FERC rejects PJM's data-center shortcut, and capacity prices pinned at $325 a megawatt-day carry the bill
FERC killed most of PJM's plan to let data centers connect without paying for new generation. What is left is prepaying for the grid at the state level or paying through a capacity auction pinned at its cap, and either way the money lands with the owners of existing power plants.
Vincent Jiang · 3 min read
On October 9 the Federal Energy Regulatory Commission rejected the core of PJM Interconnection's plan for connecting data centers and other large loads to the largest U.S. power grid, a network spanning 13 Mid-Atlantic and Midwest states plus Washington, D.C. 12 The rejection decides who pays for AI's grid access: the cheapest route in is closed, and the bill lands on state-approved prepayments and on PJM capacity prices, which investment bank Jefferies expects to stay higher for longer 3.
The plan, called Interim Resource Adequacy Service, would have let big new loads connect without matching new generation if they accepted being switched off ahead of grid emergencies, through interim service and "bring your own new capacity" rules 1. FERC kept only a definition of large loads and a registry listing who they are 1. PJM expects data-center demand on its system to triple by 2030, to about 29 GW 3.
The regulator called it a state matter
The tariff appears "to place obligations directly on eligible new large loads," mostly retail customers, and its compensation framework "appears to establish a retail rate," FERC said 1. States should decide which customers are cut first when the system is stressed, and PJM must justify switching data centers off before other large users 3.
Commissioner David Rosner warned the plan could make the capacity market signal a surplus while the region sheds thousands of megawatts on an involuntary basis 1. FERC rejected not the data centers but the terms that would have let them connect ahead of other users without paying for new supply 1.
Two doors remain: prepay, or the cap
One door is bilateral. On October 7, Duke Energy's two North Carolina utilities settled with the state's consumer advocate, joined by Amazon+0.27% — Amazon, up 0.27 percent today, Google, Meta+3.36% — Meta, up 3.36 percent today, Microsoft+1.31% — Microsoft, up 1.31 percent today and the U.S. Department of Defense: loads of 50 MW and up pay nonrefundable, upfront costs for facilities serving only them, and a state commission ruling is expected by mid-November 4.
The other door is the auction, where generators are paid per megawatt-day to promise power when the grid is stressed, and it is already rationed by cap. PJM's 2028/29 capacity auction cleared at $325 per megawatt-day, the third straight at the ceiling; uncapped bidding would have settled above $500 5.
6.8 gigawatts short, through a backstop FERC half-rejected
PJM still needs 6.8 GW for that year through a backstop purchase, an emergency buy outside the auction 2. FERC partly rejected it on September 29; its offer cap stands at $555, and PJM aims to refile by October 29 26.
PJM's capped auction hides a market willing to pay $500 and up
- Estimate
Data
| Value | |
|---|---|
| Auction cap, last three auctions | $325/MW-day |
| Uncapped clearing level (estimate) | $500/MW-day |
| Backstop auction offer cap | $555/MW-day |
Existing generators collect either way
The ruling could mean capacity prices higher for longer in PJM, favorable to the independent power producers Constellation Energy, NRG Energy−0.18% — NRG Energy, down 0.18 percent today, Talen Energy and Vistra+1.63% — Vistra, up 1.63 percent today, Jefferies analysts told clients 3. Vistra chief executive Jim Burke says large-load customers are "interested in contracting at a premium with existing because it's still a discount to what new build costs" 5.
NRG is the sharpest expression: a fleet roughly doubled to 25 GW with 13 GW bought from LS Power, more than 6 GW of gas-build potential for data centers, and a 1.2-GW Texas plant under a 15-year hyperscaler contract 78. Analyst price targets run from $157 at Morgan Stanley−0.38% — Morgan Stanley, down 0.38 percent today to $197 at Goldman Sachs+1.60% — Goldman Sachs, up 1.60 percent today, averaging $202.1, with 11 of 17 analysts at Buy 8.
The curtailable lane likely returns, led by states
The caveat comes from Jefferies itself: the curtailable lane likely returns, "minimally revived," and led by states, with Ohio and Pennsylvania first 1. Watch North Carolina's ruling by mid-November 4, PJM's refiled curtailment plan 3, and the 2029/30 auction in early December 2.
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
