Julia Hoos discusses how PJM’s risk aversion is colliding with the data center boom — and what effective power market reforms might look like.
In 2019, when Julia Hoos moved to Houston for a role with Boston Consulting Group, she had no interest in the energy industry. For one thing, it was — and largely remains — a boy’s club. For another, energy just didn’t excite her.
But as she started learning about the energy transition, Julia became curious. Before long, she was crunching numbers for an oil and gas client looking to understand how California’s zero-emissions vehicle mandate would impact demand for its fuel products. Then, in 2022, Julia joined power market analytics firm Aurora Energy Research, where she focuses on the eastern U.S. and the PJM power market.
This week on With Great Power, Julia talks to Brad Langley about the pressures that PJM is facing, and its reform efforts. They also discuss how demand flexibility could support more data centers without adding new generation, and how utilities are using large load tariffs to manage costs and grid reliability.
Credits: Hosted by Brad Langley. Produced by Mary Catherine O’Connor. Edited by Anne Bailey. Original music and engineering by Sean Marquand. Stephen Lacey is executive editor. The GridX production team includes Jenni Barber, Samantha McCabe, and Brad Langley.
Brad Langley: When Julia Hoos moved to Houston in 2019 for a role with Boston Consulting Group, she wasn't necessarily looking to work with energy clients.
Julia Hoos: There was a lot of work being done in the energy space, but in the oil and gas space. And I just had no interest in it. It seemed unwelcoming.
Brad Langley: More specifically, it felt unwelcoming to her, as a woman.
Julia Hoos: It's frankly a very male dominated field, always has been, and continues to be as well. That, to me, was one of the reasons why I didn't necessarily think it was a space for me.
Brad Langley: But after spending time working as more of a generalist, she got curious about energy.
Julia Hoos: Then I thought, why not try it out? If I don't like it, I'll never have to go back.
Brad Langley: Her first client was an oil and gas company based in California. They wanted to know how the ban on cars with internal combustion engines could impact demand for their fuel products.
Julia Hoos: We spent a couple of weeks and months calculating how this type of change in consumer demand was going to change the supply mix and therefore the pricing dynamics. So we were pulling data from trends in the Nordics, for example, on how car adoption was changing fuel consumption there, building this into our models.
Brad Langley: And suddenly energy wasn't the boring exclusive space she thought it was.
Julia Hoos: I fell in love with it. That was exactly what I wanted to be doing. I wanted to be applying this type of analytics and problem solving to helping think about how energy was going to change and therefore how the world is going to change going forward as well.
Brad Langley: In 2022, Julia went all in. She joined Aurora Energy Research, a power market analytics firm focused on the energy transition.
Julia Hoos: We spend our time forecasting how wholesale power markets are going to change, both from a price perspective and from a generation mix perspective.
Brad Langley: Julia heads Aurora's USA East practice, where she currently focuses on that one power market that has been all over the news in recent months.
News clip: Power grid operator PJM is under fire over significant electricity rate hikes across its 13 states.
Brad Langley: PJM Interconnection is the largest regional transmission organization in the country. 67 million people across the Mid-Atlantic, Southeast, and Midwest rely on it. But concerns that new data centers are sending already rising electricity costs even higher have put PJM in the hot seat. State and federal policymakers have been raising alarms with Pennsylvania governor Josh Shapiro leading that charge.
Governor Josh Shapiro: We need to move more quickly on these energy producing projects and we've got to hold down costs.
Brad Langley: Shapiro, other governors, and even the White House have asked PJM to secure long-term generation contracts with price caps to meet this growing demand. PJM is also trying to develop faster interconnection approvals through the Federal Energy Regulatory Commission.
And hyperscalers like Google, Meta, and OpenAI, they're feeling the pressure too. They're now saying they'll cover the costs of adding new data center infrastructure.
Julia Hoos: Those are all different pieces that PJM is in the process of studying altogether to reduce costs on aggregate.
Brad Langley: But despite this progress, Julia says these different efforts might fail to produce long-term solutions, that they're band-aids, not innovations.
Julia Hoos: The risk is that we come up with piecemeal solutions that ultimately we're going to have to unwrap again a couple of years from now and try to solve again.
Brad Langley: At Aurora, she helps clients confront this uncertain future.
Julia Hoos: Really what I spend my day doing is taking some of these really big market changes, policy changes, where sometimes people just don't even know where to start and just lay it out in a way that the numbers help support better decision making. And I think that's really important and becoming ever more important.
Brad Langley: This is With Great Power, a show about the people building the future grid today. I'm Brad Langley. Some people say utilities are slow to change, they don't innovate fast enough. And while it might not seem like the most cutting edge industry, there are lots of really smart people working really hard to make the grid cleaner, more reliable, and customer centric.
Today, my guest is Julia Hoos, head of USA East for Aurora Energy Research. We talk about the pressures that PJM is facing and its reform efforts. We also discussed the ways demand flexibility could support more data centers without adding new generation. And we look at how utilities are using large load tariffs to manage costs and grid reliability. But first, I asked Julia to explain how PJM is structured and why it's under so much strain.
Julia Hoos: PJM is the one that's matching on the hourly level the supply and the demand as the intermediary between the power generators who sell their power wholesale to utilities. And they're doing that largely through pricing signals. However, they also run what's called the capacity market, which is maybe slightly less intuitive, which for all intents and purposes, pays power generators simply to exist. We have to know that maybe during the Super Bowl, for example, when all of us are sitting there with our televisions on, that enough generation exists and is ready to generate, ready to turn on in that moment. So what PJM is doing through the capacity auction is: Several years in advance, it's doing those types of calculations of how much generation is going to have to be available at the biggest moments of system stress and demand and risk. And we're going to run a market, run an auction for that amount of capacity to be ready to go.
And that's the challenge that we're running up against right now is that PJM is already needing to procure the amount of capacity that needs to be available to turn on in several years time when data centers start to show up in a very real way.
Brad Langley: Yeah. I was going to say one of those unknowns is data center load growth. So I know there's been a lot of discussion about data center flexibility and there's been some resistance from PJM's market monitor. So walk me through the arguments for and against data center flexibility as they relate to PJM.
Julia Hoos: Yeah, it's a really, really important topic because if data centers can turn down their demand in those moments of system stress, then we just don't have to build quite as many generators and it can reduce costs for everybody down the line. The challenge though is just that we don't know quite how it's going to work and we don't have any sort of proof, I'll call it, for lack of a better word, of the fact that data centers can do this. And PJM gets a lot, a lot of flack. There's a lot that has been challenging to manage that perhaps hasn't been run particularly well, but their primary role really at the end of the day is to keep the lights on. And what that means is they're incredibly risk averse. So now we're running into a situation where there are more and more proposals about how data centers might be able to turn down their demand in the moment perhaps where everybody else is also requiring power and demand where maybe you and I are at home turning on our televisions or there's a lot of industrial load.
And PJM is going through a process of studying how exactly that might happen and how they can incentivize and actually rely on data centers to turn off their demand when they're being asked to do so. One of the most obvious ways that we've started to see proposals for is this bring your own generation, saying that a data center might have its own backup generation on site, that it could just flip the switch on that, turn it on and rely less on grid power. That's fairly well established, I would say, but there's also a lot of models around just actually consuming slightly less. And where PJM has come back and said, "We just need more data before we actually implement any of this." So if we get into those stress situations and we need data centers to turn down a little bit, really the only mechanism is to pay a demand response or to pay data centers to do that.
But the cost to curtailing some of that compute power, curtailing some of that demand is really, really, really high. It's several thousands of dollars per megawatt hour, if not more, when your normal wholesale energy prices call it 30 to 60 to $70 per megawatt hour. So the price signals aren't built in, but neither are any sort of enforcement or punitive mechanisms. And that's where PJM is perhaps being a little bit of a laggard, but rightfully so, because they're asking that we have to be able to study and design those mechanisms to prove that that type of demand response can actually show up when it's required.
Brad Langley: What if we look at other markets? I mean, at a high level, how does demand flexibility play out either in the West or in Texas? Is there anything unique about those markets vis-à-vis PJM that maybe makes things a little bit different or are all markets struggling with the same thing right now?
Julia Hoos: A lot of markets are struggling with very similar challenges. Texas is a somewhat unique market because it is somewhat more or less grid isolated, meaning it's subject to less of FERC’s jurisdiction, so it can do a little bit more of what it wants, but it also doesn't have this capacity market design. It functions off of different pricing signals and a lot more higher prices and just your regular wholesale energy prices. Texas introduced what was called SB6 a couple of months ago, which actually gives them the right to curtail large load before other load. That type of mechanism doesn't exist yet in PJM. Introducing that type of policy was quite controversial because it was almost a race to the bottom on trying to attract data centers to each particular footprint. It was seen as economically beneficial. There's a lot of tax dollars that come to a community from being able to do that and just investment in the community.
And so those types of policies actually were proposed in PJM, were then shot down as politically unattractive. And then also the market monitor stepped in and said, actually, PJM doesn't even really have the right to do that. They have to serve all of their load equally, but Texas has shown that it can be done. So that I think in some ways erases this question of we'll just go somewhere else that doesn't impose this on us. So I'll be very curious, but I do think that potentially could be in the cards in other markets as well.
Brad Langley: And a number of utilities have put forth large load tariffs in an effort to better manage costs and ensure grid reliability. What are the principles behind those large load tariffs?
Julia Hoos: Yeah. We talked earlier about the wholesale portion of the power market. There's that translation that has to happen between the wholesale power that gets purchased at the same price by the utility for everybody, and then they pass that price on to you and me as consumers probably by the kilowatt hour. And so there they actually have the ability to price discriminate. And it's actually a really kind of sophisticated mechanism, if you will, and I'm not being ironic about that at all, because we're having so many discussions in PJM right now about these really fundamental market reforms that are going to totally redesign how the capacity auction functions to reduce some of this risk of the costs landing on regular consumers when ultimately they're caused by the large load additions. So you can change that and you can just be a little bit more discriminating when you get downstream to the end consumer who's choosing to purchase the power.
And now what we're starting to see is a lot more new types of tariffs being created for the end consumer that passes some of those increased costs on specifically to large load. Once again, Dominion in Virginia, who were the pioneers of having the data centers have specific tariffs. And one of the neat things that different utilities around the country are examining right now is whether you can guarantee some sort of offtake for a longer time period from the large load as a prerequisite for it to be able to come online. Because the risk that we're facing right now is that data centers announce that they're going to come online in a particular area. The utility undertakes all of the costs associated with that, which might be transmission upgrades, right? It might be any sort of site-specific interconnection, and then all of the upstream power market costs that could rise from all of that.
And then the load might actually not materialize in the way that we think it's going to for a whole number of reasons, the double counting, speculative projects, all of this. And so now you've created costs and you ultimately then have to pass them on to the rest of us who still have to pay our power bills and who are stuck with that. But if you can create tariffs where you say, we will only agree to interconnect you to the grid, if you sign this 15-year agreement to purchase, let's say maybe 80% of the power you told us you were going to need, you can really create more accountability from both sides without creating some of those knock-on effects for the residential customers.
Brad Langley: And are there any early indications that these large load tariffs are working?
Julia Hoos: Too early to tell.
Brad Langley: Fair enough.
Julia Hoos: Non-committal.
Brad Langley: No, that's totally fine. So what do you see as the stakes for PJM in the coming year or two? How might load growth and concerns over rates lead to further reforms or changes in that market if you were to get your crystal ball?
Julia Hoos: Yeah, the stakes for PJM are so, so high right now. PJM has been reforming its capacity market pretty nonstop since about 2020, and I've spent the last several years telling folks at some point it's got to stop or they're going to totally erode investor confidence in building anything new, and we'll just not know what the capacity market design looks like. I've talked a lot about this split, whether you make changes at the wholesale level or at the retail level, and there's so, so much political pressure right now to create changes at the utility scale, right at the wholesale level, and particularly around the capacity market. And the risk that we're facing right now, when you get these types of shortfall conditions that result in high prices is that you make rash decisions that might reduce prices right now, but ultimately risk increasing prices for everybody, and then we get caught in this pretty dangerous cycle.
So specifically what I'm talking about, the capacity auction cleared for the ‘25-’26 delivery year, but then since then, ‘26-’27, ‘27-‘28, all sat at historically high prices. They're about 10 times higher than they were before then. And so governors from the various states came and said, "We have to be seen to be doing something about affordability in our states. And so we're going to require PJM," this is led by Governor Shapiro of Pennsylvania, to create this price collar. So essentially say, what's the maximum that capacity can clear at? And there was enough political pressure that all of that got put into place. It sounds great on paper, but what it means is that for the last couple of years, I've been having conversations with developers who are interested in bringing online new generation in the PJM footprint who say, "My investment is risky. I don't know what's going to happen from a policy perspective a year from now, two years from now that actually gets rid of some of the revenue I was expecting and now means that I have a stranded asset perhaps.
I spent hundreds of millions or billions of dollars on an asset that now is a bad investment and PJM might not even need that generator, is not willing. The utilities are not willing to make me whole again for that type of investment." And so reduces prices in the short term, but creates a ton, a ton of nervousness to actually bringing online generation in the long term. And ultimately, we can all agree that that's a worst case scenario outcome that's going to raise prices for everybody.
Brad Langley: At the federal level, last year, the DOE directed FERC to accelerate interconnection of data centers, but then the White House asked PJM to hold an emergency one-time auction for power purchase agreements. Now it also looks like hyperscalers might cover the full cost of their electricity use. We're seeing more and more announcements like that. So what's your take on what all this pressure will lead to in terms of how power markets operate and how FERC approaches reforms going forward?
Julia Hoos: Yeah. The challenge with this is that a lot of it sounds really nice on paper, but it's really not defined at all right now. So even this emergency auction that you listed, it was a statement of principles from the governors and from the White House that had a pretty specific request to hold this type of emergency auction, but that was all we knew. So they hadn't defined how much capacity we were going to procure, who exactly was going to pay for it, when the auction was going to happen, how the prices were going to be set. So all of these really big headlines often then result in big questions being thrown at PJM to solve on the backend and quickly design the market or the structure around how all of that is going to come together and actually function in actuality. When you look at data center interconnection specifically, PJM has been told by FERC to study different ways that data centers could come online more quickly, perhaps by being co-located with a generator.
Solving that, you have to look at what sort of transmission capabilities there are, whether you could perhaps save costs on transmission by doing that, but you also have to study the generation and the demand profile of the two to see how well those two are fit. Well, if you solve those two things, perhaps as you mentioned earlier, we've started to get at this demand flexibility piece already, where perhaps what that means is that ultimately the target of how much generation we have to procure down the line in the capacity auction can actually go down because the data center and the generation have come online together. PJM probably is a little bit too conservative. They could likely move faster on some of this. It's not to say that they've been totally without flaws, but there is a healthy middle point here on developing some more comprehensive solutions.
Brad Langley: Maybe taking a little bit of a step back in the wake of changes in the Trump administration as it pertains to energy policy, how have conversations with your clients shifted or what's the overall vibe in those conversations?
Julia Hoos: Yeah, there's a lot of uncertainty right now and uncertainty is just really bad for everybody. I'll say even when the One Big Beautiful Bill Act passed, the reality is that people felt better once it had been passed than in the couple of weeks and months before it passed, because at least they knew what they were up against. And once you know what your level of risk looks like, you can kind of plan for it. But in those couple of months, we saw almost a complete standstill in investment in energy and any sort of M&A activity, which is disastrous when we're facing what's being called an energy emergency, that we have to be able to build more generation. Something like the various interventions in offshore wind, while they may seem somewhat limited and targeting a specific technology, they just make everybody nervous and they make it really much, much harder to construct anything new.
I mean, that very certainly exacerbates the challenge to being able to meet the data center demand. And a lot of those projects are pretty far advanced. They're right in the geographies that need new generation. I will say though, the one interesting spot is that we've seen a lot of increased activity around gas generation in the last couple of years. You might think it's a good thing, you might think it's a bad thing, but either way, I think it's certainly a sign of momentum around people being interested and wanting to invest in power generation and wanting to bring solutions to the table.
Brad Langley: Great. So last question for you. We call this show With Great Power, which is a nod to the energy industry. It's also a famous Spider-Man quote, "With great power comes great responsibility." So Julia, tell us what superpower do you bring to the energy transition?
Julia Hoos: I would say my superpower is getting incredibly excited about nitty-gritty energy topics and then explaining them in a way that hopefully helps people make better decisions.
Brad Langley: Well, this has been great. Julia, thank you so much for your time. Really appreciate you coming on the show.
Julia Hoos: Thanks, Brad.
Brad Langley: Julia Hoos is the head of USA East for Aurora Energy Research. With Great Power is produced by GridX in partnership with Latitude Studios. Delivering on our clean energy future is complex. GridX exists to simplify the journey. GridX is the enterprise rate platform that modern utilities rely on to usher in our clean energy future. We design and implement emerging rate structures and we increase consumer investment in clean energy, all while managing the complex billing needs of a distributed grid. Mary Catherine O'Connor produced the show. Anne Bailey is our senior editor. Stephen Lacey is our executive editor. Sean Marquand composed the original theme song and mixed the show. The GridX production team includes Jenni Barber, Samantha McCabe, and me, Brad Langley.
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As always, thanks so much for listening. I'm Brad Langley.