PJM's $12B Modeling Mistake: How a Flawed Model Wasted Ratepayer Money
$12B of US ratepayers' money wasted on a modeling mistake in PJM
PJM, America's largest electricity market, has been overcharging its 66 million residents by $12 billion from 2025 to 2027 due to a flawed system model that underestimates existing power plant capacity. The model fails to account for the increased efficiency of gas turbines in cold winter air and the reliability improvements made after Storm Elliott. This has led to inflated capacity auctions, forcing ratepayers to pay billions for power that isn't needed. SemiAnalysis reverse-engineered PJM's 'Reserve Requirement Study' to uncover these errors, revealing that better modeling could have saved $6.7B in the 2025/26 auction alone, with minimal impact on reliability. The report also highlights PJM's structural anti-growth design, including a capacity market that doesn't differentiate new from existing plants, and an upcoming emergency auction that risks leaving ratepayers footing the bill for unneeded capacity.
PJM has forced itself into operating at the limit, so inaccurately modeling power plants’ capacities has a massive impact on auction costs.