Oct 13, 2026 – Tom Williamson, MSI
If you buy electricity anywhere in PJM’s territory, the capacity charge on your bill won’t go down anytime soon. Prices are locked in at or near record highs through May 2029. What happens after that is anyone’s guess, and that uncertainty matters if you’re signing a contract that runs into the 2030s.
First, what is the capacity market?
PJM runs the grid for 13 states and Washington, D.C. Every year or so, it holds an auction that pays power plants to be available about three years down the road. The idea is simple: make sure there’s enough supply on the hottest and coldest days, when demand peaks.
Everyone in PJM pays for that insurance through a capacity charge. How much you pay depends on how much power your site was using during the grid’s busiest hours the summer before.
Prices hit the ceiling again
PJM’s July auction, covering June 2028 through May 2029, cleared at $325 per megawatt-day. That’s the most the rules allow, and it’s the third auction in a row to land there. On a bill, it works out to about $119,000 a year for every megawatt of peak demand, or roughly $9.90 per kilowatt per month.
Data centers are the biggest reason. PJM’s independent market monitor estimates they account for about 46% of capacity costs over the last four auctions, and most of that comes from forecasts for data centers that haven’t been built yet. The cap is doing a lot of work here. Without it, PJM says the latest auction would have cost $29.7 billion instead of $16.4 billion.
A growing shortfall
Even at the maximum price, PJM couldn’t buy all the supply it wanted. It came up about 6.8 gigawatts short. The auction before that was the first in the market’s history to fall short at all.
Here’s what that means. PJM aims to have enough power plants to cover the highest demand it expects, plus a cushion of about 20% for breakdowns and extreme weather. That cushion is sized so supply shortages happen no more than once every 10 years. This auction got it to about 14.7%.
That doesn’t mean blackouts are coming. It means less room for error. In a severe heat wave or cold snap, PJM is more likely to declare an emergency and ask large users to cut back. In the worst case, it could order rotating outages.
How big is 6.8 gigawatts?
Your bill counts kilowatt-hours, which measure how much electricity you used over time. Gigawatts measure something different: how much power is flowing at a single moment. Capacity is measured in gigawatts because the real question is whether there’s enough supply during the grid’s busiest hour.
A gigawatt is a million kilowatts, so 6.8 GW is 6.8 million kW. Run that for one hour and you’d get 6.8 million kWh. A large warehouse using 2.6 million kWh a year would need about two and a half years to go through that much. Put another way, 6.8 GW is enough to keep several million homes running on a hot summer afternoon.
What happens next
The $325 cap has one more auction to go. It applies, along with a $175 floor, to the December 2026 auction for June 2029 through May 2030. Nothing has been approved beyond that, so the auction in May 2027 could have no cap at all.
PJM had also planned an emergency purchase of new supply this fall to close the gap. Federal regulators signed off on the general idea on September 29 but pushed it back to at least late February 2027. Before it moves forward, they want PJM to rework how the costs get split among customers.
What this means for your contract
There’s one lever you control right now: using less power during summer peak hours, since that’s what sets your share of capacity costs.
The bigger decision is how to handle capacity in any contract that runs past May 2029. You can lock in a fixed price, which means paying roughly today’s level plus whatever premium your supplier charges to carry the risk. Or you can pass capacity costs through and pay whatever each future auction sets. Most suppliers have a Capacity true-up clause in their fixed rate agreements, which means; if capacity costs drop for years after 2029 you can take advantage of the difference, and if they go up, your price will move with the difference as well.
If prices come down, pass-through wins, and there are real reasons they might. New plants and batteries are on the way, the emergency purchase should add supply, and data center forecasts could get scaled back if projects stall. In that case, you’d keep the savings while fixed-price buyers stay locked into today’s prices.
But it cuts both ways. If supply stays tight and there’s no cap after December, prices could climb past $325. And even in December, the $175 floor limits how far they can fall.
A reasonable middle ground is to fix part of your load and pass through the rest. Either way, keep an eye on two things: the December auction results, and PJM’s revised emergency purchase plan, which could run in early 2027.
How MSI can help
Your capacity charge comes down to how much power you use during a handful of hours each summer. That’s good news, because it means even modest changes at the right time can make a real difference.
As an energy advisor, MSI helps businesses find those opportunities. Working with our partners, we can help you understand when your peaks happen, alert you when the grid is heading toward a high-demand day, and put a plan in place to reduce usage when it counts, through steps like adjusting HVAC schedules, shifting equipment runs, or adding battery storage. We can also help you weigh fixed versus pass-through capacity pricing when it’s time to renew.
If you’d like to see what’s possible for your sites, contact Tom Williamson at MSI Utilities at twilliamson@msiutilities.com and I will get you set up with one of our professional advisors.