Introduction

Power Generation, Transmission, and Use

Markets, Regulation, and Oversight

Impacts of Power Generation and Transmission

Looking Ahead

Appendices

CEIR Report Map

PPRP Home

Maryland Power Plants and the Environment (CEIR-18)

3.1 Wholesale Markets and PJM

The costs of generation and supply of electricity are not regulated by the State of Maryland and prices are set by the competitive wholesale and retail electricity markets. The high-voltage transmission system is regulated at the federal level and operated by the regional transmission organization, PJM (see Appendix B for a map of the PJM zones and additional information on PJM). Note that the State of Maryland retains regulatory control over siting for new generation and high-voltage transmission development (i.e., over 69,000 volts) through the Certificate of Public Convenience and Necessity (CPCN) process (see Chapter 1).

In states with restructured markets, such as Maryland, electricity is generated by a power company that is separate from the entity responsible for transporting and delivering power to end-use customers. Entities selling energy on the wholesale market include competitive suppliers and power marketers that are affiliated with utility holding companies, independent power producers not affiliated with a utility, and traditional vertically integrated utilities located within the region. Entities that purchase energy in the wholesale market to supply to end-use consumers are referred to as load serving entities (LSEs) and can be either distribution utilities or independent energy suppliers. Like many other commodities, electricity is frequently bought and re-sold several times before finally being consumed. These sales and re-sale transactions make up the wholesale market.

Click to OpenEvolution of PJMPJM operates and independently monitors the markets for the purchase and sale of both energy and capacity. Energy refers to the electric power that is used by customers over a given period of time and is measured in units of watt-hours. Energy costs typically include fuel and operating expenses. Capacity refers to the infrastructure and physical plant available to produce electrical power at some instant in time and is measured in watts. Costs for capacity typically include fixed and capital-related costs.

A reliable supply of energy depends upon sufficient electric generating capacity at times of high demand. States in the Northeast that have restructured their retail electricity markets rely on a combination of energy markets and capacity markets to create sufficient economic incentives for development of new generation capacity necessary to meet electricity demand. Figure 3-1 shows supply and demand in PJM in 2015.

Figure 3-1 PJM Supply and Demand for 2015

Bar Chart showing PJM Supply and Demand for 2012

Evolution of PJM

PJM Interconnection is a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states: Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM manages the high-voltage transmission grid to serve over 61 million people. PJM also operates a wholesale competitive power market that annually exceeds $42 billion in volume. PJM is the oldest, continuously operating power pool in the world.

PJM's Service Areas

Map showing PJM Service Areas as colored regions in Maryland, other Mid-Atlantic states, and Mid-Western states.

Source:  Sustainable FERC.  http://sustainableferc.org/wp-content/uploads/2014/09/pjm-map.png.

PJM began in 1927 when the Public Service Electric and Gas Company, Philadelphia Electric Company (now a subsidiary of the Exelon Corporation) and Pennsylvania Power & Light Co. formed the P.A. N.J. Interconnection power pool.  The intent of the power pool was to centrally dispatch electric generating plants in the pool by cost, decreasing the generation costs for all members.  The P.A.-N.J. agreement also called on member utilities to make transmission capacity available for power interchange, share load and reserves and assist each other during system emergencies.  Each member utility was responsible for planning its own generation and transmission, which were reviewed by a PJM planning and engineering committee to ensure that, in combination with other member utilities, would meet PJM reliability targets. The name was changed to the Pennsylvania-New Jersey Maryland Interconnection, or PJM, in 1956 when Baltimore Gas & Electric (now a subsidiary of the Exelon Corporation) and General Public Utilities (now a part of FirstEnergy) joined. 

In 1997, FERC approved PJM as the first fully functioning independent system operators (ISO), which operate but do not own transmission systems and allow non-utility users access to the transmission grid. In an effort to develop competitive wholesale power markets and operate a multi-state transmission system, FERC encouraged PJM to form a regional transmission organization (RTO). PJM became the first fully functioning RTO in 2001 and integrated a number of utilities into its system between 2002 and 2005, including: Allegheny Power (2002), Commonwealth Edison (2004), American Electric Power (2004), Dayton Power and Light (2004), Duquesne Light (2005) and Dominion (2005). 

Source:
PJM, PJM Annual Report for 2015, May 2016, http://www.pjm.com/~/media/about-pjm/newsroom/annual-reports/2015-annual-report.ashx.
“PJM History,” PJM Interconnection, http://www.pjm.com/about-pjm/who-we-are/pjm-history.aspx, accessed May 20, 2016.