PJM 2027/2028 Capacity Auction: $333.44/MW-day as RTO Fails to Meet Reliability Requirement for the First Time
PJM Interconnection's 2027/2028 Base Residual Auction (BRA) has cleared at $333.44/MW-day — the highest capacity price in the 18-year history of PJM's capacity market and a 1.3% increase over the prior year's record $329.17/MW-day. More critically, this auction marks the first time in PJM history that the entire RTO failed to procure enough capacity to meet its targeted installed reserve margin. The shortfall signals that data center demand growth — with a 40+ GW interconnection queue concentrated in Northern Virginia, Ohio, and Indiana — is now outpacing the construction pipeline for new generation and transmission. For the 65 million people and businesses across PJM's 13-state territory, the implications are clear: capacity costs will remain elevated until supply catches up, and commercial electricity bills will continue to rise through at least 2030.
Executive Impact
- →Bill Impact — $2.80-$3.20/MWh Capacity Charge: At $333.44/MW-day, a typical 500 kW commercial facility operating 4,000 hours per year will pay approximately $5,600-$6,400 annually in capacity costs alone. This is a 2,200% increase from the $28.92/MW-day that cleared just three years ago in the 2024/2025 delivery year.
- →First RTO-Wide Reliability Shortfall: PJM's reserve margin fell below the 14.7% target for the first time, meaning the market could not attract enough committed generation to guarantee reliable service under peak conditions. While PJM has backstop procurement mechanisms (Reliability Must-Run contracts), these come at premium prices that further elevate ratepayer costs.
- →Regulatory Crossfire Intensifies: PJM's Independent Market Monitor has urged the organization to implement cost-causation policies that make data centers bear a greater share of the infrastructure costs they create. Several state commissions are now exploring dedicated rate classes for data center loads — a fundamental shift in how electricity costs have been socialized for decades.
The Capacity Price Escalation: $28 to $333 in Three Years
The velocity of PJM's capacity price escalation is unprecedented in US electricity market history. Consider the trajectory:
- 2024/2025 BRA: $28.92/MW-day — the last "normal" auction before data center demand materialized
- 2025/2026 BRA: $269.92/MW-day — an 833% spike driven by the first wave of data center interconnection requests
- 2026/2027 BRA: $329.17/MW-day — cleared at the FERC-approved price collar cap
- 2027/2028 BRA: $333.44/MW-day — a new record, clearing above the prior cap due to FERC's extension of the price collar methodology through 2030
The total market cost of this escalation is staggering. PJM's Independent Market Monitor estimates that wholesale power costs surged 49% in 2025, with capacity costs alone spiking 262%. For a mid-size commercial operation consuming 2 million kWh per year, the capacity component of the electricity bill has risen from approximately $1,200/year to over $25,000/year in three auction cycles.
Why PJM Cannot Build Its Way Out — Yet
The reliability shortfall reflects a fundamental timing mismatch. Data center load growth operates on 18-24 month build cycles: land acquisition, permitting, and construction of a hyperscale facility can be completed in under two years. New generation and transmission infrastructure, by contrast, requires 5-8 years from planning through commissioning.
PJM's $11.8 billion transmission expansion plan and the 40+ GW interconnection queue represent the eventual supply response, but the vast majority of these projects will not energize before 2029-2031. In the interim, the capacity market will continue to clear at or near the FERC-approved price collar, as the demand-supply imbalance persists.
Compounding the problem: over 4,300 MW of generation has retired across PJM since 2019, with only 2,274 MW added — a net loss of approximately 2,000 MW of firm capacity. Coal plant retirements, driven by economics and EPA regulations, account for the majority of these exits. The replacement generation — predominantly solar, wind, and battery storage — receives lower capacity accreditation values than the thermal units they replace, further widening the effective capacity gap.
State-by-State Commercial Impact
Pennsylvania
PA commercial customers face the highest absolute bill impacts due to the state's position at the intersection of PJM's highest-cost LDAs (locational deliverability areas). PPL Electric has filed a distribution rate increase request on top of the capacity surge. Combined, PA commercial rates are on track to exceed 14¢/kWh by Q3 2026 — a 15% increase from early 2025 levels.
Virginia
Dominion Energy's territory houses the largest data center concentration on Earth (Data Center Alley in Loudoun County). The utility is processing 70,000 MW of data center requests — three times Virginia's peak load. A new GS-5 rate class with 85% minimum demand charges takes effect January 2027, but existing commercial customers in Dominion territory are already absorbing the socialized transmission costs from infrastructure built to serve these massive loads.
New Jersey
PSEG's recent rate hike, combined with PJM capacity costs, pushes northern NJ commercial rates toward 16-17¢/kWh — among the highest in the RTO. The state's competitive retail market remains active, and third-party suppliers are offering 24-36 month fixed-price contracts that lock in capacity at current levels, providing a hedge against further auction price increases. Businesses with expiring contracts should request competitive bids immediately.
Ohio
Ohio's deregulated market allows commercial buyers to shop for generation supply, but capacity costs are a pass-through that cannot be avoided. FirstEnergy's distribution rate case adds further pressure. The Intel semiconductor fab project in Columbus continues to draw significant new load, contributing to locational capacity constraints in AEP's territory.
Action Items for PJM Commercial Buyers
- Lock Fixed-Price Contracts Before June 1: The 2026/2027 delivery year begins June 1, 2026, at $329.17/MW-day. The 2027/2028 price of $333.44/MW-day takes effect June 1, 2027. Any fixed-price contract signed now can lock in current capacity cost assumptions before the next escalation.
- Maximize Demand Response Enrollment: Capacity Performance penalties in PJM make demand response increasingly valuable. If your facility can curtail 100+ kW during system peaks, enrollment in a PJM-registered curtailment service provider program could generate $15,000-$40,000/year in capacity credit revenues.
- Advocate at State PUC Proceedings: Multiple state commissions (PA, NJ, MD, VA) are reviewing data center cost allocation. Commercial customer groups should participate in these proceedings to ensure equitable cost distribution rather than passive absorption of socialized infrastructure charges.
- Evaluate Behind-the-Meter Generation: At $333/MW-day capacity prices, the economics of on-site generation and battery storage have shifted dramatically. A 1 MW battery system that reduces your peak coincident load by just 500 kW could save $60,000+ annually in avoided capacity charges.