Photo by Peter Hall/Capital-Star Constellation Energy’s Eddystone Generating Station in Delaware County is one of two fossil fuel fired power plants ordered by U.S. Energy Secretary Chris Wright to remain ready to produce electricity beyond their retirement dates.

The nation’s largest electricity grid operator has called on power plant operators, investors, utilities and consumers to consider reforms to ensure the region’s wholesale electricity market can supply enough power as it faces unprecedented demand from data centers.

PJM Interconnection, based in the Philadelphia suburbs near Valley Forge, has been under scrutiny as record electricity prices in its auctions contributed to skyrocketing bills for consumers and businesses in the last year.

In a report issued Wednesday, PJM said the growing demand from data centers and broader electrification of the economy is exacerbated by tightening supply as older, dirtier power plants retire and supply chain and permitting issues make new plants harder to build fast enough.

“The PJM region is now navigating a convergence of three structural forces that have pushed the system into disequilibrium,” the report says. “The result is a transition from an era of managing surplus to an era of managing scarcity — one that is anticipated to persist for some time based on current projections.”

PJM’s electricity pricing model depends on a concept it calls the “shared reliability compact” in which all customers, large and small, share the same standard of reliability and agree to pay to ensure it.

The organization’s board recognized price volatility — while economically rational — is creating unsustainable stress on the compact and called on PJM’s staff to reexamine its foundational assumptions in a resource-constrained world.

It also suggested that government intervention in the market has kept investors on the sidelines by undermining the credibility of economic signals that would normally spur the construction of new generation plants.

In 2024, Gov. Josh Shapiro sued PJM demanding a limit on prices after an auction in July of that year resulted in a record price. Federal regulators agreed last week to extend the price control for a second time through 2030.

Shapiro pushed back on the notion that his administration’s intervention has dissuaded new investment.

“A core reason why the reforms described in this report are needed is that PJM hasn’t been moving fast enough to connect new resources for many years and continues to deny states a full seat at the table,” spokeswoman Rosie Lapowsky said in a statement.

“The Shapiro administration looks forward to working constructively with fellow states and with PJM on next steps, but Gov. Shapiro is never going to let Pennsylvanians get stuck with a bill they don’t deserve,” the statement said. “That’s why any changes must prioritize reliability, protect consumers and increase transparency.”

Jon Gordon, director of the renewable energy industry group Advanced Energy United, said PJM finds itself in a tough spot and is taking fire from many elected leaders. He said the report is a self-reflective document.

“They’re trying to lay out the facts of the world. They want everyone involved in the solution.

These are really big, profound decisions,” Gordon said. “Time is short and we need to solve these problems yesterday, and that’s where the challenge will be.”

PJM, which manages the grid for 13 states, including Pennsylvania, and Washington, D.C., stopped short of offering a solution, but invited stakeholders to join in discussion to restore confidence in the system.

“Wholesale electricity markets are extraordinary institutions, and their most essential infrastructure is not a price curve or a performance obligation — it is legitimacy,” PJM President and CEO David Mills said in a letter accompanying the report.

“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.” Mills continued. “It is built through the kind of deliberation this paper is intended to initiate — and it is the only foundation on which a durable market design can rest.”

The paper identifies three possible pathways for reform:

The first would stabilize the market by ensuring that the vast majority of power needed is obtained through longer-term agreements to insulate ratepayers from volatility. Any additional power needed would be secured through spot auctions to allow higher prices to ensure capacity is available for peaks in demand on the hottest and coldest days of the year.

Another would do away with the shared reliability contract when supplies are scarce and develop a framework that differentiates between customers that can and cannot be cut off. Policymakers, including the PJM governors and the Trump administration, have backed a requirement for large loads such as data centers to build their own power plants.

“Path B focuses on physical accountability — those who do not bring or fund supply cannot lean indefinitely on the shared pool — but it requires a fundamental reorientation of how the PJM system allocates reliability as a scarce good,” the report says.

The third would pair long-term contracts that reduce volatility with a shift in how power generation owners recover revenue to cover the cost of producing electricity, placing an emphasis on payments for the underlying electricity commodity rather than the availability of power plants to handle peaks in demand.

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