epga

1. www.epga.org Electric Generation Reliability Remarks Before the Pennsylvania Public Utility Commission 2005 Summer Reliability Assessment Meeting June 7, 2005 Presented by: Douglas L. Biden President Electric Power Generation Association

2. www.epga.org • Current EPGA Member Companies: Allegheny Energy Supply Cogentrix Energy, Inc. Exelon Generation FirstEnergy Generation Midwest Generation Mirant Corporation PPL Generation, LLC Reliant Energy UGI Development Company • Members own & operate more than 122,000 MW of generating capacity • Half in mid-Atlantic region June 7, 2005

3. www.epga.org • Reliable Electricity Supply Requires: • Physical Supply – adequate generation capacity, transmission and distribution facilities • Adequate Fuel and Water Supplies • Viable Markets • Market-based Demand Response • Equitable and Predictable Market Rules and Regulations • Investor Confidence to Invest • Political and Intellectual Leadership June 7, 2005

4. www.epga.org • Physical Generation Supply • With recent addition of Dominion, PJM now has nearly 166,000 MW of installed capacity • With expected summer peak of ≈ 133,000 MW the forecast reserved margin is approximately 25% (target reserve margin is 15%) • Obviously, PJM currently has a surplus of generating capacity • 2,937 MW added through PJM Interconnection Queue Process since 6/1/04 • 4,917 MW retired in last 1 ½ years as part of PJM retirement process started in 2003 • 41 units retired, average size – 120 MW; average age – 35 years • 509 MW withdrawn or deferred from retirement due to reliability issues June 7, 2005

5. www.epga.org • Fuel and Water Supplies • PJM Supply Mix for 2004 • Fuel • Capacity Generation Supply Status • Coal 42% 52% Adequate • Nuclear 19% 37% Secure • Natural Gas 28% 7% Adequate • Hydro , Wind & Other 4% 3% Adequate • Oil 7% 1% Adequate • All nuclear units expected to be at full capacity at time of peak • Gas supply should be adequate for summer 2005, but concerns linger over infrastructure adequacy in event of protracted extreme weather conditions • Coal-fired plants have on average 35 to 40 days of supplies • Higher coal prices make cash-short generators reluctant to build inventories • Some rail delivery problems reported • Water supplies appear adequate for summer 2005 June 7, 2005

6. Generator Forced Outage Rates and the Collapse of PJM Capacity Prices 1996 – 2001 average PJM equivalent demand forced outage rate (EFORd) declined from 11% to 4.8% 2001 – 2004 EFORd increased from 4.8% to 8.0% Beginning of upward trend in EFORd coincided with the collapse of PJM capacity market prices in 2001 When income is constrained, generators’ spending is constrained. When spending is constrained, performance suffers. Recent increases in EFORd can be expected to continue to trend upward until the flaws in the capacity market are addressed (or a capacity shortage develops) Even after capacity prices recover, budget cycles and outage scheduling limitations will delay elimination of maintenance backlogs June 7, 2005

7. Pending Environmental Initiatives and Potential Generation Retirements • States in the Northeast Ozone Transport Region (OTR) are considering adoption of emission control measures for electric generating units (EGUs) far more stringent than those required by U.S. EPA’s March 2005 Clean Air Interstate Rule (CAIR) • Ozone Transport Commission (OTC) Emission Caps under “CAIR-Plus” Proposal (in millions of tons) • OTC CAIR-Plus • SO2 3.00 by 2008 • 2.00 by 2012 ≈ 33% below CAIR • NOx 1.87 by 2008 • 1.28 by 2012 ≈ 25% below CAIR • CAIR-Plus emission limits would require retrofitting nearly all coal-fired EGUs in the OTR with capital-intensive flue gas desulfurization (FGD) or selective catalytic reduction (SCR) technologies June 7, 2005

8. Pending Environmental Initiatives and Potential Generation Retirements • Dozens of EGUs would be candidates for retirement if confronted with mandated retrofits of FGD and SCR technology • Situation compounded by capacity market prices at or near $0/MW day, many generating companies in OTR with below investment grade bond ratings, and recent entry of regulated entities into PJM with ability to rate-base environmental investments • Summary of Mid-Atlantic Coal-fired EGUs < 250 MW and > 30 years of Age Source: U.S. Doe/Energy Information Administration June 7, 2005

9. Pending Environmental Initiatives • Pennsylvania has announced its intention to adopt a “go it alone strategy” with respect to controlling mercury emissions • Details have not yet been released • Could lead to additional retirements of coal-fired plants in Pennsylvania if in-state EGUs are unable to participate in cap and trade program of Federal Clean Air Mercury Rule • More than half of New Jersey’s coal-fired capacity could be retired due in partto its mercury rule, which allows no emissions trading June 7, 2005

10. In Closing • Regional generation supply is adequate to meet summer 2005 demand • Fuel and water supplies appear adequate • Forced outage rates will likely continue to trend upward, and new capacity construction will continue its rapid decline • Investors in generation need a stable, predictable forward price signal. Without it, they will wait for that politically untenable combination of sustained shortage and very high prices before investing in the next round of capacity expansion. • Proposed stringent SOx, NOx and mercury emissions controls could force the retirement or dramatically reduced dispatch of large blocks of coal-fired generating capacity, particularly in eastern PJM. • EPGA encourages PJM and PUC analysis of the potential impacts of these initiatives on future reliability and fuel diversity June 7, 2005