The Federal Energy Commission (FERC) recently approved PJM’s request to delay its Reliability Pricing Model (RPM) Capacity auction by six months, pushing the auction from December of 2024 to June of next year. The proximate cause of PJM’s request to delay the auction was a complaint filed by Sierra Club and other environmental groups.
The backdrop of these recent events is PJM Capacity market reforms which were introduced in October of 2023, and which went into effect in the most recent Capacity auction for the 2025/26 planning year, where clearing prices skyrocket from $28.92/MW-day to $269.92/MW-day.
To illustrate the direct effect on utility customer bills, the effective annual capacity cost increase post-reform is in excess of $75,000 for each megawatt (MW) of facility demand. Reserve margin adjustment factors were scaled down in the revised methodology PJM used for the 2025/2026 auctions, thus blunting some of the impact of the higher clearing prices, yet the overall impact was a roughly 8X increase to capacity costs.
Against this backdrop, the Sierra Club filed its complaint with FERC, alleging that certain aspects of the recently enacted reforms were unjust, and resulted in unreasonable Capacity rates. PJM responded with the request to FERC to delay the upcoming auction for the 2026/27 planning year, citing the need to effectively address the Sierra Club complaint as the primary driver behind the delay request, but also citing other concerns that had been raised by various stakeholders in response to the implementation of Capacity market reforms and the subsequent Capacity price spike. PJM’s further citation here suggests that there will be a broader review of Capacity market rules beyond just the issues raised by the Sierra Club complaint.
None of this should be too surprising, as the unprecedented spike in capacity prices was almost sure to spark a backlash and a subsequent rethinking. Indeed, even several generator groups – which benefit from higher capacity praises – raised concerns about potential Capacity pricing volatility – i.e., they’re concerned that the new rules could lead to boom/bust markets. And so, it seems that no one is really happy with the recently enacted status quo, and PJM appears to be going back to the drawing board to some degree.
While the relatively short delay will not allow for a wholesale rework of Capacity market rules, it’s likely that we’ll see revisions that are engineered to reduce the possibility of further spiking prices in the next auction. Indeed, there were concerns that – without further reform – Capacity prices could clear substantially higher than even the record prices posted in the most recent auction.
Even though PJM seems to be responding to stakeholder pressure to manage down Capacity clearing prices to some degree, PJM has also gone on the record – with support from FERC – asserting the need for more robust Capacity prices to stimulate needed new generator capability to meet the challenges of robust load growth (driven in good part by data center demand), looming fossil generator retirements, and increased penetration of intermittent renewable resources. It can certainly be argued that Capacity clearing prices in the run-up to the enacted reforms were artificially low and did not accurately represent the capacity/reliability picture in PJM. Clearing prices in the three years prior to the most recent auction averaged below $40/MW-day, likely well under levels required to promote new generation resources to meet future capacity and reliability needs.
However, the view that seems to be emerging is that PJM’s reforms overshot the goal, and so overall we think a somewhat bearish outlook is reasonable for the 2026/27 auction relative to 2025/26 results given the delay and PJM’s stated intention to enact further reforms through its response to the Sierra Club complaint. Granted, we’re unlikely also to see prices reliably return to pre-2025/26 levels, and so we would expect PJM to at least try to engineer a capacity market that results in prices north of $100/MW-day, but probably somewhere south of $200/MW-day.
All of this is of course somewhat speculative, and we’ll be able to judge more effectively once PJM files its response to the Sierra Club complaint in January of next year. But for energy consumers forming strategies now, we wouldn’t advise locking in capacity prices beyond the 2025/26 planning year at this point.
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