By:Nick Evans-December 11, 2025
The 13-state electric grid operator that serves Ohio is holding its second capacity auction of the year — setting a baseline electricity cost that will get baked into consumers’ bills in June 2027.
It’s the last such auction happening with a court-ordered cap on prices, and market watchers are warning next May’s auction could be dramatically higher.
PJM uses the capacity auction to ensure reliability. Power plants get paid by the megawatt hour for committing to produce electricity when demand peaks.
Just a few years ago, capacity prices were about $29 per megawatt hour. The rapid increase in demand from users like data centers, combined with shortening supply as older power plants are retired, has pushed capacity prices up.
The cap
The rates rose from $29 to $270 in one 2024 auction and then rose further this summer.
In July, the capacity auction for 2026 went all the way to the $329 per megawatt hour cap imposed by the courts after Pennsylvania Gov. Josh Shapiro sued PJM Interconnection.
Rising capacity prices are meant to be a signal to bring more power plants online, but Clara Summers from Consumers for Better Grid explained that system isn’t working.
“The price cap was originally imposed, let’s remind ourselves, because PJM’s interconnection queue backlog is so severe that new generation could not come onto the system no matter how high the price.”
Put simply, it takes a lot longer to get a new power plant up and running than it does to propose a new data center.
Capacity costs contribute to the average consumers energy bill, but they make up a small share of the overall total.
The cost of energy itself and transmission to your home make up the vast majority of your electric bill.
Following last summer’s auction, for instance, PJM predicted rising capacity costs would translate to a 1.5% to 5% increase on customers’ bills.
But over time, the increases can really add up.
A recent study from the Natural Resources Defense Council predicted an average family will pay about $70 more each month on their electric bills by 2028.
Jon Gordon from Advanced Energy United isn’t expecting the capacity prices to decline anytime soon.
“You know, I think most folks are expecting us to hit this cap again, the $329 per megawatt day cap, which hopefully means this auction won’t result in price increases as a result of the capacity market for consumers,” he said.
“But we all are concerned and looking forward to the June 2026 auction and what may happen there.”
Gordon noted PJM’s staff has even told to the board that maintaining a cap might be a good idea given uncertainty about how much power data centers will actually demand.
“Absent intervention on PJM’s part or some other entity’s part,” he said, “that cap that was put in place will expire, and PJM will go back to their original default cap of $500 a megawatt day.”
For how long?
Nikhil Kumar from GridLab explained some kind of limit is probably needed for the next few years, as PJM’s backlog of proposed power plants come online.
Even with a new fast track system for natural gas plants, he said, that capacity isn’t likely to hit the grid until 2029.
Still, he warned there could be “unintended consequences” of keeping a cap in place too long.
“You’re sort of undermining what the market is telling you,” Kumar explained. “Maybe the price should be $500 a megawatt day, but if you cap it at $330 it is going to have an effect on investments.”
For some energy developers, that lower threshold might mean their new plant no longer pencils out — meaning less supply gets added to the grid.
Meanwhile lower capacity prices might inadvertently keep older, inefficient plants around longer.
Those plants, Kumar explained, aren’t frontline resources so they rely on capacity payments to make money.
But if the owner decides to shut down the plant, again, cutting into supply, PJM could force it into a “reliability must run” contract, in effect keeping the plant available in case the grid can’t meet its power needs.
“You’re putting the rate payers on the hook,” Kumar said, “and then you’re basically a zombie plant, because you just get paid without actually participating in the market.”
“We don’t want an indefinite price gap,” he added. “We want the market to work eventually.”
What to do?
Summers said PJM needs to ensure the projections data centers are making are legitimate.
If demand forecasts outstrip the eventual demand, customers wind up overpaying.
One way to make the math work, she said, is for PJM to impose a “bring your own” model for data centers’ power demands.
Data centers want power quickly, but ordinary consumers don’t want to be on the hook for the build out.
“The best way to resolve that is for data centers to pay for their own new capacity to serve them,” Summers said.
She noted in a handful of states including Ohio and Indiana actors are working to hold data centers accountable for their forecasts.
In Ohio, AEP’s new data center tariff imposes abandonment costs if a data center reneges on its plans to build.
In a statement, PJM spokesman Jeff Shields said the grid operator “look(s) forward to working with any and all of our states who are pursuing these types of reforms.”
And he emphasized that the organization is working clear the backlog on its end.
Shields noted 57 gigawatts of proposed power has cleared the study to process, and PJM expects to process another 31 gigawatts this year.
“Those remaining projects include the shovel-ready, high reliability generation projects that came in through our Reliability Resource Initiative,” he said, referring to a program prioritizing projects like natural gas fired plants.
At a recent stakeholder meeting Shields noted “there were a number of thoughtful proposals on on how to best integrate data centers.”
That meeting, however, proved inconclusive, with no ideas earning consensus.
Still, PJM is planning to propose rules for large load users like data centers later this month, and Shields said those stakeholder ideas “will inform the PJM Board’s final decision on a path forward.”
