PJM©2012

Coal Plant Retirements:

Potential Impacts of Reduced Energy Demand, Low Natural Gas Prices and the Mercury & Air Toxics Standards Rule

M. Gary Helm Senior Market Strategist PJM Interconnection CERF - November 08, 2012

PJM©2012 2

PJM as Part of the Eastern Interconnection

KEY STATISTICS PJM member companies 750+ millions of people served 60 peak load in megawatts 163,848 MWs of generating capacity 185,600 miles of transmission lines 59,750 GWh of annual energy 832,331 generation sources 1,365 square miles of territory 214,000 area served 13 states + DC externally facing tie lines 142

• 26% of generation in Eastern Interconnection

• 28% of load in Eastern Interconnection • 19% of transmission assets in

Eastern Interconnection

21% of U.S. GDP produced in PJM

As of 9/7/2012

PJM©2012 3

2012 2013 2014 2015 2016 2017 2018 2019 2020

Hazardous Air Pollutants

Criteria Pollutants

Greenhouse Gases

Coal Combustion By-Products

Cooling Water

Compliance with GHG NSPS

PSD/BACT and Title V Applies to GHG Emissions from New and Modified Sources

Compliance with MATS MATS Pre-Compliance

CSAPR Vacated Compliance with CSAPR II?

SIP provisions developed in response to revised NAAQS (e.g., Ozone, PM2.5, SO2, NO2)

Develop Revised NAAQS

Pre-Compliance Compliance with Coal Ash Rule Develop Coal Combustion By-Products Rule

Pre-Compliance

Phase-in of 316(b) Regulations Develop 316(b) Regulations

Compliance with ICI Boiler MACT ICI MACT Pre-Compliance

Adapted from M. J. Bradley & Associates LLC

Safety Valve Extension

Environmental Regulation Timeframe

Develop CSAPR II?

Dev. GHG NSPS

Compliance with CAIR

PJM©2012 4

Reliability Implications of CSAPR and MATS

• Retrofit, Retire or Repower • Resource adequacy

– Will there be sufficient resources to meet peak loads plus the installed reserve margin?

• Local transmission reliability – Will transmission upgrades be necessary to allow units to retire? – Can retrofit outages be managed reliably?

PJM©2012 5

Capacity Revenue Needed PJM RTO MAAC Rest of PJM < ½ Net CONE 38,334 12,634 25,700

½ Net CONE – Net CONE 14,147 2,908 11,239 > Net CONE 11,051 3,194 7,857

Source: PJM Report, Coal Capacity At-Risk for Retirement in PJM: Potential Impacts of the Finalized EPA Cross State Air Pollution Rule and Proposed National Emissions Standards for Hazardous Air Pollutants, August 2011

At-Risk Generation

Nearly 25 GW coal generation at risk based on economic analysis

Note: CONE is the Cost of New Entry (Simple Cycle Combustion Turbine)

PJM©2012 6

140,000

145,000

150,000

155,000

160,000

165,000

170,000

175,000

180,000

185,000

190,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

LOAD, MW

YEAR

PJM SUMMER PEAK DEMAND FORECASTS

2011

2012

Decreased Electricity Demand

PJM©2012 7

Natural Gas System & Resources in Eastern Interconnection

PJM©2012 8

Environmental Rules

• MATS finalized with “Reliability Safety Valve” – State permitting agency may grant 4th year (until April 2016) – EPA Administrative Orders for 5th year (until April 2017)

• CSAPR vacated • 316(b) delayed • Coal ash ruling delayed • Ozone NAAQS review delayed • GHG NSPS proposed

PJM©2012 9

0

4

8

12

16

1990 96 98 2000 02 04 06 08 10 12 14 16 18 20

SO2 Emissions Under CAIR, CSAPR, and MATS

Historic Projected

Electric Sector SO2 Emissions (million ton) million ton

CSAPR + MATS

CSAPR only CAIR only

Because the overall emission reduction requirements in CAIR and CSAPR are very similar, any additional decrease in overall emissions under CSAPR, all else remaining equal, can mostly be attributed to the restrictions on allowance trading under CSAPR.

Actual emissions are already trending well below all the projections under the

different regulatory programs.

Source: MJB&A Analysis based on EIA data (AEO 2012, 2012 ER, 2011)

Emissions data unavailable for the years between 1990 and 1995

Observation MATS drives SO2 emissions well below CSAPR and CAIR because SO2 scrubbers are used to comply with the MATS emissions standards for acid gases, mercury, and PM.

PJM©2012 10

0

1

2

3

4

5

6

7

1990 96 98 2000 02 04 06 08 10 12 14 16 18 20

NOx Emissions Under CAIR, CSAPR, and MATS

Historic Projected

Electric Sector NOx Emissions (million ton) million ton

CSAPR + MATS

CSAPR only

CAIR only

Actual emissions are already trending well below all the projections under the

different regulatory programs.

Source: MJB&A Analysis based on EIA data (AEO 2012, 2012 ER, 2011)

Emissions data unavailable for the years between 1990 and 1995

Observation MATS provides limited benefits in terms of NOx reductions because the controls installed to comply with the MATS rule (e.g., scrubbers and fabric filters) will, generally, not impact NOx emissions.

PJM©2012 11

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2007 2008 2009 2010 2011 2012 YTD

Perc

enta

ge S

hare

of T

otal

Ener

gy

Natio

nal A

vera

ge D

elive

red

Price

$/m

mBt

u National Average Delivered Prices, Spot Prices, and

Energy Shares of Coal and Natural Gas in PJM

Delivered Coal Price Delivered Gas Price Henry Hub Gas Central App Coal Prompt Month Coal Energy Share Gas Energy Share

PJM©2012 12

Increase in Natural Gas-Fired Generation

1.5

2

2.5

3

3.5

4

4.5

5

0

10

20

30

40

50

60

70

80

%

Capacity Factors

Combined Cycle

Combustion Turbine

Natural Gas Price

PJM©2012 13

Evolving Fuel Mix in the Energy Market

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012

PJM Fuel Mix

Nuclear

Renewables

Oil

Gas

Coal

PJM©2012 14

Evolving Resource Mix in the Capacity Market

GAS

COAL

DEMAND RESPONSE

NUCLEAR

WIND 0

10,000

20,000

30,000

40,000

50,000

60,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

MW

Capacity Auction Delivery Year

PJM©2012 15

Maintaining Resource Adequacy

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Cleared Reserve MarginTarget Installed Reserve Margin

PJM©2012 16

Evolving Generation Queue

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2005 2006 2007 2008 2009 2010 2011 2012

MW

CC & CT Wind Steam Solar Nuclear

Wind derated to 13% UCAP

PJM©2012 17

Generation Resource Retirement Status

Nearly 18 GW of Actual & Announced Deactivations

PJM©2012 18

PJM Operational Assessments / Activities

Fall 2011 Initial Assessments

• At Risk Generation

• Capacity Adequacy

• Near Term Transmission

• Transmission Planning

• Ancillary Services

Generator Owner Response to PJM

• Retirements • Retrofit Outages • Derates • Regulatory

concerns

Continuing Assessments

• Announced vs. Potential Retirements

• Deactivation Analyses

• Retrofit Outages • Capacity

Adequacy • Ancillary

Services Impact • Communications

PJM©2012 19

Generation Retirement Timeline

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MW

Year

PJM©2012 20

Retrofit Outages and Typical Maintenance Outages Retrofit Outages Typical Maint

Outages

2012

WP 0 18000 SM 1918 42500 PPM 0 500 FM 2370 35000 WP 0 18000

2013

WP 4705 18000 SM 4331 42500 PPM 728 500 FM 1751 35000 WP 555 18000

2014

WP 1752 18000 SM 4417 42500 PPM 0 500 FM 6433 35000 WP 3260 18000

2015

WP 769 18000 SM 6371 42500 PPM 530 500 FM 2281 35000 WP 1920 18000

2016

WP 2120 18000 SM 5088 42500 PPM 530 500 FM 2889 35000 WP 929 18000

2017

WP 846 18000 SM 2894 42500 PPM 0 500 FM 361 35000 WP 0 18000

2018

WP 1028 18000 SM 2635 42500 PPM 0 500 FM 361 35000 WP 0 18000

0

10000

20000

30000

40000

50000

60000

WP

SM

PPM

FM

W

P W

P SM

PP

M

FM

WP

WP

SM

PPM

FM

W

P W

P SM

PP

M

FM

WP

WP

SM

PPM

FM

W

P W

P SM

PP

M

FM

WP

WP

SM

PPM

FM

W

P

2012 2013 2014 2015 2016 2017 2018

Retrofit Outages

Typical Maint Outages