Data centers supporting AI are adding billions of dollars to electricity costs across the largest US power market, as new demand continues to outpace the buildout of generating capacity.
PJM Interconnection, the regional grid operator serving 13 states and the District of Columbia, said results from its latest capacity auction will add about $6.3 billion in costs tied to data center electricity demand. The auction, which secures generating capacity for the year beginning in June 2028, matched the record $16.4 billion total reached in the previous auction.
Including the previous three auctions, the cumulative impact attributed to data center growth is now approaching $30 billion.
The auction also failed to secure enough future generating capacity to meet PJM’s reliability target for a third consecutive year. The shortfall totaled 6.8 gigawatts, roughly equivalent to the output of almost seven conventional nuclear reactors.
PJM said the result does not mean customers will lose power. Instead, the grid would operate with smaller reserve margins during periods of peak electricity demand, increasing risk during extreme conditions.
Among the challenges for PJM: its service territory includes Northern Virginia, home to the world’s largest concentration of data centers.
Disputes About Energy Costs
The latest results keep pressure on PJM as state officials and consumer advocates push for changes to how the grid handles large data center projects.
Pennsylvania Governor Josh Shapiro previously sued PJM over rapidly rising electricity costs. That legal dispute ended with a settlement establishing a price cap for capacity auctions, reducing what consumers otherwise would have paid. Without that cap, PJM said the latest auction would have cleared at $554.72 per megawatt-day rather than the capped price of $325 per megawatt-day.
Critics argue that existing customers should not absorb the expense created by hyperscale data center expansion. Joseph Bowring, president of Monitoring Analytics, the independent market monitor for PJM, has proposed a separate capacity auction dedicated to data centers so those facilities pay more of the additional cost.
The issue has gained urgency following a recent heat wave that pushed electricity demand close to record levels across the PJM region. The event demonstrated how narrow reserve margins have become as power consumption rises.
PJM is also facing criticism from utilities, consumer advocates and state governments over the pace at which new power plants, renewable energy projects, battery storage systems and other generating resources are connected to the grid. Industry groups argue that delays have contributed to higher prices while limiting available supply.
David Mills, CEO of PJM, said the organization is working with government officials and industry leaders to support new generation projects while managing the pace of new electrical load entering the system.
Attention now turns to an emergency procurement process expected later this year that would shift more of the cost of serving new data centers to the hyperscale operators driving the surge in electricity demand. PJM is expected to submit its proposal to the Federal Energy Regulatory Commission before the end of the month, with the new process scheduled to begin in September.
