1. PJM©2013 Future Generation Mix in PJM Governor’s Conference on Energy Richmond, VA Steven R. Herling Vice President, Planning PJM Interconnection October 17, 2013

2. PJM©2013 2 PJM Well Positioned for Growth in Gas-Fired Generation

3. PJM©2013 3 Where the Drilling Action is Today

4. PJM©2013 4 Shale Gas Production Continues to Climb

5. PJM©2013 5 Delivered Fuel Price Source: IHS-CERA, September 2013

6. PJM©2013 6 Lingering Low Electricity Demand

7. PJM©2013 7 Spot Power Price Projections Source: IHS-CERA, September 2013

8. PJM©2013 Evolving Generation Mix in PJM

9. PJM©2013 9 Evolving Generation Mix

10. PJM©2013 10 Projected Generation Mix Source: IHS-CERA, September 2013

11. PJM©2013 11 Generation Deactivations Over 20 GW of Actual & Announced Deactivations 2011-2016

12. PJM©2013 12 Natural Gas Dominates Current Active Projects in the Queue As of July 2013

13. PJM©2013 13 Evolving Generation Mix in Virginia

14. PJM©2013 14 Evolving Generation Mix in Virginia

15. PJM©2013 15 Generation Under Construction in Virginia Nuclear Natural Gas

16. PJM©2013 16 Active Queued Generation in Virginia

17. PJM©2013 17 Evolving Generation Mix in Virginia

18. PJM©2013 18 Decreasing Emission Rates Source: PJM EIS

19. PJM©2013 19 Natural Gas Impact to PJM Capacity Pricing from $136.00 from $167.46 from $357.00 from $167.46 2015/2016 Base Residual Auction Results (last year)

20. PJM©2013 20 Increasing Power Generation Natural Gas Consumption Most other categories of natural gas consumption have had flat or decreasing usage trends!

21. PJM©2013 21 Power Generation is NOT the Ideal Gas Customer Power generation gas use does not fit neatly into the gas contractual construct Electricity demand, like gas demand, fluctuates and is subject to steep ramps, especially in winter Increased wind and other intermittent resources don’t help Fastest starting generation resources, generally are gas- fired combustion turbines which can go to full output in about 10 minutes or less

22. PJM©2013 22 Some Electric/ Gas Coordination Issues Language barrier “Intermittency” of electric demand Power generation use of interruptible service Gas Day vs. “Electric Day” Natural gas has some storage -- “just-in-time” fuel source

23. PJM©2013 23 Firm vs. Interruptible Service Majority of PJM gas-fired generators have interruptible gas delivery service Generators buy available firm service from others, via capacity release or bi-lateral arrangement Use marketers to acquire a bundle of commodity and delivery Risk curtailment for local delivery issues –Northern NJ – January 2013 –Cleveland – July 2013 What PJM is doing: Discussing changes to market rules, dual fuel requirements, etc. as part of the PJM Gas Electric Senior Task Force

24. PJM©2013 24 Gas Day vs. Electric Day Issue: Timely gas nominations are due at 10 a.m. the day before (Day 1); electric “awards” are made at 4 p.m. the day before (Day 1) = 6 hours later; actual gas flow occurs starting at 10 a.m. on Day 2 What PJM is doing: Discussing potential for market timing changes (INGAA has signaled a willingness to change nomination timing)

25. PJM©2013 25 Natural Gas is a Just-in time Fuel Source We’re used to having significant fuel at the generation site—coal piles, nuclear fuel, etc. Gas moves at ~35 mph – it takes days to arrive from the Gulf of Mexico, although proximity to Marcellus/Utica helps Pipeline can “line pack” to some degree, but advanced planning is necessary Pipelines do have storage to some degree, but generators have to contract for it What PJM is doing: Learning about gas pipeline capabilities and anticipating “big picture” look from the EIPC Gas Study

26. PJM©2013 26 What is FERC Doing? Bringing the industries together –Series of technical conferences Some finger pointing, but also Some very useful information exchange –Trying to exert leadership to bring solutions (Moeller) NOPR on communications –Remove barriers between gas control and system operators to exchange non-public information What PJM is doing: Supporting the FERC efforts through participation and comments

27. PJM©2013 27 In the Meantime…. Pipeline expansion process is working (hopefully, in time to save New England!) Large majority of gas-fired generators use interruptible service in PJM and other markets (and PJM has had some operational issues) We continue to exchange large amounts of data via electronic bulletin boards, but is minimally useful in operations Operators on both sides stand ready to respond to surprises that will pop up periodically (daily in New England!)

28. PJM©2013 28 Summary Power generation is a “double edged sword” for the gas business –Largest growth market –Potential to cause problems in operations Working together, we can minimize the operational problems –Awareness of the limitations on each side –Increased real time communications across the aisle –Use of the demand side resources on each side

29. PJM©2013 29 Questions