Mid-Atlantic States, PJM Agree to Price Cap for Capacity Auction, Temporarily Easing Energy Affordability Concerns

A settlement between PJM Interconnection, the regional grid operator, and the state of Pennsylvania will temporarily cap soaring electricity costs for 65 million consumers across the Mid-Atlantic and Midwest, offering relief from record-high capacity auction prices that threaten to drive up bills and strain state economies. The two-year price cap on capacity auctions will likely shield ratepayers while allowing states to address critical energy challenges.

Once formally approved, the settlement is expected to save ratepayers across PJM’s 13-state footprint tens of billions of dollars in avoided costs and give states time to prioritize in-state energy investments while PJM tackles its broken interconnection queue and reforms its capacity market rules.

The settlement came about as a result of a complaint Gov. Josh Shapiro of Pennsylvania  filed with the Federal Energy Regulatory Commission (FERC) in late December, criticizing flaws in PJM rules overseeing capacity auctions, which, the complaint alleged, threatened to impose significant new price increases on the states the grid operator served. 

In a statement, PJM acknowledged the settlement, “subject to consultation with the PJM Members and the PJM Board of Managers.” It said the parties agreed upon a maximum auction price cap of $325/MW-day and a minimum of $175/MW-day for delivery years 2026/27 and 2027/28. 

Having reached the settlement, PJM will soon seek a FERC order to formalize the agreement and move toward the next auction this July.

The urgency of the settlement became clear after PJM’s 2025/26 capacity auction in July 2024 sent prices soaring to $269.92/MW-day, a staggering increase from $28.92/MW-day in the previous auction. This price hike pushed assumed costs for ratepayers across PJM’s territory to $14.7 billion, up sharply from $2.2 billion the year before.

Without intervention, PJM’s next capacity auction, set for July 2025, could have driven up consumer costs by more than $20 billion over two years, the complaint warned. Maryland Gov. Wes Moore joined the governors of Illinois, Delaware and New Jersey in urging FERC to take action, citing the projected spike in capacity prices unless a workable fix was found.

“[R]atepayers face potentially the largest unjust wealth transfer in the history of U.S. energy markets due to PJM Interconnection capacity auctions,” Shapiro’s complaint stated. It cited significant load growth, a years-long interconnection snarl and a hasty capacity auction schedule as factors that led to record high prices that will not result in new power generation.

The complaint quickly gained support from other states. A coalition of energy advocates, consumer groups, and the Organization of PJM States, a group representing state utility commissioners, also backed the push for reform. 

The Moore administration quickly announced its support for the settlement. 

“Gov. Moore appreciates the responsiveness of the Mid-Atlantic regional transmission organization, PJM Interconnection, to his and other governors’ calls to adjust its capacity market rules and mitigate unnecessary hikes in electricity costs for Marylanders,” a spokesman for the Moore administration said in a written statement. “The Moore administration will remain diligent and engaged to ensure that Maryland’s electricity needs are met in a manner that is both cost-effective and aligned with our ambitious but essential clean energy goals.”

“This agreement is evidence that states in PJM have leverage and that when elected officials stand up for their ratepayers and state clean energy policies, PJM listens.”

— Megan Wachspress, Sierra Club staff attorney

In a Jan. 21 letter to PJM’s Board of Managers, Moore urged them to make necessary adjustments to capacity market rules to address the unprecedented spike in capacity costs. “I remain deeply troubled by the affordability crisis Maryland residential and commercial energy customers face following PJM’s recent capacity auction, a crisis that may worsen in the next capacity auction if further action is not taken,” he wrote.

The settlement represents a crucial step, but experts say it’s only a temporary fix. Megan Wachspress, staff attorney at the Sierra Club, said the underlying problems with PJM’s capacity market remain unresolved.

“This agreement is evidence that states in PJM have leverage and that when elected officials stand up for their ratepayers and state clean energy policies, PJM listens,” Wachspress said. She criticized PJM for its “slow-walking” of the interconnection queue, which she described as a key barrier to the energy transition. With political resistance to renewable energy intensifying, “it is critical that state leaders step up and assert their authority in defense of electricity customers and everyone who benefits from cleaner, less expensive energy,” Wachspress said. 

Jon Gordon, a director at the industry group Advanced Energy United, said that it is paramount for PJM to settle all these issues and controversies and get an auction done in July. “There’s been so much market uncertainty created by these auction delays and [price] changes that PJM really needs to get this auction done in a timely fashion,” Gordon said. “The clock is ticking.” 

Gordon said it was also important to bear in mind that the agreed price cap of $325/MW-day is still higher than $270/MW-day from the July 2024 auction, which does not guarantee a downward revision of capacity prices. 

David Lapp, the Maryland People’s Counsel, said his office filed in support of Shapiro’s complaint, but still had concerns about the process. “We don’t believe the Pennsylvania complaint goes far enough in addressing the fundamental problems affecting the capacity market,” he said, adding that the complaint only intended to limit the auction clearing price. “The relief we seek would ensure adequate auction supply and improved competition,” he said, alluding to four separate filings the Office of People’s Council has submitted to FERC. 

Tom Rutigliano, a senior advocate with the Natural Resources Defense Council, a national nonprofit, said PJM is nearly six years behind in connecting projects in the queue to the grid and even though it is signaling high prices through auction for investors to build new power projects, they cannot be connected to the grid because of the snarl.

“All it really ends up being is free money for the existing generation owners because nothing can get built under the circumstances. That’s kind of how we got to this situation,” he said. To his understanding, the settlement buys about two years for PJM and the states to solve the interconnection problem and the supply issues more generally. 

“Every state in PJM territory, including Illinois, West Virginia [and] Maryland, will see a price cap because of this agreement. It helps Maryland in the short term because the electricity prices were flying so high,” Rutigliano said, adding that in view of Maryland’s clean energy goals, the state should aggressively build energy storage. 

“It’s the key link in any clean energy plan because wind and solar provide some reliability value, but they’re intermittent sources. But storage at this point is competitive with gas in terms of reliability it provides.” He cautioned that Maryland needs to move quickly because two years is not that much time. “They need to start working immediately to start getting storage built, and build it in ways that you can get around PJM’s interconnection delays,” he said.