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Well as you do.

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Ryan Knudsen (4:04)

For companies in the power industry, this huge new demand for power is a big change. For years, electricity consumption in the US was actually staying pretty flat across much.

Energy Industry Expert (4:16)

Of the country for like about 20 years. There really wasn't a lot of increase in power demand.

Ryan Knudsen (4:24)

That's surprising because I feel like over time there would be more and more energy consumption.

Energy Industry Expert (4:28)

Yeah, you would think that, but a lot of things got more efficient, so you would have more efficient buildings or, you know, LED lights and things like that. And so it kind of tamped down demand for electricity.

Ryan Knudsen (4:44)

Way to go, us.

Energy Industry Expert (4:46)

Yeah, but now we are suddenly in a period where we have AI and all of the tech companies need to continue to build and develop their AI models and we are all using AI and we think of all of this stuff as kind of being off in the cloud somewhere, but it's really in a data center.

Ryan Knudsen (5:10)

Many of the new AI data centers, which are being built by companies like Google and Microsoft, are cropping up in one area within PJM's territory known as Data Center Alley.

Energy Industry Expert (5:21)

So Data Center Alley is in Northern Virginia, and it is kind of just a big concentration of data centers.

Ryan Knudsen (5:29)

Data centers, these hulking concrete boxes filled with servers, guzzle electricity. And in the past few years, dozens of them have been built there. Thanks to all these data centers, PJM expects power demand to grow about 4.8% a year on average for the next Dec.

Energy Industry Expert (5:48)

In other industries, 4.8% might not sound like that much, but it's a really big system. And so if you're adding, you know, growth like that onto a really large system, it's just a lot more customers, it's a lot more infrastructure that needs to be built to be able to serve them. I mean, some people compare this to the advent of air conditioning or a lot of home appliances. You know, people working in the industry now have not seen anything like this.

Ryan Knudsen (6:24)

Up until recently. PJM had almost the opposite problem. There was too much power generation.

Energy Industry Expert (6:30)

Well, that made Power prices pretty cheap. And so a lot of plants shut down because they couldn't afford to keep operating. So you had some plants closing down simply because of market reasons. And you also had states that have environmental targets and things like that where they wanted to maybe close some of their aging coal plants early, some of their older gas plants early. And so you kind of had that dynamic going on in like the years leading up to now. They had a lot of power in pjm. They had too much power. They had so much power that you couldn't afford to operate some of these.

Ryan Knudsen (7:11)

Power plants, which means the supply of reliable power has actually been decreasing. And everyone knows what happens when you have increasing demand and shrinking supply.

Energy Industry Expert (7:21)

We are talking about your money, specifically rising electricity costs. So right now it's making people really furious in the PJM system. Not the year end news you probably want to hear, but your energy costs are going to go up again.

Ryan Knudsen (7:37)

Power grid operator PJM is under fire. Fire over significant electricity rate hikes across its 13 states.

Energy Industry Expert (7:46)

In a state like New Jersey, I believe in June they saw bills increase about 20%.

Ryan Knudsen (7:53)

Wow. I'm sure people in New Jersey love that.

Energy Industry Expert (7:56)

Yeah, it's been real popular there.

Ryan Knudsen (7:59)

It's not just higher bills that are the problem. Demand is going up so fast that an independent market monitor for PJM warned that it could have to manage blackouts during periods of peak demand if they don't find a solution. So what's PJM going to do about all this? That's after the break. There's an obvious solution to bring down people's electricity bills, increase the supply of electricity, build more power plants. But it's actually not that simple.

Energy Industry Expert (8:46)

One issue is that you can build a data center a heck of a lot faster than you can build a power plant or a new substation or big transformers and get the power grid out to them. Everything's just become so much more expensive, from materials to labor. You can't get a turbine for the next four or five years.

Ryan Knudsen (9:07)

Another reason it's complicated is because data center companies tend to shop around different places looking for things like the best tax incentives, which means it's hard for utility companies to predict exactly where data centers will get built. And if they build a power plant and a data center doesn't show up, then they'll have too much power, which is also a problem.

Energy Industry Expert (9:27)

You don't want to under build and not be able to serve customers. And you don't want to overbuild and then be charging people for, you know, infrastructure that Maybe wasn't needed. There's, I guess, kind of layers of complication that go into where do you actually put the power plant? Are you sure enough of this market for the next, you know, however many years to have confidence to put a few billion dollars into, you know, building a power plant of some kind. So it's very difficult on the ground, essentially.

Ryan Knudsen (10:06)

While the power and tech industries are trying to sort this out, politicians are losing patience.

Energy Industry Expert (10:11)

Governors have been really unhappy about these price increases and that, you know, this has become such an issue that in Pennsylvania, Governor Shapiro has filed complaints with federal regulators about the PJM market. Among the things that he was asking for was a price cap, which he did get. But you're seeing a lot of just unhappiness from the group of governors as a whole where they want to have more involvement and kind of oversight on how prices are determined.

Ryan Knudsen (10:49)

While a price cap like the one in Pennsylvania can bring relief to consumers in the short term, it can also reduce the incentive for companies to build new power plants.

Energy Industry Expert (10:57)

The price rising is supposed to be a market signal to the owners of power plants to go build more of them. You know, there are a lot of companies that own power plants that would say, you know, we need to see that market signal to have confidence to build.

Ryan Knudsen (11:15)

Yeah, it might put a lid on prices now, but it doesn't solve the problem in the long run.

Energy Industry Expert (11:19)

Exactly.

Ryan Knudsen (11:21)

Last Friday, the Trump administration also got involved.

Energy Industry Expert (11:25)

So what happened last week is that you had a big bipartisan meeting of the Trump administration and 13 governors trying to hash out what they would like to see happen in PJM and some things that would maybe be able to address those rising prices. A bipartisan group of governors from Pennsylvania, Ohio and Virginia will reportedly meet at the White House today to sign a statement of principles aimed at bringing more power into the 13 state markets that are overseen by grid operator PJM Interconnection.

Ryan Knudsen (12:01)

One of the big directives out of the meeting is that PJM should give 15 year contracts to power plant developers promising to buy power at a guaranteed price and that AI data center companies, not consumers, will be required to foot the bill.

Energy Industry Expert (12:15)

Basically they're saying, you guys are the new big user that is coming into the system that is sort of creating or revealing this problem of, you know, we don't have, have enough power in PJM and so you should bear the cost of like the new generation that is going to need to get built.

Ryan Knudsen (12:40)

After the meeting, PJM put out its own set of proposals which in addition to the 15 year contracts for New power plants included a few other solutions that will also put more onus on the tech companies. One of those is that they byob, or in this case, actually byop, they have to bring their own power.

Energy Industry Expert (12:58)

Data centers can bring their own power generation that would either be maybe on site or nearby. Bring your own power. You're hearing it across the country. You're seeing it in a lot of places in Texas and Tennessee and Ohio and all sorts of places. You are seeing large data center projects that are bringing on site power with them. And they are planning to either, in a few cases, island themselves and just provide their own power forever, or just use it as a bridge until, you know, all of the grid infrastructure can catch up and then they will connect at some point.

Ryan Knudsen (13:38)

Another solution PJM is proposing is to pressure data centers to go offline during periods of peak demand.

Energy Industry Expert (13:45)

The grid operator will tell you from time to time, you know, we need you to go offline. We need you to go to your backup power.

Ryan Knudsen (13:57)

How did the tech companies respond to this new plan from PJM and the Trump administration?

Energy Industry Expert (14:02)

So I know the Data Center Coalition, which is a trade group that represents a lot of the big tech companies and data center companies, has said that they don't accept the argument that they are causing this problem. They say that the grid and the system has just been underinvested and they're happy to participate in figuring out the solution to all of this, but that there are other issues. So it's not, you know, they're saying it's not a problem of their creation.

Ryan Knudsen (14:36)

The president of Microsoft, Brad Smith, posted on X that the meeting with the Trump administration was, quote, a strong starting point and that, quote, we look forward to engaging with stakeholders as this important work moves forward. We talked earlier about how if PJM can't get this solved, it might need to eventually resort to blackout. So how likely is that right now?

Energy Industry Expert (15:01)

That's one of the things that's really hard to predict because, you know, a lot of factors would go into that and you would have to have kind of an extreme weather situation. You have these certain hours of the year, usually if it's extremely hot or extremely cold, where things become stressed. And so the risk is really in a small number of hours of year. But it's just that we see that risk rising and this has been flagged by federal oversight officials and things like that, just that risks are rising across the electricity system. So I don't want to paint this picture of that. We're just careening into this era of rolling blackouts because I don't think that will be the case.

Ryan Knudsen (15:49)

Do you think PJM has all this figured out or do we still have a ways to go before this problem is actually solved?

Energy Industry Expert (15:55)

This is such a good question. This continues to be a huge fight in PJM in the near term and I also think this is still kind of early innings for how this plays out in other places across the country because we are really kind of just on the cusp of seeing all of this new demand and we don't know quite exactly what it looks like, exactly where these data centers will locate, exactly how they're going to be using power. And so I think a lot of this is to be determined.

Ryan Knudsen (16:47)

That's all for today. Wednesday, January 21st. The Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode by Kathryn Blunt, Amrith Ramkumar and Scott Patterson. Thanks for listening. See you tomorrow.