Dive Brief:
- The PJM Interconnection intends to move up a planned backstop reliability auction to address rising demand from data centers to September, instead of holding it in March as originally proposed, the grid operator said Tuesday.
- In a letter to stakeholders announcing the change, the PJM board urged member states to “immediately” start work to set up rules to shield residential and other existing customers from the planned auction’s costs. “After PJM runs the Backstop procurement, if states have not established frameworks to appropriately allocate costs to new data center loads, it is unclear to which customers those costs would be assigned,” the board said.
- The auction is part of a one-time, two-part procurement process PJM proposed in April that also included a dedicated phase for bilateral contracting between large loads and suppliers to take place between September and March. The board said the revised plan will mitigate near-term reliability risks while “not precluding future bilateral contracting opportunities,” without giving details.
Dive Insight:
The proposed auction comes as PJM is working to develop rules governing how data centers and other large loads can interconnect to its system, which spans 13 Mid-Atlantic and Midwest states and the District of Columbia. The effort comes amid heightened concerns about electricity prices across the region, partly caused by a data center-driven jump in capacity prices.
The auction proposal released in April was originally aimed at adding roughly 14.9 GW of new resources to serve data centers and other large loads that were expected to be online by the summer of 2029. The auction portion was designed to procure any shortfall that wasn’t acquired via bilateral deals.
Under the revised process laid out by the board, the auction will meet any shortfalls from PJM’s next base capacity auction, set to begin June 30 for the 2028/29 delivery year. The changes to the planned backstop auction likely reduces its target to roughly 9 MW, according to Jefferies equity analysts.
It remains unclear how the auction’s costs will be allocated only to hyperscalers, and not existing ratepayers, they added.
The board’s decision to move the proposed procurement auction to September follows criticism from Federal Energy Regulatory Commission Chairman Laura Swett. In April, she said she was “perplexed” by PJM’s plan to hold the auction in March when the Trump administration and governors of PJM states had jointly called for it to be held in September. She also criticized PJM’s governance process and said the agency would review it during a technical conference in July.
“We are not surprised to see PJM's swift response following last week's FERC's Chair comments that PJM may be ‘too big to function,’” the Jefferies analysts said. “Ultimate reform of the PJM market will remain as an overhang, but we believe swiftly moving to resolve near term capacity needs should remove some of the pressure from FERC on PJM.”
Among other things, PJM is developing “connect and manage” rules for adding large loads that agree to be curtailed during times when power supplies may not be enough to meet demand, such as during heat waves.
In its letter, PJM’s board said the grid operator will combine its stakeholders processes for connect and manage and the one-time backstop procurement because of their intertwined nature.
“[I]t has become clear that the Backstop and C&M are too substantively linked to continue to be discussed in separate stakeholder processes,” it said. “Data center participation in the Backstop, whether through the proposed bilateral framework or the centralized procurement, is meant to remove that load from C&M consideration.”
Certainty in the C&M rules is needed to support bilateral transactions, but with potential rehearing requests at FERC and legal challenges, final certainty may not be possible until “sometime” in 2027, according to the board.
Moving up the backstop auction will allow PJM and its stakeholders to focus on potential market reforms outlined in a recent report from the grid operator and “allow for a more rapid return to market fundamentals,” the board said.
PJM will soon issue a revised stakeholder meeting schedule combining the backstop auction and C&M reviews, the board said.
