By Kennedy Maize
The massive PJM Interconnection, which governs the high-voltage electric grid among 13 Middle- Atlantic states and the District of Columbia and serving some 67 million people, held its annual auction for reserve capacity July 22 to protect against system-wide electricity outages for the 2026-2027 season.
The PJM variant of a “reverse Dutch auction” (low bidder wins) produced both satisfaction at the regional transmission organization and skepticism, including from its market monitor and from nine governors of states in the RTO.
The way the PJM capacity auction works, as PJM describes it, is that the lowest bid sets the starting point, or “floor.” “As the auction progresses, PJM accepts progressively higher-priced offers until enough capacity is assembled to meet the projected reserve requirement for the future delivery year. At that point, when the auction clears, all sellers receive the last or ‘marginal’ offer price. This marginal price is also known as the auction clearing price.”
PJM expressed guarded satisfaction with the 2026-2027 results. In a news release, the premier regional transmission organization said, “Even with the short, one-year lead time, auction results and other indicators show supply is responding to the investment signal” from last year’s capacity auction.
Last year, the bidding for 2025-2026 soared from a dismal 2023 run. In the 2023 auction, accepted bids for money to flow to bidders to assure adequate generation for emergencies totaled only $2.2 billion, suggesting a serious capacity shortage was in store; few bidders were willing to commit to new dedicated resources or back off on planned retirements. In 2024, the total hit $14.7 billion, and July’s total of $16.1 billion sees even more money dedicated to keeping the lights on in an emergency.
In a media briefing, PJM strategy chief Stu Bressler acknowledged that supply and demand conditions are tight, but he said he saw signs the market is responding. The RTO noted that new generation and upgrades pledged in the July auction totaled 2,669 MW. “This represents the first increase in new generation and uprates in the last four auctions,” PJM said. The RTO noted that since last year, 17 PJM-linked generating units totaling approximately 1,100 MW “have withdrawn their retirements.”
The view from PJM’s independent market monitor, Monitoring Analytics, located in a Philadelphia suburb, was nuanced. Its analysis noted that the “PJM capacity market cleared capacity was 208.7 MW short of the reliability requirement.” PJM had set the goal for the auction at acquiring commitments for 134,519.5 MW and got 134,310.8. The analysis noted that PJM says it can easily cover the shortage with its reserve of 347.7 MW from what it calls its “Fixed Resource Requirement,” defined as “an alternative method for an eligible load-serving entity to meet a fixed resource requirement with its own capacity resources as opposed to having PJM procure capacity resources on the load-serving entity’s behalf in RPM auctions.”
In short, PJM believes it has enough resources on hand to weather whatever 2026-2027 can throw at the RTO, come hell or high water.
Joseph Bowring, Monitoring Analytics president and long-time PJM market monitor, said at an industry meeting as the auction took place, “There is simply no new capacity to meet new loads,” Bloomberg reported. He predicted prices higher than the record set in the 2024 auction, driven by the skyrocketing predictions of capacity demands from artificial intelligence and data centers.
Bowring was right. PJM’s best estimates are that the latest capacity auction will see an increase “of 1.5–5% in some customers’ bills, depending on how load serving entities and states pass on wholesale costs to consumers. Given that prices decreased in two zones, it is possible that consumers in some areas could see a drop in retail rates.”
It is those predicted prices, and the real results from the historic 2024 auction, that have produced serious and continuing political problems for PJM. The prospect for soaring prices this year based on last year’s results prompted Pennsylvania Governor Josh Shapiro to push for a price cap for this year’s auction. As a result of negotiations, PJM agreed to a price cap and floor, which the Federal Energy Regulatory Commission blessed in April.
As it looked like this summer’s auction would hit the price cap, nine PJM-state governors, led by Shapiro, wrote PJM seeking to influence the selection of replacements for two vacant PJM board seats. They called for “fundamental changes, and new leadership, are needed to restore confidence in PJM’s ability to meet the many challenges of this moment.”
The governors also referenced a not-very-well-veiled threat percolating among PJM members, warning that “today, across the region, discussions of leaving PJM are becoming increasingly common.”
PJM’s problems are not entirely of its own making. The rise of data centers – driven by cloud computing, cryptocurrency data mining, and, most recently, possibly hyperbolic projections of demand growth due to the need to power electricity-gobbling AI adventures – is a nationwide phenomenon. It’s also one the nation’s investor-owned utilities with cost-based rates welcome. Wall Street raiders are pondering utility takeovers.
All elements of the industry, from top to bottom, cabinet room to board room to bedroom, appear to be at a loss for how to respond. The Trump administration is pushing to keep legacy, and expensive, coal plants in service, while trying to stymie the least-cost generation technologies, wind and solar.
Joe Bowring of Monitoring Analytics may have the best – and likely most controversial – suggestion for cutting the electrical Gordian Knot: “The solution is to make sure that people who want to build data centers are serious enough about it to bring their own generation.”
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