HARRISBURG — Steeper energy costs are coming this summer, and bills are expected to be even worse next year, thanks to a recent power auction that saw utilities pay record-high prices.
The rising summer prices in Pennsylvania are partly driven by unavoidable factors.
As the Public Utility Commission (PUC) wrote in a warning to consumers Friday, the state has seen “soaring power usage during multiple heat waves since mid-June and scorching conditions that pushed electricity demand on the regional power grid to its highest level in 14 years.”
That record-setting usage, the commission warned, “will soon be reflected in monthly electric bills.”
Nils Hagen-Frederiksen, a spokesperson for the PUC, said that coinciding with the heat waves, which began earlier than usual this summer, many Pennsylvania residents saw their energy prices move up on June 1.
That “reset,” which electricity distributors can perform in June and December, only affects customers who get what the PUC calls “default service,” meaning they haven’t shopped around for a lower rate that is locked in by a contract.
“The price reset combined with a big spike in heat-driven usage could catch some consumers by surprise,” Hagen-Frederiksen said.
But there are other factors undergirding rising energy prices that are more structural, and they have to do with the way the region’s electric grid, PJM, operates.
The biggest factor in prices, said Tom Rutigliano of the National Resources Defense Council, an environmental nonprofit, is fundamentally “just supply and demand.”
Power needs in PJM states — and in the U.S. generally — are increasing, in large part because of the growth of energy-intensive data centers. Supply has also been constrained because PJM is backed up in connecting new power plants to the grid, Rutigliano said. Even when the plants are approved, they’ve seen delays related to supply chain problems and permitting.
“Almost every step in the power plant development process is extra difficult right now,” Rutigliano said.
How the grid affects your bill
Every year, PJM holds an auction at which energy generators, like natural gas and coal plants, as well as solar and wind producers, sell their electricity to utility companies. The utilities then sell this power to homes and businesses.
PJM’s role in this auction is to regulate the market, and this includes capping the price per megawatt that utilities have to pay to make an energy generator a committed part of the grid.
Being “committed,” noted Rutigliano, means a generator agrees to have power available no matter what. If it can’t deliver enough energy when the grid needs it, the generator can face steep fines.
The caps on the prices utilities pay generators are traditionally determined based on the cost required for a new energy provider to join the grid. And in recent years, the caps have been rising. Last year’s auction saw a landmark spike in the prices utilities were paying for energy — a whopping 800% over the previous year.
The effects of these price increases don’t kick in right away, so that massive hike is only now being felt by consumers served by PJM, and is yet another key reason why bills are currently high.
The price increase in last year’s auction was so high, in fact, that Pennsylvania Gov. Josh Shapiro filed a lawsuit arguing that PJM was partly at fault because of its slow process for approving new producers. Shapiro argued the grid operator should set a lower price cap to prevent more of these high costs from being passed to consumers.
PJM argued in January that the rise in demand from data centers, coupled with the closure of generators, was more to blame, saying that it has “been warning for over two years of the prospect that parts of our country could run short of power during high demand periods.”
Shapiro and PJM ultimately reached a settlement on a lower price cap, which regulators approved. That cap was in effect for PJM’s most recent auction, on July 22, which saw prices rise to the maximum they were allowed — a 22% increase over last year’s.
That’s lower than it likely would have been without the lawsuit. Shapiro’s administration estimated the settlement reduced costs to Pennsylvania consumers by about $1.6 billion.
It’s still a record-setting number, though. And Rutigliano said while it won’t affect businesses and families quite to the same degree as last year’s prices did, it’ll nevertheless go “straight through to people's bills.”
“Capacity payments are around a quarter of power bills,” he said. “So a 20% increase will correspond to around a 5% increase in people's bills next summer.”
More challenges are likely on the horizon, both for consumer energy prices and for overall grid reliability. President Donald Trump’s administration just made major changes to U.S. energy policy in its signature tax and spending bill, broadly pulling back federal investment in clean energy technologies.
Notably, Rutigliano said, the bill “kneecapped” offshore wind projects, which is a big deal because coastal states have already committed large amounts of energy from these projects to PJM over the next five to ten years. “That's going to really impact prices,” he said.
He added that the Trump administration has also focused less on energy storage — making batteries, essentially — and he thinks anything that slows down battery production will likely affect prices too.
Meanwhile, energy demand shows little sign of slowing down, particularly when it comes to building the data centers that are increasingly necessary to power artificial intelligence.
A U.S. Department of Energy report released last year found that data centers ate up about 4.4% of total electricity nationwide in 2023, and projected that number would increase to between 6.7% and 12% by 2028.
“In the last auction, PJM cleared, like, right at their reliability margin — there's essentially no more power,” Rutigliano said. “So not to be too dramatic … but unless they're able to start really getting new supply on very quickly, lack of supply is going to constrain data center growth in the region.”
Spotlight PA’s Kate Huangpu contributed reporting.