The New Jersey Clean Energy Conference September 26, PJM Overview. Kenneth W. Laughlin VP Markets Coordination PJM

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1 The New Jersey Clean Energy Conference September 26, 2005 PJM Overview Kenneth W. Laughlin VP Markets Coordination PJM PJM PJM 1

2 PJM as Part of the Eastern Interconnection KEY STATISTICS PJM member companies 350+ millions of people served 51 peak load in megawatts 131,330 MWs of generating capacity 165,738 miles of transmission lines 56,070 GWh of annual energy 700,000 generation sources 1,082 square miles of territory 164,260 area served 13 states + DC 2005 PJM PJM

3 Real Information Government Physics Real Time Real Relationships Real Requirements Owners, Users (i.e. the public) PJM PJM 3

4 The Economics Of Power In Balance Meet the Demand By Supply side Meet the Demand at Any Price Supply and Demand Respond to Price PJM PJM 4

5 PJM PJM 5 Providing Data to the Market

6 PJM PJM 6

7 Interface Prices LMP ($) PJM/MISO Real-Time Interface Prices Average for 4/01-8/28, Hour Ending PJM's Interface for MISO-RT MISO's Interface for PJM-RT Hr. Diff. Average-RT On average, PJM and MISO interface prices are tracking very closely. Correlation of interface prices has been increasing month-tomonth. LMP ($) PJM/MISO Day-Ahead Interface Prices Average for 4/01-8/28, Hour Ending PJM's Interface for MISO-DA MISO's Interface for PJM-DA Hr. Diff. Average Day-ahead prices have been more highly correlated than Realtime. Off-peak prices have been more highly correlated than on-peak PJM PJM 7

8 Retail Price Change ( ) RTO and Non-RTO Eastern Interconnection, US 16.0% 14.0% 14.1% 12.0% 10.0% 8.0% 10.4% 10.4% 8.9% 9.4% 7.1% 10.5% 7.7% 6.0% 4.0% 3.0% 2.0% 0.0% *DOE Energy Information Administration Electric Power Monthly (April 1996, March 2005) Residential Commercial Industrial RTO Average Non-RTO Average Average PJM PJM 8

9 PJM s Operational Markets Day-Ahead Energy Market Real-Time Energy Market Capacity Financial Transmission Rights Ancillary Services Markets Regulation Spinning Reserve Market Black Start Services Reactive Services PJM PJM 9

10 PJM PJM 10

11 Dollars per Million Btu $16 $14 $12 $10 $8 $6 $4 $2 $0 NYMEX Natural Gas Futures Near-Month Contract Settlement Price, West Texas Intermediate Crude Oil Spot Price, and Henry Hub Natural Gas Spot Price NYMEX Natural Gas Settlement Price WTI Spot Price Henry Hub Spot Price Nymex Closing Dates 6/28/2005 7/27/2005 8/29/2005 5/27/2005 6/3/2005 6/10/2005 6/17/ PJM PJM 11 6/24/2005 7/1/2005 7/8/2005 7/15/2005 7/22/2005 Note:The West Texas Intermediate crude oil price, in dollars per barrel, is converted to $/MMBtu using a conversion factor of 5.80 MMBtu per barrel. The dates marked by vertical lines are the NYMEX near-month contract settlement dates. Source: NGI's Daily Gas Price Index ( 7/29/2005 8/5/2005 8/12/2005 8/19/2005 8/26/2005 9/2/2005 9/9/2005 9/16/2005

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13 NYMEX Forward Contract Prices (September 22, 2005) $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $- Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Forward Month Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 PJM NYISO-A NYISO G NYISO-J PJM PJM 13

14 NYMEX PJM Western Hub Contract Open Interest Value $1,000 $900 $800 $700 Million $ $600 $500 $400 $300 $200 $100 $0 4/11/2003 4/25/2003 5/9/2003 5/23/2003 6/6/2003 6/20/2003 7/4/2003 7/18/2003 8/1/2003 Using Average value of $35/MWH PJM PJM 14 8/15/2003 8/29/2003 9/12/2003 9/26/ /10/ /24/ /7/ /21/ /5/ /19/2003 1/2/2004 1/16/2004 1/30/2004 2/13/2004 2/27/2004 3/12/2004 3/26/2004 4/9/2004 4/23/2004 5/7/2004 5/21/2004 6/4/2004 6/18/2004

15 PJM Fuel Sources (2004) 60% 50% 40% 30% 20% 10% 0% Coal Gas Nuclear Oil Hydro Other Energy Capacity PJM PJM 15

16 PJM PJM 16

17 PJM Installed Reserve Requirement 24.0% 22.0% 22.0% 20.0% 18.0% 16.0% 14.0% 15.0% 12.0% 10.0% PJM PJM 17

18 Figure Trends in PJM equivalent demand forced outage rate (EFORd): Calendar years 1994 to PJM PJM 18

19 PJM Generation Additions 6,000 25,000 5,000 20,000 4,000 MW 3,000 15,000 10,000 Cumulative MW GAS Wind Oil Waste Coal Total 2,000 1,000 5, PJM PJM 19

20 Liquidity at U.S. Hubs 2004 January ,000 80,000 70,000 60,000 GWH 50,000 40,000 30,000 20,000 10,000 0 PJM-W Hub** Mid Columbia* * Dow Jones Electricity Index ** PJM Settlements Data Palo Verde* Cinergy* COB* Four Corners* Mead/Marketplace* PJM PJM 20

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22 PJM Fuel Sources (2004) 250,000 Capacity (MW), Energy (GWH) 200, , ,000 50,000 - Coal Gas Nuclear Oil Hydro Other Energy Capacity PJM PJM 22

23 2004 PJM Energy Market Self-Supplied 4% Net Imports 5% Spot Market 38% Bilateral Transactions 53% Capacity by Fuel Type PJM PJM 23

24 NYMEX Forward Contract Prices (September 17, 2005) $ $ $ $ $ $ $80.00 $60.00 $40.00 $20.00 $- Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Forward Month PJM NYISO A NYISO G NYISO J Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov PJM PJM 24

25 Generation By Fuel Source 2003 (312,000 GWH) Oil 2% Solid Waste 1% Nuclear 33% Coal 53% Hydro 2% Gas 9% PJM PJM 25

26 PJM generation by fuel source (GWh): Calendar year 2004 Hydro, 10,303, 2.3% Solid Waste, 2,781, 0.6% Wind, 379, 0.1% Nuclear, 165,128, 36.9% Coal, 233,217, 52.1% Gas, 31,411, 7.0% PJM PJM 26 Oil, 4,738, 1.1%

27 Joint and Common Market Initiatives Commercial 1 2 Price Rationalization and Convergence at the Border 3 Reduce Hurdle Rate FTR Market Convergence Broader Price Transparency and Common Reporting Increased Market Opportunities Operational Consistancy Alignment of FTR Timelines and Products (Note: All MISO cost) PJM implementation of marginal losses (Note: All PJM costs) Alignment of PJM Operating Reserves and MISO Revenue Sufficiency Guarantee (Note: All MISO cost) Existing MISO & PJM Websites Linking of sites Common Search Capabilities Data Available at Both Sites (LMPs, Tie Flows, Loads) New Joint Website to Host Joint meeting and Events Calendar, Joint Documents and Reports $600,000 $600,000 $600,000 $500,000 $200,000 $600,000 Alternative Border Pricing Point Calculation $200,000 Depancaking of PTP ancillary services (Control Area Services, T.O. Control Center Services, Reactive, Black Start) $400,000 Standard Data Exchange (Web Services) LMPs, Contingencies, Loads, Dispatch Signals, Outages, Emergency Event/Notifications $3,000, Cross Border FTRs in the allocations $4,000,000 Cross border FTRs in auctions $8,000,000 Implementation of single MISO & PJM Website (Websites for individual RTOs go away) $750,000 Moving JOUs between markets $100,000 Shared Regulation Market $8,000,000 Common Long Term Transmission Queue $200,000 MISO Ramp Viewer (under way) Alignment of OASIS Business Practices Coordinated OASIS $1,200,000 Common Time Zones (Note: All PJM cost) $5,000,000 Central location to view both ramp viewers $500,000 Reserve Sharing $8,000,000 Standard Data Visualization and Reporting Portal Create a single MISO & PJM Data and Report Portal $8,500,000 Single Resource Adequacy Solution $8,000,000 $100,000 Common Ramp Portal $750,000 Reliability 7 Single Market 1 Emergency Energy Agreement Single OASIS $8,000,000 Common Treatment of Dynamic Schedules/Pseudo-Ties $200,000 Year 1 - Rule Alignment & Market Portal Design $15,000,000 Alignment of Agreements and Practices $100,000 Year 2 - Initial Market Portal Implementation $40,000,000 Black Start and 2 Alignment of Agreements and Practices $500,000 Restoration Year Implementation of Single Market $50,000,000 Plan 1 Joint Expansion Planning and Common Deliverability Studies Alignment of Agreements and Practices $120,000 Total 2006 $4,320, $600, $750, PJM PJM 27

28 Public Benefits of PJM Consumer Goals Supported by Thriving Wholesale Markets Enabled by PJM Reliable Supply of Power Fair Price for Electricity Customer Choice Regional Scope Many Buyers and Sellers Participant Choices: Futures Contract Financial Hedge Self-Schedule Resources Long Term Contracts Day Ahead Market Real-Time Market Retail Adjustments Reliability Assurance Collaborative Stakeholder Process for Improvement Independence and Neutrality Infrastructure for Business 11 etools Retail Market Wholesale Market Market Information PJM PJM 28