PJM State & Member Training Dept.

The Basics
PJM 101
Agenda
Introduction & Governance
Generation Dispatch
Transmission Control
Emergency Procedures Overview
Energy Markets
LMP
FTRs/ARRs
Two Settlement
Virtual Bids

6/03/2014 PJM2014
Agenda
Independent Market Monitor
Transmission Services
Ancillary Services
Reliability Pricing Model (RPM)
Regional Planning Process
Market Settlements
6/03/2014 PJM2014
Disclaimer:

PJM has made all efforts possible to accurately document all information in this
presentation. The information seen here does not supersede the PJM Operating
Agreement or the PJM Tariff both of which can be found by accessing:
http://www.pjm.com/documents/agreements/pjm-agreements.aspx

For additional detailed information on any of the topics discussed, please refer to
the appropriate PJM manual which can be found by accessing:
http://www.pjm.com/documents/manuals.aspx


6/03/2014 4 PJM2014
Introduction
6/03/2014 PJM2014 5
The History of PJM
6/03/2014 6 PJM2014
Who Are We?
6/03/2014 7 PJM2014
13 States + DC
Over 60 Million
People Served
158,448 MW
Peak Load
185600 MW
Installed Capacity
What Do We Do?
6/03/2014 8 PJM2014
Markets Operations
Planning
What is an RTO?
6/03/2014 9 PJM2014
A Regional Transmission Organization (RTO) is:

Independent from all market participants
Responsible for grid operations and reliability
Responsible for transmission service within region
Nine Major North American RTOs / ISOs
6/03/2014 PJM2014 10
North America Reliability Corporation (NERC)Regions
6/03/2014 PJM2014 11
ReliabilityFirst Corporation (RFC) and
SERC Reliability Corporation (SERC)
PJM footprint covers portions of both regions
Dominion located with SERC Region
PJMs RRO
12
*Source: ReliabilityFirst.com
6/03/2014 PJM2014
PJM does:
Direct operation of the transmission system
Remain profit neutral
Maintain independence from PJM members
Coordinate maintenance of grid facilities
How is PJM different from the local utility?
6/03/2014 PJM2014
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
How is PJM different from the local utility?
6/03/2014 14 PJM2014

Our Responsibility Managing the Bulk Power System
6/03/2014 15 PJM2014
Your Home
Local Utility
Company
Companies who
produce and
move electricity?
6/03/2014 PJM2014
Governance
6/03/2014 PJM2014 17
Two Tier Governance
6/03/2014 PJM2014
Independent Board (10)
Members Committee (Sectors)
Generation
Owners
Transmission
Owners
Other
Suppliers
Electric
Distributors
End-Use
Customers
18
Members Committee Voting Protocol
6/03/2014 19 PJM2014
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 = 0.667
Number of Sectors = 5

Required Affirmative = 5 x 0.667 = 3.335
3.47
3/5
0.60
PJM Committee Structure
20 6/03/2014 PJM2014
6/03/2014 PJM2014
Generation Dispatch
6/03/2014 PJM2014 22


Master Coordinator
Shift Supervisor
Generation
System Operator
Reliability Engineer
Power/Transmission
System Operator
Power/Transmission
System Operator
Valley Forge Control Room
6/03/2014 23 PJM2014


Milford Control Room
6/03/2014 24 PJM2014
Ensure sufficient generation is available or running to satisfy
the demand at any hour of the day including maintaining
adequate reserves
This is called Generation Control

Monitor, operate and control the high voltage transmission system in
a reliable manner
This is called Transmission Control
Dispatch Functions
6/03/2014 25 PJM2014
Oversee Complete Operation
Communications with
Governmental Authorities
Reliability Authority
Personnel Issues
Shift Supervisor
6/03/2014 26 PJM2014
Maintain System Control
Generation / Demand Balance
Maintain Adequate Reserves
Operate on Contingency Basis
Implement Emergency Procedures
To Keep the Lights on!
Synchronized Reserve/Regulation Market
Clear Market
Administer real-time optimization


Generation System Operator
6/03/2014 27 PJM2014
Achieving Energy Balance
Daily Load Curve
18
20
22
24
26
3 6 9 12 15 18 21 24
Hour
MW
Power
&
Imports
Demand
&
Exports
&
Losses
Frequency in Hz
6/03/2014 PJM2014 28
ACE Graph
0-Line
6/03/2014 PJM2014 29
Purpose is to ensure that the least cost generation is used to
satisfy demand
Enables power system to follow load as it moves from valley, to peak,
to valley over a 24-hour period
Adjustments are allocated to generating units to
optimize economy
Economic Generation Control
6/03/2014 PJM2014 30
Units trip
Units are delayed
Contract Curtailments
Weather
Emergency Procedures

Events That Take Place
6/03/2014 31 PJM2014
Schedule PJM System to ensure that there is enough generation
resources to cover projected load and required reserves
Additional Reserves
6/03/2014 PJM2014 32
Load Forecast
Weather

Directs scheduling of Generating Units
Load & Reserve Requirements

Capacity Tracking

Supports PJM Oasis for energy scheduling process
Tracks External Interchange
Master Coordinator
6/03/2014 PJM2014 33
Resource Availability
Resource Operating Constraints
Notification requirements
Min run time
Environmental restrictions

Offer Curves
Start-up and no-load costs

Hydro Schedules

Resource Information
6/03/2014 34 PJM2014
Weather
Temperature
Dew point
Wind speed
Clouds
Time of day

Season
Fall, Winter, Spring, Summer

Human behavior
What Affects Load (Customer Demand)?
6/03/2014 35 PJM2014
Load Curve - Summer Profile
RTO Load (MW)
70000
80000
90000
100000
110000
120000
130000
140000
150000
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Long, gradual rise
Significant persistence
2+ hour drop off
At 9,000 MW/Hr
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Load Curve - Winter Profile
RTO Load (MW)
70000
75000
80000
85000
90000
95000
100000
T
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4-hour pickup
At 4,000 MW/Hr
3-hour evening
peak period
4-hour drop off
At 4,500 MW/Hr
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Transmission Control
6/03/2014 PJM2014 39
Transmission System Operator
6/03/2014 PJM2014 40
Ensure Security of the Transmission System
Monitor Transfer Limitations
Monitor Thermal Constraints
Contingency Analysis
Direct Emergency Operations
Direct Off-Cost Operations
Generation Shifts
Contract Curtailments
Coordinate Switching


Transmission System Operations
6/03/2014 PJM2014 41
PJM Territory by Transmission Zones
PJM Operates as a
single Control Area
With free flowing
ties between Zones
6/03/2014 PJM2014
Analysis with State Estimator
6/03/2014 43 PJM2014
State estimator
Runs every minute
Calculates flows, voltages
Identifies actual limit violations
Security analysis
Runs every minute
Evaluates over 4,000 contingencies
Provides what if results
Power Transfer Limits
Thermal Limits
Voltage Limits
Stability Limits
6/03/2014 PJM2014 44
Control Actions
System Reconfiguration
Transaction Curtailments
Generation Re-dispatch
6/03/2014 PJM2014 45
How can we prevent problems on this system?
6/03/2014 PJM2014 46
EMS Identifies a Potential Problem
PJM EMS says What If?
If this line trips
This line will overload
6/03/2014 PJM2014 47
System Reconfiguration
Line from Bus 2 to Bus 3
switched out to prevent overload
6/03/2014 PJM2014 48
Contract Curtailments
Actual MW Flow
Scheduled Contract Path
Curtailing contract could fix problem..
6/03/2014 PJM2014 49
EMS Identifies a Potential Problem
PJM EMS says What If?
If this line trips
This line will overload
820 MW
0 MW
6/03/2014 PJM2014 50
Generation Re-dispatch
Bus 2 generator - Increase output

Bus 1 generator - Decrease output
820 MW
0 MW
790 MW
30 MW
Total supply = Demand = 820 MW
6/03/2014 PJM2014 51
Viewing Constraints - eData
Click the Constraints button
when highlighted
Constraints Message
Window will appear
6/03/2014 PJM2014 52
6/03/2014 PJM2014
Emergency Procedures
6/03/2014 PJM2014 54
There are three levels of emergency conditions:
Alerts
Warnings
Actions

PJM emergency procedures can be
found on the PJM website: www.pjm.com




Emergency Procedures
6/03/2014 PJM2014 55
Alerts
Maximum Emergency
Generation Alert
Primary Reserve Alert
Voltage Reduction Alert
The purpose of alerts is to keep
all affected system personnel
aware of the expected
conditions prior to actual period
of operation
ALERT
6/03/2014 PJM2014 56
Warnings
Primary Reserve Warning
Voltage Reduction Warning
Reduction of Non-Critical
Plant Load
Manual Load Dump Warning
Warnings are issued during present
operations to inform members of
actual capacity shortages or
contingencies that may jeopardize
reliable operation
6/03/2014 PJM2014 57
Actions
Maximum Emergency Generation
Emergency Mandatory Load
Management Reductions
Emergency Voluntary Energy Only
Demand Response Reductions
Voltage Reduction
Curtailment of Non-Essential
Building Load
The PJM control area is
normally loaded according
to offer prices. During periods
of reserve deficiencies, other
measures are taken to
maintain reliability
Manual Load Dump
6/03/2014 PJM2014 58
Emergency Procedures
Emergency Procedures can be viewed from the PJM Homepage (above)
(Access also available from eDATA or eMarket)
6/03/2014 PJM2014 59
Emergency Procedures
6/03/2014 PJM2014 60
6/03/2014 PJM2014
LMP Basics
6/03/2014 PJM2014 62
Pricing method PJM uses to:
price energy purchases and sales in PJM Market
price transmission congestion costs to move energy within PJM RTO
price losses on the bulk power system

Physical, flow-based pricing system:
how energy actually flows, NOT contract paths
What is LMP?
6/03/2014 63 PJM2014
Generators get paid at generation bus LMP
Loads pay at load bus LMP
Transactions pay differential in source and sink LMP
How does PJM Use LMP?
6/03/2014 64 PJM2014
Economic Dispatch Exercise
6/03/2014 65 PJM2014
Load
499 MWs
PJM
$15 LMP =
199 MWs @ $15
MW
$15

Capacity
200 MWs
Not Dispatched
MW
$20

Capacity
200 MWs
300 MWs @ $10
MW
$10

Capacity
300 MWs
I need MWs.
Sale goes to the
lowest offer with capacity.
Going once....
Locational Marginal Price
6/03/2014 66 PJM2014
System
Energy
Price
Transmission
Congestion
Cost
Cost of
Marginal
Losses
LMP is made up of 3 independent components
LMP Components - System Energy Price
6/03/2014 67 PJM2014
System Energy Price
Represents optimal dispatch ignoring congestion and losses
Same price for every bus in PJM
Calculated both in day ahead and real time
System
Energy
Price
Transmission
Congestion
Cost
Cost of
Marginal
Losses
LMP Components - System Energy Price
6/03/2014 68 PJM2014
Transmission path
Load = 1500MW
$20 Power
$50 Power
Dispatch 1500 MW
System Energy Price = $20
Congestion =
Losses =
LMP = $20
System Energy Price = $20
Congestion =
Losses =
LMP= $20
LMP Components - Congestion
6/03/2014 69 PJM2014
System
Energy
Price
Transmission
Congestion
Cost
Cost of
Marginal
Losses
Congestion Price
Represents price of congestion for binding constraints
Calculated using cost of marginal units controlling constraints
and sensitivity factors on each bus
Will be zero if no constraints
Will vary by location if system is constrained
Calculated both in day ahead and real time
LMP Components - Congestion
6/03/2014 70 PJM2014
Limit = 1000 MW
Load = 1500MW
$20 Power
$50 Power
System Energy Price = $20
Congestion = $ 0
Losses =
LMP = $20
System Energy Price = $20
Congestion = $30
Losses =
LMP= $50
Dispatch 1000 MW
Flow = 1000 MW
Dispatch 500 MW
LMP Components - Marginal Losses
6/03/2014 71 PJM2014
System
Energy
Price
Transmission
Congestion
Cost
Cost of
Marginal
Losses
Loss Price
Represents price of marginal losses
Calculated using penalty factors
Will vary by location
Calculated both in day-ahead and real-time
Real Power (MW) Losses
Power flow converted to heat in transmission equipment
Heat produced by current (I) flowing through resistance (R)
Losses equal to I2R
Heat loss sets the thermal rating
of equipment
Losses increase with:
Lower voltage
Longer lines
Higher current

Transmission Losses
6/03/2014 72 PJM2014
Transmission Losses
6/03/2014 73 PJM2014
Power In: 100 MW
Voltage In: 235 KV
Current In: 425.53 A
50 Miles
Power Out: 90.946 MW
Voltage out: 213.72 KV
Current Out: 425.53 A
Power Loss: 9.054 MW
Limit = 1000 MW
Load = 1500MW
$20 Power
$50 Power
System Energy Price = $20
Congestion = $ 0
Losses = ($ 1)
LMP = $19
System Energy Price = $20
Congestion = $30
Losses = $ 2
LMP= $52
Dispatch 1000 MW
Flow = 1000 MW
Dispatch 500 MW
LMP Components Marginal Losses
6/03/2014 74 PJM2014
6/03/2014 PJM2014
Two Settlement
6/03/2014 PJM2014 76
It provides PJM Market Participants with the option to participate in a
forward market for electric energy in PJM

Consists of two markets
Separate settlements performed for each market
What is TwoSettlement?
6/03/2014 77 PJM2014
Day-ahead Market
Financial market using Bid-In Load
Prices calculated hourly / Hourly settlements
Includes virtual bids and price sensitive demand

Real-time Market
Physical Market based on actual system conditions
Prices calculated every 5 minutes
Hourly Settlements based on deviations from Day-Ahead position
Two-Settlement Markets
6/03/2014 78 PJM2014
Heres How it Works..
Todays Price
10 Gallons * $3.75 = $37.50
Day-Ahead Settlement
10 Gallons
$3.75
6/03/2014 PJM2014 79
When You Show Up Tomorrow
10 Gallons: No Deviation - No Balancing Settlement
Todays Price
12 Gallons: 2 Gallons * $4.00 = $8.00 Balancing Charge
9 Gallons: 1 Gallons * $4.00 = $4.00 Balancing Credit
$4.00
6/03/2014 PJM2014 80
Day Ahead
6/03/2014 PJM2014 81
Offers Received from Resources
25MW @ $15
40MW @$5
15MW @$25
10MW @$30
20MW @$10
6/03/2014 PJM2014 82
Offers Sorted in Increasing Order
6/03/2014 83 PJM2014
125MW @$50
150MW @$25
175MW @$20
195MW @$10
100 MW @ $90
5 Offers

10 Offers

15 Offers

20 Offers

30 Offers
Supply Cleared to Meet Demand
6/03/2014 PJM2014
$???
$35
$25
$15 Bid - in Energy Demand
100,000 MW
84
Resources Scheduled to Meet Demand
RTO Load (MW)
70000
80000
90000
100000
110000
120000
130000
140000
150000
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$5
$10
$15
$20
$25
$30
$35
$40
$45
$10
$5
$50
Load (MW)
6/03/2014 PJM2014
Day-Ahead Market Timeline
6/03/2014 PJM2014
6:00 pm
12:00 noon
12:00 - 4:00 pm
Day-ahead market is
closed for evaluation
by PJM
4:00 - 6:00 pm
Re-bidding period
Throughout Operating Day
PJM continually re-evaluates and
sends out individual generation
schedule updates, as required
Up to 12:00 noon
PJM receives bids
and offers for
energy next
Operating Day
midnight
4:00 pm
4:00 pm
PJM posts day-ahead
LMPs & hourly schedules
Two-Settlement User Interface
eMKT Unit bids, load bids
InSchedules Contracts, Schedules
ExSchedule Physical Schedules
6/03/2014 PJM2014
Interacting with PJM Markets
6/03/2014 PJM2014
eDart
eRPM
Power Meter
eFTR
eLRS
eFuel
CAM
eMKT
ExSchedule
eData
Oasis
eGADS
MSRS
InSchedule
Simple Examples
6/03/2014 PJM2014
LSE with Day-ahead Demand < Real-time Demand
LSE with Day-ahead Demand > Real-time Demand


Generator with Day-ahead MW < Real-time MW
Generator with Day-ahead MW > Real-time MW
89
LSE with Day-Ahead Demand Less than Actual Demand
6/03/2014 90 PJM2014
Day Ahead
Market
Real-time
Market
Scheduled Demand
Actual Demand
= (105 - 100)* 23.00 = $115.00 charge
Real-time LMP = $23.00 Day Ahead LMP = $20.00
= 100 * 20.00 = $2000.00 charge
Total Charge = $2000 + $115 = $2115
LSE with Day-Ahead Demand Greater than Actual Demand
6/03/2014 91 PJM2014
Day Ahead
Market
Real-time
Market
Scheduled Demand
Actual Demand
= (95 - 100)* 23.00 = $115.00 credit
Real-time LMP = $23.00 Day Ahead LMP = $20.00
= 100 * 20.00 = $2000.00 charge
Total Charge = $2000 - $115 = $1885
Generator with Day-Ahead MW Less than Actual MW
Day Ahead
Market
Real-time
Market
Actual MW
= (205 - 200)* 22.00 = $110.00 credit
Real-time LMP = $22.00 Day Ahead LMP = $20.00
= 200 * 20.00 = $4000.00 credit
Total Credit = $4000 + $110 = $4110
Scheduled MW
6/03/2014 PJM2014 92
Generator with Day-Ahead MW Greater than Actual MW
Day Ahead
Market
Real-time
Market
Scheduled MW
Actual MW
Due to a
problem on a
unit
= (100 - 200)* 22.00 = $2200.00 charge
Real-time LMP = $22.00 Day Ahead LMP = $20.00
= 200 * 20.00 = $4000.00 credit
Total Credit = $4000 - $2200 = $1800
6/03/2014 PJM2014 93
PJM system hourly average LMP: 2013
6/03/2014 PJM2014
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Hedging Transmission Congestion
6/03/2014 PJM2014 96
Financial Transmission Rights are

What are FTRs?
financial instruments awarded
to bidders in the FTR
Auctions that entitle the
holder to a stream of
revenues (or charges) based
on the hourly Day Ahead
congestion price differences
across the path
+
LMP =
System
Energy
Price
Congestion
Price

Marginal
Loss Price

+
6/03/2014 PJM2014 97
Challenge:
Protect Load Servers from price uncertainty for
congestion charges
Redistribute excess congestion charges

Solution:
FTR credits equal congestion charges on same path
FTRs provide hedging mechanism that
can be traded separately from
transmission service
Why do we need FTRs?
6/03/2014 PJM2014 98
Economic value based on Day Ahead Congestion Component of LMP
Defined from source to sink
Financial entitlement, not physical right
Independent of energy delivery
Characteristics of FTRs
6/03/2014 PJM2014 99
Energy Delivery Consistent with FTR
6/03/2014 100 PJM2014
Source
(Sending End)
Thermal Limit
FTR = 100 MW
Congestion Charge = 100 MW * ($30-$15) = $1500

Congestion= $30 Congestion = $15
Sink
(Receiving End)
Bus B Bus A
Energy Delivery = 100 MWh
FTR Credit = 100 MW * ($30-$15) = $1500

100 MW FTR
Source
LMP = $18
System Energy = $20
Congestion = ($3)
Marginal Loss = $1



Sink
LMP = $29
System Energy = $20
Congestion = $7
Marginal Loss = $2



FTR Value = 100 MW * (7 - (-3)) = $1,000 Credit

Prevailing Flow FTRs point in the same direction
as the congestion
FTRs as a Benefit
6/03/2014 PJM2014 101
100 MW FTR
Sink
LMP = $18
System Energy = $20
Congestion = ($3)
Marginal Loss = $1



Source
LMP = $29
System Energy = $20
Congestion = $7
Marginal Loss = $2



FTR Value = 100 MW * ((-3) - 7) = $1,000 Liability

Counterflow FTRs point in the opposite direction
of the congestion
FTRs as a Liability
6/03/2014 PJM2014 102
Annual Auction
Multi-round
Multi-period
Multi-product
Entire System Capability

Secondary market -- bilateral trading
FTRs that exist are bought or sold

Monthly & Balance of Planning Period FTR Auction
centralized market
purchase left over capability

Obtaining FTRs
6/03/2014 103 PJM2014
Economic value determined by Day ahead hourly LMPs

Benefit (Credit)
Prevailing Flow

Liability (Charge)
Counterflow

FTR Options available
Never negatively valued
What are FTRs Worth?
6/03/2014 104 PJM2014
Auction Revenue Rights

What are ARRs?
6/03/2014 105 PJM2014
are entitlements allocated annually
to Firm Transmission Service
Customers that entitle the holder to
receive an allocation of the revenues
from the Annual FTR Auction
ARR / FTR Relationship
Entire PJM
System Capability

Auction
Revenue
Rights

Auction
Revenue
FTRs awarded
to bidders
(MWs & price)
Annual FTR Auction
Annual Allocation
ARRs
allocated
(MWs)
ARRs provide a revenue stream to the firm transmission customer to
offset purchase price of FTRs
$
Congestion
charges
$
Hourly
6/03/2014 PJM2014
Convert ARR into FTR by self-scheduling FTR into Annual Auction on
exact same path as ARR
Reconfigure ARR by bidding into Annual Auction
to acquire FTR on alternative path or for
alternative product
May retain allocated ARR and receive associated
allocation of revenues from the auction
What can the holder do with the FTR?
6/03/2014 PJM2014 107
Cross section of representative buses
Price less volatile than a single point
Common point for commercial trading
Hubs
Western, Eastern, West Int
Ohio, New Jersey, N. Illinois, Chicago
Dominion, AEP-Dayton
Chicago Gen, AEP Gen
Weighted average price, based on fixed, equal weights at each bus
New Jersey, N. Illinois and Chicago hub busses have different weights
See http://www.pjm.com/markets/energy-market/downloads/20050101-hub-
definitions.xls for detailed definitions
Hubs
6/03/2014 108 PJM2014
DE
NJ
9.
PA

MD
DC
VA
Hubs
6/03/2014 PJM2014
Virtual Bids
6/03/2014 PJM2014 110
Financial product existing in the Day-Ahead
market only
Created to foster price convergence between Day-Ahead and Real-
Time and add liquidity to markets
Settlements based on the difference between Day-Ahead and Real-
Time prices

Virtual Bids
6/03/2014 111 PJM2014
Look like a generator
(injects MW)
Specifies a price
and quantity
Turns on when the price
gets high enough
INCS vs. DECS
INCS DECS
Look like a load
(withdrawals MW)
Specifies a price
and quantity
Turns on when the price
gets low enough
6/03/2014 PJM2014 112
A real physical resource
Fixed connection point
Real vs. Virtual
GENERATOR INC
A financial position in the
Day-Ahead Market
Can connect anywhere
6/03/2014 PJM2014 113
A real physical load
Fixed connection point
Real vs. Virtual
LOAD DEC
A financial position in the
Day-Ahead Market
Can connect anywhere
6/03/2014 PJM2014 114
Sells MW into Day Ahead
Market at High Price
Buys replacement MW
from Real-Time Market
at Lower Price
Hopes that Day-Ahead
Prices are Higher than Real-
Time Prices
How do virtual bids make money?
INCs DECs
Buys MW from Day Ahead
Market at Low Price
Sells those MW in Real-
Time Market at
Higher Price
Hopes that Day-Ahead
Prices are Lower than Real-
Time Prices

6/03/2014 PJM2014 115
How do virtual bids make money?
INC Sells MW
into
Day-Ahead Market at $50
Buys replacement MW
at
$40 in Real-Time Market
Gets paid $50 and pays back $40 = $10 profit
6/03/2014 PJM2014
INCs and DECs are part of the Day-Ahead Supply curve

Treated just like generation to clear the market

Can displace more expensive generators and
set the clearing price in the Day-Ahead Market
How are Virtual Bids Treated?
6/03/2014 PJM2014 117
6/03/2014 PJM2014
Independent Market Monitor (IMM)
6/03/2014 PJM2014 119
Independent Market Monitor
PJM Members Committee
Markets
Committee
Planning
Committee
PJM Board of Managers
Monitoring Analytics
Federal Energy
Regulatory
Commission
Operating
Committee
The IMM reports directly to the PJM Board and to FERC
Market Monitoring Plan is not subject to modification by PJM members
Market Monitoring Plan: Attachment M of the PJM Tariff
6/03/2014 PJM2014 120
Market Monitoring Objectives
Monitor compliance with rules, standards, procedures and practices
of PJM
Monitor actual or potential design flaws
Monitor structural problems that may inhibit a robust
competitive market
Monitor the potential of market participants to
exercise market power
6/03/2014 PJM2014 121
Market Structure
Market Share
Affiliate Relationships/ Contractual Relationships
Participant Conduct
Bidding Behavior
Market Performance
State of the Market Report
What does the IMM look at?
6/03/2014 PJM2014 122
Discussion of issues with relevant Market Participants; informal resolution
Issue referral to FERC
FERC Office of Enforcement will evaluate and decide on corrective actions
Recommend modifications to rules, standards,
procedures and practices of PJM
Make recommendations to PJM Committees or to PJM Board
Make regulatory filings
Additional enforcement mechanisms
Corrective Actions of IMM
6/03/2014 PJM2014 123
State of the Market Report
IMMs annual assessment of the
competitiveness of the PJM markets

Analyzes market structure, participant
behavior, market performance

Provides details, charts, and graphs of
various market activities and prices
http://www.monitoringanalytics.com/home/index.shtml
6/03/2014 PJM2014
Transmission Services
6/03/2014 PJM2014 126
Types of Transmission Service
Network
Point-to-Point
Service Priority
Transmission Service Reservations
PJM OASIS

Transmission Service Topics
6/03/2014 PJM2014 127
Network Integration Service
BC
PL
Conectiv
PS
PJM
All load in PJM is served
using Network Integration
Transmission Service
6/03/2014 PJM2014 128
Point to Point Transmission Service
Imports, exports and wheels
through must reserve Point to
Point service in OASIS
AEP
CE
DOM
PS
PJM
AMRN
NY
NIPS
TVA
6/03/2014 PJM2014 129
Non-Firm Service
Short term only
Hourly
Daily
Weekly
Monthly

Point to Point Service Periods
Firm Service
Long Term - one year or longer
Short term
Daily
Weekly
Monthly
6/03/2014 PJM2014 130
Priority of Service
1. Network and Firm Point to Point

2. Network import willing to pay congestion

3. Non-Firm willing to pay congestion

4. Non-Firm over Secondary Points willing to pay congestion

5. Spot Market Import

6. Network not willing to pay congestion

7. Non-firm not willing to pay congestion

6/03/2014 PJM2014 131
OASIS

6/03/2014 PJM2014
Ancillary Services
6/03/2014 PJM2014 134
Regulation Market
Reserve Reserve Market
Black Start Service
Reactive Services
Scheduling, System Control & Dispatch


Ancillary Services
6/03/2014 PJM2014 135
Regulation Market
Generation and Demand Response resources
Transmission customer must provide or purchase
Resources must be able to respond within 5 minutes
Resources are paid based on their performance
Purpose: To provide for the continuous balancing of generation
and load
6/03/2014 PJM2014 136
What is Regulation?
Definition:
A variable amount of generation energy under automatic control which is
independent of economic cost signal and is obtainable within five minutes
Generating units or Demand Response Resources
that provide fine tuning that is necessary for effective
system control
Governors respond to minute-to-minute changes in load
Regulating units correct for small load changes that cause
the power system to operate above and below 60 Hz for
sustained period of time
6/03/2014 PJM2014 137





Load (MW x 1000)
Hour of Day
1 3 5 7 9 11 13 15 17 19 21 23
40
36
34
32
30
28
24
2
6
Regulation
Economic Dispatch
Regulation vs Economic Dispatch
6/03/2014 PJM2014
LSEs have obligation to purchase based on Load
Ratio Share
Bilateral
Scheduling owned resources
Purchase from Reserve Market
Co-optimized with Regulation Market
Allows for participation by Demand Side
Response resources
Reserves Market
Purpose: To bring generation and load back in balance after the
loss of generation
6/03/2014 PJM2014 139
Synchronized Reserves
Online resources that can respond
within 10 minutes
Non-Synchronized Reserves
Offline resources that can respond
within 10 minutes


Reserves Market
6/03/2014 PJM2014 140
Transmission Owners, with PJM identify critical
Blackstart units
Generator annual revenue requirements - Cost-
based service
Charges go to Transmission Customers
Annual Blackstart testing requirements

Purpose: To provide a power source to start critical generation
after a system shutdown
Blackstart Service
6/03/2014 PJM2014 141
Reactive Supply & Voltage Control
FERC approves reactive revenue requirements
PJM calculates zonal rate
Paid by transmission customers
Credits go to generation resources and
transmission owners
Purpose: To maintain transmission voltages within
acceptable limits
6/03/2014 PJM2014 142
Schedule 9 of PJM Tariff
Control Area Administrative Service
FTR Administrative Service
Market Support Service
Regulation Administrative Service
Capacity Resource and Obligation Service

Scheduling, System Control & Dispatch
Purpose: To provide transmission service and operate the
energy market
6/03/2014 PJM2014 143
6/03/2014 PJM2014
Reliability Pricing Model (RPM)
6/03/2014 PJM2014 145
Energy
Generation of electrical power over a
period of time
Energy revenues paid to resource
based on participation in PJMs
Day-Ahead & Real-Time
Energy Markets
Hourly product
Capacity vs. Energy
Capacity
A commitment of a resource to
provide energy during PJM
emergency under the capped
energy price
Capacity revenues paid to committed
resource whether or not energy is
produced by resource
Daily product
Capacity, energy & ancillary services revenues are expected, in the long term, to meet the
fixed and variable costs of generation resources to ensure that adequate generation is
maintained for reliability of the electric grid
6/03/2014 PJM2014 146
Installed Capacity (ICAP) value of a unit is based on the summer net
dependable rating of a unit as determined in accordance with PJMs Rules
and Procedures
Unforced Capacity (UCAP) value of a unit is the installed capacity rated at
summer conditions that is not on average experiencing a forced outage or
forced derating

Equivalent Demand Forced Outage Rate (EFORd) is a measure of the
probability of a generating unit will not be available due to forced outages
or forced deratings when there is demand on the unit to operate
Common Terminology in RPM
UCAP = ICAP x (1-EFORd)
UCAP Concept is extended to value demand resources, energy efficiency resources,
qualifying transmission upgrades in RPM
6/03/2014 PJM2014 147
Resource commitments to meet system peak loads three years in
the future
Three year forward pricing which is aligned with reliability
requirements and which adequately values all capacity resources
Provide transparent information to all participants far
enough in advance for actionable response
Objectives of RPM
Purpose of RPM is to enable PJM to obtain sufficient resources to reliably meet the needs
of electric consumers within PJM
6/03/2014 PJM2014 148
Determines the amount of capacity resources required to serve the
forecast peak load and satisfy the reliability criterion
The reliability criterion is based on Loss of Load Expectation (LOLE)
not exceeding one event in ten years
Resource Adequacy Requirement
6/03/2014 149 PJM2014
An Installed Reserve Margin (IRM) = 15.7% satisfies the reliability criterion for the
2017/18 Delivery Year Base Residual Auction

Resource Adequacy ICAP Requirement = Forecast Peak Load * (1+ IRM)
Locational Constraints are capacity import capability limitations that are caused by
transmission facility limitations, or
voltage limitations
PJM determines constrained sub-regions (i.e., locational deliverability areas) to be
included in RPM Auctions to recognize and quantify the locational value of capacity

Constrained regions are determined by comparing the import limit of a region (CETL)
to the amount of capacity that needs to be imported into a region to meet the
reliability criterion (CETO)
What are Locational Constraints?
Locational
Deliverability
Area (LDA)
Import Limit (MW)
CETL = Capacity Emergency Transfer Limit
CETO = Capacity Emergency Transfer Objective
6/03/2014 PJM2014
Locational Deliverability Areas
Regions
Western PJM (ComEd, AEP, Dayton, DLCO, APS, ATSI, Duke)
Mid-Atlantic Area Council (MAAC) Region
Eastern MAAC (PSE&G, JCP&L, PECO, AE, DPL & RECO)
Southwestern MAAC (PEPCO & BGE)
Western MAAC (Penelec, MetEd, PPL)
Zones
AE, AEP, APS, ATSI, BGE, ComEd, Dayton, DLCO, Dominion, DPL, Duke, EKPC, JCPL,
MetEd, PECO, Penelec, PEPCO, PPL, PSEG
Sub-Zones
PSEG Northern Region (north of Linden substation)
DPL Southern Region (south of Chesapeake and Delaware Channel)
Cleveland (within ATSI)
RTEPP has currently identified 27 sub-regions as Locational Deliverability Areas (LDAs)
for evaluating the locational constraints
6/03/2014
PJM2014
151
RPM Structure
Base Residual
Auction
Delivery Year
3 Years
Second
Incremental
Auction
Third
Incremental
Auction
June
May
3 months
10 months
First
Incremental
Auction
20 months
EFORd
Fixed
Ongoing Bilateral Market
May
Feb.
July
Sept
Conditional
Incremental
Auction

May be
scheduled
at any time
prior to DY
RPM Auctions (Starting with 12/13 DY)
Activity Purpose Cost of Procurement
Base Residual Auction Procurement of RTO Obligation less an amount
reserved for short term resources, less FRR Obligation
Allocated to LSEs through Locational
Reliability Charge
1
st
Incremental Auction Allows for:
(1) replacement resource procurement
(2) increases and decreases in resource
commitments due to reliability requirement
adjustments; and
(3) deferred short-term
resource procurement
Allocated to resource providers that purchased
replacement resources and LSEs through
Locational Reliability Charge
2
nd
Incremental Auction
3
rd
Incremental Auction
Conditional Incremental Auction Procurement of additional capacity in a LDA to address
reliability problem that is caused by a significant
transmission line delay
Allocated to LSEs through Locational
Reliability Charge
6/03/2014 PJM2014 153
The price is higher when the resources are less than the reliability
requirement and lower when the resources are in excess
VRR Curves are defined for the PJM RTO and for each constrained
Locational Deliverability Area (LDA) within the PJM region
What is the VRR?
6/03/2014 154 PJM2014
The Variable Resource Requirement (VRR) Curve is a downward sloping
demand curve that relates the maximum price for a given level of
capacity resource commitment relative to reliability requirements
Illustrative Example of a VRR Curve
A VRR Curve is defined for the PJM Region
Individual VRR Curves are defined for each Constrained LDA
Quantity = UCAP MW
P
r
i
c
e

=

U
C
A
P

P
r
i
c
e

(
$
/
M
W
-
d
a
y
)

(a)
(b)
(c)
1.5 Net Cone
Net Cone
0.2 Net Cone
(IRM 3%) (IRM + 1%) (IRM + 5%) IRM
Effective 12/13 DY:
Target Level = Reliability Requirement Short Term
Resource Procurement Target
6/03/2014 PJM2014 155
Clearing 2012/2013 Base Residual Auction
Clearing determined by the intersection of the supply and the demand curves
Base Residual Auction
6/03/2014 PJM2014
In RPM, Resources are =
What is a Supply Resource in RPM?
Demand
Resources
(DR)
Qualifying
Transmission
Upgrades
(QTU)
Generation
Resources

Energy
Efficiency
Resources
(EE)
(Effective with 11/12 DY)
6/03/2014 PJM2014 158
Source: PJM 2015/16 Base Residual Auction Report
6/03/2014 PJM2014
Optimization
Algorithm
Supply
Resource-
specific
Sell Offers
Demand
Variable Resource Requirement (VRR) Curves
for Base Residual Auction
Locational Buy Bids for Incremental Auctions
Locational Constraints
Auction Results
Resource Commitments
Resource Clearing Prices
UCAP Obligation values
Capacity Transfer Rights
(CTR)
Zonal
Capacity
Prices
CTR Rates
RPM Auction Process
6/03/2014 PJM2014
6/03/2014 PJM2014
Regional Planning Process
6/03/2014 PJM2014 162
15 year outlook to identify reliability standards violations

Test the transmission system against mandatory national standards
and PJM regional standards

Reliability and economic efficiency drivers



Regional Planning Objectives
6/03/2014 PJM2014 163
Develop transmission reinforcements in collaboration with
Transmission Owners

Develop a unified Strategy for the entire PJM footprint
the RTEP

Submit Plan to PJMs independent governing
Board for consideration and approval
Regional Planning Objectives
6/03/2014 PJM2014 164
RTEP Development Drivers
6/03/2014 PJM2014 165
Installed capacity Fuel Mix as of 12/31/12
6/03/2014 PJM2014
Fuel Mix for all Queued Generation Interconnection
Requests since 1999
6/03/2014 PJM2014

Sliding Queue Concept
6/03/2014 PJM2014 168
Small Generation Interconnection Request Process
6/03/2014 PJM2014 169
Facilities Required for Direct Connection
Costs Allocated to Developer
Network Facilities Required to Accommodate Project
Costs Allocated On A But For Basis
Cost Allocation Among Multiple Developers
If They Collectively Cause the Need For A
Network Upgrade


PJM Cost Allocation Methodology
6/03/2014 PJM2014 170
Accessing the PJM RTEP Report
This report is a comprehensive study of the planned system upgrades within PJM. It explains:





System Upgrade Drivers
Load growth
Generation additions
Generation deactivation
Reliability Criteria Violations
Transmission constraints
Voltage limits
Enhancements Needed
New facilities
Upgrades to existing facilities
6/03/2014 PJM2014
Market Settlements
6/03/2014 PJM2014 173
Billing Cycle
Billing Week
Weekly
Bills
issued
Payments
due to PJM
Payments
made to
participants
Payments due
to PJM
(EOM and
1
st
week)
Payments to
participants
(EOM and
1
st
week)
Monthly Billing Statement:
Issued on the 5
th
business day of the
following month
Financially settled together with the
following months first weekly billing
statements financial statement
Weekly Billing Cycle:
Runs Thursday Wednesday
Weekly bills sent the following Tuesday
Payments due PJM on the following Friday
via Automated Clearing House (ACH) or
Wire Transfer
Disbursements made to participants the
following Monday
Market Settlements Process
Customer Invoice Charges/Credits for:
Energy Markets
Transmission Service
Ancillary
Reliability Pricing Model
Miscellaneous categories
Market
Settlements
System
Inputs to Settlements
Day-ahead schedules, real-time metering, interchange schedules, internal InSchedule, Ancillary
Service obligations, transmission reservations, LMPs, FTR positions, capacity positions,
other miscellaneous data
6/03/2014 PJM2014 175
CREDITS
Spot Market Energy
Transmission Congestion
Network Transmission
Firm Point to Point
Non-Firm Point to Point
Transmission Losses
Regulation
Spinning Reserve
Black Start Service
Operating Reserves
Reactive Supply
Capacity Credit Market
Capacity Deficiency
FTR Auction
FTR Auction Revenues
Reconciliation
Distribution Facilities
Charges and Credits
CHARGES
Spot Market Energy
Transmission Congestion
Network Transmission
Firm and Non-Firm Point to Point
Transmission Losses (P to P)
Regulation
Spinning Reserve
Black Start Service
Operating Reserves
PJM Schedule 9 & MAAC
Transitional Market Expansion
Reactive Supply
Capacity Credit Market & Capacity Deficiency
FTR Auction
Meter Correction
Ramapo PAR
Reconciliation
Distribution Facilities

6/03/2014 PJM2014 176
PJM Bill
Day Ahead Balancing Total
Spot Market Energy (200) (200) (400)
Transmission Congestion 100 100 200
Network Transmission ----------------------------------------- ---
Firm Point to Point ----------------------------------------- 200
Non-Firm Point to Point ----------------------------------------- 200
Transmission Losses 10 20 30
Spinning Reserve ---------------------------------------- ---
Black Start ---------------------------------------- ---
Regulation ---------------------------------------- 20
Operating Reserves 20 20 40
PJM Schedule 9 ---------------------------------------- 10
Reactive Supply ---------------------------------------- 10
MAAC ---------------------------------------- 5
Capacity Credit Markets ---------------------------------------- ---
Capacity Deficiency ---------------------------------------- ---
Meter Correction ---------------------------------------- 5
Ramapo PAR --------------------------------------- 5
Reconciliation --------------------------------------- 5


Charges and credits
can be positive
or negative
Detailed Settlement Reports (both Monthly and Weekly)
are provided electronically via the PJM MSRS System
(Market Settlement Reporting System)
Overdue balances are subject
to interest charges
Weekly settlements (as opposed to
monthly settlements) will reduce the
default exposure for all PJM members
PJM Credit Policy: Attachment Q, PJM Tariff
Settlement Information
6/03/2014 PJM2014
Accessing the PJM Guide to Billing
6/03/2014 179 PJM2014
Guide to
PJM Billing
6/03/2014 PJM2014
Customer Hotline 610-666-8980
Client Managers
Website FAQs www.pjm.com
Contacting PJM
6/03/2014 181 PJM2014
Questions?
6/03/2014 PJM2014
The End
6/03/2014 PJM2014 183