America’s Largest Grid Operator Puts Data Centers on Notice – Inside Sources

Bring enough power to operate or risk being forced to cut electricity use when the grid is strained.

That’s the choice facing America’s data centers under a warning from the nation’s largest power-grid operator.

The PJM Interconnection Board of Managers issued the directive as it tries to balance massive new electricity demand with a generating fleet that is not growing fast enough to meet it.

New large loads — primarily data centers — are expected to add 70 gigawatts of electricity demand to the grid by 2038. The board noted that PJM has lost 15 GW of generating resources since 2022, including coal-fired plants.

“The Board believes this reliability threat requires decisive action,” wrote Paula Conboy, PJM board chair.

PJM, America’s largest regional transmission organization and handlind wholesale electricity across 13 states and the District of Columbia, has been warning about rising capacity-auction prices for years.

In 2023, PJM’s auction produced $2.2 billion in capacity payments for 140,416 megawatts. The following auction totaled $14.7 billion for approximately 135,000 MW — nearly seven times the previous cost.

In July 2026, PJM’s auction cleared $16.4 billion worth of capacity, securing 138,318 MW of generation and demand-response resources. The total auction value does not necessarily equal the cost to consumers because utilities can hedge through bilateral contracts and self-supply arrangements.

Despite hitting the federally approved price cap of $325 per MW-day, the auction came up 6,831 MW short of PJM’s reliability requirement. It was the second consecutive auction in which PJM failed to procure enough dependable capacity to meet its standard of no more than one loss-of-load event every 10 years.

PJM and its independent market monitor have pointed to data centers as the primary source of the demand growth driving the shortfall.

In a report released Aug. 13, Monitoring Analytics, PJM’s independent market monitor, said data-center demand caused tighter supply conditions and higher capacity-auction prices. Those prices will be passed along to customers through May 2029.

“The market solution is to require data centers to bring their own new generation,” the market monitor said.

PJM plans to create a registry of facilities using at least 50 MW of electricity at a single site. Working with local utilities, PJM will track each facility’s location, projected electricity demand, anticipated opening date, backup generation and whether it has secured new generating capacity.

Aggregated information will be made public, subject to confidentiality requirements.

PJM would use a carrot-and-stick approach with large customers during periods of grid stress.

Beginning in June 2027, new data centers and other large loads that have not secured sufficient new power supplies could be required to reduce their electricity use during a supply emergency. The reductions would occur before PJM curtails existing demand-response customers or takes steps that could affect residential customers.

The proposal does not require data centers to build generation at their physical locations. They could build, buy or enter long-term contracts with new power plants elsewhere on the PJM system.

“New Large Loads that wish to receive the same level of firm service as other load will need to bring sufficient new capacity to the system or otherwise take service under the Interim Resource Adequacy Service,” Conboy wrote.

Data centers would not be routinely disconnected. Instead, their uncovered electricity demand would become available for reduction when real-time grid conditions warrant emergency action.

PJM has proposed compensating facilities that comply with an order to reduce electricity use. The maximum wholesale compensation would be set at 50 percent of PJM’s nonperformance charge rate, although a data center could accept a lower amount or waive compensation. State regulators would determine how the payments are funded at the retail level.

The framework aligns with the Ratepayer Protection Pledge released by the White House in March. Companies signing the nonbinding pledge promised to secure their own power supplies, pay for infrastructure upgrades needed to serve their facilities and negotiate separate rate structures with utilities.

“The federal government, PJM states and Large Load customers have emphasized that new Large Loads should bear the costs they cause,” Conboy wrote.

Pennsylvania Gov. Josh Shapiro has already acted. In an Aug. 18 executive order, he directed state officials to seek rules requiring utilities to curtail data centers before other customers unless the facilities have secured enough incremental generation to cover their demand.

Shapiro also called for assigning PJM backstop costs to the data centers responsible for them and prohibiting utilities from shifting those costs to other customers if a data-center operator becomes insolvent. His order also removed data centers from Pennsylvania’s fast-track permitting program.

To meet their electricity needs, some data-center owners have turned to nuclear energy. Meta announced plans earlier this year to work with three nuclear companies to help power data centers in Ohio. Microsoft and Amazon Web Services also have agreements involving nuclear plants in Pennsylvania.

Those projects still take time. Microsoft’s agreement depends on a reactor restart expected in 2028, while much of the new or expanded capacity backed by Meta and Amazon is not expected to be fully available until the 2030s.

Meanwhile, PJM’s message to new data centers is clear: Bring enough new generation to cover your demand, or accept interruptible service when the grid is strained.