PJM electricity auction costs hit record high as power grid falls short on supply

Don’t count on lower electricity prices in 2026

PJM Interconnection, the regional grid operator that runs the electricity system for New Jersey and 12 other states, released results from its latest capacity auction on Dec. 17. The market failed to secure enough power to meet long-term reliability goals.

The auction, known as the 2027–2028 Reliability Pricing Model Base Residual Auction, determines how much power generation PJM will pay to keep available three years in advance, ensuring there is enough electricity to meet demand during extreme weather or peak usage.

While PJM procured a large amount of power, it came up more than 6,600 megawatts short of its own reliability requirement — a gap significant enough to trigger a formal investigation under PJM’s rules.

“This auction leaves no doubt that data centers’ demand for electricity continues to far outstrip
new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself,” said Stu Bresler, an executive vice president who will become PJM’s chief operating officer on Jan. 7.

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What the auction does and why it matters

Unlike day-to-day electricity markets, this auction is about future readiness, not immediate supply. Power plants, demand-response providers, and other resources are paid simply to stand ready to generate or reduce electricity use if needed in the 2027–2028 delivery year.

These costs are ultimately passed on to consumers through electric bills.

In this auction, PJM cleared about 134,500 megawatts of usable capacity from power suppliers across the region. An additional 11,300 megawatts came from utilities that supply their own power rather than buying through the auction.

Even combined, that total fell short of the level PJM says is needed to meet its reliability standard, the long-standing benchmark of having enough power to avoid outages in all but one day every 10 years.

Prices hit the ceiling — again

All capacity that cleared the auction did so at the maximum price allowed under PJM’s rules: $333.44 per megawatt per day.

This is the second year in a row that prices hit the cap, signaling a tight market where PJM must pay top dollar to attract enough supply. Offers above the cap were rejected, leaving nearly 810 megawatts of potential capacity on the sidelines.

Altogether, the auction represents about $16.4 billion in payments to generators and other capacity providers — up slightly from the prior year. PJM estimates that if it had procured enough power to fully meet its reliability target, the total would have been about $800 million higher.

Not all customers will feel the full impact, however, because some utilities hedge costs through long-term contracts or self-supply arrangements.

Why the shortfall happened

Several factors contributed to the outcome.

PJM increased its projected electricity needs significantly, largely due to large new electricity users, such as data centers and other high-load customers. At the same time, PJM raised the amount of extra capacity it requires as a safety buffer.

While more power was offered into the market than last year — including new generation and upgrades — it still wasn’t enough to keep pace with rising demand.

Transmission constraints and delays also played a role. A major high-voltage transmission project was postponed, limiting how much power could reliably flow into parts of the PJM region, including areas that affect New Jersey.

What happens next

Under PJM’s rules, a capacity shortfall of this size automatically triggers a review into its causes. If similar shortfalls occur in the next two auctions, PJM could be required to hold a Reliability Backstop Auction, a special process that allows PJM to directly contract for power outside the normal market.

PJM will also examine whether enough “baseload” power — plants that run steadily rather than intermittently — cleared the auction. If that problem persists across three auctions, it could also force intervention.

So far, PJM says that specific trigger has never been reached.

Market power concerns

PJM also found that the market failed a key competition test, meaning no single supplier dominated the auction, but the overall structure was tight enough to raise concerns about market power.

As a result, PJM applied price controls to existing power plants, limiting what they could charge regardless of their original bids.

Demand response played a larger role

One bright spot for PJM was price-responsive demand — programs where large customers agree to cut electricity use when prices spike.

Rule changes dramatically increased the value of these commitments, allowing demand response to count more heavily toward reliability. Once committed, however, these reductions must be delivered and cannot be replaced if they fail.

What it means for New Jersey

For New Jersey ratepayers, the results reinforce growing concerns that PJM’s capacity market is struggling to keep up with demand while costs continue to rise.

With prices capped, supply constrained and reliability targets missed, pressure is mounting on PJM, regulators and states to rethink how the region plans for a future with higher electricity use, aging power plants and slower-than-expected infrastructure upgrades.

New Jersey Gov-elect Mikie Sherrill promised to freeze electric rates “on day one” during her campaign. She has not made detailed plans to do so public yet, and what she can achieve through executive orders and other actions remains to be seen.

In late September, governors from 11 states that participate in PJM met in Philadelphia to push back against how the system is being run. They argued that PJM’s decisions are contributing to rising power costs for residents, while states have little direct control over the process. Some governors warned that if PJM does not give states more influence and move faster on approving new energy projects, states could consider leaving the regional grid altogether.

“We need states to have more of a say in how PJM operates,” said Pennsylvania Gov. Josh Shapiro, who led the effort. “We need to move more quickly on energy-producing projects, and we’ve got to hold down costs. If PJM cannot do that, then Pennsylvania will look to go it alone.”