• FERC halts PJM’s one-time Reliability Backstop Procurement auction, citing flaws in cost allocation and financial rules.
  • The auction aimed to secure up to 6.8 GW of additional capacity for 2028–29 to address data-center-driven demand growth.
  • The delay leaves power developers and data-center operators facing uncertainty over new supply and costs.

Regulatory Setback for Largest U.S. Grid

PJM Interconnection’s plan to fast-track new power capacity for data centers hit a wall on Tuesday as the Federal Energy Regulatory Commission suspended key elements of the grid operator’s proposed Reliability Backstop Procurement auction. The decision leaves the nation’s largest grid operator without a timetable for securing up to 6.8 gigawatts of additional capacity needed to meet surging electricity demand from AI and cloud computing facilities.

The auction, which PJM had intended to launch on September 30 and close on October 21, was designed to address a critical reliability shortfall for the 2028–29 delivery year. But FERC’s September 29 order found significant deficiencies in how costs would be allocated among customers, rules for a transmission owner exiting PJM before costs are recovered, and collateral requirements for load-serving entities. The commission suspended the filing through February 28, 2027, and initiated a paper hearing, urging PJM to refile quickly with corrections.

FERC Chair Laura Swett did not mince words, calling the proposal a “deeply flawed, eleventh-hour procurement mechanism with billion-dollar implications for consumers.” PJM said it is reviewing the order and intends to address the remaining concerns promptly.

PJM’s capacity crunch has been building for years. Its July capacity auction acquired 138,318 MW but fell 6,831 MW short of its reliability target—the second consecutive shortfall. Capacity prices hit the FERC-authorized cap of $325 per MW-day across the entire PJM footprint, signaling scarce supply. Northern Virginia, home to the world’s largest concentration of data centers, has been a primary driver of demand growth, but the impact is spreading across the Mid-Atlantic and Midwest.

The backstop auction was meant to offer long-term contracts of up to 15 years and a maximum price of $555 per MW-day to incentivize new generation, battery storage, and nuclear uprates. Without it, developers face uncertainty over revenue and project timelines. “The delay makes project revenue expectations less certain for generators, battery projects, gas-fired plants, and possibly nuclear life-extension or uprate projects,” said one industry analyst, who asked not to be named because the matter is sensitive.

The battle over who pays for new infrastructure is at the heart of FERC’s objections. The commission questioned whether the cost-allocation framework would unfairly burden households and small businesses for infrastructure built primarily to serve a small set of massive commercial customers. Northern Virginia Electric Cooperative warned it could face roughly $2 billion in collateral requirements under PJM’s proposal, a burden that FERC flagged as potentially unreasonable.

The debate has spilled into statehouses. Virginia recently announced a Data Center Accountability Framework aimed at assigning a more equitable share of generation and transmission costs to data centers and other large loads. PJM has also proposed a separate framework under which data centers would use backup generation or reduce demand before households are curtailed during emergencies, but it acknowledged it needs state cooperation to enforce such curtailments.

The delay is a setback for the Trump administration’s Ratepayer Protection Pledge, a nonbinding initiative meant to limit residential customers’ exposure to data-center-related electricity costs. FERC’s order aligns with that goal but leaves the market without a mechanism to procure the needed capacity. “The key uncertainty is not whether PJM needs more capacity—it does—but whether the revised market design can fund and deliver it quickly enough without transferring excessive cost and reliability risk to existing customers,” said a regulatory expert familiar with the matter.

PJM’s standard capacity auction for the 2029–30 delivery year, expected in early December, could face complications from the suspended backstop process. Meanwhile, other grid operators are watching closely. MISO, another major U.S. grid operator, has proposed enhanced connection and operating rules for large loads, including data requirements and ramping limits, signaling a broader shift toward special treatment for data centers.

PJM did not respond to a request for comment on when it might refile. FERC’s order gives the grid operator until February 28, 2027, to address the deficiencies, but the commission encouraged a faster resolution. For now, the data-center boom continues to strain a grid that was not built for it, and the financial stakes for consumers and investors keep rising.

Correction: An earlier version of this article misstated the date of FERC’s order. It was issued on September 29, not September 30. Additionally, the amount of collateral Northern Virginia Electric Cooperative could face was previously reported as $2 billion; that figure is accurate.