Dive Brief:
- The PJM Interconnection’s board on Friday said it would immediately initiate a “reliability backstop” capacity procurement to secure more power supplies after its last auction hit record prices but fell short of its reliability target by about 6.6 GW.
- The board released the decision as part of a broader plan for connecting data centers and other large loads to the grid during “a dynamic period in the industry,” it said. The plan calls for establishing a fast-track interconnection process for large loads that bring their own new generation; rules for curtailing large loads that don’t provide their own new power supply; and measures to bolster the grid operator’s load forecasts, according to a letter from the board to the grid operator’s stakeholders.
- Some aspects of the recommendations overlapped with a list of requests from the secretaries of Energy and Interior and a bipartisan group of governors. In the letter, the board said it “recognizes the expressed interests at both the federal and state levels in facilitating the timely interconnection of large loads to support continued economic and digital-sector growth [...] At the same time, as the market administrator, PJM should seek to balance the design of its markets to simultaneously set transparent prices that incent the desired behavior from market participants while not being punitive to consumers.”
Dive Insight:
The board said the reliability backstop procurement should be a “transitional measure” for acquiring new power supplies while “the industry and government collectively work to bring more supply to the system to meet an unprecedented growth in demand.”
The board directed PJM staff to consider mechanisms that assign costs of a backstop auction to utilities and other load-serving entities that are short on power supplies because of load growth in their service areas. PJM intends to discuss the backstop auction at a Members Committee meeting on Thursday. It defines large load as at or above 50 MW at a single point of interconnection.
Although PJM’s board views the auction as a temporary measure, Jefferies equity analysts said Tuesday they expect this “to snowball into more.” The equivalent of more than 12.5 GW of gas-fired, combined cycle capacity could be built to offset shortfalls for PJM’s 2028/29 and 2029/30 capacity auctions, the analysts estimated.
“The political intervention and major reforms in the competitive market highlights how political electricity and energy are broadly,” the Jefferies analysts said.
Trump administration, governors weigh in
Hours before the board released its plan Friday, the Trump administration and all the governors of the states PJM serves issued a “statement of principles” that called for holding an emergency auction to supply data centers and extending a price collar on the grid operator’s capacity auctions. PJM runs the grid and wholesale power markets in 13 Mid-Atlantic and Midwest states and the District of Columbia. The statement was unveiled at a White House event without any PJM representative present.
That White House-governors announcement was an “unprecedented action” that would provide a near-term supply fix, giving PJM time for market reforms that could lower customer bill impacts, the Jefferies analysts said.
The PJM board’s broad plan is based on proposals PJM stakeholders offered last year during a Critical Issue Fast Path process aimed at developing rules for large load additions in the grid operator’s footprint. PJM initiated the process amid rising data center demand forecasts and tightening supply conditions in its capacity market.
As part of its plan, the board is seeking comments on whether PJM should extend a temporary price collar on its capacity auctions that was in place for the last two auctions.
“A price collar may obscure the market’s underlying clearing price and, as a result, could dampen signals needed to support the entry of new supply,” the board said. “On the other hand, … there are legitimate questions regarding whether the current capacity market construct, on its own, is sufficient to incentivize new resource development.”
Also, the board directed PJM staff to establish a fast-track interconnection process for large loads that bring their own new generation, rules for curtailing large loads that don’t provide their own new power supply, and measures to bolster the grid operator’s load forecasts.
PJM to study deeper market reforms
In addition, the board called for a stakeholder process this year to consider changes to PJM’s capacity market framework. PJM’s system of holding auctions to procure a year’s worth of capacity three years ahead of time may no longer be adequate, according to the board.
“On its own, this structure may not provide the stable revenue streams needed to justify new investment in today’s volatile and uncertain investment environment, particularly when elevated costs are combined with external constraints or intervention,” the board said.
As evidence of the problem, the board pointed to an apparent slowdown in new generation.
As of early October, just 2.1 GW of new generation had come online in PJM in 2025, after a total of 4.8 GW started operating in 2024, according to a presentation to the grid operator’s Interconnection Process subcommittee.
Out of some 44 GW of capacity of “current construction projects,” approximately three-quarters was either still in engineering and procurement or suspended. About a quarter — 11.3 GW — was either under construction and/or partly in service.
The board directed the PJM staff to assess how the grid operator’s energy, reserve and capacity markets can “evolve in a coordinated manner to provide appropriate incentives for both investment and performance.”
