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Attempts at reform are underway, with the DOE and FERC in the throes of rulemaking proposals, and PJM evolving its large-load additions proposal.
Rising electricity costs were a major factor in PJM states’ elections a few weeks ago, especially those that had experienced double-digit increases in electricity prices, such as New Jersey, Pennsylvania, and Virginia. Though there was plenty of rhetoric about who or what was to blame for surging electricity prices, the contributing factors were many, including:
- Economy-wide inflation
- Inconsistency in federal
- Aging electricity grid
- Lag in renewable generation capacity
- Data center and AI infrastructure buildouts
The last point has gotten the most attention, and all eyes are on grid operator PJM Interconnection, which covers 13 states and D.C., including Northern Virginia, also known as “Data Center Alley.” With 2025 Long-Term Load projections of 32 GW from 2024 to 2030, the PJM region is considered a microcosm of what will happen nationwide as data centers are built out over the next few years. To put it into perspective, PJM’s capacity market auction for the 2025-2026 delivery year cleared record-high prices of $269.92/MW-day, demonstrating a tenfold increase over its $28.92/MW-day in its 2024-25 auction.
In a statement to RCRTech about the Critical Issue Fast Path process for integrating large loads like data centers, PJM pointed to its November 6 proposal for large load additions and clarified that PJM does not control how costs are allocated to retail consumers, but rather “determines which transmission zones are allocated costs from each transmission project, according to established rules that have been approved and are regulated by FERC.” The determination of how costs are passed on to retail customers is left to the utilities that have approval by state regulators. Usually, state regulators, such as public utility commissions (PUCs), determine how the costs incurred by a utility are passed on to retail customers.
The issue of states’ rights has, however, come into question since U.S. Secretary of Energy Chris Wright invoked a rare authority under the Department of Energy Organization Act to create new rules for the interconnection of large electrical loads (those over 20 MWs). It was a directive to FERC to fast-track data center interconnections to the power grid, in alignment with President Trump’s “Speed to Power” and “Energy Dominance” initiatives.
In response, FERC initiated a comment period (recently extended to Nov. 28) to establish a rulemaking process for accelerating data center interconnections and for ensuring large loads pay for their own grid upgrades, which would absolve consumers of the cost. A “final action” is slated for April 30, 2026. While there seems to be bipartisan agreement, as well as public consensus, that data centers should pay their own grid expansion costs, the nuts and bolts of making it a reality aren’t so clear cut. Outdated rules and procedures remain the status quo when expanding transmission and distribution wires.
“The electric utility wasn’t born with ChatGPT, so there are regulatory layers around the idea that costs should be assigned to those who cause them…in the rate making process, that is the principle,” says Michael B. Jacobs, who is leading the Union of Concerned Scientists’ work on electricity markets and regulatory reform. In his analysis of planning documents for 15 utilities across Mid-Atlantic and Midwest states within the jurisdiction of PJM Interconnection, Jacobs found 130 instances of electric utilities connecting data centers to the grid, and in all but 6, costs were passed on to consumers. How much? According to his research, $4.3 billion in 2024 across seven states: Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and West Virginia. Below are the one-year totals for seven states.
“Utilities are seeing growth like nothing they’ve ever seen, and the way in which they categorize ‘transmission’ versus ‘distribution’ makes it difficult to itemize what’s making the general public’s bills go up. The cost causer is scrubbed from the information flow before it gets to the rate-setting process,” said Jacobs, explaining that transmission costs are bundled together, filed at FERC, and then sent to the states as one amalgamated cost. That cost is carried over to the rates presented for customers’ bills at the state utility commission. “The utilities are now starting to advocate for reform, which for some is setting an agreement to get a deposit from hyperscalers, to make sure they will pay their bills, and to make sure they will buy the energy the utility plans, based on what the hyperscaler says it will need in its transmission security agreement.”
To put that into context, the amount PJM agreed to pay in late 2022 to secure capacity from power plants, totaled $2.2 billion, whereas in 2024, the bill soared more than 500% to $14.7 billion. This year, it jumped another 9% to $16.1 billion. PJM’s renegotiation of large load rules could help other states model how to handle increasing electricity demand from data centers, while ensuring grid reliability and fair cost allocation. Freeing consumers from the burden of subsidizing the costs of large-energy users would be a major step toward relieving consumer anxiety about affordability, of which electricity bills are a major part.
In part 2, we will examine how some hyperscalers are looking to nuclear as a way to absorb the massive power costs of AI, without passing them on to consumers. We will look at the challenges Google, Amazon, Microsoft, Oracle, and others will have to overcome.
