By now, we’re all aware of the large increase in our electric bills—20%, with more to come. An explanation of how our power grid works helps to understand the proposed solutions.
PJM is the organization that manages your electric power. PJM is the largest of the regional transmission organizations, and it is composed of all the utility companies from 13 states, including New Jersey.
PJM (not the individual states) controls the cost of supplying electricity you are billed for. There are two parts: the electricity that is purchased each day, and then “capacity,” which is payment to reserve energy from suppliers so it is available as needed. Capacity covers facility depreciation and other fixed costs. Typically, capacity has been only about 15% of the supply cost, but recently this is the part of your bill that has soared.
Both electricity and capacity costs are decided by auctions. Energy auctions are held daily. Capacity auctions are typically held once a year. Auctions can be very sensitive to supply and demand.
In preparation for the capacity auction, PJM forecasts the peak demand that will occur during the year. Suppliers submit bids stating how much power they can supply and at what fixed facility cost. The bids are sorted by least cost and then accepted in price order until enough capacity has been bought to meet forecast demand. In the daily energy auction, the same idea is followed, but bids are for actual electricity delivered.
One reason the capacity auction has entailed such high prices lately is that PJM’s forecast for peak demand has increased dramatically, mostly due to data centers. PJM territory includes states with a large concentration of data centers, including Virginia, Ohio, and New Jersey.
In the PJM interconnection area, hundreds of millions of square feet of data centers are proposed, built, or under construction, requiring 67 gigawatts (GW) of power, according to an August 2025 report. It is estimated that about 38% of PJM’s auction pricing is due to data center loads that haven’t been built yet.
The forecast raises many questions. How accurate is it? Why are customers paying for it now? Shouldn’t data centers be held responsible for these extra energy and capacity costs?
One proposed solution would require all large-load energy users to put down security deposits and guarantee annual electricity purchases, eliminating projects that are unlikely to be built. A second proposal would require heavy users to bring their own power. An additional proposal would create a new “rate class,” separate from residential customers, allowing higher rates and different connection rules.
On the supply side, the good news is that PJM has a long queue of proposed energy plants, and it includes many renewable projects.
The bad news is that PJM’s queue has been backlogged for years, with few new energy sources approved. A supplier entering service in 2015 spent about two years in the queue; by 2024, newly approved suppliers had waited nearly six years. These delays have caused many projects to drop out due to financing or site losses.
The cancellation of offshore wind projects also reduced projected supply.
Rapidly rising demand and limited supply growth caused the 2024 and 2025 capacity auctions to settle at prices roughly ten times higher than before. PJM’s own demand projections indicate the scale of the problem: Summer peak demand is expected to climb by about 70 GW over the next 15 years, reaching around 220 GW by the mid-2040s.
PJM has come under intense pressure to reform its approval process and accelerate new supply hookups, including pressure from the White House and all 13 PJM state governors. However, PJM has made progress and promises to clear the remaining supply queue by the end of 2026.
Some reform proposals favor fossil fuels, even though many renewable projects can be built more quickly. Battery storage paired with renewables could increase reliability.
To ease problems, the New Jersey Board of Public Utilities is encouraging adoption of time-of-use rates, home batteries, better electric vehicle charging practices, and “smart home” energy management technologies. Commercial users could receive favorable rates in exchange for flexibility, including curtailing use during periods of high demand.
Data Centers
Lastly, data centers. Data centers built anywhere in the 13-state PJM interconnection area affect electricity rates throughout the region.
There are other costs associated with data centers. Most create very few permanent jobs. They are often difficult to repurpose if the data center closes. Municipalities frequently grant large tax breaks that may be unfair to residents.
Because some projects are located near state or municipal borders, area residents may have little influence or representation in approval decisions. Planning authority may shift to bodies with less expertise, while residents seeking information about power use, water consumption, emissions, or expansion plans face obstacles.
Data centers also pose environmental risks. Besides ongoing noise and diesel fumes, construction may disturb contaminated soil or sensitive wetlands, threatening wildlife, nearby waterways, and drinking-water supplies.