Is your business prepared for the PJM capacity cost increases?

Businesses in the PJM region are about to see a major spike in electricity costs. As of June 1, 2025, capacity charges have increased by up to 29%, driving substantial increases in energy bills across 13 mid-atlantic and midwest states and Washington D.C. The surge stems from PJM’s latest Base Residual Auction results, and the impact on commercial energy budgets could be significant. Here's what you need to know, and what your business can do to respond.
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What’s Happening?

On June 1, 2025, electricity customers across the PJM region faced sharp increases in capacity charges, a key component of electricity pricing that ensures enough power is available during peak demand. Following PJM’s 2024 Base Residual Auction, capacity charges rose by as much as 29%, adding more than $0.012 per kWh for some users. For large energy consumers, this could result in six-figure increases to annual electricity costs.

Historically, capacity made up about 6% of the supply portion of an electricity bill. With the new rates, that could exceed 15%, significantly increasing total supply costs.

Why Are Capacity Prices Increasing?

Three key trends are driving this surge in costs:
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1. Decreasing supply – A wave of planned retirements of older generation units, particularly coal-fired plants, is tightening availability.
   
   
2. Rising demand – Increased energy needs from EV charging infrastructure, data centers, and commercial growth are pushing demand higher than expected.
   
   
3. Higher fuel prices – Natural gas, a major fuel source for electricity generation, has seen cost increases that are now reflected in capacity pricing.
   
   

This combination of supply constraints and growing demand has led to the most significant capacity cost increase in recent memory - and it’s unlikely to be the last. PJM plans to continue holding modified auctions for future delivery years, meaning these elevated rates could persist or even rise through 2030.

Our Analysis: What It Means for Your Business

While the capacity charge increase is unavoidable, your businesses can take proactive steps to manage the impact. Because capacity rates are partially based on when and how much energy you use (your capacity tag), businesses still have strategic levers they can pull.

Here’s how you can respond:

• Manage your capacity tag by reducing demand during peak hours on peak days of the year.
  
  
• Participate in demand response programs, which offer financial incentives to reduce consumption at peak times.
  
  
• Optimize energy supply contract terms to lock in favorable rates.
  
  

Reduce overall usage through efficiency upgrades and operational improvements.

Need Help Planning Your Energy Strategy?

Understanding and managing capacity costs is becoming essential for energy-intensive organizations. Whether you're budgeting for 2025 or preparing for future auctions, we can help you reduce your exposure and take control of your energy spend.

Contact our team at support@ariseenergy.com to discuss your strategy.