December capacity auction expected to clear at the price cap again
Market Analytics, the independent market monitor for PJM Interconnection, said in its annual report on the state of the PJM electricity market that electricity customers in the mid-Atlantic and parts of the Midwest could still be exposed to higher utility costs related to data centers. That exposure persists despite efforts in the last year by policymakers and PJM to isolate the cost of additional generating capacity and connecting hyperscale data centers to the grid, the monitor said.
The market for energy actually used by customers has been competitive in the first nine months of 2026, ensuring that customers receive reliable power at the lowest possible price, Market Analytics said. The process PJM uses to ensure there is enough future generating capacity to meet spikes in demand on the hottest and coldest days of the year has not been competitive, mainly because demand from data centers — many of which have not been built — is still included.
That means a capacity auction set for December will again clear the maximum price, adding another $5 billion to $10 billion of data center costs to electricity bills across the region, the report said. Capacity cost accounts for about one-fifth of the total cost of wholesale electricity, and it increased more than 80% in the first nine months of 2026 compared with the same period in 2025.
“We are continuing to get closer and closer to a reliability crisis and an affordability crisis but the solutions are coming forth too slowly,” said Jon Gordon, senior director of Advanced Energy United, a renewable energy industry group.
PJM manages wholesale electricity markets and oversees grid operations for 13 states and Washington, D.C., including Pennsylvania. Its territory spans from New Jersey to parts of Illinois, Kentucky and Michigan and from the New York border to North Carolina, and its policies and decisions affect the electricity bills of 67 million consumers.
Since a July 2024 capacity auction resulted in a record price, state and federal elected officials and regulators have scrutinized the impact of data center development on consumer electricity costs. Pennsylvania Gov. Josh Shapiro’s office sued PJM and reached a settlement under which prices in future capacity auctions would be capped, initially at $325 per megawatt-day. Subsequent auctions have resulted in prices at the cap, and in July the auction fell 6,800 megawatts short of its goal to procure standby capacity, needed to ensure supply during times of peak demand.
Smaller data centers have been around since the dawn of the internet, but hyperscale data centers for artificial intelligence, which can use as much electricity as a small city, are proposed throughout the PJM region. The Trump administration also reached an accord with major tech companies that it called the Ratepayer Protection Pledge, under which they agreed to obtain their own power supplies.
Shields, PJM’s spokesman, said PJM fundamentally disagrees with the monitor’s view that PJM can take control of how data center costs are shared. That is up to state utility regulators, which approve local utilities’ rate structures, he said.
“PJM recognizes the impacts of rising wholesale costs on regular people and businesses, and we have established clear pathways in all of our proposals for states to allocate any and all of the cost impacts of data centers and other large load customers to those customers,” Shields said.
Shields noted that PJM’s proposals to federal regulators have tracked the specific language of a non-binding agreement between the Trump administration and governors of the PJM states. The statement of principles, adopted in February, is designed to insulate household and small business customers from costs associated with connecting and supplying electricity to data centers.
The monitor disputed PJM’s account of its own record. “PJM has failed to implement the broad public policy mandate reflected in the principles agreed to by all the PJM governors and the White House, as well as the Ratepayer Protection Pledge, to ensure that data centers pay their own costs,” Monitoring Analytics said in a news release.
PJM did propose solutions in submissions to the Federal Energy Regulatory Commission, which oversees PJM and other system operators around the country, and those proceedings have been closely watched by energy industry leaders across the country as other regions face similar challenges. FERC, however, rejected a plan to hold a “reliability backstop auction” to ensure reliable electricity supplies by matching data center owners with power plant owners and investors to negotiate directly for power. The commission also rejected much of PJM’s proposed framework to manage large loads like data centers that do not have their own power supply; under that plan, large loads would be cut off first when electricity supply on the grid reaches dangerously low levels. PJM has submitted amended proposals.
Gordon said the rejections were returned rather than denied outright. “The last thing FERC wanted to do is not approve these proposals that would protect ratepayers but they felt they wouldn’t do everything they needed to do, so they sent them back,” Gordon said.
As a result of the delayed approval of PJM’s proposals, the planned reliability backstop auction for data center owners will not take place before December. That means data center loads will remain in forecasts for demand that drive the capacity auctions, resulting in higher prices, he said. “It’s taking longer than anyone wanted or anybody hoped,” Gordon added.
Market Analytics recommended postponing the December auction, which is for capacity in 2029 and 2030, until the reliability backstop auction can be held.
“It is clear that continuing to simply accept the interconnection of large data center loads that cannot be served reliably … is not a reasonable path forward and is not an efficient or competitive market solution and is not a solution of any kind,” the report said.