PJM©2014

PJM Capacity Market

Evolution of Supply

Andrew Ott

Executive Vice President, Markets

IEA ELECTRICITY SECURITY ADVISORY PANEL

June 12, 2014

PJM©2014 2

PJM as Part of the Eastern Interconnection

KEY STATISTICS

Member companies 900+

Millions of people served 61

Peak load in megawatts 165,492

MWs of generating capacity 183,604

Miles of transmission lines 62,556

2012 GWh of annual energy 793,679

Generation sources 1,376

Square miles of territory 243,417

States served 13 + DC 21% of U.S. GDP

produced in PJM As of 6/1/2013

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Driver for Capacity Market Reform in 2005

Decreasing Prices /

Increasing Generation Retirement

Decreasing Reserve Margin /

Increasing Reliability Violations

Retired MWs

Installed Reserve Margin

After RPM

Before RPM Projected

Reserve Margin, %

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

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

Reliability Pricing Model (RPM)

www.pjm.com

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Foundation for Forward Capacity Market

Resource

Adequacy

Requirement

Locational

Constraints

RPM

• Auction Structure

• Market Power Mitigation

• Performance Requirements

Forward

Procurement

www.pjm.com

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Transformational Supply Evolution

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Transitioning from Coal to Gas

2009 to Date: 28,000 MW in Retirement Notices

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Forward Capacity Market Performance Assessment –

Primary Findings

– RPM has achieved resource adequacy

• RPM has attracted and retained sufficient capacity to meet or exceed reliability requirements

– Prices have been consistent with market conditions

• Lower prices (below Net CONE) under excess supply conditions

• Higher prices under tighter supply conditions, but still below Net CONE in recent auctions

– RPM has reduced costs by fostering competition

• Generally level playing field has reduced costs by attracting investments in low-cost supplies

from demand response, efficiency and uprates

– RPM has enabled cost-effective response to environmental rules

• Facilitated economically efficient tradeoffs among investment in environmental retrofits,

retirement and replacement with lower-cost alternative supplies

www.pjm.com

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PJM Forward Capacity Market, 2007-2015

Cumulative Generator Capacity Additions

Demand Resource Additions

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Industry Evolution

Evolution of Supply

• Traditional resources

Less flexible

• Renewable resources

Intermittent

• Less capability to provide

power grid services

Evolution of Demand

• Technology enabled

flexibility

• Alternative resource

growth

• Enhanced capability to

provide grid services

Market Evolution

• Improvement in

optimization and

control systems

• More real-time markets

to reward consumer

flexibility

•Development of Forward

Demand Response Control

Signals

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Evolution of Demand

• Trends

– Increase in customer commitment to curtail demand

or provide grid services during high price periods

– Smart Grid Technology deployment

– Retail rate innovation

• Operational Implications

– Increase in customer response to price

– Aggregated demand resources providing high quality

grid services

– In PJM, 9% of synchronized reserve is DR-based

www.pjm.com

PJM©2014 11

Laurel Mountain

Wind Farm

98 MW

61 turbines

Battery Storage

Lithium-ion (A123)

Power 32 MW, Energy 8 MWh

Grid-Scale Energy Storage System – 32 MW Battery

www.pjm.com

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Dynamic Signal

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Aggregated Demand Resource

Response to Synchronized Reserve Event

Aggregation 13,078 Residential Customers

Curtailed Load Event graph

Wireless Integrated

Control Platform

www.pjm.com