New Jersey Board Calls for PJM Capacity Market Reform to Curb Rising Electricity Costs

The New Jersey Board of Public Utilities on Aug. 13 released a study finding that the capacity market operated by PJM Interconnection can no longer reliably deliver electricity at the lowest possible cost, prompting the state regulator to call for changes to its design and governance. The report, required under legislation enacted Aug. 25, 2025, was submitted to Governor Mikie Sherrill and state lawmakers as electricity bills in New Jersey increased about 20 percent last year, with rising capacity costs contributing to the increase.

The analysis focuses on PJM’s Reliability Pricing Model, which secures adequate power resources for future demand. Capacity charges account for about 15 percent to 20 percent of an electric bill and represent the largest component of costs that state utility regulators cannot directly control. Board staff reviewed historical auction results, demand forecasts and reform proposals under consideration by PJM, states and federal regulators.

The regulator recommended requiring large new electricity users, including data centers, to provide new generation resources to support their demand. Customers that do not bring additional supply should receive lower-priority service. New Jersey has already enacted these requirements, with implementation underway, to prevent existing ratepayers from absorbing costs associated with new large loads.

The board also recommended replacing the single annual capacity auction with a seasonal structure that better reflects changing supply and demand conditions. It is also considering a prompt auction using more current forecasts rather than pricing capacity several years in advance. Longer-term contracting options should be expanded to reduce exposure to price volatility and provide generators with greater certainty to finance new projects.

The study further calls for changes to PJM governance to give states greater influence over decisions affecting reliability and affordability. The board plans to advance the recommendations through the regional stakeholder process and before the Federal Energy Regulatory Commission.

New Jersey will also pursue related changes involving data center rates, virtual power plants and utility business models. Over the next year, the state expects to use expanded authority over local transmission projects, which the regulator identified as contributing to higher customer costs while potentially limiting access to lower-cost renewable energy from across the region.