Pennsylvania Governor and PJM Agree on Capacity Auction Price Cap Potentially Saving $21 Billion for Consumers

Pennsylvania Governor Josh Shapiro announced on Jan. 28 that PJM Interconnection has agreed to a resolution plan to address issues with PJM’s capacity auction to prevent unnecessary energy price hikes for consumers. The agreement resolves a complaint filed with the Federal Energy Regulatory Commission concerning flaws in the grid operator’s capacity auction design that could result in significant price rises. PJM agreed to lower the price cap from more than $500/Megawatt-Day to $325/MW-day, avoiding inflated auction prices and potentially saving.$21 billion for customers across the 13 states in the PJM region in the next two years.

Governor Shapiro’s complaint received support from various stakeholders, including governors of Delaware, Illinois, Maryland, and  New Jersey, as well as consumer advocacy groups, and the Organization of PJM States.

PJM’s next scheduled capacity auction is in July 2025. To prevent further delays to the schedule, the grid operator will propose a cap and a floor mechanism through a Federal Power Act section 205 filing with FERC.

In PJM’s capacity auction, operators buy electricity reserves to ensure a secure power supply to meet future customer energy demands, usually for a period of three years. In the last capacity auction for the 2025/2026 delivery year, held in July 2024, auction prices reached a record high of $269.92/MW-day. PJM procured adequate resources at a cost of about $14.7 billion, up from $2.2 billion in the prior auction for the 2024/2025 delivery year.

The PJM Board of Managers has expressed support for immediate measures to improve resource adequacy and grid reliability. The board informed stakeholders that a capacity shortage could affect customers as early as the 2026/2027 delivery year. The board attributes  imbalance of future electricity supply and demand to several trends including electrification coupled with high-demand data centers, retiring thermal generators, and slow new entry of replacement resources. The board supports several measures to mitigate these issues including reforms to capacity interconnection rights transfer to expedite the interconnection process for a replacement resource and capacity market reforms to more accurately reflect real-world demand conditions and ease the cost burden of customers.