PJM's capacity auction for the 2025/2026 delivery year, held in July, was the clearest price signal any U.S. grid operator has sent about the gap between new demand and firm supply. The clearing price for most of the footprint was $269.92 per megawatt-day, against $28.92 a year earlier. Two zones cleared at their caps: Baltimore Gas and Electric at $466.35 and Dominion at $444.26. PJM's auction report puts the total cost to load at $14.7 billion, compared with $2.2 billion for 2024/2025.
On our arithmetic the RTO price rose by a factor of 9.3 and the total bill by a factor of 6.7. The bill rose less than the price because less capacity cleared.
Supply fell faster than demand rose
The auction report is unusually direct about why. Supply offered into the market, excluding energy efficiency, fell by 13,252 MW, from 148,946 MW to 135,692 MW. It was the fourth auction in a row in which offered capacity declined. The forecast load used in planning rose by 3,243 MW. By our calculation, offered supply fell about four times as fast as the load forecast rose. PJM attributes the supply loss mainly to retirements, resources switching from capacity to energy-only status, and exceptions for exports.
The reserve margin, including utilities that self-supply under the fixed resource requirement, came in at 18.5 percent against a target of 17.8 percent. A year earlier it was 20.4 percent against a target of 14.7 percent. Part of the change is accounting: PJM moved to marginal effective load carrying capability, which rates each resource by its contribution in the riskiest hours, and raised the installed reserve margin. Those changes mean the year-on-year comparison is not exact. They do not explain away a four-auction decline in offers.
Market power is part of the story
The report also records that the RTO as a whole failed PJM's three-pivotal-supplier test, so market power mitigation was applied to all existing generation offers. In other words, supply was tight enough that a few large owners could in principle have set the price, and their offers were capped at reference levels. The $269.92 result is therefore a price after mitigation. It reflects genuine scarcity, and it also shows how concentrated ownership of the remaining firm fleet has become. Regulators looking for ways to lower the next result should look at that concentration as well as at the auction parameters.
What the price is for
A capacity price is supposed to pull new resources in. The difficulty is timing. The 2025/2026 auction was held only ten months before delivery, after delays while FERC reviewed market rules, so almost no new plant could respond to it. The next auction, for 2026/2027, is scheduled for December 2024. New generation still has to get through PJM's interconnection queue, which FERC's Order No. 2023 is meant to speed up with cluster studies and readiness requirements, and new transmission has to get through regional planning reformed by Order No. 1920. Neither works on a one-year horizon.
That makes the near-term response mostly about keeping existing plants open, postponing retirements, and demand response. Data center developers, many of them building in Dominion's zone, one of the two that cleared at the cap, are the customers most able to pay for firm supply and also the ones most likely to be asked to accept curtailment when it is short.
Our view
We think the high price is doing its job and should not be capped away in response to the political reaction. A price cap or collar would lower bills for a year and weaken the only signal currently telling owners not to retire plants. The better response is on the demand side: large new loads should face clear interconnection terms that include either bringing their own capacity or accepting interruptible service.
Consumers in Maryland and Virginia will see this auction in their bills from June 2025, which leaves state commissions less than a year to explain it.