PSEG Energy Resources & Trade

1. PSEG Energy Resources & Trade EnergyOperations - Generating Unit Fuel Options William P. Young

2. Trading Strategy • Provide comprehensive energy portfolio and risk management services to optimize performance of asset portfolio • Actively trade in energy, capacity, fixed transmission rights, natural gas, oil, coal, and emissions allowances in the spot, bilateral, and forward markets. • Effectively manage the spark spread of the portfolio • Engage in physical and financial transactions including swaps, options, futures, basis contracts, tolling arrangements and full requirement load-serving contracts

3. Electric GenerationRegional Concentration • Areas of Concentration • 75% PJM • 5% NYISO • 6% ISO-NE • 14% ERCOT

4. PSEG Generating Assets

5. PSEG Portfolio of Assets • Combined Cycle units – Installed Capacity of 5,376 MW • - Unit Outputs range from 550 to 750 MW; 9 CC units in portfolio • - Heat Rates ranging from 7,000 to 7,500 Btu/kwh • - All units are Natural Gas fired with Kerosene as alternate fuel • Coal Fired Units – Installed Capacity of 2,367 MW • - Unit Outputs range from 319 to 850 MW • - 8 Coal Fired units in the PSEG portfolio; 4 units are Jointly Owned • - Heat Rates ranging from 9,500 to 10,500 Btu/kwh • - Units primarily burn a wide variety of low sulfur bituminous and sub- bituminous coals; domestic and foreign. The domestic coals are from CAPP and NAPP regions. • Nuclear units – Installed Capacity of 3,660 MW • - 5 nuclear units in the PSEG portfolio; 4 units are Jointly Owned • - 3 of the units are operated by PSEG

6. PSEG Portfolio of Assets • Gas Turbine units – Installed Capacity of 2,780 MW • - Unit Outputs range from 15 to 134 MW • - Heat Rates ranging from 9,500 to 20,000 Btu/kwh • - Most of the units are capable of firing on Natural Gas and/or Kerosene • - Duel fuel unit have capability of changing fuels while in service • Peaking Units – Installed Capacity of 1,639 MW • - Unit Outputs range from 100 to 355 MW • - Heat Rates ranging from 10,500 to 13,000 Btu/kwh • - These units have the ability to burn either Natural Gas or low sulfur Heavy Fuel Oil (No. 6). • - Low capacity factor units; minimal operation • TOTAL CAPACITY OF GENERATING ASSETS – 15,803 MW

7. Operations Goals: ‣Portfolio Management ‣Asset Optimization ‣ RT Monitoring / Dispatch ‣Info Gathering / Sending

8. Portfolio Management -Covering various obligations •BGS Auction Outcome • Trading Deals • Generation Management • DA vs. RT deviations • Reserve Requirements -Done on a variety of time scales -Several inputs into this process

9. Asset Optimization Unfortunately, Not All Generation Is Created Equal ● Different Cost Of Generation With Different Fuels (at same unit) ●Different Unit Performance With Different Fuels At Different Times Of Year! ● Outage/Availability Differences

10. The Challenge To maximize gross margins while also satisfying ISO requirements while considering environmental limitations, and working within physical “realities” of each generator!

11. In the fuel procurement, two competing themes exist. Fuel Procurement – Diversify or Aggregate? • In general, under tight supply situations (like today’s market), we can not observe the economy of scale benefit in the marketplace. Therefore, risk mitigation / flexibility benefit will become dominant. • On the other hand, in the buyer’s market situation, demand aggregation can achieve a price discount. Right now, we do not see clear sign of market change in near future. • We need to note that it is not necessarily an “exclusive-or” question. Once PSEG obtains a flexibility to diversify its fuel source, it can always consolidate/aggregate the source, as market condition changes  establish a flexibility a key to manage fuel price/supply risk under both market conditions. Diversification is better because of: Aggregation is better because of: Risk mitigation for supply disruption Maximize buyer’s bargaining poweron price (Economy of scale) Risk mitigation for price spike Simplicity of contract management and execution Flexibility to capture market opportunity Stability of fuel quality and lower Operational constraints

12. Considerations Unit Characteristics: ► Reliability, Run Time, Abilities, Startup Cost, and Output ► Which Fuel Is Most Economical? ► How much does each MW cost with cheapest avail. fuel? ► How much does it “cost” us to pollute? ► Weather? ► Will Each Unit Get Picked Up In DA @ offer?

13. Real Time Monitoring and Dispatch Real Time Responsibilities - Interface Between ISO’s, trading floor, and assets - Monitor Real Time Situations - Implement ISO operating procedures - Provide ancillary services - Control hourly position - Record keeping/logging - Asset optimization and unit operation within limitations/availability

14. Information Gathering • Unit Availability • Deviations from Day Ahead Schedules • Monitoring Minimum/Maximum energy output • Adjusting bids; i.e. - HAM bids • Observing On/Off line times and delays • Honoring Minimum Run/Minimum Down times • Ancillary services: • Area Regulation; Amount of A/R and setting A/R ranges • Synchronous condenser availability • Spinning Reserve • Emergent work / Outages • Minor station work • Immediate or postponable until off peak

15. Communication Is Key! - Dispatching Units - Outage Tickets - Accurate reporting of events - Interaction with * ISO’s * Generating Units * Ops Staff * Fuels People * Traders * Analysts * Execs