Committee of Chief Risk Officers 8000 Research Forest Dr. info@ccro.org STE 115 #278 http://ccro.org The Woodlands, TX 77380 2 Advancing Our Energy Industry’s Risk &Compliance Best Practices Chris Dann: Okay. So just some quick initial comments. I think the Inflation Reduction Act is a big, complex piece of legislation. Every consulting firm, every law firm has got a summary of it on their website. I will spare you going through that. I will assume that you all have read something like a summary, so we'll sort of spare you the, the general description. I'll focus my initial comments on three dimensions of the bill that we have been studying for some clients. These are areas that I think have some real relevance for risk professionals. The first is that unquestionably this is the largest piece of energy policy in US history. Prior energy policies that utilized the “production tax credit” as a primary mechanism had either step- down or sunset provisions in them. Effectively, this bill’s tax credits are uncapped and perpetual. So, the numbers that you see that quantify the impact are in the billions… we think the appropriate number is probably closer to the trillions. This is a very, very big piece of legislation, and I think it has impacts that are not widely appreciated out there. So, the first dimension for risk professionals is just how enormous this bill is. The second dimension is that the bill is focusing on the renewable energy assets in the power markets. It significantly shifts the playing field to the regulated utilities, away from the unregulated competitive independent power producers that have been developing a lot of the renewables to date. It gives the regulated utilities not only significant economic advantages over the competitive players, but it creates incentives, that are irresistible for the regulated utilities, to maximize the amount of renewable assets that they can possibly invest in. And there are not a lot of limits on that. Just since the passage of the inflation reduction act, what you're already seeing is that if you look at plans that have been announced for renewable investments by regulated utilities over the next four years, they are running at three times the pace of the previous four years. In some places, you're talking about an expansion of investment plans that are up to 50% of the total power market in that region. Again, this is an enormous expansion of renewables. The third dimension is that all this leads directly to a significant impact on volatility on the power markets. Wherever you have seen such high penetration of renewables in the power markets, what you get is an enormous amount of volatility. Renewables are intermittent resources that have energy value, but not a lot of capacity value. They may be here, they may not. They drive an enormous amount of volatility in power markets. When the sun goes down or the wind doesn't blow, what you get are enormous spikes in prices. From a risk professional standpoint, there couldn't be anything more interesting than that.