PJM Interconnection's capacity market has now produced the result its critics and its defenders both feared. The 2027/2028 Base Residual Auction, published on December 17, cleared 134,479 MW of unforced capacity at the cap of $333.44 per megawatt-day across the whole footprint. Add the 11,299 MW committed by utilities that self-supply under the Fixed Resource Requirement option, and PJM procured 145,777 MW. That is 6,623 MW short of the reliability requirement, by the figure in PJM's release, or about 6,517 MW by the auction report's calculation. Either way it is the first auction in which the entire regional transmission organization, including the self-supply areas, fell short.
The reserve margin tells the same story. PJM's target installed reserve margin for 2027/2028 is 20%, the level its studies say is needed to meet a one-day-in-ten-years loss-of-load standard. The auction cleared a 14.4% margin by the report's measure, 5.6 percentage points below target. PJM's release says the system still holds a reserve margin of 14.8% once all resources are counted, and that a shortfall on paper does not mean the system cannot serve load. It does mean the market failed to buy the insurance it was designed to buy.
The demand side moved, the supply side did not
The parameters in PJM's results presentation show where the gap came from. Forecast peak load for 2027/2028 is 164,579 MW, up 5,250 MW or 3.3% from the 159,329 MW used for the previous auction. The reliability requirement rose by 6,295 MW to 152,400 MW, helped by a higher reserve margin target, which went from 19.1% to 20%. The cleared quantity, meanwhile, barely changed: 134,478 MW against 134,205 MW the year before. Supply held still while the target moved away from it.
PJM's own release is blunt about the cause: nearly 5,100 MW of the roughly 5,250 MW increase in forecast peak is attributable to data center demand. That is the clearest statement yet from the grid operator that the shortfall is a data center story. Supply did grow, but only a little. Offers into the auction rose by 956 MW of unforced capacity, from 135,192 MW in the previous auction to 136,148 MW, a fraction of the movement in the requirement. Without the growth in data center adjustments, the forecast would have been almost flat, and the existing supply would have come close to covering the requirement.
A cap that capped the response
The cap mattered in two ways. First, it set the price. All zones cleared at $333.44, a 1.3% increase from the previous auction's $329.17. The cap rose slightly only because the accredited capacity of the reference resource, a dual-fuel combustion turbine, was revised. The product of cleared supply and price comes to $16.4 billion. Second, it left supply unbought. The auction report shows 809.6 MW of unforced capacity that did not clear because the offers were above the cap. On an uncapped demand curve, that capacity would have cleared and the price would have been higher.
So the cap protected consumers from a higher price for this delivery year, and in exchange the region bought less capacity than its reliability standard calls for. Whether that trade was worth it depends on what happens in the summer and winter of 2027/2028. If load grows as forecast and the weather is normal, the gap may not bind. If there is a severe winter storm with forced outages of the kind seen in December 2022, a reserve margin of 14.4% leaves less room to absorb them.
A transmission delay made it worse
The presentation also lists a factor that has nothing to do with generation. The Chanceford-Doubs 500 kV backbone transmission line has been delayed, which reduces the capacity that can be imported into constrained areas. PJM estimated the effect on capacity emergency transfer limits as a reduction of 425 MW into MAAC and 621 MW into SWMAAC, partly offset by an increase of 157 MW for Dominion. When transmission into a load pocket arrives late, the auction needs more local generation to meet the same requirement, and none was available.
What the tariff now requires
The PJM tariff treats a shortfall of this size as a triggering event. A reserve margin more than one percentage point below target requires an investigation into the cause. If the shortfall persists for two more auctions, the tariff provides for a reliability backstop auction, which PJM would have to file with FERC before running.
That raises the stakes for 2028/2029, the first auction without the collar. Unless the cap is extended, the auction will clear on PJM's standard demand curve, which allows prices well above $333.44 when supply is short. The pressure to extend the collar, or to find another way to bring supply forward, is intense. So is the pressure to make large loads responsible for the capacity they need.
The policy options
Three broad approaches are on the table across PJM's states and stakeholder process. The first is to accelerate supply: PJM's Reliability Resource Initiative has already fast-tracked about 11,000 MW of projects into the interconnection queue, though most cannot be online by 2027. The second is to make new large loads interruptible or bring their own generation, so that they do not add to the requirement that everyone pays for. The third is to change how capacity costs are allocated, so that the customers driving growth carry more of the cost.
None of these changes the arithmetic for 2027/2028, which is now locked in. PJM's release lists mitigating factors that could improve the picture before the delivery year, including an expected reduction in forecast peak demand once firmer screening of large load requests is applied, but those are possibilities rather than procured megawatts. Incremental auctions held closer to delivery can also buy additional capacity if it materializes. The auction has done its job as a measurement. It shows that the PJM system, as currently built and operated, cannot absorb data center growth at the current pace without either falling short of its reliability standard or paying much more for capacity. The choice between those outcomes is political, and the states will have to make it within the next twelve months.