Rising Transmission Rates in PJM: What Businesses Need to Know and How to Mitigate Costs

The cost of electricity is a critical factor for businesses striving to manage operational expenses and maintain profitability. Recently, PJM Interconnection, the regional transmission organization (RTO) serving 13 states and the District of Columbia, has announced significant increases in transmission rates. These rising energy rates are set to impact businesses across the region, making energy management more crucial than ever.

At Lightility, we specialize in helping businesses navigate energy efficiency, keeping them competitive and financially stable amidst market fluctuations.

What is PJM Interconnection?

PJM Interconnection is one of the largest RTOs in the U.S., responsible for managing the high-voltage electric grid across a large portion of the Mid-Atlantic and Midwest. PJM coordinates the movement of wholesale electricity across its network and oversees the capacity market, which determines pricing for electricity generation.

Why Are Energy Rates Increasing?

PJM has announced that transmission rates are set to rise significantly in June, leading to an immediate increase in energy prices for businesses. As energy costs climb, businesses must actively monitor their consumption and adjust their rate plans to avoid excessive charges.

The latest PJM capacity auction for 2025-2026 revealed a massive 833% increase in capacity prices, surging from approximately $29 per megawatt-day to $270 per megawatt-day. Several factors are driving this unprecedented spike:

Retirement of Power Plants

Older power plants, particularly coal-fired facilities, are being retired due to a combination of environmental regulations, aging infrastructure, and economic inefficiencies. These closures reduce the available supply of electricity, causing increased demand for remaining generation sources. While there have been discussions about nuclear retirements, nuclear power continues to play a vital role in PJM's energy mix. In fact, efforts are ongoing to maintain and, in some cases, expand nuclear capacity to meet increasing energy demands and sustainability goals. Meanwhile, the rapid phase-out of coal-fired plants has significantly reduced baseload power generation, adding strain to other energy sources such as renewables and natural gas.

Increased Energy Demand

The demand for electricity has surged in recent years due to multiple factors. The rapid expansion of data centers, the electrification of transportation, and increasing energy needs in industrial manufacturing have all contributed to greater consumption. In particular, AI-driven computing and cloud services have led to skyrocketing energy usage by tech companies. Additionally, as more consumers and businesses transition to electric vehicles (EVs), the grid faces a higher load than ever before, driving energy rates even higher.

Grid Infrastructure Investments

Maintaining and modernizing the electric grid is a major expense that utilities pass on to ratepayers. As aging transmission infrastructure requires upgrades and replacements, PJM has approved large-scale investment projects aimed at improving grid reliability and reducing congestion. These investments, while necessary, result in higher costs for consumers. Moreover, integrating renewable energy sources such as wind and solar into the grid requires additional transmission development, increasing expenditures that impact energy rates.

Market Volatility

Fluctuations in fuel prices, supply chain disruptions, and weather-dependent energy sources contribute to price instability. Natural gas prices, for example, have been highly volatile due to geopolitical tensions, increased global demand, and domestic supply fluctuations. Meanwhile, the growing reliance on renewable energy—which can be affected by inconsistent sunlight and wind conditions—adds unpredictability to the market. Without adequate storage solutions, the reliance on intermittent energy sources can lead to unexpected price spikes during peak demand periods.

These factors create an environment where businesses must be proactive in managing their energy usage to control costs effectively.

How Rising Energy Rates Will Impact Businesses

Higher Monthly Energy Bills

The increased transmission costs will be reflected in monthly utility bills, particularly for businesses with high energy consumption, such as manufacturing plants, office buildings, and data centers.

Sustainability Efforts Becoming More Expensive

Businesses striving to adopt sustainable practices, such as using renewable energy or implementing energy efficiency upgrades, may find themselves paying higher-than-expected costs if they are on the wrong rate program. Incorrect rate structures can lead to penalty charges or missed cost-saving opportunities.

Increased Operating Costs for Property Owners

For apartment buildings and commercial real estate, higher transmission rates translate to higher operational expenses, potentially leading to increased rent or maintenance fees for tenants. New property acquisitions should be analyzed carefully to assess potential energy rate costs before purchase.

Supply Chain and Service Industry Costs Rising

Warehouses, distribution centers, and service industries will experience increased energy rates, leading to higher product prices for consumers and reduced profit margins for businesses.

How Businesses Can Reduce Energy Costs Despite Rising Rates

Compliance with Building Energy Performance Standards (BEPS)

Both Washington, D.C., and Maryland are implementing Building Energy Performance Standards (BEPS) to enhance energy efficiency in large buildings. These regulations set specific energy efficiency requirements that commercial properties must meet to reduce overall energy consumption. Non-compliance with these standards can result in substantial financial penalties, increasing operational costs for businesses that fail to adapt. Given these developments, it's crucial for businesses to proactively manage their energy consumption and ensure compliance with regional energy standards to mitigate rising costs and avoid penalties.

Conducting an Energy Audit

A professional energy audit helps identify inefficiencies in a building’s energy consumption, uncovering opportunities for cost savings. Outdated or inefficient lighting and HVAC systems, excessive peak demand charges, and underutilized rebate programs are common areas for improvement.

Upgrading to Energy-Efficient Lighting and Systems

LED lighting upgrades and power monitoring systems can significantly reduce energy consumption and offset rising transmission costs. Apartment buildings undergoing acquisitions should prioritize energy-efficient upgrades to keep operational costs low.

Selecting the Right Rate Program

Many businesses are paying more for energy rates than necessary because they are on the wrong rate program. By analyzing energy usage patterns, businesses can adjust their rate structures to avoid penalties and optimize energy expenses.

Investing in On-Site Renewable Energy

One way to offset rising PJM Interconnection transmission rates is to install solar panels or battery storage systems. By generating and storing energy on-site, businesses can cut costs and increase sustainability.

Partnering with an Energy Solutions Expert

Navigating PJM Interconnection rate structures, demand charges, and energy efficiency programs can be complex. Working with experts like Lightility allows businesses to make informed decisions that maximize savings and efficiency.

The Future of Energy Costs in PJM Interconnection

With energy rates expected to remain high, businesses must take a proactive approach to managing energy expenses. This includes staying informed on PJM Interconnection market updates, investing in long-term energy efficiency solutions, exploring alternative energy sources, and continuously monitoring energy consumption for cost-saving opportunities.

Secure Your Business Against Rising Energy Costs

Rising energy rates in PJM Interconnection pose a significant challenge for businesses, but with the right energy strategy, companies can reduce costs and improve efficiency. Conducting energy audits, optimizing rate programs, and investing in efficiency upgrades helps businesses stay ahead of the curve and mitigate the impact of higher energy prices.

Lightility specializes in energy consumption audits, helping businesses identify inefficiencies and implement cost-saving measures. Our team ensures compliance with new energy regulations while optimizing usage to reduce expenses.

For a customized energy strategy that meets your business’s needs, contact Lightility today. Let’s work together to build a more energy-efficient and cost-effective future for your operations.

Get in touch with us to learn how we can help you save on energy costs!