Editor’s Note: The following analysis is intended as a high-level overview. The issue is complex and highly nuanced. Additional pieces will follow as the debate unfolds, including conversations with expert guests on Talkline.
Listen to “White House Calls Out PJM on Data Center Costs” on Spreaker.
The prospect of data centers locating in the Mountain State has fueled intense debate over the past few years. Some welcome the idea, viewing these facilities as much-needed tax generators for West Virginia’s economy. Others strongly oppose them, seeing data centers as industrial intrusions that threaten water supplies, generate noise and light pollution, and scar scenic landscapes.
Another question now dominates the debate: will data centers drive up electricity prices in West Virginia? That concern looms especially large in a state with one of the lowest per-capita incomes in the nation, where many households already struggle to pay their electric bills.
The politics of affordability, it seems, has overtaken nearly every other concern.
To understand how we arrived here, it helps to flash back a few years. A company called Talen Energy proposed a deal within PJM – the region’s electric grid operator – that raised alarms across the industry. The arrangement involved powering a large Amazon data center in Pennsylvania using generation from an adjacent power plant, in a way that critics argued could shift costs onto other customers.
American Electric Power and Exelon filed a complaint with the Federal Energy Regulatory Commission (FERC), seeking to block the deal and ensure those costs were not socialized across the broader customer base, while Talen paid little or nothing but still enjoyed the benefit of connecting to the grid. That dispute marked the genesis of an issue now familiar to many who follow energy markets: whether data-center development in the United States should be subsidized, directly or indirectly, by everyday ratepayers.
Fast forward to Friday. The Trump Administration – along with several governors from the mid-Atlantic PJM region, including West Virginia Governor Patrick Morrisey – released a proposal aimed at addressing the risk of escalating energy costs tied to data-center growth. At its core, the plan seeks to reaffirm a foundational principle of electric ratemaking: costs should follow cost causers.
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Specifically, the White House is urging PJM to conduct a one-time “emergency” capacity auction that would require data centers to directly pay for new power plants, rather than potentially shifting those costs onto other customers. While analysts correctly note the proposal has no binding authority and would require FERC approval, the signal is unmistakable. This is about restoring discipline to cost allocation – not an overnight market overhaul.
Here’s why the concept makes sense, and why FERC should seriously consider directing PJM to move forward.
Capacity prices have surged in recent auctions as projected data-center demand has ballooned, all while the auction has failed to produce a level of capacity needed to meet reliability targets. West Virginia utilities, however, are largely insulated from these increases. Many own their own generation capacity – meaning they don’t need to rely on PJM auctions and do not – or they hold excess capacity that can actually return value to ratepayers when capacity prices rise. This move has kept your bill much lower than it would have been if the state’s utilities participated in the auction or did so without mitigation. Read some of my past commentaries if you want to understand how capacity works.
Now… plainly stated, West Virginia is, first and foremost, an energy state. Recall my proposed bumper sticker: West Virginia — We Make Megawatts. A standalone capacity auction tied specifically to data-center demand, structured as a long-term, take-or-pay commitment – 15 years as proposed – would give power producers the certainty they need to invest in new generation.
And where better to build those plants than West Virginia? We have the natural gas. We have the coal. We have a desire to expand into the nuclear realm. And we have communities that understand energy development.
Candidly, FERC holds the keys. Principles documents and political statements don’t move wholesale energy markets – regulatory orders do. But the underlying idea here is sound. It reinforces cost causation: if you create the demand, you should pay for the infrastructure required to meet it.
West Virginia can cash in on that demand. It opens the door to new power-plant construction in West Virginia without burdening in-state ratepayers. In fact, it could benefit them. Higher demand for our natural resources means new investment, increased severance tax revenue, more jobs, and stronger local tax bases. Power plants don’t just generate electricity, they generate opportunity.
Governor Morrisey was right to add his name alongside those of other regional governors. West Virginia lawmakers, policy makers and ratepayers should support it too. Onward and upward.
PJM released its own plan on Friday to address the issue. The regional grid operator said it was not consulted or advised ahead of the White House’s release.
The Edison Electric Institute, a trade group representing the country’s largest electric utilities, issued a statement Friday in support of the Trump administration’s plan.
Editor’s Note: Meadows is a former federal policy director for American Electric Power. His opinions regarding the wholesale electricity market, regulatory bodies and fuel generation mix are entirely his own and do not reflect the thinking of any organization including MetroNews and WVRC Media.