By Kennedy Maize
Last year, connecting data centers to the PJM transmission grid cost customers in seven states “more than $4.3 billion in additional costs, with billions more still to come,” according to a new report from the Union on Concerned Scientists. The need to link data centers to the grid required “transmission upgrades made to provide transmission level service directly to data centers.”
The UCS analysis noted that “all customers pay for the new transmission lines required to connect new, large data centers. Such costs are passed on to all customers because existing rules for recovering the costs of transmission upgrades did not anticipate that individual customers could create such high demand and subsequent high costs.”
In the past, the study observes, new electricity demand from data centers had typically been “under 10 megawatts (MW), and grid connections have been similar to ubiquitous, low-voltage retail service on existing distribution lines. In contrast, utilities usually charge the costs of connecting a new, nonstandard individual customer directly to that customer.”
The explosion of data centers – driven by a frenzy (which might turn out to be a fad) for artificial intelligence has changed that traditional paradigm. Says UCS, “Now, the development of 100–400 MW data centers is widespread, and numerous states host projects under development that will call for utilities to deliver 1,000 MW or more.”
The PJM regional transmission organization serving some 65 million retail customers in 13 states and the District of Columbia is “a hotbed of data center activity.” Pending load requests “for 100–1,000 MW load requests include Illinois, Maryland, New Jersey, Ohio, Pennsylvania, Virginia, and West Virginia,” according to UCS.
The conventional approach to interconnections creates a “regulatory gap,” says the report. “The existing rules and practices allow for this—the worst—outcome, largely because regulatory cost reviews are practically nonexistent for these transmission-level facilities and utility incentives reward this practice.”
The gap reflects a mix of Federal Energy Regulatory Commission (FERC) and state practices, says UCS. “Transmission-level connections for data centers incur costs under federally regulated rates, which are mixed in with typical transmission costs. These typical costs reflect customers’ collective use, reliability needs, and the replacement of aging equipment. The costs are then passed on to retail customers via state PUC-approved rate cases. The process obscures any tracking of cost causation for these new transmission-level data center connection investments.”
What to do? Here’s the UCS prescription:
“FERC should require transmission built for single customers to be paid for by those customers, as is the requirement for new generators.
“FERC and state PUCs should require utilities to track transmission costs caused by specific customers through the rate-setting processes.
“FERC should require utilities to create a customer class in FERC formula rates for customers with direct transmission connection costs.
“State PUCs should require utilities to recognize the transmission costs created by direct connection customers in retail rate cost-of-service studies.”
The UCS report got instantaneous support from PJM’s market monitor, Monitoring Analytics. The firm’s Oct. 1 report to PJM found that “data center load growth is the primary reason for recent and expected capacity market conditions, including total forecast load growth, the tight supply and demand balance, and high prices.
“But for data center growth, both actual and forecast, the PJM Capacity Market would not have seen the same tight supply demand conditions, the same high prices observed in the 2025/2026 Base Residual Auction (BRA) and the 2026/2027 BRA, and the currently expected tight supply conditions and high prices for subsequent capacity auctions.”
The market monitor said, “It is misleading to assert that the capacity market results are simply just a reflection of supply and demand. The current conditions are not the result of organic load growth. The current conditions in the capacity market are almost entirely the result of large load additions from data centers, both actual historical and forecast.”
The analysis concluded that the impact of the load centers in the auction drove up prices by $7.3 billion.
Commenting on Twitter, Travis Kavulla, NRG Energy vice president for regulatory affairs and former Montana utility regulator, said, “We should all agree data centers ought to be on the hook for grid-upgrade costs they cause. But many policies proffered to do that send no price signal on where to locate on the grid that will make the best use of the grid & cause the least costly integration of data centers.”
Kavulla cited Exelon’s Chicago-based Commonwealth Edison proposal for a “Transmission Security Agreement,” which he says “would make large customers a ‘revenue guarantee’ = 10 years of Transmission Rates x Max Load of the large customer. This is being sold as a protection against ‘cost shifts’ to other customers.”
But it won’t work, says Kavulla. “The problem is that the actual incremental cost to upgrade the grid bears no direct relationship to the system’s embedded cost, as expressed by the PJM Network Integration Transmission Service rate.”
In Sept. 26 testimony at the Illinois Commerce Commission, NRG consultant James Dauphinals said, “Requiring large load addition customers to guarantee transmission and distribution revenues based on their submitted load ramp applied to ComEd’s standard transmission and distribution service rates would not reasonably address the risk of ComEd’s existing customers potentially paying for the transmission and distribution investments that would not have been necessary but for the large load additions. This is because the level of ComEd’s proposed ‘revenue guarantee’ could be significantly higher or lower than the actual revenue requirement of the transmission and distribution investments that would not have been made but for the large load additions.”
In his Twitter thread, Kavulla credited ComEd “for proposing something they think will limit stranded-cost risk — we simply disagree that it aims at the right thing.” He added, “There are other utilities that are simply rolling all this transmission spending to back speculative loads into their rate base without any consumer protections at all and without any efficient price signal for data-center siting. Not great!”
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