Shapiro says this ‘broken process’ could lead to higher electricity costs. Here’s what to know.

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HARRISBURG — Pennsylvanians could face higher electricity bills if federal regulators don’t force the state’s grid operator to fix a “broken process” that artificially affects supply, Gov. Josh Shapiro’s administration says.

PJM Interconnection saw prices for the energy it sells to utilities skyrocket this summer. At least one major Pennsylvania utility company is warning that monthly bills may rise by $15 this year as a result, with more increases in store.

Shapiro argues the grid operator can fix the situation if it changes its energy auction rules. If it doesn’t, his complaint to the Federal Energy Regulatory Commission warns, the consequences could be dire.

“Pennsylvania ratepayers face potentially the largest unjust wealth transfer in the history of U.S. energy markets,” the complaint said.

PJM argues that Shapiro’s complaint doesn’t address the root cause of high energy prices. The real issue, the grid operator says, is growing demand and the closure of generators.

“We have been warning for over two years of the prospect that parts of our country could run short of power during high demand periods,” PJM said in a statement in response to Shapiro’s complaint. “This possibility has been growing, primarily as a result of state and federal policy decisions that are pushing generators to retire prematurely, and also due to unprecedented and rapidly growing data center construction.”

To understand the potential impact of Shapiro’s complaint, it’s important to know how energy — and energy prices — flow from the grid to your electric bill:

It all starts at auction

PJM serves as a marketplace where energy generators, like natural gas and coal plants, as well as solar and wind producers, sell their electricity to utility companies at auctions.

Utility companies then supply the power to homes and businesses. PJM also sets rules to regulate the market, including capping the price of electricity.

The price cap marks the maximum amount utilities have to pay per megawatt of energy produced. PJM can determine the cap every four years using a metric linked to the cost for a new energy provider to join the grid.

Casey Roberts, an advocate at the Natural Resources Defense Council, told Spotlight PA that the link comes from an assumption that “consumers should be willing to pay very, very high prices to incentivize new entry [into the grid], if [energy] is scarce.”

The idea, in other words, is that if costs are high, there is room in the system for new energy providers, and customers should be paying PJM to connect these providers to the grid.

However, Shapiro argued in his complaint that linking the price cap to costs for new providers no longer makes sense because PJM is currently unable to connect new providers to the grid promptly, which creates artificial scarcity and unnecessarily high prices.

Shapiro’s PJM concerns

Elected officials, utilities, power producers, and PJM generally agree on one underlying reason for future price increases: Traditional power generators, like coal plants, are retiring before new ones come online.

There is less consensus about why new energy producers have been slow to join the grid.

Shapiro’s complaint largely blames PJM’s slow process for approving producers. The process was designed for large entities like coal plants that produce a lot of energy, rather than many smaller ones, like wind and solar producers, that generate less.

“Right now, the PJM interconnection queue is utterly jammed — an all-time record 3,300 projects were awaiting interconnection earlier this year,” the complaint said. That is “by far the most queued projects of any [grid operator] in the nation.”

In a statement, PJM pinned the delays on “factors outside of PJM’s control, including state permitting, project financing and global supply chain challenges.”

Shapiro’s complaint argues that in order to keep artificially high costs from being passed to consumers, PJM must lower its price caps to ensure that utilities pay less for energy.

“These record-setting prices could encourage investment in new generation and preserve reliability,” the complaint said. “Yet, as PJM’s own experts have warned this Commission in recent weeks, the auction is currently structurally unable to deliver that intended result.”

Further, the complaint says, annual auctions have been consistently delayed, another factor that prevents the market from functioning as intended.

PJM’s auction system was designed so that utilities could purchase energy from producers three years before they needed that energy to be supplied. This way, producers would have enough time to build new facilities if demand increased.

However, Shapiro’s complaint says that “compounding delays since 2019 have resulted in increasingly condensed timelines between when capacity auctions are being held and the auction’s covered delivery year.”

The most recent auction was held in July 2024, and the energy that utilities procured there is slated for use starting in June of this year — just 11 months later. According to Shapiro’s complaint, the next auction is also scheduled to have an 11-month lead time.

Shapiro argues that leaves the market unable to effectively “signal” new producers to come online — essentially just maintaining existing producers.

Given that limitation, he says, PJM’s market cap “is far higher than necessary to achieve that purpose.”

What do price spikes mean for consumers?

The price spikes that utilities saw over the summer were significant. Costs to buy energy from PJM were 800% higher than those in the previous auction, a $14 billion difference.

Those higher costs haven’t yet hit consumer wallets, but they could by June. That is when utilities will update their customer rates to account for the higher prices paid at PJM’s capacity auction last summer.

Few utility companies that buy energy from PJM have released updated plans detailing how much they plan to charge customers. PPL Electric Utilities, which serves a region spanning Northeast and central Pennsylvania, sent a letter to PJM last year projecting a $15 monthly increase for residential customers that could jump to over $50 monthly if the price cap is reached.

Liz Marx, executive director of the Pennsylvania Utility Law Project, a nonprofit that provides legal aid to people struggling to pay utility bills, said that “absent any specific policy action” by utilities or the state regulatory body that oversees them, consumers can expect a “pretty significant increase” in costs.

What will Shapiro’s FERC complaint do?

There’s no guarantee that PJM will lower its price cap, though it’s already signaled a willingness to do so.

The grid operator submitted a proposal to the federal regulator in early December, before Shapiro’s complaint, that it claims would decrease the price cap as a part of a host of other proposals.

However, environmental and labor advocates are hopeful that regulators will step in.

Rob Bair is president of the Pennsylvania Building and Construction Trades Council, which lobbies on behalf of tens of thousands of unionized construction workers, including those who build power generation facilities.

He called the governor’s complaint a good first step in addressing problems with PJM’s energy auction systems, calling electricity prices “out-of-hand.” Bair also agrees with Shapiro that PJM’s approval process needs to be improved, saying that it will be key to ensuring enough energy production in the future.

FERC, the federal agency Shapiro filed his complaint with, oversees the transmission of electricity and natural gas between states and can order PJM to change its process.

The agency hasn’t signaled whether it will take up the case and isn’t required to address complaints in a specific time frame.

However, it has established a 28-day comment period, ending on Jan. 21. Energy companies such as Shell and PSEG; the attorneys general offices of New Jersey and Maryland; and Pennsylvania’s Public Utility Commission have all requested to intervene in the proceedings.

At the end of that comment period, FERC is not obligated to take action on the complaint.

But Roberts of the Natural Resources Defense Council said that because the complaint is targeted and focuses on lowering the price cap for a short amount of time, the regulator might bite.

She added that for many years “very little attention was paid” to the price cap due to an abundance of energy production, but it became a more salient issue during the last auction when prices reached a record high.

“It’s a really actionable complaint,” Roberts said. “It targets a very narrow thing and has a very specific proposed solution. Those kinds of complaints are much more likely to be acted on in a timely way.”

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