PJM ©2005 2005 APEx Annual Conference Audrey A. Zibelman EVP and COO PJM Interconnection October 31, 2005

PJM ©2005

2005 APEx Annual Conference

Audrey A. ZibelmanEVP and COO

PJM InterconnectionOctober 31, 2005

©2005 PJMwww.pjm.com 2

PJM as Part of the Eastern Interconnection

KEY STATISTICSPJM member companies 350+millions of people served 51peak load in megawatts 135,000MWs of generating capacity 165,738miles of transmission lines 56,070GWh of annual energy 700,000generation sources 1,082square miles of territory 164,260area served 13 states + DC


Regulation

• Regulation was intended as a surrogate for competition– Necessary due a lack of ability to transmit and analyze

information quickly (for price transparency or reliability).– System of small, balkanized regulated monopolies was the “best

we could do”.

• But technologies changed all that– Control systems– Information flow (information traveling as fast as the energy)– Where competition is possible (as it now is) it is the best way to

bring consumer benefits.


Regulatory Paradigm

Public Bears the Risk

Supply the Demand at the Regulated Price


ENRON Paradigm

Public Bears the Price

Meet the Demand at Any Price


The Economic Balance of Working RTO Markets

In RTO markets, supply and demand respond to price.

Benefits Are BalancedPublic Wins


“…markets don’t always

operate efficiently because

buyers and sellers don’t

always have access

to the information

they need to make

optimal choices.”Akerlof, Spence, & Stiglitz

Nobel prize winners for economics


Real Time

Real Information

Real Requirements

Owners, Users (i.e. the public)

Government

Physics

Real Relationships


Information Flows

• Competitive markets are driven by fundamentals.

• All market participants need information.• Where restructuring occurs

– Markets become more complex.– Product selection and innovation increase.– Participants develop new capabilities to structure

forward transactions

• More information is available and needed.


The Networked Energy Information Value Chain

Acquire and deliver fuel

Convert fuel to electricity

Transmission

of electricity

Distribution

of electricity

Consumption

of electricity

Commodities trading

Wholesale trading FERC regulated transmission

State regulated

distribution

End usage

Speed of Light

Production and delivery of fuel

Transparent data Transmission & bulk subsystems SCADA

Wire & substations Local controllittle data

Choose supplier


Public InformationMarkets

Prices

Available transfer capability

Transmission limits & flows

Forecasts

Data trends

PJM transforms

data toinformationin real time

Data to Information

Traditional ProcessesModels

Forecasts

Actual

Markets

Reports

Investigative

Data SilosAgencies

Customers

Generators

Transmission

Owners

Utilities

Environmental

Regulatory

6,000,000,000,000 Items 3,000 Items

Key User-Selected DataAggregated prices

Specific prices

Available transfer capability

Transmission limits

Forecasts

Loads

10 Items PJM

systems process


Information Tailored to User Needs


Competitive Market Benefits

Three benefits of a competitive market:

1. Efficiency

2. Innovation

3. Reliability


Increased Efficiency

• Lower energy prices across the expanded PJM region– ESAI’s technical study: region-wide energy price without integration

would be $0.78/MWh higher in 2005 than with integration.

– Spreading these savings over the total PJM RTO’s energy demand of 700 terawatt-hours (TWh) per year yields aggregate savings of over $500 million per year.

Pre-Integration Price Pattern Post-integration Energy Price Pattern


Increased Efficiency

• Effective competitive market has unbiased forward prices – PJM Western Hub bias is relatively small and has

been improving. – Selected PJM FTRs have no systematic bias.

• Market increases customers’ access to forward hedging.

• Removes $2/Mwh in energy price– Net benefit $1.4 billion per year

PJM ©2005

• Market heat rate declines– Provides fuel adjusted measure of efficiency– Equivalent heat rate at Western Hub reduced

from 11 MMBTU/ MWh in 1999 to 7.3 MMBTU/MWh in 2004

Increased Innovation

Heat Rates - Major Pricing Hubs

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Jan

-99

Ju

l-99

Jan

-00

Ju

l-00

Jan

-01

Ju

l-01

Jan

-02

Ju

l-02

Jan

-03

Ju

l-03

Jan

-04

Ju

l-04

Jan

-05

Ju

l-05

MM

Btu

/MW

h

AEP CINERGYONTARIO PJMTVA ZONEAVACAR Comed/NI


Increased Innovation

• Regional security constrained economic dispatch impacts– Higher level of regional reliability– More efficient transmission utilization – Most efficient generation utilization

• $85 million benefit


Technology Challenges in Markets

• Processing large data volumes• Speed of human interactions• Ability of humans to assimilate large and

complex data• Security constrained, bid-based economic

dispatch


Advanced Technologies

DataMining

InferenceEngines

FuzzyLogic

ExpertSystems

Genetic Algorithms

NeuralNetworks

ArtificialIntelligence

Advanced technologies tools can achieve plan objectives.


Advanced Technology at PJM

PJM’s business involves many knowledge-based interactions with both customers and staff.

PJMOperationalProcesses

Scheduling, Dispatch &

PricingSettlement

& Billing

Security & Real-Time

Control

System Planning

Demand Forecasting

Credit Management

Market Monitoring

Customer Care

Bidding

Market Information

Inference-Based Logic

Expert Systems

Expert Systems

Visualization

Neural Networks

Genetic Algorithms

Data Mining

Data Mining


Increased Reliability

• Organized markets enhance reliability.– Availability and transparency of information in

large integrated markets run by independent entities (such as RTOs) strongly support real-time reliability.

– RTOs and market participants share an interest in accurate, timely, and granular information about the performance of the grid.


Regional Planning Process Tiers

Reliability

• 5 year baseline, load growth impacts beyond 5-10 years

• prescribed reliability criteria tests and assumptions, e.g. firm transfers, load growth

• bright line – build for violation

Current Economics

• 10 year projections

• typical transfers, reliability criteria tests

• criteria ? – build for combination of violation and economic benefit

Market Efficiency

• 10 year baseline

• scenario planning, econometric cost/benefit analysis

• criteria ? – build for economic benefit

Scenario Planning

• multi-year analysis, >5 years

• typical transfers, prescribed reliability criteria tests, at risk gen, others?

• criteria ? – (to be determined)

Solutions integrating all drivers and benefits – opportunities for technological innovation

Integrate transmission, generation and demand response

Consensus Under discussion


Little Steps for Little Feats


“The future requires a higher sophistication in acknowledging and dealing with differences…”

Peter F. Drucker

Documents

PJM ©2005 2005 APEx Annual Conference Audrey A. Zibelman EVP and COO PJM Interconnection October 31, 2005