PJM paid for capacity years ahead — and prices stabilized

In PJM's wholesale market, generators were paid only for the energy they produced. The old capacity payments used a vertical demand curve, so prices swung between near-zero and extreme — FERC concluded this discouraged investment and threatened reliability, especially in congested areas like Maryland.

PJM replaced it with the Reliability Pricing Model, effective 1 June 2007: annual base residual auctions for delivery years three years ahead, clearing where supply bids meet an administratively set sloped demand curve.

The first three auctions set RTO prices of $40.80, $111.92 and $102.04 per MW-day, while constrained regions paid far more — over $197 per MW-day in the eastern zones — sending a clear signal to build where power was needed.

The old design's boom-bust pricing was replaced with a gradient: the new model gave resources predictable revenue and created a market that generators, states and regulators could all plan around.

Auction capacity years ahead at a predictable, sloped price

A forward auction reveals how much capacity the market needs before scarcity arrives.

The sloped curve turns a cliff into a gradient, cutting the risk of prices swinging between free and priceless.

Locational clearing prices direct new investment to exactly the places where reliability is threatened.

Pay for availability before scarcity hits: a forward auction with a sloped demand curve gives generators predictable revenue and locational signals, so capacity is there when needed.

RPM became the template for capacity markets across the eastern United States; PJM still runs base residual auctions today, and the debates it triggered about paying for reliability remain live.