28JUN

PJM warns 13 governors on grid costs

4 min read

12:23UTC

PJM chair Paula Conboy told all 13 PJM-territory governors on 19 May that absent state cost rules before September's backstop procurement, data-centre grid costs may land on household bills.

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Key takeaway

PJM gave states until September to assign data-centre grid costs or watch them default to households.

PJM Interconnection, the regional transmission organisation that runs the electricity grid across 13 US states and Washington DC, put the question the whole boom has avoided into writing. In a board letter signed by chair Paula Conboy on 19 May 2026, PJM told governors that unless their states build frameworks to allocate data-centre costs before its centralised procurement runs in September 2026, those costs may land on "other consumers in the states, including residential consumers" ¹.

The instrument is a centralised Reliability Backstop Procurement, brought forward to September because legal certainty on cost allocation may not arrive until 2027. PJM merged it with its Connect and Manage process under a single fast-track, its CIFP (Critical Issue Fast Path). Data centres that contract bilaterally for backstop power leave the mandatory connection pool; everyone left behind shares the reinforcement bill.

PJM set the September date for a reason. It already runs DOE (Department of Energy) curtailment authority over backup-equipped sites , filed its co-located load tariff on the same 18 May FERC (Federal Energy Regulatory Commission) deadline it was set , and watched FERC log 75 GW of new summer capacity while the grid still hit an emergency . The letter says the next reinforcement round cannot wait for a rulebook. Operators counter that they pay connection charges already, and that a backstop auction socialises a cost they did not ask other ratepayers to carry.

Deep Analysis

In plain English

PJM (Interconnection) is the company that manages the electricity grid for 13 US states, from Illinois to New Jersey. When a new data centre wants to connect, the grid usually needs upgrades: new wires, substations, and transformers. Under current rules, those upgrade costs are spread across all electricity customers, including ordinary households. PJM's board chair sent a letter to 13 state governors on 19 May warning that unless states write new rules to put those costs on the data centres themselves, households could see higher electricity bills. PJM wants states to act before its September procurement round, where the decision about who pays gets locked in.

Deep Analysis

Root Causes

PJM's Open Access Transmission Tariff was written for incremental load growth of 1-2 per cent per year. Its cost-allocation rules classify transmission upgrades as network reinforcements benefiting all customers, not project-specific facilities serving one customer.

A single 500 MW data-centre campus requesting interconnection today can trigger a regional reinforcement whose cost is then spread across millions of residential accounts, because the tariff has no carve-out for loads that individually exceed the total capacity added in some prior years.

The September Reliability Backstop Procurement emerged because FERC's Docket RM26-4-000, the proceeding that would create a new framework for loads above 20 MW, cannot deliver a binding rule before the summer reliability window closes.

PJM accelerated the backstop auction to force a binary choice: sign a bilateral contract now and own your cost, or remain in the pool and let cost allocation default to the existing socialised framework. States that fail to create their own frameworks before September effectively delegate that choice to the tariff structure.

What could happen next?

Consequence
If no PJM-territory state publishes a cost-allocation framework before September, grid-reinforcement costs triggered by new data-centre interconnections default to the existing tariff structure, which spreads them across all residential and commercial ratepayers.
Immediate · Assessed
Risk
Hyperscalers that sign bilateral backstop contracts before September exit the shared cost pool, leaving smaller or less credit-worthy developers and their triggered reinforcement costs behind, potentially concentrating per-customer charges.
Short term · Suggested
Precedent
A state that writes a data-centre cost-assignment framework before September becomes the template for the remaining 12 states and potentially for FERC's RM26-4-000 rulemaking, creating a first-mover advantage in setting the national standard.
Medium term · Suggested

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: When merchant generators flooded PJM's interconnection queue in the late 1990s, the grid operator's 1999 tariff reforms socialised network-upgrade costs across the zone rather than assigning them to the triggering project.

PJM's Transmission Expansion Advisory Committee then spent nearly a decade litigating cost recovery before FERC Order 1000 in 2011 finally imposed a beneficiary-pays framework. The structural problem now, load queuing without assigned cost, reproduces the exact generator-queue pathology of that era, substituting data-centre interconnections for merchant power plants.

Counter-parallel: Texas's ERCOT handled a comparable surge by adopting its Competitive Renewable Energy Zones (CREZ) programme in 2008, building 3,600 miles of new transmission and assigning the cost to all ratepayers, not triggering loads. That approach reduced per-customer cost by spreading it broadly, but it also removed any price signal discouraging frivolous queuing. ERCOT's current 410 GW queue suggests the CREZ model's socialised-cost lesson has not deterred speculative applications.

For residential customers in PJM's territory, the cost at stake runs to billions of dollars over the planning horizon. The grid operator's own studies have shown that a single 1,000 MW hyperscale load in a congested zone can trigger network upgrades costing $500m to $1.5bn. Divided across 65 million customers, that is $8-$23 per customer for one campus. The 13-state territory is now fielding dozens of comparable interconnection requests simultaneously.

For operators, the bilateral backstop route has a near-term cost advantage: exit the shared pool before September, sign a direct backstop contract, and avoid any subsequent socialised levy. Meta's $1.2bn Enbridge renewable deal is structurally analogous: securing firmed power outside the behind-the-meter fleet that faces curtailment reduces both regulatory and ratepayer-conflict exposure. The incentive to exit the shared pool accelerates as the pool's residual cost-per-customer climbs.

Consensus view: The Brattle Group's grid-cost analysts and Grid Strategies president Rob Gramlich both assess that PJM's cost-allocation rules carry a structural flaw for hyperscale load: transmission reinforcement triggered by new large load is treated as a socialised reliability benefit under PJM's Open Access Transmission Tariff, meaning the interconnection customer pays only its study-determined share while the broader upgrade costs are spread across the pool.

Until a state or FERC redraws that line for loads above 20 MW, residential ratepayers in the 13-state region remain the default bearer of incremental reinforcement.

Counter-view: The Edison Electric Institute (EEI) and PJM itself argue that data centres already pay generator-interconnection-equivalent charges, and that the 19 May letter overstates the gap: bilateral backstop contracts, once signed, remove those loads from the shared pool, so operators who contract directly carry their own cost.

Pennsylvania and Ohio consumer-advocate offices counter that bilateral exit is precisely the problem, as it lets the best-resourced operators opt out of cost sharing while smaller customers absorb the remaining socialised bill.

Key tension: Whether the September Reliability Backstop Procurement's bilateral exit clause concentrates grid costs on the least-resourced ratepayers or fairly allocates them to the load that triggered the reinforcement.

Sources:PJM Interconnection

Mentions:PJM Interconnection →Department of Energy →FERC →Texas →Illinois →Pennsylvania →New Jersey →Washington →ERCOT →

First Reported In

Update #5 · Who pays when the grid bends for AI

PJM Interconnection· 2 Jun 2026

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Causes and effects

Caused by

DOE lets PJM switch off data centres

DOE's 202(c) curtailment order over BTM data-centre generators created the reliability context that accelerated PJM's September Backstop Procurement timeline.

Occurred 18 May 2026

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PJM faces Monday FERC tariff deadline

PJM's 18 May FERC tariff-filing deadline preceded the board letter and is part of the same co-located load regulatory sequence the September Backstop addresses.

Occurred 18 May 2026

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This Event

PJM warns 13 governors on grid costs

It is the first formal warning that the grid-reinforcement bill for data centres could default to residential ratepayers across 13 US states.

Led to

Oregon bills data centres, not homes

PJM's warning to governors on 19 May that households would bear grid costs set the policy context Oregon's POWER Act rate filing directly answered.

Occurred 4 Jun 2026

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PJM cuts backstop target to 9 GW

PJM's 19 May governor warning was the policy event that drove the September backstop restructuring to bilateral-first.

Occurred 19 May 2026

Read story →

Different Perspectives

Global hyperscale operators

Operators are still filing gigawatt-scale campuses and Meta is proceeding with its $10bn Lebanon, Indiana site despite the county-level bans nearby, betting Q2 capex outruns the patchwork of restrictions. Industry framing casts New York's freeze, Oregon's surcharge and Indiana's bans as taxes and levies that push build-out toward faster-permitting jurisdictions such as India and the Gulf.

EirGrid

EirGrid set a 900 MW instantaneous demand-loss ceiling because a single voltage dip can trip many data centres onto backup power at once, risking imbalance above 1,150 MW. It wrote the limit into a standing procedure rather than waiting for an emergency to force one.

US host communities and ratepayers

Prince William residents backed the 8-0 denial of Dulles South over the Occoquan watershed, drinking water for eight million people, while Oregon's approved tariff cuts residential bills 1.3% by charging large loads 29% more. Their position: consent and cost-attribution belong in law, not left to a developer's or a utility's discretion.

Hassan Allam Digital Infrastructure

Hassan Allam Digital Infrastructure, an Egyptian conglomerate rather than a foreign hyperscaler, reportedly secured a domestic hyperscale licence with a $400m first phase, per single-source reporting still to be verified. It reads as home-grown sovereign compute ambition, building national capacity rather than importing a US or Gulf operator's campus.

Damac Digital

Damac Digital keeps building toward roughly 6,000 megawatts of hyperscale capacity across 13 countries while Virginia taxes power and New York weighs a freeze. Every dollar or month of delay a US state adds is capacity a Gulf developer can site somewhere with faster permitting and no equivalent levy.

Acequia communities, Santa Fe County

Santa Fe County commissioners voted unanimously on 2 July to freeze any data centre over one megawatt, citing the acequia irrigation commons that has shared scarce water since Spanish colonial rule. They expect the low threshold to draw the same Fifth Amendment challenge RCM Hill brought against Hill County, Texas.