Capacity costs in the PJM Interconnection cleared at unprecedented levels in the latest auction. As shown below in Figure 1, the cost of capacity increased in many parts of PJM by 5x. While this chart shows the expected capacity price increase in PPL as an example, this is representative for other parts of PJM as well. These new higher capacity costs will be assessed for the 2025-2026 planning year (June 2025 - May 2026) impacting electricity pricing across its 13-state footprint. Every electricity supplier will be required to pay the new capacity obligations and, therefore, consumers should be prepared to see these higher costs passed onto them beginning June of this year.  

How Are Costs Being Passed Through? 

Depending on your electricity contract and product structure, electricity suppliers may use several mechanisms to ensure that the increased capacity costs are reflected in your bills: 

• Many customers choose electricity agreements that include pass-through provisions, allowing suppliers to adjust rates when capacity costs change. 

• These contracts avoid premiums for “fixing” the capacity component but pass on capacity charges at cost to the customer.  

• For these customers, the new capacity costs will be assessed on their new capacity tags (i.e., each customer’s capacity obligation as determined by PJM) beginning on their June invoice. 

• Customers with fixed-price contracts will likely still see adjustments if their agreements contain capacity cost adjustment clauses. 

• The most common clause is the Change in Law provision that allows suppliers to pass through required costs that were not known at the time of contracting.  

• Should the following apply, you should be prepared to see your rates increase:

  1. A fixed price electricity agreement that was executed prior to the last auction (July 31, 2024), and; 

  2. That fixed price agreement also covers the period of the new auction’s planning year (June 2025 – May 2026). 

• For customers who locked in fixed rates after the latest auction, you should not see any cost adjustments for the June 2025 - May 2026 period as the known costs for capacity should have been incorporated into your fixed rates. If your fixed agreement goes beyond May 2026, you could potentially still see adjustments based on the next auction’s results.  

• Customers receiving electricity supply from the local utility will experience tariff changes or rate filings to reflect the increased costs. 

• Utilities may update riders or file for supply cost rate changes with state public utility commissions. 

Capacity Cost in PPL for Planning Year 2024/2025 vs. 2025/2026

Figure 1: Chart shows indicative cost components for PPL for Planning Year 2024/2025 compared to 2025/2026, from 5

Strategies to Mitigate Cost Increases

• Consider Demand Response (DR) Programs: Participating in programs where you curtail your load during times of grid peak demand can generate revenue and help offset the rising costs of capacity. DR program incentives increase in proportion to the higher capacity auctions, so programs are more lucrative than ever.

• Manage Capacity Tags: Particularly for capacity pass-through products, customers who can reduce their cap tags will materially lower their costs.

• Upgrade Your Procurement Strategy: Moving forward, make sure you’re on the best product to avoid costly premiums and allow you to squeeze the most out of other demand management strategies.

Still not sure what to do? We’re here to help!

Navigating these capacity cost increases can be complex, but you don’t have to do it alone. 5 specializes in helping businesses manage energy costs and optimize their procurement strategies. Reach out to a 5 Energy Advisor to discuss how these changes impact your business and explore proven solutions to mitigate rising costs.

You can contact 5 here. For current clients, you can speak directly with your dedicated Advisor.