PJM © PJM Overview ARIPPA Valley Forge, PA November 8, 2007

PJM © What is PJM? Air Traffic Controllers for the Transmission Grid…. Operators of a Stock Exchange for Energy… SIMULTANEOUSLY! RELIABLY! Match Generation to Load

PJM © PJM Vision/Mission As the primary task, to ensure the safety, reliability and security of the bulk electric power system. Create and operate robust, competitive and non-discriminatory electric power market Understand customer needs and deliver valued service to meet those needs in a cost-efficient manner. Achieve productivity through the efficient union of superior knowledge workers and technology advances.

PJM © PJM Functions Operate the bulk electric power grid for reliability Facilitate various electric markets Plan for transmission expansion Monitor the markets to ensure competitiveness Provide exceptional customer/member service Share best practices with neighboring and international system operators

PJM © Planning and Market Development Jan NYMEX May ICE June Nodal Exchange

PJM © PJM as Part of the Eastern Interconnection KEY STATISTICS PJM member companies 475+ millions of people served 51 peak load in megawatts 144,644 MWs of generating capacity 164,905 miles of transmission lines 56,250 GWh of annual energy 729,000 generation sources 1,271 square miles of territory164,260 area served 13 states + DC Internal/external tie lines % of generation in Eastern Interconnection 23% of load in Eastern Interconnection 19% of transmission assets in Eastern Interconnection 19% of U.S. GDP produced in PJM 6,038 substations

PJM © Current PJM Footprint

PJM © Backbone Transmission System

PJM ©2007 9

10 How is PJM Different From My Local Utility? PJM does: Maintain the “big picture” of the transmission system regardless of ownership. Have, by agreement, operational control of the transmission system. Operate as “profit neutral.” Remain totally independent of all PJM members. Coordinates maintenance of generation and transmission systems.

PJM © How is PJM Different From My Local Utility? PJM does not: Own any transmission or generation assets. Function as a publicly traded company. Take ownership of the energy on the system. Perform the actual maintenance on generators or transmission systems. Serve, directly, any end use (retail) customers.

PJM © TO = Transmission Owner GEN = Generator IPP = Independent Power Producer PJM Control Center TO Gen IPP TO GEN Market Operation Center TO TO GEN IPP Voice & Data Local Control Centers Market Operation Center Gen Operational Authority

PJM © Governance

PJM © PJM Authority Provided by Contract PJM Operating Agreement PJM OAT Tariff Regional Transmission Provider Regional Control Area Operator Market Developer and Coordinator Regional Transmission Planner ReliabilityFirst Agreement NERC Security Coordinator Transmission Owners Agreement Reliability Assurance Agreement

PJM © State Environmental Agencies (14) PJM Members (488) State Commissions (14) 48,363,579,532,800 Decision Combinations Federal Regulators (3) Reliability Organizations (4) End Use Members (28) Distribution Members (31) Transmission Owner Members (60) Generation Owner Members (107) Other Supplier Members (246) State Consumer Advocates & OPSI (15) Decision Makers

PJM © PJM Governance Independent Board Members Committee Generation Owners Transmission Owners Other Suppliers Electric Distributors End-Use Customers

PJM © Members Committee Voting Protocol Transmission Owners Generation Owners Other Supplier End Use Customers Electric Distributors 5/ / / / Required to pass = Number of Sectors = 5 Required Affirmative = 5 x = /

PJM © Stakeholder Process Members Committee Subcommittees, Task Forces, and Working Groups User Groups Planning Committee Operating Committee Market Implementation Committee Demand Side Response WG MRC: Market Reliability Committee

PJM © Overview of PJM Electricity Markets

PJM © PJM’s Operational Markets and Services 2 Energy Markets –Day Ahead –Real Time Reliability Pricing Model (RPM) Auction Financial Transmission Rights Auction Ancillary Services –Regulation Market –Spinning Reserve Market –Blackstart Service –Reactive Services

PJM © Capacity by Fuel Type Generation by Fuel Type 2005 PJM Energy Market

PJM © PJM Installed Capacity by Fuel Type (12/31/06) PJM Energy Output by Fuel Type (GWh through 12/31/06) Hydro – 7,523 MW 5% Natural Gas – 42,936 MW 26% Nuclear – 30,776 MW 19% Coal – 67,068 MW 41% Wind – 208 MW 0.1% Other – 2,423 MW 1.5% Oil – 14,154 MW 8.6% Solid Waste – 4,801 1% Hydro – 14,684 2% Coal – 411,581 57% Oil – 2,029.3% Gas – 40,044 6% Wind – % Nuclear – 250,995 35% 2006 PJM Energy Market

PJM © Options for Energy Supply Commercial Bilateral Transactions PJM Spot Market Load Serving Entities Obtain energy to serve customers Self-schedule own resources ResidentialIndustrial

PJM © What is LMP? Pricing method PJM uses to … −price energy purchases and sales in PJM Market −prices transmission congestion costs to move energy within PJM Control Area Physical, flow-based pricing system −how energy actually flows, NOT contract paths

PJM © Locational Marginal Price Generation Marginal Cost Generation Marginal Cost Transmission Congestion Cost Cost of Marginal Losses Cost to serve the next MW of load at a specific location, using the lowest production cost of all available generation, while observing all transmission limits

PJM © Including losses in dispatch can result in substantial cost savings through reduced energy and congestion costs –PJM studies have estimated savings of $100 million / year Total RTO losses on peak days can exceed 3,600 MW/hour Transmission Losses

PJM © How Does PJM use LMP? Generators credited at generation bus LMP Load Servers charged at load bus LMP Transactions pay the difference in LMP between source and sink (explicit congestion) PJM LMPs are the result of the physical flow of energy, not a contract path.

PJM © Ancillary Service Markets Ancillary Services are needed with transmission service to maintain reliability within and among control areas affected by the transmission service… − Regulation Market - market based ancillary service − Synchronized Reserve Market − Black Start Services − Reactive Services

PJM © The PJM Control Room

PJM © Contact PJM Subscribe to PJM PJM Member Relations (610) PJM Internet Sitewww.pjm.com Member Relations PJM Member Relations Toll Free (866)