PJM©2018

The Evolution of WholesaleElectricity Markets

Andrew L. OttPresident & CEO

Kleinman Center for Energy Policy Public LectureFeb. 8, 2018

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PJM Evolution

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21% of U.S. GDP produced in PJM

Key StatisticsMember companies 1,000+

Millions of people served 65

Peak load in megawatts 165,492

MW of generating capacity 176,569

Miles of transmission lines 82,546

2016 GWh of annual energy 792,314

Generation sources 1,304

Square miles of territory 243,417

States served 13 + DC

• 27% of generation in Eastern Interconnection

• 28% of load

• 20% of transmission assets

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Interconnected Power Grid

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PJM’s Role as a Regional Transmission Organization

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PJM ‒ Primary Focus

Market Operation• Energy• Capacity• Ancillary Services

Regional Planning• 15-Year Outlook

Reliability• Grid Operations• Supply/Demand Balance• Transmission Monitoring

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1

3

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Evolution of Power Supply

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Success of Regional Markets and Planning …

… However, we must look at future trends.

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Average Wholesale Cost Vs. Emissions

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$0.040

$0.060

$0.080

$0.100

$0.120

$0.140

$0.160

$0.180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

PJM Load-Weighted Total CostsNJ Residential RatesPA Residential RatesMD Residential RatesWV Residential Rates

Residential and Wholesale Rate Trends

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Drivers of ~30% Increase in Average PA Residential Rate from 2006 to 2015

$0.1035

($0.0028)

$0.0336

$0.1343

$-

$0.02

$0.04

$0.06

$0.08

$0.10

$0.12

$0.14

$0.16

2006 Residential Rate Decrease in Wholesale Tariff Costs Increase in State Tariff Costs 2015 Residential Rate

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Industry Paradigm Shift

Changes in customer expectations

Alternative technologies

Intermittent renewables

Distributed energy resources

Storage technologies

Unprecedented number of changes in the power industry

Fuel swap

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Alternative Technology Providing Services to the Grid

444 MW of demand-side resources capable of providing synch reserve in 2017 YTD.

8.1% of synch reserve actually provided by Demand-Side Resources in 2017 YTD.

262.4 MW of batteries32 MW of demand-side resources

Frequency Regulation Synchronized Reserves

~ On average 27%. As high as 39% of our regulation requirement is provided by alternative technologies.

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Dimensions of Resilience

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External Networks• Fuel Security• Pipeline Infrastructure• Telecommunications

System Restoration• Cranking Path Redundancy• Critical Load Definition• Partnerships

Power Grid• Critical Grid Facilities• Contingency Definitions

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Drivers for Change:Microgrids Interacting Through Markets

• Enhanced Control Systems

• Distributed Storage Technology

• Flexible Consumption

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