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.