States should procure power supplies outside PJM capacity auctions: FirstEnergy CEO | Utility Dive

Capacity concerns come amid a surge in data center development, with FirstEnergy receiving more than 60 service inquiries larger than 500 MW this year.

Deregulated states in the PJM Interconnection should consider taking a direct role in acquiring power supplies to meet their needs, according to Brian Tierney, FirstEnergy president and CEO.

“There are some solutions that could be outside of a PJM capacity auction construct that might bring certainty of net new capacity coming on board,” Tierney said during a Wednesday earnings conference call with analysts.

The New York Power Authority and New York State Energy Research and Development Authority, for example, have held auctions for generating resources, Tierney said. That approach could also be effective in states like Ohio, Pennsylvania and Maryland, he said.

A state agency could issue a solicitation for a specific type of new capacity, such as combined cycle dispatchable generation, and allow independent power producers, investment companies and utility companies to offer bids, Tierney said. “You'd be certain through a contract and certain design milestones that net new capacity was going to be delivered in that state,” he said.

Utility builds would not necessarily need legislative changes in West Virginia, Maryland and Ohio, but legislation would be needed in Pennsylvania and New Jersey, according to Tierney.

“We are not interested in building competitive generation,” Tierney said. “If a state would like us to … we would consider adding long-term regulated generation.”

There is a disconnect between the timing of adding significant amounts of load, such as data center load, that can take about three years to develop and bring online, and building a power plant, which takes about six years to complete, according to Tierney.

“So are our customers going to pay higher capacity auction prints for the next six years before any net new capacity shows up from the price signals that are being sent to this market?” Tierney asked. “States would do better to take these matters into their own hands, the way traditional [integrated resource plan] states do like West Virginia, and be sure that the capacity is there when the state needs it, rather than hoping price signals have the intended effect six years from now.”

PJM’s July capacity auction, with record high prices, will increase monthly residential bills by 11% to 19% beginning in June, according to Tierney. Despite the jump in prices, no new dispatchable generation cleared the auction, he said.

“We're not sure that these price signals are in the near-term or long-term going to result in incremental net new capacity,” Tierney said. “We're talking to legislators, regulators [and] customers about solutions that would actually add net new capacity at reasonable costs, and are looking to be positively engaged in discussions to bring that about.”

Although the capacity auctions take up “headroom” and cost our customers real dollars, it won’t hurt FirstEnergy’s ability to get cost recovery for the investments its utilities are making, according to Tierney.

Meanwhile, data center development in FirstEnergy’s service territory is surging, according to Tierney.

This year, FirstEnergy’s utilities have had more than 60 requests for conceptual or detailed load studies of 500 MW or more, up three times compared to 2023, Tierney said. “These people are talking to us about specific locations, specific investment plans,” he said.

FirstEnergy has sites, such as retired power plants and industrial facilities, where there is available transmission capacity to serve large customers, according to Tierney.

“While we have transmission capacity to support data center investments, we are being thoughtful about our approach to ensure that our existing customers have adequate protections and that we appropriately manage risks,” he said.

In the third quarter, FirstEnergy’s net income increased to $466 million, or 73 cents/share, from $420 million, or 69 cents/share, a year ago, according to FirstEnergy’s quarterly U.S. Securities and Exchange Commission filing. Revenue climbed to $3.7 billion in the quarter, up from $3.5 billion in the year-ago period.

Driven by hot weather, electric sales increased 2.5% to 39.7 million MWh in the third quarter from a year ago. However, weather-adjusted sales increased just 0.2%, with residential sales falling 1.4%, commercial sales remaining flat and industrial sales increasing 2.1%.