When federal regulators rejected PJM’s proposed plan for connecting new large electricity customers, it left the region without a clear plan for bringing data centers online before there’s sufficient capacity to serve them. Some argued the rejection would result in higher capacity market prices for longer: a boon for existing generators, but yet another source of pressure on ratepayer bills.
PJM’s Interim Resource Adequacy Service proposal, or IRAS, included a pathway for large loads to connect to the grid if they agreed to curtail during grid emergencies. Under that framework, bringing the capacity needed to serve them would have allowed customers to avoid curtailment. But the Federal Energy Regulatory Commission rejected those central elements in October, finding that parts of the proposal infringed on state authority over retail electricity service.
The ruling shifted responsibility for determining which types of new loads should face curtailment instead to the states. And in the wake of the midterms, more of those decisions will be shaped by officials who campaigned on protecting ratepayers from the costs of data center growth.
“There’s no world in which there’s political will or political tolerance for new entry prices to get paid to everybody. The affordability pushback will be too large,” said Brent Nelson, who leads market intelligence at Ascend Analytics. The question isn’t whether that cost shifting gets prevented, he added, but how.
Last week’s blue wave was particularly consequential for data centers looking to connect in PJM, because it strengthened the political mandate for guardrails, mere weeks after the region lost a potential framework for establishing them.
Now, policymakers will find ways to support new generation, Nelson said, without extending the same incentives to the entire existing fleet, which is a problem that existed long before the midterm campaigns ramped up. Capacity prices that are high enough to incentivize new construction would also increase payments to existing generators, creating an affordability problem that policymakers will ultimately have to intervene to address, he added. IRAS was one potential mechanism for managing that problem, but not the only one.
Leaving more of that work to states means that mechanisms could vary even within PJM, but the efforts will likely converge on the two general pathways outlined in PJM’s proposal: either secure new capacity, or accept a faster connection with curtailment while arranging behind-the-meter resources to cover the interruptions.
New governors, new guardrails
There are a few PJM states to watch particularly closely.
Ohio, for example, may offer an early test for how commitments made on the campaign trail translate into guardrails for data center development. Democrat Gov.-elect Amy Acton made data centers and rising utility bills a central issue in her campaign against Republican Vivek Ramaswamy. Acton said she supports a “conditional” moratorium on data centers to ensure they cover 100% of their own energy costs, bring their own power generation, build with union labor, and comply with state environmental pauses.
Along with Acton’s win, which flipped the governor’s seat from Republican control, Democrats also broke the GOP’s veto-proof majority in the Ohio statehouse, though the party still holds legislative control. The key questions now, said Robert LaFaso, director of market intelligence at Ascend Analytics, is what protections the new governor ultimately moves to put in place, and whether new projects can proceed while those rules are being written.
The language coming out of the Acton campaign and others around the country, he added, is that until guardrails are established, moratoriums are still on the table. That could mean that early-stage projects don’t start planning in states with Democratic governors, given the uncertainty about how campaign rhetoric will translate into policy.
Pennsylvania, meanwhile, comes with a different set of questions for developers. The state now has a Democratic trifecta, creating a clear window for incoming governors to advance data center legislation. But the state is known for being “tricky to predict politically,” Nelson warned.
“We’ve said for a while that Pennsylvania is a state to watch for a clean energy mandate [for data centers],” he said, adding that that’s even more true post-midterms. Nelson will be watching how durable the new left is: “We saw a pretty massive blue wave, but how much of that is a shift in voter affiliation, and how much of that is a rebuke to the current presidential administration?”
Maryland, meanwhile, is more of a “slam dunk” when it comes to data center guardrails. Lawmakers there are already considering mandatory new clean capacity requirements and a statewide moratorium, alongside an existing voluntary clean energy program.
Where does the industry go next?
Despite the rejection, it’s likely that the mechanisms IRAS proposed will still exist in some form.
State solutions may well look similar to the framework PJM previously submitted to regulators, LaFaso said. FERC has already shown a willingness to approve conditional service elsewhere in the country, he added, pointing to the Southwest Power Pool’s Conditional High Impact Large Load Service. That framework, approved this summer, offers non-firm transmission service for large loads that want to connect to the grid before new resources or upgrades are complete, in exchange for accepting curtailment.
And PJM governors have already demonstrated a willingness to work together to address affordability and the cost of new load growth, LaFaso said. For data center developers, that’s a sign that states could reach a coordinated outcome.
That said, there are still challenges with the state-led approach. For one thing, separate state proceedings could leave developers waiting for clarity on their obligations in different parts of PJM, requirements that could prove difficult to reconcile across the market. It could also cause some uncertainty for bring-your-own-capacity deals already in place, he added. And of course, there’s the longstanding critique that excluding new large loads from capacity market demand by treating them as curtailable could weaken the signals needed to bring in new supply for non-data center load.
IRAS offered a clearer line between a customer’s long-term power procurement and its ability to obtain service quickly, he explained. Now, that relationship is less certain. States may establish customer obligations, like bringing their own capacity or accepting conditional service, but a broader framework would still need to account for how those large loads interact with PJM’s operations and market rules.
“IRAS was a guardrail for PJM, and that guardrail is now off the table,” LaFaso concluded. “If those guardrails are critical for the green light of the governors, and for the permitting processes required, then things are going to go slower.”
