PJM Interconnection, the biggest grid operator in the U.S., has finally settled on a plan to prevent data centers from causing other customers’ utility bills to soar further in its 13-state territory.
That plan relies heavily on states themselves, and the utilities they regulate, to force data centers to secure their own power supplies — or face the possibility of getting their power cut off during grid emergencies.
Last week, PJM’s board of managers sent proposals along these lines to the Federal Energy Regulatory Commission (FERC), which must grant the grid operator permission before it can implement the new plan for its system, which serves about 67 million people from Virginia to Illinois. The multipart plan is PJM’s attempt to quiet down months of mounting pressure from state governors and the Trump administration to contain skyrocketing costs while staying within its regulatory limits.
“Historically, PJM has been very nervous to step into what it considered — or what are legally — the states’ rights,” said Julia Hoos, who leads coverage of Eastern U.S. power markets for Aurora Energy Research. But with its new proposals, PJM is “making a definitive request to the states to accomplish what it needs.”
PJM forecasts that data centers and other “large loads” will add 30 gigawatts to 34 gigawatts of new demand by the early 2030s and as much as 70 GW by 2038. Building enough new energy resources to meet that demand would push enormous costs onto utility customers.
State lawmakers and environmental and consumer advocates have been demanding that PJM instead require that new data centers get cut off from the grid when electricity demand is especially high, unless those facilities can pay for and build the resources required to keep them online.
But states, not PJM, are in charge of deciding which customers can connect to the grids operated by state-regulated utilities. That constraint played a role in PJM backing off last year’s proposal to create a “non-capacity-backed load” program to force new large loads to submit to being cut off during grid emergencies. Data center industry groups and other stakeholders warned that the plan could face legal challenges.
PJM’s new proposal, dubbed the Interim Resource Adequacy Service, or IRAS, largely re-creates that structure, only with states and utilities as the primary responsible parties, said Tom Rutigliano, senior advocate for climate and energy at the Natural Resources Defense Council. In that sense, “it’s almost like they got to not too far off from where they started,” he said.
Data centers: Bring your own power or face cutoff
The IRAS plan starts with an action within PJM’s authority: creating a registry of all large loads of at least 50 megawatts “by detailed site, service areas and whether they bring their own supply,” PJM explained. That registry will be used to determine how much new large load exists in each of PJM’s zones, which in turn determines how much capacity each zone requires.
IRAS would then give these large loads a chance to avoid being cut off during grid emergencies by securing their own capacity resources under a “bring your own new capacity” approach — which has the catchy acronym BYONC.
Under this approach, big power customers would sign bilateral contracts with sources of capacity, which can either supply more power or reduce power demand at the moments when summer heat waves and winter cold snaps push demand to its peak. Qualifying sources could include newly built or upgraded power plants, solar, and wind farms, battery projects, and demand-response aggregations and virtual power plants.
“If a large load shows up and has brought brand-new capacity to meet their needs, I think they’re good to go,” said Kent Chandler, a former chairman for the Kentucky Public Service Commission and a nonresident senior fellow at the free market–oriented think tank R Street Institute.
But starting in June 2027, those that can’t or won’t do that “will be subject to curtailment prior to deployment of Pre-Emergency Load Management,” PJM wrote. In other words, those data centers will be cut off to help the grid before other “pre-emergency” steps, such as triggering demand-response programs that pay customers to reduce their energy use.
Chandler said this aligns with PJM’s authority to “obligate the local utilities in the area to shed load for emergency and pre-emergency purposes” across their entire service territories. In contrast, “PJM cannot tell the utility which customers and which circuits to shed,” he said. “That is exclusively state jurisdiction under the Federal Power Act.”
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.
In a second proposal to FERC, PJM has also laid out a plan for how utilities can help data centers avoid curtailment by securing enough capacity resources in a new emergency “reliability backstop procurement” auction.
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.”
