What's fueling persistent volatility
For 15 years, energy was relatively boring. Demand was flat, generation was overbuilt, capacity prices were low. None of that is true now.
PJM is the clearest case. The 2024 capacity auction cleared at $269.92/MW-day — up from $28.92/MW-day the prior year, a roughly 9× increase. The 2025 auction then cleared at the price cap of $329.17/MW-day. Many businesses saw capacity-driven rate increases of around 20% when the new delivery year kicked in.
FERC eventually approved a temporary "price collar" capping the next two PJM auctions and setting a floor. That provides short-term boundaries but doesn't solve the underlying issues:
- Tight supply and slow generation growth — coal and older gas plants retiring faster than new capacity is being built
- Delays in renewable project interconnections — PJM's queue has over 200 GW of pending projects; Fast-Track (RRI) accelerates only ~10 GW
- Rising demand from electrification and industrial expansion — data centers, EVs, industrial reshoring all add load
- Ongoing regulatory interventions and uncertainty — capacity market reform, transmission rule changes, FERC oversight evolving
Together, these factors are reshaping energy markets — and none of them resolves on the timeline of a quarterly budget cycle. Persistent uncertainty is the operating environment.
One-time buying isn't a strategy
For years, many commercial energy buyers approached procurement with a simple pattern: lock in a low rate once a year and move on. In 2026, that approach creates more risk than reward.
Markets move fast. Delaying a decision by just a few weeks can result in long-term cost exposure. Locking in too early — or too late — can mean committing to rates that are misaligned with market conditions. Worse, fully fixed long-term contracts at peak market moments lock in a risk premium that wasn't there before and isn't recoverable after.
Static buying treats energy as a one-time event. It's actually a continuous process — one that needs a procurement function responding to real-time market signals, not an annual purchasing decision.
What replaces one-time buying
Modern energy strategy is built around four disciplines that work together. Each one alone helps; together they compound:
| Discipline | What it does | Why it matters now |
|---|---|---|
| Layered hedging | Spread purchasing across multiple timeframes; predefined trigger prices; tranched execution | Averages out market timing risk; protects against spike exposure |
| Scenario planning | Model multiple price futures; identify which conditions break the budget | Catches surprises in time to adjust, not after the fact |
| Capacity tag management | Forecast 5CP / 4CP events; reduce load during peaks; enroll in demand response | Capacity is now the second-biggest bill line in many markets — sometimes the biggest |
| Operational efficiency | HVAC, lighting, motors, smart controls, on-site renewables, power factor | Reduces both commodity consumption AND peak demand contribution |
The pieces are detailed in dedicated posts: Hedging 101 for the mechanics, Budget Season Playbook for scenario planning, Capacity Markets Explained for capacity tag work. This piece is the executive overview that ties them together.
The capacity dimension matters more than buyers realize
For most C&I facilities in PJM, capacity is now 20–35% of the total bill — up from 5–10% just a few years ago. A 5 MW facility that paid $35K in capacity in 2023 may now pay $300K+ for the same demand allocation.
The commodity rate has nothing to do with this. Even if your energy commodity rate is locked in cleanly, capacity is a pass-through line that moves independently. A procurement strategy that ignores capacity manages 60–70% of the bill at best.
The fix: forecast your capacity tag (your peak demand contribution during ISO-defined system peaks), manage operations during those peak windows, and integrate demand response participation where the operational flexibility supports it. Reductions of 15–25% year over year are achievable for facilities with operational flexibility.
Efficiency still delivers
Not all energy cost savings come from the supply side. Efficiency continues to be one of the most reliable and immediate ways to reduce spend — and it has a double benefit in a high-capacity-cost environment: it reduces both your commodity consumption and your peak demand contribution.
The categories that move the needle for most C&I facilities:
- Upgrades to lighting, HVAC, and motor systems
- Smart building controls and automation
- Load shifting and demand response participation
- On-site renewables and battery storage
- Power factor corrections
These projects often deliver both operational and financial benefits — easing the pressure on procurement strategy at the same time they support sustainability commitments. The biggest wins typically come where commodity costs are high and capacity charges have grown — making the operational change financially obvious twice over.
$325 / $175
PJM capacity auction price cap / floor under the temporary FERC-approved collar — providing boundaries but not addressing the underlying tightness
The procurement function as a process
What distinguishes the buyers who absorb volatility from the ones it overwhelms isn't intelligence about the market. It's process discipline. Specifically:
- Written hedging plans with documented trigger prices and execution windows — not "we'll hedge when it looks right"
- Quarterly reviews against scenario forecasts — not annual budget exercises followed by quiet panic in Q3
- Capacity tag tracking by season with operational responses planned for peak windows — not month-end surprise
- Real-time market intelligence through platforms like Pilot's PowerUp — not waiting for the bill to arrive
- Ongoing partnership with an energy advocate who stays engaged before, during, and after each contract — not a transactional supplier relationship
In this kind of market, energy isn't something you set and forget. It's something you manage every day — or that someone manages for you, working alongside your team rather than away from it.
Bottom Line
Volatility doesn't go away because you stop watching. It does, however, stop breaking the budget once a serious procurement architecture is in place. Layered hedging, capacity tag management, scenario planning, and operational efficiency compound — and the buyers who run all four win regardless of which way the market moves. If your energy plan only addresses current pricing, you're already behind.
