Capacity market auctions are spiking across the country. Can your pricing keep up? That’s not a rhetorical question. For energy retailers across the United States, it’s rapidly becoming the central challenge of the new energy landscape. If the recent PJM capacity auction is any indication, the era of predictable, stable capacity costs is over for the near future. And as the saying goes, when PJM sneezes, the rest of the grid can catch a cold. The results for PJM’s 2026/2027 Base Residual Auction (BRA) are in, and they confirm what many in the industry were nervously anticipating. After last year’s auction sent prices soaring by nearly tenfold over historical averages (jumping from around $29/MW-day to $270/MW-day[1]), this year did it again.
Capacity prices for most of PJM hit the FERC-approved cap of $329.17/MW-day – up 22% from last year’s record price[1]. The total cost of this latest PJM auction came to $16.1 billion, up from $14.7 billion the year before and a staggering leap from just $2.2 billion two years prior[1]. PJM expects these high capacity charges alone to raise customer bills by roughly 1.5–5% in many states, but this could easily be an underestimate[1].
While it may be tempting for retailers outside of the 13 states covered by PJM to breathe a sigh of relief, that would be a mistake. The underlying drivers of this volatility – soaring demand from data centers, the retirement of old generation capacity, a lower contribution of existing renewable energy, and slower-than-needed replacement by new generation – are not unique to PJM. They are a sign of a nationwide system under stress. This isn’t a regional problem; it’s a warning shot. Other U.S. power markets have already felt similar tremors. In 2022, capacity prices in MISO’s auction jumped from about $5/MW-day to $236.66/MW-day in one year, after a sudden capacity shortfall[2]. And a recent NERC assessment warns that “well over half” of North America faces elevated or high risk of energy shortfalls in the next 5–10 years as electricity demand growth (driven by new data centers, electrification, and other large loads) outpaces new generation additions[3]. In other words, PJM’s upheaval is likely a preview of broader volatility to come. Energy retailers across all regions are under pressure.
It’s time to talk solutions.
A nationwide problem
For years, capacity charges were a relatively sleepy line item on a spreadsheet. Not anymore. Exploding capacity market costs are no longer a theoretical risk: as noted, PJM’s capacity costs have spiked dramatically in back-to-back auctions, and other markets show the same pattern.
For energy retailers, this new reality is a direct threat to the bottom line. Margin erosion from unforeseen costs is almost certain, and in extreme cases, existential risks are now very possible. We’ve already seen how sudden price spikes can wreak havoc: during the Texas winter storm of 2021, wholesale electricity prices hit $9,000/MWh, bankrupting several retail providers due to the unforeseen costs[4]. At the same time, customers on certain plans received electric bills over $16,000 because their provider passed through the rates.
In short, volatility at this scale can either wipe out your company or alienate your customers, and possibly both. Yet most retailers are simply not equipped to respond to this level of volatility. Their systems, processes, and pricing models were built for a different, more stable era, and it shows.
Legacy tools lead to expensive delays
The root of the problem for many retailers lies in their technology stack. Outdated billing and pricing systems slow everything down, creating expensive delays. These legacy tools were not designed for the high-volatility, data-intensive market we live in today. When a shock like a capacity price spike hits, a retailer using 20th-century technology will struggle to even measure the impact quickly, let alone respond with agility.
The result is a cascade of failures at the worst possible time:
- No real-time repricing. When costs change overnight, legacy processes can’t update thousands of customer rates fast enough to prevent losses.
- No granular risk view. It’s often unclear which contracts or customer segments are over- or under-collecting against the new costs, obscuring critical risks.
- Lack of visibility into over- or under-collection. Finance teams may not realize for weeks or months that they’ve been dramatically off in recovering costs, by which point millions in margin may be lost.
- No alignment across teams. Sales, trading, and operations might all have different data on exposure, leading to confusion and finger-pointing just when unity is needed.
This toxic mix leads to a trifecta of bad outcomes: higher costs, lower confidence, and a loss of trust, both internally among teams and externally with customers. In short, legacy tools and siloed processes leave retailers flat-footed just when they need to be nimble.
Fixed contracts, volatile costs
Many retailers might feel a sense of security thanks to long-term forwards in the wholesale market. But that security is often an illusion. Even “fixed” contracts typically allow for some variation in the final costs the retailer pays. Retailers can pass the costs on to business customers, thanks to clauses that allow pass-through of costs, but this brings its own risks. There isn’t an easy escape route when capacity or other regulated costs explode, as sooner or later someone has to pay.
Passing those costs on is a minefield. Adjusting pricing after a contract has been signed is a delicate operation, fraught with risk to customer relationships and brand reputation. As the Texas example showed, handing consumers a massive surcharge for something they didn’t see coming is a recipe for backlash. On the other hand, if a retailer tries to absorb extraordinary cost increases internally, it can be financially devastating. Successfully navigating this challenge requires an array of new capabilities:
1) re-evaluate contract positions against real-time market data to model the immediate impact on portfolio-level margin;
2) model contract-level price scenarios to proactively manage portfolio-wide capacity shortfalls;
3) calculate price scenarios for prospective customers across unlimited permutations of product structures (flat forward capacity curve, escalating, de-escalating, etc);
4) implement a flexible billing engine capable of accurately processing and invoicing for complex, multi-component energy products.
Without these integrated capabilities, retailers are flying blind, forced to either swallow crippling losses or else clumsily claw back costs.
Retailers need to be more responsive
To manage this new reality, retailers must evolve. The capabilities described above are not easy to achieve. In practice, a retailer has to have the ability to adapt pricing in minutes, not weeks, and to precisely adjust rates for specific locations or customer classes as underlying costs change. It means feeding real contract terms and triggers directly into forecasting and P&L models. Ultimately, it’s about moving from a reactive posture to a real-time management of both costs and revenues.
Industry experts echo this need for agility. Boston Consulting Group advises that companies should “rewire the organization to respond to external market signals” and use digital tools to understand and react to variability, essentially adopting the mindset of an energy trader[5]. Leading companies have already started treating energy volatility as a source of competitive advantage rather than just a threat, by creating flexibility in their operations and pricing.
For example, one US retailer leveraged Gorilla’s pricing platform to provide multiple scenarios in a single pricing workflow, drastically reducing calculation time for changes to capacity market prices. Despite sounding simple, scenario modelling is still beyond many legacy tools, or simply takes so much time as to be not worth doing, so this demonstration was a huge efficiency boost for the retailer.
That is just one example of the capabilities of the Gorilla platform; if we were to look at the 4 necessary capabilities above, Gorilla can take care of items 1-3, so a combination with the right billing engine would be a big step forward for retailers seeking to head off the risk from wholesale volatility.
Get to grips with your market
Navigating the “new normal” of volatile costs calls for new tools and approaches. This is precisely the challenge we built Gorilla’s pricing application to solve. In our experience working with energy retailers, most lack the flexible, integrated systems needed to respond to market shocks like soaring capacity prices[6]. The solution lies in breaking down data silos and embracing a unified platform, one that can ingest relevant market data, contract terms, and meter data, and then output actionable insights in near real time. With such a unified data platform, you can move beyond reactive damage control and start making proactive, data-driven decisions.
For instance, Gorilla’s platform provides the tools to build zone-specific, near-real-time pricing workflows and to achieve contract-aware margin and risk visibility at all times. It enables dynamic forecasting that is aligned with your pricing logic, so that as soon as a market change occurs (be it a new capacity auction outcome, a fuel price spike, or a regulatory fee change), you can immediately see the impact on contracts and accounts. Equally important, it ensures seamless integration across your sales, trading, and risk teams – everyone works off the same numbers and assumptions, so the organization can respond in a coordinated way. There’s no need to take our word for it: we can arrange a demo for you.
The PJM auction is a clear signal that the ground has shifted under our feet. The risks are real, but with the right tools and strategy, so are the opportunities. Energy retailers who embrace smarter systems and data-driven agility will be the ones to turn these “warning shots” into a competitive advantage. It’s time to move from reactive to ready.[7]
[1] PJM capacity prices set another record with 22% jump | Utility Dive
https://www.utilitydive.com/news/pjm-interconnection-capacity-auction-prices/753798/
[2] Capacity prices jump across MISO's central and northern regions, driven by supply shortfall | Utility Dive
https://www.utilitydive.com/news/capacity-prices-auction-miso-midcontinent/622186/
[3] NERC warns of 'urgent need' for new energy resources over the next decade
[4] At Texas high court, energy companies fight colossal bills from winter storm Uri | Courthouse News Service
[5] What CEOs Can Learn from Energy Traders | BCG
[6] Why Energy Retailers Lose Money By Doing Nothing
https://www.gorilla.co/us/post/why-energy-retailers-lose-money-by-doing-nothing
[7] Resilient portfolio growth for energy companies in volatile times | McKinsey
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