Largest US Power Grid Unveils Backup Plan for Reliability

(Bloomberg) -- PJM Interconnection LLC unveiled a reliability plan hours after top officials in the Trump administration called on the operator of the largest US power grid to do more to bolster the network and help tame electricity prices as demand from data centers booms. 

Late Friday, the grid’s board proposed an “immediate initiation” of backstop plans to secure more power supplies after its auction in December failed to meet standards aimed at preventing blackouts. The proposal will be filed to the Federal Energy Regulatory Commission for approval.

PJM, which spans across 13 states, is facing mounting pressure to address two sometimes conflicting challenges: add data centers to its system and tame soaring utility bills. It’s turned the grid operator into a political lightning rod.

Members of President Donald Trump’s cabinet and state governors including Democrat Josh Shapiro of Pennsylvania on Friday joined forces to urge PJM to hold an emergency wholesale electricity auction later this year as a way to combat higher consumer utility bills while also aiding the development of data centers. The new proposal from PJM goes part way to address the lawmakers’ call, but without committing to all of the details urged by the administration. 

Massive electricity consumption from the data centers that run artificial intelligence has transformed the global energy landscape. Power grids are at the epicenter of the shift, working to ensure technology companies have enough electricity while also facing more pressure from extreme weather and limited supplies.

In a sweeping, 14-page document, PJM outlined to plan to try to address the challenges, pending regulatory approval. The grid’s proposal includes: 

• Faster data center hookups: The grid wants to put in place an expedited process by August to allow data centers to get faster grid hookups by bringing their own power generation or curtailing electricity use in extreme conditions.
• Improved demand forecasts: PJM said it should conduct a comprehensive review of its one-year capacity auctions because they are no longer sufficient to ensuring adequate resources.
• Immediate initiation of backstop procurement: The grid called for securing backup power supplies to minimize the risk of blackouts, which echoes the Trump administration’s plan. However, the grid didn’t specify what mechanism it would use for the backstop procurement, nor whether it would cover a 15-year time period, as called for by the heads of Trump’s National Energy Dominance Council. The grid operator will ask its staff to come up with a plan for the initiative, which could end with the creation of the emergency auction that the administration is urging.

Taken together, the measures would constitute major overhauls in how PJM operates as a market. 

PJM serves more than 67 million people from the Mid-Atlantic to the Midwest. The grid operator is already home to the world’s biggest concentration of data centers, in northern Virginia, and it has said it expects peak demand across its system to jump 17% by 2030 from this year’s high.

Shapiro and other politicians have complained that PJM has been too slow to add more energy sources onto the grid, contributing to a supply crunch even as demand skyrockets. Lawmakers in some state are evaluating whether they should leave PJM.

Technology firms including Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google provided input to PJM’s framework as did independent power providers Constellation Energy Corp. and Talen Energy Corp., according to the document.

In perhaps the biggest nod to concerns from the market and politicians, PJM acknowledged that its current mechanism for forecasting and securing power supplies — 12-month auctions — isn’t keeping up with the changing landscape facing power grids. 

“This structure may not provide the stable revenue streams needed to justify new investment in today’s volatile and uncertain investment environment, particularly when elevated costs are combined with external constraints or intervention,” PJM said in the document, a letter addressed to its stakeholders signed by Chairman and Interim Chief Executive Officer David Mills. 

Many power companies can’t shoulder the cost of building new generation without long-term commitments from buyers to purchase electricity. PJM’s critics have said that its regular power auctions for electricity supplies in annual periods hasn’t provided the industry with enough long-term stability. 

The Trump administration’s plan for a 15-year auction would, in theory, secure revenue for more than a decade in a market notorious for price volatility and generator bankruptcies. In turn, tech companies should be able to lock in the electricity they need — and simultaneously, developers would likely have more confidence in the long-term outlook to take on the big investment of building more plants. But it’s an untested approach and analysts say that even if successful it won’t bring an immediate drop for consumer utility bills.

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