Electric grid operator agrees to Shapiro demand on power price cap

The organization that oversees the region’s electrical grid has agreed to a new cap on certain power price hikes, following a threat from Pennsylvania Gov. Josh Shapiro to consider pulling out of the system.

By limiting increases in certain power generation costs, the cap will prevent bill hikes that would have cost customers across the region an additional $21 billion from 2026 to 2028, including an estimated $4.2 billion for Pennsylvania ratepayers, according to the governor’s office.

The organization, PJM Interconnection, operates the grid in all or part of 13 states and Washington, D.C.

“When PJM’s next auction was set to result in historic price hikes, I filed a lawsuit to stop this price hike on consumers and defend Pennsylvanians,” Shapiro said. “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.”

Questioning PA’s participation in PJM

The administration filed a complaint in December with the Federal Energy Regulatory Commission (FERC) demanding that PJM use a different calculation for its cap for capacity auctions. The complaint was supported by the governors of Delaware, Illinois, Maryland and New Jersey, and energy and consumer advocacy groups.

Those auctions determine how much generating companies will be paid to commit to keeping their plants available at all times, even when demand is low and the plants aren’t otherwise making money. The capacity market serves as a kind of insurance to make sure there’s power during high-demand periods like winter storms and hot summer days.

An auction last year resulted in a huge jump in capacity costs to $14.7 billion for 2025-2026, compared to just $2.4 billion the previous year. In the Philadelphia area it will result in a 10% increase in home power bills, phased in starting this June, in addition to separate PECO rate increases.

In a Jan. 13 letter to PJM board chair Mark Takahashi, Shapiro demanded the organization act immediately to prevent another costly result from the next auction set for July.

“As I have directly related to PJM’s leadership team in multiple conversations, I find the specter of such a vast wealth transfer to be unacceptable,” he wrote. “A failure to hear the voices of Pennsylvania consumers speaking against this market failure will cause me to question whether Pennsylvania should remain within a construct that inflicts such unjust outcomes on our consumers.”

A ‘headlong’ push to the next capacity auction

The upcoming electric bill increases that resulted from last year’s auction cannot be changed, but the new lower cap is expected to limit the impact of capacity costs for the next period, from mid-2026 through 2028. 

PJM and Shapiro agreed to cap prices to $325 per megawatt-day, and to set a floor price of $175/MW-day, for the next set of auctions beginning in July. 

Last year’s auction produced a price of about $270/MW-day for much of the PJM region, compared to $29/MW-day the previous year.

The new cap is a “significant agreement” that protects consumers from billions in price gouging, said Tom Rutigliano, a senior advocate at the nonprofit Natural Resources Defense Council.

It also buys PJM and the states two more years to deal with the organization’s challenges in bringing new power plants online and ensuring reliable electricity for consumers, he said.

“With demand increasing, people were worried the next auction was likely to have gone as high as $500/MW-day, so the agreement avoids those worst-case outcomes,” Rutigliano said. “It was probably a balancing act between preventing any older power plants from retiring and protecting consumers. It’s reasonable that some older, less-efficient plants might need between $100 and $175/MW-day to continue operation.”

“There’s more to be done to address systemic issues in PJM, and we’re hopeful this is the beginning of better coordination between PJM and the states,” he said.

The agreement is subject to consultation with PJM’s members, which include utilities and power companies, and its board of managers, PJM said. To ensure the cap goes into effect without delaying the auction schedule, the organization will seek an order from FERC on the proposed cap and floor mechanism.

That represents a change from PJM’s previous response to Shapiro’s demands. In the January letter, the governor said PJM was refusing “to heed urgent calls to correct its price cap” from the governors and other parties, and was “pushing headlong to conduct the next auction without first resolving these serious concerns.”

After receiving the letter, PJM accepted an invitation from the governor to discuss the complaint and a new market cap, the organization said in a statement Tuesday. 

However, a PJM spokesperson argued it was inaccurate to say PJM had previously declined to agree to Shapiro’s demands. 

“​​PJM has taken several steps to reform our markets and to address the underlying concerns involving supply and demand,” spokesperson Susan Buehler said in an email.

She pointed to actions PJM is taking to make it easier for new generating plants to connect to the grid and to two changes to its pricing model. In the FERC complaint, the Shapiro administration said those pricing changes were insufficient, and asked for a change in the way the auction cap was calculated in order to keep prices down.

A slow transition to cleaner power sources

High capacity costs are supposed to incentivize companies to build more power plants needed for an expected increase in electricity demand from AI data centers and other users. But the FERC complaint and industry experts say PJM is so glacially slow to let plants plug into the grid that the costs aren’t serving that function.

The interval from a power company applying to PJM to the start of plant construction should be about 18 months, but currently it’s six years, according to the Natural Resources Defense Council.

As a result, high capacity costs end up enriching generating companies and draining customers’ bank accounts, according to Shapiro and other critics. 

At the same time, PJM has done a poor job over the past several years of managing the transition from coal-fired power plants — which contribute to climate change and are being phased out — to new solar, wind, and battery storage plants that companies would like to build and plug into the grid, experts say.

PJM has one of the lowest percentages of renewable energy production among U.S. grid operators.

As coal fades, PJM has been depending more on power produced by burning natural gas, a cheaper fossil fuel. But gas plants sometimes fail during extreme weather, which means PJM has less access to the reliable power the capacity market is supposed to provide, and also contributes to costly auction results.

Meanwhile fossil fuel companies and some Republican state legislators argue that the problem is the hasty retirement of coal-fired plants. They have called on the state to slow or reverse the closures and to subsidize the plants’ operations to ensure a reliable supply of coal-generated electricity.