July 31 (Reuters) -

Shares of Vistra ( VST ) and Constellation Energy ( CEG )

jumped on Wednesday on expectations of higher power prices

following a capacity auction by the largest U.S. grid operator.

PJM Interconnection and other grid operators hold regular

capacity auctions to decide on rates that utilities would get

for the power they produce. These auctions are based on

projections for future electricity demand.

PJM announced a nine-fold increase in capacity price for

electricity across its 13-state footprint, with costs jumping

from $28.92 per megawatt-day to $269.92 per megawatt-day.

Guggenheim analysts said the decision was "directionally

positive" for utilities such as Constellation and Vistra ( VST ), and

would provide a boost to their assets powered by fossil fuel.

The price increase within PJM's service territory, which

includes states such as New Jersey, Illinois and Virginia, is

set to take effect in June 2025.

The significant price hike, however, may also trigger some

state-level policy discussions on new capacity additions.

"With transmission planning improvements on the docket and

further interconnection reforms urgently needed, these auction

results should send a clear message that change can't come too

soon," said Jon Gordon, director at Advanced Energy United, a

trade body.

Constellation shares rose about 10% to $186.4, Vistra ( VST ) jumped

13.2% to $78 and Talen gained about 12%.

(Reporting by Mrinalika Roy in Bengaluru; Editing by Anil

D'Silva)