Solmar Insights
PJM Interconnection has postponed its planned backstop procurement capacity auction, originally set to begin September 30, after the Federal Energy Regulatory Commission (FERC) only partially approved its filing, citing concerns over cost allocation in the face of unprecedented data center load growth. This delay impacts the acquisition of 6.8 GW in new capacity aimed at restoring reserve margins following two consecutive shortfalls.
Key figures
6.8 GW capacity shortfall to be procured
Planned auction window: September 30 to October 21, 2026
Two PJM base auctions missed reserve targets
FERC’s ruling and core concerns
FERC rejected significant portions of PJM’s backstop procurement plan, issuing particular criticism of last-minute filing practices and unresolved structural issues. The commission pointed to possible inequities in cost allocation, unclear transmission owner exit rules, and inadequate collateral requirements for load-serving entities, which risk unfair pricing and cost recovery.
FERC Chair Laura Swett, in a concurring opinion, said the regulator “will not be forced into accepting a deeply flawed, eleventh-hour procurement mechanism with billion-dollar implications for consumers.” The commission has presented remedial pathways and urged PJM to rework its proposal expediently, but PJM’s auction cannot proceed until these adjustments are made and approved.
The agency’s ruling both highlights the procedural risks of rushed capacity procurement filings and underscores the importance of equitable allocation in reliability mechanisms, especially during periods of abnormal load growth. Market participants must monitor the timeline for resubmissions and revised compliance filings closely.
Origins of the backstop auction
PJM’s emergency capacity procurement measure emerged from a fast-tracked stakeholder process designed to rapidly address a pending reserve margin shortfall, triggered primarily by forecasted demand from data center growth, most notably in Northern Virginia and other high-density clusters. The ISO’s last two core capacity auctions failed to secure enough megawatts to satisfy required reserves, amplifying reliability risks for load-serving entities and retail customers.
The backstop procurement plan proposed a special auction to secure 6.8 GW of new capacity, with a rapid timetable aiming for bids between September 30 and October 21. PJM intended to cover the near-term gap as digital infrastructure expansion continues to reshape demand curves and stress legacy planning assumptions. The compressed timeline and high stakes for both asset owners and new entrants placed significant scrutiny on rule clarity and cost responsibility.
Questions on cost allocation and risk
At the core of FERC’s partial disapproval were unresolved questions regarding the allocation of costs associated with the emergency procurement. Commissioners flagged language in PJM’s plan that could expose some transmission owners and load-serving entities to unexpected charges or capital commitments, as well as rules that could impede fair participation or departure from capacity obligations.
The commission’s concerns about collateral requirements for participating buyers further highlighted risks to liquidity and credit stability within the PJM market. FERC suggested alternative compliance or risk-mitigation strategies, but the lack of prescriptive guidance now leaves PJM with the challenge of balancing urgency against structural reform. These issues are particularly salient in regions with rapid hyperscale and colocation data center additions, where power procurement models may not fit existing capacity auctions.
Market implications for data center growth
Growth in data center and artificial intelligence compute demand has disrupted load forecasting and capacity planning across the PJM footprint, placing ISOs and utilities in a reactive position. With the backstop auction in limbo, developers and investors in grid assets, as well as hyperscale buyers underwriting long-term power purchase agreements, face significant planning uncertainty.
The timing and structure of PJM’s eventual procurement will determine near-term returns for merchant capacity project sponsors, gas peakers, and battery storage developers, while also establishing new cost expectations for large data center operators seeking incremental megawatts. The ability of the ISO to transparently reallocate costs without cross-subsidization remains a key test for regional reliability planning and market fairness.
Additionally, the protracted process is likely to inform policy debates within other ISOs facing similar load surges, such as ERCOT and MISO. Observers will be watching how PJM’s revised filing integrates FERC’s guidance, both in aligning costs with the load-driving customers and in setting expectations for collateral tied to rapid incremental procurement.
Next steps for PJM participants
PJM has not issued a revised timetable for the rescheduled auction and is still reviewing the commission’s order for corrective actions. In the meantime, participants who were preparing to offer capacity or bid for incremental purchases must delay commercial planning and credit arrangements until PJM clarifies auction rules and eligibility criteria.
The outcome is particularly uncertain for buyers facing looming deadlines to secure guaranteed capacity or for developers whose project financing hinged on auction results. Load-serving entities, merchant generators, and digital infrastructure sponsors are all reviewing alternative risk mitigation options, including bilateral contracts or interim procurement through other ISO programs, as the situation evolves.
Market observers expect PJM to act rapidly, given the strong direction from FERC and the critical need to close reserve shortfalls before peak load periods in 2027 and beyond. The pace and substance of the revised filing will set a precedent for how major ISOs approach capacity deficits caused by non-traditional load growth in a high-stakes reliability environment.
What this means for buyers
Capacity and data center load commitments across PJM are directly affected by FERC’s decision to halt the auction and require a revised plan. The pause on a 6.8 GW reliability auction and pending rule adjustments introduce near-term procurement and cost exposure for both new and existing buyers. Buyers now need to delay any capacity commitments until PJM’s new auction terms and eligibility are finalized this quarter.
Reporting via the original publisher
