The coarse-graining procedure (CGP) [Y. Chen and S. E. Parker, Phys. Plasmas 14, 082301 (2007)] is implemented in the GEM code for electrons. While CGP introduces numerical dissipation in the particle-in-cell simulations, it is shown that CGP preserves physical dissipation effects such as the electron-ion collisional effects on the particle flux in ion-temperature-gradient driven turbulence. Kinetic simulation of an edge plasma is presented, which demonstrates the essential stabilizing effect of shear flow and the destabilizing effect of magnetic field perturbation in such a plasma. (C) 2008 American Institute of Physics.