The White House proposal for an emergency auction in PJM, which would require data centers to pay for new power plants, isn’t likely to resolve the structural challenges facing the region.
That’s according to a recent report by Aurora Energy Research, which analyzes the proposed structure of the White House auction, and predicts it won’t be sufficient to address PJM’s looming 2030 capacity shortfall. The data center-only auction may also have several unintended consequences, the report added, including eroding investor confidence in the wider market, and increasing costs for consumers.
The White House pitched a reliability backstop auction in January as a $15 billion solution to the region’s capacity crunch. In a “Statement of Principles” signed by a bipartisan coalition of Mid-Atlantic governors, the administration attempted to address surging load forecasts and rising retail prices by requiring hyperscalers to sign 15-year contracts for new generation. This would theoretically provide the long-term price signal needed for new construction to be built while shielding ratepayers from the bill, the White House argued.
But at current construction costs, Aurora found, $15 billion only buys six to 10 GW of new capacity — far short of the 24 GW shortfall PJM is facing by 2030, much less the 55 GW gap by 2035 as data center growth continues to accelerate.
Bifurcating the market into “new” and “existing” capacity, as the White House is urging, comes with significant risks. Other regions with capacity markets, including NYISO and ISO New England, have already decided against the bifurcated market setup, which requires the system operator to set separate procurement targets and price caps for new and existing capacity.
In a uniform clearing price market like PJM, all generation gets paid the highest price — including existing plants that were previously happy with lower clearing prices. Because the auction’s clearing prices have repeatedly hit the FERC-mandated cap, total system costs have exploded to over $16 billion. The Trump auction’s goal is to tamp down on those costs by funneling revenue specifically to new generation, rather than to the entire existing fleet.
But by separating the market, PJM could inadvertently create a “buy now, pay more later” dynamic in which existing plants retire prematurely because they can’t compete with subsidized new builds. Aurora’s modeling indicates that for every 6.1 GW the auction procures, it may only yield 3 GW of actual new capacity after accounting for those accelerated retirements.
And despite the branding of the auction as a “one-off” intervention, Aurora warns that it’s likely to become a permanent “intervention treadmill,” scaring off merchant capital with a maze of auctions that erode certainty.
It’s a problem that ISOs around the country are already dealing with, Aurora analyst Julia Hoos told Latitude Media in January. A string of past market reforms, usually in response to high clearing prices, have compromised developer trust in capacity markets like PJM, Hoos explained. The pattern taught merchants that the market would be allowed to operate as planned when prices were low, but not when they were high.
As a result, high prices stopped being a reliable signal for developers to build, she added. In light of this latest auction, rather than tweak the market yet again, the instinct is to “throw it all aside and start from scratch,” she said, pointing to indications that PJM is considering moving from its current capacity market structure to a seasonal capacity framework.
PJM’s first mover responsibility
PJM has been at the center of parallel national conversations around how to get data centers online faster, and well-founded concerns about electricity affordability. The grid operator is simultaneously trying to manage processes to fix its interconnection queue, resolve the load forecast uncertainty plaguing its capacity auctions, and figure out how to implement colocation and flexibility for data centers.
How the region ultimately resolves the problems it faces will have massive impacts on reliability, emissions, and costs. And where PJM goes, others are likely to follow.
The region’s capacity auction has been clearing at the price cap designed to prevent extreme volatility since last July, when the auction securing capacity for the 2026-2027 delivery year broke records. The most recent auction, at the end of 2025, was another record-breaker. Those high prices, former FERC Commissioner Allison Clements explained on a Latitude Dispatch last summer, are clear indicators that “there needs to be new generation investment in PJM.”
PJM has been attempting to figure out how to do just that via its Critical Issue Fast Path proceeding, an expedited stakeholder process that the board initiated last August to address rules for serving new large loads and interconnection reform. In January, the day after the White House issued its proposal, the PJM board published its own, much-anticipated plan.
Though it also considers an emergency auction, the plan is skeptical of the administration’s 15-year contract requirements and the long-term extension of price caps, which were imposed early last year as a temporary emergency response to price surges. Maintaining the cap cap could “obscure the market’s underlying clearing price,” suppressing the financial signals that tell developers when and where to build, the board argued.
But in mid-February, PJM agreed to extend the capacity price cap through 2030: a major win for the White House coalition. which includes Pennsylvania Gov. Josh Shapiro.
As Aurora pointed out in its report, however, lowering the clearing price can dissuade generators, including much-needed demand response, from bidding into the market. Resources with the ability to export to other regions may end up doing so, following the lead of Cordova Energy in Illinois, which signed a contract to provide capacity to MISO after the PJM price collar was announced.
But without fixing the non-financial barriers to new capacity, like permitting delays and equipment bottlenecks, the auction is unlikely to be anything more than an expensive patch, Aurora said — one that will the stage for a permanent shift toward out-of-market interventions that could leave the nation’s largest grid more fragile and expensive than ever.
Instead, the report suggests another method that would allow PJM to address affordability and allocate costs to data centers without distorting market price signals: letting prices reflect the true marginal cost of reliability, while using targeted large-load tariffs to protect ratepayers.
Such tariffs are already in use in certain parts of the country, including in Ohio where AEP was among the first utilities to introduce minimum monthly billing requirements. Data centers in AEP Ohio’s territory that are larger than 25 megawatts now must pay for 85% of their contract capacity each month, regardless of how much power they consume — a clear effort to circumvent the risks of an AI bubble or construction delays.
Transition-AI 2026, Latitude Media’s flagship event at the center of the AI-energy infrastructure buildout, will convene developers, utilities, regulators, hyperscalers, and capital providers to move towards coordinated, sustainable solutions for AI-driven demand. Register now to secure the lowest rates and join us in San Francisco April 13-14.
