1. Reliability Pricing Model (RPM) Overview Andrew Ott PJM Senior Vice President, Markets

2. ©2008 PJM 2 Reliability Pricing Model (RPM) Methods to satisfy capacity obligation within PJM 1.Self Supply or Bilateral Contract –Self schedule supply into RPM –Unit-specific bilateral contract 2.RPM Auction –Residual auction –Accommodates flexible self-supply 3.Alternative Capacity Plan –utilities submit long term supply plan (5 years) with specified self-supply or long-term contracts

3. ©2008 PJM 3 Reliability Pricing Model Rationale for key aspects Locational Signals –Integration with transmission planning Forward Auction –Need forward information for reliability –Permits planned generation and DSR to participate Sloped Demand Curve –Reduces volatility –Set shortage price cap –Quantifies value of excess capacity

4. ©2008 PJM 4 Highlights of RPM Auction Design PJM invites resource-specific sell offers for planning each year, three years in advance. Products that may be offered include: existing and planned generation; planned transmission upgrades; and existing and planned demand resources New generation, new demand response alternatives, and new transmission solutions can compete directly with existing resources

5. ©2008 PJM 5 Timing of RPM Auctions Base Residual Auction Planning Year 3 Years Incremental Auction June May 4 months 13 months Incremental Auction 23 months EFORd Fixed Self- Supply & Bilateral Designation Ongoing Bilateral Market – (shorter-term reconfiguration) ILR

6. RPM Auction Results

7. ©2008 PJM 7 RPM Results – Capacity Prices

8. ©2008 PJM 8 RPM Results - Reliability Target Trends

9. ©2008 PJM 9 Cumulative Increases in Capacity Committed to PJM In RPM Auctions

10. ©2008 PJM 10 Demand Response in Capacity Market RPM Implemented

11. ©2008 PJM 11 Increase in Capacity Resource for 2011/2012 RPM Auction Total Increase = 4238 MW

12. ©2008 PJM 12 Cumulative Increase in Capacity Resources over First Five RPM Auctions (2007 – 2011) Total Increase = 9986.1 MW

13. ©2008 PJM 13 Cumulative Increase in Capacity Resources by Fuel Type over First Five RPM Auctions (2007 – 2011) Total Increase = 9986.1 MW Note: Other Renewable includes landfill gas and solid waste

14. ©2008 PJM 14 Proposed timeline for RPM Performance Evaluation ActivityDate Brattle group report posting Informational filing to FERC June 30, 2008 Brattle Presentation to Stakeholders with Q&A July 11, 2008 Wilmington, DE Stakeholder Forum to Discuss Brattle Report Recommendations July 31, 2008 - AM Wilmington, DE Stakeholder Discussion to develop ongoing stakeholder process timeline, set scope and priorities July 31, 2008 - PM Wilmington, DE

15. ©2008 PJM 15 High Level Comparison of PJM RPM and New England Forward Capacity Market FeaturePJM RPMNew England FCM Marginal PricingYes Locational RequirementsYes Demand CurveSlopedVertical Auction FormatOptimizationDescending Clock Demand Response as Resource Yes Energy Efficiency as Resource No (In stakeholder discussion) Yes Forward Auction Timeframe3 Year Commitment Period1 Year (3 year optional for new resource) 1 Year (5 year optional for new resource) Energy Revenue OffsetEstimate based on 3 yr. historical average for reference unit Based on calculated revenue in DY for reference unit