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Energy Gang
Inside the largest power market in the US: How PJM is navigating the collision of data centres, decarbonization, and affordability.
01:10:47
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- [00:00]
A
We're going to solve it because we have no choice but to solve it. You know, societally, we have no choice but to solve this. So we're going to solve it.
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B
And let me just throw out the statistics. Somewhere between 3 million and 6 million Americans have their electricity shut off for lack of ability to pay their bill every year.
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A
I just got wind today that a new 10 gigawatt data center is going to be constructed in the state of Ohio. It is going to be the world's largest data center. Now they are planning to bring their own generation, which is excellent, which is excellent. But this is the reality that the footprint is faced with.
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C
Wood Mackenzie Solar and Energy Storage Summit is back in Denver on the 29th to 30th April 2026. It's co located with a brand new North American Power and Renewables forum featuring senior speakers from across the US power sector. Join over 450 senior leaders from US power developers, utilities and independent power producers who will be coming together to address the industry's biggest challenges from navigating life after tax credits to tackling the load growth boom. Discover how the energy mix is evolving and how the US Will meet surging demand for power. Seats are limited, so Register now@woodmac.com. Hello and welcome to the Energy Gang, a discussion show from Wood Mackenzie about the fast changing world of energy. I'm Ed Crooks and on this show we're going to be talking about what is the largest power market in the US that's pjm and we'll talk in just a moment about what those initials stand for. But the reason we're going to be talking about it is because it's been very much hitting the headlines recently. It's right at the sharp end of the debate about the future of the grid and we're going to be talking about what it can tell us about the future of energy. To do that, it's a great pleasure to welcome to the show for the first time Osim Hoch. He's the Senior Vice President for governmental and Member Services at pjn. Hi Asim. Welcome to the show.
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A
Ed. Thank you so much for having me. We really appreciate it.
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C
Great. And we'll come on to talking about your role and what you do in just a moment. First, it's always also a great pleasure to welcome back our good friend Amy Myers Jaffe. Amy is the director of the Energy, Climate justice and Sustainability Laboratory at New York University. Hi Amy. How are you?
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B
Ed? I'm really mellow even with the war because I recently Went to a chime sound bath. I'm taping today from California. And so doing yoga and trying to keep an even keel, even in the face of all the things happening in the energy world.
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C
Yeah, that's something I think we could all do with right now. A bit of rest and relaxation, trying to lower the temperature a bit, find a bit of calm in these troubled times. That's very understandable. So, as I said, we're going to be talking about pjm and Asim wanted to talk to you a bit about what it is. Before we do that, though, one of the things we always like to do, we get new people on the show, is talk to them a bit about their careers in energy, how they first got interested in the field, how they got to the roles they now hold. So what's your story? How did you get to that position that you now have at pjm?
- [03:16]
A
Yeah, thanks, Ed and Amy. Hello. Nice to see you. So, I'm a lawyer. I am a lawyer who started his career in Columbus, Ohio. I was a litigator, just a classically trained litigator. And then my last few years of private practice, I started to have clients ask that we represent them at a little regulatory body called the Public Utilities Commission of Ohio. And that's really how I got my start. Some years later, I was actually appointed to be a regulator at the Public Utilities Commission of Ohio. So went from representing clients to actually being a regulator, then from that body to PJM Interconnection. I came to PJM Interconnection in 2019, and it has been a fascinating ride. If you're interested in energy policy, there is no more interesting place to be, I think, than PJM Interconnection from 2019 to today.
- [04:23]
C
Yeah, as you say, really an amazing place to be at an amazing time, particularly in terms of these huge changes that we're seeing in the electricity system right now, driven in particular by technology policy as well, a lot of the things we're going to be getting into on this show. So, yeah, great to have you here. Great to be able to talk about pgm. I think just to kind of set the terms of the discussion a little bit, it's worth talking about what PGM exactly is. And I noticed you used the term PGM Interconnection for who your employer actually is. Let's try and kind of disentangle the various different things we mean by those initials. You sometimes hear PGM described as a market. It's described as a grid. It's also the grid operator. Well, as I Say, why don't you walk us through that then? What are the different entities and organizations and operations that we're talking about here?
- [05:17]
A
PJM stands for Pennsylvania, Jersey, Maryland. Next year we are going to celebrate actually our centennial year of existence. We were actually founded in 1927. The original justification or reason was a power pool. As the years have progressed, we have gotten our authority from the federal government to do and be more. Okay, so PJM is one of seven grid operators in the United States. Our primary charge is to preserve reliability. Really, that's really what we are doing on a day to day basis, but we do it through multiple functions. Okay, so the first is what's probably the thing that is, you know, PJM pursues with tremendous excellence, which kind of goes, you know, sort of unsaid or unheard of, is the actual grid operations function. So we've got a control room here in Pennsylvania that we operate the grid for for 13 states in the District of Columbia. 67 million consumers that we are trying to keep the lights on for from an operational perspective.
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C
Right. And as you say, the original pgm, Pennsylvania, Jersey, Maryland, the territory now goes way beyond that. Right. It goes over to Illinois in the north, down practically to Tennessee. Do you actually have any. You got in Tennessee border there and then North Carolina and, and New Jersey, then still up there in the Northeast.
- [06:57]
A
Right, you've got it right. You've got it right. So we go out to the Atlantic, down as far south as Carolina, into Tennessee, then west, make our way west. And you're right, Illinois is particularly, the Chicago area is as far west as we go. Let me just finish out, you know, what is PJM and what is its core sort of, what are its core functions? And so we've got the grid operator component, so we're actually the air traffic controller for electrons across a multi state, multi transmission owned power grid for 67 million consumers. We plan the system. Okay, so transmission planning, we are planning the system in order to maintain reliability, drive market efficiency, fulfill public policy. And now long term transmission planning, which I think is gonna be a wonderful adder to what our planning function is on a day to day basis. And then the thing that has probably caught the most attention over the past year or so is we run competitive wholesale markets. Those competitive wholesale markets are utilized by our restructured jurisdictions or deregulated jurisdictions as well as our vertically integrated jurisdictions in their own way. But those markets are, are part of how we maintain reliability as well on a day to day basis.
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C
Right, got it. And just to be clear about the organizational structure then. So when you talk about we and this, the organization that pays your salary, this is PGM Interconnection, which is essentially, it's a nonprofit, right, that runs those operations, that runs, as you say, the grid and those market functions in cooperation with other authorities and so on. But that's, that's kind of, it's a separate body that does all that for that whole area covered by the grid.
- [08:53]
A
You've got it right. So we operate as a nonprofit. We are fully regulated by the Federal Energy Regulatory Commission. We are, quote, a member organization whereby we have 1000 plus members that provide input into how PJM needs to change and evolve from a planning, markets and operations perspective. And we serve 13 states and the District of Columbia. So there are a lot of various voices both on the state and the member side that we hear and we intake feedback on and that's how we, you know, effectively advance the organization is through hearing all of that feedback, deriving solutions and then filing those with the Federal Energy Regulatory Commission for approval.
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B
And let's be clear, because you've done such a good job spelling that out, that there are 13 governors, some of whom have national prominence, some of whom have used their national prominence to talk about electricity prices in their individual state. And that even though you have these association which you are running as a nonprofit, the states themselves have energy policies and electricity policies which you do not control.
- [10:21]
A
That is absolutely right. And so we, it's right on all fronts. And so the first thing that you mentioned is that we've got, you know, a number of, with 13 states, you've got 13 governors. And there are certainly governors that have achieved national prominence in that collective. Those policies that are crafted by our states end up becoming, I would just characterize them as inputs into how we plan the system and how we operate the system. So for instance, if units have emission limitations, we've got to be conscientious of that even in our control room, even in dispatching those units. Not to mention if a unit is going to retire for a decarbonization purpose, we need to plan the system for that. And of course they've always had their interplay, controversial or otherwise, with the markets as well. But you know, however, you know, however those policies sort of are advanced, we do our, certainly do our best to integrate them into what we do on a day to day basis.
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B
But again, just for the listeners to be slightly in the weeds, could you explain to the listeners how you define what would be a core need and how you would define an additional need that would come from a state priority.
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A
Yeah. So Amy, I think what you're referring to is how PJM has proposed and advance its long term transmission planning framework. Okay, so we've talked about PJM as a whole. We've got the operations function, the markets function and the planning function. What you are asking about is sort of a subset of that planning function. And what PJM has proposed is that you've got sort of these core transmission planning needs which will include really the preservation of reliability, even with policy infused into that. And then this concept of additional needs. I think one example of an additional need is so if a state says definitively I want X number of megawatts of offshore shore wind, that would be, you know, an additional need that the state can then say, hey, we've got a collective of states that want to do this and so please go ahead and plan for it and put it in the RTEP or RTEP is the Regional Transmission Expansion Plan. It's what we utilize to, to. To plan the power grid or we'd like to go at this on our own. And that's a possibility as well. So the core needs in this long term planning framework, those are needs that will definitively find their way into the regional Transmission expansion plan. The grid will get built out with those core needs and the additional. We're going to need a little more, we're going to need a little more. We'll just characterize it as support from our states and also frankly, know where to allocate costs. Conceivably awesome.
- [13:31]
B
You've done a beautiful job describing a very complex system. And I think for those who are not studying PJM all the time, it's really wonderful to kind of help people understand what goes into the transmission planning process because we'll go into how it spills over into the other functions you do in a minute. But within that category of these categories of the core needs, would a core need be something that benefits all 13 states, but something that would be an additional need only benefits some of the states in the system? Or is there some other way that that definition gets broken down?
- [14:11]
A
Yeah, no, not necessarily. So what the states will do is, and again we're talking about a subset of planning here, which is the long term transmission planning framework. What the states would do is they're all going to provide their policies that they are interested in advancing and those policies there will be. The way I think that this will land is there will be kind of a definitive line that will demarcate what is a policy that is necessary for the continued reliability of the system with those policies sort of infused into the conversation. And then there will be those that are, we'll just characterize them as one off needs that will fall into this additional needs. This additional needs bucket and I'll, you know, give you an example. So Illinois's got a policy, it's called the CEJA law. And within that CEJA framework there will be a, every five years or so there will be a series of units that are going to, that are going to retire for decarbonization emissions. And what the, the, the framework would look like is that that would actually find its way into the core needs because we are going to have to continue to preserve system reliability for consumers in the state of Illinois as this policy is advanced. And so that's an example of something that would find its way needs whereas offshore wind is an example of something that would be an additional.
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B
I'm, I guess I'm having, I guess I'm having a little difficulty understanding why offshore wind, which is a major generation opportunity, is considered an additional.
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A
Yeah. Because not everybody supports offshore wind in the 13 states in the District of Columbia. Amy. I think it's probably as simple as that.
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C
Right. Which I think is a fantastic segue then into a lot of what I want to talk about on this show, which is this general point of so many different views, so many different interests competing, different political control of different states across the PJM territory. Question of how you manage those I think is really fascinating and is one of the very important things I think that people need to understand. One of the things I think that's a good starting point for that discussion is this meeting that happened earlier this year with the 13 governors of those 13 states that are covered by PGM. This is the governor of every single state government by the market meeting at the White House to talk about the future of the PJM grid. I have a colleague who very sort of specialist energy wonk, let's put it that way, who always says it's very bad news when he gets to go on a morning news show. In other words, you know, the mainstream media only care about the kind of, I'm going to call it nerdery. I don't want to be unfair and sorry Ben on there, you'll forgive me for this, but you know the kind of detail that he knows about, if they want that on the morning news, it's because something's gone wrong. I feel like it's a bit the case with the White House taking an interest in your power grid, if the White House kind of attention is on what you're doing, that's probably not a great sign because it shows that there are issues there that are concerning to people and say concerning to governors of all these 13 states, concerning to the President as well. And so. Well, do you want to talk a little bit? I mean, tell us about what happened there. Talk about maybe the background to that. Why do you get these 13 governors coming up? And what was it then that they agreed with the White House? And let's talk about the background first. Go on, then. So tell me the story. Why did, why did we get that announcement? What lay behind that?
- [18:40]
A
Yeah, so there are a few things happening simultaneously, all of which are sort of colliding at once. Okay. And the first thing that I would say is that, you know, pjm, as you reference, is the largest grid operator in the country to 165,000 or so megawatts, about 180,000 megawatt system. Okay. Now, in the 2021 timeframe, we started to see sort of a collection of states and the federal government really advancing towards decarbonization. Decarbonization is a fabulous policy endeavor to pursue. I say this all the time in every venue that I go to. I've got two small children. I want them to breathe cleaner air. I want for all of us to breathe cleaner air. And so that is always an incredibly laudable policy objective to pursue. I think what we started to get concerned about, though, were a couple things. One, this idea that you could just push resources off of the system before there were replacements shown to be operating at scale, that's sort of the first thing. And I think the second thing is, look, I have traversed all 13 of our jurisdictions, including the District. I've probably done 50 plus pieces of state legislative testimony. I think the piece of the puzzle that's been sort of missing from this dialogue and however you want to characterize it, we characterize it in something called effective load carrying capability, or ELCC is just this idea that some policymakers had, which was, hey, all we need to do is shut off, you know, all the coal and all the gas. And in some jurisdictions who are worried about nuclear, even some of the nuclear, and just replace it all with solar and wind and we'll be good. Okay. That is from an engineering perspective, which is, you know, at its heart, PJM is an engineering firm that is operating as a nonprofit to try and keep the grid reliable. That is not the reality. That's just not reality. Okay. And so we started to do a lot of advocacy in that time frame around this idea of, we called it ensuring a reliable energy transition. We fully embraced and recognized that this transition was happening. We needed to do it reliably. And so that was kind of our core messaging in that 21, 22, 23 zone. And then what hit us, which, you know, I think if we would have predicted, none of us would be here on a podcast right now, but was this massive uptick in demand due to the proliferation of data centers across the footprint and this race for AI supremacy.
- [21:54]
C
Okay, just a footnote to throw in there, which is that one of the things people should know about BGM is that it includes some of the hottest of the hotspots for new data development, data center development, including what they call Data Center Alley in Northern Virginia. That's part of your territory, Right? So that's kind of one big area where there's a lot of data centers already. People want to build more. The other one I was just going to mention is Pennsylvania, which again, huge interest in developing new data centers in Pennsylvania in particular to make use of the gas that's there in the Marcellus and the Utica Shales, so that can be used for power generation as well. So again, that's another real hotspot. So just, I think on our numbers, one of the things we do at Wood mackenzie is we keep a track of data center projects. And I think of if you look across the United States, of the data center projects that have got commitments from utilities to get the power that they need, something like a third, kind of nearly a third of that is in the PJM area. It's one of, you know, in terms of the grids right the way across the US that are really attractive to people wanting to build new data centers. PGMs right at the top of that list. So that I think is important context as well. As you say, thinking about kind of the way you're facing these challenges, it's a really big deal for you.
- [23:17]
A
Ed, you are absolutely right. PJM is the largest data center market in North America. I think globally the marketplace is competitive. Apparently 90% of the country's Internet traffic runs through Loudoun County, Virginia or data center Alley. I just got wind today that a new 10 gigawatt data center is going to be constructed in the state of Ohio. It is going to be the world's largest data center. Okay. So now they are planning to bring their own generation, which is excellent. Which is excellent. But this is the reality that the footprint is faced with. So let's go all the way back to the question that you, that, that you asked around the White House and the governor. So we have a few things all colliding at once. Okay? You've got PJM's desire to maintain grid reliability, okay. You've got policy which was primarily of the full on decarbonization flavor for some years. Then you've got this massive uptick in demand, okay? And the sort of collision of all of those things resulted in a capacity market price that increased pretty dramatically between the 2425 and 2526 auctions from about $28 to $270. Okay. This then struck up, this then struck up the affordability issue. So you have all of these sort of trains that are on this. We'll just characterize it as this collision course reliability policy, state and federal policy, a massive increase in demand and now affordability as well. And that has created, you know, for us, you know, quite a bit of not only just sort of external churn, but it's going to force us to provide a lot of thought leadership and necessary adaptation of how we do things today.
- [25:35]
C
Right, let's just also talk about the capacity market then, which again I think is an important concept to talk about. Essentially the deal here is that if you've got electricity generation in pgm, there's two ways you can get paid for it, right? You can sell the electricity, sell the energy, or you can sell the capacity to be there when you're needed. And when the grid is under strain, you can be called on and you essentially make a commitment to provide a certain number of hours of supply at a certain level to the grid. Right. I mean. Well, as I say, that's my understanding. Is that broadly right? I mean, how do you think of what the capacity market does?
- [26:16]
A
I think you've got it generally right, Ed. So, you know, we've got day ahead in real time energy markets, like a lot of global markets, we are one of the select few with this capacity market construct and with that capacity market, you know, there's varied tales of what the capacity market was originally devised for or meant to do. But either way how it functions is it's the commitment to produce energy three years into the future. So you will procure what's called capacity for delivery year, that's three years into the future. And it's basically a collection of resources saying yes, when called upon, we will produce energy. And what it helps for us to do is get a really good glimpse of what the supply and demand dynamics are. You know, for that future delivery year, make sure we have, quote, resource adequacy, which is an important component of reliability. Right. So keeping the lights on operationally is one component of reliability, but making sure you have enough supply to meet demand is another important component of reliability. And that's what the capacity market is meant to do.
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B
Okay, so let's add another dimension because. Absolutely. You both have described that. Well, you know, in the academic literature, this whole concept of the capacity market was pegged in a certain way for system efficiency. But it doesn't mean it helps you at any particular location in terms of costs or price. I just want to make the point that during winter storm Fern, PGM saw a 21 gigawatt generation outages, and that brought significant price volatility. So we're adding that during the storm, wholesale prices went, correct me if I'm wrong, prices went. Exceeded $1,800 per megawatt hour. And so then you got these calls for price caps and price caps went in, which of course makes it hard to have system efficiency. So where are we in that process? I know PJM has made its own proposals for how to fix that. Other people have made their own proposals for how to fix that. Seems complex. So where do you want to start with us to helping us understand?
- [28:47]
A
Let's focus on the capacity market. Okay. And specifically, when we saw that price increase from $28 to roughly 270, certainly there was quite a bit of concern about that price increase. Now, from our lens, we've done the analytics around this, this is the realities of supply and demand. There were some market changes made. They had a sort of. They had a much less impact on what that higher price ultimately was. And really what we're dealing with is just these supply demand fundamentals kind of colliding at one time.
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B
So when that price, did it stimulate more generation capacity, though? I mean, how do you see that? What was the end result, basically?
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A
Well, we're still in that, Amy. We're still trying. We're. We are still sort of unpacking, you know, whether or not this marketplace and how it's currently structured is going to, in fact, incentivize new entry. Which is why pjm, in tandem with external parties, has agreed to cap the market through mid-2030. Okay. So that's really where we are right now. All right. And that was part of the White House governors. When they got together, they said a few things. Okay, So I want to be fair, they said a few things. They are encouraging data centers to bring their own generation to the table. I think that's great. And this is all documented in their quote, statement of principles regarding pjm. Okay. But they're encouraging data centers to bring their own generation. They instructed us to run a quote, backstop procurement and we are in the throes of designing that right now. So this is supposed to be a one time procurement to try and bring new supply to the system, you know, as quickly as we can bring it to the system. And so it deviates from the typical capacity market construct. It is again, sort of this one time attempt to get a one time swag of resources that will connect to the grid.
- [31:13]
B
And then. And again, just to make sure that people who are following this but don't know it as well as you do. Awesome. You're talking about not the bring your own capacity of a data center, you're talking about system resources. Correct?
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A
For the procurement.
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B
Correct.
- [31:34]
A
Yeah, for the procurement, you know, the. Yes. This is supposed to be system wide. It is, it is currently being discussed the, the particulars around that. And, and so, Amy, when you're saying, hey, when you're talking about bring your own capacity, that's kind of one path, right? Data center brings their own capacity. That's great. But there are data centers because we are currently short our reserve requirement. Okay. There are data centers that have not brought their own generation. There are data centers that are expecting to come onto the system here in the near term that have not planned to bring their own generation. Okay. So part of what this procurement is trying to get at is, you know, procuring effectively for this incremental load growth. Okay. For this incremental demand increase and also trying to identify, also trying to identify, you know, for. With the assumption, and this is a correct assumption, that the load growth is almost all attributed to data centers trying to. Trying to identify how much demand that we procure and for who. And who are going to be kind of the counterparties associated with this. And that's all up for discussion. It's all up for discussion right now.
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B
But part of that, I hear what you're saying and you have the vantage point that, you know, Ed and I don't have, but I mean, Ohio is putting in a lot of manufacturing and you've got other states that aspire to have manufacturing that is distinct from data centers. Have some people, I think, made a critique of the idea that you would have this necessary special policy, which I think is a good one, but then it can only help for data center load. Some people have critiqued that. You want to respond to that, I
- [33:37]
A
think the load growth associated with other factors, at least comparatively to the data centers is pretty de minimis. And so really what we're looking at analytically is a ton of load growth associated with data centers. There are other drivers onshoring of US Manufacturing and electric vehicles are certainly drivers, but their load growth maintains sort of, you know, a relatively flat outlook when compared benchmarked against the data center load growth. So, you know, a few more components of that, a few more components of the, the principles articulated by the White House and the governors included again capping the market, the at least the capacity market for a distinct period of time, but also wanting to get back to market principles here in short order. And this last component, which is a little bit wonky, but you know, PJM does not control cost allocation. Okay. So everyone's talking about, well, the data center should pay, the data center should pay, okay, but if the data centers are going to pay for their own new generation, they can do it bilaterally. And they've got that opportunity to do it today through this backstop procurement. We're going to try and have to figure, we're going to try and figure out.
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B
And what do you mean by bilaterally?
- [35:03]
A
Just a data center contracting with an independent power producer.
- [35:07]
B
I see.
- [35:08]
A
So, so they can do that today. But if we are going to end up procuring resources for these data centers, all right, we basically send wholesale costs to zones. Okay. And so what the White House and the governor said is, you know what, we get it, we get what the limitations of your jurisdiction are. And so what we're going to commit to do is we are going to take those costs and we are going to utilize our state frameworks to allocate the costs to the data centers. You know, I wish it could be as simple as like, hey, PJM sends a bill, but jurisdictionally it is not that simple. And so, you know, and cost allocation is, you know, historically a, is a, is in, especially on the retail side, is in the purview of, within the purview of our states. And so they are going to have to take some action there as well. Now last thing I want to say about this, which is, which is that as it relates to large load additions, PJM held a multi month stakeholder process in 2025. Okay. And then on the same day that the White House and governors released their statement of principles for how PJM should integrate large loads, our board also released its decision on that multi month stakeholder process. And what I would say about that decision, I would take a look at it. There's first of all, a lot of symmetry between what the board decided and what the White House and governors asked us to do. So I think that that's great. I also think that we went a step further in consumer protection and what we have asked the data centers to do. And I'm going to get back to what I said is there's multiple paths here, right? Data centers can bring their own generation. We may procure for those data centers. But if data centers do nothing, what we have said is you're in a connect and manage situation. What that means is that you can connect to the system, but when push comes to shove and we are in a high demand, day or days, data centers, you are going to have to flip to your backups and we are going to manage the system in a manner that makes sure that you are utilizing those backups so we don't, for instance, have to shed residential load. And that's the concept of connection management.
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B
And how does that compare to ERCOT telling the data centers that they can curtail them? Do you see that as the same?
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A
I think there's. I don't know about exactly the same, Amy, because I don't know the exact specifics of the ERCOT proposal, but it sounds very similar.
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C
Right. Which brings us to the question of VPPs and the extent to which this all relates to the discussion about VPPs we've been having on this show. Before we get to that though, I just wanted to be clear what you're saying then about bring your own power. So in other words, it's not a requirement. Right. So PJM is not saying every new data center has to bring its own power, has to either have on site power or make sure that additional capacity is being added to the grid. But you are saying what did you want to kind of try and encourage them to do it or what exactly is the message then to data center developers?
- [38:36]
A
Yeah, the message of data center developers is we'd like for you to bring your own power. Okay. If you're not able to bring your own power or if the circumstances don't arise that allow for you to do that, then we're going to curtail you ahead of, you know, ahead of others is a way to put it. But also we're running this backstop procurement, in essence, to try and help you. Right. We are running this backstop procurement to try and, you know, whether you want to characterize it, whether the ultimate proposal that gets filed with the FERC ends up being a matchmaking service or just a centralized procurement. We are trying to do this for you. Okay. And so there's these sort of multiple avenues that I think data centers can take. And I think that in part is what the White House and the governors envisioned as well.
- [39:26]
C
So let's talk about that backstop reliability procurement then. Because the capacity market was your solution for reliability and for supporting investment in new resources that would make sure you could maintain reliability. But because you had that cap on prices, you didn't get enough capacity bid into that auction. And very basic, it's been a long while now since I did my economics degree. But you have what I remember of supply and demand being balanced. If you put a cap on the price, then the market doesn't clear, you won't get sufficient supply. And isn't that what's happened here?
- [40:08]
B
Yeah. I want to interrupt for one second because again, when you look at the problem, if I'm having a short term fix, and to your point, if there's a price cap, I might not have the best, most efficient short term fix, but that doesn't solve the problem that load is growing and that I need to incentivize new investments because it seems like from the outside, but I'm open to understanding differently that just having this price spike every time or a couple times I'm having a capacity auction isn't bringing new generation.
- [40:43]
C
Just before you answer asam, just while you're thinking about your answer on this, it just seems to me when I was talking earlier about PGM being an example of tensions that we're seeing in energy markets all over the US and indeed all over the world. Yeah. Where you're trying to balance these various objectives of meeting increasing demand and maintaining reliability and then also worrying about affordability for ratepayers and what the cost of all this is going to be. These are some very difficult judgments, I think. And sometimes you kind of, you have a solution to one issue that creates a problem somewhere else. You know, you're kind of stretching all the time to try and plug the different holes in this problem that you are creating by the solutions you're inventing as well. And so it's actually just, it's a tough issue to resolve and maybe it's impossible actually to get it right. It's impossible to kind of solve all of these problems simultaneously. And you're always just going to be kind of looking for these expedients and fixes to get through the next problem. But there's bound to be something else that's going to come up, or is that unfair? Wood mackenzie's annual solar and energy Storage Summit is back in Denver. From the 29th to the 30th of April 2026, over 450 industry leaders will gather for two days of crucial conversations on the future of Europe. US renewables. This year's agenda tackles the questions that matter. Can renewables be competitive after the withdrawal of federal support? How do we capitalise on unprecedented load growth? Will permitting delays stall development? We'll cover energy storage, business models, supply chain challenges and emerging technologies such as virtual power plants. And new for 2026, a dedicated grid infrastructure stream and the launch of our North American plan Power and Renewables Forum, exploring how the wider energy mix is evolving to meet surging demand for power. Whether you're a developer, a utility leader or an investor, don't miss this opportunity to connect with peers and shape strategy for 2026. Learn more and register@woodmac.com look, we're going
- [42:52]
A
to solve it because we have no choice but to solve it. You know, societally, we have no choice but to solve this. So we're going to solve it. This is complicated, but let me try and break it down this simply, okay? Just, you know, macro econ 101. So we existed in a relatively, you know, flat demand and, you know, somewhat flat supply environment over the last few years. We, we then experienced this massive uptick in demand while some supply was leaving the system due to decarbonization efforts. Ok? And so in any market, when that happens, you're going to get an uptick in pricing. All right, now, the concerns around affordability, okay, our North Star's reliability, our primary charge is reliability, okay? But we also are a mission driven organization that works to serve 67 million people. People, okay? And so when these affordability concerns, there's been a lot of political rhetoric in our space. I think, you know, some of it is more transparent than others. And. But what I always encourage, and we get rhetoric from, you know, the sort of folks in our political sphere as well as our stakeholder sphere, it's kind of never ending for us. But what I always encourage my teams to do is to sort of strip out all the rhetoric. And what's the kernel of truth? Okay, what is the kernel of truth here that we should be thoughtful about and conscientious about? And getting back to the affordability piece, the kernel of truth is that one sort of spike from 28 to 270. It's a pretty dramatic spike if you actually look at where, where the pjm States are benchmarked against, benchmarked against states. You know, nationally, you'll find that the states are kind of all over the map with respect to where they're situated from a total bill perspective, actually. But the spike was dramatic and it increased, it increased costs for consumers writ large. We won't get into. Are some folks managing their default service procurements better than others Won't get into all that. That's very complicated. Okay, but that's the truth. The truth is, is that that marketplace did create a, you know, portion, because there's always distribution expenses, there's always local transmission. Right. But did create a portion of a major price spike. And look, I, you know, I live in the greater Philadelphia area despite having the, you know, flag of the state of Ohio, where I'm a native of and was a, was a waste, you know, cabinet member for a governor flying in the background. And you know, you, you go out and you see people who are struggling. Okay, you see this on a day to day basis. Okay, so here's the, here's the deal, right, which is, you know, you cap the market because in many ways, you know, it's, you know, just, just looking at this from a mission driven organization, you can say to yourself, okay, this is the right thing to do. It will also support the existing fleet going forward based upon a conversations with the existing fleet and conversations with, you know, analysts, Wall street, et cetera, et cetera. But it's not going to bring new entry. And you're exactly right. Okay, this price that we have capped the market at is not going to Produce new entry. 3$325amegawatt day, pursuant to our own analytics in something called the quadrennial review, is not going to produce new entry. Okay, so then how are we going to get new entry? Okay, again, so this is trying to break this down very, very simply for
- [46:54]
B
folks and you're doing a great job.
- [46:56]
A
Thank you. Thank you. So thank you. So how are we going to get new entry? Well, if consumers can only afford to pay so much before it breaks the household.
- [47:07]
B
Okay, and let me just throw out the statistics. Somewhere between 3 million and 66 million Americans have their electricity shut off for lack of ability to pay their bill.
- [47:19]
A
There you go. And as a regulator, I dealt with this as well. I mean, I dealt with a number of consumers who you tried to provide assistance to every winter. You know, you trying to create bill assistance and keeping, keep the lights on, keep gas running for these consumers. Okay, so if we're going to need new Entry to meet this data center demand. And if that capped price isn't going to do it, okay, well, then someone ultimately has to pay. And I think what the White House and governors have said is we have selected that entity and that is going to be the data centers. Okay. Now again, PJM can only do so much in that space. We are going to be very conscientious of that on a going forward basis. But the tab or the bill associated with this increase in demand, if we are going to have to cap the market at X, someone's going to have to pay that bill. And so again, our chief policymakers, combination of the President and the National Energy Dominance Council, as well as the chief executives in our state, have said we are comfortable with the data centers paying that freight.
- [48:31]
C
Right. But the implication of what you were saying earlier, I thought was that that is something that's very easy to talk about, less easy to actually deliver because cost allocation is a tricky and complex subject and it's often not entirely clear
- [48:48]
B
and it's handled by the states and we have probably a really outdated cost allocation system that doesn't meet the time. Right.
- [48:56]
A
Can I, can I, can I, can I try and oversimplify that as well?
- [48:59]
B
Go ahead.
- [48:59]
A
For you?
- [49:00]
B
Yeah, go ahead.
- [49:01]
A
We send costs to a zone, okay. As a state regulator, you control through utility tariffs all of the different tariff classes. Okay. All of the different rate classes. Okay. So all a regulatory body would need to do would be to sort of reopen these tariffs, create a new customer class. If you are, if you are a state or a footprint that is generation rich, that is a data center customer class. And when that bill comes in, allocate what you believe is the correct amount of an incremental increase to those data centers. It is not actually that difficult in my personal opinion. But it takes action, right? It will take action to do these things. Now listen, each one of our states is situated differently. Some may quiet, may require a little bit of legislative approval, yada, yada, yada. And by the way, that same concept is applicable to transmission costs as well as distribution costs. Okay? So if you really want to get at this, in my opinion, states are an important gateway. Okay? Not the only gateway, but they're important gateway. And having been a regulator, I don't know that it's as complicated as people as it needs to be.
- [50:20]
B
People, people keep explaining to me every time I go and have a private conversation with the utility or you know, someone who's a specialist, especially lawyers, no offense, people explain to me that I don't understand the way costs are allocated. And I always say to them, well, I don't understand. We don't have to allocate cost exactly that way. And there's this sort of chicken egg problem where people like can't drab their mind around it. And you know, same thing with, you know, can I, or can I use a battery or some other kind of distributive resource to solve this problem. Some people say to me, well, we could do that and that would be cheaper in the short run, but then if demand rises in the 7 to 15 year period, I'm going to have to make a, an investment anyway. So why should I make a temporary investment for now when I could make this long term investment? And I'm like, well, you know, you know why? Because in between now and the long term investment, you're putting me in a blackout. No, I mean, am I, am I mischaracterizing that?
- [51:33]
A
I don't know. I want to think about it a little bit. But it's, it's certainly. Yeah, I think, I think, Amy, your, your thesis around is basically how complicated is this stuff really?
- [51:47]
B
Right? I mean, it is, but the question is, could it, does it have to be? I guess is really sort of my bottom line looking.
- [51:54]
A
I think, I think it, I think it is inherently complicated. I think that the more, the more we're able to have conversations like this where you can just kind of translate the complication into not only kind of normalcy and normal people speak A, but B, also I think we've got to be take these things and actually create action items that need to get done. Okay. And so we are in PJM is in Action Zone. We talked a lot last year, spent a lot of time talking last year. We are in action zone right now with a series of different items that our board has asked us to undertake. And so, you know, that's kind of the other component of this is like being very clear about what you are trying to accomplish and take action items to get those things accomplished. There are one gajillion conferences in the energy industry. Like one gajillion, like sometimes you could
- [52:56]
B
do nothing but that all day.
- [52:58]
A
Sometimes I think maybe we should spend less time at those conferences and more time with our heads down at our desks, like actually trying to solve, read and solve the problems that are in front of us as an industry. But that is neither here nor there. And that is, you know, me probably tired of traveling, but that's, that is, that is, that is.
- [53:23]
B
Well, we appreciate your coming on the podcast, because this way you're reaching everybody all at once. So. All.
- [53:28]
A
Yeah, that's right. There you go.
- [53:29]
C
Yeah, and, and I think that's a really interesting point, as you say, about action, about execution, because it does seem now like the direction of travel has been set and there is on that very broad consensus. And the president personally says he wants data centers to pay their own way. The tech companies say we want data centers to pay their own way. The governors are all saying it. You're saying it right. There's no more arguing about where we want to end up.
- [53:58]
B
Well, and then if you're not paying your own way, if you're not paying your own way, you're going to get curtailed. I mean, I think that's also something that's starting to be more prevalent of a given. And then that gets us to the whole thing when you're a data center person is what do we mean by flexibility? So that leads me to just one clarification question, which is, okay, I get it. If someone's going to bring their own power now and they're going to be forced to use their backup because otherwise they're going to be curtailed. What about an existing data center that doesn't have a backup system set up for that? Would the advice be that they need to get on that page for existing.
- [54:42]
A
Yeah, it would be. Otherwise they get curtailed. I mean, that's kind of the, that's kind of the thesis of the connect and manage framework that we've adopted.
- [54:50]
B
Right. So if I'm sitting in, you know, data center alley and I have some 20 year old diesel generation that was for an emergency, I need to modernize and I need to have a better.
- [55:04]
A
Yeah, backup. I don't want to be absolutist about it. But the, but the generic answer would be yes. I mean, that is what, that is our expectation that if you have, you know, you have not brought your own new generation, that you're gonna have to flip to your backups on occasion here. And so look, we, we are going to do everything in our power to try and fulfill all of these objectives that folks want fulfilled. Okay? We are going to try and as always, maintain system reliability, which is, you know, taken for granted. And I'm glad it's taken for granted. That means we're doing our job very, very well on a day to day basis without bulk outages. Again, distribution is a different animal altogether. What we're also going to be trying to do is get at this supply demand issue not by Gating demand because none of our policymakers want demand gated and we don't have the ability to gate demand but to try and bring a lot more supply onto the system. Okay. And so that's this sort of backstop procurement and it's also, you know, we didn't talk about this but you know, we are. Our new reformed shiny interconnection queue is. Reformed interconnection queue is open for business. That first Cycle closes on April 27th and then cycle two will open immediately thereafter. But we're going to try and bring new supply onto the system as quickly as we can possibly bring supply onto the system as well. And then the last piece of this puzzle that I do want to talk about, Ed, that is a sort of something, an action item for us is we are going to look at this capacity market framework as it relates to our other markets to make sure sure that the incentives in full for new supply and new entry align to bring new entry to the system. Because the one, the, the one year spot price three years forward based on what we're seeing in the industry with these kind of long term lock contracts between data center and existing generator and new generators that, that is creating its own investment climate that is very different from the investment climate and the thesis that exists in JM with that capacity market. So by the end of Q2, I keep cutting you off. I'm so sorry. By the end of Q2 we are going to be publishing a paper that sort of talks about this and then there will be action taken on that as well. Like I said, we're trying to express leadership and see the footprint through what is a really, really challenging time and be thoughtful about how we proceed. But it's, it's action time.
- [57:43]
C
Yeah. So why does the capacity market focus on those three year periods then as you say then given there seems to be a tendency on the demand side for large loads in particular to be prepared to sign longer contracts for power supply, is there a case to think that you should actually be looking at longer periods maybe? I guess presumably to guarantee more certainty to generators wanting to bid into that market. Is there a case for kind of changing that fundamentally?
- [58:17]
A
I think there's a case to be made for longer periods on the supply side and I think there's also a case to, to be made for shorter periods on the demand side. Okay. Because the, the longer out you extend these, these procurements. So if it's if instead of three years, it's 10 years, do I have total confidence in the load forecast 10 years out. I do not. Okay. And so, you know, I think our own load forecasters would freely admit to you that a load forecast that is one year out is going to be far more accurate than a load forecast that is 10 years out. So we need to have these conversations
- [58:58]
B
and Asim, just to make that point because, you know, I constantly dating myself on the show, like I was around in Houston during the whole Enron thing. The Enron up and the Enron down. Right. And one of the things that Enron did to create themselves as the, when they were on the upswing was to say that something was going to happen in 10 years or 20 years. And they, they had a derivative book and they just didn't market to market because they had these fantasy projections for 10 years out. And so, you know, one of the reasons why people will argue against batteries is say, well, the battery thing is only going to solve the problem for one to three years or one to five years. And I have this giant load coming in the 10 to 15 year time frame. And who the hell knows what's going to happen in 10 to 15 years if the last two years or three years has taught us anything, is that whoever thinks they're actually projecting correctly out 10 or 15 years, they're probably wrong. And so to me, that's where I think this whole batteries can't do it argument falls down because as Ed's saying, and you're saying, absolutely, we need to be doing 7 to 15 year planning and trying to bring in assets. But then that's a different solution to pretending what we know what that is and not dealing with the one year thing, as you're saying.
- [60:20]
A
Yeah. And Amy, I think I would just say that PJM is, and the footprint is so supply hungry. We'll take it all, we're happy to have it. And so, but by all means, if you're, you've got a battery that can plug in that can be of assistance, we would love to have it.
- [60:47]
B
Or if I'm, if I'm, if I'm a big tech company and I wanted to just give batteries to everybody in a particular location and then manage them instead of just weatherizing people's homes. That, that could wind up being a good business model, which is something that people have talked about.
- [61:03]
A
Yeah, think I totally agree.
- [61:06]
C
Okay. So Asim, I have a question that you won't be able to answer. I expect or may not want to, but what is all this going to mean in terms of the impact on consumers? Now, obviously I don't want you to make a promise about what every customer in PGM is going to see in terms of what happens to their power bills, but just in terms of the kind of the positive impact that you would hope to have on affordability and helping people manage through this. And obviously there's going to be all kinds of factors going on. You know, the cost of equipment, exactly how much demand rises. As Amy says, tremendous uncertainty out there. I mean, if you believe what people are saying about AI, we're going through this kind of change, which is unprecedented in human history. It's not surprising, I guess, if people can't be too definite about exactly where things are going to be a few years from now. But anyway, given all of those uncertainties, what does a successful outcome look like for you then? If you're thinking that, as you say, all this action, all this work that you're doing at PGM is going to have a positive outcome, what's that going to be?
- [62:15]
A
Yeah, I think that first and foremost that we preserve system reliability. I think that is success, that we didn't have a major load shed eventually. I think that is success for us. Then I think it's finding the right balance, I would say, between all of these different trains that are colliding like we discussed. Okay. Reliability is out here. Got to do it. Okay. Then from there it is trying to balance the economic development and necessity priority of advancing AI. It is trying to balance that with affordability. It's trying to balance that with policy. It's trying to create just the best balance that you can create in an environment where that balance, you know, simply has to be achieved. You lean too hard one way or the other and it throws the other out of whack. Okay. And so I think that is also success. And look, we have committed again to capping the marketplace. That was, you know, from at least the PJM perspective, was something that created a price spike for consumers. And that is our expression of a willingness to try and help create that balance here. But if, like we said, you know, we are going to need new entry. And so if that's not going to be the vehicle, right, we are going to have to find A, a different vehicle and B, someone, you know, the. We are going to have to identify who is going to pay. And I think we are in the process of identifying, you know, whether or not that capacity market should continue to be the vehicle, if there should be a different vehicle. And, and the, the White House and govs have identified, you know, who is going to pay the last piece of this and I'll talk about my, my, my states again. And I have wonderful friends and colleagues in our states. They are going to be a key here. Okay. They are absolutely going to be a key here. What did we discuss their key on? Cost allocation. I published a piece in Utility Dive, actually about how states can take measures to assist in the affordability discussion. Seven, eight things that I listed out there and think it's many of those things states can take advantage of. I think that though one conversation that has to be had is really with our restructured states and resource adequacy. Okay. And that is nomenclature that may not be fully familiar to your audience, but our states that have decided to deregulate or restructure, okay. Have been historically relying on this capacity market framework generally for entry and exit. And then because of that, there are all of these tweaks around the edges. There's trying to figure out how to subsidize nuclear without triggering capacity market, you know, fault rules. There is the minimum offer price rule. There's, you know, there's so on and so forth. Right. I think the, you know, those restructured states are going to be really pivotal to determining what, what's next with the future of the capacity market and what role specifically they want to play in resource adequacy. Many of our states are expressing resource preferences. Okay. They are expressing resource preferences and they want to advance particular, particular resources from a grid operator's perspective. I don't have a problem with that. Nobody has a problem with that. But we also need a resource mix that will help keep your lights on. And if you're not going to do it, then your neighbor's going to have to, to do it. And how do you feel about that? Right. And so it's, it, it gets complicated somewhat quickly with our restructureds and you know, what are we going to do on a going forward basis with those seven restructured jurisdictions. But they have got to be part of the conversation and central to the conversation about what they want their energy future to look like, which not only can be about policy and resource preference, but it also has to be about keeping your lights on and trying to do it affordably. Okay. I think all of those things have to be in the mix for the restructured on a going forward basis.
- [66:48]
C
Yeah, that is absolutely fascinating. And I think, as you say, that's a really very important conversation for everybody to have final thought then as you're juggling all these issues and, and as we've been saying, these various competing pressures on you, what Would your advice be to people in other parts of the country, other parts of the world that are facing these same or similar challenges? A lot of people facing issues with data center demand and increasing strain on the grid. A lot of people facing issues about reliability and resilience, particularly when you have an increased proportion of variable renewables on the grid. People everywhere worrying about affordability because of the Iran war. Again, those concerns about affordability rising right up the political agenda, much less obviously in the United States, because natural gas prices have been very much insulated there. But in terms of other markets all around the world that are reliant on imported gas, which very often then has a spillover into power prices, As I say, affordability is suddenly something that's right at the forefront of everyone's minds. What could you say from your experience at PJM and as a your daily life grappling with these issues? So, advice you could offer, things you would tell people to think about to bear in mind, what would you say to them?
- [68:18]
A
Yeah, I think a couple of overarching principles that I think our board has already taken into consideration. Your first option in all of this is to gate the demand. Okay. If we're not going to gate the demand, okay, then where you have to go to is this similar to where the PJM board landed, which is this connect and manage framework. Okay. It's not going to be acceptable for, for instance, residential consumers to not have power while data centers have not gone that are back to their backups yet or are curtailed. Okay. So not only that, but a data center takes one to two years to develop and supply a new fill in the blank takes longer. Right? So you're going to have this mismatch no matter what. So again, if you're not going to gate the demand, if the policy trajectory of either your state or nation is not to gate the demand, then I think what's next is kind this of, of this framework where resource has to leave the system in order to maintain reliability for the average consumer. Okay, so that's kind of the second component. The third component here is that if you're not going to gate the demand, then this is going to get pricey. And if it's going to get pricey, who's going to pay for it? And I think if you just keep those kind of three primary principles in mind, you can see your way through the situation that we're in. And there are complications if you take those three things, there are complications in all three of those buckets. But if you just take Those three things and keep those in mind. I think you from a decision making framework will be able to kind of find your way through this and see your way through this. And the only thing I would say, other thing I would say is that there's just a lot of noise and you know, calm yourself, you know, calm your teams again, look for the kernels of truth and lead thoughtfully and chart a course to take action and take that action. I think that that's the advice that I would give folks, for instance, who are in my roles or similar roles, external facing roles that are contending with a really challenging environment, dealing with all of these things, your primary charge of reliability, policy affordability, the list goes on and on.
- [70:48]
C
That's fantastic. Yeah, I do think that's great advice and I think the way you've characterized those kind of key principles for thinking about these kind of challenges is really incredibly useful. And that's definitely something I think that I'm going to be using in the future when I think about a mental framework for navigating through this. Amy, any final thoughts from you?
- [71:11]
B
No, I mean, just to thank Aseem for his insights and really breaking it down and not going like legal speak. Right, because the legal speak like camouflages the issues. I think he really draws out these big trade offs and how both the combination of technical people and politicians need to speak in the same language about those trade offs to really get us to where we want to be.
- [71:39]
C
Yeah, absolutely. It's been fantastic talking to you. Many thanks indeed. Asim, great you could join us. Many thanks, Amy as well. Great to have you on as ever.
- [71:47]
B
Always great to be here, Ed, Asim, thanks for coming.
- [71:51]
A
Yeah, my pleasure. Thanks, Amy. Thank you, Ed.
- [71:54]
C
Look forward to talking again soon. Thanks to our producers, Molly Merwin, Stuart Duffy, Toby Biggins, Gilchrist and Dan Cottrell. And above all, as ever, many, many thanks to all of you for listening. We really value your feedback, so please do keep that coming and we'll be back very soon with all the latest news and views on the future of energy. Until then, goodbye.