The PJM Interconnection’s recent capacity auction has sent shockwaves through the energy sector, revealing an unprecedented surge in capacity prices and prompting urgent calls for legislative intervention. With capacity costs skyrocketing from $2.2 billion to a staggering $14.7 billion for the 2025/26 delivery year, utilities, state lawmakers, and regulators are compelled to act swiftly to mitigate the impending power supply constraints and cost spikes.
Utilities and state regulators, facing the brunt of this price hike, are exploring various measures to address the crisis. Some investor-owned utilities in deregulated states are advocating for re-regulation as a means to ensure adequate power supply. However, this proposal meets significant resistance from consumer advocates worried about financial risks being shifted onto customers. Meanwhile, numerous states are contemplating or have already initiated legislative actions to accelerate the development of new power generation resources, focusing on renewable energy credits, energy storage, and streamlined permitting processes.
Record Capacity Prices: Understanding the Surge
PJM’s capacity auction for the 2025/26 delivery year has dramatically increased capacity costs to $14.7 billion, up from $2.2 billion in the previous auction. This unprecedented surge primarily stems from the accelerated retirement of power plants, heightened energy demand, and newly implemented market rules. These factors have collectively squeezed the available power supply, further driving up prices.
Reactions from Utilities and State Regulators
Utilities operating in deregulated states such as Illinois, Maryland, New Jersey, Ohio, and Pennsylvania are proposing a return to some form of regulation as a potential remedy. Companies like Exelon, FirstEnergy, and PPL argue that re-entering the power supply business could help secure the necessary generation capacity to meet future demands. However, this notion faces opposition from regulators and consumer advocacy groups who fear that re-regulation might shift financial risks from utility shareholders to end consumers.
Potential Power Supply Shortfalls
The implications of the capacity price surge go beyond immediate financial impacts, posing a risk of power supply shortfalls by the end of this decade. PJM has indicated that if new generation capacity is not brought online swiftly, there could be severe shortages in the near future. This potential crisis has escalated the urgency for legislative and regulatory measures to ensure grid reliability.
State-Level Legislative Actions
Lawmakers in several states are actively drafting or considering legislation aimed at accelerating the development of new power generation projects. In Maryland, Delegate Lorig Charkoudian is mulling over bills to boost energy storage on the distribution system and adjust solar renewable energy credit systems to support ready-to-deploy solar projects.
Push for Re-Regulation and Its Challenges
Investor-owned utilities in deregulated states are advocating for a partial return to regulation, arguing that it would enable them to build new generation capacity more efficiently. Utilities such as Exelon and FirstEnergy have voiced their readiness to take on generation roles to ensure the PJM region’s power reliability. However, these proposals face significant challenges.
Exploring Energy Storage Solutions
As part of their response to the capacity price crisis, several states are focusing on energy storage as a viable interim solution. Enhanced energy storage capabilities can help manage peak demand and provide a buffer during periods of high load, thereby reducing reliance on traditional power plants.
Addressing Systemic Market Issues
The capacity price hikes have brought underlying issues within PJM’s market structure to the forefront. Critics argue that current market rules, including how reliability must-run resources are treated in auctions, have exacerbated the problem. This situation calls for a critical review of the market mechanisms to ensure they align with the goals of reliability, fairness, and cost-effectiveness.
