Should Utilities Build Power Plants? Lessons from PJM Grid
Here at the Alliance for Competitive Power (ACP), we're at the frontline, championing your interests as the very future of electricity hangs in the balance. So, should utilities go back to building power plants themselves, or is it smarter to trust competitive markets like PJM’s to deliver what consumers need most? Let’s unravel this together with clear eyes, open minds, and a determination to find what really works for you, your community, and your business.
Why PJM’s Capacity Market Moment Matters
Think of the PJM Interconnection as the quarterback of America’s largest energy grid, responsible for energizing more than 65 million folks across 13 states. But recently, PJM’s capacity market has felt the heat. In the most recent auction for the 2027/2028 delivery year, prices again hit record levels, reaching the FERC-approved cap of $333.44 per megawatt-day.
New data centers are cropping up faster than ever yet project delays and snags are throttling the system. When previous auctions hit jaw-dropping numbers, policymakers started sweating – can this market still guarantee families and businesses fair, predictable rates? Following a settlement with Pennsylvania’s governor, PJM implemented a price cap (originally estimated at $325 but adjusted to over $333 by the time of the auction) to prevent even more extreme spikes. Still, these record-high results hint there’s more under the hood than just a price cap issue. This runs deeper, right to the core of how utility monopolies and open markets tussle for the future.
A Quick Trip Down Memory Lane: From Monopolies to Markets
Once upon a time, utilities ruled the energy roost. They handled everything: generating, transmitting, and delivering every watt. This monopoly model lasted for decades, but it wasn’t a recipe for low bills or bold ideas. Enter the innovation brigade: the PJM grid and others challenged that old script, opening the curtains for competitive electricity markets.
PJM’s Reliability Pricing Model allows producers to compete over supplies needed three years out, passing savings and risk-taking onto independent players instead of families or businesses. If you want to see the stunning impacts, check out our FTI study results where we break down how restructured states have enjoyed lower rate increases, cleaner air, and fewer blackouts over time. The competitive spark has made a massive difference.
The Reappearance of Monopoly: What is FRR and Why Care?
PJM’s market might be feeling the pressure, but is a retreat to old-school utility monopolies really the fix? States can choose the Fixed Resource Requirement (FRR), which lets them skip PJM’s capacity market and allows utilities to build their own plants for five years or more. Sounds simple, right? Not quite. Analyst breakdowns warn this could shut consumers out from future market savings and curb innovation.
Utilities control every resource decision locally: No jumping back into competition midstream.
Locked-in Costs: If market prices nosedive, consumers can’t benefit because they are tied to utility rate-of-return models.
Risk Shift: Financial risk for new builds moves from Wall Street investors back to you, the ratepayer.
Innovation Lag: Efficiency and fresh ideas could stall without the pressure of competition.
FRR is a bit like putting the genie back in the bottle – it revives monopoly habits that competitive markets have spent years unwinding. Been there, done that!
Data Centers: PJM’s New Wildcard
Right now, data centers are popping up like mushrooms after a rainstorm. PJM is flooded with requests for new facilities, and in the latest auction, data center demand accounted for nearly $23 billion in costs over three years. As Utility Dive's coverage shows, many of these are "phantom" loads-proposals that may never be built but still drive up prices for everyone because the grid operator must plan for them.
PJM’s independent market monitor reported that data center load growth is the "primary reason" for current tight supply conditions. Ordinary folks get hit in the wallet for power that might not ever be used. Clearly, we’re due for a system tune-up.
Consumer Advocates: Fix Markets, Don’t Flee Them
Rather than scrapping the whole capacity market, consumer groups want smarter reforms. The Maryland Office of People's Counsel and other advocates argue that PJM must fix its rules to stop customers from "paying twice"-once for local reliability plants and again through the capacity market. Their practical solution guide lays out ways to stop gridlock, prevent overspending, and keep electricity affordable.
Accurate forecasting and steady resource planning are no cakewalk. But doubling down on smarter market reforms gives us a shot at keeping the progress we’ve made since the 90s, while charting a course through today’s headwinds.
Finding a Fresh Path: Can Hybrid Solutions Work?
The most promising future may lie in a creative mix of the two: blending the stability of utility planning with the invigorating push of competitive markets.
ACP’s vision isn’t about swinging the pendulum all the way in either direction. Instead, we advocate for practical reforms:
Speed up interconnection: Modernize the queue so new, cleaner supply can enter the market faster.
Sharpen forecasts: Use better data to identify which data centers are real and which are speculative.
Encourage large-load accountability: Ensure new large loads pay their fair share for the infrastructure they require.
Preserve the market: Don't box out competition; use it to drive the lowest prices possible for reliability.
If you want real-world stories that put these strategies to the test, drop by our Video Library page for compelling examples from states rolling out market-driven solutions.
FAQs: What You Need to Know
What’s the deal with capacity markets? They pay energy producers to be ready, so no one’s caught off guard when usage spikes.
How does bringing back a utility monopoly (FRR) affect me? It can lead to higher costs and fewer choices. You lose the ability to benefit when energy market prices drop.
Will all these data center requests hike my bill? Yes, if the system isn't reformed to differentiate between real and speculative demand, everyone's "capacity tag" could increase.
Why care about competition in electricity? It keeps pressure on providers to innovate and keep costs low. Our latest updates show what’s possible.
Conclusion: Think Forward, Choose Competition
At this turning point, your voice matters more than ever. Yes, the old models got us here, but the path forward calls for bold creativity, not a return to tired monopolies. Join us at ACP as we fight for open, competitive power markets, consumer choice, and a flexible grid built for today - and tomorrow.
Ready to spark change or stay in-the-know? Reach out to us and be part of the conversation that’s lighting the way for America’s energy future!
