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The PJM Interconnection responded within hours on January 16 to conform with many of the requests made by the Trump Administration and state governors to change capacity market operations.

At the core of an impactful but non-binding statement of principles by the administration and the governors is an emergency auction no later than September to procure supply from generation that has yet to be built, enticing developers with 15-year power purchase agreements.

The auction intends to assuage complaints about rising prices caused by load growth and would avoid the existing generation queue that subjects new projects and related transmission to review by the grid operator, frustrating many stakeholders.

PJM’s tariff allows backstop capacity procurement if the system clears short of the reliability requirement for three consecutive capacity auctions. “In light of the evolving risk profile,” the PJM board directed its staff to develop a proposal to “accelerate and execute this procurement.”

The statement of principles also urges tariff revisions filed expeditiously at the Federal Energy Regulatory Commission (FERC).

PJM’s response was not to Trump and the governors but to FERC Order EL-25-49-000, which required a filing by January 19 on treatment of co-located loads. These are end-users physically connected on the customer’s side of the interconnection to the PJM grid.

PJM’s lengthy proposal addresses the need for new generation that can come online quickly coupled with options for new load customers that can be curtailed. The proposals stem from a stakeholder process last year called Critical Issue Fast Path – Large Load Additions.

FERC said in a show cause order in the docket in March 2025 that that behind the meter generation rules in PJM’s tariff are not just and reasonable because these loads are not fully accounted for in resource adequacy planning and shift costs to other transmission customers.

The order said customers must not bear the cost of data center driven infrastructure buildout, a view that has become broadly acceptable throughout the country.

The statement of principles, issued by the administration’s National Energy Dominance Council, would limit what existing plants can be paid in the PJM capacity market, and implement reforms in time for the base residual capacity auction in May 2027.

Specifically, the statement said PJM’s existing price collar for base residual capacity auctions should be extended for two more auctions. The collar, calculated on unforced capacity, now has a floor of $177.24/MW-day and a cap of $329.17/MW-day.

PJM seeks stakeholder input to determine if the collar for the 2026-2027 and 2027-2028 auctions should be extended. “There are legitimate questions regarding whether the current capacity market construct, on its own, is sufficient to incentivize new resource development,” the interconnect told FERC.

PJM will issue a letter on its decision to make a Federal Power Act Section 205 filing related to the price collar in time for the July auction for the 2028-2029 delivery year.

“Under these extraordinary market conditions, it is going to be difficult to manage enough investment for reliability and have rates that are acceptable to the public,” said Samuel Newell, a principal in electricity consulting at The Brattle Group. Part of the reason is that load serving entities in many restructured states often lack very long-term supply contracts because of customer switching under choice programs.

“It is challenging when they don’t have captive loads,” he said. “The lack of long-term contracts makes the rate pressure on the generation component of the bill in these scarce conditions much greater.”

Current one-year commitments in PJM’s capacity market auctions are not high enough to support new investment, Newell added. “That’s why there is so much concern over capacity prices that might have to be high enough to attract new resources in these scarce conditions. If the collar cap is too low, it affects the ability to attract investment in the future.”

“Facilitating additional voluntary market interactions with data centers and supply would achieve far better results,” said Kent Chandler, resident senior fellow at the R Street Institute and former chairman of the Kentucky Public Service Commission. “Running an emergency auction with the same flawed demand forecasts and centralized procurement will only compound the problem.”

The statement of the energy dominance council also urged that data centers that have not bought new capacity or agreed to be curtailable pay more for new generation than residential users.

PJM does not specifically address the cost of supply for data centers, normally a matter for either bilateral contracts or state-approved tariffs. The filing to FERC said “data centers in particular, which account for a substantial share of forecasted large load additions in the PJM footprint, present characteristics not previously experienced at scale.”

PJM staff was directed to immediately address cost allocation for any backstop procurement, including consideration of mechanisms that assign costs to load-serving entities (LSEs) that are short because of load growth in their service areas. The LSEs may determine how such costs are allocated to incremental loads, consistent with state law.

The administration and governors also urged that PJM improve load forecasting. PJM’s filing said load forecasting improvements will include more third-party review and increased transparency, in addition to state reviews of large load additions, where duplicative requests will be addressed.

PJM was also urged to accelerate ongoing interconnection studies. While studies were not explicitly addressed in the response to FERC, PJM intends to establish an expedited interconnection pathway for incremental generation advanced by LSEs, large loads and states.

The expedited interconnection track should be in place by August 2026 and will operate outside of the regular interconnect process. The expedited track will be available to generation both with and without contracts with load and allows shovel-ready resources to execute generation interconnection agreements sooner than at present.

PJM encourages data centers to bring their own new generation to the system on an accelerated basis. Tariff revisions will be proposed that focus on aggregate new generation demonstrated by LSEs as available to offset their forecasted large load additions. The states within PJM retain the authority to determine how such frameworks are applied to individual retail customers.

Generation needs on the system appear to continue largely unabated. PJM on January 15 forecast its annualized growth rate for the summer peak will average 3.6% per year over the next 10 years. Winter peak load is projected to rise at an average 4% annually over the same period.

The impact of the statement of principles and PJM’s response to FERC’s show cause order might be extensive.

“The price of firm service for data centers is about to rise, and only developers with strong balance sheets are positioned to succeed,” said Ben Hertz-Shargel, global head of grid edge research at consultant Wood Mackenzie

The FERC order provides insight into how the commission may approach issues that could arise with the ISO New England tariff, according to a December 31 memo from the office of the counsel at NEPOOL, the independent stakeholder advisory group for the regional grid.

“Depending on the final rule and any potential independent entity variations available to ISO New England, data centers and large loads in the region could expect obligations related to transmission service, network upgrades, and ancillary service costs, and potential increased scrutiny of their impacts on the transmission system,” the memo said.