PJM Set Data Center Rules. Now States Must Protect Ratepayers.

Large loads—mostly data centers—have degraded resource adequacy to the point where PJM cleared “short” in two consecutive capacity auctions. Starting in 2027, PJM will fall 6 gigawatts below the target reserve margin, which is the amount of power that PJM believes it will need to ensure a reliable grid. The IRAS framework recognizes this simple truth: When the grid is stressed, someone may have to curtail. Instead of letting this risk develop into widespread blackouts that impact many customers, PJM will attempt to allocate curtailments to the large-load customers who got us in this position. 

PJM can’t—and shouldn’t—curtail any individual large-load customers. Instead, PJM will direct utilities, which will then direct their customers. For example, when there’s an expected power shortage, PJM will alert utilities to curtail a megawatt (MW) quantity (say, 100 MW). This 100 MW quantity is informed by large loads that have not brought their own new power supply in that utility territory. It will be up to the utility, though, to pass this curtailment order on to individual customers and make sure those unbacked data centers are turned off, not households or businesses.

This complex relay race requires new regulations from states. At a minimum, states likely need large-load tariffs that clarify terms of service for new data center customers. These tariffs should require new large loads to demonstrate that they are backed by new capacity or otherwise comply with interruptions ahead of other customers when the threat of blackouts looms. Some utilities, like ComEd in Illinois, are already working on this. These tariffs will be the “floor” to make sure the right customers are turned off during emergencies—but states must go further. While passing these new regulations, states should close loopholes to limit highly polluting backup generators and make sure data centers bring their own new clean energy.

There’s a potential dark side to this new policy. While the new rules would have data centers turned off before other customers if they don’t BYONC, some in the industry have made it clear that they don’t expect to actually turn off. Instead, they will rely on dirty diesel or gas backup generators. 

These fossil backup generators, or “BUGs,” are unhealthy and polluting without emission control technologies. We’ve known for decades that diesel emits up to 400 times the amount of nitrogen oxides (NOx) and fine particulate matter than gas. Nevertheless, data center BUGs are already wreaking havoc in Virginia—spouting dark plumes of smoke that could exceed the public health impacts of a massive gas plant by five times, according to the Washington Post and Virginia Commonwealth University. 

These new PJM curtailments would kick in prior to an emergency. Theoretically, this distinction means that diesel BUGs or on-site gas turbines used by data centers during any PJM-driven curtailments are still subject to clean air regulations, including run-time limits, but these federal regulations are unlawfully weak. Worse, the U.S. Environmental Protection Agency is rolling back other important pollution protections; these won’t impact backup generators yet, but it shows a disturbing trend.

States can still protect communities from this significant new source of pollution if the federal government does not; some, like Pennsylvania and Virginia, are already taking action. While working on new regulations to implement the PJM curtailment framework, states must simultaneously reinforce regulations limiting dirty BUGs. This is an active area of legal development and warrants careful thought by regulators, legislators, and courts, but we see a few distinct risk areas:

• Data centers may seek exceptions to run-time limits for fossil BUGs during nonemergency IRAS curtailments. 
• The federal government may try to allow exceptions to run-time or emissions limits for BUGs through 202(c) orders.
• Data centers may seek or abuse less strict mobile source permits for on-site fossil “generators with wheels” or seek exceptions to local or state siting rules, which could result in BUG pollution sources being located closer to where people live.
• Data centers may want exceptions to best-available emissions control technologies for on-site gas turbines and BUGs, potentially interfering with our ability to meet National Ambient Air Quality Standards.

Each of these risks is significant, and more loopholes could emerge as the IRAS framework is worked through regulatory commissions. States must ensure that data center growth does not come at the expense of human health and erode decades of clean air protections.

While reinforcing pollution limitations on dirty BUGs (or simply requiring large loads to use backup on-site storage instead), states will also have to develop new policies to require large loads to BYONC and shape the types of resources that data centers buy. Here, states have a lot of flexibility: Through a combination of carrots and sticks, states could leverage data centers’ hunger for speedy power and deep pockets to spur a generational investment in grid-connected clean energy, including battery storage. 

First, PJM is about to hold a special auction on September 30 to buy power for new data centers with 15-year contracts. Decision-makers could quickly encourage data centers in their state to buy clean energy in that auction, not remote fossil fuels. States could offer incentives, like faster processing, for data centers that agree to buy clean.

Second, utility commissions must clarify that new power plants built to support data centers comply with existing state clean energy laws. State legislatures could go further and pass new laws to direct data centers to buy a greater amount of clean energy, like the proposed POWER Act in Illinois.

Third, states could incentivize new power plants to be built closer to large loads or limit how far away power plants can be from the load. Transmission constraints for distant power plants can cause years of delay and could prevent power from being delivered to the load when needed, while nearby load-supply arrangements can “balance” one another and avoid these bottlenecks. Battery storage, distributed energy resources (DERs), and virtual power plants are particularly well suited for this due to their siting flexibility and rapid construction timelines, and states could direct their utilities to investigate new opportunities and planning processes for DERs and batteries located near large loads.

Implementing PJM’s new framework is just the starting line; states must now pass robust regulations that don’t just manage data center growth but actively harness it to power the clean energy transition.