Last year, the PJM capacity crunch became a focal point for an entire industry struggling to navigate the explosive growth of hyperscaler data centers. Yet even in the first two months of 2026, capacity prices have continued to skyrocket, and the economics of energy generation have only become more tenuous.
In this episode, Shayle Kann talks to Paul Segal, the CEO of LS Power. A major player in the space, LS Power owns a diverse portfolio of generation, storage, and transmission assets across the U.S.
Shayle and Paul dive into the volatility currently defining the two most talked-about power markets in the country: PJM and ERCOT. They cover topics like:
- How PJM flipped nearly overnight from a state of “stasis” to a capacity shortage
- The federal government’s emergency order to make large data centers “pay their way”
- Why 10 gigawatts of expected load failed to show up during the recent Texas winter storm
- Why Paul sees ERCOT as a “cyclical” market that is currently difficult for new gas generation, despite massive load growth
- Paul’s strategy for ensuring sufficient “bridge” generation before new large-scale projects come online
Resources
- Catalyst: PJM and the capacity crunch
- Latitude Media: PJM’s $178 billion fork in the road
- Catalyst: The potential for flexible data centers
Credits: Hosted by Shayle Kann. Produced and edited by Max Savage Levenson. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor.
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Transcript
Shayle Kann: I’m Shayle Kann and this is Catalyst. Coming up: the fate of the power markets in the Mid-Atlantic and Texas. I lead the early-stage venture strategy at Energy Impact Partners. Welcome. I’m admittedly breaking the fourth wall a bit here, but we did something like 48 episodes of this podcast last year in 2025. Amazingly, the single most popular episode was about the capacity crunch in PJM, the wholesale power market in the Mid-Atlantic of the U.S.. That makes me very happy because I have always been a power market nerd. What’s going on in power markets right now is wild.
Joining me today is Paul Segal, the CEO of LS Power. Folks in the power markets know LS Power well; they own all sorts of generation, storage, and transmission assets all over the country. Paul is right in the middle of it, so I brought him on to talk about two markets that have been interesting lately. First, we talked about PJM, where the federal government has proposed an emergency auction to make data centers “pay their way”. Then we talked about ERCOT, where a recent winter storm was forecast to possibly hit an all-time high for peak load, but didn’t. The price spikes we’re used to seeing periodically in ERCOT also never showed. Paul, welcome.
Paul Segal: Thank you. Good to be here.
Shayle Kann: We’re going to talk PJM and ERCOT in that order. Let’s start in the Mid-Atlantic. I want to get to the DOE emergency order and the concept of data centers bringing their own generation, but first, what is the 30,000-foot view of the state of affairs in PJM?
Paul Segal: There’s been a lot of rapid change. When we rewind back just a couple of years, capacity clears were going for between $30 and $50 per megawatt-day, compared to a little over $300 in more recent clears, which is subject to the cap in the capacity auction mechanism. Those low clears were sending the signal that we had more than enough capacity. Between the 2008 financial crisis and the last year or two, there was virtually no demand growth in PJM. In that absence of growth, new assets were only added to replace older, less efficient, or higher-cost assets, alongside renewable projects supported by state mandates or corporate procurement. There was no price signal to actively develop new generation outside of renewables, and that backdrop shifted quickly as various factors drove up demand growth. We went from a market stasis to a real need for new generation, and that’s where we sit today.
Shayle Kann: It sounds like a straightforward story: we didn’t have much load growth, so we didn’t need much capacity, then load growth flooded the market and the market struggled to keep up. We went from $30 to $300, hit the cap, and now we are clearly under capacity. In your mind, was that a failure of market design or foresight, or is it just the natural result of people failing to predict how quickly data center demand would grow?
Paul Segal: The best minds focused on this market didn’t anticipate how quickly this shift occurred. We went from very little demand growth to hints of data center growth on the back of the emergence of ChatGPT almost overnight from a power markets perspective. Planning horizons for large-scale gas-fired generation are measured over four to five years between realizing the need and delivering a power plant.
Shayle Kann: The signal is clearly there now, with two years in a row of auctions hitting the cap. Recognizing it takes time to get new capacity online, will there just be a time lag before a flood of new capacity arrives, or should we be ringing alarm bells because we may not get enough capacity soon enough?
Paul Segal: These markets are complicated, and there are various resources we can look to on different timelines. Demand response can respond the fastest. However, we haven’t had much more demand response participation in recent auctions despite the meaningful price signal. Demand response was a resource that was almost never utilized for many years because the market wasn’t tight. Now that the market is tight, they are being asked to perform with greater frequency. I anticipate customer churn; some will stop participating because they don’t want to be called upon, while others will enter because they see a meaningful payment opportunity.
Shayle Kann: It is notable that demand response didn’t grow between the previous auction and the most recent one, despite 10 times the value. Is it just that it takes time to build momentum, or is there a bigger problem with the market structure?
Paul Segal: Awareness of the opportunity needs to be socialized among a broader set of customers. Part of it may also be the price level; the ELCC (Effective Load Carrying Capacity) adjustment to the PJM capacity price for demand response is meaningful. They don’t actually see the $300+ gross capacity price. In the last two extreme events in PJM and ERCOT, we saw that a lot of incremental demand response is willing to perform if they have sufficient notice and price levels that aren’t necessarily reflected through the capacity auction.
Shayle Kann: Moving from demand response to new generation, the DOE has proposed an emergency order on top of the existing PJM capacity mechanism. Can you describe what that order is meant to do?
Paul Segal: Conceptually, the White House and governors have proposed that large data center loads driving demand growth should be responsible for paying for the new supply and the cost of integration. This is different from past practice because these loads are extraordinarily large and the cost of building new generation has doubled or tripled in a very short planning horizon. If those costs can be allocated specifically to the customers creating that dynamic, it saves the rest of the consumers from being impacted.
Shayle Kann: So it’s similar to a “bring your own generation” concept. How does this interact with the broader PJM capacity market?
Paul Segal: Those details are yet to be determined, likely through a stakeholder process. However, for these large loads to maintain a social license, they will need to be responsible for their price impacts. This may drive a more robust bilateral market where hyperscalers proactively procure resources that have the lowest impact on the rest of the grid. For a 2027–2028 shortage, the only viable forms of capacity may be demand response, some batteries, or adding backup fuel to existing gas generators to drive up their ELCC.
Shayle Kann: A lot of focus is on building new gas generation quickly, but you’re saying that isn’t necessarily a near-term savior.
Paul Segal: Large-scale gas is a 2030+ resource. In the interim, we can add demand response, batteries, or upgrade existing facilities. We are working on converting combustion turbines to combined cycle plants and swapping out turbine blades for more capacity. These are bridges to large-scale, de novo generation, which is an end-of-the-decade deliverable.
Shayle Kann: Let’s move to Texas, where there isn’t necessarily a massive capacity shortage, but there is enormous load growth. In ERCOT’s energy-only market, we get dramatic weather events, like the recent winter storm. What was expected going into that storm, and what actually happened?
Paul Segal: The market looks to prior examples like Winter Storm Uri, which had extended cold, ice, and blackouts. People were preparing for record-setting cold and demand. Forward pricing escalated to well over $1,000 per megawatt-hour. However, we never saw the price spikes that many expected. The pricing ahead of time tells generation owners to hustle—turning plants on and making sure they have fuel. It also tells retail providers to call big customers to offer economic incentives to conserve. In both PJM and ERCOT, over 10 gigawatts of demand that should have shown up based on weather conditions simply didn’t. The load didn’t show up because the price signal allowed people to prepare ahead of time.
Shayle Kann: This is a stark example of load responding to price at scale. Who were these 10 gigawatts?
Paul Segal: We have to make assumptions, but generally, you’re looking for businesses where someone is responsible for minimizing energy costs. This includes Bitcoin miners, data centers, and industrial or petrochemical loads in Texas. Some LNG loads may have also received signals not to consume electricity. The question is whether they have enough notice to respond.
Shayle Kann: Should we be planning around price-signal-based flexibility as a significant contributor to alleviating capacity crunches?
Paul Segal: I would hope so. We utilize the grid at about a 50% capacity factor, so we can squeeze much more out of our investments. If we can avoid marginal needs through price signals and time, we can drive down the cost of delivered energy. This was a miraculous thing where people saw a price signal and decided it was in their interest to use less at the peak.
Shayle Kann: What does this mean for merchant storage? Spreads in ERCOT have supposedly compressed, and if these weather events don’t result in high prices, are merchant batteries in Texas hurting?
Paul Segal: The short answer is yes. This last event was likely a disappointment from a power markets perspective because the forward price signal turned into a period of oversupply with low spread clears. Now that we’ve learned there are 10 gigawatts of incremental supply ready to respond, the probability of extended peak pricing goes down, and the air gets let out of the balloon for batteries.
Shayle Kann: Does this mean we will enter a phase of underinvestment in new capacity in ERCOT, eventually leading to a PJM-like situation?
Paul Segal: ERCOT has become a cyclical market, especially for batteries. Forward markets don’t currently support new gas-fired generation through market pricing alone. A couple of years ago, the ancillary service market for batteries was robust and overwhelmed with supply. Now we look at the day-ahead energy arbitrage market, which doesn’t currently send a great return signal for incremental battery investment. But that may flip; large loads may enter into longer-term arrangements to mitigate risk, which will support ongoing development to keep the market in equilibrium.
Shayle Kann: Paul, this was very fun. I look forward to the next flare-up in another market so I can have you back on. Paul Segal is the CEO of LS Power. This show is a production of Latitude Media. I’m Shayle Kann, and this is Catalyst.
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