PJM Seeks FERC Approval for Reliability Backstop Procurement to Address Capacity Shortfall

PJM Interconnection on July 31 filed a proposal with the Federal Energy Regulatory Commission to approve a new Reliability Backstop Procurement designed to address a projected capacity shortfall and accelerate investment in new power generation as electricity demand rises across the region. The proposal would allow the grid operator to begin the procurement process on Sept. 30, 2026, with the objective of securing additional generating resources needed to maintain system reliability after the latest capacity auction left a 6,831-megawatt supply gap for the 2028/2029 delivery year.

The proposal establishes a parallel procurement mechanism intended to supplement, rather than replace, the existing capacity market. Under the framework, selected resources could receive contracts of up to 15 years, providing developers with longer-term revenue certainty to support financing of new projects. PJM proposes a maximum willingness to pay based on a megawatt-weighted average of $555 per megawatt-day. To avoid procuring more capacity than needed, the procurement target would be reduced to account for qualifying projects already backed by executed bilateral agreements or other new resources expected to enter service.

PJM plans to provide additional implementation details during an Aug. 10 stakeholder workshop, including participation requirements, procurement timelines and project evaluation criteria. The filing follows an accelerated stakeholder process initiated after the PJM Board of Managers called for immediate measures to preserve reliability while broader market reforms are developed.

The proposal underscores the importance of state participation. PJM emphasizes that states retain authority over retail electricity cost allocation and therefore will play a critical role in determining how procurement costs are assigned to load-serving entities and customers. The filing also highlights growing concern over the cost impacts of rapidly expanding electricity demand, particularly from large data centers, and notes that state policies will be essential to ensure new large loads bear an appropriate share of the costs associated with new generation.

Separately, PJM plans to submit another proposal on Aug. 7 establishing an interim resource adequacy service framework to manage reliability risks associated with large electricity users during periods of extreme system stress. The proposal includes creation of a large load registry to improve demand forecasting, support state oversight of new loads that bring their own generation, and prioritize potential load reductions before broader emergency actions become necessary.