Solmar Insights
The U.S. Department of Energy (DOE) has formally called for PJM Interconnection to swiftly revise its reliability backstop procurement mechanism, aiming to prevent the costs associated with new data centers and other significant electric loads from impacting existing utility customers. DOE’s intervention comes as PJM faces a substantial generation capacity shortfall, mainly attributed to growing data center demand in its territory.
Key figures
6.8 GW of new capacity targeted for acquisition
PJM backstop procurement revision filing due Oct. 29, 2026
Capacity shortfall driven by data center demand forecasts
DOE presses for rapid PJM action
The Department of Energy’s rare “statement of position” at the Federal Energy Regulatory Commission (FERC) underscores growing federal attention to how large new loads, especially hyperscale data centers, could alter cost allocation in PJM’s capacity markets. DOE specifically urged PJM to file a revised reliability backstop procurement plan by October 29, reflecting reforms mandated by a recent FERC order. The DOE’s submission highlights a five-year gap since its last formal FERC filing, signaling escalated policy scrutiny on interconnection and cost recovery practices for large-scale digital infrastructure projects.
DOE insists that PJM must adopt changes to ensure costs for serving new large loads are assigned to the parties responsible, and not spread inequitably among existing ratepayers. The agency is especially concerned about the impact on established utility customers if the mechanisms designed to support rapid data center interconnection are not recalibrated. The DOE’s call resonates amid rapid data center buildout in Northern Virginia and other PJM regions, where generation and transmission projects face mounting delays and cost pressures.
FERC mandate and PJM timeline
In September 2026, FERC determined that PJM’s backstop procurement proposal had significant flaws, particularly around how costs would be distributed. The commission’s order directed PJM to improve its cost-allocation framework to better track and assign expenses related to new large electricity consumers, primarily data centers. In response, PJM outlined its intent to submit a new proposal by the October 29 deadline, circumventing a lengthier five-month hearing process to address urgent reliability and capacity shortfall concerns.
To facilitate the necessary changes, PJM will consult its stakeholder committees before submitting its modified plan. A special Members Committee meeting is set for October 22, with an additional session planned for transmission owners. These actions illustrate both PJM’s efforts to meet regulatory expectations and the pressing need to implement a transparent, equitable capacity procurement mechanism as the pipeline of large, energy-intensive projects continues to expand.
Capacity pressures from data center growth
PJM’s current challenges are rooted in a capacity auction process unable to meet required reserve margins for the past two years. The primary reason, according to PJM, is the unprecedented load forecast growth from new data centers now being planned or constructed across the 13-state market. As a result, PJM now seeks to procure 6.8 GW of new capacity to address the expected shortfall for the 2028 to 2029 delivery year.
The expansion of data centers, often concentrated in sub-regions like Northern Virginia, intensifies strain on generation, transmission, and interconnection assets. These hyperscale facilities demand immediate and robust access to the grid, which frequently outpaces the timeline for new generation or transmission project completions. PJM’s stakeholders are thus grappling with how to balance the reliability needs of new entrants against cost exposure for legacy customers.
Mechanics of cost allocation reform
At issue is the development of a framework that allows PJM and its members to track when new projects, such as data centers, come online, experience delays, or do not materialize. This tracking is seen by DOE and FERC as essential in assigning the cost of new generation resources to those driving new demand, rather than socializing it broadly. The aim is to make the cost causation principle more effective in real time, discouraging speculative or under-vetted projects from shifting costs unnecessarily to other network users.
Currently, delays or changes in project development can complicate the equitable allocation of procurement expenses within PJM, amplifying uncertainty for utilities, developers, and institutional investors. If reforms are enacted as directed, data center operators could face steeper direct costs for the capacity and transmission infrastructure that enables their grid access, altering both the economics and procurement strategies for hyperscale expansions.
Market and policy implications for developers
This policy shift comes at a critical juncture for U.S. digital infrastructure investors, who have banked on PJM’s historically stable cost allocation for long-term site planning and grid commitments. A move to charge new large-load entrants, such as data centers, for incremental generation and transmission could impact offtake contract pricing, project financing, and competitive site selection. Institutional buyers and developers will need to quickly adapt to revised cost allocation risks in interconnection-heavy markets like PJM.
For established utilities and co-ops, the anticipated reforms should reduce the risk that rapid digital infrastructure expansion burdens existing customers with additional rates. Meanwhile, data center developers may encounter a more rigorous capital outlay upfront, tied directly to their project’s schedule and grid impact, as PJM and regulators seek to minimize risk transfer amid rapid demand growth and persistent capacity constraints.
What this means for buyers
Power and interconnection capacity in the PJM region will see new cost-allocation mechanisms affecting large new loads. The DOE has called for PJM to file a revised procurement plan by October 29, 2026, to prevent cost shifts from data centers to existing utility customers. Buyers should review the upcoming policy changes and revisit cost models for data center and large load grid access slated for 2027 to 2029, as these reforms could materially alter project economics and scheduling risk.
Reporting via the original publisher
