PJM Interconnection, the largest U.S. power market, on Wednesday openly questioned its own design and mission, as the upper Midwest and mid-Atlantic regional grid operator struggles to address an electricity supply crunch and a political crisis around energy affordability.
Pennsylvania-based PJM, regulated by the Federal Energy Regulatory Commission, is beset by criticism from governors and members of Congress who face midterm election voters angry about higher electricity prices that have fueled inflation fears.
At the same time, PJM is under immense pressure to reform itself for the purpose of serving rapidly rising energy demand from technology companies and their data centers. The Trump administration along with utility companies with multibillion-dollar energy projects on the drawing boards to power data centers are pressing PJM to speed up grid interconnections.
PJM circulated a 70-page white paper Wednesday that cast PJM’s need to change the wholesale power market in stark terms.
“Wholesale electricity markets are extraordinary institutions, and their most essential infrastructure is not a price curve or a performance obligation — it is legitimacy,” wrote PJM CEO David Mills. “Generators, utilities, investors and consumers must all believe, at a basic level, that the rules are fair, stable and the product of a process they recognize as credible.”
Mills also seemed to defend PJM against criticism that it’s been too slow to propose fundamental changes to its market design.
“We have also deliberately refrained from recommending a path. Some may read that as institutional caution. It reflects something more specific: a conviction, deepened by this work, that the choices described here are not primarily engineering or design choices,” Mills wrote.
“Those choices belong to the people and institutions with democratic accountability for their consequences — to state regulators and legislatures, to FERC, to consumers and the advocates who represent them,” Mills wrote. “PJM’s role is to ensure those choices are made clearly, not to substitute our judgment for theirs.”
PJM’s high-powered transmission system delivers electricity across a region stretching from Chicago to North Carolina. It includes Virginia’s Data Center Alley, a growing hub home to roughly one-quarter of U.S. data centers. Some energy experts warn data center clusters are straining the regional grid and risking blackouts.
PJM is scrambling to secure new power generation to meet projected demand, with a shortage coming as soon as 2027. But prices for its key mechanism for doing that — the capacity market — are now capped after the White House and state officials led by Pennsylvania’s Democratic Gov. Josh Shapiro pushed for price controls after a sharp increase led to billions of dollars in costs flowing into household utility bills starting last summer.
In the paper, PJM, which has been operating since 1927, said the market is no longer serving the economic and political realities of the U.S. electricity sector. It continued to warn that unprecedented demand from data centers is colliding with the retirement of old coal and gas-fueled generating plants, an interconnection process built for an era of slower growth, and sharply higher costs for building power plants.
PJM says the market is doing what it was designed to do: responding to high demand by raising payouts to generators to increase supply. But those prices spurred politicians to negotiate auction delays and price caps, which in turn disincentivized investment in new power sources.
“The result is what might be called a credibility trap,” PJM officials wrote in the paper. “High scarcity prices that are economically necessary to signal the need for investment become, in this environment, the trigger for governmental intervention that undermines the credibility of those same prices.”
The PJM paper comes amid an uptick of criticism aimed at PJM, which has a governing board but whose policies are heavily influenced by its member utilities.
After announcing a 5-year, nearly $80 billion capital spending plan Tuesday, the chief executive of American Electric Power, William Fehrman, said the Ohio-based utility holding company is evaluating its membership in PJM.
“The current state of PJM’s performance and stakeholder approval process does not give me great confidence that these issues will be resolved anytime soon,” Fehrman said. “In fact, if something is not done now, I expect we could still be having these same conversations in 10 years.”
In April, Federal Energy Regulatory Commission Chair Laura Swett said she was “perplexed” by recent PJM decisions. She argued that the operator’s plan to extend the timeline of a one-time emergency reliability auction to marry up data centers with electricity supply underestimated the urgency of the demand crisis.
“I personally am a bit perplexed,” Swett said. “We are in a make-it-or-break-it year for the market. We expect that the board and stakeholders will do the right thing on this topic.”
Last week, the commission approved an extension of the capacity market price cap through auctions for the 2029 power supply.
“Extending the price collar without near-term and long-term changes to both PJM’s market rules and state-level permitting and procurement rules will only make the situation in PJM more challenging,” cautioned David Rosner, FERC’s senior Democrat. “We must recognize the confluence of events that have been unfolding over the past decade and embrace an opportunity to chart a new path for the PJM region.”
The new report responds to sentiments like Rosner’s, stepping back from many of the short-term solutions and laying out three broad paths forward, without formally recommending one.
Under a Plan A that PJM calls “Stabilized Markets,” the basic capacity market would remain, but utilities and suppliers would be required to lock in more capacity ahead of time through longer-term commitments.
Path B is “Differential Reliability.” PJM would drop its goal of ensuring every customer receives the same electricity reliability guarantees. Instead, whose electricity is prioritized during emergencies has a price. Customers or states that pay for less new supply may face more curtailment. Other electricity customers or regions get stronger protections.
The last proposal is “Energy Market Transition.” This would favor real-time energy and ancillary services markets. The plan would price power and flexibility closer to when they are actually needed while maintaining some long-term energy contracts to keep customers from being exposed to wild price swings.
