Grid operator PJM juggles reforms as power auction results hit price cap again

**Dan Testa** (0:03)
Hello, and welcome to Energy Evolution, the podcast where we examine the energy transition from every angle we can.
I'm Dan Testa. In this episode, we're going to be discussing and dissecting the results of the last forward capacity auction in PJM. PJM is a massive wholesale power market stretching from the District of Columbia to Ohio and from New Jersey down to North Carolina.
On July 14th, PJM released the results of its latest capacity market auction for the 2028-2029 delivery year. Prices hit the federally approved cap, but the amount of procured capacity came up short of PJM's reliability requirement. In other words, prices went as high as they were allowed to go, but still didn't incentivize enough generation to meet the reliability requirement that the grid operator wanted.
Now, there are other ways to secure that generation, which we're going to get to later in this episode. But this latest auction has underscored many of the issues plaguing PJM, which is that rising prices are causing the electricity bills of customers who get their power from the market to skyrocket. And yet, that price apparently is still not high enough to encourage power companies to start investing to build new generation, which can increase the supply and begin to help put some downward pressure on power prices. And then add to the mix that data center development is contributing to rising prices in PJM according to its independent market monitor, more so than pretty much any other region of the US. So that's a very over-simplified description of a deeply complicated market and situation. But you can see already that what's happening in PJM touches on almost every issue in the energy transition, from voter concerns over affordability in an election year to the impact of data centers. I mean, it also involves an ongoing debate over the ability of competitive markets versus regulated utilities to serve rising power demand and manage power prices. And it involves reliability as aging fossil units retire and are replaced with newer, sometimes intermittent forms of generation. Joining us on this episode to talk through some of these issues is Paul Segal. He's CEO of LS Power, a private independent power producer with a major presence in PJM. And Tanya Peevey, an S&P Global Energy Analyst for North American Power and Renewables. They were interviewed by Darren Sweeney, a senior reporter here at S&P Global Energy and who joins us now. Hey Darren, thanks for coming on the podcast.

**Darren Sweeney** (2:47)
Hey Dan, happy to be here.

**Dan Testa** (2:49)
So I touched on some of this briefly, but maybe you can help us understand what PJM is and what function do these base residual forward auctions serve?

**Darren Sweeney** (2:57)
Sure, Dan. Well, PJM is the nation's largest grid operator and it's responsible for keeping the lights on for more than 67 million people across 13 states.
PJM also runs a capacity market, which is used to secure power generation resources to meet future demand.
These capacity market auctions were set up to procure generation for three years out, but they've been playing catch up. PJM, like many wholesale markets across the US, also has been dealing with a confluence of factors, challenging resource adequacy and affordability in the region. Now, the primary culprit driving up power prices and low growth in PJM and thus weighing on customer bills and supply needs is the AI data center boom. PJM, therefore, is pursuing a range of market reform efforts to encourage the development of the generation that is needed to meet this unprecedented electricity demand. But these efforts are not expected to have any sort of near-term impact on prices in the Good Operators Capacity Auction. These prices have been clearing at record highs for four auctions in a row.

**Dan Testa** (4:12)
What happened in this most recent auction and why are the results a cause for concern? Then maybe related to that, what does this mean for the average utility customer in, say, Central New Jersey?

**Darren Sweeney** (4:24)
Sure. Most recently, on July 14th, PJM announced that the capacity auction for 2028-2029 delivery year cleared at $325 per megawatt day, which is a cap that was approved by the Federal Energy Regulatory Commission. Now, this comes after a record clearing price of $333.44 per megawatt day and the 2027-2028 capacity auction, which was held back in December 2025
In New Jersey, just as an example, like several other states in PJM, the governor has called for action to shield ratepayers from these costs. While these numbers may seem staggering to some, there are concerns that these high prices may not be high enough.

**Dan Testa** (5:10)
There's also this ongoing dispute between the regulated utilities that serve customers with electricity from PJM, and the independent power producers, also referred to as merchant generators, that operate in PJM. What's going on there?