PJM detects, corrects power flow discrepancy

VALLEY FORGE, Pa., July 22, 2002 — The PJM Interconnection on Friday detected and took action to correct a power trading practice that increased prices.

PJM acted because of the large and growing discrepancy between contract and actual power flows at its interface with American Electric Power (AEP) and its interface with Dominion Virginia Power.

PJM was subjected to loop flows in excess of 3,000 megawatts. The loop flows distorted congestion prices and could have required transmission loading relief (TLR) steps. TLRs curtail transactions that cause loop flows that could overload the transmission system.

“The significant economic distortions needed to be addressed immediately,” said Joe Bowring, manager of PJM’s independent market monitoring unit. “The result of PJM’s action is to align actual power flows more closely with prices, which allows market forces to correct the problem. Our market, using locational marginal pricing, will self-correct for conditions like this when AEP and Dominion become part of PJM.”

On July 19, PJM issued a policy that all power sale transactions to or from two North American Electric Reliability Council regions west of PJM would be assigned the price at the PJM-AEP interface regardless of the contract path. The two regions are the East Central Area Reliability Coordination Agreement (ECAR) and the Mid-America Interconnected Network, Inc. (MAIN). The policy was authorized by the PJM Operating Agreement, which states that pricing for sales into PJM should be based on “appropriate flow analysis.”

Contracts scheduled through ties between PJM and FirstEnergy (FE) are not affected; they will continue to receive the PJM-FE interface price.

PJM, the country’s first fully functioning regional transmission organization, operates the world’s largest competitive wholesale electricity market and North America’s largest power grid. The company currently coordinates a pooled generating capacity of more than 71,600 megawatts and operates a wholesale electricity market with more than 200 market buyers, sellers and traders of electricity.

PJM has administered more than $9 billion in energy and energy service trades since the regional markets opened in 1997. More than 70 nations have sent delegates to PJM to learn about its market model and the operation of the grid in a region including more than 25 million people in all or parts of PA, NJ, MD, DE, OH, VA, WV and the District of Columbia.

With the April 1, 2002, addition of PJM West, for the first time nationally two separate control areas now operate under a single energy market and a single governance structure across multiple North American Electric Reliability Councils. Visit PJM at www.pjm.com.

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