Data center-driven electricity transmission buildout in PJM region puts West Virginia ratepayers on the hook
Key Takeaways:
Over the last two to three years, utilities have been increasing their load forecasts, in large part due to new demands from proposed data centers.
One of the new challenges posed by the rapid growth in data centers is the question of whether other ratepayers will pay for infrastructure needed only for data centers.
An IEEFA analysis has found West Virginia electricity customers will pay more than $440 million for two proposed transmission lines to support data centers.
The analysis points to the need to reform PJM’s transmission cost allocation methodology in light of the growing demands from data centers.
As utilities face forecasts of rapid electricity demand growth from data centers, utilities and regulators are scrambling to address the demand, potentially creating new costs for other ratepayers in the process. The latest report from the Institute for Energy Economics and Financial Analysis (IEEFA) examines two proposed transmission lines for northern Virginia data centers that could cost West Virginia ratepayers $440 million.
The findings show the Mid-Atlantic Reliability Link and Valley Link transmission lines, both of which would cut through parts of West Virginia, were proposed in response to forecasts of rapidly growing electricity demand in northern Virginia, largely driven by data centers. IEEFA believes grid operator PJM’s Regional Transmission Expansion Plan (RTEP) process should be reformed so that ratepayers across the PJM footprint are not bearing costs associated with transmission infrastructure that is driven by data centers and by state policy decisions to attract more data centers.
“These projects are but two examples of how ratepayers are subsidizing electrical infrastructure projects that likely would not be needed without the addition of massive data center loads,” said Cathy Kunkel, IEEFA energy consultant and author of the report. “Under PJM’s existing transmission cost allocation methodology, West Virginia ratepayers, and others across PJM, will bear additional costs in the future for further transmission needs associated with data centers, if forecasts of data center-driven load growth in northern Virginia over the next 20 years materialize.”
Previous IEEFA reports have emphasized the possibility that demand forecasts for data centers may turn out to be overstated, due to potential utility overestimation of data center demand and due to financial weaknesses in the artificial intelligence (AI) business model. The forecasts of rapidly growing data center loads, as well as the risk of stranded infrastructure costs if such loads do not fully materialize, call into question traditional methods of utility cost allocation.
In particular, PJM’s transmission cost allocation methods implicitly assume that regional transmission costs could not be attributed to a single new user or class of users, an assumption that does not appear to hold true in the most recent RTEP processes. PJM’s transmission cost allocation methodology also does not account for the fact that Virginia has made policy decisions to encourage a massive buildout of data centers, a decision that imposes costs outside of its state borders. Unless PJM changes course, ratepayers across the region will continue subsidizing the tech industry’s electrical infrastructure demands.
