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Policy-makers widely criticized the governance of PJM in a technical conference at the Federal Energy Regulatory Commission (FERC) two weeks ago.

“PJM is facing a grave legitimacy crisis,” FERC Chair Laura Swett said on July 23. “Market participants have lost confidence in PJM’s decision-making abilities.”

Peter Lake, senior director of the White House Energy Dominance Council, said that two failed capacity auctions and “sky high price increases” show that PJM is a broken system.

The interconnection will be short 6,800 MW if a serious storm occurs in the winter of 2028-2029, he said.

The December capacity auction for the 2027-2028 delivery year cleared at the FERC-approved price cap of $333.44 per megawatt/day, leaving the grid short of its reliability requirement by 6.6 GW.

The July 2026 capacity auction for the 2028-2029 delivery year hit a FERC-approved price cap of $325 per megawatt/day, leaving the grid 6.8 GW short.

Despite the historically high prices of the past few auctions, the July results brought minimal new entry of capacity, consultant Charles River Associates concluded.

Absent FERC’s price limits, the consultant said that PJM zones would have cleared at $554.72 per megawatt/day, with the exception of the COMED zone, which would have reached $776.69/MW-day.

Clearing prices reached or exceeded the net cost of new entry for multiple zones in PJM in the previous four auctions. But Charles River said investors would need to anticipate prices at or above that level for many years going forward.

Instead, “investors have witnessed interventions to lower capacity prices when they reach or exceed the net cost of new entry,” the consultant added.

Charles River Associates has been used by PJM as a confidential intermediary and matchmaking consultant for the emergency reliability backstop procurement process.

PJM is expected to file a request with FERC for another backstop capacity auction for 15-year contracts to be held next month. Power plant owners may possibly be waiting for that auction to commit resources.

James Danly, deputy secretary at the Department of Energy and a former FERC commissioner, said at the technical conference that PJM is “an institution that has not wanted to show confidence in its own reliability pricing model.”

The forward 12-month strip for around-the-clock power at the PJM Western Hub was $57/MWh on January 2 and $69/MWh on July 28.

Forward power prices in most of the country are highly influenced by natural gas as the marginal fuel. The 12-month Henry Hub gas strip fell about 13% in the same period.

Action items

“West hub forwards have been climbing throughout the year,” said Parag Nathaney, a power engineer at utility Exelon.

“Retail energy providers should tell people to lock in [prices],” he added. “Trends are pointing to more and more scarcity.”

Nathaney recommended that end users find processes in which energy savings can quickly be deployed.

Battery storage systems are one example, he said. They still quality for a 30% federal investment tax credit if construction begins before 2033.

He also advised that end-users employ active load management when prices are high to save on capacity charges and peak load contribution charges.

The peak load contribution is calculated for a user’s demand by taking the five highest system-wide peak hours of the summer to determine a customer’s specific share of transmission costs for the coming year.

“You can see substantial savings by reducing transmission costs,” Nathaney said.

Retail energy providers should explain that capacity costs are rising because reliability is getting more expensive, and that flows through to supply pricing, said David Hunt, chief operating officer of Versys Media, an artificial intelligence integration company.

“When auctions keep clearing at the cap and the reserve margin still looks thin, the market is telling you flexibility has become expensive,” he told MAGNIFYI.

Look hard at demand response, behind-the-meter generation and dispatchable arrangements that can be brought into the supply stack faster than new generation, Hunt advised.

“If you are short capacity, I would stop treating this as a trading inconvenience and treat it as a structural exposure problem,” he said. “You will not hedge your way out of a physical shortage forever.”

A supplier to the power industry recommended layering in bilateral capacity and supply, tightening load forecasts and putting serious effort into peak load reduction to reduce exposure where customers feel the most pain.

“If you are short, stop hoping the next auction fixes it,” said Billy Walker, vice president of James Duva Inc., a supplier of stainless steel and high-nickel alloy industrial products.

Retail energy providers should explain the capacity cost driver to customers, show budget scenarios and offer options before a renewal shock hits, Walker said.

Market participants that have supply length should not treat current market conditions as a one-time windfall, he added.

Walker said available supply should be packaged into structured offers that include a mix of fixed price and indexed blocks, support of the demand response function and clear deliverability terms.

“If you are long supply, this is the moment to protect value without getting greedy,” Hunt said. “I would lock in margin where it makes sense, but keep optionality for volatility.”

Smart operators will use the moment to strengthen bilateral relationships, structure longer-duration agreements and stay disciplined on credit quality, he said.

Risks abound

PJM blames high capacity prices and volumetric shortfalls on data center growth.

The interconnection announced on July 27 that the current voluntary subscription framework would not provide capacity equal to the identified near-term shortfall.

The PJM procurement target will be reduced to reflect documented bilateral contracts and self-supply arrangements for new capacity serving new load.

Electric distributors will be required to curtail new large loads that, as of June 1, 2027, do not bring sufficient capacity to serve their resource adequacy needs and that cannot otherwise be served at the 1-in-10 reliability standard.

This is PJM’s loss of load expectation for one major event in ten years.

In turn, the distributors will be required to compensate the large load customers at a FERC-approved rate.

PJM will also propose to FERC a capacity opt-out for distribution companies that provide documented support, with details expected to become clear in later filings.

PJM will also develop and maintain a registry of large loads.

A study released last month by consultant Wood Mackenzie called PJM the grid that is the most at risk of demands from large loads exceeding the reliable generation queue. Over a third of the utility commitment pipeline in PJM is defined as “high confidence” in the study.

David Lapp, head of the Office of People’s Counsel before the Maryland Public Service Commission, said in June that current regulatory models are not built for the rapid demand growth of data centers.

Speaking to a consumer group at ISO New England, he said that infrastructure cannot be built as rapidly as data centers, and that as a result, tight power markets will affect existing customers.

“Data centers should be presumptively excluded from the regulatory model,” Lapp said. “If you take data centers out of the capacity market, you would see an entirely different market.”

Another consultancy, the Brattle Group, said in May that if expected load growth in PJM fails to materialize, customers will have already paid elevated capacity prices based on forecasts that proved too high.

“Unlike in vertically integrated settings, where tariff mechanisms can shift forecast risk to the large load customer to a certain extent, all customers in PJM share this risk,” the group said.