FirstEnergy Solutions Energy Market Update AEE Meeting March 20, John Ogurchak PE/CEM Manager, Commercial/Industrial Energy Sales

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1 FirstEnergy Solutions Energy Market Update AEE Meeting John Ogurchak PE/CEM Manager, Commercial/Industrial Energy Sales

2 FirstEnergy Solutions Corp. (FES) Retail subsidiary of FirstEnergy Corp. and headquartered in Akron, Ohio Second largest retail supplier of electricity in US to C&I accounts Second largest retail supplier to residential electric account Serves 2.7 million customers across six states 2

3 Our Diverse Generating Sources Approximately 14,000 MW of competitive generating capacity Partially Regulated Supercritical Coal Subcritical Coal Nuclear Gas/Oil Renewable 3

4 PJM System Generating Capacity: 185,600 MW Peak Demand: 163,848 MW Transmission Lines: 59,750 miles Population Served: 60 million in 13 States and DC 21% of U.S. GDP produced in region 4

5 PJM s Focus

6 Reliability Roles Federal Energy Regulatory Commission (FERC) Agency that regulates interstate transmission of electricity, natural gas and oil Has authority to impose mandatory reliability standards on bulk transmission system North American Electric Reliability Corporation (NERC) Ensures the bulk electric system in North America is reliable, adequate and secure Responsible for developing and enforcing reliability standards ReliabilityFirst Corporation (RFC) One of eight regional reliability entities in North America Delegated authority from NERC to propose and enforce reliability standards Monitor compliance with reliability standards 6

7 Reliability Roles (Continued) PJM Interconnection L.L.C. (PJM) A Regional Transmission Organization (RTO) Coordinates and directs operation of the region s transmission grid NERC-registered reliability coordinator and transmission operator for its footprint Develop and maintain procedures and policies consistent with the reliability standards Transmission Owners Responsible for constructing, operating and maintaining transmission facilities 7

8 PJM RTEP Project Development Sources: PJM website 8

9 PJM Key Drivers to the RTEP Projects Sources: PJM website 9

10 PJM RTEP Project Upgrades Driven by Baseline Upgrades including Generator Deactivations PJM Western Area PJM Mid-Atlantic Area Sources: PJM website 10

11 PJM Annual RTEP System Expansion 1997 through the 2012 RTEP ($24B) Sources: PJM website 11

12 Sources: PJM website 12

13 PJM Market Average Power Generation Emissions Pounds per MWh of Electricity Produced 13

14 Components of a Generation Price Other (supplier, agent, credit, admin, tax) Ancillary Services Capacity Energy Portion (energy, basis, renewable) 14

15 What is Capacity? Energy Represents the need for adequate generating resources Capacity ensures there is enough electric supply to meet peak demand at all times Regional Transmission Organizations (RTO) are responsible for maintaining adequate capacity between utility companies RTO serving our region is Pennsylvania Jersey Maryland Interconnection (or PJM) 15

PJM Determines Capacity Rates PJM uses a Reliability Price Model (RPM) Auction process that sets price for capacity, sending price signal to potential developers of generation, demand response,

16 PJM Determines Capacity Rates PJM uses a Reliability Price Model (RPM) Auction process that sets price for capacity, sending price signal to potential developers of generation, demand response, and/or transmission to locate resources in that area PJM is separated by several, nested Local Deliverability Areas (LDAs) ATSI ROP/RTO MAAC ROP / RTO: Rest of Pool / Regional Transmission Organization Map represents Planning Year 2015 View, ATSI and MAAC: constrained LDAs 16

17 How the Auction Process Works Energy Generators offer their price to serve based on their forecasted supply Auction results (prices) are set where supply and demand meet Auctions held in May three years in advance to determine June to May Planning Period Example: May 2014 Auction held for June 2017 through May 2018 period Allows time for new generating resources to be built if needed PJM determines if there are any constrained zones that need to be isolated and bid separately Auction results are intended to relieve constraints which may require incremental investments (generation or transmission). In theory constrained zone auctions could result in higher capacity costs 17

18 What Factors Affect the Price of Capacity? Reducing Supply New emission rules force plants to retire Depressed energy prices force marginal plants out Increasing Demand Economic recovery New industry to support emerging energy industry 18

19 PJM Capacity Charges in Ohio Energy PJM Reliability Pricing Model (RPM) Prices set three years in advance each May $300 $250 $200 Economy strong Generation Fleet stable Recovery, MAT effective 4/15. Generation fleet supply uncertain $/MW/Day $150 Recession, Generation Fleet over supply $100 $50 $- $113 $105 $174 $116 $109 $17 $20 $28 $28 $126 $126 $ $294 $59 $91 J-08/M-09 J-09/M-10 J-10/M-11 J-11/M-12 J-12/M-13 J-13/M-14 J-14/M-15 J-15/M-16 J-16/M-17 PJM ATSI (Constrained) *Planning period spans from June 1 thru May 31 of the following year 19

20 PJM increasing reliance on DR/EE, imports and proposed new generation to meet peak load Existing Gen New Gen + Uprates Imports DR +EE 100% 1% 95% 90% 85% 3% 3% 94% 6% 1% 1% 92% 7% 1% 1% 91% 10% 10% 2% 2% 1% 3% 8% 4% 3% 12% of capacity now met by DR/EE and Imports 80% 88% 85% 84% 75% 2011/ / / / / /

Reported Near-Term Coal-Fired Generator Retirements 1376 MW 585 MW 154 MW 138 MW 1580 MW 172 MW 100 MW 45 MW 1172 MW 1375 MW 22 MW 92 MW 460 MW 569 MW 238 MW 308 MW 635 MW 367 MW

1759 MW 1686 MW 3094 MW 503 MW 1399 MW 575 MW Within the next three to five years 41,303 MW retirements in 32 states due to EPA rules 9,358 MW retirements due to a combination of

21 Reported Near-Term Coal-Fired Generator Retirements 1376 MW 585 MW 154 MW 138 MW 1580 MW 172 MW 100 MW 45 MW 1172 MW 1375 MW 22 MW 92 MW 460 MW 569 MW 238 MW 308 MW 635 MW 367 MW 162 MW 181 MW 323 MW 698 MW 3298 MW 43 MW 1395 MW 900 MW 7041 MW 268 MW 2473 MW 115 MW 67 MW 581 MW 2737 MW 482 MW 193 MW 73 MW 360 MW 2349 MW 1981 MW 2198 MW 587 MW 1558 MW 79 MW 1759 MW 1686 MW 3094 MW 503 MW 1399 MW 575 MW Within the next three to five years 41,303 MW retirements in 32 states due to EPA rules 9,358 MW retirements due to a combination of EPA rules and economics In total, 367 coal units will be closing in 38 states totaling 50,661 MW 961 MW Source: American Coalition for Clean Coal Electricity (ACCCE), June 20,

22 Most New Generation Cleared Is Gas Fired Cumulative New Gen. Cleared ~ 18.3 GW from 13/14 to 16/17 ~ 15.5 GW Natural Gas ~ 12.8 GW of that is Combined Cycle 22

23 43 GW of new generation in PJM queue most is not yet under construction 23

24 Components of a Generation Price Other (supplier, agent, credit, admin, tax) Ancillary Services Capacity Energy Portion (energy, basis, renewable) 24

25 Natural Gas Market $12 Henry Hub Settle and Futures Prices $10 $8 $6 $4 $2 $0 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Henry Type: Monthly, Forecast Date: 09/25/2009 Type: Monthly, Forecast Date: 10/25/2010 Type: Monthly, Forecast Date: 01/25/2012 Type: Monthly, Forecast Date: 04/18/2013 Type: Monthly, Forecast Date: Most recent (02/18/2014) 25

26 Jan. 28 Natural Gas Operational Constraints and Prices ($/MMBtu) $81.30 $83.30 On Jan. 28, gas constraints caused high generator costs in east Depending on heat rate of the unit, dispatch costs could range from $600 - $1500/ MWh These two zones supply ~ 12k MW of gas generation in PJM Jan. 28 on peak DA LMP was over $600 across the RTO Operating reserve charges for reliability soared ($71M paid out to generators by PJM allocated to RTO) $/ MMBtu 22-Jan 23-Jan Tx. Eastern, M-3 $72.58 $74.25 Transco, zone 6 non-ny $ $3.02 Gas constraints were also evident on Jan. 22 and 23. Impacted primarily the east reliability (FES ~ 3% load ratio share) 26

27 Natural Gas Price Impacts on Supply Curve Ave. Load Max. Load Expect a $2/MCF change in gas would move on-peak energy prices $5 to $20/MWhr More so as coal units are replaced by natural gas units in future years 27

28 Energy Market Forwards Energy $100 AD Hub Settle and Futures Prices $90 $80 $70 $60 $50 $40 $30 $20 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 AEP-DAYTON HUB, Type: Monthly, Forecast Date: 09/25/2009 Type: Monthly, Forecast Date: 10/25/2010 Type: Monthly, Forecast Date: 01/25/2012 Type: Monthly, Forecast Date: 01/25/2013 Type: Monthly, Forecast Date: Most recent (02/18/2014) 28

29 Converging Forwards 29

30 Components of a Generation Price Other (supplier, agent, credit, admin, tax) Ancillary Services Capacity Energy Portion (energy, basis, renewable) 30

31 Ancillary Service Charges Market-based ancillary charges determined by the Load Serving Entity s (LSE) load ratio share: Regulation Necessary to maintain system frequency Synchronized Reserve Additional generating capacity above expected load and able to increase output in 10 minutes Operating reserves associated with: Deviation from Day Ahead schedule (allocated to generators and load) Reliability of the system (allocated to LSEs based on load ratio share) 31

32 Market Summary Energy prices are low, driven by increased natural gas production; going forward, natural gas prices will impact energy prices more than ever Will natural gas production keep pace with growing demand? Capacity prices are low, driven by DR, imports and proposed new generation Is the proposed generation economically justified under current market conditions, and will it get built? Will market prices rise to justify new construction? Will increased reliance on DR and imports be as reliable as existing plants? With more DR and imports setting the energy price when resources are scarce, will peak prices become more volatile? Ancillary Service Risk 32

33 Agenda Background: Why is Capacity Important? Peak Load Management vs. Demand Response Case Study Example Analyzing how you might manage your peak FirstEnergy Solutions Power Management Platform 33

34 Components of a Generation Price Other (supplier, agent, credit, admin, tax) Ancillary Services Capacity Energy Portion (energy, basis, renewable) 2014 Energy Summit Series

35 Rising Capacity Costs $/MW/D PJM Reliability Pricing Model (RPM) Prices set three years in advance each May $300 $250 $200 $150 Economy strong Generation Recession, Generation Fleet over Recovery, MAT effective 4/15. $100 $50 $- $113 $105 $174 $116 $109 $17 $20 $28 $28 $126 $126 $ $294 $59 $91 J-08/M-09 J-09/M-10 J-10/M-11 J-11/M-12 J-12/M-13 J-13/M-14 J-14/M-15 J-15/M-16 J-16/M-17 * Planning Period spans from June 1st thru May 31st of the following year PJM (RTO) ATSI (constrained) Note: Several plant retirements in the ATSI LDA were announced in The ATSI LDA was considered constrained and as a result, import capability plus remaining resources were not deemed sufficient to maintain reliability within the ATSI LDA. 35

36 PJM Capacity in Ohio 36

37 Peak Load Management vs. Demand Response Peak Load Management Demand Response Proactive Reactive Actively trying to minimize what your Peak Load Contribution (PLC) will be in the upcoming PJM planning period Participation is proactive, best efforts and with no penalties June 1 Sept. 30 In your control Reacting to reliability calls during the current PJM planning period Participation is mandatory with penalties for non-performance Will not lower PJM PLC Changing requirements 37

38 The secret about demand response PLC Mgmt. Lower demand during coincidental peaks (CPs) Lowers commodity price and/or demand charges Savings in your pocket for the long term DR React to reliability calls Split market value with Curtailment Service Providers Adds to your PLC Plan and act this summer to influence capacity costs in PY

39 Peak Management Considerations How do you determine whether you can manage your peak? 1. Analyze historical interval meter data Annual, monthly and daily data, include meter specific view 2. Determine facility loads and operations. Create facility layout. 3. Create a load reduction plan 2014 Energy Summit Series

40 Interval Data One Month, Entire Facility 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, /01/ :30 06/02/ :30 06/03/ :30 06/04/ :30 06/05/ :30 06/06/ :30 06/07/ :30 06/08/ :30 06/10/ :30 06/11/ :30 06/12/ :30 06/13/ :30 06/14/ :30 06/15/ :30 06/16/ :30 06/17/ :30 06/19/ :30 06/20/ :30 06/21/ :30 06/22/ :30 06/23/ :30 06/24/ :30 06/25/ :30 06/26/ :30 06/28/ :30 KW 06/29/ :30 06/30/ : Energy Summit Series 2014

41 Meter Specific Interval Data 9,000 10,000 8,000 7,000 6,000 5,000 4,000 3,000 2, , /01/ :30 06/02/ :30 06/03/ :30 06/04/ :30 06/05/ :30 06/06/ :30 06/07/ :30 06/08/ :30 06/09/ :30 06/10/ :30 06/11/ :30 06/12/ :30 06/14/ :30 06/15/ :30 06/16/ :30 06/17/ :30 KW 06/18/ :30 06/19/ :30 06/20/ :30 06/21/ :30 06/22/ :30 06/23/ :30 06/24/ :30 06/25/ :30 06/27/ :30 06/28/ :30 06/29/ :30 06/30/ :30

42 Determine Facility Loads & Operations (Average MW) 0.2X MW 0.2X MW 0.2X MW Facility Load 1 Facility Load 2 Facility Load 3 0.4X MW Facility Load 4 X MW Total Facility Load 42

43 Create a Load Reduction Plan Does FirstEnergy Solutions provide day-ahead notice with > XX% probability of a peak day (CP)? No Yes Alert facility personnel of possible peak day (CP) Plan any production adjustments Normal Operations Facility begins reducing load at X:00 pm to be offline by Y:00 pm Yes Does FirstEnergy Solutions provide confirmation today is still a possible peak day (CP)? No Facility resumes normal operations after Z:00 pm Normal Operations 43

44 FirstEnergy Solutions Power Management Platform Hosted add-on web service to your commodity contract Provides: Timely information: Real-time view of usage and demand (updated every 15 minutes) Trends: Historical views of usage Peak management: Prediction and notification of peak hours, calculation of new PLC and estimated savings Reports: Ability to export graphs and data for analysis Why it is right for your business: Helps you see how much energy your operation uses and when Provides insight for potential operational efficiency Alerts you when to reduce load to achieve PLC savings next year Calculates new PLC and estimated savings if you reduce usage 44

45 PLC Management vs. Traditional DR Better economics Less disruption More control Power Management Platform is: Voluntary. Without penalty. Offers more precise window for action. 45

46 Energy Profile Analysis 46

FirstEnergy Solutions Power Management Platform: Peak Notification Differentiation: Day of Notification Shorter window of time enabling you to better manage peak with fewer disruptions How is it

47 FirstEnergy Solutions Power Management Platform: Peak Notification Differentiation: Day of Notification Shorter window of time enabling you to better manage peak with fewer disruptions How is it calculated? Each day a variety of factors and proprietary algorithms accurately predict if and when a PLC hour may occur Notification: At 12:30 p.m. each day, a PLC hour is predicted, the Power Management Platform is updated, and an is sent 47

48 Power Management Platform: Dashboard FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program. This entire site is provided and maintained by Tangent Energy Solutions. Usage demand by hour, historical 24 hours, week, or month Tracks demand, yesterday s demand, and temperature Daily peak management snapshot FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program. This entire site and content are maintained by Tangent Energy Solutions. 48

Power Management Platform: Peak Management FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program.

forecasted demand trend Estimated savings and PLC improvement Tracks the moving target of days projected to have PLC hours.

49 Power Management Platform: Peak Management FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program. This entire site and content are maintained by Tangent Energy Solutions. Tracks hourly actual vs. forecasted demand trend Estimated savings and PLC improvement Tracks the moving target of days projected to have PLC hours. Shows side-by-side previous year peak and revised peak. FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program. This entire site and content are maintained by Tangent Energy Solutions. 49

50 Power Management Platform: Reporting Generates a variety of automated, useful reports required for business and financial reporting. FirstEnergy Solutions Corp. has contracted with Tangent Energy Solutions to administer this program. This entire site and content are maintained by Tangent Energy Solutions. 50

51 Power Management Platform How it works For a monthly subscription fee, you get access to the tool An interval meter is required FirstEnergy Solutions will cover the one-time installation and equipment costs Webinars from our experienced energy engineers are available at no cost Unique consulting and recommendations are provided by our team 51

Key Takeaways Rising capacity costs are unavoidable in today s energy market You can mitigate these rising capacity costs by understanding your peak demand and

52 Key Takeaways Rising capacity costs are unavoidable in today s energy market You can mitigate these rising capacity costs by understanding your peak demand and the impact to your energy price FirstEnergy Solutions is here to help you manage your peak demand now and into the future Contact your Sales Rep. to learn more 52

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PJM Organization and Markets. Saudi Delegation Columbus Ohio May 22, 2012

PJM Organization and Markets. Saudi Delegation Columbus Ohio May 22, 2012 PJM Organization and Markets Saudi Delegation Columbus Ohio May 22, 2012 Agenda Introduction & Governance Energy Markets LMP FTRs/ARRs Two Settlement Virtual Bids Ancillary Capacity - Reliability Pricing