Breaking the Gridlock: How FERC Can Overhaul PJM Governance to Fast-Track Power for AI

Data Center Power Hunger Collides with PJM’s Legacy Bureaucracy

The largest electric grid in North America is running out of headroom. PJM Interconnection, which coordinates electricity across 13 states and the District of Columbia for 65 million people, faces an unprecedented demand shock. Hyperscale artificial intelligence data centers in Northern Virginia and Ohio are asking for gigawatts of power on timelines of 24 to 36 months. At the same time, traditional baseload power plants are retiring faster than developers can connect replacement wind, solar, and battery storage projects.

This collision has exposed a structural flaw that was hidden for decades: PJM’s governance system is built to protect the status quo rather than build fast infrastructure.

When Regional Transmission Organizations (RTOs) were created in the late 1990s, the Federal Energy Regulatory Commission (FERC) aimed to stop monopoly utilities from blocking outside competitors from using their wires. Under FERC Order 888 and Order 2000, utilities handed daily operational control over to independent operators like PJM. In exchange, utilities kept substantial control over how rules are drafted and brought to the federal government.

Today, PJM’s decision-making process functions like an old-fashioned homeowners association where every small repair requires unanimous consent from dozens of neighbors who all run competing businesses. Any substantial reform to transmission planning, market rules, or capacity pricing must crawl through a labyrinth of committees, task forces, and member votes.

Incumbent power companies often use these procedural hurdles to protect their existing balance sheets. As Harvard Law School Electricity Law Initiative Director Ari Peskoe recently pointed out, federal regulators possess the clear statutory power to dismantle this obstruction. FERC has both the duty and the legal authority under the Federal Power Act to modernize PJM’s governance structure, cut down undue utility influence, and give state governments a decisive voice in building the modern grid.

Filing Rights and Legal Levers: Who Actually Controls Regional Grid Rules

The debate over PJM governance centers on one question: who holds the right to file proposed market rule changes with the federal government under Section 205 of the Federal Power Act?

For decades, transmission-owning utilities have argued that regional planning and tariff filings are their exclusive domain. They claim that the landmark 2002 court decision Atlantic City Electric Co. v. FERC prevents federal regulators from taking away their filing privileges. However, legal analysis confirms that utilities have wildly overstated the scope of that ruling. While FERC cannot force an asset owner to surrender its own statutory rights over its physical property, FERC has broad authority to grant filing privileges to independent operators and state regulator coalitions.

The table below breaks down the actual legal and operational levers across the four main players in the PJM footprint:

Under the Federal Power Act, FERC must eliminate undue discrimination. If a regional stakeholder process produces unjust and unreasonable rates, FERC has the mandate to step in. The recent explosion in PJM capacity prices, driven by slow interconnection procedures and outmoded transmission planning, offers concrete evidence that the status quo is failing consumers.

Importantly, PJM’s Members Committee is not a public utility under federal law. It owns no power lines and sells no electricity. Stripping the Members Committee of its historical veto over market filings does not violate any constitutional or statutory property protections. FERC can authorize PJM’s independent board to file rule revisions directly, conditioned on mandatory consultation with state utility commissions represented by the Organization of PJM States (OPSI).

How Grid Governance Delays Directly Impact Enterprise Balance Sheets

Governance is not an academic debate among regulatory lawyers. It directly dictates the monthly electricity bills of commercial enterprises, the buildout timelines of data center campuses, and the reliability of industrial operations across the Eastern Seaboard.

When governance breaks down, market inefficiencies turn into real cash penalties for businesses operating inside the PJM footprint.

Triple-Digit Capacity Cost Spikes in Power Bills

Electricity bills for commercial and industrial users consist of energy costs (the fuel and operating expense to generate power) and capacity costs (payments made to generators to ensure power is available during peak hours). In PJM’s Base Residual Auction for the 2025/2026 delivery year, capacity prices hit an all-time high of $269.92 per megawatt-day across most of the territory, compared to $28.92 per megawatt-day in the previous auction.

For a mid-sized manufacturing plant or data center consuming 50 megawatts of continuous power, this single regulatory adjustment represents an annual cost increase of several million dollars. These price spikes do not stem from a sudden physical shortage of steel, solar panels, or natural gas turbines. They are caused by administrative backlogs in PJM’s study process that prevent new generation from clearing into the market. Because the current governance structure lets existing generation owners participate in designing market rules, incumbents benefit directly from the artificial scarcity created by slow procedures.

Multi-Year Interconnection Delays for Critical Loads

Companies looking to expand manufacturing plants, hydrogen production facilities, or AI compute clusters are encountering interconnection wait times stretching beyond five to seven years. Over 3,000 projects are currently stalled in PJM’s interconnection queue, representing more than 250 gigawatts of generation and storage capacity. More than 95 percent of this stalled volume consists of solar, battery storage, and wind projects.

Because PJM’s transmission planning protocols historically favored small, local utility upgrades rather than large, interstate transmission corridors, the regional backbone cannot absorb these new resources. Incumbent utilities prefer local projects because they retain exclusive rights to build them, earning a guaranteed rate of return without competitive bidding. Large multi-state lines that would ease congestion require inter-state coordination, which PJM’s current governance framework is ill-equipped to execute.

Reliability Headwinds as Legacy Baseload Retires

The lack of dynamic governance threatens enterprise uptime. Between 2024 and 2030, PJM estimates that roughly 40 gigawatts of older coal and natural gas generation will retire due to federal environmental rules and private utility sustainability plans. Over the same window, regional peak demand is projected to jump by more than 30 gigawatts, driven almost entirely by industrial electrification and computational infrastructure.

When grid governance delays replacement power, system margins narrow. During extreme weather events such as Winter Storm Elliott, PJM came dangerously close to rolling blackouts because mechanical equipment failed and replacement capacity could not reach constrained load centers. For continuous-process industries like chemical refining, semiconductor manufacturing, and cloud computing, an unstable regional transmission network translates to elevated risks of costly operational downtime.

Alternative Models: How Peer Regional Grids Balance State Authority

PJM is not the only regional transmission operator in the United States, and its heavy reliance on legacy utility votes is far from the industry standard. Other regional grid operators, such as the Southwest Power Pool (SPP) and the Midcontinent Independent System Operator (MISO), have developed governance structures that give state regulators a formal seat at the planning table without sacrificing operational independence.

In the Southwest Power Pool, the Regional State Committee (RSC), comprised of state utility commissioners across the footprint, holds explicit authority under Section 205 over transmission cost allocation and regional financial transmission rights. When SPP needs to construct major transmission lines to move wind power from the plains to urban centers, the state committee decides how costs will be shared before construction begins. This removes years of legal bickering and ensures that state regulators support the projects being built.

Similarly, MISO’s Long Range Transmission Planning (LRTP) framework coordinates closely with the Organization of MISO States (OMS). By building consensus with state public utility commissions early, MISO successfully approved a $10 billion portfolio of high-voltage transmission projects in 2022 and another multi-billion-dollar portfolio in 2024. These investments will unlock tens of gigawatts of new generation across the Midwest.

Incumbent power companies in PJM, such as Constellation Energy, have argued that granting state regulators more authority over PJM filings would compromise the grid operator’s independence. This argument misrepresents the fundamental purpose of federal grid oversight. The RTO Independence Rule established in FERC Order 888 and Order 2000 was designed to separate system operations from market participants who have a direct commercial stake in wholesale energy sales. State public utility commissions are regulatory authorities acting in the public interest; they have no financial stake in the sale of wholesale electrons.

FERC can modernize PJM’s governance without violating federal case law by using three clear regulatory tools:

• Award Independent Filing Rights to PJM Management: Direct PJM to eliminate the requirement that market design changes receive Members Committee endorsement before being filed with FERC under Section 205.
• Formally Integrate State Regulators into Regional Planning: Establish an OPSI-led review panel with binding consultation rights on transmission planning and regional cost allocation protocols.
• Clarify the Scope of Atlantic City Electric: Issue a formal policy declaration clarifying that utility filing privileges apply strictly to the rates, terms, and conditions of service across assets they directly own, not to the market rules of the regional grid as a whole.

Strategic Playbook: Preparing for the New Grid Governance Reality

The reform of PJM’s governance will trigger a multi-year realignment across wholesale power markets. As federal regulators consider formal rulemaking, commercial energy buyers, renewable developers, and incumbent utilities must position themselves for a shifting policy landscape.

The era of utility-dominated regional grid management is giving way to a model driven by rapid infrastructure deployment and state-level policy coordination.

Legacy Utilities Face Diminishing Gatekeeping Power

For incumbent transmission owners and merchant power producers, the days of relying on PJM committee procedures to protect market position are numbered. FERC’s renewed focus on interconnection queue reform (Order 2023) and regional transmission planning (Order 1920) shows that federal regulators are running out of patience with grid operators that fail to build.

Utilities that proactively partner with state regulatory agencies and large corporate consumers will maintain an advantage. Those that spend capital attempting to defend obsolete procedural vetoes risk heavy legal costs and adverse rate determinations from FERC. As state governors demand faster hookups for high-tech employers, public utility commissions will subject local capital expenditures to stricter prudence reviews, scrutinizing whether utility self-build options deliver real value compared to competitive regional lines.

Three Strategic Moves for Industrial Power Buyers and Clean Tech Developers

To navigate this shifting regulatory landscape, large corporate energy users and generation developers should take immediate tactical action:

• Audit Utility Supply Contracts for Regional Cost Pass-Throughs: Large consumers must review power purchase agreements and retail supply contracts. Determine how capacity price spikes and regional transmission charges are passed through to facility bills, and explore fixed-price or virtual hedging structures to protect against near-term capacity auction volatility.
• Engage Directly with State Regulators through OPSI: Corporate sustainability and infrastructure leaders should look beyond direct utility negotiations and participate in state-level proceedings. State commissioners hold the real key to unblocking PJM’s planning machinery. When industrial employers present joint filings with state consumer advocates, FERC takes notice.
• Diversify Behind-the-Meter and Direct-Connect Energy Strategies: Given that regional transmission reform will take several years to unclog the PJM queue, high-load operators cannot afford to wait for the wholesale market to fix itself. Deploying on-site generation, industrial-scale battery storage, and co-located low-carbon resources offers essential operational insurance while the broader grid modernizes.

The Federal Energy Regulatory Commission has both the legal tools and the market imperative to restructure PJM. By rebalancing power between incumbent utilities, independent operators, and state governments, regulators can create a regional grid engine capable of powering the next generation of American economic and technological growth.