Last week’s PJM capacity auction has revived talk of the potential for exits from or material changes to this administrative construct. Oddly, once one moves past the eye-popping auction results, it draws together three things that may facially appear to have little in common: Western generation and transmission associations (G&Ts); the PJM construct; and Death Row Records. But G&Ts, PJM and Death Row Records share a common interlocking thread.

In 2001, ten long years after releasing the critically acclaimed album The Chronic, Dr. Dre released a single entitled “The Next Episode,” a sequel to “Nuthin’ but a G Thang” a decade prior. With this release, Dr. Dre, assisted by Snoop Dogg and the underrated Kurupt, confirmed a broader proposition: there is always a next episode, although it may take years, and even a decade, to form. 

The notion of a “next episode” forms the connective tissue of Death Row, Western G&T dynamics, and the future of PJM. For the past half-decade, Tri-State Generation & Transmission, a major Western generation and transmission cooperative, has been wrestling with its distribution co-op members over exit rights and fees. The aggrieved Tri-State members fought in the state commissions and finally at the Federal Energy Regulatory Commission for the right to exit on reasonable terms because Tri-State no longer served their members’ needs or reflected the distribution co-ops’ priorities. Tri-State’s largest member, United Power, is leading the latest exodus from Tri-State, but is now being followed by other co-ops, who have provided notice of their intent to leave the G&T.

This saga, while specific to Tri-State, bears striking resemblance to the challenges brewing within the PJM footprint. PJM may look “too big to fail,” and reliance interests are always tough to overcome, but the same inflexibility and internal contradictions that are leading to Tri-State’s demise are roiling PJM.

Tell us if this sounds familiar: a lack of flexibility to accommodate individual member objectives, a muted governance voice overshadowed by bureaucratic behemoths, a price system so distorted that it regularly has to be “corrected” after-the-fact and a set of members with heterogenous goals and values. The Tri-State situation and PJM future have both.

To be sure, Tri-State and PJM's respective business models are markedly different. One is a regional monopoly with little regulatory oversight and dissatisfied customers, while the other is a rural generation and transmission provider. Snark aside, PJM and Tri-State both share deep dissatisfaction among their constituents and a desire for exit — be it rural distribution co-op members, large data center users retreating ‘behind-the-meter’ or states contemplating exit altogether.

The threat of dis-integration of these regional cooperative models stems from common causes: inflexibility of the business model, heterogenous goals, governance failures and instability of the price system.

Consider the issue of flexibility, a cornerstone of effective energy policy. In Tri-State's case, the rigidity of its model stifled innovation and hindered member adaptation — an affliction not unique to the G&T sector. Within PJM, similar constraints manifest as market solutions hampered by bureaucratic inertia, constraining the agility necessary to navigate an increasingly dynamic energy landscape. Moreover, the dearth of governance voice plaguing Tri-State finds its counterpart in PJM, where decision-making processes often overlook the nuanced perspectives of stakeholders, relegating them to the periphery of influence.

As for the specter of unstable outcomes haunting Tri-State, PJM grapples with its own demons, with capacity auction fluctuations casting a pall of uncertainty over market participants. In an industry predicated on reliability and predictability, such volatility undermines confidence and erodes trust — a reality no entity, regardless of size or stature, can afford to ignore.

In the face of mounting challenges, stability emerges as the sine qua non of effective energy governance — a truth as applicable to PJM as it is to Tri-State. The imperative of purposeful planning, informed by a holistic understanding of load growth, generation retirements and energy policy imperatives, demands a paradigm shift away from the capricious whims of the market towards a more deliberative, regulated and planned approach. 

Recent PJM capacity auction results underscore this issue, where the RTO Zone clearing price rose nearly tenfold from $28.92 to $262.92 per MW-day, the Baltimore zone cleared at $466.35 per MW-day (up from $73.00 in the prior auction) and the Dominion zone cleared at $444.26 per MW-day. FirstEnergy President and Chief Executive Officer Brian Tierney put it succinctly: “I’d call yesterday’s [PJM auction results] the canary in the coal mine, and the canary didn’t make it.” And further, speaking to attracting new investment in the PJM footprint, Tierney said, “I just don’t think the PJM construct is going to fix the issue even if [the high auction prices] sends some positive price signals.” All signs point to another way of developing capacity.

The age-old debate between the invisible hand of competition and the guiding hand of regulated planning finds renewed relevance in this context. As the energy sector confronts the confluence of competing demands, the case for a more interventionist approach gains traction — a reality underscored by the eerie parallels between Tri-State's plight and the brewing storm on PJM's horizon.

In the final analysis, the next episode of exits within the PJM footprint appears less a matter of if than when — a sobering reminder of the imperatives facing an industry at a crossroads. Only by heeding the lessons of Tri-State's tumultuous journey can we hope to navigate the choppy waters ahead, charting a course towards a more stable, sustainable energy future for generations to come. And we will see if the “Next Episode” of exits occurs in a very different forum but based on strangely similar underlying drivers.