PJM capacity reforms require urgent state action to protect ratepayers, says NRDC

Without coordinated state-level frameworks, it remains unclear which customers will face curtailment during grid stress events, and who will ultimately pay for the new backstop auction costs.

State progress varies across PJM

Several states have already begun developing the regulatory infrastructure needed to implement PJM’s policies, though progress varies significantly across the region.

Lang-Ree identifies Illinois as leading the effort, actively developing tariff structures that require data centres to bring their own new capacity.

Under Illinois’ emerging framework, any load not backed by new capacity must accept interruption during periods of grid stress ahead of other customers—essentially a contractual agreement that new large loads must sign with utilities.

Virginia is also taking significant action, while Pennsylvania recently announced plans for a rulemaking process on the issue.

Lang-Ree identifies the four largest PJM states—Virginia, Ohio, Pennsylvania, and Illinois—as facing the most pressure to implement detailed policies quickly due to their substantial load growth projections. States experiencing less dramatic demand increases can follow their lead, she suggests.

However, states will differ significantly in their willingness to ensure data centres bring clean energy and prevent excessive operation of “dirty diesel” backup generators—a distinction that NRDC asserts will separate jurisdictions merely implementing PJM policies from those actively protecting constituents from environmental and cost harms.

Three pillars of successful state implementation

Lang-Ree outlines three essential components for successful state-level policy:

1. Basic regulatory infrastructure

States must establish new regulations implementing PJM’s rules, including:

• Interruptible service tariffs for all new large loads
• Requirements that new large loads secure their own new capacity
• Curtailment protocols ensuring large loads are interrupted before emergencies
• Cost allocation mechanisms ensuring large loads alone pay for capacity without shifting costs to other customers

2. Clean energy incentives

Beyond basic implementation, states should deploy carrots and sticks to incentivise data centres to invest in clean energy, including battery energy storage systems (BESS). Options include:

• Financial incentives for data centres bringing clean energy
• Investment in virtual power plant (VPP) or distributed energy resource (DER) programmes
• Requirements that new data centres supply a certain percentage of clean energy, harmonising with existing state renewable energy mandates

Illinois is currently discussing such requirements, Lang-Ree notes.

3. Backup generator controls

States must close loopholes in permitting and runtime limit exceptions that data centres might exploit, ensuring backup generators don’t compromise human health.

Backup generators

PJM’s policies may result in data centres facing more frequent and longer-duration curtailments than previously experienced. This raises concerns that facilities might increasingly rely on diesel or gas backup generators during these periods, potentially creating concerning health impacts for nearby communities.

Lang-Ree identifies two key enforcement mechanisms states should employ:

First, states should confirm that because PJM will institute curtailments prior to pre-emergency conditions, any backup generators data centres use during those periods must obey strict runtime limits adopted at the state level and promulgated federally.

Data centres cannot claim emergency exceptions to these limits.

Second, states should exercise strict oversight at the permitting stage, carefully approving only backup generators with best available emission control technology, ensuring data centres understand associated runtime limits, and preventing approval of less-regulated “generators on wheels.”

Lang-Ree points to Elon Musk’s xAI facility as an example where unpermitted gas generators have been deployed—a scenario states should prevent from the outset.

Federal rollback increases state responsibility

With the current federal administration rolling back key Environmental Protection Agency (EPA) rules and conducting significant layoffs that have reversed critical Clean Air Act findings, Lang-Ree acknowledges that states cannot rely on federal protection from the health impacts of backup generator emissions.

“I think we can say with confidence that the federal government has not shown that they’re willing to protect residents from the super dirty emissions and health impacts from backup generators,” she states.

However, states can still protect communities if they implement the permitting and runtime limit enforcement mechanisms described above.

One potential complication involves the federal government’s authority to grant emergency waivers to runtime limits through 202(c) orders—a mechanism previously used for both large coal and oil plants and to allow data centres to run backup generators without restriction.

Lang-Ree suggests states can counter this risk by demonstrating they are handling the issue at the state level, providing evidence of comprehensive plans that eliminate the need for federal emergency intervention.

She points to a recent D.C. Circuit Court ruling that overturned a 202(c) order for the Campbell generating unit, finding that such orders cannot be implemented based on hypothetical future emergencies without specific evidence, including evidence from states about real near-term emergencies.

“I think if states have these plans in place and they can demonstrate to the courts and to the federal government that they’re handling it, that would go a long way,” Lang-Ree explains. “This recent D.C. Circuit ruling really underlined that.”

The path forward

If all three policy components align, Lang-Ree envisions significant benefits for states from data centre growth: historic investment in clean energy, no increase in pollution, and reliable electricity service for all customers—not just large loads.

“There are a lot of wins that states could get out of those three policies, but I think they all need to come together,” she emphasises.

With FERC’s decision imminent and PJM prepared to launch its backstop auction immediately upon approval, the coming months will reveal which states successfully implement comprehensive frameworks and which fall short, potentially exposing their residents to cost shifts and environmental harm.

As Lang-Ree notes, “There’s going to be a lot more media moments that we see out of the next few months.”