The organization that keeps the lights on for 65 million people across 13 states just told federal regulators it is running out of time. PJM Interconnection, the nation’s largest grid operator, warned in a May 2026 market reform proposal that it has “years, not decades” to overhaul its electricity markets before surging demand from artificial intelligence data centers overwhelms available power supply. The warning landed weeks after PJM’s own capacity auction cleared at record-high prices, a signal that generators already see a tightening market and are charging accordingly.
PJM coordinates the flow of electricity from New Jersey to Illinois, managing a territory that includes northern Virginia’s “Data Center Alley” in Loudoun County, the densest concentration of data center capacity on Earth. That corridor alone accounts for roughly 70% of the world’s internet traffic on any given day, and it is expanding. Amazon, Microsoft, Google, and Meta have all announced or begun construction on massive new AI-focused computing campuses within PJM’s footprint, each capable of drawing hundreds of megawatts of continuous power.
The capacity crunch is already showing up in prices
PJM’s capacity market pays power plants to guarantee they will be available during periods of peak demand. In the most recent Base Residual Auction, clearing prices spiked dramatically compared with prior years, reflecting a market that sees new load arriving faster than new generation. The auction results, published on PJM’s own capacity market page, showed that the cost of securing reliable power is climbing in ways that will eventually flow through to household and business electric bills across the region.
That price signal is exactly what PJM says its market reforms are designed to strengthen. In its white paper outlining the restructuring effort, the operator argued that current rules do not send strong enough investment signals to attract the new generation needed to keep reserve margins above critical thresholds. PJM has not published zone-by-zone projections tying specific megawatt shortfalls to AI load growth, but its internal reliability assessments have flagged the risk of reserve margins falling below target levels in some delivery years starting as early as 2028/2029, according to planning documents shared with stakeholders.
FERC steps in on co-location deals
The Federal Energy Regulatory Commission added its own layer of urgency. In a formal order available on FERC’s website, the commission directed staff to address “co-location” arrangements in which large data center operators connect directly to a power plant rather than drawing from the shared grid. The concern is straightforward: if a 500-megawatt gas plant signs a private deal to serve a single AI campus, those megawatts effectively disappear from the pool available to everyone else. Other customers still pay for the transmission infrastructure that plant once supported, but they no longer benefit from its capacity.
FERC’s order stops short of banning co-location outright, but it signals that regulators view these arrangements as a cost-shifting problem that existing tariff rules were never built to handle. The commission is now working through a proceeding to determine what guardrails should apply, a process that could take months to produce final rules.
State politics collide with market design
Pennsylvania Governor Josh Shapiro pushed the tension between reliability and affordability into the open. His office negotiated a settlement, subsequently approved by FERC, that placed limits on capacity auction outcomes to prevent what the governor called unnecessary price spikes for Pennsylvania ratepayers. The intervention reflected a political reality: voters do not distinguish between wholesale market mechanics and the number on their electric bill. When capacity prices jump, elected officials feel the pressure.
But the settlement also exposed a contradiction at the heart of PJM’s challenge. The operator says it needs higher price signals to attract new generation investment. State officials say those same price signals are punishing consumers. Resolving that tension requires either building enough new supply to bring prices back down, finding ways to slow demand growth, or accepting that reliability in an AI-driven economy will cost more than it used to.
The demand side is not slowing down
Lawrence Berkeley National Laboratory’s 2024 United States Data Center Energy Usage Report provides the clearest national picture of what grid operators are facing. The report found that data center electricity consumption is on track to grow substantially through the end of the decade, driven primarily by the computational demands of training and running large AI models. While future generations of chips and cooling systems may improve efficiency per computation, the sheer volume of AI workloads is growing faster than those efficiency gains can offset.
The mid-Atlantic corridor where PJM operates is ground zero for that growth. Loudoun County alone has approved or has under review permits for millions of square feet of additional data center space. Dominion Energy, the utility serving much of northern Virginia, has publicly stated that data center interconnection requests now represent the single largest category of new load on its system. The utility has warned that meeting that demand will require billions of dollars in new transmission and generation infrastructure.
Further west in PJM’s territory, Ohio and Indiana are seeing a second wave of data center siting as companies seek cheaper land and power while staying within PJM’s wholesale market. Those projects bring economic development, but they also add load in parts of the grid that may lack the transmission capacity to import power from distant generators during peak periods.
The nuclear question
One of the most closely watched developments inside PJM’s footprint is the potential restart of nuclear capacity. Constellation Energy’s announced agreement with Microsoft to bring the Unit 1 reactor at Three Mile Island back online would add roughly 835 megawatts of carbon-free baseload power to the grid. If completed, it would be the first restart of a decommissioned U.S. nuclear plant in decades and would directly address both the supply gap and clean-energy mandates that several PJM states have enacted.
But nuclear restarts are expensive, technically complex, and subject to regulatory approval from the Nuclear Regulatory Commission. The timeline for Three Mile Island’s return, if it happens, stretches into 2028 at the earliest. Other potential nuclear projects, including small modular reactors that several tech companies have invested in, are even further from commercial operation. In the near term, the fastest path to new megawatts inside PJM remains natural gas, which creates its own tension with state-level decarbonization goals in places like New Jersey, Maryland, and Virginia.
What 65 million people should watch for
For households and businesses inside PJM’s territory, the practical stakes are not abstract. Higher capacity auction prices translate, with a lag, into higher delivery charges on monthly electric bills. If reserve margins tighten further, the risk of rolling blackouts during extreme heat or cold events increases. And if market reforms fail to attract enough new generation, PJM could be forced to rely on emergency measures, such as voltage reductions or calls for voluntary conservation, that were once reserved for rare, catastrophic scenarios.
The next major milestones to watch are PJM’s updated load forecast, expected later in 2026, which should for the first time incorporate granular projections of AI-driven demand growth by zone; FERC’s final rules on co-location, which will determine how much generation can be pulled off the shared grid; and the results of future capacity auctions, which will reveal whether the market reforms PJM is proposing actually attract the investment the operator says it needs.
PJM has framed this as a race against a clock it can see but cannot yet precisely read. The demand is arriving. The question is whether the supply, the rules, and the political will can keep pace.
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*This article was researched with the help of AI, with human editors creating the final content.
