Key Takeaways for Increase…
It’s a shame most businesses are unaware of the impending rise in commercial electricity rates starting June 1st, 2025. I’m a firm believer that utility companies are manipulating rates and capacity to drain every penny from their customer base.
PJM capacity rates have gone up 833%. This shocking hike is a result of quicker power plant retirements, tighter grid reliability mandates, and erratic natural gas costs throughout the PJM footprint.
Engaging with experienced energy advisors and using structured methods like the “MIS” Method approach will be key for businesses navigating this complex and rapidly changing energy landscape.
Businesses should expect significantly higher electricity bills in the coming months, particularly if they have not locked in fixed-rate energy contracts ahead of anticipated price hikes.
STOP THE PRESSES! PJM capacity rates are up 833%!! This historic jump means that the cost of maintaining the legal license to sell backup electricity on the PJM grid has shot up to record heights.
PJM Interconnection, which serves all or parts of 13 states from Illinois to New Jersey, including major metropolitan areas like Chicago and Philadelphia. In the most recent of these auctions, those rates jumped from about $29 per megawatt-day to nearly $270 per megawatt-day.
This sudden spike creates massive financial strain on utilities and can increase monthly bills for small and large business owners. In general, higher rates result from tight supply, increased demand for power, or new regulations affecting the operation of power plants.
The following sections detail what this spells out—for better and worse—for people inside PJM’s footprint. They then look into the reasons behind the spike and what these changes might indicate for the future of everyday power prices.
What is PJM Capacity Anyway?
PJM capacity measures how much electricity generating plants in the PJM Interconnection region can produce during peak demand hours. PJM represents one of the largest footprints of any U.S. energy markets. Its dramatic reach extends from the Midwestern plains to the Northeastern seaboard, cutting through states like Pennsylvania, Ohio, and New Jersey.
After all, PJM’s job is to keep the lights on. They provide confidence that there will be enough backup power available when energy demand spikes, such as on a hot summer day when everyone turns on their air conditioning. Electricity power plants and private sector backup electricity generators are both ramped up and on-call. This backup, referred to as reserve capacity, is crucial for maintaining the reliability of the PJM power grid.
Every spring, PJM conducts a base capacity auction. Through this auction, power suppliers indicate their capacity for how much they can deliver, and buyers—such as utilities—bid on it. This determines what rate companies will bid capacity into the market for, influencing what you and I, as consumers, will pay for reliable electricity in the future.
The recent capacity auction for the 2025-2026 year experienced an enormous spike in price—833%, to $269.92 per megawatt per day. This is not an inconsequential change. The cost for backup power will increase commercial energy bills significantly. When these new prices go into effect on June 1st, 2025, this increase could be as much as 29% across the entire region.
Why capacity pricing is important. The way capacity is priced determines how expensive it is to maintain the grid’s reliability and avoid unnecessary energy costs. The results from the latest auction send a clear signal: the days of cheap capacity might be over.
This shift is related to growing demand, as PJM predicted a 2.2% annual increase in peak load through 2026-2027. With every person and company consuming more and more electricity, dependable backup is more than convenient—it’s essential for future electricity reliability.
Why the Shocking 833% Rate Hike?
The PJM Interconnection, which manages the electric grid across much of the Mid-Atlantic and Midwest, has recently experienced a shocking 833% increase in capacity prices! This significant spike in the PJM capacity auction is particularly unusual, especially in a market known for its volatility. Following several years of excess supply, this surge introduces a precarious new reality for profit-driven businesses and residential customers grappling with soaring bills.
The dramatic jump is attributed to a combination of a supply crunch and anticipated future energy demand. Additionally, several deep-rooted changes are reshaping how electricity is generated, priced, and distributed. As the energy markets evolve, understanding these shifts becomes crucial for navigating the complexities of future capacity auctions and managing business energy costs effectively.
In summary, the recent capacity auction highlights the need for effective energy management strategies to mitigate unnecessary energy costs and adapt to the changing landscape of energy resources. It’s essential for stakeholders to stay informed about market reforms and the implications for their electric spend.
1. Power Plants Closing Doors Faster
Secondly, a major piece of the puzzle is the accelerating wave of power plant closures. On PJM’s footprint, plants are retiring faster than originally announced. Taken together, these closures are a result of crumbling infrastructure, increasing environmental regulations, and economic forces.
Most fossil fuel plants, including coal and even many older gas plants, cannot compete with newer and more efficient competitive plants. They are often hit with increased costs to comply with emissions regulations.
This 6,600 MW loss of available plant to offer generation is a serious punch to the grid. As these plants continue to go offline, our supply cushion gets eaten away. Additional 3,243 MW of demand are projected during peak times, further widening the gap between what’s needed and what’s available. Consequently, the cost to ensure sufficient capacity is available to meet demand skyrockets.
Long-term, the continued loss of plants leaves a dangerous lack of cushion in the case of demand spikes or sudden plant outages. If another round of extreme weather hits, as has become more common over the last decade, the grid has less slack. Environmental regulations are important here as well. Though they are intended to reduce emissions, they force older plants off the system more quickly, contributing to the crunch.
2. Tougher Grid Reliability Standards Bite
These regulations set a pretty high bar for utilities, expecting them to be able to supply power no matter what, even in extreme, unusual circumstances. Ensuring these standards are met requires additional backup systems, more testing with a higher frequency and increased staffing.
All of this contributes to an overall increase in operational costs. Utilities too easily turn around and shift these costs onto customers through increasing capacity charges. For consumers, that translates into higher bills.
For commercial enterprises, particularly smaller ones, the bite can be acute. A typical business with a PLC (peak load contribution) volume of 300 KW gets hit with a huge expense. That will cost it nearly $26,000 more in the upcoming PJM year than this year.
Striking the right balance between reliability and affordability is no small task. Even though the reliability standards are important to avoid blackouts, the rules increase costs when the system is already stressed.
3. Renewable Energy Growth Hits Snags
While our renewable energy deployment is increasing, it’s not happening quickly enough to make up for the loss of retiring plants. Projects in PJM encounter obstacles such as permitting delays, grassroots opposition, and caps on new transmission lines.
Approximately 38,000 MW of new renewable resources are currently jammed up in the interconnection queue, unable to connect to the grid. New rules and regulations, whether imposed by state legislatures or public utility commissions, can have a chilling effect.
Even when wind or solar farms are built and operational, they often still can’t provide power until necessary grid upgrades are completed. Intermittent sources, like wind and solar, do not always provide power at times of peak demand. This makes the grid much more dependent on backup from gas or coal.
Technology is playing a huge role, with better batteries and smarter grids—and this has brought us closer—but it hasn’t bridged the divide. Until these barriers are removed, the promise of cheap, clean power is difficult to achieve in the PJM region.
4. Rule Changes Shake Up Auctions
Recent rule changes have upended the way capacity is purchased and sold in PJM’s auction. These changes are far-reaching in how they determine what bids are bid in, what resources are eligible to participate, and how prices clear.
Suppliers will have to adjust their bidding strategies, understanding that a change in rules can turn the tide. This has caused even more price volatility and unpredictability. With the market as tight as it is, any changes to rules or participation are enough to push prices up substantially.
Long-term, these rule changes should have a positive effect on the prospects of new suppliers entering the market. They will determine whether existing plants stay open or go home.
5. Natural Gas Price Swings Felt
Natural gas is primarily the fuel of choice for nearly all new and even many existing plants in PJM. Its price has been far from stable. Usually, when natural gas prices go up, electricity prices follow right behind.
That close connection allows for volatility in one market to swiftly move over to the other. The dangers of depending on gas are twofold. If supply tightens—because of severe weather, infrastructure issues like pipeline ruptures, or shifts in the global market—prices can skyrocket.
Today, some regional grid operators are looking for new ways to hedge against natural gas price volatility. They focus on things like signing long-term contracts or diversifying fuel sources, but those solutions aren’t something they can do overnight.
6. Auction Results Drive Prices Up
In PJM, capacity prices are determined via competitive auctions. Paired with a much tighter supply and much stronger demand, the clearing prices have soared. These shocking prices aren’t just a symptom of today’s market. They represent future downside risks—such as the potential for additional plant closures or delays in new supply coming online.
Often, demand forecasts inform auction results. When grid planners expect a surge in EVs, or data centers, or heat waves, they bid high. This approach guarantees that they will always have sufficient dispatchable power on hand.
For our businesses, these increased prices translate to increased energy bills and less flexibility in their budgets. Many are now turning to energy efficiency or on-site generation as a way to save money.
7. Delays in Grid Upgrades
Updating the grid is a daunting task, with frequently years-long projects delayed by red tape, lack of funding, and NIMBYism. These grid connection delays result in new generation being unable to connect to customers even after they’ve been built.
The outcome is a grid that is both less flexible and more likely to have issues. Delays exacerbate high prices by delaying the flow of new, and frequently lower-priced supply. Responding to or anticipating this new demand requires timely investment in smart grid upgrades, which is crucial to keeping costs down.
How Today’s Rates Stack Up Historically
To put the significance of these declines into context, we have to look beyond just the data to everyday life. This is especially true for those living in the mid-Atlantic and Midwest. That’s a huge increase in prices!
For example, in Maryland, zonal caps went up to $466.35 per megawatt-day. In contrast, Virginia and North Carolina were paying $444.26 per megawatt-day. For reference, average capacity rates for the last 10 years have been in the $50 to $100 range. Now they have become the new normal—they only spiked during rare events.
Here’s a quick table for reference:
|
Year |
MD Avg ($/MW-day) |
VA/NC Avg ($/MW-day) |
PJM Avg ($/MW-day) |
|---|---|---|---|
|
2014-2018 |
65-120 |
60-115 |
70-130 |
|
2019-2022 |
45-85 |
40-82 |
50-90 |
|
2023 |
110 |
98 |
105 |
|
2024 |
466.35 |
444.26 |
455 |
This is the historical context to understand how today’s rates stack up—rates today are not just higher—they are unprecedented. Looking at trends over the last decade, we see fairly stable or declining price trends, until a dramatic increase in 2024.
What caused this price increase? This historic increase can be attributed in part to higher natural gas prices. NYMEX gas is up 4% for the 2025 strip and 9% on the spot market since August. Lower-than-expected gas storage also contributes.
Monthly average power prices have not yet surpassed $50/MWh; therefore, most of this increase in price is specific to capacity pricing. Looking forward, the auction model has already adopted a $175/MW-day floor for 2026/27 and 2027/28. MAYBE!
While this suggests rates might be able to remain flat, they won’t drop back down to previous lows. Neighboring markets such as NYISO and MISO have continued along normally without such volatility. This stability further highlights just how unusual PJM’s recent price jump truly is!
Your Business Budget Feels the Pinch
Yet skyrocketing PJM capacity rates are placing real strain on business budgets from the Mid-Atlantic to the Midwest. With the rate having increased 833%, businesses are now grappling with steeply rising costs, both in the short and long term. This isn’t a far-off worry — the negative effects begin immediately, starting in June 2025 when the increased electricity costs first take effect.
From service providers to manufacturers, healthcare, retail, and even data centers—all sectors of the economy—will receive larger invoices. To illustrate, a typical commercial end-user that consumes 20 million kWh per year would owe an additional $240,000 to $360,000 per year. These new costs are a result of increased demand, soaring natural gas prices—up over 60% in just six months—and new generation needs.
Expect Sharply Higher Electric Bills
Businesses should expect to pay $0.012-$0.018 per kWh more on their monthly bills, depending on the utility that serves them. Future auctions for 2026–2027 are already set to take place. Without these, or other targeted fixes to the current auction design, the likelihood of billions in unnecessary costs is increasing.
Each year that a company delays making an energy decision puts it at risk of being stranded with much higher costs. The increased electric bills can eat away at a business’ bottom line and leave them having to make difficult decisions about other expenditures. Solutions are out there—from re-negotiating supply agreements to investing more in energy efficiency and greater building use and more closely tracking consumption.
Planning Your Budget Just Got Harder
Forecasting energy costs has always been a gamble, but with volatility and market changes bringing additional layers of uncertainty, the task is even more difficult. We’re finding that businesses need to have more flexibility in their budgets, whether it’s through rolling forecasts or scenario planning.
Using tools such as energy analytics platforms enables businesses to monitor usage and identify trends. By keeping a pulse on expenditures and shifting requirements, firms can mitigate unexpected surprises.
Worrying About Grid Reliability
With demand increasing, grid reliability in the PJM region is becoming an increasing worry. Weather events, an aging infrastructure, and a changing supply all add to the risk. For businesses, power interruptions can be hugely disruptive, forcing them to halt work and incur significant added costs.
Businesses should be ready to take steps—including investing in backup systems, diversifying suppliers, and keeping an eye on grid developments—to protect themselves from disruption.
What Energy Insiders Predict Next
In short, energy insiders view PJM’s 833% increase in capacity rates as a harbinger of more profound changes afoot in the energy markets. Combined with a new pricing structure, tighter supply, and booming energy demand, these factors are creating a perfect storm of uncertainty as the industry looks ahead. Almost 90 percent of experts predict that capacity rates will remain elevated or increase even more in 2025-2026.
Price increases in excess of 30% are even likely as reserve margins fall to 18.5%—down from 20.4%—and peak demand continues to grow. With the region’s electrical need projected to grow by more than 3,000 MW in a single year, businesses and utilities are bracing for volatility in their commercial energy bills.
Shifting policies play a role as well. Clean energy and emissions rules are driving some older plants offline, at a moment when grid operators urgently require more supply to meet future energy costs. To protect themselves, businesses need to stay attuned to policy changes, recent capacity auction results, and peak load forecasts.
Signs like a 6,600 MW drop in offered generation and delays in offshore wind projects highlight how energy supply may struggle to keep up with demand challenges.
PJM’s Strategy for Keeping Lights On
PJM has tried to protect grid reliability by expanding demand response programs, which compensate users for reducing demand when it’s needed most. This aids in an increasingly challenging margin environment and supports the overall system stability and balance.
PJM’s approach to keeping the lights on relies on a diverse energy portfolio—natural gas, nuclear and renewables—to mitigate risk. Working with utilities, state agencies, and large customers, PJM reviews grid needs and updates plans as electrical needs rise, with data centers driving much of that new demand.
Future Rate Forecasts Vary
Future rate forecasts vary considerably. Some forecasts anticipate only modest increases, while others caution of price volatility should new supply fall short or demand exceed projections. Principal indicators are auction prices, reserve margins, and new generation build-out timelines.
It’s imperative that businesses monitor these trends to plan effectively for the future.
How Different Fuels Fit In
Natural gas and nuclear still dominate PJM’s supply. While renewables continue to expand, offshore wind is experiencing delays and contract terminations. Others argue there is still space for hybrid solutions—solar plus storage, in other words—as evidenced by winter peaks increasingly setting new records.
One way to hedge is by diversifying energy sources.
Act Before June 1st, 2025
The average of the PJM capacity rate has skyrocketed by 833%! This recent wave has raised the bar for all businesses that rely on predictable energy expenses. The last auction for the 2025-2026 delivery year, on July 30th, 2024, was a turning point.
With under 10 months to implement changes, the urgency to act and to act boldly is apparent. Higher electrical demand alone is estimated to increase the need by more than 3,000 MW. With price floors and ceilings introduced for the next two auctions, that’s no longer the case.
Lower 2024 prices won’t return, forcing businesses to more creative procurement. Before June 1st, 2025, businesses should focus on these actions.
- Review current energy contracts and note renewal dates.
- Compare fixed-rate offers from multiple providers..
- Analyze the potential benefits of multi-year contracts.
- Perform model budget impacts for a variety of capacity price scenarios.
- Communicate expected changes to finance and operations teams
Jump over to see what the “MIS” Method can do to stop the bleeding…
Timely decisions in energy procurement allow companies to secure lower, fixed rates before the new prices come into play. Waiting can mean paying tens of millions more, as capacity costs continue to jack up electric bills for customers throughout PJM.
Delaying action increases the danger of going over budget or missing windows to issue contracts, thereby obligating firms to purchase power at peak rates. The danger only increases when you have multiple users competing for the same limited supply.
By engaging early and often with an energy advisor, developers can secure more favorable terms in their contracts. You’ll receive early market signals and risk models customized to you!
In a competitive market, all that really matters is knowing the right deal and moving at lightning speed.
Smart Ways to Lower Energy Spend
PJM’s capacity rates increased an astounding 833% for the 2025–2026 delivery year, up to $269.92/MW-day. Businesses all over the Mid-Atlantic and Midwest are now making difficult decisions as energy expenses soar.
Now, less energy spend smart strategies are more essential than ever. The following approaches blend pragmatic steps and advanced tools, fit for a volatile market where demand keeps rising and supply faces uncertainty.
Know Your Business Energy Use
Step 1: Understand Your Energy Usage Patterns. The first step is to understand your current energy usage and when you use the most. Energy audits provide a useful roadmap to better understand energy use patterns and identify waste.
Analytics and monitoring through smart meters and smart software allow businesses to track their usage and identify trends, such as high peaks, idle times, and expensive loads. In this way, data analytics can reveal previously hidden inefficiencies, like outdated HVAC units operating after hours or lighting left on beyond regularly scheduled time.
Tools such as Energy Star Portfolio Manager and utility provided dashboards allow you to easily understand where your energy is going. They help businesses identify the best opportunities to save.
Lock In Rates Before Increases
Locking in a low, fixed-rate contract protects you from sudden and steep price increases. In a market such as PJM’s, capacity rates are increasing rapidly.
With electric demand increasing by more than 3,000 MW, this stability will be more important than ever. While multi-year contracts can offer better long-term protection from energy market volatility, timing matters.
Lock In Rates Before Increases Hit. Compete suppliers against each other to maximize savings. Shop around, compare offers, and read the fine print, in particular for pass-through charges associated with capacity prices and/or the effects of severe weather.
Get Paid for Using Less Power
Demand response programs pay commercial and industrial customers to reduce their electric consumption when demand is high. These programs compensate participants for relieving load during critical points when the electric grid is stressed, providing direct payments as well as bill savings.
Smart controls and automated systems further lower the bar for participation, allowing businesses to react quickly to grid events. Those PJM participants have saved millions by participating, particularly during extreme heat events or when they’ve been called to action during times of high market prices.
Look Into Generating Your Own Power
On-site generation—including rooftop solar, battery storage, or backup generators—provides businesses with greater control and the potential for long-term cost savings. In fact, a relatively small solar array can replace significant peak demand charges.
Renewables continue to advance sustainability goals, increasing complexity is introduced by their relatively higher upfront costs and need for policy change. Financing vehicles such as power purchase agreements (PPAs) and leasing reduce the barrier to market entry.
They help minimize cost spikes by spreading them over time.
Use Expert Procurement Strategies
Smart procurement goes beyond just choosing the cheapest price. It means using market intelligence, knowing what’s going on in the market, and timing contracts.
Energy consultants can help companies navigate complicated contract language, identify underlying risks, and propose hedging strategies. Real world examples have proven that when experts lead the procurement, you generally get better pricing and fewer surprises when the market changes.
Our Expert “MIS” Method Explained
The “MIS” method—Market Innovation Solutions—lies at the heart of our approach to energy management across the PJM region. Capacity rates here have increased by a stunning 833%! This approach succeeds by demystifying the often-mysterious world of energy planning and presenting it as a series of simple, tangible steps.
It all goes back to supply and demand…
The first part,Analyze… we analyze your load profile, to help you forecast your budget, this entails continuous and real-time monitoring of energy use, prices, and demand trends. For instance, a medium-sized manufacturer in Pennsylvania could suddenly access their own smart meters and cloud-based analytic dashboards to identify daily production-related consumption spikes. This data is more than just a bunch of numbers—it reveals the story behind where taxpayer money is being wasted and highlights the impact of rising energy prices on business energy costs.
Second, the Identify needs phase takes all that data and interprets it. Here, analytics teams can really explore usage patterns, identify risks, and flag opportunities to save. For example, suppose a healthcare provider notices that their costs increase every summer. This Identify phase would identify whether this is caused by aging cooling systems or peak-hour surcharges that lead to unnecessary energy costs. Putting you in the right type of contract in order to make sure that you know exactly what you are getting
By translating complicated data into clear signals, leaders can make quick informed decisions rather than working in the blind. The last step, Strategize, is where everything comes together. Equipped with accurate data and experienced professionals, businesses are able to make more informed decisions about their energy strategies.
If you do nothing else… Sign up for our “peak notification program” for alerts as to when PJM conducts peak capacity pricing…
They could move routes to less congested hours, put more money into on-demand services, or pre-purchase service at stable rates for the future. Having a more structured approach to energy management can save money, reduce unexpected surprises, and improve the financial return, especially in the context of future capacity auctions.
Expert teams are critical to guiding these initial steps. Their expertise ensures challenges are addressed up front, and that new policies are in compliance. In places like Ohio or Maryland, our teams work with both local rules and grid-wide changes, so companies stay nimble and legal.
More on our Peak Notification Program…
Well, you know how to save with our peak demand notification program. This will be a helper for identifying peak load capacity days. And really what it is, is we are able to look at it as a part , we look at the energy markets on a daily basis, we see what’s happening, we look at the weather patterns that are coming up.
We do a really good job of accurately forecasting when these peak demand days are going occur so we’re able to communicate that out to our customers.
Well, why does that matter? Because you essentially know when those peaks or that PLC is going hit, that’s essentially going be your timestamp for that month period.
And, really what that allows you to do is to implement some low and, no cost measures to really drive down that PLC.
So if you see that peak demand notification in the morning, you know, maybe there’s a way within your organization, for you to, maybe cycle down ACS, a couple temperatures or maybe ramp down production between those peak period time.
So what it really allows you to do, as you know the facility best, is to try to develop some strategies, to lower, to lower that number.
So again, it’s a low-no cost measure, it’s great information to have and it’s really allows you to start to, to get your hands around this problem and implement something for your organization that works
Peak Demand Notification… Don’t Wait…
Conclusion
So, PJM capacity prices are up 833%. That rocks budgets all the way from Philly to Chicago. The increase translates into real dollars flowing out the door. With the new rates going into effect by June 1, 2025, large electricity consumers are under increasing pressure to make difficult decisions on short timelines.
Some people are doing that today—seeking out insurance policies like onsite solar, battery banks, or more effective demand response to insulate themselves. Still other companies are looking for smarter technology to eliminate waste. The smartest play yet. Be vigilant, communicate with your energy department, and monitor the shifting landscape of rates. The grid is not a fait accompli. PJM’s market is volatile. Post in the comments below with your inquiries or experiences. Tell us your best tricks for avoiding inflated expenses and making sure your wallet sustains more years of service.
Frequently Asked Questions
What is the PJM capacity rate?
What is the PJM capacity auction rate? It is designed to ensure there is adequate supply of electricity to the PJM power grid, even during peak load management periods. This capacity auction plays a critical role in maintaining reliability for businesses and families from New Jersey to Indiana amid rising energy prices.
Why did PJM capacity rates increase by 833%?
A perfect storm of increased energy demand, alongside supply chain and regulatory challenges, has pushed rates up. Tightening pjm power grid generation and record-breaking heat waves predicted for the summer months ahead will further exacerbate energy prices spikes for the next year.
How do these rates impact my business costs?
How do these increased rates from the recent PJM capacity auction affect my business energy costs? Beginning on June 1st, 2025, businesses throughout the PJM power grid will see dramatic increases in their electricity bills, impacting commercial energy bills in neighboring states like Pennsylvania, New Jersey, and Ohio.
What areas are affected by PJM capacity rate changes?
PJM serves half or more of 13 states, including Pennsylvania, New Jersey, and Ohio, Illinois, and Maryland, plus Washington D.C. If you run a business in any of these affected states or D.C., the recent capacity auction rate increases will significantly impact your business energy costs.
Can I do anything to lower my energy costs?
Yes. You can enroll in a new type of energy plan with fixed rates, make home improvements that boost your energy efficiency, or participate in demand response programs to manage your energy demand. Acting before the 1st of June 2025 will help protect your business against the worst of the energy prices hikes.
What do energy experts predict for PJM rates next year?
What do energy experts predict for PJM capacity auction rates next year? They may stabilize if new energy resources come online or if energy demand decreases. Remaining vigilant and proactive with a knowledgeable advisor is critically important for managing future energy costs.
What is the “MIS” method to manage energy costs?
The “MIS” method is short for Market Innovation Solutions. We monitor energy consumption using a simple yet effective method, focusing on reducing unnecessary energy costs. Then, we implement these efficiency upgrades and recommend savings on business energy costs for your company located anywhere in the PJM power grid.
