Key Takeaways:
- Competitive electricity markets deliver lower costs for consumers than monopoly utility systems.
- Leaving PJM—whether through a Fixed Resource Requirement (FRR) or returning to a vertically integrated model—would raise prices, challenge reliability, and reduce innovation.
- Policy solutions lie in fixing permitting and regulatory barriers, not abandoning competition.
As States Debate Energy Future, the Stakes Are High
As electricity demand rises across the PJM Interconnection—the nation’s largest competitive power market—some states have floated the idea of leaving PJM in response to recent capacity auction outcomes or perceived regulatory constraints, while also pushing for governing policies that manipulate market prices by setting price caps, ignoring supply and demand principles.
But the data is clear: exiting PJM would be a costly move.
Explainer: What is PJM?
PJM Interconnection operates the wholesale electricity market across 13 states and DC, serving more than 65 million people. PJM ensures reliability by matching supply and demand and running competitive auctions that attract private investment in new generation.
Transparent market signals help keep costs low and reliability strong—without burdening taxpayers or ratepayers with unnecessary risk.
Learn more at PJM.com
Competitive markets have consistently delivered lower prices for customers compared to monopoly regions with vertically integrated utilities (VIUs). Current state-led efforts undermine certainty in the market and its functions while failing to address real issues like long permitting timelines and limits on the use of essential power generation resources like natural gas.
Though in line with the past decade’s trend, PJM’s most recent capacity auctions have produced two years of higher prices after three successive years of historic lows. These higher capacity prices are a signal to developers that investment in additional generation is critically needed, or in simpler economic terms, that there is demand for more supply. Yet, state permitting laws and regulations are slowing the development of new assets from being built in an efficient, timely, and predictable manner. More supply will be built – if state policymakers can let markets work, signal that those investments are welcome, and accelerate their development by addressing bottlenecks under their purview.
Capacity Prices in Context
Recent PJM capacity auctions cleared higher than in prior years, but these results follow a long stretch of historically low prices and remain in line with long-term, inflation-adjusted trends.
According to Energy Tariff Experts (ETE), generation and capacity costs make up about 45% of the average utility bill across key PJM states—a share that has stayed stable for the past decade. Even with the recent increase, total generation costs remain lower than in several past years once inflation is considered.
At the same time, spending on transmission, distribution, and policy-related charges has grown substantially, driving most of the rise in customer bills.
Capacity prices naturally fluctuate as markets balance supply and demand. After years of low prices that slowed new investment, today’s higher prices signal the need for more generation.
Despite PJM’s long track record of reliable, cost-effective performance, some state leaders continue to say they are exploring the idea of leaving the RTO—or intervening in its market governance—by proposing measures such as capacity price caps, carve-outs for favored resources, or mandates that bypass market outcomes.
While often well-intentioned, these interventions weaken the transparency and predictability that markets depend on. Over time, repeated political adjustments can cause PJM to function less like a market and more like a “regulatory construct,” meaning the market behaves more like a government-managed utility system than a competitive marketplace – hostage to political winds and subject to shifting priorities every election cycle. Prices and investment decisions are determined by regulators or legislation, not by supply and demand. That uncertainty discourages the long-term private investment needed to build new, reliable generation and meet rising demand.
These pressures often lead states to consider alternatives like the Fixed Resource Requirement (FRR), which promises more local control but in practice drives up costs and reduces transparency. Understanding how these alternatives work—and what they mean for consumers—is critical as policymakers chart the path forward.
What Leaving PJM Would Mean
States considering departure have two main alternatives to secure power:
- Fixed Resource Requirement (FRR): A utility opts out of the PJM capacity market and procures its own generation resources.
- Vertically Integrated Utility (VIU): The traditional monopoly model, where a state-regulated utility controls generation, transmission, and distribution.
Electricity prices would undoubtedly rise in either scenario while giving control over every aspect of the electricity system to utilities and their state regulators – without solving underlying challenges like siting delays and transmission bottlenecks.
The Fixed Resource Requirement (FRR): Higher Costs, Less Competition
The FRR alternative in PJM gives eligible utilities or “load serving entities (LSEs)” the ability to opt out of participating in the standard PJM capacity market and procure its own electricity – effectively reintroducing a monopoly structure at the state level. The utility must commit to the FRR for a minimum of five years, meaning it cannot re-enter the market, and consumers cannot benefit from any favorable market changes.
See: Securing Resources Through the Fixed Resource Requirement (PJM, 2025)
Individual utilities would then most likely have to spend more money to meet demand and keep the grid reliable, increasing costs for customers. In 2024/2025 Appalachian Power had a $464/MW-day capacity rate, while PJM had a $28.92/MW-day capacity rate in that same time frame – a more than 1,500% difference.
The data shows that those advocating for the FRR as a way to “contain cost” and reduce exposure to the capacity market are in fact ensuring customers are locked into long-term prices that are higher than the market on average. For states seeking to reduce costs and reduce the burden on constituents, this change fails to deliver on the promise of lower costs.
Vertically Integrated (VIU) Monopoly System: Lessons From the Past
A VIU-driven model wouldn’t deliver guaranteed better pricing outcomes either.
A recent study by Energy Tariff Experts found that price increases within competitive markets were due to rising investments by local utilities in transmission and distribution systems and the impact of state policy mandates, which have increased costs by forcing early retirement of power plants and raising compliance costs for remaining generators. The generation component of customer bills – including energy and capacity costs – have remained relatively flat and consistent with historical averages.
A separate study by the Alliance for Competitive Power also found that retail rates have grown more quickly in vertically integrated states compared to states with restructured electricity markets for all sectors, including residential, commercial and industrial.
Hurdles to Building New Generation Remain in the FRR and VIU Models
Both the FRR and VIU models would see new project costs assigned directly to consumers through non-bypassable charges that increase utility bills, without regard to whether the project has cost overruns, falls behind schedule, or fails entirely. Despite claims to the contrary, utilities are not necessarily able to build new generation faster or cheaper than independent power producers. In fact, they face the same time constraints, permitting requirements and costs, and supply chain challenges as IPPs with the only difference being they are able to pass all of the costs, and many of the overruns, on to customers.
While poor investment decisions in the competitive market model fall instead on shareholders, in a VIU those risks and consequences fall squarely on captive customers. This is especially important for consumers to be aware of as power demand skyrockets and providers work expeditiously to build new generation. If the AI bubble bursts or data centers adapt to run more efficiently, consumers would continue paying for stranded assets that are no longer necessary under a VIU model.
Case Study: South Carolina’s Abandoned Nuclear Project
South Carolina provides a cautionary example. In 2008, South Carolina Electric & Gas and Santee Cooper budgeted $11 billion to build two nuclear reactors that were never completed. Costs ballooned to an estimated $25 billion by 2017 before the project was abandoned, leaving residents with a $9 billion tab for a project that never produced a single kilowatt . Today, 800,000 residents in the area, which remains a monopoly service territory, are still paying 5.6% more for their utility bills each month. What’s more, those customers still owe another 15 years of payments for a plant that hasn’t generated a kilowatt of power in 17 years. This is the kind of risk consumers can avoid by remaining a part of the restructured market.
Leaving a competitive market would also result in less innovative technology implementation, as utility regulators are often wary of approving cutting-edge technologies. Moreover, utilities don’t have a financial incentive to select the most efficient energy sources and face no competition to drive down costs.
How Regulators and Lawmakers Can Help Americans and the Power Sector
The good news is that more can be done to ensure power markets are operating efficiently and permitting issues at the state level aren’t a deterrent to additional construction. Governors, the Administration, and Congress can improve markets by:
- Ensuring market operators are letting supply and demand work to incentivize investment.
- Allow markets to flourish and less of a regulatory construct by reducing unnecessary intervention into the day-to-day workings of the market.
- Empowering forward-looking decision-making at FERC that fosters innovative market solutions to support load growth as it comes on the system.
- Crafting policies at the Environmental Protection Agency that respect the essential role that dispatchable resources like natural gas play on the grid and incentivize investment in needed infrastructure.
The Bottom Line
Competitive markets like PJM deliver measurable consumer benefits—cost discipline, stronger reliability, and more innovation.
Today, we face an opportunity to unleash markets and let them deliver the capital needed to power the future. State and Federal leaders should seize this opportunity to ensure that American consumers and businesses can access the reliable, affordable energy they need and deserve.
