PJM: Managing Grid Evolution Through Markets M. Gary Helm Lead Market Strategist

PJM as Part of the Eastern Interconnection Key Statistics Member companies 940+ Millions of people served 61 Peak load in megawatts 165,492 MW of generating capacity 183,604 Miles of transmission lines 62,556 2014 GWh of annual energy 797,461 Generation sources 1,376 Square miles of territory 243,417 States served 13 + DC 21% of U.S. GDP produced in PJM 27% of generation in Eastern Interconnection 28% of load in Eastern Interconnection 20% of transmission assets in Eastern Interconnection As of 09/2015

Main Driver: Natural Gas

Declining Electricity Demand Growth Without EKPC 2011-2014

Many Environmental Regulations Final Compliance Scope 2014 2015 2016 2017 2018 2019 2020 + Mercury and Air Toxics Standards (MATS) Cross State Air Pollution Rule (CSAPR) Cooling Water Intake Structures 316(b)  2022 Coal Combustion Residuals Rule (CCR) Effluent Limitation Guidelines (ELG)  2023 Clean Power Plan 111(d) 2022-2030 Carbon Pollution Standards 111(b) SO2 NAAQS 2020+ Ozone NAAQS 2022-2037 PM2.5 NAAQS Extended Phase 1 Phase 2 *Mention cost cases here MATS heavy metals and toxics in flue gas coal CSAPR interstate transport of SO2, annual NOx and ozone season NOx all fossil fuel Allowance trading program – currently purchasing allowance much cheaper than installing pollution controls Update rule More stringent NOx budgets Could drive up allowance prices closer to costs of controls  keeping an eye on that Cooling Water Install control technologies to limit fish trapped against intakes (impingement) and fish getting sucked into cooling water system (entrainment) Federal BTA for impingement Entrainment based on site specific evaluations and state policy Timeline depending on CWA permit renewal cycle Compliance between 2018 and 2022 CCR Sets minimum federal criteria for CCR landfills and surface impoundments Coal or NG conversions with onsite facilities RCRA Subtititle D No EPA enforcement authority Self implementing through citizen suits A number of different requirements every few months Inspections, monitoring, data disclosure began Oct 2015 2017-2018 will see facility closures ELG Regulates concentrations of heavy metals and nitrogen compounds in wastewater discharges Fossil fuel steam fired Timing dependent on permit renewal schedule (2018 – 2023)

Resulting Generation Retirements 24,000 retirements since May 2011 (MATS proposed), 2,600 pending.

Responsiveness of Capacity Market

Cumulative Generator Capacity Additions

Changing Energy Market Trends 2015 – 4th Quarter * Source: Monitoring Analytics, LLC.  2015 State of the Market Report for PJM. March 10, 2016.

Declining Emission Rates 2015 – 4th Quarter Subcategory rate for coal: 1,305 lbs/MWh, natural gas combined cycle 771 lbs/MWh

Improving the Capacity Market Increased Performance Expectations Performance expectations during emergencies “No excuses” Increased Non-Performance Charges High non-performance charge rate Can result in having to pay back more than all capacity revenues received Increased Revenue Opportunities High default offer cap Opportunity for bonus payments Relation to natural gas: Allows capital invests in natural gas infrastructure to be compensated in the capacity market.

Reflecting Costs in the Energy Market Resources may offer in above $1,000/MWh Cost-based offers may not go above $2,000/MWh Resources may seek compensation of costs above price cap Relation to natural gas: Enables in-market compensation of fuel price spikes

Revising Day-Ahead Energy Market Timing Relation to natural gas: Enables gas-fired generators to know the electric market commitment prior to securing transportation for natural gas Implement: March 31, 2016

Addressing New Realities in Operations Monthly coordination of gas and generator planned maintenance between PJM and the pipelines Weekly or as needed conference calls with interstate pipelines Nov. 1 through Mar. 1 Weekly peak load forecast  Projected gas usage Forecasted electric grid conditions Forecasted pipeline conditions  Daily review of gas nominations by PJM scheduled generators Nov. 1 through Mar. 1 (and as needed) Ongoing PJM, MMU, and Pipeline MOU discussions Adjusting to increased role of gas-fired generation Daily review of Gas Electronic Bulletin Boards (EBBs) for critical notices potentially impacting generation in PJM

Evolving PJM Planning Simulate a generation capacity emergency and evaluate the performance of the transmission system Target 3 results Affected generation Assume immediately offline Conduct Load Deliverability Analysis into impacted area Relation to natural gas: assume all impacted gas-fired generators were lost immediately, conducted load deliverability analysis, load forecast, incorporating public policy decisions