Don’t Blame Data Centers for PJM’s Failures

Maryland electricity prices are quickly climbing. Average residential electricity rates climbed from 14.46 cents per kilowatt-hour in 2022 to 18.30 cents in February 2025, then to 20.08 cents a year later. As they watch their power bills rise, some Marylanders have come to blame data centers located in their state. Indeed, much of the media portrays these facilities as power-hungry culprits behind higher energy costs. Meanwhile, Maryland lawmakers considering legislation that would prohibit new data-center construction statewide indict data centers as the cause of higher utility bills.

The problem of rising electricity rates is multifaceted. But one of its primary causes, often overlooked, is not new data centers but the poor management practices of PJM, the nonprofit regional transmission organization that manages the electric grid and wholesale power markets for roughly 65 million Americans across all or parts of 13 states—including Maryland and the District of Columbia. PJM is responsible for planning new construction and upgrades of transmission infrastructure and deciding which power plants and other facilities will connect to the grid, and its supply-side restrictions on power plant construction is a big part of the problem of rising prices. Policymakers must hold PJM accountable and allow more supply to meet rising demand.

PJM Interconnection oversees a wholesale electricity market that operates within a heavily government-structured framework, relying on centralized auctions to set prices. Independent power producers (IPPs) submit bids into these markets, and when electricity supplies become constrained, clearing prices increase. In theory, those higher prices are intended to encourage new investment and additional generation. In practice, however, the market is prevented from functioning like a truly competitive marketplace because many PJM states maintain policies that prohibit utilities from directly competing with IPPs.

As part of electricity restructuring efforts decades ago, utilities in these states were required to divest their generation assets and focus primarily on transmission and distribution. Today, they purchase electricity through wholesale markets and pass those costs on to customers, even as prices rise. Unlike in a genuinely competitive market, utilities are generally barred from developing or offering their own generation resources to compete with incumbent suppliers. The result is a system in which merchant generators can profit from tight supply conditions while facing limited competitive pressure to lower costs, innovate, or expand capacity. Despite often being described as “deregulated,” this arrangement is neither a free market nor one characterized by robust competition.

PJM’s supply-side constraints are part of a larger pattern of poor decision-making and little market accountability. In its latest misstep, the grid operator has determined that Maryland ratepayers should absorb a part of transmission projects’ costs planned largely to accommodate the energy demands of data centers beyond Maryland’s borders. In a complaint filed at the Federal Energy Regulatory Commission (FERC), challenging PJM’s allocation of roughly $2 billion to Maryland, the state’s Office of People’s Counsel (OPC) argues that the Maryland ratepayers “have neither caused the need for these billions in new transmission projects nor will they meaningfully benefit from them.” These costs could result in a $1.6 billion increase in electricity charges over the next decade, of which $823 million would be borne by residential customers.

PJM, operating inside a FERC-regulated electricity market, follows its own cost-assignment rules––rules that are untethered from basic free-market principles. A regulator-invented formula that (mis)allocates infrastructure costs by socializing them is one example of the dysfunctions that ensue when a highly regulated grid operator orchestrates the electricity industry.

Many assume that electricity prices will rise wherever data centers expand, but the evidence for that causal relationship is lacking. Higher prices do not necessarily follow the growth of data-center electricity demand. Besides, guided by competitive market forces, data centers freely innovate, developing and deploying advanced technology to reduce their electricity and water consumption and alleviate their strain on the grid. From software that lets AI facilities decrease power use when the grid is stressed to cooling systems that reuse water instead of constantly drawing more to more efficient chips that use less energy for each task, examples are everywhere. Where the market is allowed to discipline its participants, cost increases are more likely to be constrained and efficiency to be enhanced.

Moreover, even as PJM projects rapid data-center load growth, it simultaneously struggles to promptly connect new data centers to the grid and to facilitate the power generation needed to serve them. PJM’s queue of generation projects awaiting approval had become so long that, in 2022, it effectively stopped reviewing new applications. Indeed, projects that became operational in 2025 had spent an average of about eight years getting connected to the grid.

In competitive markets, instead of inaccurate model-based demand forecasts, power generators would add more supply when prices signal that more supply is needed. The costs of grid upgrades would be borne by those who require them, and electricity consumers and producers would not have to wait years for permission to buy or sell power. PJM’s own watchdog has found that the grid operator’s practices produced results that were “not competitive,” and the very role of PJM in the electricity industry suggests that conclusion. As do all planners of complex systems—such as transmission grids and energy markets––PJM suffers from a familiar knowledge problem and corresponding inefficiencies, which market forces can help to correct.