PJM ©2007 1

PJM Overview

ARIPPAValley Forge, PA

November 8, 2007

PJM ©2007 2

What is PJM?

Air Traffic Controllers for the Transmission Grid….

Operators of a Stock Exchange for Energy…

SIMULTANEOUSLY!

RELIABLY!

Match Generation to Load

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PJM Vision/Mission

• As the primary task, to ensure the safety, reliability and security of the bulk electric power system.

• Create and operate robust, competitive and non-discriminatory electric power market

• Understand customer needs and deliver valued service to meet those needs in a cost-efficient manner.

• Achieve productivity through the efficient union of superior knowledge

workers and technology advances.

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PJM Functions

• Operate the bulk electric power grid for reliability

• Facilitate various electric markets

• Plan for transmission expansion

• Monitor the markets to ensure competitiveness

• Provide exceptional customer/member service

• Share best practices with neighboring and international system operators

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Planning and Market Development

• Jan. 1999 - NYMEX

• May 2000 - ICE

• June 2007 - Nodal Exchange

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PJM as Part of the Eastern Interconnection

KEY STATISTICSPJM member companies 475+millions of people served 51peak load in megawatts 144,644MWs of generating capacity 164,905 miles of transmission lines 56,250GWh of annual energy 729,000generation sources 1,271square miles of territory 164,260area served 13 states + DCInternal/external tie lines 250

26% of generation inEastern Interconnection

23% of load inEastern Interconnection

19% of transmission assets in Eastern Interconnection

19% of U.S. GDP produced in PJM

6,038 substations

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Current PJM Footprint

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Backbone Transmission System

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How is PJM Different From My Local Utility?

PJM does:• Maintain the “big picture” of the transmission system regardless of

ownership.

• Have, by agreement, operational control of the transmission system.

• Operate as “profit neutral.”

• Remain totally independent of all PJM members.

• Coordinates maintenance of generation and transmission systems.

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How is PJM Different From My Local Utility?

PJM does not:• Own any transmission or generation assets.

• Function as a publicly traded company.

• Take ownership of the energy on the system.

• Perform the actual maintenance on generators or transmission systems.

• Serve, directly, any end use (retail) customers.

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TO = Transmission Owner

GEN = Generator

IPP = Independent Power Producer

PJM PJM Control CenterControl Center

TO

Gen

Gen

Gen

Gen

IPP

TO GEN

MarketOperation

Center

TO

TO

TO GEN

IPP

Voice & Data

Local Control Centers

MarketOperation

Center

Gen

Operational Authority

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Governance

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PJM Authority Provided by Contract

PJMOperatingAgreement

PJM OATTariff

• Regional Transmission Provider

• Regional Control Area Operator

• Market Developer and Coordinator

• Regional Transmission Planner

ReliabilityFirstAgreement

• NERC Security Coordinator

TransmissionOwnersAgreement

Reliability AssuranceAgreement

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StateEnvironmental

Agencies(14)

PJMMembers

(488)

StateCommissions

(14)

48,363,579,532,800Decision Combinations

FederalRegulators

(3)

ReliabilityOrganizations

(4)End UseMembers

(28)

DistributionMembers

(31)

TransmissionOwner

Members(60)

GenerationOwner

Members(107)

OtherSupplierMembers

(246)

StateConsumer

Advocates &OPSI(15)

Decision Makers

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PJM Governance

Independent Board

Members Committee

GenerationOwners

TransmissionOwners

Other Suppliers

ElectricDistributors

End-UseCustomers

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Members Committee Voting Protocol

Transmission Owners

Generation Owners

Other Supplier

End Use Customers

Electric Distributors

5/7 0.71

2/8 0.25

21/23 0.91

5/5 1.00

Required to pass = 0.667Number of Sectors = 5

Required Affirmative = 5 x 0.667 = 3.335

3/5 0.60

3.47

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Stakeholder Process

Members Committee

Subcommittees, Task Forces, and Working Groups

User Groups

Planning Committee

Operating Committee

Market Implementation

Committee

Demand Side Response

WG

MRC: Market Reliability Committee

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Overview of PJMElectricity Markets

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PJM’s Operational Markets and Services

• 2 Energy Markets– Day Ahead– Real Time

• Reliability Pricing Model (RPM) Auction • Financial Transmission Rights Auction• Ancillary Services

– Regulation Market– Spinning Reserve Market– Blackstart Service– Reactive Services

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Capacity by Fuel Type

Generation by Fuel Type

2005 PJM Energy Market

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PJM Installed Capacity by Fuel Type (12/31/06)

PJM Energy Output by Fuel Type (GWh through 12/31/06)

Hydro – 7,523 MW 5% Natural Gas – 42,936 MW 26%

Nuclear – 30,776 MW 19%

Coal – 67,068 MW 41%Wind – 208 MW 0.1% Other – 2,423 MW 1.5%

Oil – 14,154 MW 8.6%

Solid Waste – 4,801 1% Hydro – 14,684 2% Coal – 411,581 57%

Oil – 2,029 .3%

Gas – 40,044 6%Wind – 788 0.1%

Nuclear – 250,995 35%

2006 PJM Energy Market

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Options for Energy Supply

Commercial

BilateralTransactions

PJMSpot Market

Load Serving Entities Obtain energy

to serve customers

Self-scheduleown resources

ResidentialIndustrial

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What is LMP?

• Pricing method PJM uses to …− price energy purchases and sales in PJM Market− prices transmission congestion costs to move energy within

PJM Control Area

• Physical, flow-based pricing system− how energy actually flows, NOT contract paths

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Locational Marginal PriceLocational Marginal Price

GenerationMarginal

Cost

GenerationMarginal

Cost

TransmissionCongestion

Cost

Cost ofMarginalLosses

Cost to serve the next MW of load at a specific location, using the lowest production cost of all available generation,

while observing all transmission limits

PJM ©2007 26

• Including losses in dispatch can result in substantial cost savings through reduced energy and congestion costs

– PJM studies have estimated savings of $100 million / year

• Total RTO losses on peak days can exceed 3,600 MW/hour

Transmission LossesTransmission Losses

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How Does PJM use LMP?

• Generators credited at generation bus LMP

• Load Servers charged at load bus LMP

• Transactions pay the difference in LMP between source and sink (explicit congestion)

• PJM LMPs are the result of the physical flow of energy, not a contract path.

PJM ©2007 28

Ancillary Service Markets

Ancillary Services are needed with transmission service to maintain reliability within and among control areas affected by the transmission service…

− Regulation Market - market based ancillary service

− Synchronized Reserve Market

− Black Start Services

− Reactive Services

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The PJM Control Room

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Contact PJM

Subscribe to PJM e-Mail http://www.pjm.com/about/contact/form-majordomo.html

PJM Member Relations (610) 666-8980

PJM Internet Site www.pjm.com

e-Mail Member Relations http://www.pjm.com/about/contact/form-contact.html

PJM Member Relations Toll Free (866) 400-8980