WASHINGTON — Demand growth coupled with an ongoing changeover in supply has dominated the power industry’s attention, and it was a major theme at the National Association of Regulatory Utility Commissioners’ Winter Policy Summit, held Feb. 23-26. 

Those trends have pushed up prices, notably in PJM and its recent capacity auction, but FERC Commissioner David Rosner said all of the RTOs save billions of dollars annually by wringing efficiencies out of the grid. 

“The advantage of markets really is their ability to attract capital and attract the lowest-cost resources,” Rosner said. 

It gets complicated because markets also have to recognize that different resources provide different reliability benefits, and figuring out how to design to markets to address that fact has proven to be a long, iterative process. 

“The commission has approved different ways to ‘accredit’ capacity; that’s a fancy word for saying, ‘We are compensating resources for their actual contribution towards reliability,’” Rosner said. “And that evolves as the system evolves, and the more smart policies like that that we can have in place that pay for service provided, that just makes sense.” 

Markets have improved resource performance, and they have placed the risk for bad bets away from customers and toward investors, NYISO CEO Rich Dewey said. But the fleet has changed significantly in the quarter-century since ISOs and RTOs started running parts of the grid. 

“You’ve got to think about valuing the attribute of what these resources bring, and getting that right, so the investment that’s necessary matches the value and the performance that you get out of that attribute,” Dewey said. “So, markets are in a continuous evolution. You can’t just stand it up and then sit back and collect the rewards of harnessing that spirit of competition. We need to continue to work at it.” 

New York has a goal of getting to net-zero emissions by 2050, but the markets were not set up to address that issue initially, Dewey said. So a big part of the ISO’s work has been to get the rules place that attract the kinds of investment that will realize the policy. 

“The challenges, however, seem to be getting bigger,” Electric Power Supply Association CEO Todd Snitchler said. “We’re going through what I think is a second round of an important opportunity for new investment into restructured markets. But it’s not unique to restructured markets. You’re seeing this in vertically integrated portions around the country as well, where load growth is growing, and growing meaningfully for the first time in a generation.” 

All the change is happening at a time with real challenges from the political side, as states that stood up markets in the 1990s now have very different policies, Snitchler said. The focus used to be on least-cost dispatch, which is what the markets were designed for, and now many states want carbon reductions, or other policies that do not always line up with others in the same market. 

“It’s not an absolute degree of certainty that’s needed, but it’s a reasonable degree of certainty that’s needed,” Snitchler said. “And we find ourselves in very uncertain situations presently, which makes investment very difficult at the very time we need investment to be flowing fairly dramatically.” 

These issues recently came to a head in PJM when its last capacity auction cleared the rest of the market at $270/MW-day after years of lower pricing, a signal for needed new supply, Snitchler said. 

“There already is market behavior that is responding to just one price signal,” he added. “Now we do have to be thoughtful and understand that a number [of], or several more, high auction clears are probably not politically palatable.” 

Pennsylvania Gov. Josh Shapiro (D) and PJM have agreed to a deal that will cap prices for the next couple of auctions as the RTO considers additional changes in the capacity market. (See PJM, Shapiro Reach Agreement on Capacity Price Cap and Floor.) 

All of the changes to markets make it riskier to commit the capital needed to get new generation built, Shell Energy North America CEO Carolyn Comer said. 

“The more markets continue to get tweaked, the more uncertainty we see, the harder it is for me to compete for that capital, quite frankly, and that’s a problem,” Comer said. 

Shell has started to invest directly in power plants, so it is watching those rules for its own purposes, she said. It also offers risk-management services for smaller market players. In the past, hedges were commonly offered to such customers for 15 to 20 years, but the pace of change makes that less feasible. 

“I do believe it’s important to take risk off consumers and move it to the product; that’s the whole point of creation of competitive markets,” Comer said. “Then I also have to think about making a return on the risk that I’m actually taking. And in order to be able to calculate that return on risk, I need a certain amount of policy certainty.” 

The changes have led to a number of policies at PJM, especially including price caps and temporary queue jumping, but the ultimate solution to higher prices is to get more resources onto the grid, and that should involve all kinds of generation, American Clean Power Association Vice President Carrie Zalewski said. 

“The obvious answer is, let’s interconnect stuff,” Zalewski said. “Waiting in an interconnection queue is one thing, but not knowing how long you’re going to wait, there’s a whole other level of uncertainty that creates more issues with supply chain.” 

Developers can spend so much time waiting for a generator interconnection agreement (GIA) that permits already approved expire. Order 2023 from FERC will help once implemented, but more can be done both before the GIA and after, she added. 

Uncertainty on the Demand Side

While suppliers face uncertainty, the issue is increasingly important on the demand side as the grid faces load growth not seen in decades from data centers, reshoring manufacturing and the early days of electrification. 

Artificial intelligence is a major source of demand for data centers now, and despite some recent improvements in efficiency from Chinese firm DeepSeek, that is expected to continue to grow, Electric Power Research Institute CEO Arshad Mansoor said. 

“There’s Jevon’s paradox that says things that get more efficient are used more, and that’s really what’s going to happen,” Mansoor said. 

The large language models that have dominated AI so far can only train on the information that is on the public internet, which is only about 5 to 6% of the total data in the world. Industries, including energy, are going to start training AIs on their proprietary data to help out in their operations, and that is going to lead to huge new computing demands regardless of how efficient the code is, Mansoor said. 

All that growth represents a huge economic opportunity for the country, and meeting it is going to require getting the load forecasts right, PJM Senior Vice President Asim Haque said. 

PJM is working closely with its member utilities and increasingly the data centers themselves, while focusing on the areas in its footprint with the highest demand, like Northern Virginia and Columbus, Ohio. 

The new load growth is going to require more transmission and generation, but some of the data center customers are focused on speed to market. 

“They’ve got to get to market to a particular point in time,” Haque said. “That’s why you’re seeing some more adventurous efforts outside of directly connecting to the grid — this concept of co-location.” 

While many data centers are focused on getting to the grid quick, Meta’s Etta Lockey said her firm was not interested in shifting costs to other customers and ultimately looks at data center expansion as a net positive. 

“We sit at a really generational, hopefully once-in-a-career opportunity to think about some economic growth in this country that could be unprecedented,” Lockey said. “And that’s the future state that I really want to [home] in on and force us all to kind of think about what that can really look like.” 

While rates have been on the rise, if the load growth from data centers is handled right, it will lead to more infrastructure, and the overall costs of the system will be spread across a bigger base. 

“The end goal should be downward pressure on rates, let’s be honest,” Southern Co. Vice President of System Planning Clay Rikard said. “This new load is the opportunity to put downward pressure on rates, if we do it right.”