PJM Capacity Auctions Clear at Capped Prices as Shortfalls Grow Under AI Power Demand
The capacity market for PJM Interconnection—the largest grid operator in the United States serving 13 Mid-Atlantic and Midwestern states—continues to experience unprecedented supply-demand tightness. In July 2026, PJM's Base Residual Auction (BRA) for the 2028/2029 Delivery Year cleared at the newly established $325/MW-day price cap across its entire footprint, driven by surging AI data center load growth and a shrinking reserve margin.
Capped Prices Avoid a $29.7 Billion Ratepayer Bill, but Shortfall Widens
The 2028/2029 capacity auction cleared at the maximum price allowed under the newly extended price collar ([FERC Approves PJM Capacity Price Collar Extension through 2030 to Protect Ratepayers](/p/ferc-approves-pjm-capacity-price-collar-extension)). Without this regulatory price cap, the auction would have cleared at astronomical levels, highlighting the severe shortage of generation capacity relative to rising demand.
According to Utility Dive:
"Without a price collar, the auction would have cleared at nearly $555/MW-day across PJM’s footprint and $777/MW-day in PJM’s Commonwealth Edison zone in northern Illinois, according to the grid operator. The auction’s cost would have been $29.7 billion, up from its actual cost of $16.4 billion, PJM said."
While the price collar limited the total footprint cost to $16.4 billion, protecting ratepayers from immediate, extreme bill increases, the underlying reliability metrics continue to deteriorate:
- Widening Shortfall: The auction left PJM with a 6.8 GW shortfall below its 20% installed reserve margin target, an increase from the 6.5 GW shortfall recorded in the 2027/2028 auction.
- Anemic New Supply: Only 525 MW of new resources cleared the auction (including 208 MW of uprates to existing plants), down from 774 MW in the previous auction.
- **Surging Forecast Demand:**stu Bresler, PJM’s Chief Operating Officer, noted that the auction was heavily impacted by a 2 GW increase in forecast demand, primarily driven by data center development.
- Demand Response Decline: The amount of cleared demand response fell by 277 MW to 7,365 MW, signaling that high prices are failing to incentivize rapid demand-side flexibility.
Independent Power Producers Capture Massive Windfall
The sustained high capacity prices represent a massive financial windfall for merchant power producers with nuclear and gas fleets in the PJM footprint. The three largest independent power producers (IPPs) reported significant capacity revenue commitments for the 2028/2029 delivery year:
- Constellation Energy (NASDAQ: CEG): Cleared 18,875 MW (up from 17,950 MW in the previous auction), securing approximately $2.2 billion in gross capacity revenue.
- Vistra Corp. (NYSE: VST): Cleared 10,924 MW (up from 10,566 MW), securing approximately $1.3 billion in capacity revenue (maintaining an annual gross run-rate near $1.30 billion).
- Talen Energy (NASDAQ: TLN): Cleared 10,180 MW (up from 8,745 MW), securing approximately $1.2 billion in capacity revenue.
These figures underscore the massive earning power of the merchant nuclear and gas-fired generation fleets under current grid conditions, even as the broader market faces a severe resource adequacy crisis.
Proposed Structural Reforms and Backstop Auctions
The persistent shortfalls have led market participants and regulators to argue that the current capacity market design is broken. In response, PJM's board is preparing to file proposals with the Federal Energy Regulatory Commission (FERC) for:
- Accelerated Backstop Capacity Auction: An emergency backstop auction (Reliability Backstop Procurement) scheduled for September 2026 to procure roughly 9 GW of new resources (
[PJM Deploys and Accelerates Reliability Backstop Procurement Framework](/p/pjm-deploys-reliability-backstop-procurement-framework)). - "Connect and Manage" Framework: A fast-tracked interconnection process specifically designed to manage and triage large loads, such as data centers, without risking grid reliability.
Consumer advocates and environmental groups, such as the Natural Resources Defense Council (NRDC), are advocating for "Connect and Manage" rules that would remove data center loads from the capacity auction unless they bring their own dedicated power supply, ensuring that Big Tech pays for its own infrastructure without shifting costs onto public utility customers.