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2005 APEx
Annual Conference
Audrey A. Zibelman
EVP and COO
PJM Interconnection
October 31, 2005
PJM ©2005
PJM as Part of the Eastern Interconnection
KEY STATISTICS
PJM member companies
350+
millions of people served
51
peak load in megawatts
135,000
MWs of generating capacity 165,738
miles of transmission lines
56,070
GWh of annual energy
700,000
generation sources
1,082
square miles of territory
164,260
area served
13 states + DC
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©2005 PJM
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.
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©2005 PJM
Regulatory Paradigm
Supply the Demand at the Regulated Price
Public Bears the Risk
www.pjm.com
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©2005 PJM
ENRON Paradigm
Meet the Demand at Any Price
Public Bears the Price
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©2005 PJM
The Economic Balance of Working RTO Markets
Benefits Are Balanced
Public Wins
In RTO markets, supply and demand respond to price.
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©2005 PJM
“…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
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©2005 PJM
Real
Information
Government
Physics
Real
Relationships
Real
Time
Real
Requirements
Owners, Users (i.e. the public)
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©2005 PJM
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.
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©2005 PJM
The Networked Energy Information Value Chain
Acquire and
deliver fuel
Convert fuel to
electricity
Commodities
trading
Production and
delivery of fuel
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Distribution
of electricity
Consumption
of electricity
Wholesale trading FERC regulated
transmission
State regulated
distribution
End usage
Transparent data
Wire &
substations
Local control
little data
Choose
supplier
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©2005 PJM
Transmission
of electricity
Transmission &
bulk subsystems
SCADA
Data to Information
Data Silos
Agencies
Customers
Generators
Transmission
Owners
Utilities
Environmental
Regulatory
Traditional
Processes
Models
Forecasts
Actual
Markets
Reports
Investigative
PJM
transforms
data to
information
in real time
6,000,000,000,000 Items
www.pjm.com
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©2005 PJM
PJM
systems
process
Public
Information
Key UserSelected Data
Markets
Prices
Available transfer
capability
Transmission limits &
flows
Forecasts
Data trends
Aggregated prices
Specific prices
Available transfer
capability
Transmission limits
Forecasts
Loads
3,000 Items
10 Items
Information Tailored to User Needs
www.pjm.com
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©2005 PJM
Competitive Market Benefits
Three benefits of a competitive market:
1. Efficiency
2. Innovation
3. Reliability
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©2005 PJM
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
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©2005 PJM
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
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©2005 PJM
Increased Innovation
• 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
PJM ©2005
Increased Innovation
• Regional security constrained economic
dispatch impacts
– Higher level of regional reliability
– More efficient transmission utilization
– Most efficient generation utilization
• $85 million benefit
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©2005 PJM
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
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©2005 PJM
Advanced Technologies
Advanced
technologies
tools can
achieve plan
objectives.
Genetic
Algorithms
Inference
Engines
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Data
Mining
Neural
Networks
©2005 PJM
Artificial
Intelligence
Fuzzy
Logic
Expert
Systems
Advanced Technology at PJM
PJM’s business involves many knowledge-based interactions with both
customers and staff.
Expert
Systems
Market
Information
InferenceBased Logic
Bidding
Data
Mining
www.pjm.com
Customer
Care
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Market
Monitoring
PJM
Operational
Processes
Settlement
& Billing
Credit
Management
Data
Mining
Genetic
Algorithms
©2005 PJM
Demand
Forecasting
Neural
Networks
System
Planning
Security &
Real-Time
Control
Scheduling,
Dispatch &
Pricing
Visualization
Expert
Systems
Increased Reliability
• Organized markets enhance reliability.
– Availability and transparency of information in
large integrated markets run by independent
entities (such as RTOs) strongly support realtime reliability.
– RTOs and market participants share an
interest in accurate, timely, and granular
information about the performance of the grid.
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©2005 PJM
Regional Planning Process Tiers
Consensus
Under discussion
Reliability
Scenario Planning
Current Economics
• 5 year baseline, load
growth impacts
beyond 5-10 years
• multi-year analysis,
>5 years
• 10 year projections
• 10 year baseline
• typical transfers,
reliability criteria
tests
• scenario planning,
econometric
cost/benefit
analysis
• typical transfers,
prescribed
reliability criteria
tests, at risk gen,
others?
• prescribed reliability
criteria tests and
assumptions, e.g.
firm transfers, load
growth
• bright line – build for
violation
• criteria ? – (to be
determined)
• criteria ? – build for
combination of
violation and
economic benefit
Market Efficiency
• criteria ? – build for
economic benefit
Solutions integrating all drivers and benefits –
opportunities for technological innovation
Integrate transmission, generation and demand response
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©2005 PJM
Little Steps for Little Feats
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©2005 PJM
“The future requires a higher
sophistication in acknowledging and
dealing with differences…”
Peter F. Drucker
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©2005 PJM