Commodities
PJM Approves Reliability Plan to Address Data Center-Driven Power Demand, UBS Says
PJM Interconnection's board has approved a package of market reforms to bolster grid reliability as electricity demand from data centers surges, marking a key step toward new rules that could reshape how large power users connect to the US grid, UBS strategists said in a Tuesday note.UBS analysts said that the grid operator, which serves 13 states and the District of Columbia, will file the proposals with the Federal Energy Regulatory Commission in the coming days after the board approved the package through its Critical Issue Fast Path process.The measures, developed through PJM's Critical Issue Fast Path process, include a temporary reliability backstop procurement and a "connect and manage" framework designed to shift greater responsibility onto large electricity users driving load growth.The bank said the changes come as PJM faces rapidly rising electricity demand from data centers, accelerating power plant retirements and tightening reserve margins, raising concerns over future supply adequacy.Under the proposal, PJM will launch a Reliability Backstop Procurement in September 2026 to secure up to 6.8 gigawatts of capacity, matching the projected shortfall identified in its 2028/29 Base Residual Auction.The bid solicitation will run from Sept. 30 through Oct. 21, with winning resources selected between Oct. 22 and Dec. 2, 2026.PJM also approved an Interim Resource Adequacy Service framework requiring large new loads connecting after June 1, 2027, to demonstrate they have secured sufficient generation capacity to offset their electricity demand.UBS said that customers that fail to provide adequate capacity would be required to participate in IRAS, under which they could be directed to reduce electricity consumption before PJM implements broader emergency load-management measures.To improve demand forecasting, PJM will establish a registry of large electricity users, with utilities required to provide data on qualifying customers.UBS said the information will support reliability planning and administration of the new programs, while certain data may be shared with authorized entities and, where permitted, made public.PJM said federal policymakers, member states and large-load customers have broadly agreed that new large electricity users should bear the costs associated with the demand they create.However, because PJM lacks authority to assign retail electricity costs directly to individual data centers, the grid operator said implementation would require action by state regulators.PJM said it would support those efforts by providing information from the new registry and existing settlement and billing systems.Large-load customers instructed to curtail electricity consumption under IRAS would receive FERC-approved, performance-based compensation, with eligibility and cost recovery determined by state authorities or other designated entities and administered by local electric distributors.UBS analysts said establishing market rules could facilitate new contracting activity, while noting that additional generation needed to meet rising demand is unlikely to threaten the earnings outlook for existing power plants.
