What is PJM and why is everyone so mad about it?

[Music] Hello everyone, this is Voltz for February 20th, 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 fewer 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. So what is PJM exactly and why is everyone yelling at it? Briefly, PJM interconnection is America's first and largest regional transmission organization or 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, DC. It manages a transmission grid that serves about 65 million people, approximately 20% of the U.S. 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, add a future date just to ensure that 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 have the next I have with me the perfect guest. Clara Summers from the nonprofit Citizens Utility Board, or CUB, as they are affectionately known, she runs CUB's consumers for a better grid campaign, which advocates for cleaner, cheaper power in PJM. We are going to talk all about how this crisis came about and what kind of reforms might get PJM back on track. All right then, with no further ado, Clara Summers, welcome to Vultz. Thank you so much for coming. Thanks so much for having me. I'm thrilled to be here. We're going to walk out today. It's going to be deep. Yes. I think Vultz 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. I know I think that much probably a lot of people listening to Vultz news. But it occurred to me, as I'm reading and researching for this episode, that my knowledge kind of stops there. It has never really occurred to me over all the years that I've been able to say that, to think, well, like, okay, so there's that RTO, what is that? What is that thing? So let's start there. What is PJM? It is not government, but it is administering this market. It has some power over these entities. So what is PJM exactly? Just ontologically, like what kind of entity is it? So PJM, technically, it's an LLC, and it is regulated by, for the Federal Energy Regulatory Commission. As you know, it has the power of government, but it is this private entity. And 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. So they have a lot of power. What's interesting about them and every RTO is different is their structure as you're imagining. So 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. And this is where the congressional analogy ends. Yeah, because Congress, rather famously, has an executive branch in their back pocket to enforce those things that they say. So what is the legal force of PJM judgment? What power do they have to enforce the things that they decide? Well, ultimately it's through FERC, so if FERC approves what PJM has decided, then that's that. And it can go further to the courts, which does happen. But the reason I think it's different from Congress is that Congress is elected. And PJM stakeholders who are voting on these issues, which again, they're issues that affect the affordability and the cleanliness and the reliability of our electric system, it's the regulated industry for the most part. So it's the regulated industry setting the rules for itself. So 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. That's correct. So there are transmission owners, generation owners, electric distributors, other suppliers, and then there's the end-use customer sector, which is partially large industrial users of electricity. And then there are 14 of us state appointed consumer advocates with a vote out of what? Over a thousand members. Voting members, yes. So this Congress is composed of over a thousand members drawn from the industries that they're regulating, plus 14, 14 of you representing the people using the electricity. Indeed. That is. And so I think that description alone listeners are going to be like, well, 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 activity? Doesn't that invite basically collusion? Why is that not as obviously corrupt as it looks on the surface? I guess it's my question. I think there are a lot of questions about governance that are being raised and have been raised for quite some time. There isn't a dependent work at monitor, but yes, fundamentally, if the regulated industry is setting rules for itself, that is an eyebrow razor. Yeah. So, okay, that's good background. And I was going to come to this later, actually, but are there, like presumably this was set up by some founding documents or something and has some sort of structure? Is there anything in the structure to self-police it? Do you know what I mean? Like, is there a reform process? Like, is there any recourse, basically, if you feel like you're getting screwed or that whatever, something's going wrong, is there any recourse? Well, 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. So, every RTO, as I said before, every RTO is a special flower when it comes to governance. And PJM, I would say compared to the other RTOs, has the least formalized states involvement. So that's become a big topic of conversation is what recourse do the states who participate in PJM have. Right. Now that everybody's grumpy, everybody's wondering, well, like, what can we do about it? Exactly. So, depending on your filing abilities, if you want to get really wonky, there's two or five filing rights and two or six filing rights under the Federal Power Act. And depending on who you are, you can file under one or the other of those at FERC. for help on a particular issue, and there's a different burden of proof. But the states only have two or six filing rights, which is the higher burden of proof. - And we're also gonna get to this, but I guess I just like to approach it here too. It seems like on the surface, the obvious problem you would get from having an industry regulating itself is just that scarcity is bad for consumers, but good for producers, right? And if you have a cabal of producers running the show, it seems like 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? And then like you look and sure enough, they're slow as hell, building anything, just as you would predict, like am I wrong and identifying that basic dynamic? - I'd say that 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. So things will go through the stakeholder process and depending on the issue, it will, some issues just have to be sent on to FERC, whether or not the board is as excited about it and other things, the board has a lot of decision-making power over and one of those things is the capacity market. So the board is independent from this construct, there's the members who vote and then there's an independent board. So they ultimately are the ones sending things to FERC and answering to FERC. - Got it. Okay, so that's PJM. And as I said in intro, it's huge. It's the biggest one of these stretches all the way down to the middle of the Atlantic, goes into the south. So it matters quite a bit how this plays out. So that established PJM runs a market and energy market, which I think is pretty straightforward people get it. And 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 basically just paying power plants to be around, right? - Yes. - In practice, it's complicated, but that's the idea, yes? Essentially, the idea is that on the hottest summer day when electricity demand is at its peak, everyone's running their ACs, there's going to be enough generation contracted on the system, participating in the system to meet that peak demand. But we're not at peak most of the time. So it's kind of a buffer. - Yeah, I've always, I mean, I don't want to get mired in just the whole conceptual idea of a capacity market in the first place, but it always seems something a little strange to me that I can build a power plant and be paid without ever basically firing it up. Just basically get paid year round to have it sitting there. It just seems odd, but I don't know. 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 unending, longstanding and unending. - Yeah, 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 and especially if you're a peaker plant who isn't making much money off of the energy market, maybe you're particularly old and not able to run that frequently. The capacity market can help prop you up. And the way it was designed as to be the quote unquote missing money that a generator isn't making in the energy or ancillary services market to stay online. So it can be quite lucrative for encompassing the ideas that when the price goes up in the capacity market that's supposed to attract new resources to build and come online. And when prices are low, that's supposed to indicate the system has a glut and retire. But we're now in this kind of new paradigm that's complicating that. We're going to get there. So the capacity market exists, you're getting paid to be available. And just to point out the obvious, I think this is something that you and I take for granted at this point, but just 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're 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. But for the most part, capacity markets are composed of fossil fuel plants by and large. 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. And if you have, you're already built nuclear plant and everyone's 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. Yes. And so 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. And these are based on, these capacity prices are based on three-year load forecasts. So PGM is saying, what's the highest possible peak three years from now? How much capacity will we need three years from now? And they run capacity markets based on that. And 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. And I think anybody who's been listening to this pod for a while knows that we're not great at forecasting load. Generally, we're generally wrong. It's very imprecise. And there's a lot of room for shenanigans in those forecasts. So maybe just tell us a little bit about who runs those forecasts. And is there anything to say about the format of them? Like are they done well? How are they generally viewed those forecasts? So until recently, load growth was fairly low and stable. Yeah. For pretty much the past 20 years. And so 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 hyper-scalers. It's data centers. Don't, don't, don't. They enter the chat, finally. Yes, yes. This is the reveal, however many minutes in. So we've had data centers for a while and it's internet infrastructure. But this has become a more acute issue with the advent of AI hyper-scalers because they're so demand intensive. So 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 they're designing the load forecast. They're saying here's in my zone, I think there's going to be this amount of demand coming online in three years. This is crucial. I want to pick this out because it comes up later. The way they do these word focus is they just go and ask their constituent utilities. Like each utility, you tell me what you need in three years. And then they just add all that together. And that's the three-year forecast. So this comes down to the utilities themselves. Yes. And these utilities, they've all been using wildly different approaches to estimate how much capacity they might need. And what we've been seeing is a data center could be reflected in a duplicative manner across different utilities. Because there's a big difference between a data center that has knocked on the door of a utility and said, hey, I'm interested in being in this area versus a data center that has entered into a contract with the utility and put down money. And which of those counts as forecastable load is the question? Yes. And I take it different utilities count that differently. And isn't it also true that because of these long interconnection cues, that if you want to build a data center, you go kind of bid it into multiple markets, right? Kind of 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? Like is your data center getting counted? Potentially. Two, three, four times as load? Potentially. And that's a big concern because only the one data center that's going to build is reason to include in a load forecast. And one estimate has that the number of requests for potential data centers to connect to the grid is five to 10 times more than the number of actual data centers that will be built. And I guess there's just no way to pin this down in advance. It seems like-- I don't know. I guess the utilities-- There are. I guess if you go to each hyperscaler and sort of force them, I mean, can you get the information from them? Like literally how many are you actually going to-- is the number that are actually going to get built available somewhere? Is it getable somehow? Well, and that's why the constraint really needs to be that data centers have to enter into binding contracts for any-- Before they're counted, you mean? Yes. Yes, it's not reasonable to count-- oh, you had a conversation with this utility, and so we're going to count you. So at the state level, what states can do is they can create large load tariffs, which is a rate class specific for these large loads. And in that say, OK, you need to be responsible for your own costs, whether or not you end up using them. So even if you decide, after all, we don't want to build here. If you've entered into a contract, an 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. If you bid your data center into say five separate cues, theoretically, that's five separate grids that are being upgraded to prepare for you. Yes. 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 it all. That seems like a bad situation. Yes. So a state large load rate class can ensure that data centers aren't dining and dashing. By requiring them to have contracts, and that's also something that's been talked about at the PJM level, we can get into this in more detail, but saying, okay, we're going to need to have some visibility on how real this request is and a utility. Isn't the case that an individual utility has some incentive to exaggerate their load forecast? Like, do they want to over-forkas just because then they'll get a lot of more money? A utility's business model is if you build more, you make more. Yes. So fundamentally, yes, if you have more projected demand that you then forecast, okay, we're going to have to build more transmission or distribution to serve this anticipated demand, that's good for the bottom line. Right. So it's probably not going to be the utilities themselves that restrain this overbiting, as you say, it's going to have to be some sort of mechanism or force from above. So this is what's happening. You've got slow interconnections. They're building very slowly and you've got a crap load of data centers that won't in the door. So, slow supply plus rapidly rising demand is having the predictable effect. So I'll just run through this because it is eye popping. So several years ago, when they were running an auction, so we didn't mention this in the capacity market discussion, but they run these via auctions. They auction off to determine the price. So 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. So that's kind of the baseline, right? The normal 20 years of no-tomatist load growth capacity market burbling along in the background, just fine, $28.92. The next year, when they were auctioning capacity for 2526, the price they settled on was $269. $28.92. That is, and 833%. I shouldn't say that so confidently. I did math. That's probably wrong, but that is almost a tenfold increase in the price of capacity. So that is when all this started in earnest. That's when all the real hubbub started in earnest. That was crazy. So talk about how people reacted to that and what sort of action that prompted. Yes. So that price spike that you're referring to, the $269.99 per megawatt day, that went into effect this past June. So 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. Yes. A tenfold increase is going to show up, I think. Yes. It's going to show up on your bill. And 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 constraints zones. So that is so one. Yes. So it did prompt a lot of concern for a number of quarters. We as consumer advocates, we hear from people every day who struggle to pay their electricity bills. And we have definitely been getting calls and having people talk to us about how they're feeling it on their bills. And we should just say because there's a broader background discussion that's been going on about electricity bills going up and why it's happening. And there's a lot of misinformation kind of flying around and it's not a clear or simple story. It's 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 unique causal, basically. Like it is the data centers causing all this. I think it's fair to say that it's a major chunk of the cost. We ran another, PJM ran another auction in December. That's for the 2027, 2028 delivery year. And according to the independent market monitor, 40% of the costs were driven just by data center demand. So that's huge. And it's true. 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've been clearing out a backlog. So 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. So that 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 we hope. But that combined with this massive data center demand is really what's been causing these high prices. And so after that first price spike, Governor Shapiro of Pennsylvania and many like consumer advocates like ourselves, environmental organizations, all were calling for reforms at PJM. This played out in the PJM stakeholder process and also at FERC. And ultimately what happened is Governor Shapiro was able to negotiate with PJM, what's called a price collar, which is essentially saying, okay, prices are not reasonable right now because we have frozen new entry and we have massive unprecedented demand. So we're going to put a collar around the range of what prices can be. So the cap is lower than it would otherwise be. But the cap is around $330, which is still very far above $28. It's not a low price cap, it's still pretty eye popping. Oh yes, it's so much higher than prices have been for like these are all record setting prices. So even with the price cap, which we are really glad to have, it's still higher than it should be. And the subsequent two auctions both hit that price. Yes. So that's what happens. Which means like, you know, the economists out there are starting to twitch. Like 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, and that's what happened in the recent auction. They didn't get as much capacity as they needed. Like they are saying, even paying this crazy $330 price, we're still not getting the capacity we need. And that speaks to how overwhelming the new demand from data centers is because they want speed to power. They want to come online much faster than the market can realistically get any generation built. So that's the big timing mismatch that we're having right now. I think the economists would say that's fine as a band aid, right? That's fine as like short-term relief for particularly stressed ratepayers, but that doesn't address any of the structural forces that are causing prices to be high. So in a sense, you're getting some short-term relief, but you're almost like building up pressure behind the scenes. You're making it worse and worse. You're making it worse behind the scenes as long as the price cap is on. So I guess that's what happens when you're making a price cap. the price cap is on. So I guess. This is all a long-winded way of saying, that can't be it. Surely there are deeper structural solutions on the table. It's a necessary banded. Yes, that has been over the past six months now. I want to say very involved stakeholder discussions have been taking place at PJM to talk about how do you reliably and affordably integrate this massive new load. Tell us just a little bit about the administrative. This has prompted a flurry of meetings. Meetings are happening all over the place. Tell us a little bit about who's meeting and what they're doing and what is the process underway now. So many meetings. Even in a regular year, there are more meetings that happen in PJM, stakeholder process than there are days in the calendar year. You're really juggling many balls at the same time to keep up. There's only so much you can track at once. But so in August, the PJM board said we are aware that data centers are overwhelming the system and the scale of this is becoming clear. So we are going to kick off an accelerated stakeholder process to figure out how to manage this load growth. And this is called the SIFP, the critical issues fast path. It's not a thing unless there's an acronym. So there was this. This is the SIFP LLA, the SIFP on large load additions. And that meant that we had stakeholders having meetings with PJM and bringing proposals about how to manage this growth. And it all culminated in an advisory vote to the board in November. There were 12 proposals ultimately that were voted on. Interesting. None of them reached the threshold to say there was consensus around this. Ah! Ah! Ah! A perfect meeting. So there were a lot, I can say there were a lot of ideas. And 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. And I would be remiss if I didn't mention how engaged people were in this process. It wasn't- I bet. Yeah. It wasn't just PJM members. You had the governors have formed a collaborative and they held a technical conference on governance reform in September. So they've been very engaged and a group of state legislators also brought a proposal in this process. And now Clara, the fricking White House has gotten involved. Indeed. Which as far as I know, and quite a bit of I'm wrong, I can't remember that ever happening. Has a White House ever descended down to an individual and intervened in an individual RTO proceeding? Certainly not that I am aware of. Wild. So everybody cares. Everybody's following it. Everybody's watching it. Not even just in PJM. Like, you know, this is affecting other parts of the country too. It's a very big deal. So what I would like to go through here a little bit is who wants what to happen? There are 12 reform proposals. And presumably the governors got together and they came up with a set of principles. And then the White House has their principles. Like, who wants what? What are the governors? We'll start there. What are the governors come up with? What are the governors principles? What would they like to see happen? So the governors principles that I'll mention that during the SIFP process, there was a small group of governors who brought a proposal that was different. But now the governor's principles that they signed at the White House is all of the governor's minus DC leadership. And they signed this at the White House. And their principles include improving load for casting, allocating costs to data centers, accelerating ongoing interconnection studies, providing revenue certainty to new generation, returning PJM to market fundamentals. So that's some of the deeper reforms you were talking about. And protecting residential customers from the capacity price increases. Yeah. And did the White House issue something distinct from that? Or was that under the White House ages that that was released? My understanding is it was with the White House. And yes, endorsed by the White House more or less. Yes. And 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. Yeah. Because the statement of principles, it 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. And there are things that the states can and must do, which we can get into, but 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. And they issued something. They said something in November, right? They issued a. In November, we had the vote. And then they said they would deliberate. So the morning that the governors and White House principles came out, later that same day, the PJM board then released their decision. What did they say? There was a lot of overlap. So the. It seems good. Yeah. So 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, like 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. And I can say that last night, they announced after getting further feedback that they would be extending it. Oh, interesting. That is certainly something that consumer advocates are glad to see. Because. Yeah. Well, because if the price is going up and up and up, but it can't meaningfully incent new generation, there's no reason for it to be burdening ratepayers. Like it shouldn't be burdening ratepayers, but it's. It's clearly something's broken, right? I mean, it's definitely not working the way it's supposed to. Yes. But so two things I want to highlight in particular that were big from the PJM board decision is they said there's going to be a voluntary bring your own new generation pathway paired with an expedited interconnection track and that if you don't 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 emergency. This is what they do in Texas and this is sort of, I think, held up as kind of 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 know, 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. And I think large loads are perfectly happy to come and interconnect under those. I mean, they would vastly prefer that to not interconnecting, let's say. I'm glad you bring up Texas as an example because I've been hearing a lot of rhetoric around how data centers are not necessarily curtailable. It's very hard to curtail. And the fact that states are already requiring it, like Texas shows that, you know, it can be done from a climate perspective. A lot of data centers use diesel generation as their backup. So I know that's raising a lot of concerns for communities and different states that want to make sure that air pollution targets are not overrun. Seems to me, like just taking in the big picture here, like people can freak out all they want, but it's basically insoluble unless you speed up the interconnection queue. Like that is the eye of the needle here. And like all the other reforms are band-aids until that gets fixed. It seems to me. So is it getting fixed? Like I think PJM says, we've started speeding up interconnections. The problem currently is a bunch of projects did not expect to receive interconnection and turns out are not actually ready to go. Like they're blaming the projects. Like what is the status of interconnection? Are they getting better? They say they're on track to clear out the backlog by this spring. And then they'll be moving on to their new process. The backlog was about 200 gigawatts. You mentioned this earlier, but just to reiterate, they haven't even been allowing new people in the queue for three years. That's a 200 gig backlog is from a while ago. Yes. The one exception to that was the Reliability Resource Initiative, which was a one-time fast track. which also has seen high dropout rates. So I think there's a general problem across the board with having generation build. But speeding up the queue is a fundamental part of it. And I'll agree 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. Yes, but 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, like what the cutoff is there? Or any states like I wanted to look at sort of how states are dealing with this and what sort of reform states are doing. So 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-a-vis PJM? - Hey there everybody, don't worry. I'm not going to tell you about a new mattress or push a credit card on you. This isn't an ad. There are no ads on volts. It is supported entirely by listeners like you. If you'll indulge me for a second, I'd like to ask for your support. I started volts because we're all surrounded by depressing news about climate change and misinformation about clean energy. And it's never been more important to share the stories of the real people on the ground doing the real work of transition and all the ingenuity, encourage, and public spirit they are bringing to it. People are hungry to hear these stories, to learn from and find inspiration in them. I've heard from people who've changed majors or careers after hearing episodes of volts. People using it in classrooms and community groups, even state legislators who have passed bills inspired by specific episodes. Sharing these stories matters. It makes a difference. If you have found value in it and want to help me continue doing it, I hope you will join the community of paid subscribers at volts.wTF. It's about the cost of a cup of coffee a month. If you don't like subscriptions, you can make a one-time contribution. Leave a review on Apple or Spotify or just tell a friend about volts. I am grateful for any and all support. If you're already a paid subscriber, thank you. And now, back to the show. - The Clean and Reliable Grid Affordability Act in Illinois, what did that do vis-a-vis PJM? - 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 myso, 'cause part of the thing is in myso. - There's a study bill. - Yes, so there's a study bill on that. But actually, so Surja, as we call it, was a big step forward. And the components that address the data center issue, that's actually just been broken out into a bill that has just been introduced. - Oh, interesting. - Called the Power Act. - Well, what is that? What would it do? 'Cause I'm so curious. In your mind, what is a good state legislative approach here? Like what should they be doing? - Yeah, so one of the things we talked about before is making data centers be accountable for their costs through a large load tariff. So this requires utilities to establish new interconnection standards for hyper-scalers, so over 50 megawatts. And so the tariffs allow for firm uninterruptible electric service proportional to the data centers maximum demand that's supported by bringing your own new clean capacity and energy, which is the Beyonce, Acres. - Beyonce. - Beyonce. - Wait, is that the actual name? Did they name it Beyonce? - Yes, I'm just so excited. - Beyonce has been around for a while. Yeah, there are many different variations of the similar idea, but my favorite acronym is Beyonce. - So that's one piece. But again, like, do you know the details of how much generation, I mean, say again, how much generation the data center is supposed to bring online? Not enough to cover its full load, right? 'Cause that's a lot. Like, that's a lot, lot. - Well, the alternative is that other consumers have to pay for the demand that gets added. - Yeah, but I mean, that's how normal, (laughs) you know, before we had these weird mutant megalodes, like, you know, a factory hooking up to the grid, would impose a little bit of burden on the rest of the grid, but I don't, like, we didn't break that out to a separate charge. Typically, it's just 'cause these are so frickin' big. - Right, perhaps not in the capacity market, but it's quite standard for industrial commercial classes to have their own rate classes in states. That's quite typical. So we're essentially just saying a, in the capacity market, that needs to be done as well. And data centers, because they have this massive amount of load coming on, do need to be responsible for curcuring that because it's more than the market can handle by itself. - This is something I never, I'm not quite able to get my head around, is like, traditionally, if big industrial users come along, states want them, states will compete for them, 'cause 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. So, like, do states want them or not? Are states competing for them or not? Like, is Illinois worried that if they impose a special tariff on data centers, that the data centers will just go to another state? Like, is that dynamic at play here? Like, are they competing for data centers? - They are, and that is a real dynamic. And at the same time, hyperscillers are not particularly price sensitive, what they're interested in is, I mean, these are the wealthiest companies in the world. - Right, I know. - So, they can certainly afford to pay their fair share and they're most interested in speed to power. So, that's where you're located on the grid and things like that. So, what we're seeing is, you know, states like Ohio and Indiana have actually created very protective tariffs. You mentioned Texas and their curtailment kill switch essentially and those markets are still seeing a lot of interest from data centers to build. So, there's really no reason for a state to not have reasonable guardrails. It's not about being unreasonably restrictive. It's just have reasonable guardrails to make sure that your residential consumers aren't footing the bill. - Yeah, and I think it's, I don't know if this is the right term. It's a buyer's market. I don't know if that's the right analogy, but like the demand to hook up to the grid is so wildly out of proportion to room on the grid that basically the people who have control over the grid have all the power in this situation, basically, like hyperscillers are desperate and will basically pay whatever, wherever to get whatever they can. Like the amount of demand is so out of scale to the supply that it's completely distorted market. Now, just in terms of market power and political power. So, 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? It all, is that gonna change things at all? - Once the queue gets cleared out, I am hopeful, I'm very hopeful that they will. And it's a good point because if we're talking about speed to power, there have been a lot of conversations about, oh, these data centers will want to contract with gas plants. But I think it's important to note that if you actually care about speed to power, you want battery storage. - Yep. - Because according to a Brattle Analysis, building a gas-fired power plant in PJM takes between like three and a half to four years. And another recent report indicates new gas plants won't be online till 2030, 2031. And we're already in crunch time, what's a man? So, do you contrast that build time to battery storage, which can be built in a year and a half, potentially according to Brattle and storage developers say they can be built even more quickly. So, this could be an opportunity for more battery storage. - Or related, and this is similar, but this is something I've been a drum I've been banging on. For a couple of years now, it's like you could round up distributed capacity. That includes batteries, but also, you know, demand response and residential level, you know, VPPs. VPPs basically, like, it's hilarious to me that like the big cowboys in charge of these hyper scale are coming up. 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. And that is, if you have to wait that long to put your data center online, that is billions of dollars in opportunity costs. So they're just getting driven despite themselves to embrace distributed energy and batteries. I just was listening to a shale cons pod last night. He was interviewing a guy runs LS Power, which is a big power company operating in these markets. And this is the CEO of a very large power company. The CEO was saying all we've got for the next three, four, five years is demand, response and batteries. There's the only things we can build fast enough. So I do think 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. And like 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're terrible and demand response. Do you have any insight into that? Whether they're, whether they're any good at it or whether they're trying to get better? Because as I said, that's pretty much all there is now. 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 centers. All right. So let's talking about reforms. We talked about a couple. One is like, do you think that capacity markets are going to bifurcate? This is one possibility I've heard that basically one possibility here is just setting up a separate capacity market for data centers. Is that a real thing? That is something that we will spend the next couple of months talking about in the PJM stakeholder process. And it would be done through what's traditionally called the reliability backstop auction, but that we're moving towards calling the reliability backstop procurement. The idea, 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. Oh, interesting. Yeah. And, you know, 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. So if design correctly, separating data centers out into another market would be a good thing because it could insulate the rest of us from their capacity costs. But the risk is that with two markets, there will be an incentive for power generators to jump over from the existing. Yeah. And they're going to ask, they're going to be competing for capacity and they have all the money, as you mentioned. Right. So how do you create guard rails around that to ensure that you don't get generators jumping over from the regular auction process into this other reliability backstop procurement? So that's something that we will be spending a lot of time talking about. The conversations have already begun on that over the next few months. And, you know, it will remain to be seen. But I think getting down to the fundamentals, and this is something that the governor said, is they want to protect residential customers from capacity price increases. I think there's 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 cause or there is the cost causation. Is it principles and electric rating? So do you think the special rate for data centers already in place in Illinois? Do you think that's going to be just like a standard reform piece that's going to spread everywhere now? I mean, that seems like one of the things around which there is very broad consensus. Like are the data centers even fighting that? Or are they fine with them? It's proposed in Illinois. Oh. It's established in Indiana and Ohio. I mean, I hope so it needs to be. It seems to them like the most obvious thing. It is an obvious thing. And that mind you, like the states can do that. And the states have said through this governor's collaborative, we want to be partners in this. And 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? Is that the part that PJM has control over? And eventually we'll talk about transmission, like regional transmission cost allocation as well. That is kind of overlaid on all this. A lot of these congestion problems and a lot of these capacity problems could be solved with better transmission. That's just like 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? They have been mentioned as something that is important. And 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 and order 1920 was the new transmission planning role that Fert came out with. Right. So that's meant to create reforms. We are tracking PJM's compliance filings with that. So that is a component, but it doesn't look specifically at, okay, a data center is causing this level of transmission needs. How are we going to figure that out? But they know they need more transmission. What about if this all continues? Because it's to me, 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 emeliorate, but not solve the problem. And there's probably still going to be political angst. And I'm just wondering how seriously we should take state's discussions about leaving PJM. There's been threats. I think there's a bill now in Virginia pondering it. I wonder how seriously to take that and I wonder like what are the considerations for a state deciding whether to do that or not? Yeah, I know there's one in Maryland and I think New Jersey was looking into it. It's a couple different states. One thing I'll flag is that 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 Mover X, the minimum offer price roll. And it was about. Yeah, like RPS resources or state supported renewable resources specifically potentially being priced out of PJM's markets. And 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. So at that time, there was talk about leaving PJM and one utility actually, so 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 now. So their data center load is shared with everyone now. So that was a case that happened before. But yes, as you point out, those conversations are coming back. It's something that some governors have talked about. It's something some legislators have talked about. We talked about earlier our study bill in Surge last year in Illinois that looks at it. Did that study happen by the way we heard? It's still in process. So I would say there are efficiencies to be received from RTOs. It is more efficient. It's a big pool like transmission markets, legendarily, the larger the pool, the lower the average unit cost. Exactly. All else being equal, which it rarely is. But 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. So there are cost efficiencies to it. And as we are seeing now, as we saw with the mober issue before, there are times when what's happening in PJM can selects with other state priorities. And so I, I think it's always good for state leaders to have a good sense of what the options are, but they need to be really informed options, right? And so that's why it's important to do a cost-benefit analysis, to do the actual studies, and be insulating that before making any decisions. And there are a couple different ways that you can quote-unquote leave PGM. There is 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 is also switching to another RTO. So again, Illinois has two, it were served by two RTOs, PJM. It serves the like Northern Illinois Comed Zone and MISO serves the Amaran Zone downstate. Yeah, somebody online was like, we should just break this thing up. Leave the coal states behind. Let them coal out all they want. So up here, we'll jump over to NISO and down there. They can jump over to MISO. Basically, like PJM is the worst of the RTOs. People should just be leading it. Is that a sentiment you run across? I've heard that sentiment. I think you're seeing that there are some states talking about forming their own sub-RTO. I think that's something that perhaps the Maryland or the New Jersey legislation looks at is, can we form our own RTO? Can we be our own RTO? Can we join another RTO? Are RTOs within RTOs? Capacity markets within capacity markets? Adding complication is always the first resort to electricity. Yes. And again, I would say that it's always good to know what your options are and to always be evaluating what are the costs, what are the benefits. But you must do that careful analysis prior to making any decisions. I don't totally understand the political economy here. Is the threat to leave? Is that something that PJM, as an entity, views as a threat? They don't want people to leave, presumably. That's what they want. What scares them? A lot of people I've heard from are just like, 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 sort of wondering, who do they fear? Instead of what mechanism can bring PJM to heal, I guess, it would be my question. Do they fear people leaving? 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 governor's and PJM and legislative bodies all interact going forward. Yes, because 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 the, you know, like, including a larger voice for consumers or, you know what I mean? I mean, like, I'm thinking more oversight. Like, I haven't heard a lot of that. Any ideas along those lines? Yes, that's a real discussion. And I'm really heartened to see that discussion happening because as we were talking about like, they're certainly from a consumer advocate perspective, the makeup of PJM seems very unbalanced in terms of like voting membership. And 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, I think, a more formalized mechanism for managing that. So in September, the governors convened a technical conference on governance in PJM. And there are a number of different ideas. And what's nice is it doesn't involve reinventing the wheel necessarily. There are other RTOs that have a more formalized way for states to be involved. People who are interested in this should go listen to my pod on the discussion around forming a Western RTO, a West, further, all the Western states. So like the process of creating an RTO from nothing from a blank sheet of paper is underway in the West. So all these questions that PJM is facing are very much on the minds of people forming this new RTO, like what are best practices? Absolutely. Who does work best? Do you have a, is there an RTO you'd, I don't know, single out as a high performer or or particularly well constructed or competent? Do you have a favorite? I don't have a favorite. And I'm so, I'm so laser focused on PJM that I, but I will say that there are different aspects of other RTOs that I would love to pull in to PJM. So for example, in PJM there is a formalized group called Opsi, the organization of the PJM states. And that is the entity of, it's the state regulators group 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. So specifically 205 filing rights, which I mentioned earlier, like the, the ability to go to FERC with a concern, but you don't have this much harder to attain presumption or burden of proof. And so I think 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. Also from a governance perspective, we would love to see all of the votes be public and transparent at PJM because they're not. No, that's wild. Yes. Yes. This gets back to the confused like what is it? Like does it have an obligation to be transparent? I don't know what it is, so I don't know if the, if the kind of thing it is has that obligation. I mean, I kind of think it should have that obligation. I agree. I think 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 policy maker and there needs to be more transparency about how the company is being made. If you're a company in PJM and you're voting at the very least like your shareholders and yeah, like that should be on the record. People should know which way companies are going. Yes. And some states have passed and are trying to pass legislation to require their utilities, their state jurisdictional utilities to report their votes. So last session, it was Maryland, New Jersey and Delaware. I believe passed this legislation. So now their utilities have to report. I wonder if that will change behavior. I really wonder. It will be interesting to see. We have the bill is also proposed in Illinois and I know has been proposed in a couple other states. So that's the sort of thing. But you know, the state 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. And some there's one committee level where you can see the individual firm votes. But then as you move down, then you can't see the detail of how different who voted what their vote was. You just see what the topic of the vote was and like the number or percentage of yays. No kidding. That is so shady. That is so shady. I think it's like, if nothing else, everyone should be able to agree on that. It seems like except for except for the actual members who are voting on it, everyone else agrees. I feel like that it should be more transparent. All right, we need to wrap up here. We could talk about PJM forever. You know, I think this is sort of implicit in the whole discussion. But just to kind of pull it out here is like things kind of like this have happened before. But really like everyone's in new territory here. Nothing like a data center has existed prior to now. And it is so different from typical load as to be different and kind, I think. And it's just prompting like rethinking of all the pieces and procedures. It's kind of, it's both fun to watch and like quite knuckle. You know what I mean? Yes. You know. Yes. Yes. Someone who's living it every day. And I will say it is a challenging situation. And this is a kind of brave new world. And I think it's, it must, it's really hard to be PJM right now trying to manage this. It's hard to be utilities. It's hard to be everybody right now. Nobody knows what the hell they're doing. Yeah, it's really hard. So just to be clear, this is a tough not to crack. And from everything I've seen, this is a resultable problem. Like I do feel confident in that. I really think that between like bring your beyond sale, like bring your own new clean energy or you know, connect and manage and have it 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're accountable for their own costs. >> At the very least, there are some obvious steps that we could take that would help things. Then we can see where we are once. This brings me, I guess, to my final question, which is all this hubbub is very much ongoing. Meetings out the wazoo are happening all around us. I guess 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? >> Good question. The next auction happens in June. What I can say is 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 PJ Amboard has said that they want to have the design for the reliability backstop procurement done by May. 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 of months. The load forecasting improvements the PJ Amboard has directed are supposed to happen immediately. >> On those particularly, just from outside, it looks to me like almost any reform you implement on three or forecasting in the circumstances we're in is going to yield a lower forecast. Do you think that's a safe bet? Like if you stop double counting, I mean almost anything you do, you're going to, because right now you're just counting everything. Do you think that the load forecasts are going to get trimmed back? >> Yes, and I will say that even after the December auction ran, I believe PJ Amr said, we cleared short. I believe PJ Amr said, well, we expect that the load forecast is higher than what's actually going to materialize. I think there's already recognition of that. 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 actually operating in a three-year forward, which exacerbates all of this. >> What do you mean? >> So the auction is supposed to run three years prior to what's called the delivery year, the year that you meet the capacity. And we have been running auctions like a year before, a couple months before. >> No kidding. >> Yes, we've been off schedule for several years now. And I believe we're supposed to be back on schedule in time for the 23rd-E auction. But that's been a component too, is if you're running back-to-back auctions, there's not enough time for the price to respond. >> So interesting. It's interesting what the reforms will do, but I guess it's also just interesting like how many data centers will show up. Everybody's on the edge of their seats waiting to find out. >> I will be interested to see the details, but some hyper-scalers 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. So I think this, as I said, this is a thorny issue. It is resolvable and there's a role for everyone. There's a role for the hyper-scalers. There's a role for PJM. There's a role for the states. And if we can all row in the same direction, we can manage this crisis. That's not a given, but seeing the principles and the board letter, and just in the conversations I've been in, I think that there is some overlap. And one of those fundamentals is allocate the costs to the data centers that they cost. >> Yeah. >> All right. Well, we will leave it there. Very much a developing story. Thanks so much, Claire. This was incredibly educational and eliminating. I really appreciate it and appreciate you spending all the many months tracking all these many meetings to help educate us. >> Thanks so much. I'm happy to talk about it and, you know, it's nice to be able to digest the many months of meetings. >> Thanks. >> Thank you for listening to Voltz. 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 Voltz.wTF, or leaving a nice review, or telling a friend about Voltz, or all three. Thanks so much, and I'll see you next time.