PJM power prices jump again. Governors have had enough.

By EPN Staff

The latest auction for the country’s largest power grid set off alarm bells after agreed-to prices came in 22% over last year’s already-record-high peaks.

Results from the PJM Interconnection Base Residual Auction, which sets the price the grid manager will pay electricity generators to have power available on days of highest energy demand, led a bipartisan coalition of governors from the states that PJM serves to criticize the grid manager and push for a role in appointing two of its 10 board members.

The July auction – after last year’s auction already produced an 800% increase over the previous year – feels to many like a harbinger of steadily increasing energy prices, particularly for PJM, which serves 67 million people in 13 states, including Pennsylvania, Virginia and Ohio.

The grid operator said the increase will only have a “moderate” impact on customer bills, since the wholesale capacity this auction deals with makes up “a relatively small portion of retail electricity bills.”

Why it matters

The PJM grid serves one in five Americans, and this auction helps determine the cost of energy during peak demand periods.

A surge in power consumption, driven in large part by artificial intelligence and other data center needs (Virginia hosts the largest data center market in the world), combined with the often slow business of adding energy to the grid has gummed up the works.

The prices in this auction won’t take effect until next summer, and PJM said customers in most areas could expect a year-over-year increase between 1.5% and 5%. It said prices in some areas may go down due to an auction price decrease in two of the zones it serves.

The auction included multiple generation types: 45% natural gas, 21% nuclear, 22% coal, 4% hydro, 3% wind and 1% solar, PJM said.

The bigger picture

For governors in PJM’s service area, the auction was one more source of frustration with the grid, which many political leaders feel is not doing enough to check the rising cost of electricity, The New York Times reported.

Ten governors sent letters laying out concerns, and the head of Virginia’s Department of Energy said the governors want a role in picking PJM board members, The Times reported, saying the problem wasn't a "single decision or solitary event, but a consistent pattern of halting, inconsistent and at times contradictory decision-making that has undermined confidence in PJM’s stewardship.”

Environmental groups complained as well, according to Reuters, saying PJM has failed to quickly connect new renewable energy like wind and solar to the grid.

PJM supporters argued that allowing governors to recommend board members could jeopardize the grid’s independence, and PJM noted that it has approved major additions to the grid, including new solar generation. However, some projects haven’t been built yet for reasons outside the grid operator’s control.

The rising costs and focused attention could have a number of policy implications. Among them: Federal officials are expected to use the auction results to drive a broader push to keep coal plants slated for retirement operational to meet growing demand.

Additional details

Power generators were the auction’s big winners.

Reuters noted that shares of major power-producing companies that receive capacity payments rose as much as 9% on the auction results.