Lawmakers want Big Tech to fund power plants on nation’s largest grid. But how?
Data centers are flocking to America’s largest regional electric grid, which covers an area from Virginia to Illinois. But accommodating new large electric loads is a challenge for power grid operator PJM. Now, the White House, along with politicians on both sides of the aisle, is looking for a fix that will keep consumer prices down.
“Skyrocketing power bills have become a huge political issue, and rightly or wrongly, there’s a lot of people in the public who blame data centers,” said Mark Christie, who previously served as chairman of the Federal Energy Regulatory Commission (FERC) and is currently the founding director of the Center for Energy Law and Policy at William & Mary Law School.
Last Friday, governors of all 13 states that include part of the PJM grid joined Energy Secretary Chris Wright and Interior Secretary Doug Burgum in signing a letter to guide future operations. This included a flagship request for an emergency auction in which data center developers would bid on 15-year contracts from power-generating companies — a move intended to ensure data centers’ energy needs are paid for by Big Tech rather than existing ratepayers.
Senate Democrats also filed a bill on Friday that they say will ensure data center companies pay their fair share, but it would first have to overcome stiff Republican control of Congress and the presidency.
Also on Friday, PJM released its own long-awaited plan after the grid operator could not reach its benchmark to secure enough electricity to meet projected future demand. The PJM plan did not endorse the exact measures outlined by the White House.
What’s at stake is the ability of the PJM electric grid to keep the lights on for 67 million Americans while also accommodating growth in the AI revolution and keeping rates under control.
In interviews with Straight Arrow News, energy experts said the White House proposal lacks sufficient detail and may not address the root issues at PJM. Moreover, new policies cannot simply be dictated by cabinet members or state governors; FERC and various state legislatures would need to take action.
‘The Devils in the Details’
“One of the fundamental problems at PJM is political, not economic, not the physics of the grid,” Christie told SAN.
The political problem, Christie said, is that each of the 13 states has diverging energy policies that dictate how easy it is to build new resources and what is prioritized.
The White House document envisions a special auction to establish 15-year contracts between power companies and Big Tech. But Christie said it’s unclear whether such an auction, if conducted, would guarantee that homes and small businesses do not see increased prices, because state policy decides how electric grid costs are allocated.
“I strongly support the principle that the cost causer, if it’s the data centers, should pay their costs,” Christie told SAN. But that outcome is ”very much undetermined.”
Jon Gordon, policy director at Advanced Energy United, agreed that the plan to “isolate the data center cost from the typical ratepayer” is a good thing, but, he said, “the devil’s in the details.”
What are the economics of PJM’s capacity market?
PJM’s job is to balance electricity supply and demand in its territory to maintain a safe, reliable grid. That includes overseeing the market where electricity is bought and sold between companies that generate power and retail suppliers that sell electricity to homes and businesses.
As part of its role as a grid operator, PJM runs a capacity market for electricity sales three years in the future. This is intended to secure enough electricity supply for projected future demand and incentivize power companies to make longer-term investments.
The projected future demand on the grid has increased dramatically as a large number of data centers have announced plans to locate in PJM states like Virginia, Pennsylvania and Ohio. In the last three capacity auctions, data centers accounted for $21.3 billion, or about 45%, of future electric supply contracts, according to a market monitor’s report.
To protect consumers from increasing costs, the capacity market has a price cap. The White House calls for the price cap to continue for at least the next two auctions — an action that would require FERC approval.
In its plan, PJM does not commit to keeping the price cap; instead the board asked stakeholders for more input.
“A price collar may obscure the market’s underlying clearing price and, as a result, could dampen signals needed to support the entry of new supply,” PJM said.
Where will PJM make up the electricity shortage?
In a press release, the Trump administration blamed the problems in PJM on Biden administration policies that it said forced power plants to shut down.
Wright described the actions as a call on PJM “to allow America to build big, reliable power plants again.”
Advocates for renewable energy, on the other hand, say PJM’s process for integrating new resources onto the grid is too slow.
To connect to the grid, new resources need a complex engineering study, which can take one to two years; some projects have waited more than five years before their study even starts, Gordon told SAN.
The White House also advocated for shortening the study periods to 150 days, a push that Gordon called “magical thinking.” He told SAN he worries that new power plants could be permitted to skip to the front of the interconnection queue, ahead of renewable projects that have waited for years.
Overall, Gordon said he sees the principles as “Band-Aid remedies.”
Christie said the notion that PJM’s management of interconnection is to blame for power shortages is “inaccurate” and “misplaced.”
He told SAN that in many cases, PJM completes the interconnection study, but a lack of financing and local siting issues prevent renewable energy development.
Instead, Christie said the states in PJM should look inward at their own laws that are the “real barrier to getting new generation built.”
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Ella Rae Greene, Editor In Chief
