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.
- Animats
The article's main complaint is that generating capacity has been overbuilt by maybe 10%. That's not a bad thing. There are worse things than extra generating capacity.
- Certhas
I don't doubt that ISO models are not optimal, but the annual cost of power outages to US consumers is above 100 billion dollars last time I looked already. Electric system reliability is a place where you have to be somewhat conservative as costs rise really non-linear with outage intensity. [1]
And ISOs/RTOs/TSOs operate in complex political environments and have to ensure reliability in adverserial markets. They are often constraint in what they can/can't do.
What I will say is that their modelling should absolutely be open and transparent, and typically it's not. That would make necessary discussions around modelling assumptions, potential improvements and political constraints much much easier and more fruitful.
[1] That said, my intuition is that current outages are probably not due to supply insufficiency, but due to transmission system failures.
- k310
PJM Interconnection LLC (PJM) is a regional transmission organization (RTO) in the United States. It is part of the Eastern Interconnection grid operating an electric transmission system serving all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia. PJM is the largest power grid operator in the United States, serving 67 million customers from Chicago to New Jersey. (Wikipedia)
That was not clear in the article.
- readthenotes1
This reminds me of the 2013 finding that showed an earlier 2010 study praising austerity as a recovery mechanism was flawed because of an Excel calculation error and lack of diligence.
https://inthesetimes.com/article/the-excel-error-heard-round...
It also reminds me of the flaws in the London epidemiological model about how to respond to covid.
It just may be that these things should be reviewed a little closer by people who are obsessive about correctness
- xeonax
What software did they build their model in?