1. ©2005 PJM www.pjm.com 1 APEx The Mature PJM Market Kenneth W. Laughlin PJM October 31, 2005 Orlando, FL

2. ©2005 PJM www.pjm.com 2 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 territory164,260 area served 13 states + DC

3. ©2005 PJM www.pjm.com 3 The Economics Of Power In Balance Supply the Demand at the Regulated Price Supply the Demand at Any Price Supply and Demand Respond to Price

4. ©2005 PJM www.pjm.com 4 “…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

5. ©2005 PJM www.pjm.com 5 Connecting To What’s Important Connecting Data to Information Connecting Information to People Connecting People to Their Needs

6. ©2005 PJM www.pjm.com 6 Public Information Markets Prices Available transfer capability Transmission limits & flows Forecasts Data trends PJM transforms data to information in real time Data to Information Traditional Processes Models Forecasts Actual Markets Reports Investigative Data Silos Agencies Customers Generators Transmission Owners Utilities Environmental Regulatory 1,000,000 Items 3,000 Items Key User- Selected Data Aggregated prices Specific prices Available transfer capability Transmission limits Forecasts Loads 10 Items PJM systems process

7. ©2005 PJM www.pjm.com 7 Continual and Steady Progress

8. ©2005 PJM www.pjm.com 8 PJM’s Operational Markets Day-Ahead Energy Market Real-Time Energy Market Capacity Financial Transmission Rights Ancillary Services Markets –Regulation –Spinning Reserve Market –Black Start Services –Reactive Services

9. ©2005 PJM www.pjm.com 9 PJM market supports reliability because generation is incented to follow real-time dispatch instructions: –If generation is following real-time dispatch instructions then it is eligible to set LMP, otherwise it become a price taker. –If generation is scheduled by PJM and is following real-time dispatch instructions then it receives a revenue guarantee of at least its specified offer data, otherwise there is not a revenue guarantee. As a result of the incentives, no penalties need to be imposed for over or under generation Market Incentives

10. ©2005 PJM www.pjm.com 10 Operational Efficiency of Larger Market 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 PatternPost-integration Energy Price Pattern

11. PJM ©2005 Market heat rate –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 Efficiency Indicators

12. ©2005 PJM www.pjm.com 12 2004 PJM hourly system average LMP

13. ©2005 PJM www.pjm.com 13 Figure 4-13 - Trends in PJM equivalent demand forced outage rate (EFORd): Calendar years 1994 to 2004

14. PJM ©2005 Regional security constrained economic dispatch impacts –Higher level of regional reliability –More efficient transmission utilization Power Transfers –Allegheny Power Integration in 2002 - Average on- peak transfers increased by 500 MW –AEP Integration in 2004 - Average on-peak transfers increased by 750 MW Efficiency Indicators

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