Energy experts have called for bold reforms—from transmission planning to permitting streamlining and faster interconnection approvals—to prevent further volatility and ensure PJM Interconnection meets its reliability mandate without disproportionately burdening consumers.

During a March 19 webinar hosted by Advanced Energy United—a trade group that advocates for policies supporting the transition to 100% clean energy—industry experts warned that PJM’s current market structures and planning processes are failing to keep pace with rising electricity demand, aging infrastructure, and the clean energy transition.

Capacity Auction Shock Underscores Market Instability

A major focus of discussion for panelists on Wednesday was PJM’s July 2024 Base Residual Auction (BRA) for the 2025/2026 delivery year, which resulted in a nearly tenfold increase in clearing prices, surging from $28.92/MW-day in the prior auction to $269.92/MW-day. “The capacity auction price spike put PJM on the radar in states more than ever before, and the spike was massive, a 900% increase from the year before,” said Morgan Pinnell, managing director at Advanced Energy United. “While capacity is a small portion of overall energy costs, that spike will result in an average 30% increase in consumer costs, which puts PJM in the hot seat in venues across the Mid-Atlantic and Midwest.”

As Rob Gramlich, president of consulting firm Grid Strategies, explained, the auction price spike was driven by a reduction in supply and an increase in demand. “There were 6.5 GW less supply in this last auction and 3 GW more demand—so a net change of 10 [GW]. That’s sort of enough to get to that point where you get on the steep part of the supply and demand curves, and prices can change dramatically in one auction for the next.”

A high auction price, generally, should signal developers to build more generation, he noted. “The generator community was saying for many years that prices are frustratingly low. They’re not enough to sustain investment,” he said. But “This might have been sort of too much or too soon,” he said. “You don’t want to see a shock to consumers.”

However, Jon Gordon, director at Advanced Energy United, noted that PJM’s shifting auction structure and frequent rule changes introduce significant uncertainty, making it harder for developers to invest with confidence.“With all of the changes PJM has been making, they’re not on a steady auction cycle,” he said. “There’s been lots of changes to major assumptions that go into the auction, and all of those things create risk and uncertainty, which, you know, I think we all understand, are never very good for getting low auction prices.”

The high prices have also prompted scrutiny from a number of states—mainly Pennsylvania, Illinois, New Jersey, Maryland, and Delaware—as well as the Organization of PJM States (OPSI) and consumer advocates. In January, Pennsylvania settled a lawsuit over PJM’s capacity market pricing, resulting in PJM agreeing to lower its auction price cap from over $500/MW-day to $325/MW-day.

Pennsylvania Gov. Josh Shapiro, in February told reporters that the state’s frustration stems from efforts to expand its power generation to accommodate a potential surge in economic and industrial growth. The governor explicitly suggested that if PJM cannot adapt, Pennsylvania may seek an independent energy strategy. “We are exploring all options here in Pennsylvania, including removing ourselves from PJM, going it alone and determining if that is a better course for both consumer pricing and power generation in our common market,” he said.

On Wednesday, Jacob Finkel, deputy secretary of Policy from the Office of the Pennsylvania Governor, stressed that the state remains engaged in PJM’s market discussions and is committed to ensuring that auction prices reflect actual benefits for consumers. “Throughout, before, and after we filed our complaint, we’ve been having very productive discussions with folks at PJM,” he said. “I think we just feel really strongly that consumers need to benefit. If you have extraordinarily high auction prices that aren’t going to actually get to build anything—because they can’t—that model needs to be reassessed for that period of time.”

Interconnection Bottlenecks and Delays

Some panelists highlighted interconnection bottlenecks as a major obstacle preventing projects from advancing at the necessary pace. “PJM’s interconnection queue is remarkable in its size. There are 200 GW of capacity sitting in the queue, and of that, 98% are clean energy projects, which include solar, wind, and storage,” Pinnell said.

Pinnell argued the queue is backed up to an “insane degree” because “fundamentally, PJM has failed to anticipate the energy transition.” A study-driven approach “worked much better in times of flat demand, when connecting only large generating stations. Now, as they face numerous interconnection requests from facilities of varying sizes and needs, they are overwhelmed, and this is why they closed the queue in 2022,” she said.

But as Gordon noted on Wednesday, even when projects clear the queue, permitting and siting delays remain a major challenge. “And of course, these projects are also dealing with supply chain issues, which couldn’t come at a worse time, as we need to get resources online very quickly. Even once they get through this arduous queue process, after many, many years in the queue, they finally get out, and then they’re facing these other hurdles,” he said.

Gramlich pointed out that interconnection issues are affecting all RTOs. “PJM, for different reasons, sort of put a pause on their interconnection process. But there are interconnection problems happening around the country,” he noted. “A lot of this is not unique to PJM, and I don’t think any of it is attributable to PJM staff quality. There are great people working with a very difficult structure,” he said.

PJM, for its part, is pursuing several market and interconnection reforms aimed at accelerating capacity additions and refining price signals to address supply-demand imbalances. To further stabilize market pricing, PJM is making capacity market adjustments, including refining penalty structures, auction pricing mechanisms, and resource adequacy assessments. Reforms also include Capacity Interconnection Rights (CIR) Transfer Reforms to allow retiring plants to transfer interconnection rights to replacement projects, and Surplus Interconnection Service (SIS) Changes to enable new generators to use existing, unused capacity without triggering costly grid upgrades. The Reliability Resource Initiative (RRI) seeks to fast-track “shovel-ready” projects to enhance near-term resource adequacy, and capacity market adjustments are being implemented to stabilize auction pricing and improve reliability incentives.

A Slew of Measures Are Needed

But to truly resolve the challenges ahead, panelists emphasized that PJM must go beyond incremental reforms and take a more proactive approach to market design, interconnection, and planning. Echoing Pinnell, Gramlich suggested that one of the most effective solutions would be shifting PJM’s interconnection process away from the rigid, study-intensive model that has left projects stalled for years. “We need to be moving at four times the pace we have over the last three years,” he said. Streamlining the process while retaining reliability could require new approaches, including automation, he suggested.

To address the unpredictability of PJM’s auction cycles and changing market rules, panelists called for a more stable, transparent framework that enables better long-term planning. Gordon called for a a standardized auction schedule, greater transparency in capacity market design, and reduced regulatory uncertainty to prevent price volatility.

Finkel suggested Pennsylvania’s “Lightning Plan”—Shapiro’s ambitious, all-of-the-above energy strategy designed to attract investment, create jobs, and strengthen Pennsylvania’s position as a national energy leader—could offer a potential model for cutting through the red tape that has slowed project development. He noted that the six-part plan is set to be introduced in the coming days in the legislature. A key component, the Pennsylvania Reliable Energy Siting and Electric Transition (RESET) Board, will play a critical role in fast-tracking permitting for large-scale energy projects, he noted. “For the first time in Pennsylvania history, we will have a state siting board to help these critical, reliable energy projects get sited and built more quickly here in Pennsylvania,” he said. However, Finkel underscored: “PJM has to do its part, but PJM Is not out there building things on the ground,” he said. “The states and Pennsylvania want to be an active partner in solving this problem and getting more things built.”

Flexibility should also be a core priority, panelists suggested. Gordon noted that demand-side resources like energy efficiency and demand response should be better integrated into PJM’s market structure, helping to ease capacity shortages. “There are already programs that can provide reliability at lower costs than simply over-procuring capacity, but they are not being fully leveraged,” he said.

Some panelists called for revising the Effective Load Carrying Capability (ELCC) framework to better assess the contributions of renewables and storage. “A one-size-fits-all approach to capacity is outdated,” Gramlich added. “We need to evolve these market constructs to reflect the grid we have today, not the one we had 20 years ago.”

Beyond PJM’s own reforms, panelists highlighted the need for state and federal policymakers to take a more active role in transmission expansion. “We have massive amounts of generation waiting to be built, but without the transmission to move it where it’s needed, it’s just paper capacity,” said Gramlich. Gramlich and other panelists stressed that transmission planning must be forward-looking, aligning with anticipated load growth, clean energy deployment, and grid reliability needs. He warned that the current piecemeal approach to transmission development is insufficient and urged FERC, PJM, and state regulators to collaborate on a coordinated, long-term transmission expansion plan.

Pinnell echoed the urgency, arguing that federal permitting reform is also critical. “We need transmission expansion, but these projects are taking a decade or more to get built,” she said. “If we don’t address the regulatory and permitting roadblocks, we’ll continue to see a bottleneck that hinders clean energy integration and overall grid reliability.”

Gramlich also emphasized that transmission constraints are a national problem. He pointed to recent federal proposals aimed at streamlining interregional transmission approvals but noted that progress remains slow. “Everybody needs to continue to innovate here,” he said.