If your electricity costs rose earlier this year, that increase wasn’t an anomaly and this week confirmed it.
A key decision in the regional power market just locked in record-high costs for grid reliability, setting the stage for continued upward pressure on utility bills over the next several years. For large energy users, this marks a meaningful shift, not a short-term fluctuation.
What Just Happened and Why It Matters
This week, the organization responsible for managing the regional electric grid—PJM Interconnection—completed its annual forward capacity auction. PJM operates the electric grid and wholesale power market for more than 65 million people from the Midwest across to the Atlantic. Its role is to ensure there will be enough electricity available in future years, particularly during extreme heat, cold or grid emergencies.
To do that, PJM requires utilities to pay power plants and other resources to be available several years in advance. Those costs don’t stay in the wholesale market, they are passed directly through to customers via utility bills. This week’s auction cleared at the maximum price allowed, locking in some of the highest capacity costs in PJM’s history and confirming that supply remains tight. Moreover, the auction fell short of PJM’s reliability target by about 6.6 gigawatts, meaning there was not enough supply offered to meet expected future peak demand even at the market’s highest price, a cost of $16 billion to ratepayers. This shortfall is roughly equivalent to the output of several large generators and underscores the depth of the supply constraint.
What “Clearing at the Maximum” Really Signals
When the auction clears at the top price, it’s not a technical footnote. It’s a warning. It means the market could not attract enough reliable power at lower prices to meet future demand. Even after prices rose to the highest level allowed, supply still fell short. In a typical year, higher prices bring additional generation or flexible demand into the market. This time, that didn’t happen.
Specifically, this outcome signals that:
- Demand for reliable, always-available power is outpacing supply, driven by load growth and power plant retirements
- Market participants were willing to pay more, but regulatory price caps prevented further increases
- The grid is under stress, even at historically high pricing levels
In practical terms, there is less margin for extreme weather, outages or unexpected demand spikes, and customers are paying a premium to ensure reliability.
In simple terms: reliability is no longer abundant. It’s becoming scarcer, more valuable and structurally more expensive, and those costs are now being locked into future utility bills.
Why This Week Matters
Before this auction, organizations still had some flexibility to reduce future exposure. After it, a portion of upcoming costs is now fixed, regardless of how facilities operate day to day. The remaining lever is how much grid capacity your organization relies on going forward. That’s why this decision matters now: the longer organizations wait to understand their exposure, the fewer options they have to manage it.
Why Power Costs Keep Rising
This outcome didn’t happen overnight. Several long-term trends are converging:
- Aging power plants are retiring faster than replacements come online
- New generation, storage and transmission projects face permitting and interconnection delays
- Electricity demand is growing rapidly from data centers, electrification, EVs and advanced manufacturing
- Grid reliability requirements are becoming stricter, requiring more standby capacity
- Transmission congestion limits the ability to move power where it’s needed most
Together, these pressures are driving persistent price volatility and pushing costs higher year after year.
What This Means in Real Dollars
For many large commercial, industrial and municipal organizations, capacity-related charges already represent a meaningful share of total electricity costs. For a single large facility, this can translate into six- or seven-figure annual costs that are largely invisible until rates change. For organizations with multiple sites, the exposure compounds quickly, and often shows up faster than budgets can adjust.
Why This Often Comes as a Surprise
Utilities don’t set these prices, they simply pass them along. As a result, customers often see higher bills with little explanation of the underlying cause. By the time the increase appears, the opportunity to influence that year’s costs has already passed.
This Isn’t a One-Time Event
Capacity auctions occur every year. With prices now clearing at record levels and supply falling short of targets, many analysts expect elevated costs to persist for the foreseeable future. This shifts the question from “Why did our bill go up?” to “How exposed are we, and how much control do we want over future costs?”
What Organizations Should Do Now
This week’s decision doesn’t require immediate capital spending but it does warrant action. Organizations that are best positioned going forward are taking a few practical steps:
- Assess how much of their electricity spend is tied to peak demand and capacity-related charges
- Identify what drives peak usage and where operational flexibility exists
- Evaluate long-term options early, including efficiency improvements, on-site generation, storage or service-based models before costs are fully locked in
- Incorporate energy risk into broader planning and budgeting discussions, rather than treating it as a utility line item. These steps don’t commit you to a solution. They simply ensure future decisions are made with clarity rather than in reaction to the next increase.
The Bottom Line
This week’s grid decision set a new baseline: power reliability is becoming more expensive, and those costs are here to stay. Organizations that treat this as a strategic planning issue, rather than a billing surprise, can gain budget certainty, operational resilience and a competitive advantage over peers who wait. Those that don’t will continue absorbing higher costs with fewer options and less control.
