What Drove the 49% Cost Surge
The IMM breaks total wholesale costs into three components — energy, capacity, and transmission. Here’s what happened in each:
- Energy costs: Rose moderately, reflecting higher natural gas prices (Henry Hub averaged $2.78/MMBtu in 2025, up from $2.19 in 2024). The energy market was found to be competitive — prices tracked fundamentals.
- Capacity costs: The dominant factor at +262%. The 2025/2026 Base Residual Auction (BRA) cleared at record levels, driven by aggressive data center load forecasts, accelerating coal and gas retirements, and constrained new build timelines for replacement generation.
- Transmission costs: Continued upward trend reflecting major infrastructure investments, including the newly approved 765-kV line across West Virginia and Pennsylvania.
The Data Center Effect
The IMM explicitly identified data center demand as non-competitive in the capacity market. Unlike traditional load, data center developers are willing to pay above-market prices for capacity certainty, which distorts auction clearing prices. The report recommends PJM implement targeted reforms to prevent large load additions from artificially inflating capacity costs for all ratepayers.
PJM’s interconnection queue now contains over 260 GW of pending generation and load projects, with data center requests representing the fastest-growing segment. The IMM warns that without queue reform, the capacity shortfall will widen through 2028.
What This Means for Commercial Electricity Buyers
- Capacity charges on commercial bills will rise significantly for the 2025/2026 delivery year (June 2025 – May 2026) and are expected to remain elevated through at least 2027/2028.
- Energy costs may moderate: The EIA March STEO cut the Henry Hub forecast to $3.80/MMBtu, which should temper the energy component. But the capacity spike more than offsets any energy savings.
- Long-term fixed-price contracts locked in before the 2025 BRA results are now significantly below market. Buyers with expiring contracts should expect 15-25% total cost increases when renewing.
- Demand response value is rising: With thinning margins, PJM’s demand response programs now command premium payments. C&I facilities with curtailable load should explore capacity market participation.
Source: PJM Independent Market Monitor, 2025 State of the Market Report (March 12, 2026); Morningstar; RTO Insider.