An Update on the Cross-State Air Pollution Rule from David Campbell

Dallas -

Over the past several months, we have worked together advocating changes to the Environmental Protection Agency's Cross-State Air Pollution Rule to lessen the impact on Texas jobs and reliability. I would like to thank you again for your efforts and update you as to where we are in the process.

After the EPA announced the final rule in July, we began determining our compliance plan to meet the dramatic emissions reductions it requires starting on Jan. 1, 2012. The rule's five-month compressed timeline for implementation is unprecedented in EPA rulemaking and does not provide sufficient time for compliance without inflicting serious harm on generators, customers, employees and electric reliability. Our evaluation of the compliance plan focused on how we could achieve the very significant reductions mandated by the rule while minimizing this harm as much as possible.

The final rule's reductions and timeline forced Luminant to announce in September the expected layoff of 500 of our valued employees and the elimination of power generation that is sorely needed in the Texas electric market. At the same time, we filed a legal challenge to the rule and asked a federal court to stay the effective compliance date while it hears our challenge, with the hope that prompt court intervention could avoid the harm to our employees and the company.

In early October, the EPA acknowledged errors in the rule and announced proposed revisions. The EPA is soliciting public comments on this proposal through Nov. 28. These proposed revisions came after Luminant, the state of Texas, numerous other companies and states, and other stakeholders pointed out serious flaws in the EPA's methodology and process. If finalized, these revisions would be helpful, but they do not solve all of the problems with the rule. In response to the EPA's proposed changes, we are using the same systematic analysis as we did this summer to determine how the revisions would affect our operations and the compliance plan we announced in September.

The EPA's refusal to defer the rule's Jan. 1 implementation date, while at the same time undertaking a process that may correct some of its errors, has created a complex and uncertain environment for Luminant and other power generators. It is unclear when the EPA will finalize any changes to the rule.

So in this environment, and particularly while our request for a stay from the court is pending, we have decided not to subject our employees to layoff notices that a stay could prevent. As the chief executive of this company, I stand behind our men and women and want to ensure that they are informed and decisions that might affect their future are made extremely carefully.

I assure you that we are highly motivated to keep our facilities open and our employees working. We are pleased that efforts to change the rule, supported by a broad coalition of Texas and national leaders, have made some initial progress. Consistent with our notice to ERCOT on Oct. 3, however, we intend to idle Monticello 1 and 2 on Jan. 1 to comply with the rule, and unless the rule is stayed or significantly revised, we will have to fully implement the compliance plan announced in September. These consequences are the result of the rule's unreasonable reductions and very short implementation deadline.

This is a time of great uncertainty, yet we have a business to run. I am immensely proud of the dedication and focus of Luminant's employees; they have worked tirelessly to keep the lights on in Texas despite the distractions created by the rule. We continue to work closely with state agencies, regulators and contractors on near-term capital investments and long-range planning and permitting. During this period of uncertainty caused by our pending stay request and the proposed changes to the rule, we as a company will make the same prudent and careful business decisions that we always do.

Until we have a clearer path, to do anything less would be unfair to our employees, our communities and the Texas electric market.

David Campbell