How Far FERC Can Actually Go in Reforming PJM’s Governance

PJM’s most recent capacity auction cleared at its $325/MW-day price cap and still came up short, producing a 6.8-GW reserve shortfall. Data centres accounted for roughly $6.3 billion of the $16.4 billion in total capacity charges.

Those numbers are the reason a dry administrative proceeding has become something energy investors cannot afford to ignore. When a market clears at its ceiling and still cannot procure enough capacity, the structure processing that demand is under visible strain.

The governance dispute now before the Federal Energy Regulatory Commission (FERC) in Docket AD26-7-000 is the mechanism through which the consequential questions get answered: who controls what gets filed with FERC, who shapes transmission planning priorities, and how quickly PJM can respond to a demand shock projected to add up to 70 GW of large-load demand by 2038.

Here is the practical read. This piece separates the legal questions that are genuinely contested from those that are settled, identifies which outcomes FERC can realistically compel, and traces what the reform trajectory means for transmission investment timelines and wholesale electricity prices across the PJM footprint.

What FERC actually has the power to do inside PJM’s governance

Start with the foundation, because the limits only make sense once the source of authority is clear. FERC’s oversight of PJM governance flows from the Federal Power Act (FPA) and the Commission’s own RTO policy, particularly Order 2000. The logic is simple: PJM’s governance provisions live inside FERC-approved tariffs and contracts, and anything embedded in those documents that affects wholesale rates, transmission access, or market outcomes is jurisdictional.

Three distinct legal foundations underpin the pro-reform case:

• FPA Sections 205-206, which let FERC require changes to ensure rates remain just, reasonable, and non-discriminatory where tariff-embedded governance affects those outcomes.
• The Order 2000 RTO Independence Rule, which requires that no single class of market participant or individual company control, or appear to control, RTO decision-making. The D.C. Circuit has recently reaffirmed that FERC bears an obligation to enforce this requirement.
• D.C. Circuit precedent on stakeholder membership rules, reinforced by a 2019 FERC order confirming that RTO membership rules directly affect FERC filings and therefore rates.

The track record supports FERC’s reach. The Commission reviewed and approved PJM’s board nominating structure in 1997 and again in 2002. PJM has itself sought FERC waivers to deviate from its own board nominating procedures, filing them in 2021 and 2025, which only reinforces how tariff-embedded these features are.

The academic anchor for the pro-reform case Ari Peskoe, Director of Harvard Law School’s Electricity Law Initiative, filed comments with FERC in August 2026 arguing that the Commission holds clear authority to restructure PJM governance because these provisions are sustained by FERC-jurisdictional contracts, not private corporate law.

The boundary sits at board composition. The 2004 D.C. Circuit ruling involving the California ISO struck down a specific FERC directive ordering replacement of that RTO’s state-appointed board, calling it an unprecedented intrusion into internal corporate governance. Utility PPL has cited this ruling as a broad bar on FERC intervention, but legal analysts treat that as an overly expansive reading. The decision was narrow and fact-specific.

Here is what that means for your read on timeline risk. The jurisdictional foundation is firmer than utility arguments suggest, but FERC’s ability to mandate specific board-nominating outcomes is where legal certainty genuinely thins. Any order touching board composition carries litigation exposure that could push implementation out by years, and that delay is the risk to price into transmission planning assumptions.

How the filing rights battle became the sharpest legal edge in the dispute

Filing rights are the quiet lever that decides everything downstream. Under FPA Section 205, holding filing rights means holding the ability to initiate tariff amendments with FERC. That confers real control over when and how market rules change, including transmission planning protocols and capacity market design.

The contested terrain centres on the Members Committee. Transmission owners voluntarily granted it filing privileges over the regional transmission planning protocol roughly three decades ago. PJM has now proposed moving those privileges to the PJM Board, and every utility supports the transfer. The catch: utilities claim the transfer requires their consent and assert that such agreement should come with governance concessions made in their favour.

Peskoe filed comments in August 2026 rejecting that position, and the legal architecture backs him. The Atlantic City Electric ruling established that FERC cannot compel a utility to surrender its own filing rights. The Members Committee, however, does not qualify as a public utility under federal law, given that it plays no role in FERC-jurisdictional transactions. Stripping its filing privileges therefore does not trigger the Atlantic City Electric prohibition at all.

For energy investors, this is the governance variable most directly wired to transmission investment pace. Board control of the planning protocol filing means faster, more coherent project prioritisation. A prolonged contest over who holds that right keeps the current backlog exactly where it is.

Can states get a seat at the filing table?

Under the existing framework, states possess no independent standing to submit tariff amendments directly. FERC could, however, require PJM to file state-approved rule changes on states’ behalf, a mechanism distinct from direct filing access. FERC has previously concluded that Atlantic City Electric does not prevent it from extending filing rights to additional parties over utility objections.

State engagement is also compatible with the RTO Independence Rule as written. That rule applies to market participants, not state officials or policymakers, which directly contradicts Constellation’s argument that state involvement threatens PJM’s independence.

OPSI and regional governors conditionally endorsed the Board filing-privilege transfer, signalling alignment with board-centric reform rather than direct state filing access. Any tariff-based state privileges would supplement existing utility and PJM filing rights rather than replace them, addressing the objection a 1984 federal appeals court raised. Concurrent-filing models already operate in MISO and ISO-NE, preserving utility choice while widening participation.

The market stress making governance reform urgent right now

The auction numbers tell the story before any interpretation is needed:

• Cleared at the $325/MW-day price cap.
• Would have cleared at roughly $555/MW-day on an unconstrained basis.
• Produced a 6.8-GW reserve shortfall for the 2028/2029 delivery year.
• Data centres accounted for approximately 40% of total capacity charges.

AI data centre energy demand is the underlying load variable reshaping capacity auction arithmetic across the PJM footprint, with forward projections that existing procurement frameworks were not designed to absorb at this speed or scale.

Reuters reported on 14 July 2026 that the auction hit its price limit and still failed to procure sufficient capacity, with prices near record highs. Utility Dive followed on 15 July 2026, noting PJM’s board was preparing to file both a backstop auction proposal and a “connect and manage” framework for data centres.

The PJM capacity auction results confirmed 138,318 MW of procured resources while simultaneously documenting the structural shortfall, providing the primary-source baseline against which governance reform timelines and backstop procurement proposals are being measured.

The structural driver is load growth of historic speed. In the December 2025 auction, PJM’s demand forecast rose by roughly 5,250 MW, almost entirely from data centres, driving record-high capacity prices. According to Monitoring Analytics, PJM’s independent market monitor, data centres accounted for about $6.3 billion of the $16.4 billion in total capacity charges in the latest auction, and nearly half of cumulative charges across the prior four auctions.

The number that contextualises why governance speed matters PJM estimates data-centre and other large-load demand could increase by up to 70 GW by 2038. That is the trajectory the current governance and procurement framework has to keep pace with.

Governance determines how quickly PJM can respond. The Reliability Backstop Procurement auction, planned as a one-time measure with a proposed $555/MW-day price cap, is itself evidence of the gap. That cap sits materially above the base auction’s $325/MW-day ceiling, reflecting expectations that high prices persist.

A 6.8-GW shortfall at a binding price cap tells you the framework is not moving fast enough to match the demand curve. For investors tracking power price formation and generation returns, the auction data is not background context. It is the thesis. Capacity prices at or above $325/MW-day flow into the cost base for every large industrial and commercial customer in the footprint, including the hyperscale operators whose load created the shortfall.

The structural driver behind the governance dispute is a PJM capacity shortfall that procurement mechanics alone cannot resolve, because the speed of new plant development is measured in years while load growth from hyperscale operators is accelerating on a quarterly basis.

What other RTOs reveal about the governance reform playbook

Other RTOs have already run versions of this experiment, and the results calibrate what to expect. Structured state engagement has precedent and can work. The lesson from ISO-NE and CAISO is that poorly designed reforms generate litigation and market uncertainty that is itself an investment risk.

SPP offers the cleanest functional model. Its Regional State Committee gives state regulators formal advisory input on transmission cost allocation and planning without board-level control. That structure has aligned regional projects with state preferences, though it has at times slowed decisions when states disagree.

MISO is the closest analog to what PJM reforms might produce. States there are deeply involved in transmission planning and resource adequacy without controlling the independent board. Critically, MISO and ISO-NE both require concurrent utility filings when non-utility parties exercise filing privileges, a model that has survived legal challenge and preserves utility choice.

ISO-NE and CAISO are the cautionary cases. Governance controversy, state-influence questions, and independence challenges have produced mixed investor signals in both. The 2004 D.C. Circuit CAISO ruling remains a litigation reference point even though its scope is narrow, applying to state-appointed board replacement specifically rather than broader governance reform. Both Holland & Knight, in its 28 July 2026 analysis, and Peskoe, in his August 2026 comments, characterise that scope as narrow.

The read for investors is that the outcome that matters most is not whether FERC intervenes but whether the resulting design is clean enough to survive litigation. A reform that triggers two years of D.C. Circuit appeals produces worse transmission investment conditions than the current impasse. Do not treat this as reform-yes versus reform-no. The design quality and litigation resilience of the specific changes will shape the investment environment more than the headline outcome.

Grid execution risk — the gap between committed investment and delivered projects — is not unique to the PJM footprint; the UK’s experience with large-scale transmission build-out shows that governance and planning frameworks are typically the binding constraint well before capital availability becomes the limiting factor.

Three variables to watch as FERC’s PJM mediation moves toward a final order

The mediation is live and unresolved, which makes this a monitoring exercise rather than a settled call. Three variables will determine what the final package delivers.

1. The Members Committee filing-privilege transfer. If FERC supports the Board-centric model emerging from mediation, transmission planning protocol changes can move faster and more coherently, directly affecting project prioritisation for the 70-GW build-out. If the consent question drags, the backlog holds.
2. The state engagement design. Structured advisory participation on the MISO model carries far less litigation exposure than formal filing access or veto rights. The design chosen here determines the RTO independence implications and the appeals risk.
3. The litigation resilience of the mediated package. Whether the package is drawn narrowly enough to survive D.C. Circuit review is the variable that decides whether reform accelerates or extends the current uncertainty.

Procedural landmark Docket No. AD26-7-000 is the reference point for readers tracking official filings. FERC mediators began confidential negotiations on 1 September 2026, with the 24 September 2026 Members Committee meeting set as the next substantive review date. No final FERC order has been issued.

The Reliability Backstop Procurement, planned as a one-time $555/MW-day measure, illustrates what happens when governance and market design cannot adapt quickly enough to structural load growth. For deeper primary-source reading, Peskoe’s August 2026 FERC comments and Holland & Knight’s 28 July 2026 analysis are the two most substantive public-record resources.

The actionable question is not whether FERC reforms PJM governance. It is whether the mediated package is tight enough to avoid a litigation cycle that would defer its market effects beyond a delivery year already clearing at the price cap. For investors in generation, transmission, or large-load businesses within the footprint, those three variables are the leading indicators worth watching before the final order arrives.

For investors wanting to translate capacity price signals into portfolio positioning, our dedicated guide to electricity futures markets covers how capacity and energy price formation in PJM interconnects with forward hedging instruments and generation asset valuation.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions. Financial projections and forward-looking statements are speculative, subject to change based on market developments, and past performance does not guarantee future results.