"Deeply Flawed": Biggest US Grid Scraps Emergency Data Center Power Auction One Day After FERC Smackdown
We have been documenting the slow-motion collision between the AI capex fantasy and the laws of physics since late 2025, when we noted that some of Oracle's OpenAI data centers were being pushed back to 2028 (Dec 12, 2025). Since then the delays have gone from anecdote to trend: in April we reported that half of US data centers scheduled to start in 2026 will be canceled or delayed (Apr 13), in August that more than two-thirds of the power sought for US data centers will never materialize (Aug 14), and just last week the two flagship Stargate campuses hit the wall within 24 hours of each other, with SB Energy delaying the IPO meant to fund the world's largest data center (Sept 23) and Oracle's Project Jupiter declaring force majeure (Sept 24).
Now we can add the US electrical grid itself to the list of things that won't arrive on time.
On Wednesday, PJM Interconnection, operator of the largest US grid stretching from Illinois to DC serving 67 million customers across 13 states, and home to Virginia's Data Center Alley, suspended the one-time "backstop" auction it was about to launch to plug a 6.8 gigawatt hole in its supply stack, less than a day after FERC ordered it back to the drawing board. The procurement, which was supposed to open for offers on Sept 30 and run through Oct 21 with selections by early December, now has, in the words of a PJM spokesman, a launch date that is "yet to be determined."
For those keeping score, that is a power auction for data centers... delayed. You can't make this up.
How We Got HereRecall that in July, PJM's base capacity auction for 2028/29 came up 6.8GW short of its reliability requirement, the first time in PJM's history that the entire RTO fell short, and only the price cap kept the clearing price at roughly $325/MW-day. As we tweeted that night, without the ceiling, PJM capacity prices would have been 70% higher at $554.72. A few hours later we added that "PJM is already below the critical reliability threshold."
Capacity prices went from $28.92 to the cap in two auctions, and the cap is the only thing keeping 2028/29 from $554.72.
Who is paying for this? Mostly people who have never heard of a hyperscaler. According to PJM's own market monitor, data centers accounted for $6.3BN, or 38%, of the $16.4BN in charges from the latest auction, and $29.4BN, or 46%, of the $63.6BN tab across the last four auctions (Jul 22). That's the "nearly $30 billion" Bloomberg references today, and it lands on the bills of 67 million people across 13 states and DC.
Said otherwise, nearly half of four years of capacity costs trace back to data centers.
Hence the backstop: a one-time, 15-year procurement for new capacity, with costs meant to fall on the data centers driving demand. FERC Chairman Laura Swett had warned in July that FERC would impose reforms if PJM didn't adopt changes by September (Jul 28). PJM filed its Reliability Backstop Procurement (RBP) on July 31. And on Tuesday, FERC delivered its verdict.
"Deeply Flawed, Eleventh-Hour"FERC accepted parts of the plan but suspended the framework for five months, with Swett saying the commission "will not be forced into accepting a deeply flawed, eleventh-hour procurement." The key objections center on cost allocation, the rules for transmission owners exiting the arrangement, and collateral requirements for load-serving entities. On that last one, Northern Virginia Electric Cooperative alone would have had to post roughly $2BN in collateral. The offer cap in the procurement, incidentally, was $555/MW-day, or almost exactly the uncapped price the July auction would have cleared at.
As Bloomberg notes, the bigger issue is that even a working backstop only covers part of the gap. PJM's independent market monitor, Joseph Bowring, pointed out that the current proposal addresses only some of the shortfall, and that rapid data center growth will require even more capacity. Which is a polite way of echoing what we said in July - and in the year before - namely that the 6.8GW hole is the floor, not the ceiling. Back in February PJM itself said the shortfall could grow to 60GW over the next decade without action, to which we responded that the "capex spending plans will be scrapped since there is not enough juice to power the DCs." Seven months later, here we are, scrambling to find the juice to power up the trillions in capex...
Goldman: Net Bearish For The IPPs, And The Real Fight Is IRASGoldman utilities analyst Carly Davenport was quick to weigh in (note available to pro subscribers). The key detail: FERC's order makes the RBP effective February 28, 2027. PJM can either sit through a paper hearing or bypass it by submitting a new Section 205 filing within 30 days, which could accelerate final approval.
Goldman's verdict is that the suspension is "net bearish but mixed" for independent power producers to wit:
"...lack of clarity around the finalized framework could lengthen the regulatory overhang on the stocks and dampen data center customer appetite to sign long term PPAs, though [we] continue to point to higher pricing and tight markets in PJM in the absence of line of sight to new capacity."Translation: fewer hyperscaler contracts in the near term, but the shortage that makes existing generation so valuable isn't going anywhere. Goldman sees Buy-rated Talen (TLN) and Neutral-rated Constellation (CEG) as most exposed given their PJM leverage, with Vistra (VST) and NRG somewhat more insulated. The group trades at an average 7.4x EV/EBITDA and a ~12% FCF yield on 2027 estimates (ex-CEG), which is what a "significant discount" looks like when nobody knows what the rules will be.
More importantly, Goldman thinks the backstop may matter less than the other PJM filing pending at FERC: the Interim Resource Adequacy Service (IRAS), the framework for large loads that want to connect without bringing their own capacity, in exchange for being curtailable. As Davenport wrote when PJM filed it in August, IRAS lets data centers waive curtailment compensation, excludes new large load from the capacity demand curve to shield residential customers, and asked FERC to rule by October 12 so bilateral data center contracts could move forward, even though it wouldn't take effect until June 2027. Since many developers and customers prefer bilateral deals, a constructive IRAS ruling "could limit the need of the RBP." In other words, the next two weeks matter more for the IPPs than anything PJM said last week.
Meanwhile, The Market Isn't WaitingWhile regulators argue about collateral, power traders have done their own math. According to Goldman's commodities desk (see Isabel Blaze's latest "US Power Biweekly" report), PJM has "seen substantial repricing across the curve over the past month."
September peak cash is set to clear at $128/MWh, up 47% from where it traded entering the month, thanks to an unusual heat pattern and scheduled transmission outages. October pinned above $100 at yesterday's options expiry, and the Cal27 through Cal29 strips are all trading above $90, with load-serving entities stepping up hedging of their intermediate-term commitments. Goldman's summary: "a market that has repriced meaningfully higher across both cash and forward tenors." In simple terms: even higher bills are coming.
Of course, none of this comes cheap for households. In the first installment of its new Affordability series, published Monday (see "Inside Customer Affordability: An Introduction to the Electric Utility Bill"), Goldman found that the "most prominent affordability impact" in the country is on PJM customers, "where capacity prices have reflected the tightening supply and demand in the market." The bank forecasts utility bill inflation of 3.7% a year on average through 2029 (narrator: it will be much higher).
Source: GoldmanLast week, after hosting Exelon's VP of federal regulatory affairs, Goldman reported that the utility doesn't believe PJM's current capacity market construct is adequate to incentivize new supply, and sees heightened scrutiny of data centers and bill inflation persisting beyond the November midterms. It's almost as if voters in Maryland, Pennsylvania and New Jersey have noticed.
Bring Your Own Power PlantNone of this is surprising to regular readers. Last November, as electric bills began their vertical ascent, we said that every state has to follow the Texas example and require each data center to have its own "behind the meter" onsite generation. A month later we put it more succinctly: Make "behind the meter" mandatory (Dec 23).
Wall Street is catching up. Last week Goldman raised its 2030 global outlook for behind-the-meter generation by 68%, to 67GW from 40GW, with gas turbines and fuel cells each expected to capture a quarter or more of incremental deployments, and as we detailed on Monday, the bank now sees BTM powering 25% of all data centers by 2030. Longer term, we continue to believe small modular reactors are the only real solution, although the path there remains, let's say, bumpy: just days ago FERC sided with PJM and kicked Oklo's 750MW Virginia hybrid project out of the interconnection queue, which Oklo warned will delay development by "more than a year."
So to recap: the data centers are delayed, the financing is delayed, the IPO is delayed, the power plants are delayed, and now the auction to pay for the power plants is delayed until at least the end of February. The only thing arriving on schedule is the electric bill.
Tyler Durden Sun, 10/04/2026 - 21:35