Navigating the Energy Market: PJM and Shapiro Administration’s New Agreement

In the ever-evolving landscape of energy markets, a significant development has emerged from Pennsylvania. Governor Josh Shapiro and PJM Interconnection have reached a pivotal agreement aimed at protecting consumers from steep electricity price hikes. This agreement is not just a win for Pennsylvania but for the entire PJM region, which spans 13 states and the District of Columbia.

So, what’s the deal? Essentially, PJM and the Shapiro administration have agreed on a cap and floor mechanism for the auction clearing price for the 2026/2027 and 2027/2028 capacity auctions. The cap is set at $325 per megawatt-day, while the floor is $175 per megawatt-day.^1,2 This agreement is designed to prevent runaway prices that could have resulted in billions of dollars in unnecessary costs for consumers.³

But let’s break it down a bit more. PJM operates a capacity market, which means they hold auctions to ensure there’s enough electricity supply to meet future demand. These auctions determine the price that power generators will be paid to be on standby to supply electricity when needed. Recently, there were concerns that the upcoming auctions could lead to historically high prices, prompting Governor Shapiro to take action.⁴

In December, Shapiro filed a complaint with the Federal Energy Regulatory Commission (FERC) against PJM, criticizing flaws in their auction design. The agreement reached is a result of these efforts and aims to maintain a balance between ensuring reliable power supply and protecting consumers from exorbitant costs.⁴

Procedurally, to keep the auction schedule on track, PJM will seek a FERC order by proposing this cap and floor mechanism through an FPA section 205 filing.⁵ This filing is crucial as it will formalize the agreement and provide a regulatory framework to implement the new pricing structure.

Governor Shapiro’s administration has been proactive in addressing energy costs, and this agreement is a testament to their commitment to consumer protection. By working with PJM, they’ve managed to avert a potential crisis and save consumers over $21 billion over the next two years.²

This development underscores the importance of regulatory oversight and proactive governance in the energy sector. As we move forward, it will be interesting to see how this agreement impacts the broader energy market and whether other states will follow Pennsylvania’s lead in negotiating similar deals.

In the end, it’s all about striking a balance—ensuring that we have a reliable energy supply while keeping costs manageable for consumers. And with this new agreement, it looks like Pennsylvania is on the right track.

1: Pennsylvania Capital-Star
2: Lehigh Valley Business
3: Yahoo News
4: Commonwealth of Pennsylvania Governor Newsroom
5: Federal Energy Regulatory Commission

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