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Future Generation Mix in PJM

Governor’s Conference on EnergyRichmond, VA

Steven R. Herling

Vice President, Planning

PJM Interconnection

October 17, 2013

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PJM Well Positioned for Growth in Gas-Fired Generation

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Where the Drilling Action is Today

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Shale Gas Production Continues to Climb

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Delivered Fuel Price

Source: IHS-CERA, September 2013

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Lingering Low Electricity Demand

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Spot Power Price Projections

Source: IHS-CERA, September 2013

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Evolving Generation Mix in PJM

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Evolving Generation Mix

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Projected Generation Mix

Source: IHS-CERA, September 2013

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Generation Deactivations

Over 20 GW of Actual & Announced Deactivations 2011-2016

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Natural Gas Dominates Current Active Projects in the Queue

Natural Gas43,701 82%

Wind2,623 5%

Coal2,188 4%

Nuclear2,556 5%

Other1,934 4%

MW Capacity Value

Natural Gas

Wind

Coal

Nuclear

Other

Natural Gas45,722 63%

Wind17,293 24%

Coal2,201 3%

Nuclear2,696 4%

Other4,542 6%

MW Energy Value

Natural Gas

Wind

Coal

Nuclear

Other

As of July 2013

As of July 2013

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Evolving Generation Mix in Virginia

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Evolving Generation Mix in Virginia

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Generation Under Construction in Virginia

NuclearNatural Gas

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Active Queued Generation in Virginia

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Evolving Generation Mix in Virginia

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Decreasing Emission Rates

Source: PJM EIS

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Natural Gas Impact to PJM Capacity Pricing

from $136.00

from $167.46

from $357.00

from $167.46

2015/2016 Base Residual Auction Results (last year)

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Increasing Power Generation Natural Gas Consumption

Most other categories of natural gas consumption have had flat or decreasing usage trends!

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Power Generation is NOT the Ideal Gas Customer

Power generation gas use does not fit neatly into the gas contractual construct

•Electricity demand, like gas demand, fluctuates and is subject to steep ramps, especially in winter

•Increased wind and other intermittent resources don’t help

•Fastest starting generation resources, generally are gas-fired combustion turbines which can go to full output in about 10 minutes or less

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Some Electric/ Gas Coordination Issues

• Language barrier

• “Intermittency” of electric demand

• Power generation use of interruptible service

• Gas Day vs. “Electric Day”

• Natural gas has some storage -- “just-in-time” fuel source

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Firm vs. Interruptible Service

Majority of PJM gas-fired generators have interruptible gas delivery service

•Generators buy available firm service from others, via capacity release or bi-lateral arrangement

•Use marketers to acquire a bundle of commodity and delivery

•Risk curtailment for local delivery issues

– Northern NJ – January 2013

– Cleveland – July 2013

What PJM is doing: Discussing changes to market rules, dual fuel requirements, etc. as part of the PJM

Gas Electric Senior Task Force

What PJM is doing: Discussing changes to market rules, dual fuel requirements, etc. as part of the PJM

Gas Electric Senior Task Force

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Gas Day vs. Electric Day

Issue: Timely gas nominations are due at 10 a.m. the day before (Day 1); electric “awards” are made at 4 p.m. the day before (Day 1) = 6 hours later; actual gas flow occurs starting at 10 a.m. on Day 2

What PJM is doing: Discussing potential for market timing changes (INGAA has signaled a willingness to

change nomination timing)

What PJM is doing: Discussing potential for market timing changes (INGAA has signaled a willingness to

change nomination timing)

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Natural Gas is a Just-in time Fuel Source

• We’re used to having significant fuel at the generation site—coal piles, nuclear fuel, etc.

• Gas moves at ~35 mph – it takes days to arrive from the Gulf of Mexico, although proximity to Marcellus/Utica helps

• Pipeline can “line pack” to some degree, but advanced planning is necessary

• Pipelines do have storage to some degree, but generators have to contract for it

What PJM is doing: Learning about gas pipeline capabilities and anticipating “big picture” look from the

EIPC Gas Study

What PJM is doing: Learning about gas pipeline capabilities and anticipating “big picture” look from the

EIPC Gas Study

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What is FERC Doing?

• Bringing the industries together

– Series of technical conferences

• Some finger pointing, but also

• Some very useful information exchange

– Trying to exert leadership to bring solutions (Moeller)

• NOPR on communications

– Remove barriers between gas control and system operators to exchange non-public information

What PJM is doing: Supporting the FERC efforts through participation and comments

What PJM is doing: Supporting the FERC efforts through participation and comments

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In the Meantime….

• Pipeline expansion process is working (hopefully, in time to save New England!)

• Large majority of gas-fired generators use interruptible service in PJM and other markets (and PJM has had some operational issues)

• We continue to exchange large amounts of data via electronic bulletin boards, but is minimally useful in operations

• Operators on both sides stand ready to respond to surprises that will pop up periodically (daily in New England!)

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Summary

• Power generation is a “double edged sword” for the gas business– Largest growth market– Potential to cause problems in operations

• Working together, we can minimize the operational problems– Awareness of the limitations on each side– Increased real time communications across the aisle– Use of the demand side resources on each side

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Questions