PJM Interconnection, LLC (PJM) was founded in 1927 as a power pool of three utilities serving customers in Pennsylvania and New Jersey. In 1956, with the addition of two Maryland utilities, it became the Pennsylvania-New Jersey-Maryland Interconnection, or PJM. PJM became a fully functioning ISO in 1996 and, in 1997, it introduced markets with bid-based pricing and locational market pricing (LMP). It received full RTO status in 2002, responsible for carrying out regional planning and power markets functions throughout its footprint. From then until 2013, PJM expanded rapidly. It is the largest RTO in the country in terms of peak load (165 gigawatts, 2011).
SUSTAINABLE FERC PROJECT PRIORITIES
- Reform or replace PJM’s capacity market to better match the needs of a low carbon power grid.
- Enhance transmission planning to bring renewable energy to where it’s needed, and oversight to ensure wise investment.
- Maximizing the efficiency of the current grid through grid-enhancing technologies, upgrading existing transmission lines, and energy storage.
- Full integration of distributed energy resources into PJM’s markets.
- Meaningful system planning between PJM and other grid regions.
- Changes to PJM’s governance to include public policy and environmental voices.
Check out PJM-focused comments and other filings by the Sustainable FERC Project and other organizations in our library.
PJM lags the rest of the nation in renewable energy, but ambitious goals in many PJM states promise to change that. This creates tension with PJM’s capacity market, which has evolved to support the needs of PJM’s traditional generation fleet.
As PJM expanded, it came to include large amounts of legacy generation. More recently, very low-cost Pennsylvania natural gas has spurred a surge in new gas plant construction. This has left PJM chronically oversupplied—PJM typically has enough excess generation to supply a midsized state. Whether intentionally or not, PJM proved unwilling to allow generation retirements to clear that excess. Instead, we have seen an endless series of adjustments to capacity market rules that trend towards increasing the demand for generation, increasing the price paid for capacity, and suppressing competition from alternatives to traditional power plants.
The result is a market that undervalues low-carbon resources and effectively subsidizes excess fossil-powered generation. That excess generation suppresses energy prices, further stacking the deck against non-traditional resources. As states mandate large-scale renewable development, this problem will become acute. Correcting this while maintaining reliability is Sustainable FERC’s top priority in PJM.
A low carbon grid will require major transmission investments to move power to where it’s needed and to help average out the ups and downs of renewable power. Today’s transmission planning processes may not rise to the challenge of guiding these investments. Competing interests and the ever-present question of “who pays?” have limited transmission planning within PJM, let alone coordination between PJM and neighboring regions.
PJM’s territory, serving 65 million people, extends to all or part of 13 states (Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia and West Virginia) and the District of Columbia. As of June 2019 PJM’s generation capacity was 180,086 MW. PJM also manages 10,086 MW of demand response, Based in Valley Forge, PA, PJM dispatches generation, coordinates the wholesale market including energy (day-ahead and real-time), capacity market, and ancillary services.
PJM operates the bulk transmission system and wholesale electricity markets across all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
- Service territory: 369,089 square miles
- Power plants: 1,379
- Miles of transmission: 84,236
- Peak demand (2019): 148,228 MW
The largest transmission owners in PJM include:
- First Energy
- Philadelphia Electric
- Commonwealth Edison
Installed Capacity (Winter 2019)
Source: S&P Global Market Intelligence
Source: S&P Global Market Intelligence
PJM operates several different electricity markets, each serving different purposes.
- The energy market transacts power sales over a short-term one-day period and ensures a near-perfect balance between customer demand and supply in most circumstances. It consists of the Day-Ahead and Real-Time markets.
- The capacity market focuses on electricity supply adequacy up to three years into the future.
- The ancillary services markets fine tunes the system over seconds, minutes, and hours to maintain the 60 Hertz frequency, voltage, supplemental power, and larger power reserves necessary to maintain grid reliability during all conditions. PJM directly manages some of these services, such as voltage support, rather than using a market to meet the need.
In 2019, the combined market value of these PJM markets approached $40 billion. All of these costs are ultimately passed on to retail customers. Most of the costs are in the energy market, although the capacity market also makes up a large portion of costs, especially compared with other regions.
By 1997, PJM was operating its first cost-based real-time energy market, and the following year used its first bid-based market specific to locational marginal pricing (a framework that uses price to signal transmission system congestion, loss costs, and energy costs at specific places on the grid). In 2000, PJM launched a day-ahead energy market to complement its real-time market. In other words, the combined PJM Energy Market includes both the Day-Ahead and Real-Time markets.
As with other energy markets, the clearing price of the energy market usually is based on the offer price of the most expensive increment of supply necessary to meet demand at the specified time.
The day-ahead market allows market participants to secure prices for electric energy the day before the operating day and hedge against price fluctuations that can occur in real-time. One day ahead of actual dispatch, participants submit supply offers and demand bids for energy. These bids are applied to each hour of the day and for each pricing location on the system. Offers and bids that clear are entered into a pricing software system along with binding transmission constraints to produce the LMPs for all locations. Scheduled suppliers must produce the committed quantity during real-time or buy power from the real-time marketplace to replace what was not produced.
While the day-ahead energy market produces the schedule and financial terms of energy production and use for the operating day, a number of factors can change that schedule. The real-time energy market serves to balance supply and demand on a near-instantaneous basis and meet energy needs within each hour of the current day. In the real-time market, PJM conducts auctions every 5 minutes, during which generators submit a price (the “offer”) at which they can supply electricity to the wholesale market. PJM then clears all offers necessary to meet demand, beginning with the cheapest resource followed by the incrementally more expensive ones. The highest-priced resource to clear will set the price of wholesale power for that period.
PJM Manual 11 covers Energy Market Operations (as well as ancillary services).
Most of the states in PJM have shifted away from the cost of service model of regulating vertically integrated utilities’ investment in new power plants and energy services. As a result, the PJM markets are the primary source of revenue for many electricity suppliers. PJM has expanded its “capacity market” over time to supplement revenues from the energy market. The capacity market, also known as the “Reliability Pricing Model”, allows PJM to plan for longer-term grid reliability and resource sufficiency by securing a commitment from suppliers of power, energy efficiency and demand response for the capacity from their resources three years in advance of the planning year. A supplier’s capacity commitment represents their promise to be available to provide supply when needed, such as on a day when the system is under a lot of stress from high demand or other factors (such as a summer heat wave or winter cold snap).
Electricity consumption varies second-by-second. The power grid needs to closely follow this demand, while at the same time having enough reserve capability to meet any sudden unexpected events, such as a transmission line or power plant shutting down. Ancillary services are specialized products that meet these needs. They typically include frequency regulation, reactive power and voltage support, and various types of reserves. PJM operates markets to manage frequency regulation and reserves, and it directly manages other reactive power and voltage support.
PJM and all other grid operators managing different parts of the interconnected North American power grid constantly fine tune the amount of supply in the system to maintain a frequency of 60 Hertz (Hz). Too little supply to meet demand, and the frequency will drop, and too much supply, in contrast, increases frequency. Even seemingly minor frequency deviations as small as +/- 0.05 Hz can signal the onset of serious grid disturbances, so frequency control keeps deviations within manageable limits. Power generators and, increasingly, very large batteries, provide the small but critical amount of primary frequency support necessary to maintain grid reliability. These resources are paid to accurately follow the second-to-second changes in supply and demand.
Things break. Transmission lines fail and power plants sometimes suddenly go off line. Planning and the capacity market guarantee that there are always enough power plants or demand response, even with unexpected shutdowns. However, not all resources can react quickly enough to react to the immediate shortages of power caused by a sudden failure. The reserves markets and ancillary services cover that need.
In the reserves markets, generators and demand response are paid for standing ready to quickly increase output or reduce consumption. PJM holds two sets of reserves, one available on 10-minute notice and the other on 30-minute notice. Resources that can respond this quickly offer the price at which they’re willing to stand by, and, as in other markets, PJM chooses the least cost mix to meet reliability needs. Consumers who can reduce their consumption quickly when called provide as much as 20% of PJM’s 10-minute reserves.
PJM’s planning efforts include regional transmission expansion planning, interconnection planning for new generation, and managing the orderly retirement of old, costlier generation. When conducting long-range planning, PJM considers expected growth in the demand of electricity, retirements, and policy. PJM also engages in interregional planning with neighboring RTOs and transmission owners, including especially NYISO, ISO New England, and MISO.
Annually, PJM releases a Regional Transmission Expansion Plan (RTEP). This plan identifies needs looking 15 years out making sure the transmission system can meet national and RTO-mandated standards and begins a solicitation process to build transmission upgrades.
PJM planning criteria includes analysis surveying the impacts of forecasted loads, flows to and from neighboring systems, existing generation, transmission assets and queued generation and expected transmission upgrades. The Transmission Expansion Advisory Committee (TEAC) provides the primary stakeholder forum for the ongoing exchange of ideas, discussion of issues and presentation of RTEP upgrades. PJM’s Regional Planning Process Working Group (RPPWG) addresses specific issues associated with 15-year planning, market efficiency and interconnection request processes.
PJM uses a competitive planning process that implements FERC Order 1000, which makes room for non-incumbent transmission developments to actively participate in the planning process. The hope is to activate a planning process that is innovative, cost effective, and timely. The reality is often different, with few competitive projects making their way through the planning process.
Unlike the other RTOs, which are corporations, PJM is a limited liability company, and its members assume a share of PJM’s liabilities. Entities eligible to be members of PJM are in one of five sectors:
- Generation Owners
- Transmission Owners
- Other Suppliers
- Electric Distributors
- End-Use Customers
PJM’s governance structure is comprised of two main tiers, the PJM Board of Managers and the Members Committee. The Board of Managers is tasked with overseeing PJM’s core responsibilities. The Board is made up of nine members and the PJM president (who participates as a non-voting member). Like other RTO boards, the PJM Board approves an annual transmission plan. Unlike other RTO boards, the PJM board has additional rights and responsibilities, such as the power to overrule Members Committee decisions.
The Members Committee receives, reviews, and advises PJM on proposed major changes and initiatives. It consists of members who are among the five sectors of PJM.
Neither states nor public interest environmental organizations can be members of PJM because they are not among the five defined member sectors. However, state and public interest organization representatives can participate in most PJM stakeholder meetings, and through the Public Interest Organization and Environmental User Group.
PJM’s operations are governed primarily by three documents:
- The PJM Open Access Transmission Tariff, which dictates the overall operations of PJM, including the provisions specific to transmission service across the PJM footprint.
- The Operating Agreement, signed by all members of PJM, establishes how PJM operates as a regional transmission organization.
- The Reliability Assurance Agreement, signed by all the organizations in PJM that sell electricity to end-use customers, establishes obligations and standards for the signatories, including for example ensuring adequate capacity resources, providing assistance during emergencies and planning for the future needs of the system.
The Markets and Reliability Committee (MRC) reports to the Members Committee. The three permanent standing committees are the Market Implementation Committee (MIC), Operating Committee (OC), and Planning Committee (PC). These three committees report to the senior committees.
PJM’s hyperlinked chart of all of complete stakeholder process provides information on the approximately 50 committees, subcommittees, and task forces.
All committee procedures are government by the PJM Stakeholder Process Manual (Manual 34).
Receives proposals from other committees and user groups, reviews, and then makes recommendations to the PJM board.
Evaluates markets, reliability, and planning processes.
Develops proposals to improve competitive wholesale market conditions within PJM. For example, it has considered distributed energy resources, electric storage participation, fuel cost policy, fuel requirements for black start resources, and the opportunity cost calculator.
Reviews system operations seasonally and calls out any demand, supply, or operating issues.
Reviews and recommends system planning strategies, policies, and designs for the PJM system. Also responsible for assessments of the capacity reserve request and demand-side evaluation factor.
Provides a forum for discussion of important topics between the Members and the Board of Managers. It is closed to non-Members.
Reviews issues of physical security, cyber security and resilience.
Works on the Regional Transmission Expansion Plan and provides advice to the PJM Board. The Sub Regional RTEP Committees (SRRTEP) report to TEAC.