By Laila Kearney

NEW YORK, July 14 (Reuters) - Power prices in PJM Interconnection's latest annual capacity auction on Tuesday are expected to hold near record highs due to 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 covering 13 states in the Mid-Atlantic and Midwest regions, have soared to record highs in recent years largely because demand from data centers has outstripped supplies.

Since 2024, so-called capacity prices determined by the auction have jumped by more than 1,000% from that supply-and-demand imbalance, hiking energy bills for those living in the regions covered by PJM — about one in five Americans.

PJM, under pressure from a consortium of governors in the regions, temporarily capped prices in its capacity auction at about $325 per megawatt-day.

The price cap was also in effect during last year's auction, meaning that prices are expected to be roughly unchanged this year, according to a recent statement by the grid operator. The latest results are scheduled to be released at around 4 p.m. EDT and 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 stagnating 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 6 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 the retirement of legacy fossil fuel-fired power plants over a years-long period.

The grid operator is in the process of overhauling its market structure and adding new rules and policies aimed at accommodating new electricity demand from data centers and other large energy users, such as advanced manufacturers.