Early August Demand Response Produces $650 Million Savings in PJM

Reducing Electricity Use Stretches Power Supplies, Lowers Wholesale

Electricity Prices

Aug 17, 2006, 01:00 ET from PJM Interconnection

    VALLEY FORGE, Pa., Aug. 17 /PRNewswire/ -- Conservation during heat
 waves not only stretches power supplies, it saves money. Reductions in
 electricity use during the early August heat wave produced price reductions
 estimated to be equivalent to more than $650 million in payments for energy
 for the week, according to PJM Interconnection, which operates the regional
 power grid.
     Customers in the 13-state PJM region set a new record for power
 consumption of 144,796 megawatts on Aug. 2. On that day alone, voluntary
 reductions in electricity use, known as demand response, resulted in price
 reductions estimated to be equivalent to more than $230 million in payments
 for energy.
     "These voluntary curtailments reduced wholesale energy prices by more
 than $300 per megawatt-hour during the highest usage hours," said Andrew L.
 Ott, PJM vice president - Markets. "While many wholesale customers, such as
 utilities, were hedged against high real-time spot-market prices, all
 customers will benefit from the dramatic price reductions because future
 longer-term electricity sales are based on prices set in the real-time
 market, where prices were lower as a result of demand response."
     Demand response involves reducing the use of electricity (demand) to
 meet a power grid need rather than increasing generation (supply).
 Customers offer to reduce their usage of electricity in return for being
 paid the market value of the electricity saved. Demand response can lower
 the price of electricity by avoiding the use of the most expensive
     Customers who curtail their usage receive payments based on the price
 to generate an equal amount of electricity. PJM payments to demand response
 providers for the heat wave during the first week in August were about $5
     "Transmission owners, generation operators and demand response
 providers played critical roles in allowing PJM to provide a record amount
 of electricity while maintaining reliable grid operations," Ott said.
     The increase in peak electricity demand in PJM from the summer of 2005
 to this summer was more than 10,000 megawatts, enough electricity to power
 a major city.
     PJM Interconnection ensures the reliability of the high-voltage
 electric power system serving 51 million people in all or parts of
 Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey,
 North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and
 the District of Columbia. PJM coordinates and directs the operation of the
 region's transmission grid, which includes 6,038 substations and 56,070
 miles of transmission lines; administers the world's largest competitive
 wholesale electricity market; and plans regional transmission expansion
 improvements to maintain grid reliability and relieve congestion. Visit PJM
 at http://www.pjm.com.

SOURCE PJM Interconnection