Reliability Pricing Model (RPM) Overview

Andrew Ott

PJM

Senior Vice President, Markets

2©2008 PJM

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

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

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

Timing of RPM Auctions

Base Residual Auction

Planning Year

3 Years

Incremental Auction

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

RPM Auction Results

7©2008 PJM

RPM Results – Capacity Prices

RPM Base Residual Auction Resource Clearing Prices (RCP)

40.8

174.29

110.00

174.29

210.11

237.33

174.29

102.04111.92

191.32

148.80

197.67

188.54

0

50

100

150

200

250

2007/2008 2008/2009 2009/2010 2010/2011 2011/2012

Delivery Year

$/M

W-D

ay

RTO RCP

EMAAC RCP

SWMAAC RCP

8©2008 PJM

RPM Results - Reliability Target Trends

SWMAAC

EMAAC

RTO

96%

97%

98%

99%

100%

101%

102%

103%

2007/08 2008/09 2009/10 2010/11 2011/12

RPM Delivery Year

Cle

ared

Cap

acit

y as

Sh

are

of R

elia

bil

ity

Req

uir

emen

t (%

)

Source: Brattle analysis of PJM data.

Capacity in Excess of Reliability Target

Capacity Less Than Reliability Target

9©2008 PJM

Cumulative Increases in Capacity Committed to PJM In RPM Auctions

0

2,000

4,0006,000

8,000

10,000

12,00014,000

16,000

18,000

2007/2008 2008/2009 2009/2010 2010/2011 2011/2012

Delivery Year

MW

New Generation Reverse Retirement Demand Resource Imports

10©2008 PJM

Demand Response in Capacity Market

0

1000

2000

3000

4000

5000

6000

2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012

Delivery Year

MW

Auto. Load Management RPM, Interruptable Load RPM, Demand Resource

RPM Implemented

11©2008 PJM

Increase in Capacity Resource for 2011/2012 RPM Auction

871.8

158.4

2164.3

292.1

1.183.9 4.7

661.7

0

500

1000

1500

2000

2500

MW

Coal Diesel Gas Nuclear Solar Wind Land FillGas

DemandResponse

Fuel Type

2011/2012 Installed Capacity Increase By Fuel Type

Total Increase = 4238 MW

12©2008 PJM

Cumulative Increase in Capacity Resources over First Five RPM Auctions (2007 – 2011)

3948.6

529.7

3472.7

2035.1

0500

10001500200025003000350040004500

MW

New UnitsRepower

UpgradesDemand Response

Total Increase = 9986.1 MW

13©2008 PJM

Cumulative Increase in Capacity Resources by Fuel Typeover First Five RPM Auctions (2007 – 2011)

1382.8

203.2

4713.7

780.264

396.31.1

307.9101.8

2035.1

0500

100015002000250030003500400045005000

MW

CoalDiesel

Gas NuclearOil Hydro

SolarWind

Other renewable

Demand Response

Fuel Type

Total Increase = 9986.1 MWNote: Other Renewable includes landfill gas and solid waste

14©2008 PJM

Proposed timeline for RPM Performance Evaluation

Activity Date

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

High Level Comparison of PJM RPM and New England Forward Capacity Market

Feature PJM RPM New England FCM

Marginal Pricing Yes Yes

Locational Requirements Yes Yes

Demand Curve Sloped Vertical

Auction Format Optimization Descending Clock

Demand Response as Resource

Yes Yes

Energy Efficiency as Resource

No

(In stakeholder discussion)

Yes

Forward Auction Timeframe 3 Year 3 Year

Commitment Period 1 Year (3 year optional for new resource)

1 Year (5 year optional for new resource)

Energy Revenue Offset Estimate based on 3 yr. historical average for

reference unit

Based on calculated revenue in DY for reference

unit