As most of us saw in recent news, social media, and perhaps even our own utility bills — energy costs were high this winter. Local residents were shocked, and legislators even held hearings to understand these prices and discuss potential solutions. However, there is a lesser-known issue taking place that residents should also be aware of, because it’s signaling even higher utility rates in the near future for multiple states, including the four we serve: Delaware, Maryland, New Jersey, and Pennsylvania.
What is PJM Interconnection, LLC?
PJM Interconnection, LLC (PJM) is a Regional Transmission Organization (RTO), meaning it’s responsible for coordinating the movement of wholesale electricity on power lines across states in its territory. The name “PJM” was formed from its original states (Pennsylvania, New Jersey and Maryland), but its electrical grid now spans across Delaware, Ohio, Michigan, Illinois, Indiana, Virginia, West Virginia, North Carolina, Kentucky, a small part of Tennessee, and District of Columbia.1
What does PJM do?
PJM is one of seven RTOs overseen by the Federal Energy Regulatory Commission, and its job is to ensure fair access to the grid, so that wholesale electricity is available at competitive, fair, market-based prices that reflect supply and demand. It also manages the wholesale electricity markets in its states and develops rules so that the transmission of wholesale electricity remains reliable and safe. The electric grid can experience heavy demand during hot or cold weather or when a transmission line is down, and PJM’s coordination helps prevent interruption for customers. Similar to an air traffic controller, PJM has a control room to monitor heavy demand and special situations taking place on the electrical grid.
Unlike power lines that deliver electricity to retail customers through utility poles, PJM manages transmission lines, which move wholesale electricity across large distances and carries a higher voltage. PJM operates transmission lines and approves the cost of power flowing through those lines. It doesn’t own the transmission lines; they are owned by utilities and PJM is given functional control of them.2
What is a capacity auction?
A capacity auction is when electricity generators promise to supply electricity in a future year. They do this in exchange for payments from the system operator (in this case, PJM). The goal of the capacity auction is to secure enough commitments from electricity generators to ensure an adequate amount of electricity to meet anticipated levels of demand, as well as some extra to cover uncertainties. The electricity generators that bid at the lowest prices get picked first, and PJM accepts increasingly larger bids until there are enough promises of future electricity to meet the needs.3
What happened during PJM’s last capacity auction?
The last capacity auction was held in July 2024, and it covered the 2025/2026 delivery year. Prices soared, and these higher costs will be passed onto residents and businesses. The most recent total capacity cost was $14.7 billion, up from $2.2 billion in last year’s auction. This caused five states’ governors (Delaware, Maryland, New Jersey, Pennsylvania, and Illinois) to pen a letter pleading PJM to resolve the underlying issues with the interconnection queue that will delay new energy generation and lower competition in the market, resulting in even higher costs for the average consumer.3
What caused PJM capacity auction increases?
According to the Natural Resources Defense Council, PJM relied too heavily on fossil fuel power plants, despite new affordable power courses being available. It didn’t account for fossil resource weaknesses in its last auction, so customers paid for access to these plants as if they were reliable. This is like purchasing a home, without realizing the foundation is crumbling, and the cost of repairs is going to be very expensive. There are now 26 GW of gas and coal resources considered unreliable and excluded from the capacity market, and prices spiked.
To help bring down prices, PJM must comply with FERC’s interconnection Order 2023 as quickly as it can. It has refused to comply with the order so far; however, the urgency for reform is now apparent, as the stakes are very real for the millions who live in PJM territory. Although PJM made the decision to approve more than 300 interconnection projects, NRDC claims it is four to six years behind where it could and should be.4
What does this mean for utility customers?
In their letter, governors plead with PJM to find a resolution. Here is part of what they stated to PJM, “Analysts estimate that, without any of these changes, the upcoming auction could result in over $30 billion in costs to consumers for the 2026/2027 Delivery Year. This would be far beyond what is needed to send a price signal encouraging new capacity, at the expense of our consumers. We remain concerned that the current years-long PJM interconnection process severely limits the ability of high capacity prices to encourage the development of additional capacity. If developers cannot expect to get through the interconnection queue before a reasonably near-term delivery year, then additional energy projects cannot be deployed in time – no matter how high prices rise.”
How can SunnyMac help?
SunnyMac is a full-service solar EPC (Engineering, Procurement and Construction) company established in 2009. We were voted among the top residential solar installers in the United States (Solar Power World, 2024), and have installed over 14,000 solar systems for homeowners in Delaware, Maryland, New Jersey, and Pennsylvania. We believe homeowners should have access to transparent cost information about solar, especially compared with the predicted cost of staying completely reliant on the power grid. That’s why we provide a complimentary savings analysis. We do this by reviewing the homeowners utility bill and the year-round sun and shade exposure of their roof, which we can analyze with advanced software to determine the amount of solar that can be generated. Customers can trust they are in the most capable hands, because not only do we install solar, but we specialize in roofing as well. We are an Owens Corning Platinum Preferred Roofing Partner, and have a 50+ person roofing.
Resources:
- PJM. Who We Are. Accessed February 27, 2025.
- FERC. An Introductory Guide for Participation in PJM Processes. Accessed February 27, 2025.
- Resources. Why Prices Soared in a Recent Auction Held by a Major Electric Grid Operator. Accessed February 5, 2025.
- NRDC. PJM’s Capacity Auction: The Real Story. Accessed February 27, 2025.
