PJM (US's largest electricity grid) announces plans to curb power supply to large data centers during peak demand to prevent grid blackouts, implementing demand-response curtailment as a system-level constraint.

FERC's response to PJM's proposals will likely "influence utility capital investment, data center development timelines and the allocation of reliability risks and costs," according to ClearView Energy Partners.

PJM's board committed that the grid operator will "take the actions within its authority to procure needed supply and maintain reliability, while supporting states and other responsible authorities in ensuring that the costs associated with new large loads are allocated appropriately."

The challenge is significant. PJM estimates that large loads could grow by 70 GW by 2038 across its 13 Mid-Atlantic and Midwest states plus the District of Columbia. To address this, the board will direct PJM staff to exclude any incremental new large loads that don't bring new power supplies from the demand forecasts used in future auctions. As the board stated: "Existing consumers should not bear higher capacity costs caused by new large loads that do not bring, or otherwise contract for, the new supply necessary to serve them." Removing such data center loads from the capacity auction's demand forecast should lower capacity prices over time, according to equity analysts with Jefferies.

Julia Hoos, head of USA East at Aurora Energy Research, noted that while the board's proposals build on fast-track stakeholder processes conducted this year, the backstop auction's procurement target is "ambitious, but it's nowhere near close enough to what's needed if all this large load shows up. It's an effort to plug the gap and then push the responsibility for procuring new generation onto the large loads themselves."

The board's backstop auction proposal calls for acquiring 6.8 GW — minus any bilateral contracts that emerge before the auction — to address PJM's failure to reach a 20% reserve margin in its last base capacity auction. The auction would run from September 30 to October 21, with 15-year commitments finalized before PJM's 2029/30 base capacity auction in early December. Costs will be shared by load-serving entities consistent with how PJM allocates base capacity auction costs, with LSEs and state regulators deciding how to apply them to different rate classes.

PJM plans to raise the price cap on accepted supply offers to $555/MW-day, up from a temporary $325/MW-day cap in the last base capacity auction. Eligible resources must be online by June 1, 2032.

Separately, PJM will manage a bilateral matchmaking process that began with a June 9 request for proposals. PJM hired Charles River Associates to oversee the process, with initial matches expected in August and additional rounds potentially continuing for six to nine months.

Under the proposed Interim Resource Adequacy Service framework, large loads without new power supplies must reduce their load or switch to on-site backup resources when PJM's system nears emergency conditions, beginning June 1. Utilities and transmission owners will set the IRAS rules, subject to state or local regulatory approval.

PJM will also create a large load registry containing facility location, ramp schedule, capacity supply and other details, providing "critical data transparency" to set load reduction priorities for retail customers.

However, Joseph Bowring, president of Monitoring Analytics (PJM's independent market monitor), identified persistent problems. Data center load remaining in capacity auctions has increased capacity costs by $29.4 billion over the last four auctions, he noted, and "that number will accelerate in future auctions if PJM succeeds in increasing the maximum price in the auctions." Additionally, the IRAS proposal will increase wholesale energy costs and decrease reliability by interconnecting customers without adding generation to serve them, he said.

Jefferies analysts added that a backstop auction addressing only a deficit from the previous base capacity auction fails to "solve the crux of PJM's issue — new large loads which have yet to materialize," warning "we could see more backstops in the future, making PJM an increasingly bilateral market."

Hoos identified another underlying challenge: "At the end of the day, the real-world challenges to building new generation fast enough haven't been fixed. Until we solve the underlying issues, prices will stay high." Interconnection costs exemplify the problem—a Competitive Power Ventures project in Ohio withdrew from PJM's fast-track Reliability Resource Initiative after receiving an $878/kW interconnection cost estimate. "A few years ago, that was closer to the total cost to construct than the cost of just the interconnection," Hoos said. "I wouldn't be surprised if interconnection costs keep being a quiet project killer."