1. PJM©2012www.pjm.com PJM’s Experience with Capacity Markets Terry Boston President & CEO PJM Interconnection Power Across Texas September 21, 2012

2. PJM©2012 2 www.pjm.com PJM ‒ Focus on Just 3 Things 2 Market Operation Energy Capacity Ancillary Services Market Operation Energy Capacity Ancillary Services Regional Planning 15-Year Outlook Regional Planning 15-Year Outlook Reliability Grid Operations Supply/Demand Balance Transmission monitoring Reliability Grid Operations Supply/Demand Balance Transmission monitoring 1 1 2 2 3 3

3. PJM©2012 3 www.pjm.com PJM: Who We Are KEY STATISTICS Member companies 800+ Millions of people served 60 Peak load in megawatts 163,848 MWs of generating capacity185,600 Miles of transmission lines 59,750 GWh of annual energy 832,331 Generation sources 1,365 Square miles of territory214,000 States served 13 + DC KEY STATISTICS Member companies 800+ Millions of people served 60 Peak load in megawatts 163,848 MWs of generating capacity185,600 Miles of transmission lines 59,750 GWh of annual energy 832,331 Generation sources 1,365 Square miles of territory214,000 States served 13 + DC 21% of U.S. GDP produced in PJM As of 7/2012

4. PJM©2012 4 www.pjm.com PJM Governance Independent Board Members Committee Generation Owners 175 Generation Owners 175 Transmission Owners 63 Transmission Owners 63 Other Suppliers 455 Other Suppliers 455 Electric Distributors 52 Electric Distributors 52 End-Use Customers 36 End-Use Customers 36 10/2012

5. PJM©2012 5 www.pjm.com Capacity Resources Generation Demand Response (DR) Energy Efficiency

6. PJM©2012 6 www.pjm.com Pre-2005 Trends Decreasing Prices / Increasing Generation Retirement Decreasing Reserve Margin / Increasing Reliability Violations Retired MWs Installed Reserve Margin After RPM Before RPM Projected Reserve Margin, % Reliability Pricing Market (RPM)

7. PJM©2012 7 www.pjm.com Pre-2005 Capacity Market Issues One price did not fit all –Not aligned with locational value –Not aligned with reliability –Not aligned to value provided Insufficient information to drive investment Short-term market / limited forward certainty Insufficient time to build

8. PJM©2012 8 www.pjm.com Why Forward Capacity Markets? Transparent locational price signals show the ‘cost’ of reliability improvements ahead of the need Resource commitments are obtained to meet peak loads 3 years in the future Longer-term price signal and stable revenue stream for generation resources incent investment Competition is promoted between alternative resources (Supply Side and Demand Side)

9. PJM©2012 9 www.pjm.com Cumulative New Dependable Capacity 2007-2016 MWs

10. PJM©2012 10 www.pjm.com New Capacity Market (RPM) Encouraging Demand Resources

11. PJM©2012 11 www.pjm.com RPM Base Residual Auction Resource Clearing Prices (By Zone)

12. PJM©2012 12 www.pjm.com Integrating New Infrastructure Over 16,000 MW of Pending Deactivations (~13,500 MW since 11/2011)

13. PJM©2012 13 www.pjm.com PJM Installed Capacity Cleared Managing a Sea-Change

14. PJM©2012 14 www.pjm.com Wholesale Power Cost

15. PJM©2012 15 www.pjm.com PJM Load-Weighted & Fuel Cost-Adjusted LMP RPM Capacity Market

16. PJM©2012 16 www.pjm.com Union Station ─ 1908