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November 30, 2006

Jacob WilliamsVice PresidentGeneration DevelopmentPeabody Energy

Affordable ElectricityStable Energy PricingIncreasingly Clean

Coal Can Do That!

Illinois RegulatoryPolicy StudiesConference

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2005 Market Position Sales Reserves

Wyoming PRB #1 126 3,327

Midwest #1 38 4,174

Southwest #1 18 980

Colorado #1 11 252

Appalachia #6 14 584

Australia #5 30* 817*

Venezuela #1 7 175

Millions of short tons

World’s Largest Coal Company:Peabody’s Base Portfolio of Operations

St. Louis

DominionTerminal

Queensland

Dalrymple Bay Terminal

Port ofNewcastle

Port ofBrisbane

Venezuela

Port ofSanta Cruz

New South Wales

Port Kembla

• Pro forma including Excel (and operations in development).2005 sales volume in millions of short tons. Venezuela sales volume for Paso Diablo Mine, of which Peabody owns a 25.5% interest. Reserves based on 2005 proven and probable for areas shown. Source: Peabody analysis & industry reports.

Port ofGladstone

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Global Coal Use Soars 23%, or 1 Billion Tons, in 4 Years

Four-Year Percent Change in Global Energy ConsumptionFour-Year Percent Change in Global Energy Consumption

Source: BP Statistical Review of World Energy, 2006 edition.

0 5 10 15 20 25

23%

2001

- 2

005

Ch

ang

e

12%

8%

12%

4%

Coal

Natural Gas

Oil

Hydro

Nuclear

4

India

ChinaMexico

Russia

South Korea

Australia

USA

UKItaly

Malaysia

0

3,000

6,000

9,000

12,000

15,000

0 10,000 20,000 30,000 40,000

GDP per Capita (in US$)

Kilo

wat

t-ho

urs

per

Cap

ita

Mexico

Russia

South Korea USA

Italy

IndiaChina

AustraliaUK

Malaysia

0

150

300

450

600

0 10,000 20,000 30,000 40,000

GDP per Capita (in US$)

Pa

ss

en

ge

r V

eh

icle

s p

er

1,0

00

Pe

op

le

Electricity Usage per CapitaElectricity Usage per Capita Passenger Vehicles per CapitaPassenger Vehicles per Capita

Per-Capita Coal Use Just 1/3rd (China) and 1/9th (India) the U.S. Level

Source: United Nations’ Human Development Report 2005, World Energy Outlook & ConocoPhillips.

Developing Countries Will Greatly Expand Per-Capita Energy Use

5

0

100

200

300

400

500

600

700

2002 2010 2015 2020 2025

Western Europe Japan/Australia/New Zealand North America

Former USSR / Eastern Europe Latin America Rest of World

Emerging Asia

Quadrillion Btu

122.5% Growth from 2002

37.7% Growth from 2002

Total Primary Energy Consumption by RegionTotal Primary Energy Consumption by Region

Developing Regions Drive Energy Consumption Growth

6

Most Gas Reserves Are in the Middle East and AsiaMost Gas Reserves Are in the Middle East and Asia

Like Oil, Natural Gas SuppliesRely on High-Risk Regions

7

$0

$2

$4

$6

$8

$10

$12

$14

Ele

ctri

city

Gen

erat

or

Del

iver

ed C

ost

/ m

mB

tu

Delivered cost of fossil fuel at steam electric utility plants. Source: Platts Fossil-Fuel Receipts at Steam-Electric Utility Plants through November 2005. EIA February 2006 Short-Term Energy Outlook, December 2005 – December 2006. NYMEX HH Futures November 2007 – December 2011, ino.com on October 17, 2006.

Coal Deliveries

1998 1999 200220012000 200520042003 200820072006 2009 2010 2011

Prairie State AdvantagePrairie State AdvantageSignificant Reduction of Delivered Fuel Cost VolatilitySignificant Reduction of Delivered Fuel Cost Volatility

Natural Gas

ResidualFuel Oil

NYMEXResidual Fuel Oil (Conv.)

NYMEXHenry Hub Futures

High Oil & Gas PricesHigh Oil & Gas PricesMagnify Coal’s Competitive AdvantageMagnify Coal’s Competitive Advantage

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Calendar 2007 Henry Hub Gas PriceCalendar 2007 Henry Hub Gas Price

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

Jan-

06

Feb

-06

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Daily Average 2007 Henry Hub Price

Daily Maximum 2007 Henry Hub Price

Daily Minimum 2007 Henry Hub Price

Illinois Power Procurement Date

2007 Gas Prices Drop Over $1.00/mmbtu ($7–8/MWh) after Auction2007 Gas Prices Drop Over $1.00/mmbtu ($7–8/MWh) after Auction

Gas/Power Procurement: Gas/Power Procurement: Timing is EverythingTiming is Everything

9Wood MacKenzie North American Power Outlook: 2006-2026, August 2006.

% Hours Gas/Oil Generation Marginal Fuel% Hours Gas/Oil Generation Marginal Fuel

Gas/Oil Set Electric Market Price Gas/Oil Set Electric Market Price Almost 50% of the TimeAlmost 50% of the Time

10Source: Energy Information Administration, November, 2006.

10.4¢ 28%

6.7¢ 65%

6.0¢95%

6.0¢10%

6.1¢67%

5.2¢96%

7.8¢72%

6.5¢7%

7.0¢75%

7.4¢89%

9.5¢46%

12.9¢1%

6.1¢96%

6.7¢46%

10.4¢38%

7.1¢78%

7.0¢63%

7.5¢53%

6.5¢85%

7.2¢48%

8.2¢39%

8.1¢70%

6.9¢49%

8.3¢ 25%

8.4¢58%

6.5¢94%

7.7¢87%

12.11¢

2%

8.4¢37%

7.1¢57%

7.8¢65%

6.9¢ 39%

5.5¢ 91%

6.9¢45%

8.7¢56%

5.0¢98%

7.5¢61%

7.0¢ 61%

5.0¢1%

12.8¢10%

20.9¢14%

NH 14.0¢ 17%VT 11.4¢ 0% MA 15.6¢ 25% RI 14.1¢ 0%CT 14.5¢ 12%NY 13.8 ¢ 14%NJ 12.0¢ 19%DE 9.2¢ 60%MD 9.8¢ 56%

¢ = average retail price per kilowatt hour through 8/06

% = percent of total generation from coal for CY 2005 < 6.5¢

> 6.5¢ - < 8.0¢> 8.0¢ - < 9.5¢> 9.5¢ - < 11.0¢> 11.0¢ Hydro

Retail Cost Per kWh & Percent of Coal GenerationRetail Cost Per kWh & Percent of Coal Generation

Over 51% of U.S. Electricity is from CoalSource of Low Cost Electricity in U.S.

11Source: U.S. Environmental Protection Agency, IEA Annual Energy Outlook 2005.

actual forecast

Reductions Continue with Existing PlantsReductions Continue with Existing Plants

Coal-Based Electricity Increased 80% Since 1980 While Emissions Improved

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Po

un

ds

Pe

r M

illio

n B

tu

Sulfur DioxideNitrogen Oxide

Prairie StateLow-Cost, Low Emissions Energy

U.S. Average

2005

Clean AirInterstate

Rule2010

Prairie StatePermit Limit

Clean AirInterstate

Rule2015

0.32

0.26

0.13

0.182

0.07

0.93

Cleanest Coal plant in Illinois if On-line Today

0.39

0.16

Source: EPA National Air Markets Program; EIA Annual Review 2005

IllinoisAverage

2005

0.63

0.26

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− 40 miles Southeast of St. Louis in Illinois

− 1,600 MW supercritical generating plant fueled by 6+ million ton/year adjacent mine

− Received all permits needed to operate plant

− Cleanest coal plant in Illinois and 15% more CO2 efficient than existing coal fleet

− 53% of project owned by a group of Midwestern municipals and cooperatives

− Additional 30% of ownership is committed CMS and Peabody

− Average 2,000 construction jobs over 4 years and 450 long-term jobs

− Targeting generation in the 2011 timeframe

Prairie State Energy CampusWashington County, Illinois

New Low-Cost, Clean Coal GenerationNew Low-Cost, Clean Coal Generation

Prairie State Energy Campus

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Prairie State Partners Serve Nearly 2 Million People In 5 States

1. Wolverine Power Supply Cooperative, Inc.

– Abbreviation: WPSC– 400,000 people served

2. Northern Illinois Municipal Power Agency

– Abbreviation: NIMPA– 52,000 people served

3. Missouri Joint Municipal Electric Utility Commission

– Abbreviation: MJMEUC– 800,000 people served

4. Soyland Power Cooperative, Inc.– Abbreviation: Soyland– 156,000 people served

5. Indiana Municipal Power Agency– Abbreviation: IMPA– 340,000 people served

6. Kentucky Municipal Power Agency– Abbreviation: KMPA– 54,000 people served

1

2

3

45

6

15

Coal

Natural Gas

Nuclear

Legend:

Existing HV Transmission Lines

Potential HV Transmission Lines

Prairie State

1

2

3

4

5

10

7

8

69

1Existing HV Transmission Path

6Potential HV Transmission Path

Only 1 HV Transmission Path Connecting Northern to Central/Southern Illinois

Transmission Enhancements Needed to Access Broader Electricity Market

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Potential Improvements in Illinois Electric Procurement Process

● Enhance transmission into the State and within the State to allow:– More out-of-state generation to bid in to Illinois auction– More generation within Illinois to bid Intrastate (North to South and

South to North)– Few bids from out-of-state low cost generators (AES IPL, Associated

Electric, Cinergy, EKPC, KCP&L, LGE, MidAmerican, NIPSCO & Vectren)

● Portion of power could be purchased on much longer term (10 – 20 years) basis to foster new, very clean coal and renewable resource competition– Old coal and nuclear units could never had been built with 3 year

contracts

● Procure power at different times throughout the year to avoid potentially buying all at an absolute or relative peak price period.

● Procure power in “natural” generation abilities, not just full requirements. More generators able to compete.

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Peabody Participating in MultipleBtu Conversion Opportunities

● 30% ownership inEcono-Power International

● PRB and Illinois Basin coal transformed into low-Btu gas

● Cost effective at $5 to $6/mmBtu

● Agreement with Arclight to evaluate Illinois location for pipeline-quality gas

● ConocoPhillips and Fluor participating in technology and plant design

● Pipeline-quality natural gas competitive as low as

$6 per mmBtu

● Peabody part of FutureGen Industrial Alliance

● Goal: Generation and hydrogen; near-zero emissions; CO2 sequestration

● Alliance includes Southern Company, AEP, Huaneng

● $700 million from DOE; $250 million from industry

● High gas prices point to need for coal-to-liquids

● Coal-to-liquids at $35 – $40/barrel oil

● Peabody partnership with Rentech for coal to liquids plant

Planned “Coal to Diesel” Plant in Inner Mongolia, China

LiquefactionLiquefaction HydrogenHydrogenGasificationGasification(Industrial or Pipeline)

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Steps to AchieveAffordable Energy and Increasing Clean

● Coal-based generation and Btu conversion projects must play a major role to provide affordable energy in the US

● Lead times on these projects from conception to completion are 6 – 10 years and significant resources ($10 – 20 M during permitting)– Require predictable permit and appeal timelines

● Capital intensive investment (multiple billions) with asset life of 30 – 40 years– Require implicit (ratebase) or explicit long term contracts to finance

● Coal-based generation and Btu conversion projects are part of the solution to an increasingly clean environment.