PJM Electricity Rates Face Severe Upward Pressure Driven by Global LNG Contagion
PJM Commercial Market Threat
The PJM Interconnection (serving 13 states including PA, NJ, OH, MD, and IL) is classified as High Exposure to the ongoing U.S.-Israel-Iran conflict. While PJM does not burn oil for power, the disruption of Qatari LNG shipping via the Strait of Hormuz will cause international buyers to heavily pull from U.S. natural gas supplies. Given that natural gas "on the margin" frequently sets the clearing price for PJM wholesale power, any spike in domestic natural gas prices triggered by export demand will immediately force Mid-Atlantic commercial electricity rates higher.
Key PJM End-User Implications
- →Index Product Risk: Large industrials and data centers purchasing wholesale power on real-time or day-ahead index products will immediately feel the LNG-driven gas price hikes transmitted into PJM Locational Marginal Prices (LMPs).
- →Contract Renewals: Retail energy suppliers are already aggressively baking "geopolitical risk premiums" into their 12- and 24-month fixed-rate pricing models, drastically raising OPEX for businesses seeking renewals.
The PJM "Gas-on-Margin" Mechanism
As military strikes escalate in Iran, Brent crude oil has surged past $72/bbl. But for a data center in Virginia or a manufacturing plant in Ohio, oil is merely a psychological indicator. The real threat is the transmission of global natural gas volatility directly into the PJM electricity grid.
PJM, the nation's largest wholesale electricity market, operates on a marginal pricing system. All generators bid into the market, and the system operator dispatches them from cheapest to most expensive until demand is met. The "last megawatt" dispatched—the marginal unit—sets the clearing price (LMP) paid to all generators.
Because cheap renewable and nuclear power are dispatched first, the marginal unit during almost all peak load hours is a natural gas-fired peaker plant or combined cycle facility. This means natural gas dictates the cost of electricity in PJM.
The LNG Export Contagion
The U.S. is the world's leading exporter of Liquefied Natural Gas (LNG). A geopolitical disruption in the Strait of Hormuz restricts shipments from Qatar, one of the top global suppliers. To avoid plunging their grids into darkness, European and Asian buyers will panic-purchase U.S. LNG, drawing heavily from Gulf Coast export terminals.
This massive export pull forces domestic natural gas prices upward. When a gas plant in PJM must pay significantly more for its fuel—competing with global buyers—it bids into the wholesale electricity market at a higher price. That higher bid becomes the clearing price for electricity.
A Perfect Storm for Mid-Atlantic Buyers:
- Wholesale Energy Volatility: January 2026 LMPs in PJM averaged $156.87/MWh, a 35% year-over-year increase, proving the grid is already highly sensitive to gas pricing dynamics even before a geopolitical shock.
- Soaring Capacity Costs: The PJM Board recently extended the unprecedented $325/MW-day capacity price cap through 2030. These are fixed, non-bypassable reliability charges.
- The Convergence: Commercial buyers are now facing a scenario where both their fixed capacity costs and their variable energy costs are simultaneously skyrocketing.
Actionable Procurement Strategy
For energy procurement managers and industrial operators in the PJM territory, inaction is the highest-risk strategy.
- Evaluate Block-and-Index: If your load is currently riding wholesale index, evaluate temporarily locking in fixed-price "blocks" for the most volatile hours (such as summer peaks and winter heating seasons). You must act quickly, as retail suppliers update their forward curves daily to bake in geopolitical risk premiums.
- Transco Zone 6 Exposure: Facilities in New Jersey and Eastern Pennsylvania should monitor the Transco Zone 6 Non-NY gas basis differential. Pipeline constraints during high-demand periods amplify the baseline LNG contagion effect.
- Optimize Demand Response: Operations with load curtailment capabilities or onsite generation (behind-the-meter solar or battery storage) must prepare to optimize these assets. Avoiding peak wholesale pricing and reducing PLC capacity tags is the most effective defense mechanism in a high-price environment.
Connected Analysis
For a deeper understanding of the overarching 3-mechanism contagion effect driving these regional impacts, read our national framework: How the U.S.-Iran Conflict Drives American Electricity Prices.