PJM Interconnection LLC (PJM) operates the electricity transmission system or grid for all or part of 13 states and the District of Columbia (DC). PJM is the independent system operator (ISO) and regional transmission organization (RTO) for the area.
In July 2024, the PJM capacity auction shocked the market when the capacity auction for the 2025/26 delivery year resulted in a steep increase for a majority of the region to $269.92 per MW/day from $28.92 per MW/day.
Prices hit zonal caps of $466.35 per MW/day for Baltimore Gas and Electric in Maryland and $444.26 per MW/day for Dominion zones in Virginia and North Carolina.
As one would expect, all eyes were focused on this Julyโs auction to see if the situation would improve or worsen. PJM recently released the results of the 2026/27 capacity auction, and unfortunately, for most businesses in the region, things got worse.
PJM Capacity Rates 2026/27 Hit Record High
This yearโs auction, which opened on July 9 and closed on July 15, resulted in a clearing price of $329.17 per MW/day across the PJM territory. The clearing price would have been higher if not for the price caps (and floors) implemented by the Federal Energy Regulatory Commission (FERC) for 2026/27 and 2027/28 at the urging of Governor Josh Shapiro of Pennsylvania.
According to an analysis provided by PJM, the clearing price without the cap was estimated to be $388.57 per MW/day.
It is important to note that zonal prices for Baltimore Gas and Electric (BGE) and Dominion Resources will decline from the current 2025/26 levels of $466.35 and $444.26, respectively, to $329.17.
The 2026/27 pricing, which will take effect on June 1, 2026, represents (for most consumers) a 22 percent increase over the current rates (2025/26) and a 1,138 percent increase over the 2024/25 rates. The increasing clearing price reflects continuing rising demand and constrained supply. PJM forecasts peak load for the 2026/2027 delivery year will be more than 5,400 MW higher than the prior year, driven by rapid data center expansion, electrification trends, and broader economic growth. At the same time, interconnection delays and retirements have tightened the supply-demand balance, even as PJM works to accelerate queue processing and reform market rules.
Supply is responding, but incrementally. The auction attracted 2,669 MW of new generation and generation uprates. This represents the first meaningful uptick since the 2023/24 auction.
Gas-fired generation accounted for 45 percent of the cleared capacity, followed by nuclear at 21 percent, coal at 22 percent, hydroelectric at 4 percent, wind at 3 percent and solar at 1 percent, according to PJM. Demand response offered in the auction was essentially flat at 8,010 MW.
What does the recent PJM Action Mean for Businesses
For customers, the capacity component typically represents a relatively small share of retail electricity costs. PJM estimates the cap-price outcome could translate to a 1.5 to 5 percent year-over-year increase in some customersโ bills, depending on their utility and state cost-recovery mechanisms.
Not all zones will see increases; areas that cleared below last yearโs elevated zonal premiums may experience modest relief.
For businesses with facilities in the PJM market, now is the time to review your current electricity supply contracts, including how capacity is addressed (passed through separately or consolidated into your price), as well as your budgets for 2026/27. Many electricity suppliers triggered the โchange of lawโ provision in their supply agreements to pass through the capacity increases for the 2025/26 period, catching customers who included these charges in their fixed commodity charges by surprise.
With limited options to avoid capacity price increases, consumersshould reassess their commodity purchasing and hedging strategies and explore demand-side initiatives, such as efficiency improvements, load shifting, or behind-the-meter resources, to reduce their capacity obligations going forward.
Staying engaged with PJMโs evolving market reforms and interconnection timelines will be just as important as watching commodity prices. Proactive portfolio management (commodity hedging, demand management, and structured products) can soften the impact of elevated capacity costs while preserving flexibility for future load and sustainability initiatives.
Looking ahead, PJM plans to hold the next capacity auction covering the 2027/2028 delivery year in December 2025 as it strives to return to a stable three-year-forward schedule. Market participants should expect continued volatility as demand growth from AI/data centers and electrification collides with interconnection bottlenecks and environmental policy shifts.
For more information about PJMโs capacity rate and optimizing your energy procurement and risk management strategies, contact us.