Solmar Insights
PJM Interconnection, the country’s largest grid operator, has postponed a planned backstop procurement auction to secure additional power capacity after the Federal Energy Regulatory Commission (FERC) rejected key aspects of its proposal. The auction, intended to address a capacity shortfall largely driven by rapid data center expansion, was originally scheduled to run from September 30 through October 21, 2026, seeking to procure 6.8 GW of incremental capacity.
Key figures
6.8 GW capacity shortfall
September 30 to October 21, 2026 planned auction window
PJM failed reserve margin in two consecutive auctions
FERC ruling halts procurement
FERC’s decision on September 29, 2026, came after PJM filed its procurement proposal at the last minute, citing urgent needs to meet reserve margin shortfalls due to soaring data center load growth. While FERC approved some elements to move forward, it found PJM’s structure for cost allocation, transmission owner exit, and collateral requirements could be unjust and unreasonable if implemented as proposed.
FERC recommended solutions and pressed PJM to revise its filing quickly to avoid a lengthy hearing, but declined to grant full approval. In a concurring statement, Chair Laura Swett called the filing a “mess” and made clear the agency would not accept a fault-ridden, billion-dollar plan submitted at the eleventh hour, citing the risks for market participants and ultimate costs to consumers.
Drivers of the urgent procurement
The need for a backstop capacity procurement emerged as PJM’s last two base capacity auctions ended with the region falling short of mandatory reserve margin targets. Market analysts point to unanticipated, aggressive load growth from hyperscale data centers, especially in markets like Northern Virginia, causing grid planners to accelerate new resource purchases faster than anticipated by prior demand models.
PJM’s proposal, created through a rapid stakeholder process, outlined an emergency mechanism to acquire up to 6.8 GW of new resources, ranging from generation to demand response, to fill the gap and shore up reliability. The auction’s rushed timeline reflected concerns that standard mechanisms had failed to keep pace with structural shifts in load, notably from digital infrastructure demand surges, creating capacity shortfalls with no clear alternative in the near term.
Key regulatory concerns
FERC’s partial rejection spotlighted specific market design issues: first, PJM’s plan for cost allocation did not clearly assign new capacity costs to the direct drivers, in this case, data centers and connected large users, raising concerns about broader consumer cost impacts. Second, the commission challenged the exit rights of transmission owners, warning such rules could incentivize strategic behavior or undermine reliability. Third, the proposal’s collateral requirements for load-serving entities were flagged as potentially insufficient, introducing risk for both incumbents and new entrants.
These unresolved issues led FERC to withhold complete approval and emphasize the need for a durable, equitable fix. The commission instructed PJM to adjust its proposal to directly address these weaknesses before a new auction timeline could be confirmed, with the aim of preventing unnecessary delays while ensuring regulatory and market safeguards are met.
Timeline uncertainty and market impact
With PJM’s procurement on hold, market participants face renewed uncertainty about how and when additional capacity will be secured for 2027 and beyond. PJM representatives said the grid operator would review FERC’s order and pursue swift revisions to address the commission’s concerns, focusing on cost responsibility and consumer protection as the region contends with historic increases in load from digital infrastructure.
No new schedule has been set for the rescheduled auction or for revised filings at FERC, leaving developers, asset owners, and data center operators weighing potential delays in both contracted revenue and project capitalization. The risk of further shortfall or administrative bottlenecks could influence the pace of new resource interconnections and grid upgrades across the PJM footprint, particularly in high-growth corridors.
Analysis: Incentives and risks for infrastructure buyers
For institutional investors and infrastructure developers, FERC’s intervention introduces additional diligence requirements and potential delays in capacity contract settlements. Buyers targeting new generation, storage, or demand response opportunities in PJM will need to monitor regulatory updates and adjust bid timelines, as the ultimate allocation of procurement costs may shift as the region tailors its approach to more precisely reach load growth emitters such as data centers.
The delayed process also underscores the broader challenge facing U.S. ISOs and RTOs: aligning fast-evolving digital sector demand with legacy planning and procurement rules. If cost allocation and participation rules change significantly in PJM’s revised proposal, buyers involved in adjacent markets or participating in future capacity procurements may see changes in risk exposure, contract structure, and capital deployment strategy.
What this means for buyers
Power and capacity assets in the PJM footprint are directly affected. The 6.8 GW procurement delay, prompted by unresolved cost allocation and plan terms, postpones auctions and contract certainty. Buyers should pause bids or financing transactions reliant on PJM backstop contracts until updated rules and a new auction timeline are published.
Reporting via the original publisher
