// HACKER NEWS — CYBERSECURITY
$12B of US ratepayers' money wasted on a modeling mistake in PJM
Earlier this year, we explained why residents of the PJM area, America’s largest electricity market, have seen their power bills rise by ~20%. We argued that the main culprit was PJM’s auction design choices and how PJM models demand and supply. To better understand the extent of the problem, our Energy Model team spent the last 6 months reverse-engineering PJM’s main system model, the ‘Reserve Requirement Study’, which to date has been a black box. This study is how PJM decides what type of and how many power plants to buy to make sure electricity is reliable, using an annual auction, and spending billions each year.
Armed with a reconstructed model we argue that the problem is worse than we thought. PJM’s model includes errors that we estimate have cost all of its 66 million residents a total of $12B between 2025 and 2027 alone. We share our method in the annex of this newsletter for our subscribers; as well as the results of the model in our PJM Model dashboard. Our live rebuild of the Reserve Requirement Model is a tab available exclusively to our Energy Model clients; which also includes a quarter-by-quarter forecast of the whole US grid tracking >40,000 grid-connected power plants, and every single behind-the-meter datacenter power order.
PJM’s model is structurally anti-growth with a poorly designed capacity market that is globally unique and a governance system that is too big to function.
These failings magnify the negative impact of bad system modeling, which is the focus of this report:
PJM underestimates by ~4 gigawatts the existing power plants it already has; owing to a methodology which doesn’t account for the higher efficiency of power plants in winter and improved power plant resilience since Storm Elliott.
PJM has wasted ~$12 billion of ratepayers’ money from 2025 to 2027 due to this weak methodology, which dramatically overstated the supply/demand shortfall it faced. Household electricity bills would have risen much less if PJM’s model was accurate.
PJM’s emergency auction is putting ratepayers at risk by signing contracts for too much power without committed counter-parties.
Using PJM’s demand and supply curves we calculate that better modeling would have resulted in $6.7B of savings with only 0.014GW (yes, 14MW) less power procured for 2025/26; then $4.9B and 0.8GW for 2026/27. More power meaning less in savings might be counter-intuitive but we have the supply and demand curves to show how these disproportionate impacts occur. PJM has forced itself into operating at the limit, so inaccurately modeling power plants’ capacities has a massive impact on auction costs.
PJM has constrained its own supply of new power by having one-year contracts that start too soon after they are signed, as well as being slow to connect these new plants to the grid. This means fulfilling any demand growth requires paying a big premium for new power plants to be built at unrealistic speeds. PJM also runs the only capacity market in the world that does not distinguish between new and existing power plants. So that premium paid for new power plants is also paid to existing power plants for doing nothing. The same growth in a market that splits new and existing power plant auctions avoids the volume effect of repricing the entire fleet; which means ratepayers are better protected from price spikes.
Despite four record-breaking auctions costing $63B, PJM will be short of the amount of generation it needs to run reliably, and plans to run an “emergency auction” from September 30th to October 21st with results by December 2nd. SemiAnalysis concludes there is an additional 3.8GW of reliable power on PJM’s system by taking into account increased turbine efficiency from cold air, and reduced risk of winter failure after federally mandated asset winterization investments. This is the equivalent of eight large gas power plants which would cost around $10 billion to build today. This 3.8GW would negate 56% of the 6.8GW that PJM pla