Senate Environment Committee Chairman Bob Smith Accuses PJM Of "Corruption" In Energy Price Spike
833% Increase In PJM "Capacity Charges" Drove Energy Price Spike
(Source: NRDC)
Capacity Charges" Are A Failed Tool Akin To Economic Sanctions
Major Delays In PJM Approval Of Grid Connections For Renewable Energy Created Supply Shortfall That Exacerbated "Capacity Charges"
NJ Must Exit PJM And Take Control Of Energy Policy And Prices
For the second time, during yesterday's hearing, the Chairman of the NJ Senate Environment Committee publicly accused the PJM grid operator of "corruption" in practices that led to the huge spike in NJ energy prices.
Smith is a reserved moderate and certainly no anti-corporate bomb thrower, so that allegation should prompt serious inquiry. And he's right.
PJM levies what are known as "capacity charges". They are a fiction that has nothing to do with the actual cost of producing power. All they amount to is a "reservation" fee to the power generator. The "capacity" that must be reserved is set by PJM, based on a projection of the highest peak power demand, with a huge "cushion" above that (see above graphic). The price of the "capacity charge" is set by a rigged auction. Each step in the process is loaded with discretion that allows manipulation, technical bias, perverse incentives, and corporate interests to control the outcome.
Let me offer an analogy: it's like paying a $50 per chair reservation fee to hold a table at the local restaurant for your Friday night dinner, and that's on top of the cost of the meal. The number of chairs you would be required to pay for to hold a table - even for a table for 2, only you and your date - is set by the restaurant owner, based on how busy he thinks he will be. The price per chair is set based on an "auction" of tables conducted by the restaurant owner. The final price is based on the HIGHEST bid offered by the guy driving the $100,000 Mercedez Benz. So, if that rich guy is willing to pay $100 per chair, you'd pay that too. The money from the reservation fees goes straight into the owner's pocket and is not used to pay for more tables or chairs.
Get it? That's exactly how the PJM "capacity market" works. It's a multi-billion dollar scam.
PJM is a private corporation controlled by the incumbent corporate large scale fossil dominant generators who seek to maximize profits.
In setting the "capacity" that must be met, PJM over estimates peak demand. They then require a 30 - 45% "cushion" above that peak, just in case. Then they conduct an auction. The auction is not open to all and excludes many lower cost power producers, mainly renewable power. The auction sets a "single clearing price", which is based on the HIGHEST COST ENERGY PRODUCER'S BID (the dude driving the Benz!).
Keep in mind that the "capacity" is a function of supply of power and demand for power. On top of the above flaws regarding estimates of demand and a rigged auction process, PJM also controls and can manipulate total energy supplyby their regulatory power to control which power generators are allowed to connect to the grid and when they can connect. When energy supply is contained relative to demand, the capacity charges increase.
PJM has created a huge backlog in approvals for grid connection. In the last 5 years, 84 interconnection projects — including 45 solar, 25 battery storage, and 14 offshore wind projects - have been blocked by PJM.
The PJM capacity charge scam costs ratepayers BILLIONS of dollars and provide windfall profits to the corporate energy producers who control PJM. Most recently, in 2025 PJM capacity charges increased by $12.5 billion for a total of $14.7 billion, an 833% increase!
NJ electricity prices will increase by at least 20% on June 1.
But, thus far, policymakers are avoiding the real problems and Gov. Murphy's solutions to lower prices are a fraud.
The real solution is to exit the PJM grid, repeal the failed 1999 Whitman energy deregulation law EDECA, and either join NY's grid or establish a NJ independent Public Power Authority.
I wrote Smith to suggest ways to avoid PJM capacity charges and accelerate the transition to renewable energy:
Dear Chairman Smith - during today's Senate Environment Committee hearing, you again publicly accused PJM of "corruption" regarding capacity charges and related delays in PJM interconnection approvals for renewable power.
I agree with you.
PJM interconnect delays exacerbate capacity shortfalls, which increase PJM capacity payments - just what the incumbent generators who control PJM want.
Yet, the various legislative initiatives discussed today (e.g. S4289 storage and S4307 data center tariffs and S4423 modular nuclear) all accepted the continuing validity of PJM capacity changes as if they were immutable and NJ had no other options to avoid paying them.
PJM capacity charges are the equivalent of economic sanctions.
Although they are theoretical economic policy tools to incentivize the development of new capacity in deficit regions, the theory is flawed and they have failed in practice.
In practice, they do nothing but reward incumbent generators, who control PJM, with windfall profits.
It is time to challenge these PJM sanctions frontally, not just sit back and pay them and design legislation to work around the harms those capacity charges cause.
One way to do so would be to exit the PJM grid and either join neighbor New York State's grid, or form an independent NJ grid and public power authority.
Both those options would eliminate an equally corrupt practice, which is the BPU's "BGS Auction", which bases the market price on the HIGHEST bid. That I absurd and increases energy costs by billions of dollars, which again go to windfall profits for the energy corporations.
Please conduct legislative oversight hearings on PJM's capacity charges, a NJ PJM exit strategy, and BPU BGS Auction methodology. This can lead to real reforms that lower energy costs and accelerate the transition to renewable energy.
Bill Wolfe