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PJM: Rapid AI‑related data‑center growth is straining capacity markets and could push up New Jersey rates
Summary
PJM told New Jersey legislators that a sudden surge in data‑center demand tied to AI has driven capacity prices sharply higher and could raise consumer bills unless states and FERC act to speed new generation, ease siting and clarify interconnection rules.
Jason Stanek, executive director of PJM Interconnection, told the New Jersey Senate Legislative Oversight Committee that the growth in data centers supporting artificial‑intelligence work has driven “eye‑popping” demand increases and triggered sharp capacity‑market price spikes that will affect customer bills this summer. Stanek said PJM’s forecast shows data centers rising from roughly 4% of PJM’s load today to a projected 12% within five years and that PJM’s most recent capacity auction cleared at about $269 per megawatt‑day in the New Jersey zone.
Stanek said the steep price rise reflected a combination of unprecedented load projections and retirements of dispatchable resources. He described several federal actions and market tools intended to mitigate price volatility, including a FERC timetable for guidance on co‑location of large loads, a PJM proposal called the Reliability Resource Initiative (RRI) to fast‑track up to 50 shovel‑ready generation projects, and a settlement in principle that would set a temporary floor ($175/MW‑day) and cap ($325/MW‑day) for the next two capacity auctions while FERC reviews the plan.
Committee members pushed PJM on whether the capacity‑market results were justified or deserved investigation. Senator Smith said the prospective rate shock would be politically and economically severe and asked why PJM had not flagged the problem earlier. Stanek replied that PJM’s forecasts had missed the recent rapid growth and that PJM relies heavily on distribution utilities for the most reliable near‑term information about planned customer connections. He said PJM did not see evidence of market withholding in the last auction but agreed to follow up on investigative options.
Stanek warned that some parts of the country are already facing reliability risks and that the supply‑demand imbalance is a cross‑jurisdictional problem that will require coordinated state and federal action. He stressed that PJM is a wholesale grid operator and not the regulator of distribution equipment such as local substations and transformers, which are the responsibility of distribution utilities and state regulators.
The hearing produced several policy threads for lawmakers: whether to require large data centers to bring on‑site generation or otherwise ‘‘hold harmless’’ existing ratepayers; whether states should pursue targeted procurements or rate‑based generation to accelerate dispatchable capacity; and whether FERC or state regulators should adopt new rules to clarify compensation and interconnection responsibilities for co‑located generation. Stanek said PJM would provide additional data to the committee on questions members flagged.
The committee concluded the PJM session by requesting follow‑up information and noting the need for urgent policy work to balance reliability, affordability and clean‑energy goals.
