The US power market auction, which had received little attention before, has become the focus of power producers, regulatory authorities, and consumers this week. On Wednesday evening, PJM Interconnection LLC, the largest electricity grid operator in the United States, will announce the results of the capacity auction. This will determine how much PJM needs to pay power plant operators starting from 2027 to ensure electricity supply.
According to a survey by Bloomberg among grid experts, policymakers, and traders, it is expected that this cost will reach $17 billion. This would mark the third consecutive year of record power costs, as the rapid construction of data centers and the surging electricity demand from artificial intelligence (AI) are transferring billions of dollars of electricity costs onto households, exacerbating the issue of high electricity bills.
PJM’s auction has become a barometer of energy inflation in the United States, and the results on Wednesday may spark intense discussions on the affordability of electricity prices for the public. The increasing electricity bills have become a key issue for next year’s midterm congressional elections: President Trump had promised to halve electricity prices within his first year in office, but instead, prices have continued to rise. Just last month, the Democratic Party won elections in New Jersey, Virginia, and Georgia, with one of their campaign promises being the reduction of electricity bills.
Although the capacity auction is only a part of consumers’ overall electricity costs, the surge in electricity demand driven by AI has led to a tight electricity supply, making the prices in the capacity auction the fastest-growing component. According to data from Monitoring Analytics LLC, the official independent regulatory body of PJM, the electricity consumption from data centers accounted for 45% of the price increase in the previous auction, highlighting the impact of the AI industry on the electricity market.
David Lapp, the representative of consumer rights in Maryland and the state-appointed public utility advocate, stated, “The capacity market is punishing consumers, as we see power companies profiting immensely from it.”
If it weren’t for the negotiated price caps agreed upon last year, electricity prices would be even higher. The upper price limit for this month’s auction is set at $333.44 per megawatt per day, and analysts widely expect prices to reach this limit, marking a new historical high. If PJM fails to reach an agreement with the states within its jurisdiction on extending the price caps, future auction electricity prices are expected to soar even higher.
It is anticipated that companies like Constellation Energy Corp., Vistra Corp., NRG Energy Inc., and Talen Energy Corp., independent power producers, will benefit from this auction, as their stocks are boosted by the surge in electricity demand driven by AI.
The electricity supply situation within PJM has not always been so tight. Historically, auctions were typically held three years before anticipated power demand to allow sufficient time for new power facilities to become operational when needed.
However, during Trump’s first term, regulatory disagreements led to multiple auction delays, forcing PJM to shorten the auction period, resulting in the construction of new power plants failing to keep up with demand.
Stu Bresler, Vice President of Market Services and Strategy Execution at PJM, stated, “Demand may exceed supply, posing a risk.” Last week at a transmission meeting in New Jersey, he mentioned that the current pace of grid construction is utterly inadequate to meet the projected demand, with a 40% growth expected by 2032.
Data from market monitoring agencies showed a 200-megawatt supply gap for the supply year starting in June 2026 in the last auction, marking the first-ever electricity shortage in PJM’s history. Analyst Julien Dumoulin-Smith from Jefferies indicated that the electricity shortfall in this auction could expand to 4 gigawatts, and potentially reach 6 gigawatts in the next two auctions.
Even a small shortfall is significant, as it may compel PJM to take unprecedented measures, such as procuring electricity outside the auction through bilateral contracts. Dumoulin-Smith stated that this could further drive up electricity prices, but these costs may eventually be passed on to large users like data centers.
He pointed out, “The current auction mechanism is simply unable to provide enough electricity supply. The question is, are data centers willing to take responsibility for the rise in electricity prices?”