PJM faces deadlock over data centre demand amid rising energy costs

Members of North America’s largest power grid operator struggle to agree on measures to manage soaring electricity demand from rapidly expanding data centres, risking higher costs and grid reliability issues.

After months of intense debate, members of PJM Interconnection, the largest power grid operator in North America, have been unable to reach an agreement on how to address the surging electricity demand from AI-driven data centers. This impasse was revealed in an advisory vote held during the final phase of PJM’s expedited rulemaking process known as the Critical Issue Fast Path (CIFP). The surge in demand driven by the rapid growth of data centers, expected to reach around 30 gigawatts by 2030, roughly equivalent to the power consumption of 20 million homes, has already contributed to significant electricity price increases across PJM’s service area, which spans 13 states plus the District of Columbia.

The advisory vote brought forward a dozen proposals for mitigating the impact of data centers on the grid. These ranged from requiring data centers to generate their own power to creating expedited processes for new energy projects, and even temporarily halting new data-center connections until reliability could be ensured. However, none of these proposals secured the required two-thirds majority approval. As a result, PJM’s 10-member board of managers is now left with broad discretion to craft a policy package, potentially mixing elements from various proposals or developing new rules, which it aims to finalize by December for submission to the Federal Energy Regulatory Commission (FERC).

This deadlock reflects the complexities of balancing the interests of various stakeholders. Industry insiders, including data center operators and energy companies, often have conflicting priorities, while consumers and environmental advocates express concern over the rising costs and environmental impacts. Recent polling in New Jersey, one of the states hardest hit by price hikes, found strong bipartisan support for requiring data centers to bear a greater share of the grid costs. Indeed, the visible impact on electricity bills, such as a 20 percent increase during the summer months in New Jersey, has made data centers a politically sensitive issue.

Data centers have considerably influenced PJM’s electricity market costs. Bloomberg reported in October 2025 that these facilities accounted for $7.3 billion, 45 percent of the total, in the latest power supply auction costs within the PJM region. Increasing capacity demand from data centers has led to soaring capacity prices, which rose from $14.7 billion to $16.1 billion mid-2025 and are projected to jump dramatically from $28.92 per megawatt-day in 2024/25 to $329.17 per megawatt-day in 2026/27, according to reports from the Natural Resources Defense Council (NRDC) and the Institute for Energy Economics and Financial Analysis (IEEFA). Utility customers have also borne the brunt of infrastructure costs, having paid an estimated $4.4 billion for transmission upgrades necessary to support the growing data-center footprint.

Among the proposals discussed, independent market monitor Joseph Bowring presented a notably firm stance, suggesting that data centers should not be permitted to connect to the grid until PJM can guarantee reliable power supply. Conversely, a coalition of governors from Pennsylvania, Maryland, New Jersey, and Virginia, alongside the Data Center Coalition, which includes major tech players such as Google, Microsoft, and Amazon, advocated for encouraging data centers to bring their own power generation. This, they argue, would provide priority in permitting and project siting, addressing bottlenecks. Another proposal from bipartisan lawmakers included a policy requiring data centers to curtail power usage during peak strain periods unless they contribute their own backup generation, a measure designed to increase grid reliability while mitigating the environmental impact of diesel generators typically used as backups.

Experts agree that meeting the energy needs of these data centers will likely require rapid expansion of generation capacity, predominantly natural gas plants in the near term. However, climate advocacy groups like Evergreen Action urge PJM to pursue faster deployment of renewable energy sources, pointing to Texas as a model for swift renewable integration.

The ongoing indecision at PJM underscores the broader challenges facing grid operators nationwide as digital infrastructure demands escalate. Mark C. Christie, former FERC chairman, criticised the PJM process on LinkedIn as being overly dominated by industry interests, with limited consumer representation, describing it as an “insiders’ game” in which residential consumers have little influence on outcomes. As PJM prepares to announce its final policy package, the potential for increased electricity costs and grid reliability concerns remains at the forefront for millions of consumers across the region.

📌 Reference Map:

• ^[1] (Stephen Heins Substack) – Paragraphs 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12
• ^[2] (Bloomberg) – Paragraphs 5, 6
• ^[3] (Reuters) – Paragraphs 1, 2
• ^[4] (NRDC) – Paragraph 6
• ^[5] (IEEFA) – Paragraph 6
• ^[6] (Utility Dive) – Paragraph 6
• ^[7] (NRDC) – Paragraph 7

Source: Fuse Wire