VALLEY FORGE, PA — PJM Interconnection launched a review of its wholesale electricity market structure as rising power demand, price volatility and slowing investment pressure the grid operator’s long-standing reliability model.
The organization released a report titled “Powering Reliability Through Market Design,” outlining what it described as fundamental challenges facing electricity markets as demand from data centers accelerates and new power generation becomes more difficult and expensive to develop.
PJM, which operates the nation’s largest electric grid across 13 states and Washington, D.C., indicated the current market structure may no longer provide sufficient incentives for new generation investment while also shielding consumers from sharp price increases.
“The Board asked PJM to examine whether the foundational assumptions of the market remain valid — and if not, what a valid set of assumptions would require,” PJM President and Chief Executive Officer David Mills wrote in the report’s introduction.
The report follows growing concern over capacity market pricing after recent auctions produced sharply higher costs for utilities and consumers across the PJM region. PJM stated its Board of Managers directed staff earlier this year to conduct a broader review of the Reliability Pricing Model, the capacity market system designed to ensure enough electricity generation is available to maintain grid reliability.
According to PJM, the industry environment has shifted significantly from the conditions under which the current market was designed. The report noted that electricity demand is now increasing faster than new generation can be built, particularly as artificial intelligence infrastructure and large-scale data centers expand.
PJM also pointed to higher capital costs, longer construction timelines and shifting state and federal energy policies as factors making investors more hesitant to finance new power projects without long-term revenue certainty.
The report described what PJM called a “credibility trap,” where high capacity prices intended to encourage investment instead trigger political and regulatory intervention aimed at protecting consumers, ultimately weakening market confidence.
Rather than recommending a single solution, PJM outlined three possible frameworks for future market design.
One approach would preserve a shared reliability standard across the grid while relying on long-term commitments intended to stabilize pricing and encourage investment. A second would allow varying reliability standards based on customer type or geography, prioritizing users willing to pay more for guaranteed service. A third would reduce the role of the capacity market and rely more heavily on energy and ancillary service markets to drive investment signals.
“Wholesale electricity markets are extraordinary institutions, and their most essential infrastructure is not a price curve or a performance obligation — it is legitimacy,” Mills wrote. “Generators, utilities, investors and consumers must all believe, at a basic level, that the rules are fair, stable and the product of a process they recognize as credible.”
PJM stated the paper is intended to serve as the basis for discussions with utilities, regulators, state officials, consumer advocates and market participants as the organization develops long-term proposals for market reform.
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