PJM Interconnection released a paper on Wednesday outlining potential redesigns of its wholesale electricity markets as the region confronts rising demand, elevated costs, and weakening investment signals.
The report, Powering Reliability Through Market Design, assesses the structural strain on PJM's capacity market, the Reliability Pricing Model.
It warns that rapid load growth, driven largely by data center expansion, is colliding with slower, more expensive generation development, putting pressure on system reliability and price stability.
PJM said capital costs for new generation have risen sharply, construction timelines have lengthened, and policy uncertainty has increased investor risk. As a result, many developers now require long-term revenue guarantees before committing to new projects.
The organization said these conditions have created what it described as a "credibility trap" in the capacity market, as in higher prices are needed to attract investment, but they increase consumer exposure to volatility, prompting political and regulatory intervention that ultimately weakens market signals.
PJM President and CEO David Mills said the Board directed staff to reassess whether the market's foundational assumptions still hold in a resource-constrained environment. "The Board asked PJM to examine whether the foundational assumptions of the market remain valid," Mills wrote in a foreword to the paper.
The report does not propose a single solution but outlines three broad frameworks for consideration. One would expand long-term contracting to stabilize prices and ensure uniform reliability obligations.
A second would differentiate reliability standards by customer type, geography or load, effectively prioritizing certain demand. A third would rely more heavily on energy and ancillary service markets for investment signals, with capacity markets serving as a reduced backstop.
PJM emphasized that any path forward will require coordination beyond the grid operator, including state regulators, federal authorities, consumers and market participants.
"The choices embedded in these paths involve genuine trade-offs," the report said, adding that the goal is to make those trade-offs explicit as stakeholders evaluate long-term reforms.
PJM said the paper will serve as the basis for continued stakeholder discussions aimed at developing permanent market design proposals.