When utilities from Pennsylvania, New Jersey and Maryland established what is today the largest US grid, they aimed to provide power at the lowest possible price. But nearly 70 years later, the cost of securing power has surged to record highs, prompting Pennsylvania Governor Josh Shapiro to threaten to leave the now-13-state network.
A key issue is the proliferation of energy-hungry data centers in the region, which are driving up demand and raising utility bills for ordinary consumers. Shapiro and other politicians also complain that grid operator PJM Interconnection LLC has been too slow to integrate inexpensive renewable energy sources onto the grid, contributing to a supply crunch even as demand skyrockets.
That’s turned PJM into a test case for artificial intelligence’s voracious energy needs, as well as a political battleground. In New Jersey, lawmakers ordered the state utility commission to evaluate whether it should leave PJM, while Maryland lawmakers are similarly considering their options.
“Governor Shapiro has been clear that all 13 states need to be given meaningful input in key decision-making at PJM,” said his spokesperson Rosie Lapowsky. “PJM’s governance structure continues to favor special interests over the people – putting the region out of step with how other grid operators across the country operate – and raising concern about their ability to ensure reliable and affordable utility for our region.”
Breaking from a grid that serves one-fifth of Americans, though, would be costly and difficult.
While Pennsylvania and others depend on the grid for almost all of their electricity, states aren’t actually members of PJM. Reducing their reliance on the grid, then, would involve compelling utilities to leave PJM, or securing electricity from alternative sources.
Costly Divorce
Theoretically, states could enact legislation ordering utilities to exit PJM and then join or form a new grid network. “We have been exploring legislation along these lines,” said Maryland lawmaker Lorig Charkoudian.
But leaving PJM would require federal regulatory approval and oversight, and the departing utilities would have to repay the grid operator for the power they had committed to purchasing in coming years, as well as cover their share of transmission and other maintenance costs.
Membership in a regional grid is voluntary, and utilities have threatened to leave PJM before. Yet only one utility has ever followed through. In 2008, Duquesne Light won approval to withdraw from PJM and join a neighboring grid, but the utility ultimately halted the process because it would have added $100 million a year in costs through 2011, Reuters reported at the time.
Not Enough Supply
A simpler way for states to cut their ties to PJM would be to buy power supplies directly from generators. New Jersey, for instance, is looking to contract out more than 80% of its supply, said Assemblyman Robert Karabinchak. New legislation also authorizes the Board of Public Utilities to negotiate bilateral agreements with other states for the first time, he said.
But a key reason that PJM’s costs have surged is that there simply isn’t enough supply to meet growing demand. Conditions on the grid are expected to grow increasingly tighter, with peak demand jumping by 32 gigawatts from last 2024 to 2030, according to the grid operator.
In many cases, utilities would have to build new power plants. In Pennsylvania, that’s not so easy. The state doesn’t allow utilities to pass the costs of building new generation onto ratepayers, so they don’t have a financial incentive to construct more plants. And although lawmakers have introduced legislation to change that, commissioning and building would take years.
Partial Split
Another option: States could compel utilities to withdraw from PJM’s capacity market, only. The capacity market consists of annual auctions that determine how much money utilities — and ultimately homes and businesses — will pay power plants to be ready to supply electricity. They’re meant to ensure PJM has enough future capacity for rising demand.
They’re also the source of much of the criticism about spiking costs. In 2024 and 2025, the price of power from the auctions reached record levels, totaling $30.8 billion over both years. More than half of that amount came from data-center demand, according to a report by Monitoring Analytics, the independent watchdog for PJM.
For Pennsylvania, New Jersey and other states, the 2024 auction was a tipping point because of its “unbelievable negative impact” on ratepayers, said Karabinchak.
“We understand states’ concerns about tightening electricity supply and rising demand,” PJM spokesman Jeff Shields said in an emailed statement. But he added that the grid operator has “saved consumers billions of dollars” for Pennsylvania and other states by incentivizing the construction of new power plants.
If utilities pulled out of the capacity auctions, they could procure supplies through bilateral contracts. Dominion Energy Inc. Did this in 2021. Concerned that PJM’s capacity market rules didn’t align with its own investment priorities, Dominion decided to opt out of the market for five years, but ending up returning early so it could cash in on strong demand growth from data centers.
Pennsylvania has big data center ambitions of its own, and forcing utilities to withdraw from the capacity auction could make it difficult for them to meet demand from that sector.
Formal role
Despite Shapiro’s threats, leaving PJM would be a nuclear option that most states aren’t prepared to take.
“I’m not looking to leave them; I want them to change,” said New Jersey’s Karabinchak. “It is better to work together than to work independently.”
One way to do that is to give states a formal voice under section 205 of the Federal Power Act, which would allow them to initiate proceedings with regulators and weigh in on how PJM operates. That would require PJM or one of its members to ask the Federal Energy Regulatory Commission to grant states that right.
Ultimately, the entities with the most power to change PJM are its members, including utilities, which vote on the grid operator’s policies and procedures. Those votes, though, are confidential, leaving states in the dark about whether the utilities are acting in their best interests or not. So some states have asked for those votes to be made public.
“States are frustrated – they feel that there’s nothing they can do to protect their households and ratepayers from these rising costs,” said Jessi Eidbo, senior advisor at Sierra Club. “The status quo was not tenable.”
