Ahead of the 2026/27 delivery year capacity auction in July 2025, the PJM Interconnection has filed and received approval for a number of proposals with the Federal Energy Regulatory Commission (FERC) to modify market rules.  

Chief among these is the recent approval of a temporary capacity market price cap and floor—establishing a “price collar” for the 2026/27 and 2027/28 delivery years. This is anticipated to have significant implications for the region’s energy landscape. Drawing on insights from OnSite Partners’ analysis of PJM’s capacity market, we can better understand the potential impacts of this regulatory move.  

Context: PJM’s Capacity Market Challenges 

PJM’s capacity market has faced volatility, with the 2025/26 auction clearing at $269.92/MW-day—a substantial increase from the previous year’s $28.92/MW-day. This spike was attributed to supply side factors such as generator retirements, delays in integrating new generation projects, modifications to resource valuation methods, and the exclusion of key Reliability Must Run resources in the supply stack. Increased projected demand (notably from data centers) impacted the demand side of the auction. These dynamics prompted concerns about the market’s ability to ensure reliability and affordability simultaneously. 

FERC’s Price Collar Decision 

In response to these challenges, FERC approved PJM’s proposal to implement a price collar, setting a cap at $325/MW-day and a floor at $175/MW-day for the next two capacity auctions. This decision aims to balance the need for consumer protection against soaring prices and the necessity of providing sufficient revenue signals to encourage investment in new generation capacity. 

Implications and Stakeholder Perspectives 

  • Consumer Protection: The price cap is designed to shield consumers from abrupt and significant increases in capacity costs, which could translate into higher electricity bills. 
  • Investment Signals: By establishing a price floor, the decision seeks to ensure that capacity prices remain high enough to incentivize the development of new, reliable generation resources, addressing concerns about future supply adequacy. 
  • Market Stability: The collar introduces a degree of predictability into the near-term capacity market, potentially mitigating the boom-bust cycles that have characterized recent auctions. 

Critiques

Some stakeholders argue that artificially constraining prices could distort market signals, potentially leading to underinvestment in necessary infrastructure and jeopardizing long-term reliability. They caution that while short-term price controls may offer immediate relief, they might undermine the market’s ability to respond effectively to evolving supply and demand dynamics. These potential distortions are coupled with concerns that a price floor could artificially raise prices without providing additional reliability benefits to consumers. In addition, the uncertainty associated with any new market rules can lead to increases in pricing volatility due to suppliers incorporating higher risk premiums in their prices.  

Conclusion 

FERC’s approval of PJM’s price collar represents a strategic intervention aimed at stabilizing the capacity market amidst a backdrop of rapid demand growth and supply uncertainties. While it offers a temporary solution to pressing concerns, ongoing assessment will be crucial to ensure that the market continues to function effectively, balancing affordability, reliability, and the need for infrastructure investment. 

For a more detailed analysis of PJM’s capacity market developments, you can refer to OnSite Partners’ blog post: What’s Happening with PJM Capacity?.