PJM has proposed a major overhaul of how it procures power capacity in response to surging data centre demand that has driven auction prices up more than 1,000% in two years and threatens to add US$70 per month to average household electricity bills by 2028.
PJM, the nation’s largest grid operator, submitted a two-part plan to the Federal Energy Regulatory Commission (FERC) on 31 July and 7 August to address surging electricity demand from data centres.
In PJM’s latest capacity auction for the delivery year beginning mid-2028, the grid operator was unable to secure adequate capacity to achieve its 20% reserve margin target—a threshold intended to limit PJM to no more than one unplanned power outage per decade.
The deficit was primarily attributed to rising data centre load projections and insufficient corresponding new power generation. The operator projects that data centre and other large load demand could increase by as much as 70GW by 2038.
Try Premium for just $1
- Full premium access for the first month at only $1
- Converts to an annual rate after 30 days unless cancelled
- Cancel anytime during the trial period
Premium Benefits
- Expert industry analysis and interviews
- Digital access to PV Tech Power journal
- Exclusive event discounts
Or get the full Premium subscription right away
Or continue reading this article for free
The December 2025 capacity auction for the 2027/2028 delivery year cleared at US$333.44-per-MW-day—the FERC-approved price cap—for the third consecutive year, representing a 1,053% increase from the 2024/2025 auction, which cleared at just US$28.92-per-MW-day.
The total cost reached US$16.4 billion, with data centres accounting for US$6.5 billion (40%) of that total. Of that US$6.5 billion, US$6.2 billion was attributed to data centres not yet built.
According to projections from the Natural Resources Defense Council (NRDC), average households in PJM could see bill increases of roughly US$70-per-month by 2028 compared to pre-surge levels. In Washington, D.C., customers of ustility Pepco saw US$10-per-month added to bills from the 2025/2026 delivery year alone.
The two-part plan
Part 1: Reliability backstop procurement (RBP)
PJM is proposing to conduct a one-time reliability backstop auction for new capacity from 30 September to 21 October to address the capacity auction shortfall. The auction will procure approximately 6GW of new capacity—the amount needed to restore PJM’s reliability position to breaking even.
The mechanism will enable PJM to procure new capacity on behalf of new large loads, with costs passed on to utilities in its zone. State regulators and utilities will then be responsible for ensuring data centres pay these costs rather than spreading them to residential and other customers.
The auction will offer 15-year capacity contracts for new power plants, including natural gas generators, nuclear facilities, clean energy projects, and battery energy storage systems (BESS), as well as uprates to existing resources. Resources that can come online faster—particularly BESS, which is among the quickest to construct—will have a significant advantage in the procurement process.
Part 2: Interim resource adequacy service (IRAS)
In a significant policy shift, PJM will immediately stop procuring capacity supply for new large loads through its regular capacity auction. Instead, large loads will become responsible for securing their own power supply.
If they fail to bring new supply, PJM will not purchase it on their behalf—a departure from the status quo where PJM bought supply for all load, including residential customers, contributing to rising utility bills despite data centres driving demand increases.
Under the new framework, any large loads that have not secured their own new supply can still connect to the system but may face curtailment or interruption during emergency periods. PJM will prioritise curtailment orders to these new large loads before other customers, protecting residential and commercial ratepayers from uncontrolled blackouts.
Claire Lang-Ree, clean energy advocate at the NRDC, expresses cautious support for the proposals while highlighting key concerns.
On the RBP, NRDC is largely in favour, viewing it as an effective mechanism for ensuring data centres pay for their own new supply, with PJM acting as a facilitator. However, Lang-Ree emphasises that states and utilities must ensure costs are channelled directly to large load customers rather than spread to other ratepayers.
NRDC plans to file a protest at FERC regarding one significant risk—the lack of locational requirements for new power plants. Under the current framework, a power plant procured in Ohio to serve a Virginia data centre would require the data centre to pay the upfront cost and 15-year contract, but potentially not the long-term, large-scale transmission infrastructure needed to connect the plant across multiple states.
These “baseline transmission projects” could impose billions of dollars in hidden costs on all customers.
“(NRDC is) saying there should be some locational component,” Lang-Ree explains. “Requiring new power plants to be somewhat close to new large loads actually gives a slight edge for energy storage resources because of their siting flexibility, so we also like it from a clean energy perspective.”
On the IRAS, NRDC strongly supports PJM’s decision to exclude large loads from the regular capacity auction if they don’t bring their own supply. “It’s just a clear signal that large loads are no longer going to be allowed to ride on the backs of other ratepayers,” Lang-Ree says, noting it took considerable political effort to reach this point.
However, successful implementation will require significant work at the state level. Each PJM state must pass new large load tariffs and ensure utilities know precisely which customers to curtail during IRAS events, protecting residential customers from interruption.
NRDC is advocating for states to create pathways enabling large loads to lean on clean distributed energy resources (DERs) during curtailment periods to maintain service.
FERC’s decision
While Lang-Ree anticipates FERC will likely approve both filings—given PJM’s alignment with practices in other regional transmission organisations and substantial political pressure—she acknowledges uncertainty remains. FERC can only approve or reject filings in their entirety, not individual components, which complicates the approval process.
NRDC hopes FERC will direct PJM to address the locational element concern in the RBP before final approval, though this would require rejecting the entire filing and requesting a revised submission.
“There’s a lot still to be seen,” Lang-Ree notes. “I would be surprised if they rejected them, but you never know what FERC’s going to say.”
Battery Asset Management Summit USA 2026 will be held 15-16 September in Garden Grove, California, hosted by Energy-Storage.news publisher Solar Media (part of the Informa Group). The agenda emphasises addressing the roles of AI, cybersecurity, and second-life applications, broken down into two tracks: Technical Asset Management and Commercial Asset Management. This year, the conference is also co-located with Solar & Storage Finance Summit USA. Visit the official site for more details.
