On April 21st, FERC unanimously approved PJM’s proposal to implement a price collar, setting both a cap and a floor for the 2026/2027 and 2027/2028 Base Residual Auctions (BRAs). To understand how this decision came to be, we’ll revisit the key events that shaped the path toward this significant market reform.

To start with, recall that the most recent BRA resulted in a significant increase in capacity prices from the previous three auctions, which, unaddressed, will lead to an almost 10-fold increase in prices for PJM’s 65 million customers. As such, on December 30th, 2024, the Commonwealth of Pennsylvania, along with Governor Josh Shapiro, filed a formal complaint against PJM claiming that the price cap in PJM’s Reliability Pricing Model (RPM) is unjust and unreasonable.

On February 14, 2025, and within the rules of PJM, a proposal was made to resolve the complaint, subject to FERC’s acceptance of changes to the existing Open Access Transmission Tariff and establish a price cap and floor for the next two scheduled auctions. These auctions are generally conducted three years before the actual delivery year, which is done so that PJM can fulfill resource obligations and meet reliability requirements. Developers look at these prices to help determine whether new dispatchable generation is economically viable and financeable with capacity payments underpinning the costs of new developments, and facilitate attracting the necessary capital.

The methodology utilized to calculate the auction results has evolved and has created some controversy about how the various parameters are established. The scheduling of the auctions has also gotten off track due to a variety of outside factors and has thus led to compressed schedules, which have further heightened sensitivity surrounding the results.

The recent price increase has only made the scrutiny of the parameters and the process even worse, and led many market participants in the impacted states to file interventions. Generating assets that have filed for retirement and have received Reliability-Must-Run commitments from PJM have generated much debate as to their impact on capacity prices, as well as the continued growth of renewables. The process continues to evolve as the market comes to grips with rapidly increasing demand, with gas generation lead times for combined cycles running 5-7 years.

With the implementation of the collar structure (cap and floor), the next several auction results could still show regional discrepancies in zones that are priced at the cap in the previous action (BG&E and Dominion). It is no surprise that data center demand in Dominion has been a hot topic, as Dominion needs additional dispatchable resources, and as the build-out continues, other geographies will likely also need new generation sources quickly.

A critical question to consider is whether PJM’s resource adequacy framework is not only fair and reasonable, but also capable of supporting the development of new resources to help bring capacity prices back to levels that won’t destabilize the system. To help you stay informed as a retail energy customer, it’s important to understand what the BRA is, and to know your current rate plan, and how BRA outcomes might affect your rates. At CPV Retail, we are here to help you navigate your energy transition.