On November 25, 2025, PJM Interconnection's market monitor filed a complaint with FERC asking regulators to stop data centers from connecting to the grid unless reliability can be guaranteed. That filing isn't a theoretical exercise. PJM's own projections show the grid will be six gigawatts short of reliability requirements by summer 2027. If you're planning a data center project in the 13-state PJM territory, which includes Virginia, Maryland, Pennsylvania, and Ohio, your interconnection timeline just became uncertain.
The numbers are stark. Capacity prices jumped from $28.92 per megawatt-day in 2024/2025 to $329.17 in 2026/2027. That's not inflation. That's a market signaling that supply can't keep up with demand. Data centers were responsible for 63% of the price increase, translating to $9.3 billion in additional costs that will flow through to electricity customers across the region.
Meanwhile, states passed more than 40 data center bills in 2025. Communities are imposing moratoriums. Tax incentives that looked stable a year ago are being challenged. And water, not just power, is emerging as a site selection gating factor.
The window for straightforward data center development is closing. Here's what you need to know to get your project through.
The Grid Problem Is Worse Than You Think
Power availability has replaced land as the primary constraint on data center development. In Northern Virginia, the country's largest data center market, utilities have imposed connection moratoriums. Some interconnection requests now face seven-year wait times.
PJM's market monitor filed with FERC to address this directly. The complaint argues that data centers shouldn't be allowed to connect unless the grid can reliably serve them. If FERC agrees, new projects in PJM territory would need to demonstrate that their load won't push the system below reliability standards before they can proceed.
The stakes are high. PJM projects that Loss of Load Hours could spike from 2.4 hours per year today to 430 hours by 2030. That's not a typo. It means Northern Virginia and surrounding areas could face hundreds of hours of potential blackouts annually if current trends continue.
What This Means for Your Project
If you're in the PJM footprint, interconnection risk is now a threshold question. You need answers on three things before committing capital:
- Queue position: Where does your project sit in the interconnection queue, and what's the realistic timeline?
- Reliability assessment: Will your load push the local system below reliability thresholds?
- FERC exposure: If the market monitor's complaint succeeds, does your project get delayed or blocked?
Projects with secured grid connections have a significant advantage. Those still in queue face uncertainty that can't be papered over with optimistic assumptions.
Federal Permitting Got Easier. State and Local Got Harder.
The White House issued an executive order on July 23, 2025 directing agencies to expedite data center permitting. The order covers projects requiring more than 100 megawatts for AI operations and offers financial support for capital investments over $500 million.
The federal streamlining is real. EPA has 180 days to develop brownfield guidance. The Army is reviewing nationwide permits. Agencies identified categorical exclusions within 10 days of the order.
But federal permits were never the binding constraint.
State Legislative Activity Is Intense
In 2025, lawmakers across all 50 states introduced 238 data center bills. More than 40 were enacted in 21 states. The majority addressed energy use.
The state landscape now varies dramatically:
Texas: Data centers must participate in demand response programs or agree to be disconnected first during supply shortages. That's not a theoretical risk. It's a condition of operation.
Georgia: The legislature passed a two-year moratorium on data center tax incentives due to energy concerns. Governor Kemp vetoed it, but the political signal is clear.
Virginia: Loudoun County, home to the world's largest concentration of data centers, eliminated by-right data center development in March 2025. Data centers now require special exception approval, which means public hearings before both the Planning Commission and Board of Supervisors for every project.
Arizona: Some jurisdictions now prohibit municipal water for data center cooling and mandate that transmission infrastructure costs be borne entirely by the data center.
Local Opposition Is Spreading
St. Charles became the first city in the nation to adopt a citywide moratorium on data center applications in August 2025. It won't be the last.
Stafford County, Virginia has proposed increasing setbacks from residential properties from 100 feet to 500 feet and vegetative buffers from 50 feet to 200 feet. Lancaster, Pennsylvania is considering an ordinance requiring special exception hearings for every project, plus detailed reports on planned electricity and water use.
Permitting timelines in legacy markets have stretched from 6-12 months to 2-3 years. In some jurisdictions, they're longer.
Tax Incentives Are Less Stable Than They Look
Thirty-seven states now offer data center tax incentives. That sounds like a competitive market. The reality is more complicated.
Virginia forgoes nearly $1 billion annually in state and local sales tax revenue for data centers without disclosing which companies benefit or how much they receive. A state auditor classified the program as "moderate economic benefit" that "does not pay for itself."
Texas projected its data center subsidy would cost $130 million in fiscal year 2025. The actual number? $1 billion.
Meanwhile, local jurisdictions are pushing back. Manassas, Virginia has proposed a 67% tax increase on data center equipment. Henrico County is seeking a 550% increase. Only 11 states disclose which companies receive data center tax incentives.
What This Means for Your Financial Model
Tax incentives should be modeled as variable, not fixed. Your total cost of ownership projections need to account for:
- Reassessment risk: Local property tax authorities are getting aggressive
- Political volatility: Programs that exist today may not exist in five years
- Transparency requirements: Several states introduced disclosure legislation in 2025
If your project economics depend on tax incentives remaining stable for the asset's useful life, stress-test that assumption.
Water Is the New Power
Large data centers can consume five million gallons of water per day. That's equivalent to the daily use of a town of 10,000 to 50,000 people. Over 40% of planned and existing US data centers are located in areas classified as having high or extremely high water scarcity.
States and municipalities are responding:
Arizona: Marana prohibited municipal potable water for data center cooling in December 2024. Developers must secure alternate water sources and submit annual water consumption estimates. Chandler has enforced a 115-gallon-per-day limit per 1,000 square feet since 2015.
Nevada: Southern Nevada has banned evaporative cooling in all new developments due to water stress.
At least eight states introduced legislation in 2025 requiring data centers to report water consumption. California's AB 93 would allow local jurisdictions to impose water efficiency standards as conditions for business licenses.
Site Selection Implications
Water rights due diligence is now as important as power availability analysis. Before committing to a site, you need clear answers on:
- What water source will serve the facility?
- Are there usage caps or restrictions?
- What disclosure requirements apply?
- Is the jurisdiction in a water stress zone that could trigger future restrictions?
Closed-loop cooling systems that minimize water consumption are becoming a competitive differentiator, not just an ESG talking point.
Construction Contracts Need New Risk Provisions
Data center construction is in what industry analysts call a "generational super cycle." More than $61 billion flowed into the market in 2025. Debt issuance nearly doubled to $182 billion.
But delays are mounting. Oracle pushed back data center completion dates from 2027 to 2028 due to labor and material shortages. An estimated $64 billion in developments have been blocked or delayed due to grassroots opposition.
Liability Provisions Under Pressure
Construction contracts for data centers face a fundamental tension. The cost of fixing a construction defect might be relatively low. The resulting downtime costs can be catastrophic.
Contractors resist full exposure to indirect and consequential losses. Standard solutions include:
- Staggered delay damages: Penalties increase the longer the delay continues
- Liability sub-caps: Separate caps for delay damages versus overall liability
- Carve-outs: Gross negligence, willful misconduct, and increasingly, cyber breaches and data loss
If you're negotiating a construction contract, push for explicit carve-outs on data loss and cyber events. Review your representation and warranty insurance coverage for M&A transactions.
Supply Chain Provisions
Grid interconnection delays, equipment shortages, and community opposition all create force majeure questions. Your construction contracts should address:
- Whether utility delays constitute force majeure
- Whether community opposition or permitting delays trigger schedule adjustments
- How equipment delivery delays are allocated between parties
- What happens if tax incentives are modified or eliminated during construction
MD/DC Regional Considerations
Northern Virginia is ground zero for the data center reliability crisis. PJM capacity prices in the region have increased tenfold. Loudoun County's March 2025 zoning changes have already altered the economics of new development, and Phase 2 standards will add further requirements.
Maryland's People's Counsel filed comments on PJM's 2026 load forecasting, expressing concern about the allocation of costs between data centers and residential customers.
For developers in the region:
- Virginia projects: Factor in Loudoun County's special exception requirements (effective March 2025) and local tax assessment trends
- Maryland projects: Monitor People's Counsel positions on cost allocation and rate treatment
- Both jurisdictions: Grid interconnection is the binding constraint; queue position determines project viability
Practical Takeaways
Verify grid interconnection status before any site commitment. In PJM territory, queue position is now a threshold question. Projects without secured connections face regulatory and timeline risk.
Map state regulatory requirements for every candidate site. The 238 bills introduced in 2025 created a patchwork of energy, water, and zoning requirements that vary by state and locality.
Stress-test tax incentive assumptions. Model reassessment risk and political volatility. If your economics depend on stable incentives for 10+ years, you may be underestimating total cost of ownership.
Conduct water rights due diligence. Identify water source, usage restrictions, and disclosure requirements before site selection. Prioritize closed-loop cooling where feasible.
Negotiate explicit construction contract provisions for grid delays, community opposition, and equipment shortages. Push for data loss and cyber carve-outs from liability caps.
Build 2-3 year permitting timelines into project schedules for legacy markets with high community scrutiny. Legacy assumptions of 6-12 months no longer hold.
Monitor FERC's response to the PJM market monitor complaint. A ruling in favor could delay or block projects across 13 states.
Engage early with local stakeholders. Community opposition has blocked $64 billion in projects. Early engagement is cheaper than litigation or project abandonment.
What We're Watching
FERC ruling on PJM market monitor complaint: The outcome will determine whether grid reliability becomes a formal gating requirement for data center interconnections.
State legislative sessions in 2026: Data center bills were the top legislative focus heading into the new year. Expect continued activity on energy requirements, tax incentives, and disclosure mandates.
Loudoun County Phase 2 zoning standards: Virginia's largest data center market eliminated by-right development in March 2025. Phase 2, now underway, will establish new use-specific standards and compatibility requirements that other jurisdictions may adopt.
Nuclear and SMR deployment progress: Tech giants have committed over $10 billion to nuclear power partnerships. First commercial deployments are expected by 2030, but near-term projects must still work within grid constraints.
The Path Forward
The data center development playbook that worked in 2023 doesn't work in 2026. Power access, not land, is the binding constraint. State and local regulations have fragmented into a patchwork that requires site-by-site analysis. Tax incentives that looked permanent are being challenged. And water rights are joining power as a gating factor for site selection.
Developers who adapt to this reality will build. Those who assume the old rules still apply will find themselves stuck in queues, blocked by community opposition, or surprised by costs they didn't model.
The projects that succeed will be the ones that treat regulatory and infrastructure risk as seriously as technical design.