By Mike Nasi and Travis Wussow

Data centers, domestic manufacturing, and other drivers of economic growth are generating significant new demand for electricity across the country. Grid operators are working to ensure that new generation capacity keeps pace. In PJM Interconnection—the nation’s largest grid operator—the December 2025 capacity auction fell 5.2% short of reliability requirements for the 2027-2028 delivery year, the first time PJM has experienced such a shortfall. Capacity auctions are a mechanism used in some regions for ensuring enough generation exists to meet projected demand. PJM’s shortfall has prompted two new proposals for how to accelerate new generation.

On January 16, 2026, the federal government and PJM each offered proposals to address this challenge. The Trump administration released a joint Statement of Principles with all 13 PJM state governors—a rare bipartisan coalition—calling for emergency market reforms. The same day, PJM’s Board of Managers released its own proposal, outlining a different path forward.

These proposals reflect a question facing grid operators nationwide: how can we most efficiently and effectively build out generation capacity to meet growing demand from data centers and other large loads? Both proposals attempt to answer that question—through different mechanisms and with different allocations of cost and risk.

Generator retirements have contributed to the capacity challenge. PJM explicitly cited “decreased supply offers into the auction due mainly to generator retirements” as a key factor. The numbers underscore the scale: approximately 54.2 GW of thermal capacity retired across PJM from 2011 to 2023, with an additional 24 to 58 GW—up to 30% of installed capacity—at risk of retirement by 2030 without identified replacement sources. Coal retirements have been significant, with 34 GW retired since 2013 and another 13,250 MW announced for retirement between 2024 and 2028. Critically, the resources in PJM’s interconnection queue cannot provide equivalent capacity value—PJM’s own analysis shows replacing 1 MW of thermal generation requires approximately 5.2 MW of solar or 14 MW of onshore wind.

The Statement of Principles

The White House National Energy Dominance Council and all 13 PJM state governors are calling for PJM to hold an emergency capacity auction by September 2026—a departure from normal market operations designed to accelerate new generation.

Core elements

• 15-year power purchase agreements. Tech companies would bid on long-term contracts with new generators, providing revenue certainty to support construction financing.
• “Take or pay” structure. Data center operators would pay for contracted power whether they use it or not, transferring demand risk from ratepayers to the companies driving load growth.
• $15 billion commitment. The administration announced that leading tech companies have agreed to fund this level of new generation, though specific participants were not named and no binding agreements exist.
• Cost allocation to data centers. Generation costs would be allocated to data center customers that have not either self-procured capacity or agreed to curtailment during emergencies.
• Price cap extension. A two-year extension of the price collar PJM implemented in 2025 to limit capacity cost increases.

Pennsylvania Governor Josh Shapiro delivered pointed remarks, suggesting that Pennsylvania could pursue alternatives if reforms are not adopted: “Make no mistake, if PJM, this sort of faceless bureaucratic organization that is driving prices up on the American people, does not change and does not reflect what we are putting forth here today, Pennsylvania will be forced to act and forced to go it alone.”

PJM’s Response

PJM’s Board of Managers offered a different approach, emphasizing operational solutions and working within existing market frameworks.

Key components

• “Connect and manage” with curtailment. Data centers can connect to the grid without bringing their own generation, but would be subject to earlier curtailment during system stress—among the first customers to have load reduced during reliability emergencies.
• Bring Your Own Generation (BYOG). Large load customers can avoid curtailment requirements by self-supplying with dedicated generation.
• Expedited interconnection track. A fast-track process for state-sponsored generation projects, targeted for implementation by August 2026.
• Backstop procurement. Immediate initiation of a backstop generation procurement process to address short-term reliability needs through existing tariff mechanisms.

PJM Board Chair David Mills framed the plan as operational rather than political: “This is not a yes/no to data centers. This is ‘How can we do this while keeping the lights on and recognizing the impact on consumers?’”

Implications for Texas

Data centers represent a significant economic opportunity for Texas, and ERCOT faces similar challenges as PJM: how to harness that opportunity within its market framework while maintaining grid reliability.

PJM’s market structure differs from ERCOT’s—PJM operates a mandatory capacity market, spans 13 states with FERC jurisdiction, and has different interconnection frameworks. The specific proposals under debate would not translate directly to Texas.

But the underlying questions are similar to issues  Texas began to address in Senate Bill 6, which established curtailment protocols and transmission cost allocation review for large loads interconnecting to ERCOT after December 2025. The PJM debate now puts those same questions—how to allocate infrastructure costs, whether curtailment should be part of the framework, how quickly regulators can move—in front of a national audience.

How PJM resolves these questions—through emergency procurement, curtailment requirements, market reforms, or some combination—will provide a reference point for other regions navigating the same opportunities.

What’s Next

The Statement of Principles carries political weight but no legal force—any emergency auction requires PJM to file tariff changes and FERC to approve them. PJM has not agreed to the governors’ framework; its own proposal suggests the grid operator prefers a different path. Key filings are due to FERC in the coming weeks. With the reliability gap arriving summer 2027, the question is whether political pressure can accelerate a regulatory process that typically moves in months, not weeks.

For questions about these developments or their implications for your operations, please contact Mike Nasi or Travis Wussow.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For assistance, please contact an attorney in Jackson Walker’s Environment & Natural Resources practice.

Meet Michael

Michael J. Nasi is the founder and Chair of Jackson Walker’s Carbon Capture, Utilization and Storage (CCUS) group and Chair of the Digital Infrastructure & Data Centers practice. His practice encompasses numerous federal and state environmental and utility regulatory programs, with a focus on environmental and utility regulatory counseling and litigation for the power sector, as well as project development incentives and power market reforms.

Mike has been an expert witness and speaker at hearings, energy policy events, and classrooms across the country, including the White House and the United Nations, and is published in several trade, law, and business journals on environmental and energy law. He participates on advisory boards or as counsel for several state and regional energy research initiatives, including the Wyoming Energy Agency, North Dakota’s Energy & Environmental Research Center (EERC) Foundation Board, the Southern States Energy Board (SSEB), the Energy Council, and the University of Houston Center for Carbon Management in Energy (CCME).

Meet Travis

Travis Wussow is a regulatory and governmental affairs lawyer with extensive experience solving complex regulatory and public policy problems. As an advisor and advocate, Travis assists clients in navigating and shaping their regulatory landscape, helping them maintain compliance while advancing their broader strategic goals. His extensive public policy experience spans healthcare, technology, education, constitutional law, and international human rights. This diverse background allows him to bring a unique perspective to his practice.