Today, Governor Josh Shapiro touted an agreement with electric grid operator PJM, resolving a lawsuit the governor filed in December.

Electric utility rates will see a drastic increase this summer, and were set for another increase this summer. The increases are caused by supply and demand issues for electricity generation and the process that PJM Interconnection— the electric grid for 13 states including Pennsylvania— uses to confirm there is enough electric generation to meet demand in the coming year.

PJM uses an auction to gauge prices. When costs were set to be high for another year, Governor Josh Shapiro sued the organization in December. Four other governors and multiple utility commissions joined the lawsuit.

On Tuesday, Shapiro announced that PJM had agreed to a price cap for the next two auctions. The Shapiro administration estimates that with the price cap, the 65 million residents living in the PJM service area will save $21 billion. The administration estimates that Pennsylvanians would have seen a 30% increase in their electricity rates.

“That's hundreds of dollars that’s now going to stay in your pockets. Hundreds of dollars you can spend on your homes, hundreds of dollars you can spend on your kids or your grand kids or whatever it is that you'd like,” Shapiro said at a press conference today.

The price cap is a short term solution. Experts say getting more electric supply plugged into the grid is required to keep electric bills low.

“If someone's electric bill starts creeping up, that means a lot to someone on a fixed income, especially seniors,” said Minta Livengood, an elderly woman from Indiana County who volunteers her time to help other seniors with tight budgets sign up for assistant programs.

Over 377,000 Pennsylvania families had their electricity, water, and gas shut off in 2024, according to the Pennsylvania Utility Law Project. The Project’s executive director Elizabeth Marx says that is a 15% increase to 2023. Marx says current utility responses to a household that can’t pay bills is punitive.

“We add fees. We add costs on people when they fall behind,” Marx said. "And that's not helping out folks who are struggling to get out of debt.”

With extreme price hikes expected in the future if supply and demand issues are not resolved, advocates say a new approach for low income families is needed when falling behind on utilities.

“If we get to people before they fall behind and we get them in the right assistance programs, then they can stay on the grid and help contribute to the costs,” Marx said. "And they keep paying without debts going up.”

Some of those consumer protections are part of a bill the Pennsylvania General Assembly failed to pass last session. However, the Senate did vote on a bill to address the issue in committee on Monday this week.

 

PJM Concerns

PJM Interconnection is the electric grid that services Pennsylvania, Washington D.C., and 12 other states. The organization tracks electric supply and demand, and is responsible for vetting/processing new electric generation companies who want to contribute energy to the grid.

Another key responsibility of the organization is to estimate the demand for electricity in a coming year, then, host an auction each summer where electric generator companies pledge to provide a certain amount of power.

The total number of all the bids can help predict what electric rates will look like in the coming year. This is for electricity service to over 65 million consumers— from individual households to small businesses to giant warehouses across much of the north east.

In 2023, the total bid was $2.2 billion.

In 2024, the total bid was $14.7 billion, an over 800% increase.

There are several causes for the increase. How PJM operates the auction itself contributed to the higher prices. The organization proposed a price cap for the upcoming auction in the fall, along with other changes to the auction. Shapiro’s administration— which had been in talks with PJM for months— said those changes were insufficient, which lead to the December lawsuit.

The agreement to call off the lawsuit is a market cap of $324/megawatts a day, with a lowest price point of $175/megawatts a day for the auction set to happen in July.

In an emailed statement, PJM said "PJM and the Shapiro administration have agreed upon a path forward for the complaint, subject to consultation with the PJM Members and the PJM Board of Managers."

At the heart of the increase is that there is more demand for electricity than there is supply.

As more consistent geo-thermal plants (like coal and natural gas plants) shut off for political and economic reasons, the renewable energy sources set to take their place are less consistent. You need more of them to equal out the loss of the geo-thermals.

Another factor in the electric generation shortage is how PJM lets new projects connect. PJM has a queue of new electric generation projects trying to come online. As the type of project applying changed in the 2010s (more renewable energy projects, which can be smaller or have different components than the natural gas/coal applications the organization had been receiving for decades), the queue had a backlog and slow approval rates.

Starting in 2022, PJM began to reorganize the queue process. Projects are getting approved quicker, but PJM approval is only half the battle for a new energy generator to get up and running. Delays in funding, permits, and supply chain issues means some projects that finally got PJM approval are still waiting to finish construction.

As supply is slow to come online, demand for electricity has increased exponentially in the past few years because of data centers for running artificial intelligence and other online services.

In a press release published Tuesday, PJM laid out continued changes to its auction and queue systems to address concerns about potential shortages.