Pennsylvania is part of the PJM Interconnection, which manages the electric grid for PA and 12 other states. Your electricity bill includes not only energy and delivery costs, but also capacity costs. PA capacity costs incent power generators to maintain sufficient supply on the electric grid during times of peak demand.
In June 2024, the PJM Interconnection held a capacity auction that resulted in pricing 833% higher than the prior year.
The capacity cost increase means a 10-20% increase Pennsylvania residential electricity bills starting in June 2025. Businesses can expect an increase of up to 29%.
Here’s the background, and what you can do to keep your bills under control.
What is Capacity?
The PJM Interconnection manages the electricity grid in the east central region of the US. PJM is responsible for coordinating, controlling and transmitting electricity through Pennsylvania and 12 other states, plus the District of Columbia.
Capacity fees are part of the PJM market structure. Their end goal is to incentivize development of new power plants and generation assets. Generation companies receive capacity fees to guarantee that there will be sufficient power when there’s high demand for it, like on hot summer days or winter cold snaps.
Why are Capacity Costs Going Up?
PJM and PA capacity costs are largely a function of supply and demand.
Demand is driven by population growth, commercial and industrial development and more extreme weather patterns. However, supply is constrained because of retirement of old power plants and the slow process to build new ones.
Capacity costs are high because of the lack of energy supply in the face of growing demand.
How will Capacity Costs Impact Electric Bills in Pennsylvania
The July 2024 PJM capacity auction for 2025-2026 resulted in a bid price that was 833% higher than the 2024-2025 year.
- Residential consumers will see a 10-20% increase in their electricity bill.
- Business owners will see up to a 29% increase in their electricity bill. Capacity charges account for around a quarter of your business energy costs.
What’s Being Done to Control Costs in the Future?
Pennsylvania Governor Josh Shapiro joined with other government officials to file a lawsuit with federal energy regulators in December 2024. The complaint to the Federal Energy Regulatory Commission (FERC) stated that the auction process itself was flawed.
As a result, PJM has agreed to set a new cap and floor for future auctions. That means that the auctions for 2026 – 2028 will have pre-set pricing limits.
It’s unlikely that capacity prices will return to their 2024 levels, but this legal fight can help control costs for all Pennsylvania consumers.
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How to Prepare for Higher Electricity Costs
Unfortunately, what’s done is done, and the capacity costs are set for June 2025 – May 2026. However, there are still things you can do to prepare for these higher bills.
- Shop for a fixed rate electricity plan from a supplier. The rate from your utility does not yet reflect this new, higher cost. But if you stay with the utility rate, your bill will go up 10-20% in June. And your rate will change 2-4 times a year depending on the utility. Fixed rate offers from suppliers already incorporate the coming capacity costs. Plus you can lock in a long term plan to protect yourself against inflation.
- Reduce your electricity usage by focusing on home improvements like weatherization, replacement of older appliances, or HVAC system maintenance. Our list of 89 ways to save on your electric bill can help get you started.
- You can also work to reduce your capacity costs down the road. While utilities publish a price to compare rate, your rate could vary depending on your usage patterns. Your capacity rating is based on how you use power on the 5 highest usage days of the summer. Conserve energy this upcoming summer and you could get rewarded with lower bills in the future. In 2024, the 5 highest usage periods all occurred between 5-7pm. Cut your usage during those hours!
Your electricity bill in Pennsylvania is made up of several components:
-Customer Charge – Fixed fee
-Generation Service Charge (electricity consumed * price per kWh) – either from the local utility or from a supplier
-Transmission Service Charge – cost to move power across high voltage power lines to local grid
-Distribution Service Charge – delivery to your home
Capacity costs are part of the generation service charge. While capacity costs went up 833%, they are a still a small percentage of your bill, thus resulting in a 10-20% overall bill increase for the average home.
Each meter on the grid pays their share of the capacity costs based on their Peak Load Contribution (PLC). Every meter has a PLC tag from 1-100. The PLC tag is a based on how much power that meter used during the 5 “coincident peaks” the prior summer. Coincident peaks are the 5 highest usage 15-minute intervals on the grid from June – September. Your PLC tag measures what portion of the peak load you contributed.
If you think of the PLC as a multiplier, and, for this example, assume a capacity cost of $1. If you have a PLC of 1, you pay $1 of capacity cost. If you have a PLC of 100, you pay $100 of capacity cost.
Commercial customers are a bigger factor in overall usage, i.e. a bigger portion of the coincident peak measurement, and have a higher PLC tag. While homes use power in the summer for cooling their home, businesses use power in their production processes. Thus they pay a larger portion of the capacity costs, and this capacity auction has a bigger impact on their total bill.
