In light of that constraint, this workaround may well be PJM’s “only defensible and sustainable way” to insulate customers from further utility bill spikes driven by its beleaguered energy capacity market, he said.
As recently as three weeks ago, it appeared this might be PJM’s primary approach to deal with the data center problem. A plan from utilities and the trade group Data Center Coalition was the sole proposal, out of dozens, to win a two-thirds vote from PJM stakeholders in June. That proposal would have potentially forced large loads to pay for the capacity they need.
But PJM’s board of directors didn’t use that exact plan. Instead, the board proposed a limited emergency auction to backfill the 6.8 GW shortfall in its last capacity auction. That may bring in enough new capacity for utilities to cover the power needs of proposed data centers, though it won’t force those data centers to pay for it.
That decision may also be based on PJM’s anticipation of legal challenges to stepping on state authority, said Jon Gordon, a director at clean energy trade group Advanced Energy United. “PJM stakeholders wanted PJM to take more responsibility for this,” he said, “but PJM decided they didn’t want to get into a jurisdictional fight.”
Can states and data centers pull it off?
PJM’s latest proposals shift the pressure to state policymakers, regulators, and utilities. Some states have already taken action to try to control costs, but IRAS gives them a lot more work to do.
“We’ve been saying throughout this whole process that there is a role here for PJM, and there is a role here for the states,” Clara Summers, campaign manager for the Citizens Utility Board, an Illinois-based consumer-advocacy group, said during a July 30 webinar on the latest developments in PJM. But “no state that I know of yet is completely prepared.”
Summers cited some of the state-level policies that could lay the groundwork for making PJM’s IRAS plan a reality. In Illinois, her group is supporting the POWER Act, legislation that would require data centers to pay for clean energy to match their impacts on the grid, she said. A number of states in PJM have devised “large load tariffs” meant to tie grid and energy costs to the data centers responsible for them, and others are working on similar policies, she said.
But Summers said she hasn’t seen any state act as aggressively as her group and other consumer advocates feel is warranted. Prices in PJM’s capacity auction were again at a record high of $16.4 billion in June, matching those of the previous auction in December — and eight times more than they were a few years ago. Those costs are passed through to utility customers, driving up electricity rates and triggering public backlash.
Should FERC approve PJM’s proposals, it could mark the grid operator’s first “comprehensive proposal” for dealing with a number of persistent challenges, said Hoos of Aurora Energy Research. Those include “how to interconnect large load, how to solve for [capacity costs], and how to get long-term contracts for generators.”
That last part is vital. Despite the sky-high prices, PJM’s capacity auctions keep falling short of procuring enough capacity to meet peak demand in the coming years. PJM’s clogged-up process for bringing new energy projects online has also prevented new solar, wind, and batteries from replacing retiring fossil-fueled power plants. And while about 55 GW of proposed solar, battery, wind, and natural gas projects have cleared PJM’s interconnection queue, they still face permitting, financing, and grid upgrade hurdles.
Data center industry groups could challenge PJM’s proposals. But those tech giants have committed to a “ratepayer protection pledge” promoted by state governors and the Trump administration to “ensure the growth of data centers powering America’s AI dominance will not raise electricity bills for American households and businesses,” which complicates the politics of fighting those efforts.
If anything, forcing data centers to bring their own new capacity might help weed out those that can actually get built from those that can’t, Chandler said. Many parts of the grid in PJM and other data center hot spots simply can’t serve up the power that a full-scale buildout of forecasted large-load growth would require, he noted.
“Talking to data center folks, their commercial teams are engaged effectively 24–7 trying to find projects” that can meet their energy and capacity needs, he said. “Some of these guys have bigger cash piles that they can throw at the problem — and you’ll see folks more serious about it put the money behind it.”
