Gov. Josh Shapiro (D-Pa.) filed a complaint with the federal government against America’s largest energy grid operator, PJM Interconnection, suggesting its rules are responsible for last summer’s record-high power auction prices.
The grid operator and energy industry analysts, however, point to another culprit: Soaring demand for electricity at the same time power plants are being retired, reducing supply.
PJM is not a power company. Instead, it coordinates the movement of wholesale electricity across 13 states (including Pennsylvania) and the District of Columbia. It relies on market capacity auctions to receive commitments from electricity generators to meet future demand.
In the complaint, Shapiro blames “the country’s most snarled interconnection queue” and PJM’s auction scheduling policies for the fact it’s paying record-high prices on the energy market.
In 2023, PJM paid $2.2 billion for 140,416 megawatts (MW) of electricity. Last year, prices skyrocketed to $14.7 billion for 135,000 MW – a 700 percent increase.
“Pennsylvania ratepayers face potentially the largest unjust wealth transfer in the history of U.S. energy markets due to PJM Interconnection LLC’s capacity auctions,” Shapiro’s complaint asserts.
Energy experts say Shapiro is missing the obvious problem: Supply is down and demand is up – particularly for giant data centers.
“We’re not adding new plants that are capable of running around the clock, and then you have this, this new, unexpected demand. It’s really going to cause a problem down the line unless we shift gears and correct it,” Terry Fitzpatrick, former Pennsylvania Public Utility Commission chair, told DVJournal.
Shapiro’s lawsuit, filed on December 30, came two weeks after the North American Electric Reliability Corporation (NERC) warned that PJM customers face an ‘Elevated’ risk of power loss next year due to rising demand and generator retirements.
The question is why an energy superpower like the United States, the world’s leading producer of natural gas and wind power, is facing a potential supply shortfall?
“It should be an oxymoron to say that the U.S. has power constraints because we shouldn’t have any,” said Trisha Curtis, an energy consultant.
Court documents accuse PJM of compressed auction timelines that lock out market participants. Shapiro’s attorneys said the design of the capacity market failed to account for different kinds of energy supply. That caused the prices to “whiplash between soaring or cratering.”
PJM is also accused of delaying the integration of new power projects into the market through its interconnection queue process. Court documents cited an April 2024 Lawrence Berkeley National Laboratory study saying there are 3,009 projects waiting to connect to the PJM grid. Those projects would add an estimated 286.7GW in capacity but won’t be reviewed until next year.
Shapiro wants the Federal Energy Regulatory Commission (FERC) to force PJM to reopen its interconnection queue process, lower its capacity price caps, and get help from member states where projects are ready to be connected to the grid.
PJM said the governor doesn’t fully understand the issue, specifically the role of government regulation.
“PJM has been approving new, mostly renewable generation projects to connect to the grid at a record pace,” according to their statement. “PJM has approved approximately 50,000 MW of such projects, most of which have not been connecting to the grid quickly enough due to factors outside of PJM’s control, including state permitting, project financing and global supply chain challenges.”
PJM reported last year that somewhere between 24,000 and 58,000 MW of electricity generation would be retired by 2030 and not be replaced. Almost 20,000 of that loss is the result of state and federal regulations.
NERC issued a similar warning about energy capacity due to government regulations. In its 2024 Long-Term Reliability Assessment, the group said most of North America faces power grid reliability challenges due to thermal generator retirements. Most of those retirements are in PJM’s coverage area, California, the Midwest, and North Carolina.
Last year the Biden-Harris administration published a rule requiring existing coal-fired plants to capture 90 percent of their carbon emissions by 2032. All new natural gas-fired power plants also have to follow those rules.
However, President-elect Donald Trump is expected to revoke the power plant rule.
Energy groups defended PJM.
American Energy Alliance President Thomas Pyle said PJM was stuck between a rock and a hard place because it’s trying to maintain grid reliability. He suggested Shapiro’s suit ignores the problem of the green energy push by the Biden White House.
“It is going to become increasingly expensive to ensure reliability, and ratepayers are going to have to pay for that somehow (or they are going to have to start accepting rolling blackouts),” Pyle said.
Shapiro took a stab at energy policy last March with the Pennsylvania Climate Emissions Reduction Act (PACER). It was presented as an alternative to the Regional Greenhouse Gas Initiative (RGGI) – a multi-state carbon tax compact former Gov. Tom Wolf (D) forced the state into without legislative approval. The Commonwealth Court threw out RGGI, calling it an unconstitutional tax but the case has been appealed to the state Supreme Court.
The state Legislature declined to vote on PACER last year.
Fitzpatrick, who retired last year as Energy Association of Pennsylvania president and CEO, called the PACER plan a bad idea because it would cause more coal and gas power plants to retire.
“Every energy policy ought to be viewed in light of what it does to these prematurely retiring plants or to building new plants. And if it’s going to be a discouragement there, we shouldn’t do it,” he said.
