The often obscure regional electric grid operator in the Mid-Atlantic, PJM, has become front-page news this past year as electricity prices across the region hit record highs and continue to soar, impacting households across the region already struggling to pay their utility bills. Since June 2025, an independent analysis estimates that annual customer costs in PJM have increased $12.5 billion, skyrocketing from $2.2 billion in 2024 to $14.7 billion the following year. The regional grid operator has also received intense scrutiny with ongoing lack of transparency, inability to address interconnection queue delays, failure to build adequate regional transmission infrastructure, and most recently, procedural inefficiencies in the stakeholder process resulting in unprecedented intervention by the Federal Energy Regulatory Commission.
While PJM’s reaction to these many challenges have varied, one response stands out. Acknowledging the failure of the market to adequately procure supply for load at reasonable cost after multiple capacity auction failures that fell short while charging residential customers record amounts, the historically reticent PJM issued a refreshingly honest market redesign paper, Powering Reliability Through Market Design: Addressing Rising Demand and Constrained Supply, and Stimulating Investment To Support Durable Reliability.
In Powering Reliability Through Market Design, PJM offers a candid, if incomplete, account of why new supply is not coming online fast enough to meet new demand driven by data centers: record capacity prices temporarily constrained by administrative caps, a capacity market whose price signals investors discount, and demand growing faster than at any point in decades. PJM is right that a single-year capacity commitment procured three years forward may not be a good match for the financing needs of new supply. However, the picture remains incomplete–largely left out of PJM’s analysis are other barriers that prevent it from achieving reliability at a reasonable cost.
PJM initiated a new process, inviting stakeholders to join in the exercise of imagining–with nothing off the table–what a future design construct could look like for the wholesale electricity market. Moreover, instead of falling prey to the void of PJM’s typical stakeholder processes (perhaps a lesson learned from the 2024 attempt), PJM deviated, inviting stakeholders to submit summary proposals for their vision of a regional market redesign directly in response to the ideas laid out in Powering Reliability through Market Design.
As participants in the process, it was clear that rather than dive into the frameworks and nuance of the design itself, there was an opportunity to meaningfully enhance the process to interrogate market reform structures by offering a series of principles: that’s what the Sierra Club Principles for PJM Market Reform outlines.
Rather than answer PJM’s menu of proposed solutions with a menu of its own, we propose seven principles for PJM, FERC, the states, and stakeholders to apply to any proposed market reform.
- Load forecasts require skin in the game, and markets should assume some amount of forecast error. More accurate forecasts can reduce the risks of both over- and under-procurement.
- Do not expect higher prices or longer contracts to solve the problem if barriers to entry remain. Prices and contracts cannot substitute for interconnection and transmission reform.
- Design the markets as one coherent system. Energy, ancillary services, capacity, and bilateral contracts must reinforce one another.
- Allow all capable resources to compete. Markets should pay for capabilities.
- Preserve informative price signals and protect consumers through transparent hedging. Price signals should reflect system conditions while allowing hedges for price risk management.
- Protect existing customers from becoming the default financial guarantors of new supply or the reliability guarantors of new load. Controllable or hedgeable financial risks should generally be assigned to the party best positioned to manage and bear them.
- Accommodate lawful state resource choices. Regional rules should recognize lawful state policies without displacing FERC’s wholesale-rate authority.
The long-term solution to the unprecedented load growth caused by data centers and a clogged interconnection pipeline is not to simply pay more for capacity or shift investment and reliability risks onto existing customers. Instead, PJM has an opportunity to undertake a needed, evidence-based review of its interconnected market designs in pursuit of a market-wide modernization initiative. No existing market construct should be preserved merely because it is familiar. As PJM embarks on this initiative, other regional grid operators can take heed. The electric system – on which so many demands are made – is now being asked to evolve in the face of load growth from a new user: data centers. This question then - of who the markets serve, and how - is ever-more timely.
The President of PJM himself, wrote: “Wholesale electricity markets are extraordinary institutions, and their most essential infrastructure is not a price curve or a performance obligation – it is legitimacy.” To that end, any review of the market redesign proposals must be built on a foundational perspective that upholds that legitimacy.
Find the full principles here.
Sierra Club’s Energy Markets team engages in wholesale electricity markets, advocating for policies that advance a future in which the rules, institutions, and infrastructure that govern the U.S. bulk power system work together to accelerate an affordable, reliable, and just clean energy transition.
This initiative also has implications for our ongoing data center work. To learn more about Sierra Club’s work to protect communities from data centers, visit our Data Center page.