Federal regulators on Friday rejected PJM’s plan for curtailing large loads that failed to procure their own capacity, finding it would intrude into state authority and unfairly single out new large loads. Regulators did approve PJM’s proposed large load registry, a centralized database to be managed by the grid operator which will track all current and prospective loads of 50 megawatts or more.
PJM’s proposed “Interim Resource Adequacy Service,” part of its broader framework for shielding consumers from the cost of serving data centers, would have curtailed data centers and other large loads that don’t bring their own new capacity, and assigned the responsibility for curtailing them to states. Notably, it would have curtailed those loads at the earliest stages of emergency grid conditions, before customers enrolled in voluntary demand response.
For the tech companies and aggregators already signing a flurry of these so-called bring-your-own-capacity deals in the region, the rejection is certainly a setback, said Mary Yang, former regulatory counsel for PJM and chief operating officer at 804 Advisory. But it’s not necessarily a dealbreaker for BYOC, she added. Many of those deals were already in limbo, she added, ready and waiting to close, but not yet signed because companies were waiting for more clarity on how exactly BYOC rules would work.
The Federal Energy Regulatory Commission’s ruling, though not unexpected, gives them no relief. Now, Yang added, the uncertainty “is going to keep dragging,” in part because PJM is juggling a number of competing priorities, and re-writing IRAS rules isn’t likely to be the top one.
“It does slow down the development of these more innovative bilateral mechanisms to solve some of these problems,” Yang added. “There’s a point at which it becomes challenging to wait longer. We are seeing anecdotally a lot of people saying ‘Okay, PJM needs to sort itself out, let’s go to a different region that’s got more certainty.”
But aggregators — including those like Voltus who are pushing distributed energy resources for BYOC deals — aren’t particularly worried about the ruling, in large part because most stakeholders expect states to implement IRAS regimes of their own. The real regulatory momentum in PJM is in the hands of states, Yang added. And now, with the approval of PJM’s large load registry, states will have the data they need to shape their own standards.
An expected setback
Last week’s ruling was largely anticipated, particularly because FERC had already instructed PJM to rework its plan for securing new supply to meet load growth, including via a centralized, one-time auction. For distributed resource aggregators looking to sign bring-your-own-distributed-capacity deals with hyperscalers, the delay in the backstop auction was generally seen as positive, because it provides more time for inking those agreements.
But the rejection of IRAS is more complicated, and more consequential for other parts of the country, where grid operators are watching closely to see how PJM’s attempt at curtailment plays out.
In another potential setback for aggregators, FERC also rejected the grid operator’s proposed rules for BYOC deals, which would have allowed large loads to avoid IRAS curtailment. FERC highlighted as problematic several elements that aggregators had applauded as expanding potential participation.
For example, PJM proposed locking in resource capacity accreditation values for 10 years, which FERC said would give those resources preferential treatment — and in the long run, would risk counting capacity they can’t actually provide, and shifting costs onto existing ratepayers. PJM’s plan would also have allowed distributed capacity to be delivered anywhere in the market, rather than within the specific, constrained zone where a large load is located. That approach, FERC said, doesn’t take into account transmission constraints between the data center and the distributed resources, and could “exacerbate the resource adequacy shortfall.”
That said, it isn’t clear from FERC’s ruling whether the commission is rejecting those features outright, or seeking stronger justification for them, Yang explained. A future design for IRAS could still preserve similar benefits in a different form.
For generators, the ruling’s impact will largely depend on the details of a specific deal, Yang said. In some cases, signing a bilateral deal as soon as possible may become more attractive given the ongoing uncertainty over the central procurement auction. But other generators considering bilateral agreements might see the delays as useful wiggle room to see whether it will make sense for them to instead get in on the central auction.
Looking ahead
IRAS drew pushback from stakeholders including merchant generators, state utility regulators, and the AI companies themselves. Supporters of the plan, including Pennsylvania Gov. Josh Shapiro, argued that targeting non-capacity-backed large loads for curtailment would prevent the financial and operational strain of interconnecting data centers from being shifted onto everyday consumers.
For data centers, their biggest problem with PJM’s approach had to do with curtailment authority, Yang said. In its plan, PJM assigned the responsibility of enforcement to states and utilities, meaning those entities and not the grid operator would ultimately decide which large loads get curtailed when, and by how much. The concern among data centers was that even if they do bring new capacity, they could still be asked to curtail.
FERC, in its ruling, said PJM is welcome to refile an alternative proposal for IRAS, but laid out strict guidelines for what would have to be overhauled. A revised framework must avoid infringing on state authority over retail shutoffs and rates, provide concrete evidence to justify singling out large loads from other types of new demand, and require contracted capacity to be physically deliverable in constrained zones where loads are coming online.
Instead of involuntarily downgrading customers taking firm service, FERC suggested PJM explore a voluntary non-firm transmission service, in which flexible large loads could choose to accept curtailment risks in exchange for avoiding firm capacity costs and expedited interconnection.
The grid operator should also figure out “how it will transition from any proposed types of service back to its traditional market structures and how it will avoid a long-term bifurcation of loads in the PJM market,” the commissioners wrote.
That said, FERC didn’t entirely dismiss the concept of data center-specific curtailment. As Commissioner David Rosner wrote in a concurring opinion, “in an emergency, data centers not serving critical functions should be shut off before ordinary customers,” including homes, hospitals, and schools. But it should be up to state regulators to establish rules for which customers should be curtailed first, he added.
