HARRISBURG, Pennsylvania (Reuters) -America's largest power grid is under strain as data centers and AI chatbots consume power faster than new plants can be built.

Electricity bills are projected to surge by more than 20% this summer in some parts of PJM Interconnection's territory, which covers 13 states - from Illinois to Tennessee, Virginia to New Jersey - serving 67 million customers in a region with the most data centers in the world.

The governor of Pennsylvania is threatening to abandon the grid, the CEO has announced his departure and the chair of PJM's board of managers and another board member were voted out.

The upheaval at PJM started a year ago with a more than 800% jump in prices at its annual capacity auction. Rising prices out of the auction trickle down to everyday people's power bills.

Now PJM is barreling towards its next capacity auction on Wednesday, when prices may rise even further.

The auction aims to avoid blackouts by establishing a rate at which generators agree to pump out electricity during the most extreme periods of stress on the grid, usually the hottest and coldest days of the year.

High prices out of the auction should spur new power plant construction, but that hasn’t happened quickly enough in PJM's region as aging power plants continue to retire and data center demand explodes.

PJM has made the situation worse by delaying auctions and pausing the application process for new plants, according to more than a dozen power developers, regulators, energy attorneys and other experts interviewed by Reuters.

“We need speed from PJM, we need transparency from PJM and we need to keep consumer costs down with PJM,” Pennsylvania Governor Josh Shapiro told Reuters in an interview. “I think they've taken some steps in that direction which is really encouraging to me and we're going to continue to work at it.”

PJM says the supply and demand crunch has been caused largely by factors outside of its control, including state energy policies that closed fossil-fuel fired power plants prematurely and data center growth in “Data Center Alley” in Northern Virginia and other burgeoning hubs in the Mid-Atlantic.

“Prices will remain high as long as demand growth is outstripping supply – this is a basic economic policy,” said PJM spokesman Jeffrey Shields. “Right now, we need every megawatt we can get.”

New projects totaling about 46 gigawatts – enough capacity to power 40 million homes – have been cleared in recent years, “but are not getting built because of local opposition, supply chain backups or financing issues that have nothing to do with PJM,” Shields said.

PJM has lost more than 5.6 net gigawatts in the last decade as power plants shut faster than new ones enter service, according to a PJM presentation filed with regulators this year. PJM added about 5 gigawatts of power-generating capacity in 2024, fewer than smaller grids in California and Texas.

Meanwhile, data center demand is surging. By 2030, PJM expects 32 gigawatts of increased demand on its system, with all but two of those gigawatts coming from data centers.

POWER HUNGRY CHATBOTS

Over the past few years, a confluence of events have resulted in skyrocketing power capacity rates at PJM.

Among those, auctions were repeatedly delayed as regulators mulled multiple rule changes at PJM, giving developers less time to plan for power plant construction.

In 2022, PJM stopped processing new applications for power plant connections after it was overloaded with more than 2,000 requests from renewable power projects, each of which required engineering studies before they could connect to the grid. PJM says its interconnection queue has not led to the supply shortfall.

Then, in 2023, ChatGPT became a household name and demand exploded. Tech giants started scouring the U.S. power grid for capacity, contributing to the spike in auction prices in 2024.

Consumer advocates from Maryland, New Jersey and other states filed complaints with federal regulators, asking for a re-do of the auction.

Shapiro has made repeated threats to remove Pennsylvania, the biggest electricity exporting state and the "P" in PJM, from the grid if it didn't bring costs down. Asked in June if leaving PJM is still on the table, the governor told Reuters: "It is."

During the fallout, PJM's CEO Manu Asthana announced in April that he would leave his post at the end of the year, citing a family move to Texas.

Asthana did not respond to requests for comment.

Citing fears of blackouts, the Trump administration in May ordered two oil and natural gas power plants in Pennsylvania, both scheduled to retire in May, to continue operating through the summer.

CONNECTION DELAYS

In response to the backlash, PJM has made multiple reforms, including capping prices at $325 per megawatt-day and holding auctions every six months instead of annually, Shields said.

PJM also moved to fast-track connections of 51 power projects to its system, but many of those are still expected to take until 2030 or 2031 to come online.

Among them is Constellation Energy's Three Mile Islandnuclear plant, rechristened Crane Clean Energy Center, which is being restarted under contract from Microsoft. Even under PJM's expedited plan, the plant isn't expected to start up until at least 2027.

Despite the reforms, PJM isn't processing new applications fast enough, said Joshua Macey, an energy expert and associate professor at Yale Law School. "It's pointless if they haven't fixed the interconnection queue," he said.

(Reporting by Laila Kearney. Editing by Liz Hampton and Michael Learmonth)