Electric Grid Operator Reaches Agreement to Limit Price Increases

Pennsylvania Gov. Josh Shapiro recently announced that he has reached an agreement with regional grid operator PJM Interconnection that will soften an expected sharp rise in electricity costs over the next two years.

In late December, Shapiro filed a complaint with the Federal Energy Regulatory Commission against PJM, arguing that flaws in the complicated formula it follows to purchase wholesale power from electric producers is driving up prices for residents. PJM Interconnection is the nonprofit regional transmission organization that manages the electricity market for 13 Mid-Atlantic states and the District of Columbia.

Shapiro said the agreement will significantly lower the capacity auction price cap, averting a “runaway auction price that would have unnecessarily increased energy bills,” according to a statement.

PJM uses capacity auctions to purchase power, which means that operators producing electricity from fossil fuels, nuclear, and renewables submit bids to provide power at all times in future years, whether demand is low or high, in order to ensure there is enough available electricity. Over the last several years, demand for energy has risen rapidly but PJM has been slow to approve new power sources onto its grid, leading to a supply-demand imbalance.

The most recent capacity auction was held in July 2024 for power in 2025-26 and resulted in costs of $14.7 billion - a more than 800% increase from the prior year. Shapiro’s complaint to FERC claimed that if changes were not made, the next auction in July 2025 could result in over $20 billion in unnecessary energy costs for consumers across the region. However, the 2024 auction prices will still likely mean higher bills for customers.

Under the agreement, PJM will lower its capacity auction price cap from over $500 per megawatt-day to $325 per megawatt day and will also set a “floor” or minimum price of $175 per megawatt-day.

PJM intends to seek a FERC order while it also continues to work to address the underlying issues that have led to the tightening power supply. They include continued electrification coupled with the exponential growth of high-demand data centers; continued retirement of fossil-fuel power plants due to policy and economic pressures; and problems with getting replacement generation sources onto the grid; including siting, permitting and supply chain constraints.