Analysis: PJM modeling errors may have wasted $12B of ratepayer money
An analysis by an energy modeling team claims that errors in PJM's Reserve Requirement Study, a black-box model used to procure power plants, may have wasted $12 billion of ratepayer money between 2025 and 2027. The team reverse-engineered the model over six months and published their method and results, highlighting issues in electricity market modeling that are relevant to AI data center power demands.
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Earlier this year, we explained why residents of the PJM area, America’s largest electricity market, have seen their power bills rise by ~20%. We argued that the main culprit was PJM’s auction design choices and how PJM models demand and supply. To better understand the extent of the problem, our Energy Model team spent the last 6 months reverse-engineering PJM’s main system model, the ‘Reserve Requirement Study’, which to date has been a black box. This study is how PJM decides what type of and how many power plants to buy to make sure electricity is reliable, using an annual auction, and spending billions each year. Armed with a reconstructed model we argue that the problem is worse than we thought. PJM’s model includes errors that we estimate have cost all of its 66 million residents a total of $12B between 2025 and 2027 alone. We share our method in the annex of this newsletter for our subscribers; as well as the results of the model in our PJM Model dashboard. Our live rebuild of