Data Centers Drive Grid Cost Surge, Prompting State Exit Threats

Pennsylvania's threat to withdraw from the PJM Interconnection, the largest U.S. electricity grid operator, has intensified amid soaring capacity costs and governance disputes. Governor Josh Shapiro has warned that if reforms are not enacted within months, the state may pursue a costly and complex exit from the 13-state network. The crisis stems from a surge in electricity demand driven by data centers, which have pushed capacity prices to record levels. In the 2025/2026 planning year, capacity costs in key zones such as PSEG and PECO rose from $55 to over $270 per megawatt-hour (MWh), a nearly fivefold increase 5 Energy^[1]. The 2026/2027 auction further escalated prices to $329.17/MW-day, with data centers accounting for 63% of the $30.8 billion in combined auction revenue Inside Climate News^[5].

The rapid growth of data centers, particularly in Virginia's "data center alley," has strained grid capacity. PJM's market monitor, Monitoring Analytics, attributed the spike to "unprecedented and uncertain" data center load forecasts, which have tightened supply-demand balances and inflated prices Fortune^[4]. For example, residential customers in Washington D.C. saw bills rise by $21/month in June 2025, with half of the increase linked to capacity market costs Inside Climate News^[5]. Maryland Governor Wes Moore criticized PJM for delays in connecting renewable energy projects and opaque governance, while New Jersey lawmakers explored legislation to evaluate alternatives, including leaving the grid .

Shapiro and other governors argue that PJM's governance structure excludes state input, leaving consumers vulnerable to rising costs. The grid operator's board, dominated by utility members, does not formally represent state interests, a contrast to other regional grids like the Southwest Power Pool . A bipartisan group of governors has called for expanded state representation, including filing rights at the Federal Energy Regulatory Commission (FERC) and a role in selecting board members . PJM's CEO, Manu Asthana, acknowledged the need for collaboration but emphasized that structural changes require time and stakeholder consensus .

Leaving PJM would require federal regulatory approval and involve significant costs. Utilities would need to repay PJM for future power commitments and cover transmission expenses. For instance, a 2008 attempt by Duquesne Light to exit cost $100 million annually for three years . Alternative strategies, such as compelling utilities to withdraw from PJM's capacity market or forming a new grid, remain politically contentious. Dominion Energy's 2021 opt-out from capacity auctions, later reversed, highlights the risks of forgoing market-driven pricing .

Critics argue that state-led reforms could disrupt grid reliability and affordability. The Electric Power Supply Association warned that increased government control might stifle investment and create gridlock . Meanwhile, independent market monitors have recommended requiring data centers to supply their own generation to mitigate impacts on ratepayers Fortune^[4].

PJM has initiated a fast-track process to revise rules for large data center connections, including enhanced load forecasting and state utility commission reviews Fortune^[4]. However, governors insist that reforms must address governance and pricing transparency immediately. Without action, Shapiro has pledged to pursue a "different direction," though the path remains undefined .