Consumers see data centers as the energy-hungry culprits behind rising energy prices. Utilities see data centers as large customers who could help finance grid upgrades. As the data center boom irrevocably alters the regional electricity market, regulators have been left to sort out who pays to keep the power flowing.
To understand how exactly booming data center construction is driving up electricity costs and what regulators can do about it, let’s examine how electricity prices are calculated and consider who bears each part of the cost.
Pennsylvania consumers are among the 67 million customers across 13 states and the District of Columbia dependent on regional grid operator PJM, which is struggling as data center development increases demand, gas plant reliability falters, and delays mount on connecting clean energy and battery storage projects to the power grid.
Here’s a look at what is driving up prices and what regulators can do in response:
Is there enough power to meet data center needs?
PJM has projected that the regional grid could fall short of its energy needs as early as next year.
New demand from data centers couldn’t come at a worse time, said Jon Gordon, policy director of the industry association Advanced Energy United.
Demand has been flat for 20 years and older coal and gas plants are set to retire, Gordon said. Meanwhile, hundreds of renewable energy projects are stuck in the queue as PJM delays their connection to the grid.
That has left local utilities feeling the need to ramp up the construction of new natural gas-powered plants.
In July, PPL Electric Utilities announced that proposed data center projects in its Pennsylvania service territory would require 60 gigawatts of power, with 13 GW worth already in advanced planning stages. A single GW can power approximately 750,000 homes, according to a widely cited estimate from CNET.
To meet just that 13 GW need, PPL would need to invest $15 billion in new gas plants, a news release states. Otherwise, it would face a 6 GW shortage in the next five to six years. PPL formed a partnership with Blackstone Infrastructure to help construct and operate those new plants.
Meeting those construction timelines will be difficult. A data center can be built in two years, Gordon said, but supply chain demands have meant new gas plants that once could be built in three years now take five to seven.
What happens if we overestimate data center energy demands?
Consumer advocates claim PJM is calculating its energy needs without considering that data center developers might propose projects for multiple locations or ask planners to consider projects that are unlikely to be approved.
“The consequences of overestimating data center demand fall on the public. There are currently no guardrails to ensure that developers and utilities don’t speculate wildly about the demand that will exist in the future,” Tom Rutigliano and Claire Lang-Ree from the Sustainable FERC Project at the Natural Resources Defense Council wrote in an editorial for Utility Dive.
“This overestimation directly impacts prices — it’s how PJM determines how much capacity to buy, three years in advance. NRDC estimates that the public will pay over 80% of increased capacity costs caused by data center demand forecasts. If these data centers don’t show up, the public is still left footing the bill. To add to the problem, most of the money goes to existing power plants, not new supply that we desperately need.”
Why are bills rising?
Consumer electric bills include both distribution charges, set by local utilities, and supply costs, determined by the regional capacity auctions.
PPL Electric Utilities’ proposal to raise its distribution charges for residential customers by 7% sparked public backlash and an investigation from state regulators, who will ultimately determine if the increase goes through.
Company spokesperson Dana Burns said in an email statement that the requested rate increase is necessary to maintain service.
“Behind the scenes, we maintain an enormous system of nearly 47,000 miles of distribution lines, one million poles, hundreds of substations, and thousands of pieces of equipment —all critical to keeping power flowing every day,” Burns said. “Costs to maintain this system keep rising, and this increase goes toward strengthening reliability and enhancing customer service for the 1.5 million customers who depend on us.”
Burns pushed back on the idea that data center development is a factor behind rising distribution costs and noted that large-load customers will pay a new tariff under the company’s proposal.
“Data centers are primarily transmission customers. They pay for transmission upgrades solely for their benefit, and they share in the costs of other systemwide transmission upgrades that benefit everyone,” Burns said. “In that regard, connecting large data centers will reduce transmission costs for other customers as data centers will absorb a large portion of transmission costs currently paid by residential and small business customers.”
Utilities can enact tariffs to offset the cost of equipment updates, but they cannot control the market that governs how much electricity producers are paid to ensure that energy keeps flowing. Supply costs, which have already risen on consumer bills, continue to increase as PJM pays electricity producers more and more to met projected increased demand.
In a capacity auction, PJM estimates its future demand and then generators bid based on how much power they can commit to providing.
Capacity prices paid to electricity producers spiked ten-fold in summer 2024, jumping from $28.92 per megawatt-day to $269.92. That’s the price a generator would get for making one megawatt of power available for a day, enough to power 400-900 homes.
In response, Gov. Josh Shapiro helped negotiate a price cap. Prices at this summer’s auction hit that cap: $329.17/MW-day.
PPL estimated that customers would see their monthly supply costs rise $5 to $6, starting next year.
“Combined with the increase from the 2025/2026 auction, the last two capacity auctions will have raised customers’ bills by more than $20 per month with essentially no added benefit to consumers,” Burns said in an August statement.
PJM closed its most recent auction, and results will be announced Wednesday. Industry experts anticipate that the resulting prices, which will go into effect in June 2027, will again hit the $329/MW-day cap. However, the cap will then expire, meaning next summer’s auction could again see a wild price swing that would hit consumers in June 2028.
Shapiro is among the governors who endorsed a Dec. 3 letter warning the PJM Board of Managers that action must be taken.
“Without measures that protect consumers, the cost in next summer’s auction could double from this July’s record amount while still failing to ensure system reliability — that outcome would be unacceptable,” the letter states.
How can regulators make data centers share the cost?
Options for state regulators include setting a tariff that data centers would pay to offset the infrastructure investments needed to support their operations. Some municipalities are seeking community benefit agreements that aim in part to address concerns about centers’ noise, pollution and water usage.
PJM is also considering new rules that would determine how customers with large electricity needs connect to the grid.
At an advisory meeting last month, PJM considered 12 proposals but could not agree on any. The grid operator needs to submit its new rules to federal regulators this month to allow those rules to take effect before this summer’s capacity auction.
Two commonly discussed solutions to hold data center operators accountable for their increased demand are “bring your own generation” and interruptible service.
“Bring your own generation” rules would require data centers to either generate electricity on site or contract with generators to produce new power.
“For this to work, it has to be new generation, right? Even if it’s not physically on site, if it’s contractual, it has to be close enough to the plant where it’s easily served through the transmission system. It can’t be, you know, hundreds of miles away,” Advanced Energy United’s Gordon said.
Interruptible service would mean that data centers are taken offline at times of peak demand to prevent blackouts for other consumers.
That strategy would be a change of practice for PJM, Gordon said.
Traditionally, if you had an emergency, PJM would be nondiscriminatory for whom who they shut the power off, Gordon said — there’s never been a situation where you pick a customer and say they’re the one whose power gets cut, he added.
But Rutigliano and Lang-Ree of the NRDC said that solution could be a win for consumers.
“Data centers can still connect to the grid and get power 99.97% of the time. Not providing a guarantee of service for that remaining 0.03% of hours will save the public tens of billions of dollars,” they wrote.
