Updates with auction results

By Laila Kearney

NEW YORK, July 14 (Reuters) - Power prices in PJM Interconnection's latest annual capacity auction on Tuesday held near record highs at about $325 per megawatt-day, the maximum allowed under a temporary price cap by the largest U.S. grid operator to curb rising bills for households and businesses.

Prices in the auction, which is aimed at securing enough electricity supplies to cover the highest-demand days on the PJM grid that covers 13 states in the Mid-Atlantic and Midwest regions, have soared in recent years largely because demand from data centers has outstripped supplies.

For the second auction in a row, PJM fell short of its reliability requirement, meaning it is at higher risk of electricity shortfalls that could lead to blackouts during times of high demand.

Since 2024, so-called capacity prices determined by the auction have jumped by more than 1,000% due to that supply-and-demand imbalance. That's raised energy bills for those living in the regions covered by PJM, or about one in five Americans.

PJM, under pressure from a consortium of governors in the region, temporarily capped prices in its auction as consumers struggle with high utility and energy costs.

The price cap was in effect during last year's auction, so prices have been held roughly unchanged this year. The latest prices will take effect beginning in 2028.

POWER SUPPLY CUSHION

Capacity prices, which are factored into power bills for homes and businesses in the PJM region, are paid to power plant operators to guarantee that they provide electricity during the highest-demand days and hours on the grid.

They are also aimed at incentivizing the construction of new power plants. After nearly two decades of flat power consumption growth in PJM, the region experienced net losses of electricity supplies just as demand from energy-intensive data centers began to emerge.

In its capacity auction in December, PJM fell about six gigawatts short of securing the power supply cushion needed to meet its own reliability standard. One gigawatt of electricity, for reference, is enough to power about 750,000 homes.

Other factors behind the capacity price rise include PJM recalculating the available supplies during the winter months, when electricity supplied from natural gas-fired plants and solar resources is lower than during the summer, and after the retirement of legacy fossil fuel-fired power plants over a years-long period.

PJM is adding new rules and policies to accommodate new electricity demand from data centers and other large energy users, such as advanced manufacturers.