The PJM Interconnection has postponed its planned reliability backstop procurement auction for data centers, which was scheduled to begin Wednesday, after the Federal Energy Regulatory Commission only partially approved the proposal a day earlier. FERC flagged aspects of the plan dealing with cost allocation, transmission owner exit rules, and collateral requirements for load-serving entities as potentially unjust and unreasonable. The commission's chairman, Laura Swett, said in a concurring statement that FERC "will not be forced into accepting a deeply flawed, eleventh-hour procurement mechanism with billion-dollar implications for consumers."
The backstop procurement grew out of a fast-track stakeholder process aimed at addressing a looming capacity shortfall driven largely by data center demand forecasts. PJM intends to acquire 6.8 GW of new capacity to compensate for the shortfall from the capacity auction for the 2028/29 delivery year, though it may lower that target to account for new supply expected to join the system, which covers 13 Mid-Atlantic and Midwest states plus the District of Columbia. The grid operator failed to secure enough capacity in its last two base capacity auctions to meet reserve margin targets. Before the delay, PJM had planned to accept offers from Sept. 30 through Oct. 21, with selection running from Oct. 22 through Dec. 2 and results announced before the standard capacity auction for 2029/30 in early December.
Among the elements FERC did approve was an offer cap for the backstop auction of $555 per megawatt-day, calculated on a megawatt-weighted average basis over the delivery period. However, the commission said PJM didn't adequately demonstrate that its cost allocation plan meets the "just and reasonable" standard, nor did it convince regulators the plan would properly assign costs to the parties incurring them. FERC proposed an alternate approach that would allocate costs based on updated load forecasts to "reasonably capture all forecasted load growth." The agency also rejected PJM's plan to let qualifying cooperatives and municipal utilities opt out of the backstop procurement, calling it discriminatory against other load-serving entities with data centers. One example highlighted the stakes: Northern Virginia Electric Cooperative said it would need to post roughly $2 billion in collateral under the proposal.
FERC's decision underscores the tension between urgent reliability needs and proper regulatory oversight. The commission noted that while it takes seriously the issues PJM's proposal aims to address, "we will not pretend that all of these issues can be solved exclusively by market design in the federal sphere," pointing to states as having a key role in managing data center load growth. Commissioner Lindsay See emphasized in a concurring statement that "after years of relatively flat electricity demand, regulators and grid operators need to adjust to sustained and asymmetric growth," requiring better load forecasts, a clearer picture of which projects will materialize, and enough generation and infrastructure to serve them. She added that better information about where, when, and why load is growing provides a stronger foundation for determining who should bear the costs.
PJM spokesman Jeffrey Shields said the grid operator is reviewing the order and intends to work quickly to address the commission's remaining concerns, though a new timeline for the backstop procurement hasn't been determined. FERC offered possible solutions to the problematic parts of PJM's plan and "strongly encouraged" the grid operator to propose fixes as soon as possible, which could avoid a hearing process. The outcome will determine how billions of dollars in costs get allocated across a region navigating what regulators describe as unprecedented load growth, with the final solution needing to balance reliability, fair cost allocation, and consumer protection.