The PJM Interconnection auction of July 2025 is over. We know the results. What we don’t really know is what they mean. When the alarm bells went off in 2024 after a sharp rise in capacity prices based on that year’s auction, many news sources, politicians and environmental and business groups started to focus on the capacity auction as the indicator of residential electricity pricing in the near future.
It just isn’t that simple. Barring the ninefold increase we saw last year, the specific results of the capacity auction in the 13-state PJM footprint doesn’t have a huge direct impact on the actual retail price of residential electricity. In some ways it is more important for what it tells us about the other factors that affect prices.
What happened this week?
Grid operator PJM announced the results of its future-focused capacity auction. The price per megawatt-day for 2026-2027 rose from a record $269.97 in last July’s auction to $329.17 this year. That is a nearly 22% increase and sets a new record. The graphic with this article shows that fluctuation has always occurred in the capacity prices, but not the kind of surge that characterized 2024.
There is a difference between energy prices and capacity prices. Power generation plants are compensated for both.
A plant generates electricity that is transmitted via the regional grid – think PJM here – to a regional utility regulated by the state – think Atlantic City Electric here, which then distributes the power to homes and businesses. The generator is paid for that electricity in a pass-through on a customer’s monthly bill.
Capacity markets are forward markets that look a year and more down the line and set prices. They are influenced by projections of base load. What generators are doing with a bid is making commitments ahead of when the electricity is going to be delivered. It is also an indicator of supply from the generators in terms of the projected load.
What is happening over these last years of rising capacity market pricing is that a signal is being sent by the auction bids that supply is tight, in fact very tight, and investment in new supply sources is needed across the PJM area.
Why is this especially important for New Jersey? The state is a net importer of electricity and thus is more reliant on the PJM market than it otherwise would be.
The U.S. Energy Information Administration says that in 2023 the state imported just over 20% of its electricity. The state’s energy master plan says 25%. PSE&G, the state’s largest utility, in a press release right after the PJM results were announced says, “New Jersey imports approximately 40% of our power, making us dependent upon PJM.” The point is that being a net importer puts the state in a more vulnerable position with regard to the larger market.
Another factor influencing the demand curve is the official government policy of electrification. Goals for electric vehicles and home heating and cooling drive up electricity demand. Rising demand is not simply a data center issue.
Increased load projections coupled with reductions in supply in some areas puts upward pressure on prices. Add to those factors a set of auction design changes implemented by PJM in 2024 in response to the impact of winter storm Elliott in 2022, and the result is tighter supply.
The results of the auction lead to one clear conclusion and one less clear one.
The signal to the market that is most unambiguous is that the PJM area needs more supply. That signal was picked up by the stock market, which saw the stock prices of some major generators rise between 4% and 6% in after-hours activity. The high capacity prices are seen as justifying higher levels of investment in supply.
The less clear result of the auction is what it means for imminent prices at the retail level.
PJM reported it expects the impact on retail prices to be moderate: a 1.5% to 5% increase in customer bills. PJM also reports that this year marks the first increase in cleared new capacity across the last four auctions, meaning the market is responding to the need for increased supply.
PSE&G says, “We do not anticipate an impact on our customer’s electric bills next year due to the July PJM BRA [Base Residual Auction] results.” The company qualifies that a bit later in its press release when it says, “… as long as other supply-related costs, such as the cost of energy, remains the same.”
A number of groups were not as sanguine about the results of the 2025 auction as PSE&G. One climate group, Evergreen Action, blames PJM, as does Gov. Phil Murphy.
The argument is that PJM has been slow to clear its “clogged interconnection queue” to get renewable power onto the grid.
PJM responds that it has cleared large amounts of power for grid interconnection, but the stall is outside of its control and rests with opposition to the siting of projects in local communities and in state and local permitting.
The Natural Resources Defense Council said, “Today’s auction results are just more bad news for PJM’s customers” while predicting a 5% increase next year.
One way to get a full sense of where we have been in two years is the total capacity cost estimates.
This auction saw an increase of $1.4 billion in the total capacity cost for the PGM grid. Last year the total capacity price for the PJM area jumped from $2.2 billion to $14.7 billion. This year the increase went from the $14.7 billion to $16.1 billion. While some like PJM argue that this year’s impact is “modest,” what is astounding is to go from $2.2 billion to $16.1 billion in two years.
For consumers, perhaps the message of the auction is that last year was no anomaly. The supply/demand problem is very real, and prices are showing no weakness.
Regardless of who is right about new supply rate increases on June 1, 2026, any increases would be on top of the high rates we now have, rates that may be a new normal until significant new supply materializes.
Contact the reporter, Vince Conti, at vconti@cmcherald.com.
