synthesis gas firing– Conformity with FEED Study and Facility Cost Report

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S t ti PlSequestration Plan

• TEC has executed a 15-year off-take agreement with Denbury, a leading independent oil company specializing in EOR, for the project’s captured CO2

• TEC is also developing an alternative deep saline injection strategy- Deep saline injection complements primary EOR use

• ICCPSL mitigates risk related to carbon capture and sequestration- Penalty for failing to capture limited to $15 million per year, plus, if failure is willful,

possible reduction in ROE

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Financing Plang

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B k d th DOE L G tBackground on the DOE Loan Guarantee • Title XVII of the Energy Policy Act of 2005 (“EPAct”) authorized the Department of Energy to issue

loan guarantees for projects that, under Section 1703, both:– Avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases; and, q p p g g g ;– Employ new or significantly improved technologies as compared to technologies in service in

the US at the time the guarantee is issued• DOE was granted authority to enter into loan guarantees by Congress in the Continuing

Appropriations Resolution 2007 ($4 billion), the Consolidated Appropriations Act 2008 ($38.5 billion) and the Omnibus Appropriations Act 2009 ($8 5 billion)and the Omnibus Appropriations Act 2009 ($8.5 billion)

– Program designed to be self-funding, so the credit subsidy is borne by the issuer• DOE issued five rounds of loan guarantee solicitations totaling $42.5 billion, all of which have closed

– $4 billion for innovative clean energy projects (1)

– $10 billion for technologies related to renewables, energy conservation, distributed energy, and$10 billion for technologies related to renewables, energy conservation, distributed energy, and electricity generation, transmission, and distribution

– $18.5 billion for nuclear plants– $2 billion for front end nuclear facilities– $8 billion for carbon technologies and advance coal gasification units

– $6 billion for coal-based power generation / industrial gasification facilities with carbon technologies

– $2 billion for advanced coal gasification projects

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___________________________1. This solicitation was issued in August 2006 and was for pre-applications for up to $2 billion of loan guarantees. Subsequently, the program was increased to $4 billion and

selected applicants were requested to provide full applications.

DOE Loan Guarantee Program Overview• Located in the United States• Qualifies broadly as either a Section 1703 Project or a Section 1705 Project• Complies with the final regulations of Section 1703• Qualifies specifically as a technology described in at least one solicitation issued by DOE

Eligible Projects

DOE Loan Guarantee Program Overview

• Qualifies specifically as a technology described in at least one solicitation issued by DOE

• Significant equity contribution, but no minimum specified• DOE guarantee is limited to 80% of eligible project costs – notably excludes any credit subsidy costs

– When DOE guarantees 100% of the Guaranteed Obligation (1), the Federal Financing Bank must provide the fundingThe guaranteed portion may be separated from the non-guaranteed portion only if DOE guarantees less than

Financing Structure

– The guaranteed portion may be separated from the non-guaranteed portion only if DOE guarantees less than 90% of Guaranteed Obligation

• Term up to the lesser of 30 years or 90% of the expected useful life

• Guaranteed Obligation may not be subordinated to any other debt• DOE to have first lien on all assets of the project and all additional collateral pledged as security• With partial guarantees, the collateral may be shared pari passu with non-guaranteed portion so long as the DOE

SecurityWith partial guarantees, the collateral may be shared pari passu with non guaranteed portion so long as the DOE controls the disposition

• The non-guaranteed portion of the Guaranteed Obligation must be paid pro-rata basis with the guaranteed portion

• Administrative Fees – DOE will collect fees from the applicant during the loan guarantee process to cover its administrative expenses

• Credit Subsidy Cost – the NPV of the guarantee exposure, taking into account estimated payments to cover Fees & Costs C S y C g p , g p ydefaults and estimated receipts from fees, penalties and recoveries– In the past solicitations, cost was to be paid at guarantee closing rather than over the life of the guarantee

• For projects with total costs in excess of $25 million, a credit assessment is required as part of the application and a final rating is needed at the time of guarantee closing– S&P Moody’s or Fitch are all acceptable

Ratings

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S&P, Moody s or Fitch are all acceptable– There is no minimum ratings requirement

___________________________1. A Guaranteed Obligation is any debt obligation for which the DOE guarantees all or any part of principal and interest payments.

DOE L G t P P• Applicant responds to a DOE solicitation with a submittal of Part I and Part II

applications• Fees paid by project sponsor (represents DOE administrative costs) upon submission of

Part I and Part II

Step 1: Solicitation and Application

DOE Loan Guarantee Program Process

Part I and Part II

• Selected applicants receive a DOE invitation to initiate negotiations• DOE commences a technical and financial review, with the assistance of its

independent consultants and outside counsel• Due diligence efforts to be incorporated in a project evaluation report along with a

d ti t DOE’ C dit R i B d (“CRB”)

Step 2: Evaluation

recommendation to DOE’s Credit Review Board (“CRB”)

• Upon the CRB’s approval, the DOE will issue a term sheet setting forth the material terms and conditions of a definitive loan guarantee agreement– Term sheet subject to negotiation - any changes will be reported to the CRB for

approvalStep 3: Term Sheet• Additional fee paid by project sponsor (represents DOE administrative costs to closing)

• Once term sheet is agreed to, a Conditional Commitment is executed

O diti d t t ti ill t th l t tStep 4: Conditional Commitment • Once conditions precedent are met, parties will execute the loan guarantee agreement

• Establishes the obligation of the DOE to guarantee payment of a Guaranteed Obligation– A form of the Loan Guarantee Agreement has not yet been issued by the DOE

• Credit subsidy cost and subsequent fee paid by project sponsor (represents DOE administrative costs post-closing)

Commitment

Step 5: Loan Guarantee Agreement

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TEC Loan GuaranteeTEC Loan Guarantee

• Selected for $2.579 billion 30 year Guaranteey• Rating by Fitch• Independent Engineer Report by RW Beck• Financial Advisors

– CitiGroupC it l T h l I– Capital Technology Inc.

• Proceeding into NEPA EIS and term sheet negotiations

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D l t S h d l (1)Development Schedule(1)

Illinois Commerce Commission Finding on Facility Cost Report

Front-End Engineering Design (“FEED”) Study and Facility Cost Report Issued

FERC Section 205 Proceeding for Approval of Sourcing Agreement

EPC Contracting Fuel Supply Other Project Contracts

Illinois Commerce Commission Approves Form of Sourcing Agreement

Illinois General Assembly Approves TEC

FERC Approval of Sourcing Agreement

Testing / Commissioning

Site Preparation and Construction

Close Financing

EPC Contracting, Fuel Supply, Other Project Contracts

Final Completion

Expected COD

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___________________________1. Subject to NEPA schedule.

Year

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