Statement on calls for PJM Interconnection to hold an emergency auction

This statement is in response to breaking news. Please contact pr@rstreet.org to speak with the scholars.

The Trump administration and a bipartisan group of governors recently called on electric grid operator PJM Interconnection to hold an emergency auction that would allow tech companies to buy power over the next 15 years. Kent Chandler, resident senior fellow on our energy and environment team and a former state regulator in the electricity space, expressed some skepticism about the move in the following statement:

“The White House and governors are right to be concerned with rising costs and reliability risks facing electricity customers in the PJM Interconnection region. But we must diagnose the problem correctly. Given the flawed demand forecasts employed in PJM, it is not clear whether the region has enough or too little generation. Meanwhile, generation developers face high development barriers. Changes need to be made to PJM’s markets, but they are not the primary driver of cost and reliability risk. PJM’s market prices remain lower than monopoly utility costs, and all steps must be taken to deter re-regulation.

The policy imperative is to let markets work, and surgically fix any deficiencies they have. The top priority is addressing non-market influences on cost and reliability. This includes fixing exaggerated demand forecasts, which stem from inaccurate utility information. The second priority is to fix barriers to development, especially generator interconnection, permitting, and siting rules. States also need to emphasize sound retail policy to allocate costs fairly, manage risk, and unleash supply and flexible demand, all of which help PJM’s wholesale markets perform well. Finally, improving PJM’s governance and making adjustments to PJM’s procurement rules should be on the table. 

Rash interventions threaten to make matters worse. Price controls dilute the build signal to investors, and running a separate emergency auction creates many risks to investors and consumers. For example, running an emergency auction with the same flawed demand forecasts and centralized procurement will only compound the problem. Facilitating additional voluntary market interactions with data centers and supply would achieve far better results.”