PJM Proposes 14.9 GW Reliability Backstop: Bilateral Procurement and Central Auction to Address Data Center Capacity Crisis
PJM Interconnection has formally proposed a Reliability Backstop Procurement (RBP) targeting 14.9 GW of new generating capacity — the first out-of-market procurement mechanism in the grid operator's history. The two-phase approach begins with facilitated bilateral contracting between large loads (primarily data centers) and generation developers starting September 2026, followed by a centralized pay-as-bid auction in March 2027 for any remaining shortfall. A bipartisan coalition of PJM-state governors has demanded that costs be directly assigned to the data centers driving the demand — not socialized across residential and commercial ratepayers. PJM issues a formal Request for Information (RFI) on April 16, 2026 to gauge interest from large loads and capacity resource developers.
Executive Impact — C&I Buyers
- →Cost-Causation Principle Favors Non-DC Commercial Buyers: The governor coalition's demand for data-center-specific cost allocation could shield traditional commercial ratepayers from the ~$2.80-$3.20/MWh in additional capacity charges that would otherwise be socialized. However, this depends entirely on state PUC implementation — monitor your utility's tariff proceedings closely.
- →Phase I Creates a New Market Layer: The bilateral matchmaking phase (Sep 2026 – Mar 2027) introduces negotiated capacity pricing outside the standard BRA framework. Large industrial customers (50+ MW) who can offer curtailable load may find themselves approached as bilateral partners — a potential revenue stream.
- →New Capacity = New Transmission Costs: Building 14.9 GW of new generation requires grid upgrades. PJM's $11.8 billion RTEP-W3 transmission plan is already in motion. These network upgrade costs flow through delivery tariffs to all load-serving entities — a pathway that bypasses the data-center-specific cost allocation being debated for the backstop itself.
The Scale of the Problem: 50-60 GW Over a Decade
PJM's load forecast — which the grid operator describes as its "firmest" five-year projection — identifies a capacity shortfall of 50 to 60 GW over the next decade. To put this in context, PJM's current installed capacity is approximately 185 GW. Replacing one-quarter to one-third of the grid's capacity in 10 years would be unprecedented in U.S. electricity market history.
The primary driver is data center load growth. PJM's interconnection queue contains over 40 GW of pending data center requests, concentrated in Northern Virginia (Dominion Energy territory) and central Ohio (AEP territory). Combined with scheduled retirements of aging coal and gas plants that cannot economically justify continued operation, the gap between supply and demand is widening faster than the standard capacity market can fill it.
How the Two-Phase Mechanism Works
Phase I: Facilitated Bilateral Contracting (September 2026 – March 2027)
PJM will act as a matchmaker between two groups: large loads seeking reliable power supply, and generation developers with projects that can deliver capacity within five years. Unlike the standard capacity auction, parties negotiate their own terms, conditions, and contract structures. PJM facilitates introductions and provides standardized information about grid needs, but does not set prices.
This is explicitly designed for data centers. Hyperscalers with 200-500 MW campuses can contract directly with developers to build dedicated natural gas, nuclear, or hybrid generation assets. The commercial logic is straightforward: instead of paying escalating capacity auction prices that are socialized across all ratepayers, data centers secure their own supply at negotiated rates — and demonstrate to regulators that they're not free-riding on the existing grid.
Phase II: Central Procurement Auction (March 2027)
If the bilateral phase fails to fill the 14.9 GW target, PJM conducts a centralized pay-as-bid auction. Unlike the standard capacity auction (which uses a single clearing price), pay-as-bid means each winning bidder receives exactly what they offered. This reduces the risk of price spikes from marginal units, but creates a less transparent market with variable pricing.
The Governor Coalition: Who Pays?
The defining political dimension of the RBP is cost allocation. A bipartisan coalition of governors from PJM member states — including Virginia, Pennsylvania, New Jersey, and Maryland — has urged PJM to ensure that backstop costs follow the loads causing the shortfall. Their position is clear: residential and small commercial ratepayers should not subsidize data center expansion.
This is a direct response to the 2027/2028 BRA results, where the $333.44/MW-day clearing price — driven predominantly by data center demand — translated to $2.80-$3.20/MWh in capacity charges for all PJM customers, including hospitals, schools, and small businesses that had no role in creating the shortfall.
PJM has indicated it will act as the administrator and counterparty, securing forward commitments and allocating costs back to the geographic areas where the load is located. However, state public utility commissions retain final authority over how costs flow through to specific customer classes within their jurisdictions — meaning the outcome will vary by state.
What Happens Next: The April 16 RFI
PJM issues a Request for Information (RFI) on April 16 to gauge interest from two audiences:
- Large Loads: Data centers and heavy industrials indicating their willingness to participate in bilateral contracting, including expected load sizes, timelines, and geographic preferences.
- Capacity Resource Developers: Generation companies with projects that can reach commercial operation within five years, including fuel type, capacity rating, and interconnection study status.
The RFI responses will shape the final design of the Phase I bilateral process. If response volume is strong — indicating data centers are willing to self-procure — Phase II may be scaled back or eliminated. If weak, PJM may need to expand the central procurement or consider mandatory cost allocation mechanisms.
Commercial Buyer Action Items
- Monitor Your Utility's Tariff Proceedings: If you're in PJM territory, your delivery utility will file tariff updates reflecting backstop-related costs. Request a breakdown of capacity charges vs. delivery charges in your next supply agreement to isolate exposure.
- Evaluate Bilateral Opportunities: If your facility has 50+ MW of curtailable load, you may be approached as a bilateral partner during Phase I. Demand response capacity has premium value in this environment — quantify your curtailment capability and contact your utility or REP.
- Lock Supply Before 2027: Phase II's pay-as-bid auction in March 2027 will establish new capacity price benchmarks. If you're negotiating contracts expiring in 2027 or later, secure indicative pricing now while the backstop design is still being finalized — there's less risk premium baked in today than there will be after Phase I closes.
Connected Analysis
This proposal is the operational successor to the February 2026 RBP workshops and directly follows the capacity shortfalls documented in the 2027/2028 BRA results ($333.44/MW-day). For context on the price ceiling mechanism, see the PJM Capacity Price Cap Extension through 2030.