- New Jersey and Virginia governors promised to drive down electricity costs. How will they deliver?
- Microsoft pledges to pay its own way, not boosting utility bills as it builds more data centers.
- The Trump Administration’s Energy Dominance Council teams up with eight Democratic and five Republican governors to call on PJM for an emergency power auction.
- In a bold signal to markets, Meta makes a deal with three companies to provide 6.6 GW of nuclear power to run data centers.
- In the wake of a frightening report on reliability, a New York coalition asks for a hearing to determine whether to revise climate mandates that are paring energy supply.
- It sounds wonky, but “Construction Work in Progress” accounting rules are twisting incentives for utilities and causing customers to pay more.
Will Democratic governors produce on promises to drive down electricity costs?
Democratic governors taking office this month in New Jersey and Virginia both ran on a platform of electricity reliability and affordability. The states face utility bills rising even faster than the national rate of 6.7%. According to the Energy Information Administration, the average price of electricity for residential customers increased 15.3% over the year ending Oct. 31, 2025, in New Jersey and 10.6% in Virginia.
“I am laser focused on driving down your costs, making New Jersey more affordable. I’m going to start by declaring a state of emergency on energy costs,” Gov. Mikie Sherrill of New Jersey, a former U.S. Representative, said during her campaign.
She focused blame on PJM Interconnection, the grid operator for New Jersey and 12 other states plus the District of Columbia. In a video, she said that “268 gigawatts of power is just waiting to be added to the grid…and PJM has taken far too long to add it, taking up to six years to permit and add these new projects to our grid.”
Sherrill issued two executive orders regarding electricity on Jan. 20, her first day in office.
Executive Order No. 1 “uses state authority to offset upcoming rate increases due to the regional grid operator PJM’s mismanagement and hold utilities accountable for keeping rates from continuing to climb at an unsustainable rate.”
Executive Order No. 2 “declares a State of Emergency under the Disaster Control Act and creates and expands multiple, expedited state programs to develop massive amounts of new power generation in New Jersey, because more power means lower costs…. It also tackles permitting challenges at the state level and interconnection delays at the utility level.”
The order “initiates and accelerates programs to bring on thousands of megawatts of new solar and battery storage generation” as well as establishing “a Nuclear Power Task Force to position the state to lead on building new nuclear power generation.”
On Jan. 17, her own Day One, the new governor of Virginia, Abigail Spanberger, another former House Democrat, also issued an executive order (Number 1) involving electricity – but not nearly so targeted. She directed the executive branch to “submit reports within 90 days …identifying immediate, actionable budgetary, regulatory, or policy changes that would reduce costs for Virginians.” She cited “energy” as an area of potential cost savings.
A few weeks before her swearing-in, the Governor-Elect told legislators that she advocated “bolstering battery storage capacity,…reducing power use and the need for expensive transmission lines.”
Virginia is the top state in the world for data centers, which are the main category driving national demand for electricity. The state has 663 centers with another 595 planned. During her campaign, Spanberger emphasized that data centers must “pay their own way and fair share.” She said she will be working with the Virginia State Corporation Commission to modernize rate allocation processes.
A study of Virginia’s data center boom in December 2024 by the consulting firm Energy + Environmental Economics (E3) found that “the sustained scale and pace of data center growth in the region will likely be constrained by new energy infrastructure development.” The chart below shows the tremendous growth of data centers (DCs) projected over through 2050.
E3 recommended ways to “limit the risks of potential cost increases associated with this growth for existing customers.” Among the options the study outlined were higher tariffs and additional surcharges for large-load customers and stringent exit fees to reduce the risk of stranded assets.
The study also found that if data center growth remains high and unconstrained, meeting the goals of the Virginia Clean Economy Act (VCEA) “would require unprecedented levels of investment to accelerate the deployment of both existing and emerging clean energy technologies.” The VCEA orders the state’s investor-owned utilities, Dominion Energy and Appalachian Power, to achieve 100% clean electricity by 2045 and 2050, respectively.
Said the study: “Virginia and the broader region would need to rapidly expand the build-out of existing clean energy resources like solar and offshore wind, with sustained in-state solar additions much greater than historical highs.” In parallel, the state would have to add roughly 10 gigawatts (GW) of new nuclear capacity, 31 GW of clean hydrogen-capable gas generation, major hydrogen infrastructure, and about 8.7 GW of new transmission – plus “an increase in the state’s reliance on purchases from the PJM wholesale electricity market.”
And, of course, clean hydrogen has not yet proven to be commercially viable. Spanberger, who campaigned as a centrist, could use the E3 findings to argue for a “VCEA 2.0” that adds flexibility, cost controls, and stronger reliability safeguards as policymakers grapple with rapidly expanding demand and the requirements of existing climate statutes.
In her first address to Virginia’s General Assembly after taking office, Spanberger said she would rejoin the Regional Greenhouse Gas Initiative (RGGI). The 10 Eastern states that comprise the RGGI have adopted a cap-and-trade program that places a limit on emissions and allows businesses to buy and sell permits to let them exceed the limit. The cost of the permits is typically passed on from power plants to consumers, who foot the bill for policies aimed at mitigating climate change.
Spanberger’s predecessor, Gov. Glenn Youngkin, withdrew from the RGGI in 2023, and legal battles ensued. An article on Jan. 22 in the Virginia Mercury pointed out that “the process to rejoin is not as easy as just saying the state wants in.” New legislation or an amendment to the budget bill is required. Reported the Mercury:
Those opposed to the state rejoining the agreement point towards the cost to consumers – which some believe goes against the affordability messaging that Democrats campaigned on, since it would tack on an additional charge on utility bills.
Sherrill has not taken a position on the RGGI yet. Her predecessor, Gov. Phil Murphy, also a Democrat, rejoined the pact after his predecessor, Gov. Chris Christie, a Republican, left office.
Gov. Josh Shapiro of Pennsylvania, another centrist Democrat, agreed to withdraw from the RGGI last year as part of a general budget agreement. Supporters of the decision hailed it as unleashing the promise of the state’s natural gas resources, as we reported in our Newsletter No. 55.
A white paper on the effects of RGGI by the economic consulting firm Tabors Caramanis Rudkevic (TCR) last year found that the “PJM wholesale market would provide lower cost energy to consumers and result in lower system-wide carbon dioxide (CO2) emissions were RGGI not implemented in any PJM state.” The research stated:
RGGI negatively affects consumers within the PJM footprint both economically and environmentally. Indeed, continuation of the RGGI program in its current form causes an increase in annual system-wide CO2 emissions of 2.9 million short tons and an increase in annual cost to serve consumer load in every PJM pricing zone totaling $1.8 billion across all zones.
In the past, RGGI did help reduce emissions, but “that impact has now moved from a reduction in CO2 to one of an increase in CO2 along with a significant increase in cost to consumers in PJM.” The study added, “If New Jersey were to leave RGGI, annual system-wide CO2 emissions in PJM would be reduced by 2.7 million short tons, PJM-wide costs of served load would decline by $848 million of which $310 million would be enjoyed by consumers within four major zones serving New Jersey.”
Gov. Sherrill would benefit from taking a close look at the TCR white paper. It found that, with New Jersey in the RGGI, its “efficient low emitting combined cycle units…[would be] displaced in the dispatch order by “older less efficient (but lower marginal cost units) because of RGGI allowance.”
Microsoft Commits to Paying Its Own Way for Data-Center Power
“I never want Americans to pay higher Electricity bills because of Data Centers,” said President Trump in a Truth Social post on Jan. 12. He said his administration was working with technology companies “to ensure that Americans don’t ‘pick up the tab’ for their POWER consumption, in the form of paying higher Utility bills.”
The U.S. is faced with a serious imbalance between the supply of electricity and rapidly rising demand. As we noted above, electric bills increased 6.7% in 2025, compared with 2.7% for overall inflation, according to a Jan. 13 report by the Bureau of Labor Statistics. In his post, President Trump blamed the Biden Administration’s energy policies. In addition, state efforts to mitigate climate change have led to the retirement of reliable generation capacity, and permitting barriers continue to hinder the addition of new supply.
Load growth is now being driven primarily by data centers, and, at both federal and state levels, officials are struggling to find ways to allocate new costs fairly.
Industry giants are aligning with the Trump Administration to meet the challenge, beginning with Microsoft, which on Jan. 13 initiated a new initiative called Community-First AI Infrastructure. “Our goal is straightforward: to ensure that the electricity cost of serving our datacenters is not passed on to residential customers.” Said Microsoft:
Some have suggested that AI will be so beneficial that the public should help pay for the added electricity the country needs for it. We believe in the benefits AI will create, but we disagree with this approach. Especially when tech companies are so profitable, we believe that it’s both unfair and politically unrealistic for our industry to ask the public to shoulder added electricity costs for AI.
As a result, Microsoft says it will “pay our way to ensure our datacenters don’t increase your electricity prices.” That means paying “utility rates that are high enough to cover our electricity costs” as well as collaborating “with utilities on plans to add to the electricity we will need.”
In December, E3 released a study that looked at Amazon data centers in California, Oregon, Virginia and Mississippi and found that operations were not boosting consumer electricity prices: “The costs to serve these data centers are not being subsidized by other utility customers and…existing rate policies are effectively preventing cost-shifts on an individual data center basis.”
Still, the study was not necessarily sanguine about the future:
To continue to prevent-cross subsidization and maintain these equitable outcomes, utility rate design must adapt and evolve given the rapidly increasing pace and scale of this load growth. This is particularly applicable to those utilities or broader regional markets that are seeing large load growth demand at a macro level that is shifting, or will shift, the fundamental supply and demand balance in the short- to medium-term.
The study added that, “by providing commitments, such as via long-term power purchase agreements (PPAs),” large customers like Amazon “help reduce exposure by taking on the first-of-a-kind project risk and providing financial stability with a reliable offtake for the energy generated, helping attract further investment and putting downward pressure on the future costs of these technologies.”
Meanwhile, an extensive October study by the Lawrence Berkeley National Laboratory and the Brattle Group found, remarkably, that “load growth at the state level has tended to depress retail electricity prices in recent years, by spreading fixed costs over greater load.”
For example, in North Dakota and Nebraska, two of the states with the most growth in power load, the price of electricity actually declined between 2019 and 2024.
In a widely discussed New York Times piece in November, Tyler Norris of Duke University’s Nicholas Institute for Energy, Environment and Sustainability argued that the determining factors in utility bills were “how cleverly the existing grid is managed — and whether that new energy demand occurs at times when the grid is already strained.”
In other words, simply meeting increased demand from data centers does not have to mean that bills of existing customers will rise. Still, data center needs are extraordinary, and conclusions drawn from 2019-2024 load increases won’t necessarily hold in the future. Thus, the positive response to Microsoft’s decision.
Trump Administration and Bipartisan Governors Call for an Emergency Auction to Provide New Sources of Power
In another effort to deal with large-load demand demand, the Trump Administration and a bipartisan group of governors asked PJM “to hold a one-time ‘emergency’ auction to provide data centers with new sources of power,” as Utility Dive reported on Jan. 16.
The auction would allow “data center owners [to] bid on 15-year power purchase agreements in what would be a stark departure from how the grid operator normally operates. The auction could support $15 billion in new power plants, according to a U.S. Department of Energy fact sheet on the agreement.”
Under the proposal, the technology companies that own the data centers would have to pay for the new generation whether they use the power or not which, as Capstone analysts noted, lacks binding authority. But it is a strong signal that the administration’s National Energy Dominance Council — chaired by Interior Secretary Doug Burgumn and vice-chaired by Energy Secretary Chris Wright – wants to encourage data center expansion to win the Artificial Intelligence race while at the same time holding down utility bills.
Last month, for the first time in its history, PJM failed to match supply with demand at an auction. The grid operator “said it could not reliably meet the anticipated electricity needs of the customers it serves between June 2027 and May 2028,” CNN reported. The shortfall is 5.2% less electricity than needed.
“This auction leaves no doubt that data centers’ demand for electricity continues to far outstrip new supply, and the solution will require concerted action involving PJM, its stakeholders, state and federal partners, and the data center industry itself,” said Stu Bresler, PJM’s chief operating officer, in a statement following the December auction.
It is unclear whether PJM, a non-governmental entity, will be on board with the administration’s new direction. The grid operator appeared to have been cut out of discussions and, CNN reported, “was given no advance notice of the plan.”
A fact sheet from the Department of Energy pointed out that 60 GW of power generation “has been, and is planned to be, retired from 2011 to 2028,” and nearly three-quarters of that “is from coal-fired steam units.” The proposal involving the tech companies is an effort to get more power up and running after years of what the administration is calling “energy subtraction.”
The Energy Dominance Council and the 13 governors (eight Democrats and five Republicans) agreed to urge PJM to take steps to “make electricity more affordable for residential customers and strengthen grid reliability by building more than $15 billion of reliable baseload power generation.” The plan would provide 15-year revenue certainty for new power plants to accelerate deployment and limit what existing plants are paid in the PJM capacity market (costs that flow through to ratepayers).
The involvement of the Dominance Council could signal a new federal strategy of aligning governors and large-load private-sector companies to use short-term measures to bridge the gaps while larger reforms –involving regional interconnections, transmission innovation and permitting – are put in place.
In Groundbreaking Deal, Meta and Three Energy Companies Agree to Add Up to 6.6 GW of Nuclear Power by 2035 for Data Centers
Meta, the parent company of Facebook, on Jan. 9 announced agreements with Vistra, Oklo, and TerraPower both to upgrade existing nuclear power plants and to build future advanced reactors as a way of powering data centers. The deal would allow Meta to procure up to 6.6 GW of existing and new energy by 2035.
The arrangement with Vistra, a Texas-based integrated retail electricity and generation company, will support about 2.1 GW of existing capacity and uprates of up to 433 megawatts (MW) at plants in Ohio and Pennsylvania.
In addition, the deal allows Vistra to pursue subsequent license renewals that will enable reactors to operate well past 2050. According to a press release from EPSA, the Electric Power Supply Association, which represents competitive power suppliers, including Vistra:
As recently as a few years ago—before Vistra acquired these facilities—several of the plants were headed toward closure. Today, long-term market commitments position them to remain online, expand output, and continue delivering essential baseload generation to the PJM grid and surrounding communities for decades to come.
In the complex deal, Meta will back Oklo’s development of an entirely new advanced nuclear energy campus in Pike County, Ohio, in the Appalachian region south of Columbus and east of Cincinnati.
The facility is targeted to come online as early as 2030 and provide 1.2 GW of power directly into the PJM grid through the deployment of multiple Aurora Powerhouse small modular reactor (SME) units, which the U.S. Nuclear Regulatory Commission describes as “liquid metal-cooled, metal-fueled fast reactors” with a maximum output of 75 MW. The agreement could entail 16 of these SMEs.
Oklo began the application for Its Aurora Powerhouse 10 years ago. The technology is still being tested at the Idaho National Laboratory.
Meta is providing funding for its third partner, TerraPower, founded by Bill Gates of Microsoft fame, to deploy advanced Natrium reactors as early as 2032. Natrium is a 345 MW sodium fast reactor, which is coupled with the company’s molten salt energy storage system.
Beginning with two units, the deal “also provides Meta with rights for energy from up to six other Natrium units” targeted for delivery by 2035. So the generation capacity from TerraPower is 2.8 GW, with 1.2 GW of built-in storage. TerraPower broke ground on a Natrium reactor demonstration project in Wyoming last June.
The U.S. has 94 nuclear operating commercial reactors – more than any other country — producing a little less than one-fifth of the nation’s electricity needs. But only three new reactors have been built in three decades, and they suffered long delays and major cost overruns. For example, work began on Watts Bar Unit 2 in Tennessee in 1973 and wasn’t completed until 2016. Vogtle Unit 4 in Georgia was seven years late, according to the EIA (see below for more on Vogtle).
The Meta deal and an Amazon agreement that we reported earlier in Washington state are sending a powerful market signal that new plants and new designs can make nuclear power competitive and faster to deploy. By contracting directly with nuclear providers rather than relying on regulated utility procurement, Meta is demonstrating that clean, reliable power can stand on its own in markets like PJM.
This approach also allows utilities to protect ratepayers from paying the additional capital costs of new large loads. Oklo and TerraPower are young companies, and the development timetable is aggressive, but if they succeed, they will revive the moribund nuclear industry and provide power at a critical time.
New York Coalition Calls for Hearing to Determine Whether to Delay Obligations Under the State’s Renewable Energy Program
In Newsletter No. 53, we highlighted the Short-Term Assessment of Reliability (STAR) report from the New York System Operator (NY-ISO). The report warned of deficiencies in power supply in many parts of the state, including New York City. Now, a group of New Yorkers is taking action.
On Jan. 6, an organization called the Coalition for Safe and Reliable Energy filed a petition requesting that that New York’s Public Service Commission “act expeditiously to hold a hearing pursuant to Public Service Law § 66-p to evaluate whether to temporarily suspend or modify the obligations under the Renewable Energy Program established as part of the Climate Leadership and Community Protection Act [CLCPA].”
The coalition consists of such organizations as the Buffalo-Niagara Builders Association, the Business Council of New York State and “other groups representing various businesses, industries, manufacturers and constituencies from across the state, as well as two members of the state’s Climate Action Council,” reported the Pragmatic Environmentalist blog.
The petition stated that “New York will not achieve – or even come close to achieving” the target of 70% statewide electricity generation from renewables by 2030. The petition continued:
The inability of New York to develop the amount of renewable energy generation necessary to meet the 70% target by 2030, the increasing retirement of aging fossil-fuel generators due to the CLCPA, and the uncertainty surrounding the development of resources necessary to meet the zero emissions target by 2040, presents a reliability concern.
The petition continued, “This concern is exacerbated by the fact that it may take more than two times the amount of certain forms of renewable generation to make up for the loss of one megawatt of fossil-fuel generation, and by expected increases in electric demand driven by the combination of new large loads and electrification.”
The petition added, “Since the passage of the CLCPA in 2019,” the petitioners stated, “4,315 MW of fossil-fuel generation has left the system, while only 2,274 MW of new generation has been added. This represents a net loss of more than 2,000 MW. The gap between retiring generation and the addition of new generation is eroding reliability margins.”
The petition also noted that the sunsetting of federal tax credits for solar and wind in the One Big Beautiful Bill make reaching clean-energy targets even less likely. So the best next step, said the coalition, is to hold a hearing to determine whether the Renewable Energy Program is impeding safe and adequate electric service in New York and then “to appropriately modify or suspend the program’s obligations.”
A New Report Shows the Dangers of the CWIP Accounting Rule
“Construction Work in Progress, or CWIP, is the most influential energy policy term that never appears on a household utility bill,” wrote three researchers in an Issue Brief for the Manhattan Institute on Dec. 4, introducing their report on the arcane and expensive practice that “can add real dollars to what families pay every month.”
CWIP is a regulatory accounting rule that lets utilities include unfinished infrastructure costs in their rate base, increasing utility bills before projects deliver any power.
“Ordinarily,” wrote Eric Olson and Jason Walter of the University of Tulsa and Jack Dorminey of West Virginia University, “large utility projects are financed the same way as most private investments. A company raises debt and equity, builds the facility, and only after it is operational does it begin earning revenue. Investors shoulder the risk that costs may rise, schedules may slip, or demand may fall short. Customers start paying only once they receive the service.”
But with CWIP, that typical business sequence gets turned on its head. “State commissions as well as the Federal Energy Regulatory Commission (FERC) have allowed utilities to move CWIP into the ‘rate base.’”
The report, titled, “The Hidden Tax on Your Power Bill: Construction Work in Progress,” argues that CWIP effectively shifts financing costs and risks from investors to electricity customers, boosting their bills before power gets delivered.
CWIP gives utilities the wrong incentives. It weakens cost discipline and encourages overruns. For example, it encourages utilities to worry less about long delays because they won’t hurt the bottom line. “Every change order, schedule slip, or ‘futureproofing’ upgrade is simply absorbed – it expands the capital base and extends the period over which the utility earns its guaranteed return,” said the report.
A good example is Georgia’s Plant Vogtle Units 3 and 4 (see above). Approved in 2009 at $14 billion, costs ballooned to $37 billion, and the nuclear reactors did not enter service until 2023 and 2024.
As the Manhattan Institute researchers wrote, “A 2009 Georgia law designed to encourage nuclear construction allowed Georgia Power to roll CWIP into monthly bills as soon as concrete was poured. Customers effectively financed the project for 13 years before receiving a single kilowatt-hour of new nuclear electricity.” They added:
Plant Vogtle’s trajectory makes the problems with CWIP vivid. Mounting construction setbacks from component redesigns, contractor bankruptcies, and pandemic-related labor shortages led to an explosion in the total price tag. Rather than face punishment, Georgia Power was entitled to earn over 10% return on that growing sum each year because CWIP was already in the rate base. For management and shareholders, the mushrooming budget did not threaten the project’s profitability; it enhanced it.
The Vogtle disaster effectively killed further nuclear plant development – until the need for electricity for data centers revived it.
The Manhattan Institute also cited a coal plant in Kemper County, Miss. “Promised in 2009 as a $2.9 billion gasifier that would turn local lignite in low-emission electricity, the project relied on CWIP and a hybrid accounting mechanism called ‘mirror CWIP,’ which treats construction balances as though they were already in the rate base.”
These accounting decisions allowed Mississippi Power “to collect over $600 million from customers while construction dragged on. Technical failures eventually forced regulators to abandon the gasification section and order refunds – but only after ratepayers had prepaid for equipment that will never operate.”
The problem persists with renewables as well, write the researchers. They point to “Dominion’s Coastal Virginia Offshore Wind (CVOW) project…as another example of charging ratepayers for billions of dollars of construction work long before completion.”
By contrast, Florida Power & Light’s Port Everglades Next Generation Clean Energy Center “was capitalized with financing costs under AFUDC” – Allowance for Funds Used During Construction, an accounting rule that the researchers praise – “and did not recover carrying costs from customers until the plant entered service.
CWIP shifts financial risk from investors — who are best positioned to manage it—to captive ratepayers, who have no control over project decisions. The complaint is that CWIP socializes losses while privatizing returns.
A better practice is AFUDC or a CWIP that is narrowly tailored, time-limited and paired with strong accountability measures, such as cost caps, performance benchmarks and clawbacks for cost overruns. As the power sector faces major investment decisions, maintaining fair risk allocation and cost discipline is essential to keeping electricity affordable and fostering a level playing field across generation resources.
“Federal and state officials need to ensure that ratepayers are not financing the costs of infrastructure through premature CWIP charges,” the report concludes.