Earlier this year, we explained why residents of the PJM area, America’s largest energy market, person seen their powerfulness bills emergence by ~20%. We based on that the main culprit was PJM’s auction creation choices and really PJM models request and supply. To amended understand the grade of the problem, our Energy Model squad spent the past 6 months reverse-engineering PJM’s main strategy model, the ‘Reserve Requirement Study’, which to day has been a achromatic box. This study is really PJM decides what type of and really galore powerfulness plants to bargain to make judge energy is reliable, utilizing an yearly auction, and spending billions each year.
Armed pinch a reconstructed exemplary we reason that the problem is worse than we thought. PJM’s exemplary includes errors that we estimate person costs each of its 66 cardinal residents a full of $12B betwixt 2025 and 2027 alone. We stock our method successful the annex of this newsletter for our subscribers; arsenic good arsenic the results of the exemplary successful our PJM Model dashboard. Our unrecorded rebuild of the Reserve Requirement Model is simply a tab disposable exclusively to our Energy Model clients; which besides includes a quarter-by-quarter forecast of the full US grid search >40,000 grid-connected powerfulness plants, and each azygous behind-the-meter datacenter powerfulness order.
PJM’s exemplary is structurally anti-growth pinch a poorly designed capacity marketplace that is globally unsocial and a governance strategy that is excessively large to function.
These failings magnify the antagonistic effect of bad strategy modeling, which is the attraction of this report:
PJM underestimates by ~4 gigawatts the existing powerfulness plants it already has; owing to a methodology which doesn’t relationship for the higher ratio of powerfulness plants successful wintertime and improved powerfulness works resilience since Storm Elliott.
PJM has wasted ~$12 cardinal of ratepayers’ money from 2025 to 2027 owed to this anemic methodology, which dramatically overstated the supply/demand shortfall it faced. Household energy bills would person risen overmuch little if PJM’s exemplary was accurate.
PJM’s emergency auction is putting ratepayers astatine risk by signing contracts for excessively overmuch powerfulness without committed counter-parties.
Using PJM’s request and proviso curves we cipher that amended modeling would person resulted successful $6.7B of savings pinch only 0.014GW (yes, 14MW) little powerfulness procured for 2025/26; past $4.9B and 0.8GW for 2026/27. More powerfulness meaning little successful savings mightiness beryllium counter-intuitive but we person the proviso and request curves to show really these disproportionate impacts occur. PJM has forced itself into operating astatine the limit, truthful inaccurately modeling powerfulness plants’ capacities has a monolithic effect connected auction costs.
PJM has constrained its ain proviso of caller powerfulness by having one-year contracts that commencement excessively soon aft they are signed, arsenic good arsenic being slow to link these caller plants to the grid. This intends fulfilling immoderate request maturation requires paying a large premium for caller powerfulness plants to beryllium built astatine unrealistic speeds. PJM besides runs the only capacity marketplace successful the world that does not separate betwixt caller and existing powerfulness plants. So that premium paid for caller powerfulness plants is besides paid to existing powerfulness plants for doing nothing. The aforesaid maturation successful a marketplace that splits caller and existing powerfulness works auctions avoids the measurement effect of repricing the full fleet; which intends ratepayers are amended protected from value spikes.
Despite 4 record-breaking auctions costing $63B, PJM will beryllium short of the magnitude of procreation it needs to tally reliably, and plans to tally an “emergency auction” from September 30th to October 21st pinch results by December 2nd. SemiAnalysis concludes location is an further 3.8GW of reliable powerfulness connected PJM’s strategy by taking into relationship accrued turbine ratio from acold air, and reduced consequence of wintertime nonaccomplishment aft federally mandated plus winterization investments. This is the balanced of 8 ample state powerfulness plants which would costs around $10 cardinal to build today. This 3.8GW would negate 56% of the 6.8GW that PJM plans to procure successful its emergency auction.
PJM’s emergency auction presents superior risks, it will motion contracts moving to 2043 that are expected to beryllium paid for by caller ample loads. These are not income of electricity; the plants get paid conscionable for existing, whether aliases not the forecast request ever arrives. But PJM is doing this pinch no committed counter-parties. PJM does not person its ain money, everything it spends is from ratepayers.
Every PJM authorities will person to walk (but nary person done truthful yet) their ain cost-allocation argumentation to walk connected costs to participating caller ample loads. But those ample loads tin opt retired if they statement their ain further powerfulness plants directly. If they participate location is small clarity connected really overmuch of the auction’s capacity they are expected to salary for. Participation brings nary different benefits, for illustration accelerated interconnection timelines. Many datacenter developers person written disconnected PJM regardless, going elsewhere aliases readying behind-the-meter powerfulness configurations. If nary different counter-party emerges, past erstwhile again those near holding the container will beryllium the residential ratepayers.
In this report, we dive into PJM’s capacity marketplace and present our proprietary reverse-engineered model. We judge that PJM fails to accurately exemplary 2 captious proviso characteristics, contempt cardinal stakeholders recognizing them to beryllium some existent and of importance:
PJM does not in installments really cold, dense aerial makes state plants stronger energy generators by up to 25% successful winter; and
PJM’s consequence calculations person not been updated to admit that arsenic agelong agone arsenic 2024, 400 of PJM’s ~700 state plants had invested successful wintertime reliability measures successful consequence to the outages from Storm Elliott.
There are deeper problems astatine PJM than conscionable modeling. Its existent auctions were designed 2 decades ago, and it has not knowledgeable request maturation since. Today PJM is structurally anti-growth. PJM is failing to accommodate to this caller era of load maturation because of a governance deadlock, a vetocracy of vested interests. If it cannot execute marketplace betterment possibly it tin stem the ratepayer bleeding by improving really capacity is modeled, particularly erstwhile wintertime is coming.
This study will excavation heavy into PJM’s capacity market. After providing immoderate introductory context, we adopt the pursuing structure:
We commencement pinch the fundamentals and explicate really PJM models supply, demand, and reliability risks. We screen their awesome modeling methodology alteration successful 2024 from EFORd to Reserve Requirement Study and the implications of that change.
We present our reverse-engineered exemplary and screen successful greater extent really we cipher the domiciled of various resources, outages, reliability, and fleet size.
We get to the halfway issue: PJM’s deficiency of information of the accrued throughput of state powerfulness plants successful the winter, and their improved reliability done Asset Winterization.
We past dive into the pricing impact. PJM’s capacity auctions are highly analyzable and we explicate why and really PJM’s 66M residents’ energy bills were $12B higher than they needed to be.
Lastly, we supply immoderate thoughts connected the early of PJM and its upcoming Reliability Backstop Auction. This is an emergency system hoping for datacenters to salary for their ain capacity. We judge that ratepayers could, again, beryllium astatine risk.
Let’s go.
This study is simply a collaboration betwixt SemiAnalysis and Nathan Iyer successful his individual capacity.
If you person not been pursuing along, fto america drawback you up:
Power bills successful PJM states jumped 17-24% successful June 2025, and the authorities regulators branded the capacity auction arsenic the main driver. Read our PJM vs ERCOT article to understand PJM’s capacity auction, and really singular it is comparative to different power markets.
PJM constrains its ain proviso of caller powerfulness plants by requiring them to beryllium built unrealistically quickly and not moreover accelerating the grid connections of captious projects. This constrained proviso greatly increases prices successful the auction.
PJM’s capacity auctions restarted successful July 2024 aft extended delays. This trim the lead clip for caller procreation to get built from the intended 36 months (per the Independent Market Monitor) to 10 months, rising to only 23 months for the latest auction. Power plants return clip to build and request agelong word visibility truthful giving only a 23-month lead clip makes it adjacent intolerable to build caller generation.
The 4 auctions since person each procured 134-138GW a twelvemonth of accredited capacity astatine prices that jumped from $28.92 earlier the hold to $270-333 per megawatt-day, raising the costs of a capacity auction from $2.2B to $16.4B, and the four-auction full to $63.6B.
This money is paid by each azygous family and business successful the PJM area, and is small much than a transportation from ratepayers to existing powerfulness plants arsenic complete the past 4 auctions only 4.8GW of caller capacity has been procured.
Already built capacity does not request $325/MW-day: PJM’s ain marketplace show says existing generators bid astatine $8-14/MW-day, and Great Britain’s latest auction paid existing procreation $18/MW-day (£5/kW-year).
These state plants do not request the money to enactment online. The median existing mixed rhythm made 407% of its going-forward costs successful the power and ancillary services markets unsocial successful 2025, earlier a dollar of capacity revenue.
PJM prevented caller projects from getting a grid connection. From October 2021 location was nary study way while PJM cleared its backlog; a wide exertion model did not reopen until April 2026, erstwhile 220 GW applied.
Now PJM has 2 under-performing interconnection fast-tracks: 1. The Reliability Resource Initiative, 51 shovel-ready projects picked May 2025, now 41 pinch 31.5% of the megawatts withdrawn, first output scheduled 2030; 2. The 10-units-a-year Expedited Track opened July 31, 2026. Neither has energized a azygous megawatt.
PJM cannot betterment itself: norm changes request a two-thirds mostly crossed 5 arsenic weighted personnel sectors, truthful immoderate 2 sectors tin veto anything, and they often do. The Board tin override depending connected the betterment but has chosen not to connected these problems.
FERC has now fixed PJM until the extremity of September to betterment its governance different FERC will intervene. But FERC chiefly has reactive alternatively than proactive powers and this threat is not strictly astir the capacity auctions aliases modeling.
PJM is besides the only marketplace successful the world wherever the capacity auction value is for the full procreation stack. Japan was the past different marketplace to value the full fleet connected 1 twelvemonth position but has now concluded the creation builds thing and bolted connected a abstracted 20-year auction for caller entries.
FERC is accepting comments connected PJM’s backstop filing, until 21st August. Anyone whitethorn participate astatine ferconline.ferc.gov. SemiAnalysis will beryllium submitting this analysis. We promote others to do the aforesaid and we invited immoderate input connected the model, please constitute to america astatine [email protected].
We besides promote PJM’s Board to record improved modeling criteria astatine FERC to alteration the tariff and Reliability Assurance Agreement, done the aforesaid fast-path process it utilized to instal the existent rules successful 2023 and to motorboat the backstop this July. FERC must judge it if it is conscionable and reasonable, and FERC accepted seasonal legalization astatine MISO successful 2022. The winter-ratings matter was written successful Package C successful August 2025, passed by PJM’s ain task force, but was not passed by the elder committee. The Board tin prime it up tomorrow. Crediting mandated winterization has not been drafted. The closest effort was the marketplace monitor’s blunter version to delete the large wind information outright, which was refused successful the aforesaid session. FERC should require that the emergency auction’s 6.8GW target beryllium recalculated earlier PJM signs contracts that will past until 2043.
Our main recommendations are:
These modeling recommendations should beryllium implemented for the emergency auction arsenic good arsenic early auctions;
There should beryllium an enquiry into the overspending of ratepayers’ money successful the 2025/26 and 2026/27 auctions; and
Auctions for existing vs caller capacity should beryllium split.
Our much loosely held thoughts are:
The Emergency Auction should astir apt beryllium canceled for posing excessively awesome a consequence to ratepayers if caller ample loads do not arrive, alternatively only usage nonstop capacity contracting arsenic portion of accelerated interconnection agreements; and
If the Emergency Auction is kept to dress up the shortfall it should beryllium paid for by existing request pinch a short word hole of further lowering the value headdress for the Base Residual Auction, this would efficaciously create abstracted existing and caller capacity auctions.
Datacenters are really energy tin go cheaper than ever earlier by paying down precocious strategy costs utilizing economies of standard and unprecedented worth creation . To pull much datacenters and execute this affordable power early State Governors and customer advocates request to attraction connected the bureaucratic failures to create functional markets.
For a primer connected PJM’s capacity marketplace and auctions, publication our erstwhile report. As a TLDR: PJM acts arsenic a cardinal planner and runs auctions to guarantee location is capable proviso to meet highest demand, pinch a information buffer. PJM made its readying much blase successful 2024, but owed to grounded stakeholder votes, did not see important inputs. The consequence of leaving retired these inputs is that PJM overestimates strategy consequence during wintertime months which leads to trying to procure excessively galore caller powerfulness plants arsenic backup. But PJM besides has a constrained proviso of caller powerfulness plants which leads to value spikes, trying but failing to hole this scarcity.
In 2024, the aforesaid twelvemonth the capacity auction prices first spiked, PJM overhauled their assets adequacy modeling. Previously, the PJM strategy operated nether a strategy called “Equivalent Demand Forced Outage Rate” aliases EFORd. The capacity target was group by taking the highest request and adding a separator based connected the chance a generator mightiness beryllium offline. However, this strategy is not capable to efficaciously seizure correlated failures, which are much communal successful acold wintertime months for earthy state powerfulness plants. It besides fails to relationship for newer technologies connected the grid. Specifically adaptable resources which require modeling connected astatine slightest an hourly ground to seizure their contributions to capacity. These are intermittent procreation specified arsenic wind, solar, aliases run-of-river hydro; arsenic good arsenic ‘limited’ resources, for illustration retention of each kinds.
These limitations came to ray successful 2022. During Winter Storm Elliott, PJM mislaid 24% of its full procreation owed to forced outages and derates, and 2 thirds of the nonaccomplishment came from earthy state generators. Storm Elliott led to a important overhaul of the Reserve Requirement Study making it into an hourly consequence framework. In this study PJM models request against proviso for each hr of the twelvemonth for a number of theoretical years, utilizing some historical and forecast-based randomized data. This much elaborate attack identified that astatine definite times of the twelvemonth location is not capable proviso comparative to demand.
As a result, state successful peculiar suffered a 10-20% knock-down. These 2 changes had a ample strategy impact, cleared capacity fell by 8% (12GW from 147GW to 135GW) betwixt the auctions for 2024/25 and 2025/26. It is arsenic if the strategy mislaid a people of ample powerfulness plants. The capacity auctions person been costly since PJM fundamentally had to bargain replacement plants.
The displacement from a summertime consequence strategy to a wintertime consequence strategy is simply a overmuch bigger woody successful PJM. It has 1 cardinal auction, versus different capacity markets, which alternatively separate specifically betwixt wintertime and summer. For PJM, a wintertime consequence strategy degrades the reliability value of stronger summertime resources (e.g. star and retention which tin span day peaks), and enhances the stronger wintertime resources (e.g. nuclear, coal). Even a insignificant betterment successful wintertime state consequence tin person ripple effects crossed each resource, pinch awesome commercialized implications.
The study’s hourly matching against upwind and request scenarios defines really each caller generator improves reliability of the system. To galore this caller strategy is simply a achromatic box. PJM, to its credit, publishes a information of its activity and data. It is analyzable but its nuances are important for knowing PJM’s existent problems. With which, mixed pinch different nationalist data, we person fixed our champion changeable astatine reconstructing the exemplary and scrutinizing its soul workings. In doing so, we’ve identified and corroborated a number of weaknesses that are of awesome value to caller value spikes; reliability concerns; and the upcoming backstop auction.
PJM’s new(ish) strategy overestimates the consequence successful wintertime months which leads to overbuilding powerfulness plants. Our exemplary re-runs the Reserve Requirement Study connected the aforesaid whole-system ground PJM uses. Our conclusion is that the aforesaid fleet is worthy much reliable capacity than PJM credits it, truthful the auction request against full energy request falls.
While PJM models request pinch its year-round variations, it caps proviso astatine generators’ summertime accreditations. On 1 hand, that makes consciousness arsenic PJM is simply a summertime peaking system. There is much aerial conditioning energy request successful the summertime than location is heating request successful the winter, and truthful the highest request points successful the twelvemonth are successful summer. Even erstwhile netted disconnected against the accrued output of solar, the request for reliable powerfulness plants is still higher successful the summertime than it is successful the winter.
On the different hand, historically nonaccomplishment rates of procreation are overmuch higher successful the winter, thin to beryllium correlated crossed fleets, and aligned pinch periods of highest demand. Higher nonaccomplishment rates mean that wintertime tin beryllium the astir probable clip for proviso to autumn short of demand. Gas is little reliable successful wintertime arsenic storms tin origin them each to frost astatine the aforesaid time, arsenic seen pinch the Polar Vortex and Storm Elliott.
This type of wintertime consequence is recognized successful PJM’s modeling but the specifications are retired of day and deficiency precision. They do not see really acold improves the operations of the plants that do not fail, aliases really plants person hardened themselves against the upwind successful caller years.
PJM uses humanities information for performance. This intends that if a assets falters 1 time, the only measurement to summation reliability is to hold complete a decade to flush the arena retired of the system. No magnitude of investments, regulations, aliases assurances tin assistance this judgment. As a result, the largest driver of reliability consequence to this time was driven by a polar vortex successful 2013 and the 2nd is Storm Elliott successful 2022.
Why aren’t PJM ratepayers amended protected from value swings? In astir different powerfulness markets, unit customers person semipermanent contracts pinch utilities and are not exposed to yearly capacity marketplace changes. The marketplace adjacent door, MISO, besides knowledgeable important capacity swings, but the immense mostly of households were unaffected because utilities had semipermanent contracts.
There are a number of reasons PJM is truthful all-or-nothing, but it comes down to a operation of unit prime and deregulation (shorter and little definite contracts), a Supreme Court lawsuit that struck down authorities efforts to support semipermanent contracts, and a long-standing FERC conflict that boiled down to a partisan conflict betwixt assets preferences.
The different main action remaining is for utilities to procure capable capacity for themselves and past efficaciously eject themselves afloat from the capacity marketplace for 5 years. This shows up connected the capacity markets arsenic large swings, but ends up being comparatively neutral impacts because the proviso and request effect is balanced.
While information for PJM’s wide fleet is comparatively transparent and drives their consequence model, the auction itself diverges successful often unpredictable ways and cannot beryllium afloat replicated.
The Reserve Requirement Study is bigger than conscionable the Base Residual Auction, arsenic immoderate utilities ‘self-supply’. The Fixed Resource Requirement (FRR) replacement allows utilities to opt retired of the auction and record their ain capacity plans, pinch an responsibility group by their stock of load, which is ~8% of the PJM strategy (e.g. 12GW for 2026/27).
So PJM’s Reserve Requirement Study models an ‘Assumed Fleet’, and produces a whole-system number (e.g. 146GW of reliable capacity for 2026/27). The auction’s target is the request minus the self-supply responsibility (e.g. 134GW for 2026/27).
The ‘Committed Fleet’ is the consequence of the auction and self-supply. In 2026/27 the auction cleared 134.3GW, 0.2GW short of its target, while the self-supply plans committed 12GW, astir 0.3GW much than their obligation. The strategy ended the auction 0.1GW supra the whole-system requirement, but only because self-supply over-delivered by much than the auction missed. Behind each of this sits the full fleet, the powerfulness plants that physically exist.
To get the existent numbers we needed to rebuild the exemplary successful full. So we took PJM’s Manual, which explains really they do this study and turned it into code. Then we ran connected that codification the weather, demand, and procreation information that they publish. For information that they do not springiness we utilized publically disposable proxies, chiefly from the U.S. Energy Information Administration. We sewage a precocious level of accuracy to the outputs that PJM publishes crossed the past 4 auctions. The elaborate measurement by measurement is included successful the Methodology Annex of this newsletter to thief subscribers who wishes to recreate aliases audit our work.
In the auction for 2026/27, acold aerial uplift unsocial should person reduced the required capacity by 1.5GW and weatherization unsocial 2.5GW astatine only 60%. Together they would person been worthy 3.1GW arsenic location is simply a important overlap betwixt their effects.
We calculated this by utilizing our reconstructed Reserve Requirement Study to trial really overmuch the outputs would alteration if we altered 2 input assumptions that person been wide debated and antecedently proposed: crediting acold aerial uplift and plus winterization. Again, the elaborate steps are successful the Methodology Annex.
A turbine is simply a mass-flow machine, acold aerial is denser, truthful turbines tin compression much energy retired erstwhile temperatures drop. If you disregard ways that a strategy is much businesslike successful winter, but still admit wintertime nonaccomplishment consequence past you double count the consequence and bargain excessively galore powerfulness plants.
PJM’s modeling does not admit that acold upwind makes thermal plants much efficient, and increases the disposable capacity connected the grid during acold periods. Cold temperatures make the aerial denser and amended somesthesia gradients, which improves turbine travel and increases the highest energy output of a unit. For combustion turbines, this effect is arsenic precocious arsenic 25%, and PJM’s people array averages 8.4% for turbines complete the wintertime months. While state plants are much apt to travel offline successful the winter, their chap state plants are amended capable to nutrient much powerfulness to dress up for it. Steam plants besides use from colder cooling h2o which lowers condenser pressure, improving rhythm efficiency. Instead these plants are modeled arsenic if it were the summertime months.
Crediting acold aerial counterbalances the greater breakdown risk. Our exemplary runs these 2 dynamics side-by-side hour-by-hour. It keeps PJM’s wintertime breakdown rates precisely arsenic PJM sets them, and credits other output per thermal works moving successful each simulated hour. Netted complete 41,600 simulated years, crediting acold aerial alone, pinch PJM’s nonaccomplishment rates untouched, still cuts the capacity request by 1.3 to 2.2GW depending connected the year.
PJM was already told they were modeling this wrong. E3, the advisor PJM hired to reappraisal its methodology, highlighted the bias successful its December 2025 evaluation: “PJM asymmetrically applies ambient derates to the ICAP of unlimited assets classes erstwhile temperatures emergence but does not use ambient uprates erstwhile temperatures fall.” PJM’s ain May 2025 sensitivity tested crediting it successful the exemplary which resulted successful 33 percent little wintertime nonaccomplishment of load hours and a 1.1 percent constituent little reserve separator against the 2026/27 auction model. E3’s information 4 of 14 was to adopt seasonal aliases regular capacity ratings.
PJM measured wintertime capacity uplift arsenic 8.5GW nameplate. Despite this monolithic effect (worth astatine slightest $13B successful caller state plants astatine a blimpish $1500/kW), PJM did not instrumentality this accommodation contempt having each the halfway information. One of the superior reasons is that they would person to tally deliverability studies to find if the further capacity could service the full system. To our knowledge, PJM ne'er ran these studies. It is worthy noting that the likelihood of deliverability is high. In stressed circumstances, a ample information of the different deliverable fleet would beryllium offline, and the acold besides improves the thermal capacity of each grid components (including conductors, substations, and breakers). Using the summertime capacity ratings for wintertime thermal accumulation is physically inaccurate, but owed to stakeholder disagreement (detailed successful Package C of the ELCC taskforce), projected reforms to instrumentality this basal alteration did not pass.
Our modeling methodology is successful the annex.
PJM does not decently in installments powerfulness plants that put successful hardening themselves against utmost events. This intends it underestimated wintertime consequence earlier Storm Elliott and could now overestimate the consequence of their recently winterized fleet. This deficiency of accuracy and forecasting drives up the costs of electricity. Crediting weatherization unsocial for the 2026/27 auction would person been worthy up to 3GW of reliable power.
Crediting winterization and different forms of resilience finance would beryllium a beardown financial inducement for plants to put arsenic they would past gain much successful capacity auctions. Instead PJM establishes works nonaccomplishment rates based connected past performance, and the ample collapses of the state fleet during the Polar Vortex and much precocious during Winter Storm Elliott play an outsized domiciled successful reducing the capacity worth which PJM credits to state plants. For accrued statistical heft PJM uses arsenic galore humanities upwind years arsenic possible. But erstwhile location is simply a large miss only clip and bully capacity tin slow return this to baseline. A painstaking process of asymptotic averages. Even if state plants invested billions successful weatherization aliases demonstrated bonzer resilience during a akin event.
Plants neglect because components freeze: instrumentation and sensing lines, valves, substance handling. During Winter Storm Elliott (December 2022), PJM saw 46GW of coincident outages. The FERC/NERC associated enquiry (October 2023) recovered that astatine slightest 75% of freezing-caused failures occurred astatine temperatures supra the units’ documented operating limits. Which intends a decently winterized portion would not person failed.
By the wintertime opening November 2025, the existing fleet was winterized substantially much than PJM’s exemplary assumes. Mandatory cold-weather preparedness plans, yearly training for each unit, and reporting of each unit’s cold-weather operating limits were mandated by April 2023. By January 2024, much than 400 generators had reported winterization improvements to PJM, a fig PJM published successful its ain reappraisal of Storm Gerri. PJM has astir 450 state units and astir 750 thermal units successful total, truthful that is the mostly of the applicable units. The reports are self-made but they were revenge nether a authorities that already required each portion to clasp a cold-weather plan, and they came astir 2 years earlier the auction’s wintertime we are modeling. A legally required calculation of each unit’s utmost acold upwind somesthesia was owed by October 2024. The event-CAP norm was enforceable from October 2024; immoderate portion that froze during wintertime 2024/25 owed a completed corrective scheme earlier December 2025. In addition, binding NERC winterization standards ramp done 2027, though this had nary effect connected caller auctions that target years aft it goes into effect.
There is grounds of winterization successful the fleet’s caller performance. Gerri (January 2024) had a highest of 16GW aliases 9% successful forced outages against Elliott’s 46GW. The MLK large wind (January 2025) besides had a 9% forced-outage complaint against Elliott’s 24%, connected akin upwind complete a vacation weekend, while serving an all-time wintertime peak. Storm Fern (January 2026) had outages of 18-19GW aliases 10%. During each of the acold events since Storm Elliott, PJM’s fleet has behaved for illustration 1 substantially winterized. MLK successful January 2025 pinch Elliott-like upwind showed nary excess clustering astatine all.
Specific methodology is successful the annex but the cardinal constituent is that the winterization lever does not presume plants neglect little often. It preserves each class’s yearly mean nonaccomplishment complaint precisely and removes only the upwind clustering. A genuinely winterized fleet would besides neglect little connected average. We do not see in installments for that. To beryllium highly blimpish we presume a 50% winterization for 2025/26 past measurement it up by 10% each twelvemonth from there.
The outcomes of these 2 modeling changes person important overlap, truthful together they are little than the sum of their parts. This is because they hole the aforesaid hours. PJM’s request is group by a fistful of deep-cold hours successful which the strategy mightiness tally short. In 2026/27, acold aerial unsocial is worthy 1,535 MW of request alleviation connected the auction’s standard and weatherization unsocial group to 100% is worthy 3,143 MW, but together they are worthy 3,320 MW, not 4,678. In the overlap winterization (when group to 100%) peculiarly dominates acold air’s effect, covering up to 76-96% depending connected the year. At little settings the overlap is reduced. For the yearly settings we person chosen the overlap scope becomes 53-69% depending connected the year.
The consequence of these improvements to the exemplary inputs is that PJM has a much reliable fleet than its Reserve Requirement Study presently recognizes. So comparative to modeled request load it needed to procure little capacity than it has done for the past 4 years. In the 2 auctions wherever the value was free to move (2025/26 and 2026/27) that quality was worthy $12B.
Auction creation is overmuch harder to betterment than modeling methodology. But you request to understand the creation successful bid to spot that comparatively mini shortfalls successful modeled capacity tin person outsized impacts connected auction costs. PJM has 2 markets: 1 for power which is successful existent clip and 1 for capacity which is connected an yearly basis. A capacity statement pays a works for being available, not for making energy. PJM interconnection queue is famously slow and long, but powerfulness plants applying joining the queue do truthful astatine their ain risk, plants joining the capacity marketplace are the ratepayers’ risk.
Two costs matter successful immoderate powerfulness market: what it costs to tally a works for different hour, and what it costs to build and support the works astatine all. The first short-run marginal costs and the 2nd long-run marginal cost. The regular power marketplace clears astatine the short-run marginal costs (fuel, labor, adaptable maintenance) of the past needed producer. This incentivizes bidding existent costs alternatively than gaming the strategy arsenic immoderate much than that would consequence not being dispatched and truthful earning nothing. The quality betwixt the short-run and the long-run marginal costs (capital, assets, fixed maintenance) creates a “missing money” problem arsenic powerfulness plants struggle to make this backmost successful the regular power market. Some energy grids, astir famously ERCOT successful Texas, only person an power market. Power plants make that missing money by putting prices really precocious erstwhile proviso is scarce. But galore markets usage a capacity auction to supply this missing money, considering it the much unchangeable approach. PJM’s yearly capacity auction besides pays each bidders the value of the past needed capacity.
Every twelvemonth PJM’s readying exemplary (the Reserve Requirement Study, RRS) decides really overmuch reliable powerfulness keeps shortfalls to 1 arena successful 10 years (the 0.1 Loss of Load Expectation, LOLE). Because risks are dispersed retired everyone successful the marketplace tries to free-ride connected everyone other which intends powerfulness capacity has nary earthy buyer. PJM acts arsenic the security intermediary. It draws a marketplace request curve, a sliding schedule of what value it will salary astatine each level of proviso (the Variable Resource Requirement, VRR). The yearly auction successful which procreation bids and PJM buys against that curve is the Base Residual Auction (BRA).
Unfortunately, PJM runs 1 capacity auction that includes ~92-93% of fleet capacity, some existing generators and caller generators. Most of the remainder is covered by self-supplied utilities. This is simply a problem arsenic these are substantially different products, caller generators person overmuch larger long-run marginal costs. Existing generators only request to screen their yearly fixed costs, the Independent Market Monitor’s connection information shows astir bids astatine $8-14/MW-day. New generators person important risk-related costs and overmuch greater first fixed costs. New and existing plants besides person the aforesaid one-year contract, moreover though a caller works usually needs a semipermanent statement pinch which to raise financing cost-effectively. This auction creation intends that if location is energy request maturation which requires caller plants to beryllium built past prices will request to summation by a batch compared to the baseline. In PJM’s lawsuit the full fleet’s value went from $28.92 to $270-333 per megawatt-day, astir 20 to 40 times the $8-14 the existing plants themselves were offering. This creates immense windfalls to existing generators without needfully expanding procreation capacity connected the strategy successful an effective manner.
Happy to beryllium corrected, but we judge PJM is besides unsocial successful the world for really overmuch of its fleet is put done the aforesaid marginal-priced auction. 93% of PJM capacity settles astatine the clearing price, against 15% successful MISO’s residual auction, monthly rolling successful New York, bilateral contracts successful California, nary successful Texas, and New England conscionable abandoned the creation entirely. MISO besides had a crisp auction value swing, but its auction is residual and utilities self-supply aliases statement for astir capacity beforehand. Therefore astir 86% of its 2025/26 summertime request was met extracurricular the auction, leaving astir load protected against the swing. Great Britain, Ireland, Italy, and Japan tally centralized auctions, but springiness qualifying caller plants contracts of 10 aliases 20 years while existing plants mostly person 1 year.
All of these markets make customers salary for growth. But the aforesaid maturation successful those markets would not thrust the repricing of astir the full fleet arsenic it did successful PJM. That costs displacement is simply a merchandise of marketplace creation alternatively than inherent to load growth. Reform is coming, and datacenter developers person mostly supported reforms to salary for capacity arsenic it is successful their interests for maturation to hap painlessly. However, presently nary proposals supply immoderate respite for ratepayers who are still paying for creation choices made 2 decades ago.
This creation is not without its reasons. For complete 20 years, PJM has not knowledgeable immoderate load growth, and benefited from an early state roar by Independent Power Producers that proved disastrous for early investors. Over that clip little businesslike plants person been pushed disconnected the strategy by much businesslike ones, successful galore ways a bully system, conscionable not 1 built for growth.
For the 4 astir caller auctions we person calculated what value and measurement the auctions would person cleared astatine if the Reserve Requirement Study had been much accurate. That modeling betterment shifts the request curve to the left. We find that the auctions for 2025/26 and for 2026/27 would person seen savings of $11.57 billion, pinch a sensitivity scope betwixt $8.0 cardinal and $14.5 cardinal mixed while procuring much than the reliability requirement. The auctions for 2027/28 and 2028/29 would not person cleared astatine a little value aliases measurement because proviso was tight capable that the value headdress for those years still binds, moreover nether improved modeling.
The capacity auction value is group wherever the proviso curve crosses PJM’s request curve (VRR). The request curve is simply a published value schedule stating what PJM will salary astatine each level of supply. The proviso curve is made up of each the bids into the market; PJM and its marketplace show people the style pinch cardinal information points. We person reconstructed these curves for each of the 4 auctions.
We past utilized our reverse-engineered Reserve Requirement Study to cipher really the curves move pinch improved inputs to incorporated acold aerial and plus winterization. Given the greater reliability of the existing fleet the request to procure a greater separator of proviso complete the energy request is reduced. This shifts the request curve for capacity (VRR) to the left. We computed this by twelvemonth fixed different inputs and concluded that for a 0.1 LOLE, whole-system reliable capacity requirements autumn by: 2,879 MW (2025/26), 3,396 (2026/27), 4,513 (2027/28), 3,824 (2028/29). We person to presume that bids do not alteration arsenic modeling bid behaviour is complex, successful reality location would beryllium immoderate alteration but we do not deliberation it would beryllium worldly successful this context.
PJM’s capacity marketplace has a right-angled proviso curve. The immense mostly of it is debased and flat, past immoderate dependable increase, earlier correct astatine the extremity it spikes consecutive up. For illustration the 2025/26 auction had the first 79% of the bids betwixt $2-5, the adjacent 20% roseate until they peaked astatine $105, and it was only the past 1% that went arsenic precocious arsenic $352, pinch the marketplace clearing astatine $270. This is reflecting that astir of the powerfulness plants successful PJM person existed for a while and bid debased arsenic they person small quality betwixt their short-run and long-run marginal costs. But past caller powerfulness plants bid precocious to beryllium capable to spend to beryllium built quickly and to screen their ain risk. The style of PJM’s proviso curves is why, if you are astatine their limit, a mini alteration successful amount demanded has a immense effect connected value and connected full cost, moreover erstwhile having a mini effect connected measurement procured.
The Base Residual Auctions do not extremity astatine their required capacity, they clear connected their request curve. So if location is much capacity that tin beryllium bought astatine a value that PJM has decided is acceptable past it clears the auction. For the 2025/26 auction PJM’s ceiling value was $452 and capable bids came successful that 135.7GW was procured for $270 against a required capacity of 133.6GW.
If the Reserve Requirement Study had been computed otherwise past the request curve would person been shifted to the near by 2.7GW. The adjusted target required capacity would person been 130.9GW and the auction would person cleared 135.7GW astatine a value of $135 (a 50% discount). Only 0.014GW difference, but that $135/MW-day redeeming is multiplied by the afloat 135.7GW (plus $270 times 0.014GW), past multiplied by 365 days to springiness $6.7B for the afloat auction.
There is moreover a magnitude of effect consciousness cheque we tin comparison against. The independent marketplace show ran a similar calculation successful September 2024, for the cold-air in installments alone. It recovered $2.7 cardinal pinch the reserve separator held fixed, and up to $8.0 cardinal without. Our fig besides includes the reliability effects of winterization.
The auction for 2026/27 included the first politically imposed value cap. PJM has value ceilings successful its request curve modeling but value caps were group arsenic a hasty measurement by governors to forestall PJM’s awkward auction creation from harming ratepayers moreover more. While this was achieved, the value headdress of $329 besides prevented the auction from clearing properly. 134.2GW was procured against a required capacity of 134.5GW, only 0.3GW short.
If the Reserve Requirement Study had been computed otherwise past the request curve would person been shifted to the near by 3.1GW. The adjusted target required capacity would person been 131.4GW and the auction would person cleared 133.6GW astatine a value of $230. Only 0.6GW less, pinch an improved reliability margin, and $99/MW-day discount. Total auction savings of $4.9 billion.
Price caps tin person galore unintended consequences. In this lawsuit 1 consequence has been an emergency auction for 11-15 twelvemonth contracts astatine elevated prices. Any generators that chose to withhold incremental capacity whitethorn good person benefited from doing so.
2025/26 and 2026/27 are the 2 auctions successful which we recovered PJM had wasted ratepayers’ money. The adjacent 2 auctions would not person had value aliases measurement impacts from improved modeling because proviso was truthful constrained that moreover 4.5GW and 3.8GW of activity respectively would not get the request curve to transverse pinch the proviso curve beneath the auctions’ governmental value caps.
The 2027/28 auction held successful December 2025, cleared astatine $333.44, astatine the value headdress and 6.5GW short. So a 4.5GW leftwards displacement successful the request curve is not capable to make a difference.
The 2028/29 auction held successful July 2026, cleared astatine $325.00, astatine the headdress and 6.8GW short. The 6.8GW target falls to astir 3GW pinch improved modeling.
That 6.8GW vs 3GW is now the billions-of-dollars mobility for PJM’s fast-approaching emergency auction.
Buying excessively overmuch is bad successful immoderate auction, but this backstop auction has nary defined counter-party. PJM plans to salary for powerfulness plants to get built connected the anticipation that power request arrives later. But if that request does not get past PJM will still person to pay.
In mentation caller ample loads are expected to salary for this emergency auction. But the forcasted ample loads are hypothetical and won’t beryllium signing connected the dotted line. The scheme is for PJM to motion the contracts and for the States to each walk their ain cost-allocation argumentation to allocate costs onto participating caller ample loads. PJM’s filing clarifies that “Because PJM does not person jurisdiction to allocate unit costs straight to individual information centers, authorities action will beryllium essential.” This creates a batch of uncertainty for ample loads arsenic costs pass-on will beryllium bespoke state-by-state.
Only caller resources successful work by June 2032 whitethorn bid. Contracts each extremity successful 2043, truthful a powerfulness works online successful 2032 gets astir eleven years. The costs are past assigned to transmission zones successful proportionality to forecast load maturation betwixt 2026/27 and 2028/29. Those shares are stiff for the afloat 15 years. Inside each zone, a authorities will usage bespoke argumentation creation to nonstop the costs onward to circumstantial ample loads aliases distribution companies. If a authorities does nothing, the filing’s default applies and the costs autumn connected each load-serving entity successful the area by peak-load share.
There is nary true-up, the area shares are group by forecast maturation and ne'er revisited. The proviso contracts are system arsenic guaranteed top-ups. Each victor is made full to its bid against immoderate the capacity marketplace later pays retired to 2043. Load-serving entities assigned backstop costs must station in installments support of $1.5 cardinal per megawatt of obligation, wrong ninety days of each transportation year. At the ceiling mean of $555/MW-day the maximum liability for 6.8GW is astir $21 billion.
There is nary sweetener to promote ample loads to participate specified arsenic accelerated interconnection. There is not moreover assurance connected ‘unaccelerated’ interconnection timelines. Then connected the proviso broadside location is small punishment for under-delivering erstwhile a works is running. PJM itself projects that moreover pinch the backstop the adjacent auction “may clear short”.
Through PJM’s fast-track stakeholder process this spring, the members developed and endorsed a backstop creation built astir a voluntary subscription model. This was championed by a conjugation of the electrical distribution companies and the Data Center Coalition. The thought was for ample caller loads to subscribe first, committing to salary for the caller capacity earlier it’s procured. Unbelievably for PJM that creation won much than two-thirds sector-weighted support.
Then the Board overrode its ain members. In its decisional letter of 27th July 2026, the Board rejected the subscription model connected the stated crushed that it “would not supply capable assurance that capacity adjacent to the identified near-term shortfall would really beryllium procured”.
That is why improving this strategy modeling is crucial. The Board decided this high-risk emergency auction was basal because of modeling which overstates the near-term shortfall. The near-term shortfall is presently 6.8GW, recomputed it would beryllium 3.0GW, an magnitude a subscription exemplary could plausibly person covered. The full request of 156GW is built from the 2028/29 load forecast, which already embeds the anticipated datacenter growth.
PJM has filed the Board’s connection astatine FERC connected 31st July 2026. The Board’s creation uses a $555 average-cap and they added backmost a severely designed curtailment strategy (IRAS) that the members had rightly voted down. Both of these measures look designed to dissuade caller ample loads from joining this scheme.
An average-price headdress pinch pay-as-bid proviso contracts intends that participating request loads do not cognize what value they will sign. The $555 headdress constrains the portfolio mean and not immoderate individual contract. PJM’s ain worked example shows a $600 connection clearing. The amount being bought is besides unknown, because the model for reporting bilateral offsets runs concurrently pinch the connection window. The load’s ain stock is unknown, because it depends connected authorities allocation mechanisms that do not yet beryllium and connected really galore different loads participate. The mean is applied astatine selection. If contracts are voided later, the remaining portfolio is ne'er re-tested against $555. This consequence is asymmetric connected the upside arsenic little priced contracts are much apt to beryllium abandoned aliases fail. Pay-as-bid makes this worse. In a marginal-price auction a bidder’s champion strategy is to bid its existent cost. Under pay-as-bid the champion strategy is to bid your forecast of the highest accepted price. PJM’s ain witnesser says this successful the filing: pay-as-bid sellers “are much apt to connection the expected clearing price,” and market-power mitigation successful this mounting is “difficult and ineffective.”
The Interim Resource Adequacy Service (IRAS) strategy applies to loads complete 50MW aft 2027/28 that are not covered by 1 of: the cardinal procurement, self-supply, aliases a bilateral contract. These loads link arsenic non-firm and are curtailed first during capacity shortages, up of moreover the pre-emergency request consequence programs. As an aside, non-firm connections are adjacent successful utmost cases, but this is mad. Demand consequence participants are paid to curtail; it is simply a work they sell. The caller ample loads would beryllium paying for this work successful their energy bills and still beryllium turned disconnected first. These request loads will beryllium successful the hundreds of megawatts and are not designed for this benignant of accelerated consequence aliases high-fidelity manipulation. It could moreover beryllium vulnerable to the system. PJM’s ain unit had dropped mandatory curtailment days earlier the last stakeholder meeting, citing doubts astir PJM’s jurisdiction to curtail unit load astatine all, and the generators’ ain waste and acquisition group warned that reviving it invited prolonged litigation.
For immoderate load that tin negociate it, self-supply strictly dominates the auction. This will thrust defection and greatly summation the consequence of yet much over-procurement by PJM to the detriment of its rate-paying households and businesses. For the rest, greener pastures await successful different powerfulness markets.
Comments to FERC adjacent 21st August astatine 17:00 Eastern. The auction runs from 30th September to 21st October, pinch results by 2nd December. This is only 1 week earlier the adjacent regular auction opens connected 9th December. PJM posted the people ratings for the 2029/30 auction connected 7th August. Once again they were computed for endless summer. PJM will station the remaining parameters connected 31st August. Everything successful this portion is astir decisions being made successful the adjacent ninety days.
Other than our reverse-engineered exemplary almost nary of this is new. In 2023 PJM projected a afloat two-season capacity marketplace itself. But aft the Independent Market Monitor and others objected that the creation needed much improvement time, PJM withdrew it and revenge an annual-only package; FERC approved that package successful January 2024 and declined to require seasonality. In September 2024, the Independent Market Monitor concluded that crediting the wintertime capacity of thermal plants would person trim that year’s capacity measure by $2.7 cardinal pinch the reserve separator held fixed, and up to $8.0 cardinal otherwise. Its opinionated proposal read: “There is nary logic that excess wintertime CIRs cannot beryllium assigned to these resources immediately.” In May 2025 PJM’s sensitivity analysis recovered the fleet’s wintertime capacity runs 8,561 megawatts supra its summertime ratings. That aforesaid month, members voted 3.699 (of 5 sector-weighted votes) to defer adjacent transmission activity “until specified clip that stakeholders undertake activity connected a seasonal capacity construct.” In July 2025 PJM’s ain task unit endorsed the hole successful Package C. This included wintertime ratings and passed 178 votes to 54, 77%. Twenty-six days later, connected 20th August 2025, the elder committee killed it pinch 30.7% of the weighted vote. Generation owners based on a higher wintertime standing raises the benchmark a works is penalized against erstwhile it underperforms successful summer. The user sectors voted PJM’s package down while backing 2 blunter alternatives, and the generators killed those successful turn. In December 2025 E3 recommended seasonal aliases regular ratings, Consideration 4 of 14. No ballot has been held since.
PJM’s centralized capacity marketplace has afloat grounded astatine its halfway domiciled of solving capacity shortfalls. Faced pinch the first lawsuit of humble maturation successful its modern history, the capacity marketplace was incapable to procure capacity. Instead PJM’s creation misallocated those dollars arsenic windfall profits to existing generators while constraining proviso pinch short lead times and agelong interconnection queues. PJM is making advancement astatine creating a 3rd power marketplace successful the shape of this emergency auction specifically for the caller generation. But successful doing truthful it is converting long-standing errors into long-standing liabilities pinch basal assets modeling accuracy still successful the air.
These circumstantial modeling points person been debated earlier but without occurrence successful implementation. Our dream is that this effort to reverse-engineer and merchandise PJM’s achromatic container will move the statement done vulnerability to the size of effect this alteration successful methodology could have. That is what we person attempted to do pinch the accusation that is publically available. We must stress that location is cardinal accusation which is not disposable which we person highlighted. This has the consequence that our modeling is astatine champion a bully approximation. If we are moreover half right, we request to alteration this modeling urgently to debar further discarded and create a clearer awesome of what caller capacity is required to alteration PJM to turn erstwhile again.
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