epga

1. www.epga.org Electric Generation Reliability Remarks Before the Pennsylvania Public Utility Commission 2009 Summer Reliability Assessment Meeting June 9, 2009 Presented by: Douglas L. Biden President Electric Power Generation Association

2. Current EPGA Member Companies: - AES Beaver Valley, LLC - FirstEnergy Corp. - Allegheny Energy Supply - LS Power Associates, L.P. - Cogentrix Energy, Inc. - PPL Generation, LLC - Constellation Energy - RRI Energy, Inc. - Dynegy Inc. - Sunbury Generation - Edison Mission Group - Tenaska, Inc. - Exelon Generation - UGI Development • Members own and operate more than 145,000 MW of generating capacity • Approximately half in PA and surrounding states. 2

3. PA and PJM Supply Mix for 2007–2008 • PA 2007PJM 2008 • Capacity GenerationCapacityGeneration • Coal 41.2% 54.3% 40.7% 55.0% • Nuclear 20.6% 34.2% 18.5% 34.6% • Natural Gas 20.9% 8.5% 29.3% 7.3% • Oil 10.3% 0.7% 6.5% 0.3% • Hydro, Wind 7.0% 2.3% 5.0% 2.8% • & Other • PJM capacity 6/1/09 – 166,300 MW. Net increase of 700 MW, • 230 MW in Pa. • 5,925 MW of load management included in PJM resources for this summer. • 5,945 MW retired as part of PJM retirement process started in 2003. No generator retirements since 5/23/08. • Reflective of economic downturn, more than adequate generating capacity available to serve load for this summer. 3

4. Fuel Supply & Delivery • Coal inventories adequate to meet peak demand and accommodate short-term supply disruptions. Coal demand lower in 2009 and general demand for rail capacity down. • Nuclear units expected to be at full capacity at time of peak. • Natural gas storage levels approximately 20% above 5-year average (2,000 BCF). • Rockies Express Pipeline expanding eastward, with planned interconnection dates by this summer for Illinois, Indiana and Ohio. • Marcellus Shale development has slowed. However, projected to become largest U.S. source of gas by 2020. • REX and Marcellus will have major impact on regional gas supplies and lessen vulnerability to hurricanes in GOM.

5. Reliability Risks Going Forward • Rapidly aging generation infrastructure. • Financial/credit crisis slowing down needed investments. • Environmental Challenges • CAIR Replacement Rule / Mercury MACT Standard • Clean Water Act 316(b) Rules • Climate Change Legislation • Increasing dependence on renewable resources with variable output. • Reports from NERC and PJM Market Monitor – basis for concern over growing dependence on demand response as a capacity resource.

6. First Let’s Look at the Queues • At end of 2008, there were 90,807 MW in PJM active or under construction queues. • Breakdown: • Wind 43,784 MW (48%) • Gas CC or Ct 30,940 MW (34%) • Nuclear or Steam 13,454 MW (15%) • Hydro and other 2,719 MW ( 3%) • 25% of queued capacity in PA. 12% of wind capacity in PA. • Takeaway: We are a policy-driven industry planning to build what is being mandated by states in a slow growth, credit-constrained market.

7. Capacity Age and Environmental Challenges • At the end of 2008, 30,000 MW of PJM non-nuclear steam capacity was more than 40 years old. • Within 10 years, almost 40,000 MW of additional steam capacity and more than 60,000 MW of total PJM capacity will be more than 40 years old. • Many expect significant and disproportionate retirements, particularly of steam units, within the next 10-20 years. • CAIR replacement rule not expected to allow for interstate trading of emission allowances, may limit intra-state trading. Mercury MACT will not allow trading. • Could force retirements of smaller fossil-fired units by 2015 or sooner – begs for holistic legislative solution.

8. Environmental Challenges (Continued) • U.S. Supreme Court decided that EPA can weigh costs and benefits when regulating existing cooling water intake structures under the Clean Water Act. • However, EPA has not indicated whether it will actually consider costs in its re-draft of the rules. • EPA still could require closed-loop cooling system retrofit for all existing plants now using once-through cooling. • NERC has estimated an average capacity margin loss of 4.3% nationally due to unit retirements, auxiliary loads and parasitic losses caused by a closed-loop system retrofit requirement beginning in 2013.

9. Environmental Challenges (Continued) • NERC Planning Committee identified climate change initiatives as among the most important issues affecting the reliability of the bulk power system over the coming years. • Reliability issues identified: • Rapid broad-scale fuel switching from coal to natural gas and increased dependence on gas as a fuel for baseload generation. • As demand-side resources become increasingly important, effective verification will be vital to maintaining reliability. • Timely development of transmission infrastructure. • Potential auxiliary equipment electrical demands associated with carbon capture and sequestration technology are forecast to be 10-50% of the unit installed capacity. • Increasing need to evaluate collective reliability impact of numerous state initiatives to address climate change, e.g., state RPS initiatives, RGGI.

10. Increasing Dependence on Variable Generation Resources • Cumulative effects of state RPS mandates will require careful and constant planning to avoid reliability problems. • Fuel availability for variable resources (wind, sun) often does not correlate with electricity demand, either in time of use/availability or geographic location. • Higher levels of variable generation greatly increases the need for more dispatchable ramping capability from the other resources on the system. • This can place stresses on existing capacity for which it was not designed. Longer term, it changes the desired operating characteristics of the non-variable capacity to favor a higher mix of new gas generators that can start up and shut down faster than those in service now.

11. Increasing Dependence on Variable Generation Resources(Continued) • Batteries, compressed air systems, or flywheels, which can store energy, may be needed to smooth out production of variable sources. • Spring and fall months may be high risk because conventional generation is down for maintenance and variable sources will make up a larger portion of the electric supply. • From a reliability (and a cost) perspective, EPGA submits that RPS mandates are an ineffective and inefficient policy tool for addressing climate change. • Climate Change legislation will unleash technological innovation that cannot be foreseen at this time. EPGA submits that all supply and demand options should compete equally in the wholesale market to meet carbon reduction goals at minimum cost while maintaining maximum reliability.