The Explainer: PJM Interconnection, the Power Behind the Power Grid

Grid operator touches every aspect of power production, from which plants are in service to how much customers pay to keep their lights on.

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It is an organization largely unknown to the public, but one largely responsible for keeping the lights on, for determining where new power plants will be built, and, to an extent, for deciding how much consumers will pay on their electric bills.

PJM Interconnection, which is based in Valley Forge, PA, is the operator of the nation’s largest power grid, serving more than 60 million customers scattered over 13 states — from the Eastern Seaboard, including Washington D.C., and New Jersey, to Illinois. By some accounts, it is a model of how an independent power grid should operate.

In the beginning

PJM was established in 1927 by three electric companies, including Public Service Electric & Gas, to help lower electric prices and make the power grid more efficient. Its reach and powers expanded in the 1990s as states began deregulating the energy industry. The result was the creation of Regional Transmission Organizations, which oversee the electric transmission grid and decide in part where new power plants are located. PJM is the largest RTO in the country. It now consists of more than 800 companies — power suppliers, utilities, and others involved in the energy sector.

Why it’s so powerful

Because PJM ensures the reliability of the regional grid, it determines which power plants are used each day to meet capacity needs and at what price; where transmission lines are deployed, and where power plants connect to the grid.

How it Works

To determine what steps must be taken to keep the power grid reliable, PJM conducts regional planning reviews of where problems might pop up and what must be done to rectify them, such as new transmission lines and power plants.

In some cases, transmission projects lower ratepayers’ bills by reducing congestion on the grid, which tends to spike power prices, particularly in northern New Jersey. The highly contested Susquehanna-Roseland transmission line, which is now being built after lengthy litigation, is expected to reduce energy bills by up to $200 million a year.

According to its website, “PJM’s long-term regional process provides a broad, interstate perspective that identifies the most cost-efficient improvements to the grid to ensure reliability and economic benefits on a system-wide basis.’’

PJM also determines which power plants to use to provide electricity to the grid, a process that starts with the least-expensive units and then moves upward to more costly units until the projected demand for power is met.

The hitch, according to consumer advocates, is that whatever price the more expensive units earn for their electricity ends up being the price paid for less costly power, typically generated by nuclear and natural-gas-fired plants

The grid operator also oversees demand-response projects, which help reduce the need for electricity when peak loads rise, typically in summer months. It also determines what large renewable energy projects should move forward, including grid-supply initiatives involving wind and solar.

Why some in the energy sector have problems

Many of the issues that PJM faces stem from the deregulation of the energy sector in New Jersey and other states, a move advocates argued would lead to lower costs for consumers due to increased competition. In New Jersey, customers saw a drop in utility rates initially, largely because of a mandated discount in the law breaking up electric monopolies.

When those discounts expired, energy bills once again rose, although they’ve dropped in the past few years because of the discovery of natural gas deposits in shale formations in Pennsylvania and neighboring states.

The deregulation of the energy industry has expanded PJM’s role and its influence on customers’ electric bills. No longer are the costs of producing electricity — the bulk of a customers’ bill — regulated by state utility agencies.

A Power Struggle

Regulatory officials in various states have chafed at PJM policies aimed at making sure the grid has enough power to deliver electricity to customers. In New Jersey, those policies have proven expensive for ratepayers, who shell out more than $1 billion a year for the required power, primarily because of congestion on the power grid.

PJM and New Jersey, as well as other states, have battled in recent years over the latters’ efforts to build new power plants, a move regulatory officials hope will lead to lower energy prices. (New Jersey’s rank among the highest in the nation.)

To critics, it is a system designed to benefit the incumbent power suppliers. New power plants must win approval from PJM for costly interconnection agreements, which allow them to tie into the power grid without disrupting the system that’s delivering electricity to homes and businesses. Those costs, however, are so prohibitively expensive that many new projects end up never being built. The issue is now before the federal courts.