On June 1, 2025, new PJM capacity rates will take effect, potentially driving up commercial energy savings for businesses that rely heavily on electricity to power their operations. With the recent approval of PJM’s capacity price collar by the Federal Energy Regulatory Commission (FERC), businesses now have a clearer, but still challenging, view of their long-term energy costs.
Acting now to reduce exposure and optimize energy strategies is critical for protecting your bottom line and managing rising energy costs.
What’s New: FERC Approves Capacity Price Collar
On April 21, 2025, FERC approved PJM’s proposal to set a capacity price collar for its next two base capacity auctions, covering the 2026/27 and 2027/28 delivery years. This collar sets a $325/MW-day price cap and a $175/MW-day price floor, offering businesses in PJM territory a more predictable cost range for the next few years. Without this collar, the next auction’s price cap could have reached nearly $500/MW-day, significantly adding to rising energy costs for businesses.
The price collar was introduced as a compromise to address the sharp rise in capacity prices seen in recent years. PJM’s last auction cleared at nearly $270/MW-day for most of its footprint, a sharp increase from $29/MW-day just a few years ago. For many businesses, that kind of capacity increase can translate to roughly a 20% jump in electric supply costs.
Why Rising Energy Costs Are Here to Stay
While the price collar aims to stabilize the market, it also locks in higher baseline prices, creating long-term cost challenges for businesses.
Several factors are driving this sustained upward pressure on capacity prices:
- Rapid Load Growth: Demand for electricity is increasing as businesses expand operations, add new facilities, and adopt more energy-intensive technologies.
- Power Plant Retirements: Older power plants are being retired faster than they can be replaced, reducing available capacity and driving up prices.
- Interconnection Delays: PJM’s compressed auction schedule, a result of past delays, leaves little time for new power plants to come online, limiting the immediate affect of price signals. This slower pace in adding capacity can lead to rising energy costs for businesses.
- State and Federal Policies: Evolving regulations, including renewable energy mandates and carbon reduction goals, are reshaping the economics of power generation, adding further pressure to businesses trying to manage energy costs.
Together, these factors suggest that businesses should prepare for elevated capacity costs through at least 2028, with potentially huge impacts on their operating budgets.
The Long-Term Hit on Commercial Energy Savings
Businesses in energy-intensive industries are particularly vulnerable to these rising costs, including:
- Manufacturing and Heavy Industry: These sectors have high, consistent energy usage, making them especially sensitive to capacity price increases.
- Data Centers and Tech Companies: With significant power needs, these businesses face major cost spikes if they don’t proactively manage their energy strategies.
- Commercial Real Estate: Large facilities with high operational energy demands will struggle to control costs without careful planning.
For businesses that fail to act, the financial impact could be severe. Higher energy costs can erode profit margins, reduce financial flexibility, and make long-term planning more difficult.
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How to Lower Energy Bills and Protect Your Bottom Line
To reduce exposure and protect your margins, businesses should consider the following strategies:
- Explore Peak Load Management and Demand Response: Reduce exposure to peak pricing by shifting energy use during high-cost periods or participating in demand response programs that offer financial incentives for reducing load during critical times.
- Invest in Efficiency Upgrades: Implement energy-efficient equipment, smart technologies, and automation systems to reduce overall consumption and lower long-term costs.
- Optimize Energy Contract Timing: Assess the timing and structure of your current energy contracts to avoid locking in at peak prices and take advantage of market opportunities.
- Plan for the Long Term: Work with an energy advisor from Pilot Energy to help you consider multi-year contracts, hedging strategies, or even self-supply models to lock in lower rates and avoid future price shocks.
How Pilot Energy Can Help Lower Your Energy Bills
Pilot Energy offers a range of services designed to help businesses manage rising energy costs and reduce financial risk, including:
- Proactive Energy Procurement Planning: Helping you choose the right time to buy energy, optimize contract terms, and avoid costly price spikes. With real-time market insights from PowerUp™, you’ll have the data you need to make smart purchasing decisions.
- Load and Risk Assessments: Taking a close look at your energy usage to identify cost drivers and savings opportunities. This means understanding when and how you use energy, so you can manage peak demand and reduce overall costs.
- Forecasting Capacity Cost Impact: Using advanced tools like our proprietary software PowerUp™ to forecast long-term price trends, giving you the insight needed to plan for the future and avoid budget surprises.
- Flexible Contract Support: Helping you structure contracts that offer protection against market volatility and unexpected price spikes, so you can lock in savings without taking on unnecessary risk.
About Pilot Energy
Founded in 2001, Pilot Energy is an unbiased and independent energy procurement advisor that empowers leaders to confidently know when, where, and how much energy to purchase by leveraging our unique blend of industry knowledge and innovative digital platforms. Putting our know-how to work daily, we drive clarity and control in decision-making and take pride in providing unparalleled personalized service. Guiding businesses with strategic innovation while committing to sustainable solutions.
Ready to improve energy strategies? Schedule a free consultation from Pilot Energy today!