Biggest US Power Auction Set to Deepen Affordability Concerns

kmhewef{7]wj7[s0n}giw5]5_media_dl_1.png PJM Interconnection

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(Bloomberg) — The outcome of what was, until recently, an obscure US power market auction will be the subject of intense interest this week for electric generators, regulators and consumers alike.

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The results due late Wednesday will confirm what PJM Interconnection LLC — the nation’s largest grid operator, serving millions of Americans from Chicago to Washington, DC — will pay power generators to secure capacity starting in 2027. The bill is expected to reach $17 billion, according to a Bloomberg survey of grid experts, policymakers and traders. That would mark the third consecutive year of record-breaking costs, as the swift build-out of data centers is adding billions of dollars to household utility bills. 

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The PJM auction has emerged as a barometer of US energy inflation, with this week’s results likely to stoke increasingly heated public discourse about affordability. Surging utility bills are already shaping up to be an issue in the congressional midterm elections next year: Despite President Donald Trump saying electricity prices would be halved within a year of taking office, costs have increased. Just last month, Democrats won elections in New Jersey and Virginia — two states within the grid’s territory — as well as in Georgia, after campaigning to lower power bills.

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While the so-called capacity auction is just one component of total electricity costs to consumers, it’s one of the fastest growing due to skyrocketing demand from artificial intelligence that’s straining power supplies. Data center electricity consumption accounted for 45% of the price tag in the last auction, according to Monitoring Analytics LLC, PJM’s official independent watchdog. 

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“The capacity market is punishing customers,” said Maryland People’s Counsel David Lapp, the state appointed official advocating on behalf of utility ratepayers. “What we are seeing is a windfall for generators.”

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Costs would be even higher if not for a price cap negotiated last year. The limit for this month’s auction is $333.44 per megawatt per day, with analysts widely expecting prices to reach that ceiling, which would be an all-time high. If PJM can’t agree on an extension of the price cap with states in its territory, costs would surge even further in future auctions.

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The payouts are expected to be a win for independent power producers including Constellation Energy Corp., Vistra Corp., NRG Energy Inc., Talen Energy Corp., all of which have seen shares benefit from the AI-power boom.

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Supplies weren’t always so tight in PJM. Historically, the auctions were held three years in advance of when the power would be required, which was thought to be enough time to bring new generation online if needed. 

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But regulatory disagreements during the first Trump administration delayed several auctions, forcing PJM to hold them on a truncated timeline that meant new plants couldn’t be built fast enough.

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“There’s a risk that demand could outpace supply,” said Stu Bresler, executive vice president of market services and strategy at PJM. In a presentation at a New Jersey transmission conference last week, he added that the grid simply can’t keep up with forecasts that show 40% demand growth by 2032.