PJM is the largest wholesale power market and transmission planning region in the US. Currently, it is stuck between a rock and a hard place: on one side, rising demand from data centers; on the other, a choked and congested interconnection queue that can’t keep pace. The result: rising prices and political discontent. I talk with Clara Summers of the Citizens Utility Board about how PJM can solve this dilemma and get prices under control.
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David Roberts
Hello, everyone. This is Volts for February 20, 2026: “What is PJM and why is everyone so mad about it?” I’m your host, David Roberts.
If you follow the news, you may have noticed quite a bit of furor in the last few years around PJM: governors are yelling at it; consumer advocates are yelling at it; renewable energy developers are yelling at it.
What is PJM exactly? And why is everyone yelling at it?
Briefly: PJM Interconnection is America’s first and largest regional transmission organization (RTO). An RTO runs wholesale energy markets and plans transmission capacity for a pool of utilities in a given region. PJM’s pool is vast, extending from Chicago to the Jersey Shore, covering all or parts of 13 states and Washington, D.C. It manages a transmission grid that serves about 65 million people, approximately 20 percent of the US population.
In addition to running a power market, PJM also operates a separate capacity market, wherein power plants are effectively paid to be available, on standby, at a future date, just to ensure there’s always enough capacity available to cover any possible demand spikes or supply losses. The thing is, PJM is very slow to interconnect new power generation projects — it has a long and extremely congested interconnection queue. Meanwhile, gigawatts worth of data centers are banging on the door, asking to be hooked up, pushing demand higher and higher. This means that capacity in coming years is increasingly valuable, capacity prices are skyrocketing, consumer bills are rising, and everyone is angry. Thus all the yelling.
To discuss what is going on in PJM, what people are doing about it, and what might happen next, I have with me the perfect guest: Clara Summers from the nonprofit Citizens Utility Board, or CUB. She runs CUB’s Consumers for a Better Grid campaign, which advocates for cleaner, cheaper power in PJM. We’re going to talk about how this crisis came about and what kind of reforms might get PJM back on track.
With no further ado, Clara Summers. Welcome to Volts. Thank you so much for coming.
Clara Summers
Thanks so much for having me. I’m thrilled to be here. We’re going to wonk out today. It’s going to be deep.
David Roberts
Yes. I think Volts listeners, probably more than the average bear, get the basic structure of the electricity system, meaning that about half the country got deregulated, restructured, whatever you want to call it, the vertical monopoly utilities got broken up. Generators are now competing in these markets, in these wholesale markets, and these wholesale markets are run by RTOs. Fine. That much I know. I think that much probably a lot of people listening to Volts know.
But it occurred to me as I’m reading and researching for this episode that my knowledge stops there. It has never really occurred to me over all the years that I’ve been able to say that, to think, “Okay, there’s that RTO. What is that? What is that thing?”
Let’s start there: What is PJM? It is not government, but it is administering this market. It has some power over these entities. What is PJM exactly? Ontologically, what kind of entity is it?
Clara Summers
PJM, technically it is an LLC and it is regulated by FERC, the Federal Energy Regulatory Commission. It has the power of government, but it is this private entity. The basic way I explain to folks that RTOs impact you is that the decisions they make impact the affordability, the cleanliness, and the reliability of our electric system. They have a lot of power.
What’s interesting about them, and every RTO is different, is their structure, as you’re mentioning. I think of PJM as Congress for the electric grid. You have committees, you vote in the committees on proposals, that moves up to the parent committee, then you have more votes, and then eventually something gets approved if it goes through the whole process — approved by the PJM board and sent along to FERC to be implemented. This is where the congressional analogy ends.
David Roberts
Because Congress has an executive branch in their back pocket to enforce those things that they say. What is the legal force of PJM judgment? What power do they have to enforce the things that they decide?
Clara Summers
Ultimately it is through FERC. If FERC approves what PJM has decided, then that is that. It can go further to the courts, which does happen. The reason I think it is different from Congress is that Congress is elected and PJM stakeholders who are voting on these issues, which affect the affordability, the cleanliness, and the reliability of our electric system, are the regulated industry for the most part. It is the regulated industry setting the rules for itself.
David Roberts
Just to be clear, this is a body that governs the electricity industry in a particular region, and it is composed of private representatives of the companies involved in the electricity industry. Those are the voting members of PJM.
Clara Summers
That’s correct. There are transmission owners, generation owners, electric distributors, other suppliers, and then there is the end-use customer sector, which is partially large industrial users of electricity. Then there are 14 US state-appointed consumer advocates with a vote.
David Roberts
Out of what?
Clara Summers
Over a thousand members. Voting members, yes.
David Roberts
This Congress is composed of over 1,000 members drawn from the industries that they are regulating plus 14 of you representing the people using the electricity? Indeed, that description alone, listeners are going to be “gosh, that sounds a lot like an industry regulating itself.” Aren’t you going to get a bunch of self-dealing and mutual protection and cabal-like activity? Doesn’t that invite collusion? Why is that not as obviously corrupt as it looks on the surface? I guess that is my question.
Clara Summers
It is. There are a lot of questions about governance that are being raised and have been raised for quite some time. There is an independent market monitor, but yes, fundamentally if the regulated industry is setting rules for itself, that is an eyebrow-raiser.
David Roberts
That’s good background and I was going to come to this later, but presumably this was set up by some founding document or something. It has some sort of structure. Is there anything in the structure to self-police it? Is there a reform process? Is there any recourse if you feel you’re getting screwed or that something’s going wrong? Is there any recourse?
Clara Summers
It depends who you are, to be honest, because everything goes to FERC. FERC is what initially set up the RTOs and they had a pretty light touch when it came to design. Every RTO, as I said before, every RTO is a special flower when it comes to governance. PJM, I would say compared to the other RTOs, has the least formalized states’ involvement. That has become a big topic of conversation — what recourse do the states who participate in PJM have?
David Roberts
Now that everybody’s grumpy, everybody’s wondering, “What can we do about it?”
Clara Summers
Exactly. Depending on your filing abilities, if you want to get really wonky, there are 205 filing rights and 206 filing rights under the Federal Power Act. Depending on who you are, you can file under one or the other of those at FERC for help on a particular issue. There is a different burden of proof, but the states only have 206 filing rights, which is the higher burden of proof.
David Roberts
We’re also going to get to this, but I’d just like to broach it here too. It seems on the surface the obvious problem you would get from having an industry regulating itself is that scarcity is bad for consumers, but good for producers. If you have a cabal of producers running the show, it seems whether it’s explicit or not, all of them implicitly have an interest in cooperating to ensure ongoing scarcity so that prices remain high, so that they all make a lot of money. Am I wrong to think that? You look and sure enough, they’re slow as hell building anything, just as you would predict. Am I wrong in identifying that basic dynamic?
Clara Summers
I’d say there is a push and pull here for sure. One thing I should have mentioned is that while the voting members of PJM are the regulated industry, it is up to an independent board ultimately to make the decision. Things will go through the stakeholder process and, depending on the issue, some issues just have to be sent on to FERC, whether or not the board is as excited about it. Other things, the board has a lot of decision-making power over. One of those things is the capacity market. The board is independent from this construct. There are the members who vote and then there is an independent board. They ultimately are the ones sending things to FERC and answering to FERC.
David Roberts
Got it. That’s PJM. As I said in the intro, it’s huge. It’s the biggest one of these — stretches all the way down Mid-Atlantic, goes into the South — it matters quite a bit how this plays out. That established, PJM runs a market, an energy market, which I think is pretty straightforward, people get it. Then this capacity market — I described very briefly in the intro what a capacity market is, but maybe just briefly, give us a brief description. You’re just paying power plants to be around, correct?
Clara Summers
Yes.
David Roberts
In practice, it’s complicated, but that’s the idea.
Clara Summers
Essentially the idea is that on the hottest summer day when electricity demand is at its peak, everyone’s running their ACs, there is going to be enough generation contracted on the system, participating in the system to meet that peak demand. We’re not at peak most of the time, so it is a buffer.
David Roberts
I don’t want to get mired in the whole conceptual idea of a capacity market in the first place, but it always seems a little strange to me that I can build a power plant and be paid without ever firing it up, just get paid year-round to have it sitting there. It seems odd. The debate about whether to have a capacity market and whether it’s better to have a capacity market next to your energy market is long-standing and unending.
Clara Summers
It’s a real debate and it is true. The money is going... It’s particularly lucrative for incumbents because they’re getting paid to stay online. Especially if you’re a peaker plant who isn’t making much money off the energy market, maybe you’re particularly old and not able to run that frequently. The capacity market can help prop you up. The way it was designed is to be the “missing money” that a generator isn’t making in the energy or ancillary services market to stay online. It can be quite lucrative for incumbents. The idea is that when the price goes up in the capacity market, that’s supposed to attract new resources to build and come online. When prices are low, that’s supposed to indicate the system has a glut and retire. We’re now in this new paradigm that’s complicating that.
David Roberts
We’re going to get there. The capacity market exists, you’re getting paid to be available. To point out the obvious, to participate in the capacity market you have to be able to turn on when asked, which wind and solar can’t do. Meaning capacity markets as they are currently run mostly benefit fossil fuel plants. It’s mostly fossil fuel plants that can crank up when asked. Batteries change that somewhat and we’re going to get back to batteries later. For the most part, capacity markets are composed of fossil fuel plants, by and large.
Clara Summers
Yes. The only addition I would say to that is you see a lot of plants — like a nuclear plant that isn’t likely to be ramping up and down very often. It’s just at one level — that would also be a good candidate for the capacity market.
David Roberts
If you have your already built nuclear plant and everyone is desperate to keep it open and it isn’t making any money on the energy market, the capacity market is the savior of the nuclear plant.
Clara Summers
Yes.
David Roberts
The other important piece here is what do you offer people to be around? As you say, if there’s a lot of capacity laying around so that when you look to the future, you’re like, “Oh, we’re going to have a bunch of capacity around,” that’s low capacity prices. If you are looking to the future and you’re in a crunch, capacity prices go up. These capacity prices are based on three-year load forecasts. PJM is saying, “What’s the highest possible peak three years from now? How much capacity will we need three years from now?” They run capacity markets based on that. It occurs to me that there’s so much money bouncing around these capacity markets and it’s all based on these three-year load forecasts.
Anybody who has been listening to this pod for a while knows that we are not great at forecasting load generally. We are generally wrong. It is very imprecise and there is a lot of room for shenanigans in those forecasts. Maybe just tell us a little bit about who runs those forecasts and is there anything to say about the format of them? Are they done well, how are they generally viewed?
Clara Summers
Until recently, load growth was fairly low and stable for pretty much the past 20 years. It did matter. What we’re now getting into is crunch time and it’s because — I’m going to bring them up — it’s hyperscalers, it’s data centers.
David Roberts
Dun, dun, dun. They enter the chat finally.
Clara Summers
This is the reveal, however many minutes in. We’ve had data centers for a while and it’s Internet infrastructure. This has become a more acute issue with the advent of AI hyperscalers because they are so demand intensive. This has meant that we’ve had additional challenges with the way load forecasting is done because until recently PJM allowed utilities — who are ultimately designing the load forecast — they are saying, “Here in my zone, I think there is going to be this amount of demand coming online in three years.”
David Roberts
This is crucial. I want to pick this out because it comes up later. The way they do these load forecasts is they just go and ask their constituent utilities, “Each utility, you tell me what you need in three years,” and then they just add all that together and that is the three-year forecast. This comes down to the utilities themselves.
Clara Summers
Yes. These utilities, they have all been using wildly different approaches to estimate how much capacity they might need. What we have been seeing is a data center could be reflected in a duplicative manner across different utilities. There is a big difference between a data center that has knocked on the door of a utility and said, “I am interested in being in this area,” versus a data center that has entered into a contract with a utility and put down money.
David Roberts
Which of those counts as forecastable load is the question.
Clara Summers
Yes.
David Roberts
I take it different utilities count that differently. Isn’t it also true that because of these long interconnection queues, if you want to build a data center, you go bid it into multiple markets, playing the field to see which one you can get in? Which means all those utility markets that you bid into, are they all counting your data center as forecastable load? Is your data center getting counted 2, 3, 4 times as load?
Clara Summers
Potentially. That’s a big concern because only the one data center that’s going to be built is reasonable to include in a load forecast. One estimate has that the number of requests for potential data centers to connect to the grid is five to ten times more than the number of actual data centers that will be built.
David Roberts
There’s no way to pin this down in advance. I guess if you go to each hyperscaler and force them — can you get the information from them? Literally, how many are you going to build? Is the number that are going to get built available somewhere? Is it gettable somehow?
Clara Summers
That’s why the constraint really needs to be that data centers have to enter into binding contracts.
David Roberts
You mean before they’re counted?
Clara Summers
Yes, it’s not reasonable to count, “Oh, you had a conversation with this utility and we’re going to count you.” At the state level, states can create large load tariffs, which is a rate class specific for these large loads. In that, say, “Okay, you need to be responsible for your own costs whether or not you end up using them.” Even if you decide, after all, we don’t want to build here, if you’ve entered into a contract and infrastructure has started being built on your behalf, you need to be responsible for paying for that. Otherwise it’s a stranded cost that goes to the rest of load.
David Roberts
If you bid your data center into five separate queues, theoretically that is five separate grids that are being upgraded to prepare for you.
Clara Summers
Yes.
David Roberts
You could potentially prompt a lot of spending, a lot of cost that you yourself are only going to take advantage of a tiny sliver of, or maybe even none of, if you decide not to build at all. That seems like a bad situation.
Clara Summers
Yes. A state large load rate class can ensure that data centers aren’t dining and dashing by requiring them to have contracts. That’s also something that’s been talked about at the PJM level. We can get into this in more detail, but saying, “We’re going to need to have some visibility on how real this request is.”
David Roberts
Is it the case that an individual utility has some incentive to exaggerate their load forecast? Do they want to over-forecast just because then they will get allotted more money?
Clara Summers
A utility’s business model is if you build more, you make more.
David Roberts
Yes.
Clara Summers
Fundamentally, yes. If you have more projected demand than you forecast, “We’re going to have to build more transmission or distribution to serve this anticipated demand,” that is good for the bottom line.
David Roberts
It’s probably not going to be the utilities themselves that restrain this overbidding. As you say, it’s going to have to be some mechanism or force from above. This is what’s happening. You’ve got slow interconnections, they’re building very slowly, and you’ve got a load of data centers that want in the door. Slow supply plus rapidly rising demand is having the predictable effect. I’ll just run through this because it is eye-popping.
Several years ago when they were running an auction — we didn’t mention this in the capacity market discussion, but they run these via auctions, they auction off to determine the price. When they had the auction for capacity for 2024-2025, which we’re currently living through, the capacity price, which is per megawatt-day, was $28.92 way back then. I think that was four years ago, five years ago. That’s the baseline. The normal 20 years of no to modest load growth, capacity market burbling along in the background just fine. $28.92.
The next year when they were auctioning capacity for 2025-2026, the price they settled on was $269. That is an 833% — I shouldn’t say that so confidently, I did math, that math is probably wrong. But that is almost a tenfold increase in the price of capacity. That is when all this started in earnest. That’s when all the real hubbub started in earnest. That was crazy. Talk about how people reacted to that and what sort of action that prompted.
Clara Summers
That price spike that you’re referring to, the $269.92 per megawatt-day, went into effect this past June. If any listeners are in the PJM region and you’re wondering why your bill suddenly went up, there are a lot of things that go into your bill, but the capacity market prices are part of that.
David Roberts
A tenfold increase is going to show up, I think. It’s going to show up on your bill.
Clara Summers
Keep in mind that the prices were even higher in a zone in Maryland and in Virginia and North Carolina, it went up to over $400 per megawatt-day in those constrained zones.
David Roberts
That is wild.
Clara Summers
It did prompt a lot of concern from a number of quarters. We, as consumer advocates, hear from people every day who struggle to pay their electricity bills. We have definitely been getting calls and having people talk to us about how they are feeling it on their bills.
David Roberts
We should just say, because there is this broader background discussion that has been going on about electricity bills going up and why it is happening. There is a lot of misinformation flying around. It is not a clear or simple story. It is not always data centers, depending on where you are. But in this case in PJM, in the capacity market, this is data centers. This is a case where it really is unicausal — it is the data centers causing all this?
Clara Summers
I think it’s fair to say that it’s a major chunk of the costs. PJM ran another auction in December. That’s for the 2027-2028 delivery year. According to the independent market monitor, 40% of the costs were driven just by data center demand. That’s huge. There have been a combination of factors. You mentioned the interconnection queue, which in PJM has been closed to new entry between 2022 and this coming spring while they have been clearing out a backlog. That was a big component of why prices started to spike because you have a backlog in getting new supply online. Of course prices are going to spike.
We’re hoping to see, as the queue has been getting cleared out and as PJM moves to a better updated cluster study system, that that issue will be alleviated. That, combined with this massive data center demand, is really what’s been causing these high prices. After that first price spike, Governor Shapiro of Pennsylvania and many consumer advocates, environmental organizations, all were calling for reforms at PJM. This played out in the PJM stakeholder process and also at FERC. Ultimately what happened is Governor Shapiro was able to negotiate with PJM what’s called a price collar, which is essentially saying, “Prices are not reasonable right now because we have frozen new entry and we have massive, unprecedented demand.” We’re going to put a collar around the range of what prices can be. The cap is lower than it would otherwise be.
David Roberts
But the cap is around $330, which is still very far above $28. It is not a low price cap. It is still pretty eye-popping.
Clara Summers
It’s much higher than prices have been — these are all record-setting prices. Even with the price cap, which we are glad to have, it’s still higher than it should be.
David Roberts
The subsequent two auctions both hit that price cap, which means the economists out there are starting to twitch. If you have a price cap and you’re running up against the cap consistently, that means in some sense your market is broken, you’re not going to get as much... That’s what happened in the recent auction, they didn’t get as much capacity as they needed. They are saying, even paying this crazy $330 price, “we’re still not getting the capacity we need.” That’s not enough to get us the capacity we need. Which is doubly crazy.
Clara Summers
That speaks to how overwhelming the new demand from data centers is. They want speed to power, they want to come online much faster than the market can realistically get any generation built. That is the big timing mismatch that we are having right now.
David Roberts
The economist would say that’s fine as a band-aid, that’s fine as short-term relief for particularly stressed ratepayers. That doesn’t address any of the structural forces that are causing prices to be high. In a sense you’re getting some short-term relief, but you’re almost building up pressure behind the scenes. You’re making it worse behind the scenes as long as the price cap is on. This is all a long-winded way of saying that can’t be it, correct? Surely there are deeper structural solutions on the table.
Clara Summers
It’s a necessary band-aid. Over the past six months, very involved stakeholder discussions have been taking place at PJM to talk about how to reliably and affordably integrate this massive new load.
David Roberts
Tell us a little about the administrative — how this has prompted a flurry of meetings. Meetings are happening all over the place. Tell us a little about who is meeting, what they are doing, and what the process underway is now?
Clara Summers
Many meetings. Even in a regular year, there are more meetings that happen in the PJM stakeholder process than there are days in the calendar year. You’re juggling many balls at the same time to keep up. There’s only so much you can track at once. In August, the PJM board said, “We are aware that data centers are overwhelming the system and the scale of this is becoming clear. We are going to kick off an accelerated stakeholder process to figure out how to manage this load growth.” This is called the CIFP, the Critical Issues Fast Path. It’s not a thing unless there’s an acronym. This is the CIFP LLA, the CIFP on large load additions.
That meant that we had stakeholders having meetings with PJM and bringing proposals about how to manage this growth. It all culminated in an advisory vote to the board in November. There were 12 proposals ultimately that were voted on. None of them reached the threshold to say there was consensus around this.
David Roberts
A perfect meeting.
Clara Summers
There were a lot of ideas. The board took that back and they distilled that into what the next steps of the process are going to be that they announced partway through last month. I would be remiss if I didn’t mention how engaged people were in this process.
David Roberts
I bet!
Clara Summers
It wasn’t just PJM members. The governors have formed a collaborative and they held a technical conference on governance reform in September. They have been very engaged. A group of state legislators also brought a proposal in this process.
David Roberts
Now, Clara, the White House has gotten involved.
Clara Summers
Indeed.
David Roberts
As far as I know, and correct me if I’m wrong, I can’t remember that ever happening. Has a White House ever descended to an individual and intervened in an individual RTO proceeding?
Clara Summers
Certainly not that I am aware of.
David Roberts
Wild. Everybody cares. Everybody’s following it. Everybody’s watching it. Not even just in PJM — this is affecting other parts of the country too. It’s a very big deal. What I would like to go through here a little bit is who wants what to happen. There are 12 reform proposals. Presumably the governors got together and they came up with a set of principles and then the White House has their principles. Who wants what? What are the governors — we’ll start there. What do the governors come up with? What are the governors’ principles? What would they like to see happen?
Clara Summers
The governors’ principles — I’ll mention that during the CIFP process there was a smaller group of governors who brought a proposal that was different. Now the governors’ principles that they signed at the White House is all of the governors minus D.C. leadership, and they signed this at the White House. Their principles include improving load forecasting, allocating costs to data centers, accelerating ongoing interconnection studies, providing revenue certainty to new generation, returning PJM to market fundamentals — that’s some of the deeper reforms you were talking about — and protecting residential customers from the capacity price increases.
David Roberts
Did the White House issue something distinct from that or was that under the White House aegis that that was released?
Clara Summers
My understanding is it was with the White House.
David Roberts
Endorsed by the White House, more or less.
Clara Summers
Yes. I think it’s important to keep in mind, as we were discussing earlier in the conversation about who has the decision-making power here, because the statement of principles provides direction and it is really important to see that across the states there is a lot of interest in making sure that data centers are accountable for their own costs and residential customers don’t get stuck with the bill. There are things that the states can and must do, which we can get into. Ultimately, in terms of what’s happening in PJM, it’s the PJM board that has to make those decisions and then send it to FERC.
David Roberts
They issued something, they said something in November, right? They issued a —
Clara Summers
In November, we had the vote and then they said they would deliberate. The morning that the governors and White House principals came out, later that same day, the PJM board then released their decision.
David Roberts
What did they say?
Clara Summers
There was a lot of overlap. The PJM board said that they also directed load forecasting improvements. They said that they wanted to do this reliability backstop procurement, which we can talk about more. Also, review of the PJM markets. They wanted a request for feedback on the price collar that Governor Shapiro negotiated and whether that should be extended for the next two auctions. Last night they announced, after getting further feedback, that they would be extending it.
David Roberts
Oh, interesting.
Clara Summers
That is certainly something that consumer advocates are glad to see because if the price is going up and up and up, but it can’t meaningfully incent new generation, there is no reason for it to be burdening ratepayers. It shouldn’t be burdening ratepayers.
David Roberts
Clearly something’s broken. It’s definitely not working the way it’s supposed to.
Clara Summers
Two things I want to highlight in particular that were big from the PJM board decision: they said there is going to be a voluntary bring-your-own-new-generation pathway paired with an expedited interconnection track, and that if you do not bring your own new generation, then you can connect, but you will be subject to curtailment or your utility zone will be subject to curtailment during emergencies.
David Roberts
This is what they do in Texas. This is held up as the better way of interconnecting. Rather than waiting to have 100% certainty that the load will be able to run as much as it wants, you can just tell the load, “You’ll probably get 95% of what you want, but 5% of the time we have the right to come in and curtail you if we need to.” Large loads are perfectly happy to come and interconnect under those. They would vastly prefer that to not interconnecting.
Clara Summers
I’m glad you bring up Texas as an example, because I’ve been hearing a lot of rhetoric around, “Data centers are not necessarily curtailable. It’s very hard to curtail.” The fact that states are already requiring it, like Texas, shows that it can be done. From a climate perspective, a lot of data centers use diesel generation as their backup. That’s raising a lot of concerns.
David Roberts
It’s not great.
Clara Summers
For communities and different states that want to make sure that air pollution targets are not overrun.
David Roberts
Just taking in the big picture here, people can freak out all they want, but it’s insoluble unless you speed up the interconnection queue. That is the eye of the needle here. All the other reforms are band-aids until that gets fixed, it seems to me. Is it getting fixed? PJM says we’ve started speeding up interconnections. The problem currently is a bunch of projects did not expect to receive interconnection and it turns out they are not ready to go. They’re blaming the project. What is the status of interconnection? Are they getting better?
Clara Summers
They say they are on track to clear out the backlog by this spring and then they will be moving on to their new process. The backlog was about 200 gigawatts.
David Roberts
You mentioned this earlier, but to reiterate, they haven’t even been allowing new people in the queue for three years. That 200-gig backlog is from a while ago.
Clara Summers
Yes. The one exception to that was the Reliability Resource Initiative, which was a one-time fast track that also has seen high dropout rates. There’s a general problem across the board with having generation build. Speeding up the queue is a fundamental part of it and that has to be fixed. The other thing that has to be fundamentally fixed to make this work is to have data centers bring their own new generation to the system.
David Roberts
I’ll just say, because this is a topic that’s been close to my heart for a while now, there is a very big difference between bringing some generation and bringing enough generation. When you are a giant gigawatt-scale data center, bring your own generation could mean a lot of different things. Is there a clear sense in the process in PJM what the cutoff is there or any states — I wanted to look at how states are dealing with this and what sort of reform states are doing. Maybe let’s talk about Illinois because I think they addressed this, didn’t they, in their bill, the Clean and Reliable Grid Affordability Act in Illinois. What did that do vis-à-vis PJM?
Clara Summers
It did several things. It creates a battery procurement process. It looks at improvements to our transmission system. It looks at what the overall benefits versus cost are of being in PJM or in MISO — there is a study bill on that. SERGA, as we call it, was a big step forward. The components that address the data center issue have been broken out into a bill that has just been introduced called the Power Act.
David Roberts
What is that? What would it do? In your mind, what is a good state legislative approach here? What should they be doing?
Clara Summers
One of the things we talked about before is making data centers accountable for their costs through a large load tariff. This requires utilities to establish new interconnection standards for hyperscalers — over 50 megawatts. The tariffs allow for firm, uninterruptible electric service proportional to the data center’s maximum demand that’s supported by bring your own new clean capacity and energy, which is the BEYONCE acronym.
David Roberts
BEYONCE!
Clara Summers
BEYONCE!
David Roberts
Wait, is that the actual name? Did they name it BEYONCE? I’d be so excited.
Clara Summers
Yes. BEYONCE’s been around for a while. There are many different variations of this similar idea, but my favorite acronym is BEYONCE.
David Roberts
That’s one piece. Do you know the details of how much generation the data center is supposed to bring online? Not enough to cover its full load, correct? Because that’s a lot.
Clara Summers
The alternative is that other consumers have to pay for the demand that gets added.
David Roberts
That’s how normal — before we had these mutant mega loads, a factory hooking up to the grid would impose a little burden on the rest of the grid. But we didn’t break that out to a separate charge. Typically, it’s just because these are so big.
Clara Summers
Right. Perhaps not in the capacity market, but it is quite standard for industrial commercial classes to have their own rate classes in states. That is quite typical. We are essentially just saying, “Hey, in the capacity market, that needs to be done as well.” Data centers, because they have this massive amount of load coming on, do need to be responsible for procuring that because it is more than the market can handle by itself.
David Roberts
This is something I never quite get my head around. Traditionally, if big industrial users come along, states want them, states will compete for them because they’re good for economic development. But these particular large loads have downsides that we have discussed. They raise prices for everybody else. They raise grid costs. Do states want them or not? Are states competing for them or not? Is Illinois worried that if they impose a special tariff on data centers that the data centers will just go to another state? Is that dynamic at play here? Are they competing for data centers?
Clara Summers
They are, and that is a real dynamic. At the same time, hyperscalers are not particularly price sensitive. What they’re interested in is — these are the wealthiest companies in the world, so they can certainly afford to pay their fair share, and they’re most interested in speed to power. That’s where you’re located on the grid and things like that. What we’re seeing is states like Ohio and Indiana have created very protective tariffs. You mentioned Texas and their curtailment kill switch. Those markets are still seeing a lot of interest from data centers to build. There’s really no reason for a state to not have reasonable guardrails. It’s not about being unreasonably restrictive. It’s just having reasonable guardrails to make sure that your residential consumers aren’t footing the bill.
David Roberts
I don’t know if this is the right term, the buyer’s market. The demand to hook up to the grid is wildly out of proportion to room on the grid that the people who have control over the grid have all the power in this situation. Hyperscalers are desperate and will pay whatever, wherever to get whatever they can. The amount of demand is out of scale to the supply that it’s a completely distorted market now just in terms of market power and political power.
Traditionally, capacity markets are mostly fossil fuel power plants, but batteries change that. If you attach a bunch of batteries to your solar plant, you then become at least somewhat dispatchable. You have some capacity value. Are renewables with batteries making a dent in the PJM capacity market? Is that going to change things?
Clara Summers
Once the queue gets cleared out, I am hopeful, I’m very hopeful that they will. It’s a good point because if we’re talking about speed to power, there have been a lot of conversations about, “These data centers will want to contract with gas plants.” If you care about speed to power, you want battery storage.
David Roberts
Yep!
Clara Summers
According to a Brattle analysis, building a gas-fired power plant in PJM takes between three and a half to four years. Another recent report indicates new gas plants won’t be online till 2030, 2031, and we’re already in crunch time with demand. Contrast that build time to battery storage, which can be built in a year and a half, potentially, according to Brattle. Storage developers say they can be built even more quickly. This could be an opportunity for more battery storage —
David Roberts
Or related, this is something I’ve been banging on for a couple years now. You could round up distributed capacity that includes batteries, but also demand response and residential-level VPPs. It’s hilarious to me that the big cowboys in charge of these hyperscaler companies and in charge of the utilities want big powerful stuff — and they’re just attached to the idea of nuclear and gas — but reality is stubborn and they just can’t have them. They can want them all they want, but they can’t have them until 2030 or 2031.
If you have to wait that long to put your data center online, that is billions of dollars in opportunity costs. They are just getting driven despite themselves to embrace distributed energy and batteries. I was listening to Shayle Kann’s pod last night. He was interviewing a guy who runs LS Power, which is a big power company operating in these markets. This is the CEO of a very large power company. The CEO was saying, “All we have got for the next three, four, five years is demand response and batteries. Those are the only things we can build fast enough.”
That is a good result. It’s too bad that they had to be forced to this by a giant market crisis, but I do think that is going to be one good outcome of this. Related to that, one of the criticisms of PJM I sometimes hear from people and heard online when I was preparing for this is that they are slow-walking demand response, that they are terrible on demand response. Do you have any insight into that? Whether they are any good at it or whether they are trying to get better? As I said, that’s pretty much all there is now.
Clara Summers
I don’t know that I have much insight on that particular topic and if I did, it was prior to being immersed in all the data center issues.
David Roberts
Talking about reforms, we talked about a couple. Do you think that capacity markets are going to bifurcate? This is one possibility I’ve heard — is just setting up a separate capacity market for data centers. Is that a real thing?
Clara Summers
That is something that we will spend the next couple months talking about in the PJM stakeholder process. It would be done through what is traditionally called the reliability backstop auction, but that we are moving towards calling the reliability backstop procurement. There are a couple different ways this could come to pass, but one idea is essentially PJM would play matchmaker between data centers and a generator that says it can build and come online to match the data center.
David Roberts
Oh, interesting.
Clara Summers
With all things energy policy, the devil is in the details because depending on the design of this, the costs could fall just on data centers or there could be risk to ratepayers. If designed correctly, separating data centers out into another market would be a good thing because it could insulate the rest of us from their capacity cost. The risk is that with two markets there will be an incentive for power generators to jump over from the existing —
David Roberts
That’s what I was going to ask. They are going to be competing for capacity and they have all the money, as you mentioned.
Clara Summers
How do you create guardrails around that to ensure that you don’t get generators jumping over from the regular auction process into this other reliability backstop procurement? That is something we will be spending a lot of time talking about. The conversations have already begun on that over the next few months. It will remain to be seen.
Getting down to the fundamentals, this is something that the governors said, they want to protect residential customers from capacity price increases. There is a lot of agreement across the board that data centers should be accountable for their own costs and that the way to success on this is to ensure that any costs created are allocated to the cost causer. Cost causation is a principle in electric rate making.
David Roberts
Do you think the special rate for data centers already in place in Illinois, do you think that is going to be just a standard reform piece that is going to spread everywhere now? That seems like one of the things around which there is very broad consensus. Are the data centers even fighting that or are they fine with that?
Clara Summers
It’s proposed in Illinois, it’s established in Indiana and Ohio. I hope so. It needs to be.
David Roberts
It seems like the most obvious thing.
Clara Summers
It is an obvious thing. The states can do that. The states have said through this governors collaborative, “We want to be partners in this.” There is a big role for states in making sure that the cost allocation at their own state level gets dealt with. The role for PJM is what do we do in the capacity market, because that is the part that PJM has control over. Eventually we will talk about transmission — regional transmission cost allocation as well.
David Roberts
That is overlaid on all this. A lot of these congestion problems, a lot of these capacity problems could be solved with better transmission. That’s just true as a general matter. Everybody in our world is mad about how slow transmission gets proposed and built. I’m assuming that’s true in PJM as well. Are reforms to the transmission process part of this larger data center discussion, are they playing a role?
Clara Summers
They have been mentioned as something that is important. An actual process specifically around data centers and transmission rates has not been started. PJM, like the other RTOs, is going through its Order 1920 compliance filing period. Order 1920 was the new transmission planning rule that FERC came out with.
David Roberts
Right.
Clara Summers
That’s meant to create reforms. We are tracking PJM’s compliance filings with that. That is a component, but it doesn’t look specifically at, “A data center is causing this level of transmission need. How are we going to figure that out?”
David Roberts
They know they need more transmission. What if this all continues? It seems entirely plausible that even if some or all of these reforms go into place, the structural forces at work here are so powerful that it’s probably going to ameliorate but not solve the problem and there’s probably still going to be political angst. How seriously should we take states’ discussions about leaving PJM? There have been threats. I think there’s a bill now in Virginia. Pondering it, I wonder how seriously to take that and I wonder what the considerations are for a state deciding whether to do that or not.
Clara Summers
There’s one in Maryland and I think New Jersey is looking into it too. It’s a couple different states. This is not the first time that states have had this conversation. Several years back there was a lot of uproar over what was called the MOPR X, the minimum offer price rule, and it was about RPS resources or state-supported renewable resources specifically potentially being priced out of PJM’s markets. Understandably, for states that were really pursuing the cleaning of their generation, they were upset that this proposal through PJM could potentially make it much more costly to achieve that goal.
At that time there was talk about leaving PJM and one utility — in Virginia, the Dominion utility — took what’s called an FRR, a fixed resource requirement, and that’s where they exit the capacity market and they have to commit to self-supplying over a certain period. Now Dominion’s back in the capacity market, so their data center load is shared with everyone now. That was a case that happened before. As you point out, those conversations are coming back. It’s something some governors have talked about. It’s something some legislators have talked about. We talked about earlier our study bill in SERGA last year in Illinois that looks at it.
David Roberts
Did that study happen, by the way? Have we heard?
Clara Summers
It’s still in process. There are efficiencies to be received from RTOs — it is more efficient.
David Roberts
It’s a big pool. Transmission markets — the larger the pool, the lower the average unit.
Clara Summers
Exactly.
David Roberts
All else being equal, which it rarely is.
Clara Summers
It’s much more efficient. I think R Street has done some analysis to look at the costs in vertically integrated parts of PJM versus the restructured states that just rely on the capacity market and seen that it is cheaper to be in the capacity market. There are cost efficiencies to it. As we are seeing now, as we saw with the MOPR issue before, there are times when what is happening in PJM conflicts with other state priorities. I think it is always good for state leaders to have a good sense of what the options are, but they need to be really informed options.
That’s why it’s important to do a cost-benefit analysis, to do the actual studies and evaluate that before making any decisions. There are a couple different ways that you can “leave” PJM. There’s doing what Dominion did of exiting the capacity market for a fixed term. That means you have to self-supply, which the restructured states don’t have as much experience doing. There’s also switching to another RTO. Illinois has two. We’re served by two RTOs. PJM serves the Northern Illinois ComEd zone and MISO serves the Ameren zone downstate.
David Roberts
Somebody online was like, “We should just break this thing up. Leave the coal states behind. Let them coal out all they want. Up here we’ll jump over to NYISO and down there they can jump over to MISO. Basically, PJM is the worst of the RTOs, people should just be leaving it.” Is that a sentiment you run across?
Clara Summers
I’ve heard that sentiment. There are some states talking about forming their own sub-RTO. That’s something that perhaps the Maryland or the New Jersey legislation looks at — can we form our own RTO? Can we be our own RTO? Can we join another RTO?
David Roberts
RTOs within RTOs, capacity markets within capacity markets. Adding complication is always the first resort in electricity.
Clara Summers
It’s always good to know what your options are and to always be evaluating what the costs are, what the benefits are. You must do that careful analysis prior to making any decisions.
David Roberts
I don’t totally understand the political economy here. Is the threat to leave something that PJM as an entity views as a threat? They don’t want people to leave presumably. What do they want? What scares them? A lot of people I’ve heard from are saying that it seems like PJM has been dysfunctional for a while now. People have been yelling about it and nothing seems to matter, nothing seems to reach them. I’m wondering, who do they fear? What mechanism can bring PJM to heel? Do they fear people leaving?
Clara Summers
I can’t speak for PJM. I’m sure if I were leadership in an RTO, I would be concerned about that. You’re seeing a lot more engagement with the states now, and it will be interesting to track how the governors and PJM and legislative bodies all interact going forward.
David Roberts
One thing I haven’t heard of all the reforms you mentioned that people have discussed or proposed, one thing I haven’t heard is anything about reforming how PJM works or the structure of PJM or including a larger voice for consumers or putting in more oversight. I haven’t heard a lot of that. Are there any ideas along those lines?
Clara Summers
That’s a real discussion and I’m heartened to see that discussion happening because, as we were talking about, from a consumer advocate perspective, the makeup of PJM seems very unbalanced in terms of voting membership. If we’re having these challenges over and over again about state laws coming up against what’s happening in PJM, there needs to be a more formalized mechanism for managing that.
In September, the governors convened a technical conference on governance in PJM and there are a number of different ideas. What is nice is it does not involve reinventing the wheel necessarily. There are other RTOs that have a more formalized way for states to be involved.
David Roberts
People who are interested in this should go listen to my pod on the discussion around forming a Western RTO for all the western states. The process of creating an RTO from nothing, from a blank sheet of paper, is underway in the West. All these questions that PJM is facing are very much on the minds of people forming this new RTO. What are best practices?
Clara Summers
Absolutely.
David Roberts
Who does work best? Is there an RTO you’d single out as a high performer or particularly well constructed or competent? Do you have a favorite?
Clara Summers
I don’t have a favorite and I’m laser-focused on PJM. I will say that there are different aspects of other RTOs that I would love to pull into PJM. For example, in PJM there is a formalized group called OPSI, the Organization of the PJM States, and that is the entity of state regulators that inform PJM and advise PJM on what their positions and goals are. I would love to see OPSI have more formal power, the way you see some of the other state regulatory bodies have in other RTOs. Specifically, 205 filing rights, which I mentioned earlier — the ability to go to FERC with a concern, but you don’t have this much harder-to-attain presumption or burden of proof. That would be really nice for them to have.
We’ve also talked about having a designated consumer advocate representative on the PJM board of managers or having a designated state representative or requiring someone with state regulatory or consumer advocate experience. There are people with former state regulatory experience on the PJM board now, but those are some examples. From a governance perspective, we would love to see all of the votes be public and transparent at PJM because —
David Roberts
They’re not?
Clara Summers
No.
David Roberts
That’s wild.
Clara Summers
Yes.
David Roberts
This gets back to the confused, “What is it?” Does it have an obligation to be transparent? I don’t know what it is. I think it should have that obligation.
Clara Summers
I agree. If you’re making decisions that impact what we’re paying for our electricity, how reliable it is, and how clean it is, then you are a policymaker and there needs to be more transparency about the decisions being made.
David Roberts
If you’re a company in PJM and you’re voting, at the very least your shareholders and — that should be on the record. People should know which way companies are going.
Clara Summers
Yes. Some states have passed and are trying to pass legislation to require their utilities, their state-jurisdictional utilities, to report their votes. Last session it was Maryland, New Jersey, and Delaware, I believe, passed this legislation. Now their utilities have to report.
David Roberts
I wonder if that will change behavior. It will be interesting to see.
Clara Summers
It will be interesting to see. The bill is also proposed in Illinois and has been proposed in a couple other states. The states shouldn’t have to work around that and say, “Hey, state utilities, please report your votes.” That should be something that’s done in PJM. Unfortunately, it would require a vote of the members to make their votes public. There’s one committee level where you can see the individual firm votes, but then as you move down, you can’t see the detail of who voted, what their vote was. You just see what the topic of the vote was and the number or percentage of yays.
David Roberts
No kidding. That is so shady. That seems that if nothing else, everyone should be able to agree on that, except for the actual members who are voting on it. Everyone else agrees that it should be more transparent.
We need to wrap up here. We could talk about PJM forever. I think this is implicit in the whole discussion, but just to pull it out here — things like this have happened before, but really everyone is in new territory here. Nothing like a data center has existed prior to now. It is so different from typical load as to be different in kind, I think. It is prompting rethinking of all the pieces and procedures. It is both fun to watch and white-knuckle.
Clara Summers
As someone who is living it every day, I will say it is a challenging situation. This is a brave new world. It is really hard to be PJM right now trying to manage this.
David Roberts
It’s hard to be utilities, it’s hard to be everybody right now. Nobody knows what they are doing.
Clara Summers
It’s really hard. Just to be clear, this is a tough nut to crack. From everything I have seen, this is a resolvable problem. I do feel confident in that. I really think that between BEYONCE — bring your own new clean energy — or connect and manage and having curtailable load and allocating costs directly, there are ways to reliably and affordably integrate data centers. That can happen. It’s just a matter of making sure that they are accountable for their own costs.
David Roberts
At the very least, there are some obvious steps that we could take that would help things, and then we can see where we are . This brings me to my final question, which is all this hubbub is very much ongoing. Meetings out the wazoo are happening all around us. Some reforms are being put in place, all the plates are in the air. I’m wondering if any of this is going to have any effect soon enough to show up in the next auction period, or do you think all these gears are moving too slowly for that?
Clara Summers
Good question. The next auction happens in June. As of last night, the price cap is going to be extended, the lower price cap. It’s still going to be the same record-high prices that we’ve seen for a while, but at least it won’t get even worse. That is a good thing. The PJM board has said that they want to have the design for the reliability backstop procurement done by May so they can file it at FERC. The governors and the White House had set a September timeline. We are going to see developments on that particular design over the next couple months. The load forecasting improvements the PJM board has directed are supposed to happen immediately.
David Roberts
On those particularly, just from outside, it looks to me almost any reform you implement on three-year forecasting in the circumstances we are in is going to yield a lower forecast. Do you think that’s a safe bet? If you stop double counting, almost anything you do, because right now you are just counting everything. Do you think that the load forecasts are going to get trimmed back?
Clara Summers
Yes. Even after the December auction ran, I believe PJM said we cleared short and I believe PJM said, “We expect that the load forecast is higher than what’s actually going to materialize.” There’s already recognition of that and there are some recommended improvements. I think there can be even more. One thing I want to flag — this is maybe a side point, but we’re not operating in a three-year forward, which exacerbates all of this.
David Roberts
What do you mean?
Clara Summers
The auction is supposed to run three years prior to what is called the delivery year — the year that you need the capacity. We have been running auctions a year before, a couple of months before.
David Roberts
No kidding?
Clara Summers
We’ve been off schedule for several years now and I believe we’re supposed to be back on schedule in time for the 2030 auction. That has been a component too — if you’re running back-to-back auctions, there is not enough time for the price to respond.
David Roberts
It’s interesting what the reforms will do, but it’s also interesting how many data centers will show up. Everybody is on the edge of their seats waiting to find out.
Clara Summers
I will be interested to see the details. Some hyperscalers over the past several weeks have made announcements saying that they will cover their own costs, and there have been some tech companies that have commitments around procuring clean capacity. This is a thorny issue. It is resolvable, and there is a role for everyone. There is a role for the hyperscalers, a role for PJM, a role for the states. If we can all row in the same direction, we can manage this crisis. That is not a given, but seeing the principles and the board letter and in the conversations I have been in, I think there is some overlap, and one of those fundamentals is allocate the costs to the data centers that they cost.
David Roberts
We will leave it there — very much a developing story. Thanks so much, Clara. This was incredibly educational and illuminating. I really appreciate it and appreciate you spending all the many months tracking all these many meetings to help educate us.
Clara Summers
Thanks so much. I’m happy to talk about it and it’s nice to be able to digest the many months of meetings.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I’ll see you next time.
