PJM’s Record-High Capacity Prices Spark Sector Reckoning as Market Signals, Policy Battles Intensify

Capacity prices in PJM Interconnection’s latest auction spiked to the market’s price ceiling, hitting $329.17/MW-day across the board for the 2026/2027 delivery year—the maximum allowed under new Federal Energy Regulatory Commission (FERC) rules.

The regional transmission organization’s (RTO’s) competitive Base Residual Auction (BRA), conducted on July 9, 2025, and released on July 22, secured 134,311 MW of unforced capacity (UCAP)—a reliability-adjusted measure of how much electricity resources can be counted on during peak system stress—for the period from June 1, 2026, to May 31, 2027. Commitments were obtained through competitive offers from generators and demand response providers across the grid operator’s wholesale power market, which covers 67 million people across 13 states and the District of Columbia.

In addition, regions participating under PJM’s Fixed Resource Requirement (FRR)—a mechanism that allows certain utilities to meet reliability targets using their own resources outside the auction—committed another 11,933 MW of UCAP outside the auction, bringing PJM’s total capacity portfolio for the delivery year to 146,244 MW.

The total capacity secured for the 2026/2027 delivery year (146,244 MW of unforced capacity) marks a slight increase over the 145,558 MW committed for 2025/2026. The improvement is especially notable given that PJM’s forecasted RTO-wide peak load for the 2026/2027 delivery year has climbed to 159,329 MW, a 5,446 MW—or 3.5%—increase compared to the 153,883 MW forecast for 2025/2026. According to PJM, the jump reflects the region’s intensifying data center buildout, widespread electrification, and broader economic activity.

PJM-Wide Prices Hit the Cap for First Time, Zones Normalize

To maintain grid reliability amid higher demand, PJM raised its RTO Reliability Requirement (the total amount of unforced capacity needed to meet peak load plus reserve margin across its 13-state footprint) to 146,105 MW, up 1,655 MW (1.1%) from the previous auction. While the 2026/2027 results yielded a reserve margin of 18.9%—slightly below PJM’s 19.1% target—it is still above the 18.5% margin achieved last year.

PJM also noted its clearing price jumped 22%—from $269.92/MW-day in the 2025/2026 auction to $329.17/MW-day for 2026/2027, the maximum allowed under FERC’s newly approved Net Cost of New Entry (Net CONE) cap. The cap, part of a broader reform package finalized in April 2025, was established to limit curb price volatility while preserving investment signals, and it was notably championed by Pennsylvania officials and other stakeholders who called for changes after destabilizing outcomes from last year’s auction.

In last year’s auction, capacity prices surged more than ninefold compared to the previous auction, with two zones—BGE in Maryland and Dominion in Virginia—clearing at even higher, locally constrained prices due to local supply shortfalls and transmission import limits. This year, however, both zones saw prices drop to the new FERC-approved cap of $329.17/MW-day, as all Locational Deliverability Areas (LDAs) cleared at the price ceiling and, for the first time, no zones were transmission-constrained—bringing the entire market to a uniform price.

As NRG Energy explained in a market brief, “Final capacity rates for a particular delivery year typically follow the BRA settlement rate (for any particular load zone) closely. This means that the BRA results are most important to gauging rates for a particular delivery year and the [incremental auction] results have very little impact.” The settlement rate at the RTO LDA is “the base rate for calculating the rates across the other LDAs, as well as the individual rates per transmission zone,” it noted. “In this auction, all major LDAs settled at the same price.”

What it means is that “supply is responding to the investment signal from the 2025/2026 capacity auction,” the power company said. “There was [2,669 MW] of new generation or generation uprates in this auction—the first increases seen in the last four auctions,” it noted. In addition, “there were 17 generation units representing 1,100 MW worth of capacity that have withdrawn retirements since the 2025/26 BRA.”

PJM, however, still flagged tight market conditions. “This auction’s cleared volume was just over (by 139 MW UCAP) the projected reliability requirement, underscoring the region’s tightening supply-demand balance,” the grid operator noted in its press release. “The target installed reserve margin is set to meet the one-in-ten reliability standard [and] accounts for anticipated resource performance and a margin of error for demand forecast uncertainty.”

Resource Mix Shifts as Coal and Renewables Rebound, Gas Retreats

According to PJM, total procurement from the 2026/2027 BRA rose to $16.1 billion—up nearly 10% from $14.7 billion last year. However, several key market rule changes shaped this year’s results.

For the first time, PJM implemented expanded capacity must-offer requirements across all resource types, including solar, wind, batteries, and hybrids, which brought intermittent and emerging technologies more fully into the capacity market. The auction also introduced a new price collar (a cap of $329.17/MW-day and a floor of $177.24/MW-day, as approved by FERC), though PJM’s simulation indicated that without the collar, clearing prices could have reached $388.57/MW-day.

In addition, PJM submitted $0 offers for specific Reliability Must Run (RMR) units, generators identified as essential for maintaining local or system-wide reliability because they address transmission constraints or prevent voltage instability, even if otherwise uneconomic in the market. The measure ensured that these critical resources automatically cleared the capacity auction, essentially to directly support grid reliability without inflating prices, while revenues from those clearings were credited back to load in affected zones. Finally, the 2026/2027 auction marked the retirement of the long-standing Energy Efficiency product category, removing one class of passive demand-side resources from future auctions.

The composition of cleared capacity in the 2026/2027 auction also notably shifted. PJM’s 2026/2027 Base Residual Auction cleared a supply mix composed of 45% natural gas, 22% coal, 21% nuclear, 4% hydro, 3% wind, 1% solar, and 4% demand response and other sources. Last year, the auction cleared 48% gas, 21% nuclear, 18% coal, 1% solar, 1% wind, 4% hydro, 5% demand response, and 2% from other sources.

Natural gas, though still dominant, dropped from 48% to 45% of the cleared supply portfolio—a 2,977 MW UCAP decline—driven by generator retirements and lower accredited UCAP factors under PJM’s marginal Effective Load Carrying Capability (ELCC) framework. Coal increased to 22% in a reversal attributed primarily to an 867 MW UCAP boost from including RMR units. Intermittent and capacity storage resources—including wind, solar, and batteries—collectively gained 2,388 MW UCAP, which PJM attributed to the expanded must-offer requirement and new entries into the market. Meanwhile, demand response declined by 568 MW UCAP compared to the previous auction, reflecting updated accreditation values. PJM noted that marginal ELCC reforms materially impacted year-over-year comparability for several resource classes, which suggests simple delivery-year comparisons are less indicative of long-term trends.

PJM’s Long-Term Outlook

However, PJM said that the BRA procured 1,474.6 MW UCAP of capacity from new generation and 1,194 MW UCAP from uprates to existing or planned generation—an increase from 2,132.6 MW in 2025/2026 to 4,268.6 MW in 2026/2027. “While not impacting this auction, PJM’s Reliability Resource Initiative this year attracted more than 11,000 MW (ICAP) in planned new projects and upgrades to existing generators, indicating significant interest from investors. ICAP or installed capacity represents the maximum output of a resource,” it noted.

PJM added that it now plans to focus on enhancing its process for connecting new generation resources onto the system,. Efforts will include “clearing all the projects in its transition queue over the next 18 months, opening its new cycle process in spring 2026, and leveraging artificial intelligence through our partnership with Google to reduce processing time.” It also said it is “hopeful that recent proposals related to Capacity Interconnection Rights, Surplus Interconnection Service and the FERC-approved Reliability Resource Initiative will result in supply additions.”

So far, the grid operator has processed more than 60% of the transition backlog in its interconnection queue under its FERC-approved reform process, with another 63,000 MW (ICAP) slated for review in 2025 and 2026. “While more than 46,000 MW of installed capacity (ICAP) of already-approved resources have yet to be built, many are navigating challenges outside PJM’s scope, such as permitting timelines, supply chain constraints and evolving project economics,” it noted.

The next BRA for the 2027/2028 delivery year is now scheduled for December 2025. While PJM traditionally conducts its capacity auctions three years ahead of the delivery year—beginning with the BRA followed by a series of Incremental Auctions (IAs)—its timeline has been compressed in recent years owing to regulatory and litigation delays. While the long-established three-year-forward schedule is intended to support timely new entry and reinvestment, inform retirement decisions, and better align with transmission planning needs, experts suggest PJM may not resume that cadence until May 2027, when it plans to hold the BRA for the 2030/2031 delivery year.

Swift—and Varied—Reactions

In the week since the BRA auction’s results have been released, reactions from stakeholders have underscored deep divisions over the region’s competitive capacity market. Some welcomed the price spike as a long-overdue signal for new investment while others slammed PJM’s auction design as a driver of unjustified consumer costs.

Industry, generally, has framed the record-high prices as necessary market signals. “Higher prices are a signal to build more generation resources, and reflect increasing stress on the system,” said Todd Snitchler, president and CEO of the Electric Power Supply Association. The industry group, which represents competitive power companies, stressed that the capped price reflects “tightening supply conditions in PJM after years of artificially low prices that discouraged development.” EPSA members, Snitchler noted, “demonstrated their ability to respond to the signal set by the last auction,” with 2,669 MW of new generation and uprates clearing in the latest auction—the first such increase in four cycles. Still, he warned that “without market stability, we can’t retain existing megawatts or bring new ones online—and without both, reliability suffers, and costs rise.” EPSA has called on FERC to “protect the integrity of competitive markets, act swiftly to resolve pending PJM market design complaints, and provide the regulatory clarity needed to restore confidence.”

PSE&G offered a measured utility response that sought to reassure customers while acknowledging market realities. The New Jersey utility emphasized that it “does not control or profit from the results of the PJM BRA nor the portion of the supply charge that reflects energy usage,” noting these costs are “passed through directly to customers with no mark-up.” Still, it called attention to ongoing structural problems, warning that “after that auction, our customers could be exposed to much more volatile and costly results, also pointing to the need for long-term solutions” once the temporary price cap expires.

Consumer advocates offered a sharply contrasting view. “While we are relieved that the negotiated price cap prevented capacity costs from soaring even higher, this record price spike is unacceptable,” said Sarah Moskowitz, executive director of the Citizens Utility Board (CUB) of Illinois, a nonprofit watchdog group that represents residential and small-business utility customers. Moskowitz criticized PJM’s auction structure and interconnection policies for favoring “outdated, expensive power plants” while “needlessly block[ing] low-cost clean energy resources and battery projects from connecting to the grid.” She described the extended price spike as “preventable,” and warned that it would raise electricity bills again in 2026 for ComEd customers already hit hard by the previous auction. CUB, which has filed complaints with federal regulators, also objected to PJM’s introduction of a $177.24/MW-day price floor, noting that consumer groups were excluded from the negotiations that established it.

On the states’ front, Pennsylvania Governor Josh Shapiro emphasized his administration’s role in negotiating the price cap, noting that he pushed PJM to reduce the ceiling on capacity prices. A broad coalition—including four governors, energy and consumer advocates, and the Organization of PJM States (OPSI)—rallied in support of the effort. “When PJM’s auction was set to trigger grossly excessive price increases, I took action to stop that spike and protect Pennsylvania consumers,” he said in a public statement. According to Shapiro’s office, the final $329.17/MW-day cap represented an estimated $8.3 billion decrease in consumer costs compared to a scenario without the price ceiling, saving the average Pennsylvania household approximately $116.

Earlier this month, notably, a bipartisan coalition of nine governors, including Shapiro and Virginia’s Glenn Youngkin, sent a pointed letter expressing frustration with PJM’s performance and demanding greater state influence in the grid operator’s governance. “With billions of ratepayer dollars and the stability of our grid at stake, it is critical that PJM take concerted, effective action to restore state and stakeholder confidence,” the governors wrote. The coalition, which included governors from Delaware, Illinois, Kentucky, Maryland, Michigan, New Jersey, and Tennessee, declared that PJM “faces an unprecedented crisis of confidence from market participants, consumers, and the states” and warned that “discussions of leaving PJM are becoming increasingly common” across the region. They criticized PJM’s “multi-year inability to efficiently connect new resources to its grid” and called for fundamental changes in leadership to restore the organization’s legitimacy.

Energy consulting firms provided more nuanced technical analysis of the BRA’s outcome. CES Consulting called the result “a fundamental market inflection point,” noting that “capacity scarcity is now driving pricing rather than competitive economics.” In a July 29 market brief, CES highlighted how the auction’s slim 139-MW margin above the reliability requirement, a nearly 3-GW drop in gas-fired offers, and continued declines in demand response participation all contributed to the price spike. The firm warned that the market’s extreme tightness, combined with the administrative weight of PJM’s planning parameters and accreditation rules, means small changes in participation or modeling could lead to “massive swings in price.” Looking ahead, CES suggested that the next auction could clear at the floor or the ceiling, depending largely on demand-side flexibility and whether structural reforms, including revisions to ELCC methods for storage, are meaningfully implemented.

In a detailed white paper, clean energy market, policy, strategic and financial analysis consulting and advisory firm Sustainable Energy Advantage (SEA) laid out factors that led to the record price outcome. It cited a a cascade of structural shifts, including the rapid retirement of thermal assets, growing reliance on RMR designations, demand forecast adjustments tied to data center growth, and PJM’s transition to marginal ELCC for capacity accreditation. “If prices clear near the cap once again, pressure will mount for further interventions—potentially including deeper redesigns of the RPM framework, expanded resource obligations, or restructured accreditation rules,” it predicted. “Conversely, if prices stabilize, stakeholders may view recent reforms as effective—though questions of fairness, competition, and forward entry will persist.”

“Ultimately, PJM’s capacity market is no longer operating under business-as-usual conditions. The 2025/2026 auction cycle exposed both the fragility and importance of forward reliability markets, and the coming months will determine whether PJM’s model can evolve fast enough to meet accelerating reliability needs while retaining legitimacy with regulators, consumers, and market participants alike,” it said.

—Sonal Patel is a POWER senior editor (@sonalcpatel, @POWERmagazine).