PJM, Facing Capacity Shortage as Early as 2026/2027 Delivery Year

PJM Interconnection and Pennsylvania Governor Josh Shapiro have settled a lawsuit over PJM’s capacity market pricing, agreeing to lower the grid operator’s auction price cap from over $500/MW-day to $325/MW-day. The move comes as PJM acknowledges a capacity shortage could affect its system as early as the 2026/2027 delivery year.

The agreement announced on Jan. 28 stems from a complaint Shapiro filed with the Federal Energy Regulatory Commission (FERC) in December, alleging that PJM’s capacity market design has failed to ensure just and reasonable rates. While intended to ensure long-term reliability, the design has instead enabled extreme price volatility that imposed excessive costs on consumers without guaranteeing sufficient new generation, it claims.

At the heart of the issue is PJM’s July 2024 Base Residual Auction (BRA) for the 2025/2026 delivery year, which resulted in a nearly tenfold increase in clearing prices, surging from $28.92/MW-day in the prior auction to $269.92/MW-day—an outcome the complaint suggests is artificially inflated and untethered to actual supply and demand conditions. The state warned that if no action is taken, the 2026/2027 auction will be “the most expensive” in capacity market history, estimating that ratepayers could be on the hook for up to $74 billion in avoidable costs over the next two years.

“PJM did the right thing by listening to my concerns and coming to the table to find a path forward that will save Pennsylvanians billions of dollars on their electricity bills,” said Gov. Shapiro in a statement on Tuesday. “My Administration will continue to work to ensure safe, reliable, and affordable power for Pennsylvanians for the long term.”