Regional grid operator’s ‘auction’ will result in higher electricity bills for Pa., N.J. and Del. customers

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Electricity bills for ratepayers across a large swath of the Mid-Atlantic will rise again as a result of a process the regional grid operator uses to guarantee future electricity supply during the hottest and coldest days of the year. Referred to as a “capacity auction,” the results reflect the costs of paying power plants to commit to future electricity production, as well as paying others to refrain from using electricity, if necessary. That wholesale price is then paid by the electric utilities, which pass on costs to consumers.

PJM Interconnection, which runs the electricity grid across Pennsylvania, Delaware, New Jersey and part or all of 10 other states as well as Washington, D.C., announced results of this year’s capacity auction Tuesday. The final price hit a record high for the second year in a row — and impacts electricity bills for about 67 million people across its territory.

The auction closed at nearly $330 per megawatt-day, a 22% increase over the $270 per megawatt-day from last year’s auction.

Pennsylvania Gov. Josh Shapiro filed a complaint with federal regulators late last year, alleging that the auction process is flawed and results in higher prices for consumers without guaranteeing grid reliability. The complaint called it the “largest unjust wealth transfer in the history of U.S. energy markets.”

Following the complaint, PJM and Shapiro agreed to cap the price at close to $330. Tuesday’s auction reached that cap.

Still, the results mean that electricity bills in the PJM region will likely rise between 1.5% and 5% for most ratepayers, depending on how states and utilities pass the costs along to consumers, PJM said.

“This is the highest price it’s ever been,” said Abe Silverman, an energy consultant and research scholar at Johns Hopkins University, who previously worked for NRG Energy, the New Jersey Board of Public Utilities and the Federal Energy Regulatory Commission. “The rate of increase is slowing, but it’s still going to be painful for consumers.”

Last year’s auction price of $270 per MWd set a record that was several times higher than the previous year. The impact on electricity bills is still being felt, with a 10% increase for customers in the Philadelphia area, which started June 1 and will phase in through the end of 2026.

The bill hike likely to result from this year’s auction will come on top of these increases and will kick in next June.

How the PJM capacity auction works

The capacity auction is a tool PJM uses to ensure that there will be enough electricity on the day of the year when demand reaches its peak.

The grid operator asks electricity producers in the grid region to name a price at which they can guarantee a certain amount of electricity will be available to the grid. Otherwise, without an assured price, it may not be profitable for the producer to maintain generating capacity to provide electricity, resulting in uncertain power supplies. Consumers, on the other hand, can commit to reducing their usage for a price. PJM lines up the lowest-priced bidders first, and settles on a final amount to be paid to those bidders when it has secured enough capacity to meet projected demand.

PJM said last year’s spike was a result of a narrowing gap between supply and demand, with electricity needs rising due to the growth of power-hungry A.I. and data centers, electrification of cars and heating and air conditioning systems and “a resurgence in U.S. manufacturing.” Meanwhile, supply is not growing fast enough, which PJM said is due in part to construction delays and the retirement of older fossil fuel power plants.

But advocates agree with Shapiro and blamed PJM for last year’s spike in electricity costs, saying that the grid operator has dragged its feet in allowing renewable energy sources to connect to the grid. They also say PJM relies too much on natural gas plants, which can be unreliable in extreme weather events.

PJM points to several reforms it implemented to speed up its interconnection process in recent years, but still has a backlog of over 63,000 megawatts of power generation projects, most of which are solar, wind or battery, waiting to be cleared from its interconnection queue over the next two years.

In this year’s auction, electricity generation capacity came close to falling short, Silverman said.

“PJM kind of slid by the skin of its teeth,” he said.

Pennsylvania’s battle with PJM over rising electricity costs

Shapiro threatened to pull the state from the regional grid system in January over rising electricity prices. The governor’s office said that the agreement Shapiro reached with PJM to cap the price of future capacity auctions would save Pennsylvania customers around $4 billion between 2026 and 2028.

This summer’s auction showed the cap is already working. PJM estimates that without the cap, the auction would have cleared higher — resulting in close to $3 billion in additional costs.

“It’s a huge win for consumers to have this cap,” said Claire Lang-Ree, an advocate with the Natural Resources Defense Council, which works to decarbonize the power system.

Shapiro, alongside a bipartisan group of other governors within the PJM region, wrote a strongly worded letter to PJM’s board last week, calling for “fundamental changes, and new leadership” to “restore confidence” in the grid operator. The letter referenced an “abrupt termination” of two board members and an announcement by PJM’s CEO this spring that he would resign at the end of the year.

“At a time of rapidly rising load growth, PJM’s multi-year inability to efficiently connect new resources to its grid and to engage in effective long-term transmission planning has deprived our states of thousands of jobs and billions of dollars in investment that may flow to other regions,” the letter reads. “Now these deficiencies threaten the bedrock reliability and affordability our consumers expect and deserve.”

The governors, including those of Delaware and New Jersey, asked that two board seats be reserved for candidates proposed by the states collectively.

In a statement Tuesday about the auction results, Shapiro’s office called his intervention a success.

“When PJM’s auction was set to trigger grossly excessive price increases, I took action to stop that spike and protect Pennsylvania consumers,” Shapiro said in a statement Tuesday. “My Administration has now averted billions in unnecessary energy costs — and we’re leading the fight to lower electricity bills and bring more affordable power online.”

Power supply is responding to higher prices, PJM says

PJM officials said Tuesday that the capacity price hike from last year’s auction has already encouraged investments in power supply. They said this summer’s auction showed a growth in new generation and power plants canceling planned retirements.

This auction also reflected a recent rule change that requires all types of power generators — including solar, wind and batteries — to participate in the capacity auction. Far more wind and solar generators participated in this year’s auction than in the previous one, NRDC’s Lang-Ree said.

“That alone basically saved PJM from an unacceptable risk of blackouts in 2026 and 2027, even though they account for a very small amount of PJM’s supply,” she said.

The Electric Power Supply Association, a trade group representing power producers, said in a statement Tuesday that the higher auction prices show the grid needs more energy resources.

“These market outcomes should prompt renewed focus on enabling investment, not additional political intervention,” the organization said.

The auction resulted in a mix of electricity generation: 45% natural gas, 21% nuclear, 22% coal, 4% hydro, 3% wind and 1% solar.