PJM price control creates shortages at record high prices

The results of the PJM Base Residual Auction for the 2027/2028 Planning Year were released on December 17, 2025.  For the first time ever, the entire 13 state PJM footprint (serving more than 65 million people) failed to meet its target reliability standards due to explosive electricity demand from data centers and price controls.

The price for the December 2025 auction was capped due to a legal settlement aimed at preventing a "runaway" price spike that could have crippled household and business budgets across the entire 13-state PJM region.

Without this cap, it is estimated that the price would have hit at least $529/MW-day in the range of pervious auctions, but the ceiling was held it at $333.44/MW-day. Though this effectively saved ratepayers an estimated $9.9 billion in this auction, PJM was unable to obtain all the power they needed to reach their reliability target. PJM was able to purchase only 63% of the 17,922 MW needed to reach the 20% reliability target.

Key Auction Results

The auction cleared a total of 134,479 MW of capacity, falling significantly short of the intended targets.

• Clearing Price: Prices hit the FERC-approved cap of $333.44/MW-day across the entire PJM footprint.
• Total Market Cost: The total cost to secure this capacity reached $16.4 billion, a record high (up from $16.1 billion in the July 2025 auction and $14.7 billion in the 2024 auction).
• Reliability Gap: The auction was short by 6,623 MW, leaving PJM with a 14.8% reserve margin—well below its 20% reliability target. (See DEQ below)
• Resource Mix: 43% Natural Gas, 21% Nuclear, 20% Coal, 5% Demand Response, and roughly 5% from renewables (Wind, Solar, Hydro).

Major Factors in the Auction failure

The extreme results were the product of several converging factors:

• The Data Center/ AI Boom: Forecasted peak load for 2027-2028 year increased by roughly 5,250 MW, with a staggering 97% (5,100 MW) of that growth attributed specifically to data center demand.
• Stagnant Supply: Only 774 MW of new generation was available, as new projects struggle with slow interconnection queues and high construction costs.
• Retirements: The grid continues to lose "firm" generation as older coal and gas plants retire faster than new resources can be connected to meet state mandated climate targets like the Virginia Clean Economy Act and similar “Clean Energy Standard” laws in Maryland and Illinois.
• Regulatory Caps: Without the court-ordered and FERC-approved price caps, PJM estimated prices would have hit $529/MW-day.

Critical Implications

The 2025 auction marks a turning point for energy policy and consumer costs in the Mid-Atlantic and Midwest.

For Consumers

• Higher Bills: Electricity bills for households and businesses across 13 states (including PA, NJ, VA, and OH) are expected to rise. Analysts estimate retail rate increases of 3.7% to 10.6% in the short term, with some regions potentially seeing much steeper hikes by 2027.
• For a residential customer in the Dominion Energy territory, for the 2026–2027 timeframe the estimated monthly cost for 1,000 kWh is expected to rise to ~$150.00 – $165.00. Up from ~$116 in 2020. This includes~$24.00 – $28.00 from VCEA Riders.
• Affordability Crisis:  Ratepayers are subsidizing the infrastructure necessary to power the explosive demand growth from the data center/ AI boom. These are the richest corporations on earth.  In addition, this has sparked intense political backlash from state governors.

For Grid Reliability

• Operational Risk: Being 6.6 GW short of the 1-in-10-year reliability standard means the grid has a thinner margin for error during extreme weather events (e.g., Winter Storm Elliott-style scenarios or heat wavers).
• Emergency Measures: PJM may need to rely on "Incremental Auctions" in 2027 or ask retiring plants to stay online via "Reliability Must-Run" contracts to bridge the gap.

• The Virginia Department of Environmental Quality (DEQ) is currently considering allowing data centers to run backup diesel generators during planned outage events.  There are currently 4,000 MW of backup generation in Northern Virginia alone.  These generators are generally Tier II or unrated diesel engines (designed only for emergency use) and are a highly polluting energy source. Increased operation would increase the emission of harmful air pollutants, posing a significant public health burden, but essentially solving PJM’s reliability margin.
• Reform Pressure: There is mounting pressure on PJM and FERC to accelerate the "interconnection queue"—the process of approving new power plants—which currently has over 57 GW of projects waiting to proceed. There is also currently tremendous pushback from residents over the transmission lines necessary for this.

The "Shapiro Settlement"

In late 2024, Pennsylvania Governor Josh Shapiro filed a formal complaint with the Federal Energy Regulatory Commission (FERC). He argued that PJM’s auction design was "deeply flawed" and would lead to unjustified price increases.

• The Deal: To resolve the complaint, PJM and FERC agreed to a temporary "Price Collar" for the 2026/27 and 2027/28 auctions.
• The Goal: The cap was meant to act as a "circuit breaker" or "guardrail" to give the grid operator time to fix its backlogged process for connecting new, cheaper power plants (like solar and batteries) without exposing consumers to infinite price hikes in the meantime.

Market Power Concerns

The price collar was put in place because regulators were concerned about "Market Power." In a typical market, if prices go up, new competitors rush in to sell their product. However, growth in demand from data centers has been unprecedented. PJM has a massive backlog of new power projects waiting to be built. The energy sector is highly regulated and controlled. The base residual auction was designed to attract new investment by offering high prices. However, the energy market is highly regulated to assure reliability of the grid and growth in a planned manner, and it has been decades since the power grid has experienced growth. 

The cap exists because regulators decided it was unfair to make consumers pay "scarcity prices" for a shortage that was created by local politicians who approved millions upon millions of square feet of data centers without considering the power demand or transmission necessary. The state politicians who passed the Virginia Clean Economy Act and similar “Clean Energy Standard” laws in Maryland and Illinois that requires the  retirement of dispatchable fossil fuel generated power faster than new resources can be connected to meet state mandated climate targets . And of course the grid operator's own administrative delays for permits, and transmission lines, and completed construction that their bureaucracy helped create. Now residents are pushing back.