Dive Brief:
- The PJM Interconnection is delaying its planned reliability backstop procurement auction for data centers — which was set to kick off Wednesday — in the wake of the Federal Energy Regulatory Commission’s decision a day earlier to only partly approve it, Jeffrey Shields, a spokesman for the grid operator, said in an email to Utility Dive.
- Aspects of PJM’s proposal dealing with cost allocation, transmission owner exit rules and load-serving entity collateral requirements may be unjust and unreasonable, FERC said. It offered possible solutions to those parts of PJM’s plan and “strongly encouraged” PJM to propose fixes as soon as possible, which could obviate the need for a hearing process.
- PJM’s proposal was filed at the last minute, which left the agency no time “to rehabilitate the mess we received,” FERC Chairman Laura Swett said in a concurring statement. “This commission will not be forced into accepting a deeply flawed, eleventh-hour procurement mechanism with billion-dollar implications for consumers.”
Dive Insight:
In its decision, FERC provided a “clear path” to resolving certain issues and moving the procurement process forward, according to Shields.
“PJM is reviewing the order and intends to work quickly to address the commission’s remaining concerns,” he said. “We remain focused on advancing solutions that maintain reliability, appropriately allocate costs to the customers driving those costs, and protect consumers as the region navigates significant demand growth.”
A new timeline for the backstop procurement is yet to be determined, Shields said.
The PJM’s backstop reliability procurement proposal grew out of a fast-track stakeholder process and aims to address a pending capacity shortfall, largely driven by data center demand forecasts. PJM failed to acquire enough capacity in its last two base capacity auctions to meet its reserve margin targets.
The grid operator intends to acquire 6.8 GW of new capacity to make up for a shortfall from the capacity auction for the 2028/29 delivery year, according to a fact sheet on the auction process. However, PJM may reduce the target to account for new supply that is expected to be added to its system, which spans across 13 Mid-Atlantic and Midwest states and the District of Columbia.
Before the delay, PJM had planned to accept offers for backstop procurement from Sept. 30 through Oct. 21, with the selection process occurring from Oct. 22 through Dec. 2. It expected to announce the results before it holds its standard capacity auction for the 2029/30 delivery year in early December.
Among the elements of PJM’s procurement proposal that FERC did is an offer cap for the backstop auction of $555/MW-day, on a MW-weighted average basis over the delivery period.
However, PJM failed to adequately show that its plan for allocating the costs of the auction meets the agency’s “just and reasonable” standard, nor did it convince regulators that it would properly assign those costs to the parties incurring them.
FERC offered an alternate approach, which would allocate the backstop procurement’s costs based on updated load forecasts.
“This could ensure that the load forecast information on which the allocation relies reasonably captures all forecasted load growth,” FERC said. “Similarly, PJM should employ the most up-to-date load and resource forecasts to inform the initial [procurement] target.”
If a transmission owner exits PJM before the backstop procurement’s costs have been recouped, FERC said those costs should be assigned to the load-serving entities within a transmission zone rather than to the transmission owner itself.
FERC also said PJM’s plan for requiring collateral from power suppliers was appropriate. However, its proposed collateral requirements for load-serving entities may be flawed “because they do not strike a reasonable balance between protecting PJM’s markets and its members against the risk of default and ensuring that market participants have adequate flexibility to manage their collateral requirements,” the agency said.
Northern Virginia Electric Cooperative, for example, said it would have to post roughly $2 billion in collateral under the proposal, according to the decision.
FERC nixed PJM’s plan to allow qualifying cooperatives and municipal utilities to opt out of the backstop procurement process, saying that would discriminate against other load-serving entities with data centers in their footprints.
In its decision, FERC said states have a key role to play in managing data center load growth.
“While we appreciate and take seriously the issues that PJM’s [reliability backstop procurement] proposal is designed to address, as well as the concerns surrounding the unprecedented influx of large loads more broadly, having only such powers as are given to us by Congress, we will not pretend that all of these issues can be solved exclusively by market design in the federal sphere,” FERC said.
Looking ahead, PJM needs to improve its load forecasting, which could improve cost allocation decisions, according to Commissioner Lindsay See.
“After years of relatively flat electricity demand, regulators and grid operators need to adjust to sustained and asymmetric growth,” See said in a concurring statement. “That means better load forecasts, a clearer picture of which projects will materialize, and enough generation and infrastructure to serve them. Better information about where, when, and why load is growing also provides a stronger foundation for determining who should bear the costs associated with serving that growth.”
