Data Centers May Cause 60% Jump In Electricity Prices On Largest U.S. Grid

Unprecedented data center development is driving up the cost of electricity for U.S. consumers, particularly within the country’s largest power grid. 

The price of power during times of peak demand is poised to jump over 1,000% from 2024 levels within the territory of PJM Interconnection, the U.S.’s largest grid operator. For homeowners and businesses served by many of the roughly 1,200 utilities that operate within PJM's grid, this means electric bills growing by as much as 60% over the next five years. 

At the heart of this looming energy affordability crisis is an imbalance between the limited supply of new power being added to the grid amid a flood of demand for electricity from data centers. With a transmission system spanning 13 states in the mid-Atlantic and Midwest that encompasses data center hubs like Northern Virginia and Chicago, PJM’s service area is already home to the country's highest concentration of data centers, and many more are on their way. 

While there are risks that the billions of dollars of grid improvements needed to meet this demand could push prices higher, both utilities and energy analysts warn that even greater sticker shock lies ahead unless urgent action is taken to build more generation and increase the supply of available power. 

“Despite higher prices, we are not seeing the market respond fast enough,”  Exelon CEO Calvin Butler said on the company's July 31 earnings call. One of the largest electric utility parent companies in the U.S., Exelon's six subsidiaries operate largely within PJM's grid. 

“Time remains of the essence in adding supply to the grid,” he added.

Last month, PJM held its capacity auction for 2026 and 2027, which sets the price power plant owners will receive for the electricity they generate during peak demand, sold to utilities that then deliver it to customers.

Two years ago, the capacity auction for 2024 and 2025 saw power priced at $28 per megawatt per day. The final price at last month’s auction was $329.17 per megawatt per day, a more than tenfold increase that would have been higher had PJM not placed a price cap on the sale.

The auction’s results could increase residential retail rates between 30% and 60% by 2030, according to technology consulting firm ICF. And while the price impact will vary across different parts of PJM’s footprint, Pennsylvania utility PPL Electric indicated on the firm’s second-quarter earnings call that the capacity sale would ultimately increase its customers’ utility bills by an average of $20 per month. 

"This outcome underscores PJM's critical need for capacity, driven largely by surging demand from data centers, which is expected to outpace new generation additions," analysts at ICF said, according to Reuters.

PJM’s supply and demand imbalance has become increasingly acute as artificial intelligence has accelerated the data center building boom.  

In 2022, PJM anticipated that by 2037, there would be 5,700 MW of total load growth within Dominion Energy’s data center-sense service territory. Now, PJM predicts Dominion’s territory will see more than 20,000 MW of growth over the same period from data centers alone. 

Other utilities operating within PJM report similarly dramatic spikes in their demand pipelines. American Electric Power, whose subsidiary utilities operate across 11 states, has 190 gigawatts in its interconnection queue — more than five times the capacity of its current 37-gigawatt system. 

“Demand for power is growing at a pace I have not seen in my 45-year energy career,” AEP CEO Bill Fehrman said on its Q2 earnings call. 

While data centers aren't the only source of load growth, they are the main driver of rising prices within PJM, according to Monitoring Analytics, a firm that serves as an independent monitor for the grid operator. A June report from the group found data centers accountable for 63% of the price surge in 2025 and 2026.

Expanding the PJM grid to meet this demand will require tens of billions of dollars of investment to build new power plants and upgrade transmission infrastructure. PPL Electric said on its earnings call that the new generation needed to meet demand within its service territory alone will require up to $19B. AEP raised its five-year capital plan last month by 30% to $70B, a capex hike that followed an earlier 30% increase less than a year prior. 

Some industry analysts caution that this massive capital spending, while needed to alleviate power supply constraints, could itself put upward pressure on electricity prices. 

According to an IEEFA report, some utility customers are effectively subsidizing transmission infrastructure that exclusively benefits data centers in other states. The study highlights utility customers in West Virginia, who may foot a $440M bill for a transmission line that does not actually provide them with power but instead supplies data centers in Virginia.

Additionally, there is a risk that utilities could devote significant resources toward developing new transmission infrastructure to supply gigawatts of power for a data center campus, only to have that project canceled or dramatically scaled back. With no buyer for the electricity this new infrastructure was built to deliver, the cost of developing this now “stranded” grid capacity would fall to the utility’s other ratepayers, driving up retail electricity prices.

To protect against this scenario, AEP petitioned Ohio regulators to approve a specialized rate for data centers that requires them to pay for 85% of their full power commitment up front. That rate was approved last month, with similar targeted rates enacted or being considered in Indiana, West Virginia and Kentucky. 

“This approved data center tariff provides assurances that there will be reliable electric grid infrastructure to deliver the power we all count on while keeping costs as low as possible for all customers,” AEP’s Fehrman said on the earnings call. 

Still, Fehrman and other leaders of utilities that operate within PJM contend that controlling consumer cost increases amid the unprecedented rise in data center construction hinges primarily on increasing the power supply — developing new power generation and connecting it to the grid far faster than is being done today. But accomplishing this will be difficult.

As Bisnow reported last month, industry leaders say PJM’s generation interconnection process is fundamentally broken. The grid operator has a backlog of more than 2,000 power generation projects in its interconnection queue, with some waiting as long as seven years as an overwhelmed PJM struggles to conduct reliability studies. Many approved projects never materialize.

Additionally, the vast majority of projects in PJM’s queue are wind and solar, which face an uncertain future due to changes in tax incentives and permitting hurdles implemented by the Trump Administration. 

While there are growing calls for major reforms to PJM’s interconnection process, PPL Electric CEO Vincent Sorgi says the structure of PJM’s capacity market exacerbates the generation shortage because existing power plant operators have little incentive to add more capacity. By building new generation, companies already operating power plants within PJM would be effectively competing against themselves, driving down the price of their product and cannibalizing demand, Sorgi said on PPL's earnings call.

“Once these last two capacity auctions are reflected in our customers' bills, it's going to increase them by about $20 a month with no new generation to show for it, and that’s simply a transfer of wealth from utility customers to IPPs and to their shareholders,” Sorgi said. 

Leaders of multiple utilities said on earnings calls that there is a desperate need for generation options that will allow them to circumvent PJM’s interconnection process and the capacity market. 

Firms like AEP and PPL pointed to behind-the-meter deals to provide power directly to hyperscalers, such as PPL’s recently announced partnership with Blackstone to power hyperscale campuses in Pennsylvania. 

Utilities also highlighted the role state lawmakers play in facilitating new generation. Executives at PPL and Exelon point to pending legislation in Pennsylvania and New Jersey that would allow utilities to build and operate their own generation, something that is prohibited across much of PJM’s footprint.  

With electricity demand from data centers continuing to grow, Exelon’s Butler says government and utilities need to pull out all the stops to address a power affordability crisis that isn’t going away soon. 

“States have an opportunity to proactively bring control, certainty and cost benefits by pursuing options outside of the capacity market,” Butler said. “Such options can ensure solutions are there to meet state goals when the market can't or won't deliver.”