Price cap possible as rising energy costs loom

[January 29, 2025]  By Christen Smith | The Center Square

(The Center Square) – A new deal could dampen the shock of anticipated price spikes from rising energy costs.

On Tuesday, Pennsylvania Gov. Josh Shapiro said PJM will support a new price cap meant to lower the cost of the power grid in the coming year after a recent auction forecasted an 800% increase. That spike would have translated to a 30% rise in utility bills.

The price cap must receive official approval from the transmission, generation and distribution companies that supply the grid, as well as the O.K. from federal regulators.

Sixty-five million people across 13 states, including Pennsylvania and Washington D.C., rely on PJM to manage the flow of power across the system minute-by-minute and plan for future electricity needs – like more power to supply data centers, electric vehicle charging stations, and energy storage for solar and wind farms.

The organization, however, can only plan within the parameters set by state and federal governments. That is, thick red tape and tax breaks meant to incentivize the development of new power producers – as critics and independent market monitors have warned – appear to have accelerated the retirement of fossil fuel plants faster than developers can get renewable replacements up and running.

Those challenges, in part, fueled the dramatic rise in the grid’s operational costs.

Shapiro said in December that PJM is to blame. In a complaint filed with the Federal Energy Regulatory Commission, the administration said the power grid needs to adjust the math used in its auctions and speed up the approval of new energy projects to prevent a $20.4 billion hit to consumers.

And as of Tuesday, that request had been taken seriously by the grid's executive officials. Backed by Democratic governors from four other states in PJM’s territory, as well as consumer protection organizations, PJM agreed to submit a price cap adjustment to federal regulators that would lower the cost from $500 per megawatt day to $325.

“When PJM’s next auction was set to result in historic price hikes, I filed a lawsuit to stop this price hike on consumers and defend Pennsylvanians,” Shapiro said. “PJM did the right thing by listening to my concerns and coming to the table to find a path forward that will save Pennsylvanians billions of dollars on their electricity bills.

"My administration will continue to work to ensure safe, reliable, and affordable power for Pennsylvanians for the long term.”

In a statement issued Tuesday, PJM explained more in detail what would come next, clarifying that the cap isn't finalized. The Federal Energy Regulatory Commission must sign off on the change, which would require permission from PJM officials and transmission operators to move forward with a request.

A map showing the area PJM Interconnection serves. - PJM Interconnection

A special meeting to discuss the price cap proposal is scheduled for Feb. 7, where the organization "can provide further guidance on implementation of this cap/floor mechanism and discuss associated tariff revisions."

Beyond the price cap, there’s more change to be done.

Nearly all the planned projects in line for construction are for renewable resources – think solar, wind and battery storage. Clearing the backlog is slow, and projects given the go-ahead by PJM still must overcome permitting challenges and fluctuating supply chain prices that extend initial construction timelines by years.

As such, PJM has warned that many of the coming replacements won’t be up and running within the next two or three years, meaning the cost to support the system in the interim will rise.

It’s a chain reaction for which lawmakers and regulatory agencies have much greater control, of which PJM is neither.

In Pennsylvania, the “P” in PJM, 25% of the energy necessary to power the grid is generated. And the tension between renewable energy investment and fossil fuel power generation has been boiling over in the commonwealth for years – ever since former Gov. Tom Wolf signed the state up for the Regional Greenhouse Gas Initiative without legislative support.

The initiative charges power plants for air pollution and uses the money collected to support energy efficiency projects. Unlike the program’s 11 other members, Pennsylvania’s leading role as an energy exporter and natural gas producer meant penalizing such plants could cripple one of the state’s most lucrative industries.

In 2023, the Commonwealth Court struck down Wolf’s executive order as akin to implementing a “carbon tax” without legislative approval, as required by the state constitution.

Shapiro appealed the decision, promising only to drop it if lawmakers approved his Pennsylvania-centric version of the program.

The uncertainty hasn’t helped attract investment across the board. And it ripples out to the rest of the power grid, where other states have other priorities – like more aggressive renewable energy targets, the need for more power generation, or both.