1 RGGI WORKSHOP June 15, 2006 Gary Ferenz

Topics Presented Bethlehem – 1,092 MW’s 2 Overview of Conectiv Energy Supply, Inc. (CESI) business CESI Renewable Energy Portfolio Reporting Renewable Energy - Use of PJM-EIS GATS Reporting Fuel Mix - Disclosure Label Reporting Emissions PJM Basics – Objective, Gen Dispatch, Power Flow Commercial Perspective on RGGI “Leakage” Contact Information

Conectiv Energy (CESI) - Overview Bethlehem – 1,092 MW’s Unregulated subsidiary of PEPCO Holdings, Inc. located in Newark, DE Serve wholesale load and control 3,600 MW of generation primarily in eastern PJM Generation fleet fueled by natural gas, oil, coal, and landfill gas Involved in a variety of transactions – Load Auctions, Municipal Supply, Generation Tolls, Fuel Procurement, Hedging, Swaps, etc. Flow power into and out of PJM 3

CESI Renewable Portfolio Renewable Energy obligations from serving load in NJ, MD, and DE under State Renewable Portfolio Standards (RPS) Trade Renewable Energy Credits (RECs) short and long-term Produce RECs qualified in several states Active in Renewable regulatory process and PJM Generation Attribute Tracking System (GATS) 4

DE RPS Highlights Comparable to surrounding states RPS except one class/tier Effective June 1, 2007 (banking starts 6/1/06) Planning Year requirements of 1% - 10% (2020) of retail load supplied Maximum of 1% from pre-1998 generation facilities Solar, wind, ocean tidal/thermal, fuel cells, small hydro, sustainable biomass, anaerobic digestion and landfill gas 3-Year shelf life for RECs Alternate Compliance Payments (ACP) of $25 - $45 Co-firing allowed – proportional basis Behind-the-meter must be located in DE Requires PJM GATS for compliance reporting 5

Records creation, sale and retirement of RECs (except NJ Solar) and load served by state For Renewable generation, there is a monthly allocation of Fuel Mix based on proportional MMBtu utilization or different fuels Periodic assignment of load responsibility to state accounts fro RPS Obligation calculation Currently do not use GATS for Emissions Reporting or Disclosure Label CURRENT USE OF PJM GATS 6

 Provides Fuel Mix of a company’s total MWhs of load served  Provided to LSE Customers on a state-by state basis  Reporting Requirements usually handled by Electric Delivery Company (EDC/LSE)  Utilizes aggregated data from Suppliers usually based on PJM averages with Renewable additions  Currently GATS not required for reporting Disclosure Label 7

Disclosure Label Example 8

 Data collected by Continuous Emission Monitors (CEMS) and internal systems  Currently report NOx, SO 2 and state emissions factors  Electronic Data Reports (EDR) to EPA and states on a quarterly, seasonal, and annual basis  Delay between reporting and release of data to public and for use by GATS CESI Emissions Reporting 9

 GATS currently not used for ER  GATS would be a Duplication of current reporting efforts  GATS has Outdated default emissions rates  GATS Requires monthly manual input to match EDR  Potential timing and adjustment issues  GATS could be used in the future IF REQUIRED Emissions Reporting 10

 Objective is Reliability at the Lowest Cost  Economic Dispatch Model – Lowest cost available generation is called on first to serve load  Transmission system supports transport of power from where it is generated to where it is needed to serve load  Locational Marginal Pricing (LMP) – provides intended incentive to flow cheapest power to load  Significant investments in additional transmission pathways and coal generation are planned which will flow more cheap coal power from low-cost west to east  Low-cost coal generation located in non-RGGI states, load located in RGGI states PJM Power Pool Operations 11

Congestion Map Illustrating Areas of Highest Congestion and Price Mid-Atlantic Power Pathway Note: Map information is based on PJM data for a single day at peak demand 12 Low Cost Non-RGGI Western Generation Eastern RGGI Load in NJ, DE & MD

American Electric Power (AEP) and Allegheny Power (AP) are individually proposing major high-voltage transmission projects by 2014; PHI has proposed a separate and complementary power pathway Future Transmission Investments 13 PHI has proposed a major transmission project to PJM: 230 mile, 500 kV line originating in northern Virginia, crossing Maryland, traveling up the Delmarva Peninsula and into southern New Jersey Significant 230 kV lines that support Maryland, Delaware and New Jersey

PJM design and significant pending investments are powerful forces which encourage transport of power (mostly coal) from the non-RGGI West to Eastern RGGI states May result in less RGGI-state generation but more non-RGGI generation as PJM dispatches lowest-cost source – “leakage” Critical Issue: Cost and availability of CO 2 allowances/credits - If significant, raises costs of generators located in RGGI states Diminished financial returns of RGGI-state generation may discourage investment and/or bring faster retirement of RGGI generation – Reliability Issue for PJM Additional Multi-pollutant state initiatives will add incremental costs to RGGI state generators Resulting Issues With RGGI 14

Suggested Considerations 14 Delay until all states in PJM join so there is no issue with “leakage” or economic harm to RGGI-state generators CO 2 Offsets should be geographically unrestricted to bring about the most economical solution to lower CO 2 and minimize any conflict with the PJM power pool system Further consideration and investigation of using a load serving requirement similar to RPS methodology whereby a load-serving entity would be required to have a limit on the CO 2 /MWh of power used to serve load in a RGGI state

Gary Ferenz Conectiv Energy Supply, Inc Additional Contact: Gary Helm Contact Information