What PJM wants to do
PJM Interconnection LLC - serving a footprint stretching from the Mid-Atlantic to the Midwest and supplying electricity to more than 67 million people - filed late Thursday to conduct a March capacity auction to address surging data center demand, contingent on the Federal Energy Regulatory Commission approving updated cost-allocation rules. The special sale, called the Reliability Backstop Procurement, has never been run by PJM and would run March 1 through March 28 if approved.
The amount PJM would buy is tied to how much its forecast for peak demand rises between 2026 and summer 2028. Across its 13-state territory, the grid contains the country's densest cluster of data centers, and the filing sets out how expenses are apportioned and which party would be responsible if a utility exits the market.
How costs would be assigned
Each utility zone would be charged according to its share of the forecast growth in peak demand over that period. PJM also proposes eliminating the opt-out available to some municipal utilities and cooperatives, and requiring any utility that departs to remain responsible for paying generators needed to serve data center demand in its territory.
FERC previously called PJM's initial approach "deeply flawed" and pushed the auction back five months. PJM's next annual capacity auction remains scheduled for December.
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The scale and the politics
PJM is currently updating its demand forecasts. Before accounting for the quicker expansion of data centers, prior estimates indicated a 6.8 gigawatt capacity gap for summer 2028. Procuring that entire 6.8 gigawatts at the $555 per megawatt-per day cap would come to nearly $1.4 billion a year, or about $20.7 billion across 15 years.
That potential spend could steer money toward new natural gas plants and other supply, creating an opening for Constellation Energy Corp., NRG Energy Inc., Vistra Corp. and Talen Energy Corp. American Electric Power has threatened to leave PJM, and under the proposal would still be responsible for payments tied to generators serving data center load in its area.
The debate and what it means for investors
"The allocation method was what FERC had reservations about, and I still think the revised leaves the door open to criticism but is likely to get approved," said Gary Cunningham, the director of research at the brokerage Tradition Energy. "It is worth noting that all consumers in any utility where there is expected demand growth will pay, not just new load." He added, "In the end, PJM isn't going to buy much new capacity under the program so it is a lot of noise for not a lot of actual help for reliability."
If FERC signs off on the revisions, the auction would run March 1 through March 28 and seek a 15-year supply, with a price ceiling of $555 per megawatt per day - an all-time high payout. The bottom line: a sizable, time-bound catalyst for capacity suppliers, ongoing scrutiny over how costs land in zones with rising demand, and a key setup ahead of PJM's December auction.
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