Committee of Chief Risk Officers 8000 Research Forest Dr. info@ccro.org STE 115 #278 http://ccro.org The Woodlands, TX 77380 6 Advancing Our Energy Industry’s Risk &Compliance Best Practices So sorry, but you asked told me to be honest! laugh The bill could have some very negative impacts on energy security. Anderson: So you guys, when we were talking earlier, you said one big question is how do energy markets emerge from this dysfunctional future? What are your views on that? Chris Dann: There's lots of different ways to achieve policy aims, right? The production tax credits approach, I think started with the Energy Policy Act. Ever since that policy was implemented, the wholesale energy markets have stopped sending a price signal that would incentivize new non-renewable generation in this country. There isn't a single wholesale market that has signaled prices to incent that generation. This is largely because with the production tax credit you have a whole bunch of resources, particularly wind blowing at night, that will price their power at zero or even negative to get in front of the queue and get dispatched. That destroys the economics of everybody else in the market. Now, the Inflation Reduction Act just puts that on steroids. That brings us reliability issues. If, if nobody is building dispatchable generation and what dispatchable generation exists is all dying because it can't survive in the open markets, then you're left with a very difficult situation with the power markets. Certainly, we can expect an awful lot of volatility. Certainly, we can expect an awful lot of volatility. Andy Roehr: Yes, the price signals are crazy. If policy was that before you get any credit, you're going to have to build three megawatts for every megawatt you take out or you're going to have to back it with firm storage, I think you'd see a much better set of economics. I think part of what we're struggling with here is that we're not bidding on apples to apples, right? You're not bidding for gas generation over there that we're fairly confident will actually run. Rather, what we're actually bidding on is wind coming out of West Texas, which at 4:30 in the afternoon may or may not show up. We need the ability to step back and consider when I'm buying energy, what am I really buying? What kind of risk am I really taking when I buy that type of energy? What's my residual exposure? I can tell you a lot of my large C&I clients are jumping up and down looking at alternative energy strategies. Things like premise microgrids, premise backup storage, premise gas turbines, just about anything they can get their hands on. This is because they don't believe that the grid is going to supply them power reliably. Even if they can actually supply it, they're not necessarily confident the grid will deliver it.