State Policy Blueprint: Managing Large Loads With and Without PJM IRAS

• Without IRAS, PJM will continue to allow data center connections to the grid with no limitations nor requirements that data centers bring new supply. The price impacts of data centers will remain unmitigated, and any reliability problems caused by excess load will affect all customers.
• Regardless of whether PJM's wholesale IRAS framework is active or suspended, states must act. If IRAS is approved, these state policies will complement PJM’s policies. If IRAS is rejected or suspended, they will be essential protections—but become much more complex and difficult.

Without a regional IRAS in place, states face sustained higher costs and a steep hill to regional coordination. PJM’s IRAS proposal was a regional solution to a regional problem. It was designed to help states see cost savings and keep the lights on through the massive influx of data center demand. States can solve some but not all of these problems. FERC’s rejection of IRAS means that states face:

• Greater administrative burden: IRAS created a common framework for interruptible data centers. Without it, states must design their own complex rules from scratch. These will take a significant amount of time and resources to develop—time that the region doesn’t have, as PJM will be short on capacity starting in June 2027.
• Capacity prices remaining at $20-$30 billion per year for the foreseeable future: IRAS was designed to bring capacity prices down by keeping new data centers out of the capacity market until they brought their own new capacity. Unless the states with the highest amount of load growth manage it in a manner recognized by PJM (which relies on states first approving non-firm service tariffs and coordinating the details; see administrative burden above), PJM will continue procuring capacity on behalf of significant amounts of large load. Capacity prices will be trapped at the market cap. 
• Interstate “free-rider” problems: Because PJM is a regional market, even if some states remove data centers from their load forecast—or just don’t have any data centers—they will still see prices go up if other states have not done the same. Data centers may threaten to leave states with more robust protections, concentrating load growth in states with more relaxed rules, where it hurts ratepayers the most while keeping regional prices high. These challenges make regional coordination both essential and very difficult.

Nearly every aspect of managing data centers becomes easier and more effective if done at the regional level, but it is unclear if FERC will allow PJM to meet the largely agreed-upon goals of protecting reliability and avoiding cost shifts. This means that states now face the challenge of solving critical reliability and cost problems while federal approval of IRAS is still uncertain.

1. Highest priority: Demand that PJM fix and refile an updated version of IRAS, and urge FERC to accept it. 

   Without PJM and FERC action, states can still act but will be forced to expend much more effort to reach a second-best solution. FERC’s rejection of IRAS was based on fairly technical legal issues, and it is entirely possible for PJM to fix those flaws and refile IRAS.

   NRDC has done an in-depth analysis of the IRAS rejection and identified fixes to every issue that FERC raised. In brief, a new version of IRAS should ensure that states retain all authority over retail customers, including which customers are curtailed when supply is short and how costs are allocated at the retail level, which was always the intention of IRAS. The remaining issue that FERC raised is inevitably a political one: Can PJM impose system-wide standards for new large loads, or must it be done state by state? A new IRAS filing can force FERC to squarely consider that question, perhaps with a clearer mind than it did in October. At the very least, a new IRAS could leave most decision-making to states, but the presence of a regional framework will still make states' jobs much easier and more effective. 

2. Regardless of whether PJM has a functional IRAS framework, states must pursue no-regret actions: 
   1. Pursue regulations that achieve the goals of a regional framework: Direct utilities to establish mandatory non-firm service tariffs for all new large loads that kick in prior to emergencies, verify new capacity, and reduce capacity prices over time. 
   2. Advance new legislation that goes further: New laws could mandate that BYONC resources meet certain reliability and public health protections—requiring, or at the very least strongly incentivizing, new data centers to pair their demand with newly constructed clean firm resources (such as storage and clean energy hybrids, distributed energy resources, demand response, or advanced nuclear); many of which can get built years faster than traditional resources.
   3. Reinforce clean air regulations and pass new ones to limit pollution from data centers: If large loads intend to use on-site backup generators during curtailment events, states must enforce strict emissions controls. States may need to adopt new laws, policies, and permitting rules to close loopholes. Curtailment events must be designed to avoid emergencies, and states should not authorize the emergency use of backup diesel generators during these pre-emergency curtailments. Additionally, states should adopt and enforce strict limits on diesel emissions by requiring Tier IV or better while adopting policies and laws requiring battery storage or low-carbon fuels instead. 

States face a difficult predicament: They must act quickly to develop regulations that protect customers in the absence of a regional IRAS framework while also making those regulations flexible and durable enough to work with any IRAS or successor program that PJM develops. The three actions listed below outline detailed recommendations for no-regret regulations that can provide immediate relief while IRAS is suspended but also harmonize with any future IRAS program. Red text indicates areas where the lack of a regional framework adds complexity.

1. Mandatory non-firm/conditional service tariffs: States must mandate non-firm retail tariffs for all new large loads that do not supply new, matching, deliverable capacity. These tariffs must enforce pre-emergency load reduction ahead of firm residential and traditional commercial customers.
   1. Complexity without IRAS: Capacity prices will remain high unless the states with high load growth concentrations 1) create non-firm service tariffs and 2) remove non-firm load from PJM’s capacity market. Variability across state lines on details—including when interruptions occur, who they apply to, and if they are mandatory or merely voluntary—causes operational uncertainty and could lead to reliability risk shifting across jurisdictions.

2. Robust BYONC rules and utility verification: States must establish clear rules for BYONC arrangements, directing Electric Distribution Companies (EDCs) to verify that new capacity meets additionality, operational availability, and state policy criteria (such as clean energy standards).
   1. Complexity without IRAS: States and utilities will have to create new definitions and verification criteria for BYONC. These could vary by state, and improper definitions could cause capacity shortfalls to persist or worsen (for example, if a state allows existing resources to count as BYONC or defines “capacity” differently than PJM). 

3. Pre-emergency curtailment protocols: Non-firm tariffs must kick in during tight grid conditions before system-wide firm load shedding. Specifically, curtailments should apply at or before Energy Emergency Alert Level 1 (EEA1), ensuring unbacked large loads bear operational interruptibility ahead of other customers in exchange for faster grid access.
   1. Complexity without IRAS: It will be more difficult for utilities to define curtailment triggers based on resource adequacy conditions (or some other state-defined conditions). With IRAS, PJM would have notified utilities when and how much to curtail during resource adequacy shortages. The quantity of load to shed would have been based solely on unmatched large loads. This would have made it easy for utilities to curtail specific unmatched large-load customers and protect others, when given the notice by PJM. Variation between states when determining their own triggers may lead to confusion at best and rolling blackouts at worst.