How Does PJM Make Money?

The simple answer is that PJM does not make money. Per federal regulation, PJM operates as profit neutral, meaning total revenues and expenses must equal each other over the long term.

PJM Interconnection and PJM Settlement, Inc. - the PJM subsidiary that handles member billing - are both regulated by the Federal Energy Regulatory Commission. Both companies are non-stock companies. This means that neither company has the right to issue stock shares to raise equity funding. Also, neither company has any debt (such as bonds) issued to the public or traded publicly.

PJM’s expenses are recovered from its members primarily based on fixed, long-term rates in PJM's Open Access Transmission Tariff (PDF) | (WEB) . PJM recovers its administrative costs – the costs of operating the electric transmission system and the wholesale electricity markets – through fixed rates billed to members based on their activity levels.

• If PJM collects more revenues from the fees than its actual expenses for each calendar quarter, then PJM refunds the over-collections to members in the subsequent calendar quarter.
• Alternatively, if PJM collects lower revenues from the fees than its actual expenses for each calendar quarter, then PJM may use an approximately $14 million long-term reserve previously funded by PJM’s members.

What are PJM’s Costs?

As a sample, the chart below is a summary of the primary components of PJM’s 2014 expense budget, the costs of which are recovered from the rates billed to members based on their activity levels.

• Compensation includes salaries, overtime, incentive compensation, employee benefits and retirement benefits.
• Outside Services represents PJM’s costs for contractors and consultants.
• Depreciation and Interest are the gradual payment of PJM’s capital expenditures and related debt financing over the period during which an asset is expected to be usable for the purpose it was acquired.
• Technology is the sum of software license fees and hardware maintenance contracts.
• Other expenses include facilities maintenance, telecommunications, utilities, insurance, training, meetings and travel.

How Does PJM Recover Its Costs?

As an example, the chart below demonstrates what percentage of PJM’s annual net expenses is collected through different types of services provided by PJM and from different members based on their PJM activity.