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www.epga.org. Electric Generation Reliability Remarks Before the Pennsylvania Public Utility Commission 2006 Summer Reliability Assessment Meeting May 24, 2006 Presented by: Douglas L. Biden President Electric Power Generation Association. www.epga.org.

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www.epga.org

Electric Generation Reliability

Remarks Before the

Pennsylvania Public Utility Commission

2006 Summer Reliability Assessment

Meeting

May 24, 2006

Presented by:

Douglas L. Biden

President

Electric Power Generation Association


www.epga.org

  • Current EPGA Member Companies:

    Allegheny Energy Supply

    Cogentrix Energy, Inc.

    Edison Mission Group

    Exelon Generation

    FirstEnergy 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

May 24, 2006


  • Physical Generation Supply – PJM

  • 2006 Installed Generation 164,994 MW

  • 2006 Forecast Load 133,500 MW

  • Reserve Margin 31,494 MW

  • Reserve Percent 23.6%

  • Required Margin 15.0%

  • Capacity additions for 2005 777 MW

  • Retirements for 2005 3,092 MW

  • As of April 10, 2006, approximately 5,700 MW retired as part of PJM retirement process started in 2003

  • 509 MW withdrawn or deferred from retirement due to reliability issues

May 24, 2006


  • Fuel and Water Supplies

  • PJM Supply Mix for 2004 – 2005

  • 2005 2004 2005

  • Capacity GenerationGeneration

    • Coal 41% 52% 56%

    • Nuclear 19% 37% 34%

    • Natural Gas 28% 7% 6%

    • Hydro , Wind & Other 5% 3% 3%

    • Oil 7% 1% 1%

    • Coal Supply

    • U.S. Senate hearing on May 25 on coal delivery concerns and potential problems for electric reliability

    • EEI, APPA, EPSA and NRECA wrote to FERC seeking help in addressing “sustained railroad coal delivery problems”

    • Some predict as much as a 20 million ton shortfall of Power River Basin (PRB) coal deliveries in 2006

May 24, 2006


  • Coal Supply (continued)

  • Plants generally keep a 15 to 45 day supply of coal stockpiled depending on their needs and size

  • Some plants have reported less than 5 days of supply and have had to curtail operations to avoid running out during peak hours

  • The problem is not universal:

    • Stocks of bituminous coal at U.S. power plants are actually higher in 2006 than 2005

    • Stocks of subbituminous (PRB) are 7.4% lower than last year indicating that delivery problems from the Powder River Basin persist

  • PRB coal is the primary fuel for 5,000 to 6,000 MW in PJM (10% of coal capacity)

  • PRB coal supplements another 5,000 MW

  • Individual plants may have problems and some may have to back down generation at night to ensure there is enough coal for use during peak periods

  • Coal delivery problems should not threaten system reliability in PJM

May 24, 2006


  • Natural Gas

  • Mild winter enabled more gas storage –currently well above 5-year average levels

  • Industrial demand has not returned as prices declined

  • Gas supply should be adequate for summer 2006, but concerns linger over infrastructure adequacy in event of protracted extreme weather conditions

  • Hurricane risk?

  • Long term concerns about supply and price (areas off limits to drilling, opposition to LNG, inadequate pipeline capacity)

  • Limited PJM reliance on gas-fired generation compared to other regions limits PJM vulnerability to gas-related bulk power constraints under normal operating conditions

May 24, 2006


  • Nuclear

  • All nuclear units expected to be at full capacity at time of peak

  • Water Supply

    • Pennsylvania is currently in a drought watch

    • Also affects other areas of PJM

    • Could limit output of some thermal units this summer

    • Could limit hydro production

    • Regional and fuel diversity helps limit this potential impact

  • May 24, 2006


    Source: PJM – 2005 State of the Market Report

    May 24, 2006


    • Pending Environmental Initiatives and Potential Generation Retirements

    • Nearly 90,000 MW of the approximately 164,000 MW of existing generating capacity in PJM are from fossil steam generating units

    • More than 75% of that capacity is from units that are at least 30 years old; more than 20% is from units … 50 or more years old

    • New limits on mercury emissions from coal-fired power plants now under consideration in Pennsylvania, New Jersey and Maryland, among other states, may prove to be an important factor in potential future retirements

    • PJM … analyses indicate that, should the current proposed requirements be adopted, as much as 4,000 MW of older, coal-fired generation…could be retired because the investment needed at such units to meet the new emission limits would be deemed uneconomic.

    • Source: PJM – Request for Early Designation of National Interest Electric Transmission Corridor – March 6, 2006

    May 24, 2006


    • Pending Environmental Initiatives and Potential Generation Retirements (continued)

    • States in Northeast Ozone Transport Region (OTR) are considering adoption of emission control measures for EGUs far more stringent than those required by U.S. EPA’s 2005 Clean Air Interstate Rule (CAIR)

    • Dozens of EGUs would be candidates for retirement if confronted with mandated retrofits of FGD and SCR technology under this “CAIR-Plus” proposal by 2008 or 2012.

    • One analysis identified 6,282 MW in the states of Delaware, Maryland, New Jersey and Pennsylvania at risk of retirement due to the “CAIR-Plus” proposal – 4,135 MW in Pennsylvania.1

    • A more recent study estimates almost 8,000 MW at risk of retirement due to “CAIR-Plus” in Pennsylvania and Maryland alone when mercury controls are included (6,858 MW in Pennsylvania)2

      • 1. Comments on the Ozone Transport Commission’s “CAIR-Plus” Emission Reduction Proposal for Electric Generating Units by the Center for Energy and Economic Development, Pennsylvania Coal Association, United Mine Workers of America and International Brotherhood of Electrical Workers.

      • 2. Compliance Implications of the OTC CAIR-Plus Proposal in Maryland and Pennsylvania by James Marchetti, J. Edward Cichanowicz and Michael Hein, Prepared for Center for Energy and Economic Development.

    May 24, 2006


    • Capacity in PJM Generation Request Queues Retirements (continued)

      • Capacity in PJM Queues at 12/31/05:

      • Active 21,407 MW

      • In Service 16,616 MW

      • Under Construction 2,938 MW

      • Withdrawn 115,225 MW

      • Total 156,186 MW

      • Wind projects account for approximately 8,700 MW or 36% of the capacity in the queues

      • Approximately 72% of generating capacity in the queues is located in the western and southern part of PJM

      • A potentially significant change in the distribution of unit types within the PJM footprint is likely as a combined result of the location of generation resources now in the queue and the location of units likely to retire.

      • In the east, the capacity mix is likely to shift to more natural gas-fired CC and CT capacity. In the west, continued reliance on steam (mainly coal) seems likely.

      • Source: 2005 PJM State of the Market Report

    May 24, 2006


    Pjm wind queue map
    PJM Wind Queue Map Retirements (continued)

    May 24, 2006


    Wind reliability implications
    Wind – Reliability Implications Retirements (continued)

    • It is widely expected that the principal type of resources likely to be constructed to meet Tier I renewable requirements in MD, PA, NJ, DE, IL and DC are onshore wind turbines

    • New York (NYSERDA) commissioned a study on the effects of integrating wind generation on reliability and operations in NYISO in connection with the NY Public Service Commission’s RPS initiative

    • Reliability analysis found that when electric load was at least 90% of system peak (when most of the risk of system outage occurs) projected capacity factors of the top 100 wind sites in New York ranged from 3% to 12%, with an average value of 6%

    • Because of the intermittent and unpredictable nature of wind generation it will likely be necessary to incent thermal peaking units that may not otherwise be economic

      Source: The Effects of Integrating Wind Power on Transmission System Planning, Reliability, and Operations, Prepared for NYSERDA by GE Power Systems Energy Consulting

    May 24, 2006


    PJM Net Revenue Retirements (continued)

    Source: PJM – 2005 State of the Market

    May 24, 2006


    • Net Revenue Analysis Retirements (continued)

    • During 7-year period from 1999-2005, the CT plant recovered 56% of the 20-year levelized fixed costs under the perfect dispatch scenario and 45% under the economic scenario.

    • During that same period the CC plant recovered 81% of the fixed costs under the perfect dispatch scenario and 61% under the economic scenario

    • The coal plant recovered 74% of the fixed costs under the perfect dispatch scenario and 70% under the economic scenario

    • The net revenue performance of the markets over six years illustrates that additional market modifications are necessary if PJM is to pass the ultimate test of a market, the successful provision of long-term incentives to invest.

    Source: 2005 State of the Market Report

    May 24, 2006


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