As electricity demand surges for the first time in over 20 years, policymakers throughout the country face a critical challenge: how to keep power reliable and affordable for millions of Americans while ensuring that the U.S. does not fall behind in the race for AI. This dilemma will come to a head on Monday, September 22, when the governors of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia convene a technical conference on the nation’s largest competitive wholesale power market – PJM.
The technical conference will be focused on what market reforms may be necessary “to bolster states’ ability to engage to ensure the safe, affordable, and reliable delivery of electricity to consumers.” Before any reforms are considered, however, policymakers must first understand the key drivers of electricity prices, how their own state policies have contributed to supply shortages, and why politicizing the grid is counterproductive.
For more than two decades, competitive electricity markets have proven their value — delivering greater reliability, lower emissions, and more affordable power than traditional models. Further entangling of state politics into PJM governance and operations will add additional barriers to achieving these goals. Here are the facts:
Increased politicization of PJM will do more harm than good
States in PJM already have clear, effective channels to engage with PJM’s governance. Through PJM’s stakeholder process, members and other stakeholders work together to share ideas and reach solutions for the challenges facing the grid. PJM’s robust and transparent process already includes over 400 meetings each year.
Through the Organization of PJM States (OPSI), Governors should focus on ensuring that their chosen representatives at OPSI, which are typically governor-appointed PUC commissioners, are prioritizing the long-term economic and reliability interests of consumers. Regulatory agencies from each of the 14 jurisdictions have regular communication with PJM and PJM’s independent market monitor to ensure regional coordination and raise concerns from the various states. OPSI is funded through additional charges to ratepayer bills, approved by FERC.
Adding another, new advisory body to PJM will impose additional costs and red tape, which will erode investor confidence and cause additional gridlock. Governors already have the power to nominate new representation if the advocacy of their appointees is not adequate.
Changing market rules and structures for short-term political gain, subject to an election cycle, is not the way to achieve consensus across industry stakeholders, keep rates affordable/cost-effective, and ensure long-term market efficiency.
The key driver of rising electric bills is not generation
If policymakers want to curb rising costs, targeting PJM is the wrong approach because generation costs are not the majority of the average electricity bill nor is it the part of the bill that is growing ever larger.
No matter where you live, your electric bill is comprised of a few elemental parts: energy costs, distribution and transmission costs, along with taxes, state policies, and other miscellaneous charges. As you survey PJM’s footprint over the past 10 years, energy costs, which include both generation and capacity, have remained relatively flat or declining while the other bill components have increased. According to a recent study by Energy Tariff Experts, those generation components accounted for only 45% of the average electric bill.
In 2025, the residential retail cost of generation as a percentage of customer bills has not increased materially and is consistent with historical averages. Source: Power Generation Costs and Impacts on Electric Bills, Energy Tariff Experts, May 2025
The study instead found that the two main drivers of rising electricity costs are:
- Rising cost of investments by local utilities in transmission and distribution systems
- State policy mandates that have forced early retirements of power plants, reduced energy supply, and increased compliance costs for generators
Drilling down further, PJM’s capacity auction has garnered outsized attention lately due to rising costs after a period of historically low prices. Capacity makes up only a small portion of generation costs and an even smaller portion of overall residential electricity bills. In 2024, the capacity market was just 7% of wholesale electricity costs.
Throughout the study period, costs for energy and capacity have varied, but often in divergent directions. The graphic above shows that on an inflation adjusted basis, 2025 is not an outlier in terms of generation energy and capacity costs relative to prior years in the study period. Source: Power Generation Costs and Impacts on Electric Bills, Energy Tariff Experts, May 2025
In a misguided attempt to lower costs for ratepayers, politicians are targeting one of the smallest portions of electricity bills, which is likely to produce the opposite of its intended effect. The short-term “win” is almost certainly likely to result in a longer-term loss to the very consumers they want to help.
Putting PJM’s prices in context
While elected officials are quick to blame PJM for rising costs, prices are also rising substantially in states that don’t have competitive markets. The common denominator for these increases is increased demand, utility spending on transmission and distribution, and policies that put in place barriers to new generation – all of which is occurring in states both with and without competitive markets. A recent report found that utilities are increasing rates in at least 41 states and DC. Nearly 81 million of the nation’s electricity utility customers will be affected by these rate increases.
While there must be continued investment in the power grid due to aging infrastructure and increased grid strain and EPSA supports continued investment in the electric grid; the beauty of competitive power markets is that the generation component is not automatically levied on the backs of consumers – private, independent power producers bear the risk of a bad investment meaning that portion of a consumer’s bill is subject to market pressure to keep costs as low as possible.
Competitive markets have been proven to keep costs affordable
Since competitive markets were established in 1996, the data is clear: competition lowers costs for ratepayers while improving reliability. To ensure that customers across PJM’s region continue to have access to affordable electricity, it’s essential that states continue to support PJM’s competitive market even as it evolves to meet changing demands.
A study conducted by FTI Consulting for the Alliance for Competitive Power analyzed how electric reliability, affordability, and emissions from the power sector have differed between states with competitive power markets and states with monopoly utilities. The results were stark:
- Competitive markets delivered lower costs. Since 1996 when competitive markets were established, retail rates have grown faster in states with monopoly utilities than competitive generation. On average, electricity rates in states with monopoly utilities rose by 86 cents more per kilowatt hour than in states with competitive markets.
- Competitive markets delivered lower emissions. Emissions in states with competitive markets fell 10% faster than in states with monopoly utilities. Now, generation in competitive markets produce 15% fewer emissions than monopoly utility generation because markets promote innovation.
- Competitive markets are more reliable. Customers in states with competitive markets experienced 5% fewer power outages.
Energy Policy Done Right: Ohio HB 15
Ohio took a bold step to modernize its electricity market and position and position the state as a top destination for building more generation. Here’s what HB 15, signed into law this year by Governor Mike DeWine, does:
Shifts financial risk of new infrastructure costs to private investors, not consumers.
Explicitly prohibits distribution companies from entering the generation market.
Prevents hidden consumer charges by eliminating electric security plans which companies used to charge customers outside of traditional rate cases.
The role of states in PJM
States already have a wealth of options to play a meaningful role in enhancing accountability and transparency for their ratepayers. One need only look to recent developments in Ohio for additional policy considerations that won’t interfere with the competitive market.
There are other ways state policymakers can seize the opportunity to enact real policies that will lower electric bills, such as:
- Reduce political and regulatory uncertainty: Power generation infrastructure development requires long-term investments and planning. PJM’s markets and investors have already experienced significant uncertainty in recent years with ongoing regulatory proceedings and complaints, delays and schedule changes, and retroactive rule changes. Continued political interference and disruption to the market rules and timing dampens investor confidence, disincentivizing both building new generation and retaining assets.
- Permitting reform: Long and unreliable permitting increases risk for investors and slows down construction of new generation of all types. As of June 4, 2025, PJM had 46,000 MW of projects (more than 25% of PJM’s existing capacity) with interconnection agreements that are free to build and while some are under construction, many are halted due to siting and permitting challenges, as well as supply chain backlogs.
- Remove onerous mandates: Policy mandates from states have raised compliance costs for electricity generators and forced premature retirement of critical capacity at a time when the grid needs more generation, not less.
- Choose effective representatives: PJM’s stakeholder process already gives states ample opportunity to provide input and shape decisions. Every state in PJM has a governor-appointed representative that should work to advance their state’s priorities. Governors can choose new representatives if they feel the existing advocacy is insufficient.
- Allow market signals to work: Each time PJM’s capacity prices have risen, companies have invested in new generation capacity. By trying to exert control over the market instead of allowing market signals to work as they were designed, investors will be less likely to build the new generation that PJM desperately needs.
The Bottom Line
As the U.S. gears up to reshore manufacturing and win the AI race, demand for electricity is surging. While policymakers are working hard to keep rates affordable, having more individual state influence over PJM’s market conditions will inevitably add more barriers to achieving these goals in the most cost-effective way possible. This is an opportunity for us to ratchet down the politics and allow the experts to do their jobs.
