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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 www.pjm.com 2 ©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. www.pjm.com 3 ©2005 PJM Regulatory Paradigm Supply the Demand at the Regulated Price Public Bears the Risk www.pjm.com 4 ©2005 PJM ENRON Paradigm Meet the Demand at Any Price Public Bears the Price www.pjm.com 5 ©2005 PJM The Economic Balance of Working RTO Markets Benefits Are Balanced Public Wins In RTO markets, supply and demand respond to price. www.pjm.com 6 ©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 www.pjm.com 7 ©2005 PJM Real Information Government Physics Real Relationships Real Time Real Requirements Owners, Users (i.e. the public) www.pjm.com 8 ©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. www.pjm.com 9 ©2005 PJM The Networked Energy Information Value Chain Acquire and deliver fuel Convert fuel to electricity Commodities trading Production and delivery of fuel www.pjm.com 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 10 ©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 11 ©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 12 ©2005 PJM Competitive Market Benefits Three benefits of a competitive market: 1. Efficiency 2. Innovation 3. Reliability www.pjm.com 13 ©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 www.pjm.com 14 ©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 www.pjm.com 15 ©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 www.pjm.com 17 ©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 www.pjm.com 18 ©2005 PJM Advanced Technologies Advanced technologies tools can achieve plan objectives. Genetic Algorithms Inference Engines www.pjm.com 19 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 20 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. www.pjm.com 21 ©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 www.pjm.com 22 ©2005 PJM Little Steps for Little Feats www.pjm.com 23 ©2005 PJM “The future requires a higher sophistication in acknowledging and dealing with differences…” Peter F. Drucker www.pjm.com 24 ©2005 PJM