Catalyst with Shayle Kann

Episode: PJM and ERCOT Navigate a Capacity Rollercoaster

Date: February 12, 2026
Guest: Paul Siegel, CEO of LS Power

Overview

In this episode, host Shayle Kann explores the tumultuous recent developments in two major U.S. power markets: PJM (Mid-Atlantic) and ERCOT (Texas). Joined by Paul Siegel, CEO of LS Power, they dive into the causes of recent capacity crunches, the ramifications of surging data center demand, interventions such as the Department of Energy’s emergency orders, and how these markets are reacting to unprecedented shifts in load growth and extreme weather events. The episode offers rare insight into the on-the-ground realities of capacity planning, flexibility, and investment in the rapidly evolving energy landscape.

Key Discussion Points and Insights

1. The PJM Capacity Crunch: Origins and Implications

Timestamps: 03:43–20:24

Current State of PJM

• PJM shifted from years of surplus capacity and low prices to a rapid, almost overnight crunch in response to sudden demand growth, especially from data centers.
  • Paul Siegel:
    “We went from that moment of very little to no demand growth to hints of data center growth on the back of the emergence of ChatGPT. And that happened almost overnight...” (06:54)
• The price for capacity soared from ~$30-50 per MW-day to over $300 per MW-day (auction price cap).
• The Great Financial Crisis (2008) to ~2024 saw stable demand with new generation primarily replacing inefficient or uneconomic old assets.

Market Design: Foresight or Failure?

• No one, including market experts, predicted the explosion in data center demand and its timing.
  • Siegel:
    “All of the best minds... didn’t anticipate how quickly this shift occurred.” (06:54)
• Power markets’ long planning horizons (4–5 years for gas plants) lagged rapid demand increases.

Demand Response Challenges

• Demand response hasn’t scaled with higher prices as expected. Past minimal participation made sense with low incentives—now, with increased prices, more participation is expected, but there is a lag.
  • Siegel:
    “...the awareness of the opportunity needs to be socialized among a broader set of potential customers.” (11:49)
• ‘Churn’ is coming as more dependable operators replace passive non-responders.
• ELCC (Effective Load Carrying Capability) adjustments have reduced the realized value of demand response vs. gross auction price.

New Generation & The DOE Emergency Order

• High capacity prices should spur new generation and demand response, but the build-out takes years.
• The DOE’s emergency order proposes making new large loads (notably data centers) “pay their way”—shouldering the cost of new capacity and integration to protect other consumers.
  • Siegel:
    “...large data center loads... should be responsible for paying for that new supply and the cost of getting it integrated into the grid.” (13:42)
• The process and relationship between these bilateral ‘bring-your-own-generation’ deals and the current PJM capacity market remains unclear.

Near-Term Capacity Options

• Building new gas plants is a long-term fix (late 2020s at best). Faster solutions: demand response, batteries, upgrading/repowering existing plants.
  • Siegel:
    “Large scale gas is a 20, 30 plus new resource. In the interim, there are other things we can do...” (19:06)

Complexity for Sellers

• Undersupplied markets aren’t an unmitigated boon for generators or demand response. Uncertainty about new policies and procurement mechanisms makes investment risky.
  • Siegel:
    “It is more complicated... the mechanisms are not yet clear.” (20:24)

2. ERCOT (Texas): Price Signals, Flexibility, and The Cycle of Spreads

Timestamps: 23:39–40:15

ERCOT’s Different Dynamics

• While ERCOT isn’t in a formal capacity crunch, it experiences extreme volatility due to its “energy-only” market design.
• Load growth is booming, especially from industrial users like data centers and bitcoin miners.
• High drama during weather events: the system prepares for either disastrous blackouts or anticlimactic “duds.”

The Recent Winter Storm: What Actually Happened?

• Market prepared for a repeat of Winter Storm Uri (extreme blackouts, super high prices), but despite harsh weather, no catastrophic price spikes emerged.
• Siegel:
  “The market was signaling in part through forward pricing, which escalated for the weekdays. Power prices went well over $1,000 per megawatt hour for the subsequent week. So the price signal came through.” (25:02)
• The advanced price signals spurred generators and large loads to prepare—demand response happened informally.
  • 10 GW of expected load didn’t show up: not because the weather was mild, but because proactive response and preparation kicked in.
  • Siegel:
    “...the only reasonable explanation is that the load didn’t show up because we saw it coming ahead of time, people prepared, there was a price signal, and we found a whole lot of additional demand response...” (27:12)

The Flexibility of Industrial Loads

• Unprecedented scale of load response, even with no formal program:
  • “Maybe the most stark example that I’ve seen of load responding to price at that kind of scale.” (Khan, 29:14)
• Sources of demand response likely included bitcoin miners, data centers, LNG operators, and other large industrials.

Implications for Merchant Storage and Investment

• Batteries and merchant assets depend on wide price ‘spreads’ (e.g., for arbitrage), especially during price spikes.
• Compressed spreads and lack of extreme prices have disappointed merchant storage operators—some may be struggling.
  • Siegel:
    “Part of the flow through of the signal will be that those forward hedging opportunities are less robust now that we’ve learned that we have 10 gigawatts of incremental supply of some sort ready to respond along with a pretty well performing system.” (36:23)

Cyclicality and Future Risks

• ERCOT is evolving into a cyclical market: oversupply (by batteries or other resources) can depress earnings, leading to under-investment, potentially setting up future shortages.
  • Siegel:
    “ERCOT has become a cyclical market, maybe especially for batteries... Today, probably over the course of the last year, we’ve had sufficient batteries to load to send a price signal... But that may flip again and again.” (38:28)

The Need for Long-Term Contracts

• To avoid hazardous volatility, large loads may seek bilateral contracts rather than face unpredictable market-driven prices—a move that could support continued investment in new resources.

Notable Quotes & Memorable Moments

• “We went from that moment of very little to no demand growth to hints of data center growth on the back of the emergence of ChatGPT. And that happened almost overnight.”
  Paul Siegel, discussing how AI/data centers upended PJM’s stasis (06:54)

• “Demand response is something that can be turned around as a capacity resource on a very short timeline.”
  Siegel on the promise and present limitations of demand response in PJM (08:46)

• “Large data center loads...should be responsible for paying for that new supply and the cost of getting it integrated into the grid.”
  Siegel framing the reasoning behind the DOE’s emergency order (13:42)

• “Large scale gas is a 20, 30 plus new resource. In the interim, there are other things we can do... But if that’s what we’re hanging our hat on, we need to anticipate that that’s an end of the decade plus deliverable at large scale.”
  Siegel on the time it takes for gas plants to solve capacity needs (19:06)

• “The price signal ahead of time tells a generation owner or a retail supplier to get out there and hustle and figure it out ahead of time... all of these things help gear the market up.”
  Siegel on advance price signals in ERCOT driving real-world preparation and demand response (27:12)

• “10 gigawatts of load that was expected to show up didn’t show up. There is no formal demand response program, but it’s a price signal. And so this is like maybe the most stark example that I’ve seen of load responding to price at that kind of scale.”
  Khan’s amazement at informal, market-based demand response in Texas (29:14)

• “ERCOT has become a cyclical market, maybe especially for batteries.”
  Siegel on the boom-bust nature of Texas’ merchant market and its implications for investment (38:28)

Segment Timestamps

| Segment | Timestamps | |--------------------------------------------|--------------| | PJM Market Overview | 03:41–08:46 | | Demand Response in PJM | 08:46–12:54 | | DOE Emergency Order & Data Centers | 13:42–19:06 | | Investment Risk & Market Uncertainty | 20:02–21:40 | | ERCOT’s Market Structure & Recent Storm | 23:39–29:14 | | Informal Demand Response in Texas | 27:12–31:13 | | Impacts on Merchant Storage & Cyclicality | 35:36–38:28 | | Future Outlook & Cycle of Investment | 38:28–40:15 |

Tone & Flow

The conversation balances technical depth with moments of awe at the unpredictability of power markets. Both Shayle and Paul foreground the real-world consequences of market design, demand response, and the energy transition’s surging demand drivers—with an undercurrent of both analytic rigor and market nerd enthusiasm.

Summary Takeaways

• Data center-driven load growth has shattered PJM’s stability, highlighting both market design limits and the long lead times for adding capacity.
• Demand response, if properly incentivized and socialized, remains the fastest bridge for new capacity but hasn’t yet fully materialized in auctions.
• In ERCOT, flexible loads—responding to pure price signal rather than formal programs—provided dramatic real-time resilience, muting anticipated price spikes.
• Market cyclicality, risk of under/over-investment, and the delicate balance between rapid demand growth and infrastructure development are central themes.
• Both markets illustrate a transition moment: grappling with technological change, policy responses, and the unpredictable dynamics of the energy transition.