PJM, the nation’s largest electric grid operator, held its most recent capacity auction (called the “Base Residual Auction”) last month. The purpose of this auction is to ensure there are enough power plants and other resources available to satisfy electricity demand during the 12-month period June 2027 – May 2028 (referred to as “delivery year 27/28”). The auction failed to clear sufficient capacity to meet PJM’s reliability requirement which means if electricity demand exceeds forecasted demand PJM may not be able to reliably serve load. PJM has stated that several factors could improve the reliability outlook, such as if coal units scheduled to retire continue to operate. The reversal of various agreements reached by Sierra Club and others to force coal plant retirements would greatly improve the chance that shortages can be avoided.1 We hope FERC will do so because the agreements clearly impact the availability of generation and should have been filed for FERC approval but were not.
Here are a few takeaways from the auction:
- Capacity prices reached $333.44 per megawatt-day. This is the third PJM auction in a row with record-setting capacity prices. The total cost of capacity from this auction is projected to be more than $16.4 billion. The cost of capacity in the previous auction was over $16.1 billion, which was a record until now.
- The capacity price would have been even higher had it not been for an upper limit that the Federal Energy Regulatory Commission placed on capacity prices. Without the limit, prices would have been almost 60% higher.
- There were two principal reasons for the high prices:
- The forecasted peak demand for electricity increased by more than 5,250 megawatts (MW) compared to the previous year largely due to demand growth from data centers.
- PJM cleared with a 14.8% Installed Reserve Margin (IRM). This was 5.2% below the 20% IRM that is required to meet the one-day-in-10-year Loss of Load Expectation (LOLE), thus increasing reliability risks. The IRM is the amount of generating capacity reserve, purchased in advance, to ensure sufficient generation will be available to meet the demand in the delivery year.
- High capacity prices show the need to prevent the retirement of dispatchable resources, such as coal generators, as well as to add new, reliable generating resources. (Utilities have announced plans to retire an additional 15,000 MW of coal generation by 2029, or almost 40% of the PJM coal fleet.)The impact of the auction on ratepayers will vary.
- Customers served by utilities that do not own power plants are likely to see the largest increases in their electric bills, whereas customers of vertically integrated utilities will see a minimal impact.
- The combination of increasing demand, retirement of dispatchable generation, such as coal, tougher reliability requirements, and the slow addition of new electricity sources means that capacity market challenges for PJM are likely to persist.
1 See, e.g. Meeting the Challenge of Resource Adequacy in Regional Transmission Organization and Independent System Operator Regions, Statement of Michelle Bloodworth, Docket No. AD25-7 (May 26, 2025 (seeking an investigation and a declaration of their nullity because the agreements required prior approvals that were not obtained: “Through these agreements, the Sierra Club and its partners are impacting whether and when generation gets to market, which is how the Commission defines the transfer of control for purposes of Section 203 of the Federal Power Act (FPA). Yet not only have there been no FPA Section 203 approvals obtained for any of these agreements, but the Commission, and even the RTOs, generally are not privy to the terms of the agreements.”); see also Post-Technical Conference Comments of America’s Power, Docket No. AD25-7 (July 7, 2025).