PJM Interconnection has submitted a revised proposal for a special power auction that could pay electricity generators more than $20 billion over 15 years, an effort to address the rapidly growing power demands of AI data centers.
The proposal, filed with the Federal Energy Regulatory Commission (FERC), would allow PJM to begin bidding on March 1, 2027, with auction winners announced May 10. The auction requires federal approval.
PJM operates the largest electrical grid in the U.S., supplying power to more than 67 million people across all or parts of 13 states, including Pennsylvania, Ohio and West Virginia. The grid operator faces a thorny challenge as data center construction adds demand to an electrical system that must also maintain enough generating capacity to serve businesses and consumers.
Earlier PJM forecasts projected a 6.8-gigawatt capacity shortage by summer 2028. That estimate is now being revised to include updated expectations for electricity consumption, including demand from new data centers.
The proposed auction, called the Reliability Backstop Procurement (RBP), would allow PJM to secure electricity generation under 15-year commitments. The price ceiling is $555 per megawatt per day, a record level for the grid operator. If PJM purchased the full 6.8 gigawatts at that maximum price, generators would receive approximately $1.4 billion annually, totaling $20.7 billion over the contract period.
These figures represent a potential cost rather than a confirmed cost. The actual amount will depend on updated demand forecasts, the generating capacity purchased and the auction’s final prices.
The auction is expected to create a major business opportunity for power producers, particularly companies developing natural gas generation facilities. Among the companies positioned to benefit are Vistra, Talen Energy, Constellation Energy and NRG Energy. However, the auction’s final structure and the amount of generating capacity purchased will determine the size of that opportunity.
Dispute Over Who Pays
A central issue is how PJM will distribute the costs of additional electricity generation among utilities and their customers. FERC rejected key elements of PJM’s original auction proposal, describing the plan as “deeply flawed” and delaying the process by five months.
PJM’s revised approach would calculate each utility zone’s payment obligation based on its contribution to projected peak-demand growth between 2026 and summer 2028. This arrangement could spread the costs of supplying data centers across a much larger customer base, including residential and commercial electricity customers.
The proposal also addresses the possibility that utilities could leave PJM to avoid these costs. American Electric Power has threatened to withdraw from the regional grid operator. Under PJM’s revised rules, departing utilities would remain responsible for payments associated with generators needed to serve data center demand in their territories.
PJM also wants to remove existing provisions allowing certain municipal utilities and electricity cooperatives to avoid participation.
Enough Power?
Although the proposed auction offers potentially lucrative contracts for generators, questions remain about whether it will secure enough additional electricity to improve grid reliability. Some industry experts have expressed skepticism about its effectiveness, arguing that the amount of new capacity purchased could be too small to meaningfully address the region’s supply challenges.
The distinction is of crucial importance for data center operators. The auction is designed to procure generating capacity, but its effectiveness will depend on how much electricity supply is ultimately secured. PJM has never conducted an auction using this special procurement structure. Its regular annual capacity auction is scheduled for December, providing another mechanism for securing future electricity supplies.