The Country’s Biggest Grid Has a Plan to Manage Data Centers’ Power Use. Everyone Hates It.

You could be mistaken for thinking data center load flexibility was the wave of the future.

With electricity prices rising — in some cases directly due to substantial new investments to support data centers — and data center developers desperate for power, there has seemed to be a new consensus forming around a way to solve both problems using the existing grid, simply by asking data centers to ramp down their energy use at times of peak demand. The whole thing looks like a win-win-win. Researchers have argued that even relatively low levels of curtailment could make room for almost 100 gigawatts of new load to the grid. Goldman Sachs released a report praising data center flexibility, and Google even negotiated a contract to enable flexibility with a Midwestern utility.

So everyone is on board with curtailment, right?

Well, no, at least not in the largest electricity market in the country — and the one that has become the poster child for backlash to data center development.

PJM Interconnection, the 13-state electricity market that spans the Mid-Atlantic and Midwest, has a data center problem. Costs associated with data centers ballooned to over $9 billion in its latest capacity auction, where generators get paid for their ability to stay online, a 174% increase, according to PJM’s independent market monitor.

The system operator has been working on a process to try to balance getting data centers online without risking the reliability of the grid, and in August unveiled an outline for so-called “Non-Capacity-Backed Load,” describing how new large loads like data centers could have their power curtailed.

“PJM expects that there will be a transitional period where NCBL will be necessary as a result of the significant integration of large loads,” the presentation read. “Participation would ideally be voluntary,” but new loads could be assigned NCBL status “on a mandatory basis if needed.” In other words, new data centers could, under the proposal, be essentially forced to shut down from time to time.

PJM then asked for feedback from its stakeholders. What it got wasn’t positive.

The proposal “clearly intrudes upon state jurisdiction and exceeds the Commission’s authority,” a representative from Microsoft said in a public comment on the proposal. Not only that, it would “fundamentally undercut the very purpose of PJM’s capacity market.” In the end, “the proposed rule won’t solve the problem.”

Multiply that sentiment across nearly 200 pages and imagine it coming from nearly every large company involved in the generation, transmission, and consumption of electricity in one of the most populous markets in the U.S. and you’ll begin to understand just how not positive the reaction truly was.

Several commenters, including data center developers, focused on singling out particular large loads for special treatment, which they argued ran afoul of what regional transmission organizations like PJM are allowed to do in structuring electricity markets. The Data Center Coalition, a trade group of datacenter developers, said that PJM “has not provided a defensible rationale for creating this new class of service, and on its face the proposal is unduly discriminatory.”

Like several other stakeholders, the DCC questioned whether PJM was the right actor to create new classes of rates, arguing that type of action “fall[s] squarely within state jurisdiction.” Talen Energy, an independent power company with a significant PJM footprint, also said that the proposal “lies outside of [PJM’s] power to impose.”

Talen, like other power producers, would benefit from a more traditional RTO process, whereby new load induces new demand for energy and capacity, which it could meet (for a price).

“Instead of discriminating against a single form of demand, PJM should focus on improving load forecasting and a market-based solution that encourages more generation supply to be built so that the ‘golden age for American manufacturing and technological dominance’ can be achieved,” the company wrote in its submission.

Even Tyler Norris, the Duke University researcher who has done some of the most widely cited and influential work on data center flexibility, critiqued the proposal, writing on X that there was “much room for improvement” and that it didn’t offer any “defined speed-to-power benefit” for data centers by participating.

The backlash from data center developers shouldn’t be surprising, explained Abraham Silverman, a former lawyer for the New Jersey Board of Public Utilities and an assistant research scholar at Johns Hopkins. “The existing rules are financially very favorable to the data centers. And the reason for that is because both transmission and generation costs are being spread over every customer in the PJM footprint.”

Traditionally, the infrastructure costs of bringing on new load are spread across all customers as a fixed cost, with the idea being that with more customers, over time the fixed costs of the grid go down on a per-customer basis. To the developers and other commenters on PJM’s proposal, this is just how electricity markets and utilities work. Generators and transmission owners don’t ask what the power is being used for, they just supply it. If more generation needs to come online to make sure they can meet that supply, that can happen through the capacity market, where utilities pay generators to be available when demand rises.

But that system may be breaking down as new data centers impose large upfront costs on the whole system that then show up in huge rate increases paid by everyone — to the tune of about 25% in transmission costs for PJM customers since 2020, according to Silverman’s research. That new load must receive reliable service, leading to a bonanza for existing and potential new generators, who can collect growing capacity payments.

“PJM recognizes that it’s between a rock and a hard place, where it potentially has more load coming onto its system than it could reliably serve,” Silverman told me. “They are recognizing they need to have a plan for rationing and allocating available capacity on the electric grid.”

PJM itself may be at risk if data center development leads to higher costs, its independent market monitor argued in a memo: “It is not an overstatement to assert that the ongoing addition of large data center loads will put PJM competitive markets at risk unless there is a solution that requires large data center loads to pay for the costs that they would otherwise impose on other customers.”

While the cranky commenters’ arguments may seem pretextual, or at least self-interested, they aren’t entirely off base, Silverman told me.

“I think there is both a legal and a moral problem here,” Silverman explained. “The moral problem is pretty clear cut: I don’t think anybody really thinks that grandma should be paying higher electric rates because of big tech data centers. The legal question is a little bit harder to answer, and I do think there are legitimate issues on both sides.”

Many of the stakeholder complaints center around the idea that treating large loads or data centers differently is discriminatory in a way that runs afoul of federal energy law. But just because the states may have to get involved in order to put data centers in a special class of electricity customer doesn’t mean that the substantive issues aren’t real.

Some states and regional transmission organizations have started to address the effects of data centers on other users of the grid, most notably Texas, which recently passed a law setting up a mandatory curtailment program for large loads, plus a voluntary demand response program, while Ohio utility AEP reached a deal to make sure data center developers cover the cost of new infrastructure by establishing minimum monthly payments.

PJM will hold another meeting on the proposal later this month and aims to have a proposal ready to present to the Federal Energy Regulatory Commission by the end of the year, although some stakeholders cast doubt on whether PJM could get its act together in time to put forward something to FERC by the end of the year. The Data Center Coalition argued in its comments that the current schedule “does not realistically permit” the “level of deliberation and shareholder vetting” necessary.

But even if the developers, transmission owners, and generators are able to push off this plan, however, the conflicts around data center expansion, reliability, and high electricity prices won’t go away.

“At what point do we seriously as a society talk about the trade-offs?” Silverman asked. “I think there are a lot of people who are financially incented to push off that tough conversation.”