A Written Report about Pennsylvania-New Jersey-Maryland (PJM) Interconnection LLB

Pennsylvania-New Jersey-Maryland (PJM) Interconnection LLC is the worlds largest

competitive wholesale electricity market. It is the Regional Transmission Organization (RTO) in
Eastern Connection of the US grid. It dispatches electricity to the following states: Delaware,
Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania,
Tennessee, Virginia, West Virginia, and the District of Columbia.
PJM started to operate in 1927; when the Public Service Electric & Gas Company,
Philadelphia Electric Company and Pennsylvania Power & Light Company formed a pool and thus
PJM was established. Later in 1956, PJM got its company name when Baltimore Gas and Electric
Company as well as General Public Utilities joined the pool.
Since it began operating a competitive wholesale electricity market in 1997, PJM
Interconnection has employed a dynamic collaborative process with its members that has
expanded the number of markets in the region. Acting neutrally and independently, PJM
establishes systems and rules to ensure that the markets operate fairly and efficiently.

1997 FERC Order 880, 888 and 889

Following the Federal Energy Regulatory Commission (FERC) Order 880 that began the
deregulation of the traditional utility companies, FERC began to set up the concepts of an
Independent System Operator (ISO) which allowed third party entities to manage functions of
the electric grid that were traditionally responsibilities of vertically integrated utility companies.
PJM became an ISO in 1997.
Later, FERC encouraged the establishment of Regional Transmission Organization (RTO), to
operate multi-state transmissions projects. PJM was designated an RTO by the FERC in 2001.
FERC regulates PJM and approves its open access transmission tariff for the wholesale electricity
market.

Deregulation and expansion, 2002

In April 2002, Allegheny Power (AP) was the first external control area to join the PJM RTO
as a market participant; "PJM Classic" and AP operated as a single control area, filling the roles
of balancing authority, interchange authority, market operator and transmission operator.

The Northeast Blackout of 2003

During the Northeast Blackout of 2003, the transmission systems within the PJM
operations area largely remained operational and were not affected by the power failure. When
the grid separated, a small portion of the Public Service Electric & Gas of New Jersey zone
electrically separated from the Eastern Interconnection due to over-frequency relay operations.

Deregulation and expansion, 2004-present

In May 2004, Commonwealth Edison (ComEd) joined PJM as a separate balancing
authority operating under the RTO. PJM was able to manage the two territories in a single market
by a mechanism known as "the pathway", a set of firm contracts that transferred energy from
ComEd through third party control areas to the eastern PJM markets and beyond. In October
2004, American Electric Power (AEP) and Dayton Power & Light (DPL) joined PJM, which allowed
PJM to collapse back into a single control area.
In January 2005, Duquesne Light Co. (DLCO) joined PJM. In May 2005, Dominion Virginia
Power joined PJM, extending the southern border to North Carolina. FirstEnergy was added to
PJM in June 2011, expanding the footprint across northern Ohio to the Michigan border. Areas
of Ohio and Kentucky near Cincinnati covered by Duke Energy joined the PJM footprint in January
2012. At this time, PJM now borders 22 balancing authorities representing eleven market
interfaces.

Transmission system planning and upgrades

PJM uses a fifteen-year planning horizon for planning transmission system upgrades. Under PJM's
Regional Transmission Expansion Planning (RTEP) process, PJM considers forecasts of load
growth and additions of demand response, interconnection requests for new and planned
retirements of existing generating plants, and possible solutions to mitigate congestion on the
transmission system.[5] If the upgrade involves the construction of a new transmission line, local
siting decisions involving the route of the new line are determined by the owner of the line and
the state government.

More than 900 members participate in PJMs markets. PJM uses sophisticated information
technology to provide market participants with a variety of online resources and Tools to help
them make business decisions and carry out their transactions. Billings in PJM-administered
markets total more than $110 billion since the regional markets opened.

Highlights
Energy Market: PJM Interconnection coordinates the continuous buying, selling and delivery of
wholesale electricity through the Energy Market. In its role as market operator, PJM balances the

needs of suppliers, wholesale customers and other market participants and monitors market
activities to ensure open, fair and equitable access.
Reliability Pricing Model: PJMs Reliability Pricing Model (RPM) provides a long-term price signal,
consistent with the PJM Regional Transmission Expansion Planning process, for capacity
resources and load serving entities (LSEs) unforced capacity obligations.
Financial Transmission Rights: PJM Interconnection auctions Financial Transmission Rights
(FTRs) to assist market participants in hedging price risk when delivering energy on the grid. FTRs
are financial instruments that entitle the holder to a stream of revenues (or charges) based on
the hourly energy-price differences across the transmission path in the Day-Ahead Market.
Demand Response: Demand response, a planned reduction in electricity use during times of high
demand, helps maintain grid reliability by reducing the stress on the system. PJM encourages
demand response activity in the PJM grid to help reduce wholesale electricity prices and reduce
electricity usage to address environmental concerns.
Market Settlements: Market Settlements provides participants with reconciliation billing
determinants, as well as guides that offer brief descriptions of the charges and credits that appear
on monthly invoices.
Financial Credit: Information and guidelines about establishing credit to participate in PJMs
markets is now available through PJM Settlement, Inc., the subsidiary company handling all of
PJMs settlement activities.
Monitoring Analytics was established in 2008 and serves as the Independent Market
Monitor for PJM under a long-term contract. Monitoring Analytics also has extensive experience
producing market-related reports, including the PJM State of the Market Report.

Current Energy Supply of and Demand for Electricity for PJM Interconnect
The power grid that supplies the electric current coming into your home or business is
designed to maintain a dynamic balance between the consumer demand for electricity and
the amount being supplied by generators. The chart above is an approximate representation
of this dynamic balance. Quantities which are forecasts or estimates are shown by dashed
lines.
The current demand (or "load") depends on how much power consumers are using
right now. While the load changes every time someone switches a light on or off, the sum of
loads due to a large number of consumers varies slowly. In addition to the supply needed to
meet this demand, some "reserve" generating capacity must be kept ready to operate in case
of any unexpected events.

The PJM operational data is updated at least every five minutes by the PJM
Interconnect for the area it controls. This area covers Central and Eastern Pennsylvania,
virtually all of New Jersey, Delaware, Western Maryland, and Washington DC. A new control
area called PJM West is now also covered by PJM Internconnect and covers the Northern 2/3
of West Virginia, portions of Western and Central Pennsylvania, Western Maryland, and small
areas of Southeastern Ohio.
It is a little more difficult to quantify the amount of supply that may be available, which
we call "Potential Capacity". Our approximation is based on: the total capacity of generators
available to serve PJM loads, minus the generators that are out of service (generation
outages). Outages are updated daily. Since many of the generators available to serve PJM load
are outside of the control area, transmission provides another constraint on supply. The
electricity flows on major transmission lines in and out of the PJM area are called intertie
flows. These flows are constrained by the transmission line capacity. Both intertie flows and
total intertie capacity are displayed and updated every five minutes.
The power grid that supplies the electric current coming into your home or business
is designed to maintain a dynamic balance between the consumer demand for electricity and
the amount being supplied by generators. The chart above is an approximate representation
of this dynamic balance. Quantities which are forecasts or estimates are shown by dashed
lines.
The current demand (or "load") depends on how much power consumers are using
right now. While the load changes every time someone switches a light on or off, the sum of
loads due to a large number of consumers varies slowly. In addition to the supply needed to
meet this demand, some "reserve" generating capacity must be kept ready to operate in case
of any unexpected events.

Maximum Capacity This number is an estimate of the total generation capacity serving
the PJM control area as indicated in PJM planning documents. The fact that a generator
can serve PJM load, and so is included in this figure, does not mean that it will be
operating or selling electricity into the PJM on any given day. In this plot, maximum
capacity has been offset by 300MW for visibility. This is about one line width.
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On-Line Capacity On-Line Capacity is equal to the Maximum Capacity minus Generation
Outages. It represents the total generation capacity in the PJM control area that can
feasibly operate that day. See Generation Outages for more detail.
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Potential Capacity The generation capacity potentially available to supply electricity is

computed here as the sum of On-Line Capacity + Net Imports/Exports - Reserves . We
use a reserve margin equal to 7% of the load. The generation capacity actually available
in any given hour will differ from our estimate of the potential capacity for a variety of
reasons. Hydroelectric capacity may be reduced due to water shortages. Some plants
are only available a certain number of hours per month, or may have restrictions on
their operation due to air quality concerns. There may also be resources available to the
ISO in the form of voluntary load reductions ("negawatts"), which are not included here.
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Current Load "Load" is the technical term for total demand for electricity. It is the
amount of electricity that customers are pulling out of the grid at any given moment.
This amount is monitored in real time by PJM Interconnect, and published every 5
minutes.
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Forecast Load While the load changes every time someone turns on a computer or
switches off a light, on the average it can be predicted, given information about the
weather, the daily habits of individuals and businesses, etc. Currently the forecast is
unavailable, but will be made available shortly.
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Outages Every morning the PJM publishes a forecast for the quantity of generation that
will be offline each day for the next six months. The outage figures are updated at 4AM
Eastern time. We use the previous day's figures until 4AM Eastern time as an estimate.
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Transmission Capacity Published PJM Operational Data contains transfer limits for each
of five transfer interfaces. The transfer limits are summed to produce the transmission
capacity data. Additionally, it should be noted that PJM posts Conditions Impacting
Transmission Capability.
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Transmission Also published in PJM Operational Data are actual flow for each of the five
transfer interfaces. The actual flows are summed to produce the transmission data.
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Generation/Supply
Marginal fuel type: Coal (74%) and natural gas (22%)
Generating capacity (summer 2009): 167,454 MW

Capacity reserve (summer 2009): 40,649 MW

Reserve margin (summer 2009): 32%
Demand
All time peak demand: 144,644 MW (set August 2, 2006)
Summer Peak Demand (MW):
2006: 144,644
2007: 139,428
2008: 130,100
2009: 126,805
Peak demand change (2008-2009): 2.5% Decline

Prices:
Annual Average Day-Ahead Price All Hours (MWh):
PJM Western Hub - A basket of 109 buses from Erie PA to Washington DC (Derived from Energy
Velocity data)
2006: $50.07/MWh
2007: $57.00/MWh
2008: $69.88/MWh
2009: $38.71/MWh

PJM Recent State:

Payments for economic demand response in the PJM Interconnection generated $8.7
million in revenue for seven months in 2012, compared to $7.1 million for the 41-month period
from November 2008 through March 2012, according to a new report from PJM.
The significant increase stems from of FERCs Order 745, which ruled that economic
demand response needs to be paid the full wholesale price (when its above the net benefits
threshold), whereas before it was paid the difference between the wholesale price and the retail
price for generation and transmission.
The payments from April to October 2012 went to a small number of large customers that
committed more than 10 megawatts. The new rules, PJM said in its recent report, should also be

good for aggregate demand response, in which curtailment providers offer up bundled loads
from different places, although there isn't proof of that yet.

Even though the participation rate is far higher than it has been in recent years, it isnt
nearly as high as it was in 2007 and 2008. But now that the monthly number of megawatt-hours
settled is more closely correlated to the megawatt-hour weighted average wholesale price, it
means we can expect more megawatt-hours to be settled when wholesale prices are higher and
that this relationship is a little better during the 745 period than during the incentive period,
although this is based on a limited number of months observed, PJM stated.
Even though the prices will act as an incentive, the vast majority of DR is still coming from
industrial and manufacturing, with retail, office buildings, residents and hospitals making up only
a small fraction of the total. Some in the industry have questioned whether FERC's 745 is the best
way to incentivize various sectors to participate in DR.

In PJM, there is a huge reserve of demand response capability, but only a small fraction
of that is delivered when prices arent high enough. And while PJM once opposed the rule from
FERC, its now on board.

Looking forward, PJM sees an opportunity for far more participation, especially since the majority
of emergency demand response resources have not yet participated in the economic DR market.