Investing.com -- Mizuho analysts said PJM's white paper released on May 6 outlines three potential paths to address what the grid operator describes as a "credibility trap," where government intervention following high-scarcity price signals tends to undercut investment.

Path A proposes mandatory long-term contracted load and hedging to stabilize the existing capacity market. Under this approach, most load would need to be hedged through long-term capacity commitments before entering the auction. The residual spot auction, where exiting generators currently clear and earn net cost of new entry, would shrink. PJM plans to implement Path A hedging reforms between 2026 and 2029.

Path B introduces differential reliability, which establishes a framework for rationing service during emergencies. Loads that pay for their own supply would receive priority access to the grid. Data centers seeking guaranteed service would need to build their own generation, sign long-term bilateral power contracts, or pay for a reliability tier. Mizuho views Path B as the most politically feasible option, though it presents operational challenges without large-scale grid-enhancing dispatch technology.

Path C proposes shrinking the capacity market to a backstop mechanism and shifting the primary investment signal to the energy and ancillary services market. PJM indicated this redesign would not begin before 2028. Mizuho considers this path the most radical and least likely to be realized.

The white paper includes a section on data centers co-locating with or directly contracting with generators, which all three paths must accommodate.

Constellation Energy (NASDAQ: CEG) management expressed preference for Path A during its first-quarter 2026 call, favoring a competitive market that co-optimized energy and reserve markets. The company raised concerns about Path B's differential reliability approach, citing discriminatory treatment of different loads.

FirstEnergy (NYSE: FE) protested against Phase 2 of the reliability backstop mechanism proposal during its first-quarter call, stating wires-only utility companies should not bear commodity, load, and forecasting risk.