1. Seams Issues Raymond DePillo Vice-President – Power Operations and Asset Management PSEG Energy Resources & Trade LLC October 7, 2013 2013 OPSI Annual Meeting

2. 1 PSEG Energy Resources & Trade LLC Manages portfolio of PSEG generation fleet – Owns generating assets in 4 states 11,500 MWs in New Jersey and Pennsylvania (PJM) 750 MWs in New York (NYISO) 850 MWs in Connecticut (ISO-NE) Commercial arm of PSEG Power LLC – ER&T is one of the first and most successful trading organizations in the US, consistently top tier with over 60 million MWhs traded annually – Acquires and hedges fuel and sells power – Major supplier of “provider of last resort” service in New Jersey – Manages large portfolio of gas transportation and storage contracts Majority of generation assets located in close proximity to PJM/NYISO seam

3. What Are We Trying to Achieve Through Seams Management? Efficiency and cost savings in adjoining markets through coordinated dispatch for constraint control Lower production costs across multiple markets Transparency for market participants Better overall control of the transmission system 2

4. Our Experience with Seams Management Efforts …. Significant cash payments by PJM to other pools – Over $150M in M2M Balancing Congestion and Payments in 2012 Production cost savings (if any) are hard to discern Lack of transparency for market participants – PJM/MISO congestion management has distorted FTR market – PJM FTR Underfunding $290M in PY 2012-2013 No meaningful decrease in the amount or severity of Transmission Loading Relief (TLR) events – Total Significant TLRs (3a or greater) called by PJM and MISO declined 5% from 2011 to 2012 – Thru June of 2013 they have more TLRs had been issued then for either full year (2012 and 2011) 3

5. On the Horizon - PJM/NYISO Coordinated Transaction Scheduling (CTS) Goal of increasing efficiency of dispatch in vicinity of PJM/NYSO interface Market participants submit CTS Interface “spread bids” based on difference between PJM and NYISO projected prices above which they want the transaction to flow Bids evaluated based on PJM’s Intermediate Term Security Constrained Economic Dispatch (“IT SCED”) which looks ahead 2 hours in advance of real-time In real-time: – NYISO will incorporate IT SCED prices into NYISO schedules – PJM will incorporate NYISO advisory schedules into IT SCED Claimed to improve current PJM/NYISO interchange because price differences projected by PJM and NYISO are presumed to be superior to projections by market participants 4

6. Value of CTS Will be Difficult to Realize Scenarios run by PJM show modest production cost savings for January though December 2012: – Maximum of about $16 M for PJM – Maximum of about $11 M for NYISO Studies do not take account of: – Risk premiums required by market participants – Fees imposed on transactions – Impact on uplift payments Value of multi hour look ahead of prices in each RTO is unproven. 5

7. Interchange Optimization May have Benefits ….. But markets need to be cautious in implementation – Risk of unintended consequences – Lack of transparency – Unproven value – Market rule differences Given the relatively small benefits ….. – Interchange Optimization should remain a low priority while existing issues and larger issues affecting seams are resolved. 6