Shapiro says this “broken process” can lead to higher energy costs. Here’s what you need to know. | News, Sports, Work

HARRISBURG. Pennsylvanians could face higher electricity bills if federal regulators don’t force the state’s grid operator to fix a “broken process” that artificially affects supply, Gov. Josh Shapiro’s administration says.

This summer, PJM Interconnection has seen the price of the energy it sells to utilities skyrocket. At least one major Pennsylvania utility is warning that monthly bills could rise as much as $15 this year as a result, with more to come.

Shapiro says the grid operator can remedy the situation if it changes its energy auction rules. If that doesn’t happen, his complaint to the Federal Energy Regulatory Commission warns, the consequences could be dire.

“Pennsylvania ratepayers face potentially the largest unfair transfer of wealth in the history of US energy markets,” the complaint said.

PJM argues that Shapiro’s complaint does not address the root cause of high energy prices. The real problem, the grid operator says, is rising demand and shutting down generators.

“For more than two years, we have warned about the prospect of power shortages in some parts of our country during periods of high demand,” PJM said in a statement in response to Shapiro’s complaint. “This opportunity is growing, primarily as a result of state and federal policy decisions that are pushing generators toward early retirement, as well as unprecedented and rapidly expanding data center construction.”

To understand the potential impact of Shapiro’s complaint, it’s important to understand how energy — and energy prices — travel from the grid to your electric bill:

It all starts with an auction

PJM serves as a marketplace where power generators, such as gas and coal plants, as well as solar and wind power producers, sell their electricity to utilities through auctions.

Utility companies then deliver electricity to homes and businesses. PJM also sets rules to regulate the market, including caps on the price of electricity.

The price cap represents the maximum amount that utilities must pay per megawatt of energy produced. PJM can determine the cap every four years using a metric tied to the cost of adding a new energy supplier to the grid.

Casey Roberts, an advocate at the Natural Resources Defense Council, told Spotlight PA that the connection comes from the assumption that “consumers should be willing to pay very, very high prices to incentivize new entry (to the grid) if (energy) is scarce “.

In other words, the idea is that if costs are high, there is room in the system for new energy suppliers, and customers should pay PJM to connect those suppliers to the grid.

However, Shapiro argued in his complaint that linking the maximum price to costs for new providers no longer makes sense because PJM is currently unable to quickly bring new providers into the network, creating artificial shortages and unreasonably high prices.

Concerns Shapiro PJM

Elected officials, utilities, power producers and PJM generally agree on one main reason for future price increases: Traditional generators of electricity, like coal-fired power plants, are retiring before new ones come along.

There is less consensus as to why new energy producers have been slow to join the grid.

Shapiro’s complaint mostly accuses PJM of a slow process for approving manufacturers. The process was designed for large plants like coal-fired power plants that produce a lot of energy, not for many smaller ones like wind and solar plants that produce less.

“Currently, PJM’s connection queue is completely congested, with a record 3,300 projects waiting for connection earlier this year,” the complaint states. This is “to date the largest project of all (network operators) in the country.”

In a statement, PJM attributed the delays to “factors beyond PJM’s control, including government permitting, project financing and global supply chain issues.”

Shapiro’s complaint alleges that in order to keep artificially high costs from being passed on to consumers, PJM should lower cap prices to ensure utilities pay less for energy.

“These record prices could encourage investment in new generation and maintain reliability,” the complaint said. “However, as PJM’s own experts have warned the Commission in recent weeks, the auction is currently structurally unable to deliver the expected outcome.”

In addition, the complaint alleges that annual auctions have been repeatedly delayed, another factor preventing the market from functioning properly.

PJM’s auction system was designed to allow utilities to buy power from generators three years before they need that power for supply. That way, producers will have plenty of time to build new capacity if demand picks up.

However, Shapiro’s complaint states that “increasing delays beginning in 2019 resulted in an increasingly compressed time frame between the conduct of capacity auctions and the delivery year covered by the auction.”

The last auction was held in July 2024, and the energy that was purchased there by utilities is planned to be used from June this year — only 11 months later. According to Shapiro’s complaint, the next auction is also scheduled to last 11 months.

Shapiro argues that this leaves the market unable to effectively “signal” new producers to come online—essentially just keeping existing producers alive.

Given that limitation, he says, PJM’s market cap is “much higher than it needs to be to achieve that goal.”

What do price spikes mean?

for consumers?

Price jumps for utility services in the summer were significant. The cost of buying power from PJM was 800% higher than in the previous auction, a difference of $14 billion.

Those higher costs haven’t yet hit consumers’ wallets, but they may until June. That’s when utilities will update customer rates to reflect the higher prices paid in last summer’s PJM capacity auction.

Few of the utilities that buy power from PJM have released updated plans detailing how much they plan to charge customers. PPL Electric Utilities, which serves a region that covers northeastern and central Pennsylvania, sent PJM a letter last year predicting a $15 monthly increase for residential customers that could top $50 a month if the price cap is reached .

Liz Marks, executive director of the Pennsylvania Utility Law Project, a nonprofit organization that provides legal assistance to people struggling to pay their utility bills, said that “absent any concrete policy action” from utilities or a state regulator that controlled by them, consumers can expect “quite a significant increase” in costs.

What will happen to Shapiro

FERC complaint to do?

There is no guarantee that PJM will lower the maximum price, although it has already indicated a willingness to do so.

In early December, before Shapiro’s complaint, the electric grid operator submitted a proposal to the federal regulator that it says would lower the maximum price as part of a series of other proposals.

However, environmental and labor advocates hope that regulators will step in.

Rob Bair is president of the Pennsylvania Construction Trades Council, which lobbies for tens of thousands of unionized construction workers, including those who build power generation facilities.

He called the governor’s complaint a good first step in addressing problems with PJM’s energy auction systems, calling power prices “out of control.” Bair also agrees with Shapiro that PJM’s approval process needs improvement, saying it will be key to ensuring sufficient energy production in the future.

FERC, the federal agency with which Shapiro filed his complaint, oversees the transmission of electricity and natural gas between states and could order PJM to change its process.

The agency has not said whether it will take up the case, and is not obligated to review the complaints within a specific time frame.

However, it set a 28-day comment period ending on January 21. Energy companies such as Shell and PSEG; the offices of the attorneys general of the states of New Jersey and Maryland; and the Pennsylvania Public Utilities Commission filed a motion to intervene.

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