Anthony “Tony” Campbell is CEO of East Kentucky Power Cooperative.
In January, the PJM Interconnection issued its annual long-term forecast, which showed demand for electricity in the region could outstrip electric-generating capacity as early as 2026.
Looming capacity shortfalls are not news for PJM, whose region includes 13 states and the District of Columbia. But the urgency to act is growing rapidly. Just two years ago, PJM’s same annual forecast predicted capacity shortfalls by 2030; now it’s 2026. Clearly, growth of data centers and manufacturing, along with electrification of tasks like transportation, is driving demand.
So, it was quite perplexing when, just days after that report, PJM submitted to the Federal Energy Regulatory Commission a proposed settlement negotiated behind closed doors with five states to ratchet down the price cap on its annual capacity auction. The capacity auction is the primary tool for PJM to maintain sufficient electric-generating capacity for homes and businesses in the region. Growing demand paired with limited supply should push prices higher rather than lower.
When the proposed settlement was announced, Pennsylvania Gov. Josh Shapiro — leader of one of the five states pressing for this settlement — issued a press release trumpeting his role in cutting a deal to save money on his constituents’ utility bills. Will Shapiro be so eager to take responsibility when the lights — and heat or air-conditioning — shut down because there is not sufficient electricity supply for everyone? Will Shapiro take responsibility when electricity prices skyrocket across the PJM region after the two years covered by the settlement? Doubtful.
Artificially deflating capacity prices by lowering the price cap does nothing to fix PJM’s power-supply problems. It will turn an acute problem into a crisis, and could lead to blackouts for portions of the Midwest and Mid-Atlantic at times when electricity is needed most, such as periods of extreme temperatures when lack of heat or air-conditioning can affect health and safety. Texas experienced this during Winter Storm Uri in 2021; scores of people died.
Ultimately, PJM’s looming capacity shortage will be solved by heightened investment in reliable, dispatchable power supply, which is expensive. PJM and the governors of five states are artificially restraining market fundamentals that would incentivize such investment. Not only is this short-sighted, it is ultimately self-defeating.
Billions of dollars should be invested to ensure the lights stay on. According to an article on PJM’s web site regarding the RTO’s troubling forecast, “To mitigate the risk of a capacity shortage, (PJM’s) Board of Managers has directed efforts intended to bring capacity online more expeditiously and make sure price signals accurately reflect supply-demand fundamentals.”
But, clearly, manipulating auction results undermines supply-demand fundamentals. It chills investment and weakens investor confidence in the market, heightening the risk of power outages during high demand, along with the likelihood of higher prices in future years as demand for electricity continues to grow but supply does not keep pace.
Disturbingly, leaders of the five states participating in the PJM complaint and settlement are using their own state policies to constrain power plant capacity within their borders. Pennsylvania, Maryland and Delaware are members of a regional initiative to cap and tax fossil plant production. Illinois, Maryland and New Jersey are pursuing aggressive sustainability goals and shutting down fossil plants in those states.
These state leaders are stacking the deck against reliability in favor of intermittent renewables. They are betting that, when the going gets tough, states like Kentucky will have abundant reliable, dispatchable power plant capacity to serve everyone. They are betting that investors in power plants will continue to put money at risk building new generation despite great uncertainty about the stability of the revenue they expect to receive from the PJM markets. Such ill-conceived thinking defies basic common-sense.
It also punishes states that have charted a prudent, responsible course — states that require utilities to maintain reliable power plant capacity sufficient to serve their own energy needs. Effectively, the proposed settlement means customers in Kentucky and other responsible states would subsidize reliable electric service in activist states. Because Kentucky has acted responsibly, we have no desire to subsidize reliable electric service elsewhere, nor do we wish to share in the rolling blackouts that are likely to result.
PJM should embrace its role as an independent market maker and not bow to short-sighted political pressure.
It is my privilege to lead a not-for-profit electric cooperative, which is owned by the same people we serve. We have no motive to maximize profits for shareholders; rather, our mission is to provide reliable, cost-competitive, sustainable electricity for our members. We understand that over-emphasizing one leg of that tripod will have undesired consequences for the other two.
Undoubtedly, the proposed settlement before FERC is politically advantageous for a few state leaders. But it will do nothing to improve reliable electric service, and it will increase the risk of widespread outages during extreme hot or cold temperatures for years to come.
