Celebrating 20 years of the PJM wholesale market

By Andy Ott, president and CEO

Twenty years ago on April 1, PJM inaugurated the nation’s first competitive wholesale electricity market, setting the stage for what would become the industry standard.

Today, we recognize how the markets that have evolved from that first competitive one have enabled $2.8-3.1 billion in savings each year for the 65 million consumers it serves in 13 states and the District of Columbia.

PJM utilities already had been discussing replacing a power pool with a competitive energy market in 1996, when the Federal Energy Regulatory Commission issued Order 888. The FERC Order opened transmission lines to competitors and non-incumbent entities with the goal of inciting competition in the bulk power marketplace.

PJM’s first bid-based market operated with a single clearing price, but not long afterward, we refined our method to align locational prices with corresponding grid conditions.

This flexible approach reflects differences in production costs, locations of generators and consumers, and total system demand. In addition, identifying areas where power transport is challenged informs investments in infrastructure, generator placement and the entrée of alternative technologies. These new technologies are attracted to PJM because the market provides easier access for them to sell their products and services to customers.

The PJM model and the broad geographic region it reaches foster more efficient operations, reducing cost for members.

But PJM’s role goes beyond markets in managing reliable operation of the largest high-voltage power grid in North America.

PJM coordinates the operation of more than 1,300 power generators and over 82,000 miles of transmission lines to ensure that sufficient capacity is always available, infrastructure is maintained, and long-range planning prepares for future customer demand, new technologies and evolving public policy.

Since the inception of PJM’s first market, markets have evolved and new ones emerged. In addition to the real-time and day-ahead energy markets, PJM administers the three-year forward capacity market, ancillary services and financial transmission rights markets. Together, these markets have signaled the exit of older, uneconomic resources and the entry of new, efficient generation and renewable power.

Markets have proven effective and efficient in accommodating public policy without the need for subsidies as well as changes in the industry, such as the influx of natural gas into the fuel mix. All the while, they fulfill the mission for which they were formed: maintaining reliability at the lowest reasonable cost.