Data centers are responsible for $6.3 billion, or 38%, of the $16.4 billion in charges from PJM Interconnection's just-completed capacity auction, according to Joseph Bowring, president of Monitoring Analytics, the grid operator's independent market monitor. The finding highlights how rapidly growing data center demand is reshaping electricity costs across 13 Mid-Atlantic and Midwestern states and the District of Columbia served by PJM, the nation's largest grid operator.
Over PJM's last four base capacity auctions, data center-driven capacity charges totaled $29.4 billion, representing 46% of the $63.6 billion in total capacity charges during that period, Bowring said in an email to Utility Dive. Monitoring Analytics plans to publish its full analysis of the most recent auction in a few weeks. Beyond capacity charges, ratepayers in PJM are also paying for higher energy and transmission costs that data centers have caused, according to the market monitor.
PJM isn't fully grappling with the ramifications of data center development, according to Bowring. "PJM is continuing to act like it's business as usual," he said in an interview. "You have to open your eyes and recognize that it is really a paradigm shift, and failing to do that imposes costs on other customers." Meeting the pledge that Google, Meta, Microsoft and other data center companies made at the White House on March 4 to protect consumers from price hikes is "impossible in PJM under its current rules," Bowring said. The capacity auctions and electricity prices have become a major political issue in PJM's footprint, prompting governors from member states to form a collaborative in September to advocate for their interests with the grid operator.
The core problem is how PJM forecasts and buys capacity. The grid operator purchases capacity three years in advance based on its demand forecast, but it's unclear exactly how much data center load will materialize, adding uncertainty to projections. While PJM has tried to make its data center forecasts more accurate, growing opposition to data centers across the United States has led some major projects to get canceled, according to a Morningstar DBRS report released Monday. That means ratepayers could end up paying for unneeded capacity. Bowring's solution: data centers and other large loads should first contract for their own generation, and for those that can't, PJM should hold separate auctions to procure their capacity under 15-year contracts. "There's only one way to do what hyperscalers agree is the right thing to do, and that is to run a separate auction," he said. "That's good for the hyperscalers because it allows them to get capacity and be served reliably, and it's good for other customers because it separates out the impact from the data center."
PJM's board is developing a backstop auction proposal that it aims to file with federal regulators this month so the auction can take place in September. Under the plan that received the most support in the stakeholder process, utilities and potentially data centers themselves would ask PJM to buy a specific amount of capacity in a one-time auction. PJM staff proposed procuring the shortfall from its last base capacity auction, about 6.8 gigawatts, in that one-time auction. The proposal represents a potential shift in how the grid operator manages surging demand, but whether it goes far enough to address the cost concerns raised by Monitoring Analytics remains to be seen.