Utilities Demand Collateral and Longer Contracts as Speculative AI Data Center Requests Swamp the Grid

Electric utilities have a new problem: data center requests that look like demand but aren't.

The industry calls them "phantom" projects. Wood Mackenzie, a research firm, puts only 23 percent of disclosed data center requests in its "high confidence" category. The rest is speculation.

Exelon's filter

Jeanne Jones, executive vice president of finance and strategy at Exelon, says inquiries began ballooning in 2024 and the individual asks got bigger too. A typical request used to be about 50 megawatts. Now companies ask for 1,000 megawatts or more, roughly the output of a large nuclear reactor.

Exelon operates across the Mid-Atlantic and Midwest. Once service requests from large customers tripled to 18,000 megawatts, it stopped studying projects one at a time and started studying them in clusters.

The company then required binding financial commitments and collateral before granting a connection. Its high-probability list dropped from 18,000 megawatts to 11,000, and the remaining projects posted roughly $1 billion in collateral.

"It did kind of help weed out the speculative projects," Jones said. She acknowledged investors may balk at a shrinking pipeline. "But it's the smart thing to do."

Her reasoning is about who gets stuck with the bill. "If we build out the grid and then that data center walks away, someone's got to pay for it and that's not fair to them," she said, referring to other customers.

Longer contracts, bigger queues

Exelon is not alone. According to utility filings aggregated by the AI startup Halcyon, average minimum contract lengths for large customers have risen to about 10.8 years since 2024, up from roughly 4.6 years before.

Texas shows the strain most. Cleanview, which tracks data center development, counts about 12,800 megawatts of projects under way in the state, the busiest U.S. market. The state's queue of connection requests has swelled past 400,000 megawatts.

The grid is already tight

The Energy Department issued an emergency order for the PJM Interconnection allowing additional power generation from Oct. 13 through Oct. 16, citing unusual October heat, planned maintenance and rising demand. PJM serves more than 65 million people across 13 states and Washington, D.C.

In February, PJM proposed $12.2 billion in transmission improvements. Reuters has reported that required transmission upgrades blocked 37.7 gigawatts of new power generation.

Separately, DOE announced support for 84 Tennessee Valley Authority transmission and distribution projects across eight states, with about $581 million in planned investment and $250 million in federal funding.

Washington tries to stretch existing wires

DOE is also putting $1.9 billion into 31 grid projects across 26 states. With company contributions the total tops $5 billion. The department says the aim is to free up more than 20 gigawatts of capacity without building a new power plant.

"These investments will get more out of the infrastructure we already have, move more electricity across the grid," Energy Secretary Chris Wright said.

That is federal taxpayer money going to projects that also carry private investment. Whether the 20-gigawatt target is met is something the department will have to demonstrate.

A Senate deal utilities didn't want

A bipartisan group of four senators has proposed a permitting overhaul, drafted in consultation with the White House, that would give the federal government more oversight of long-haul transmission plans. It would eliminate utilities' right of first refusal on regional transmission projects in their territories, mandate advanced technologies that boost the capacity of existing lines, and let state regulators refer a utility to the Federal Energy Regulatory Commission if its transmission planning is inefficient or harms customers.

Julien Dumoulin-Smith, a Jefferies analyst, told investors in an Oct. 1 note he was surprised by the "adverse" provisions for monopoly utilities, which would lead to lower capital spending. "This is a manifestation of Washington D.C. stakeholders dislike of monopoly utilities," he wrote.

The tension is built into the business model. Investor-owned utilities earn returns by building infrastructure and recovering the cost from customers at state-approved rates. Policymakers focused on rising energy bills are leaning toward getting more out of the existing grid.

Jane Flegal, a senior fellow at the center-left Searchlight Institute, said agreement was possible because "utilities are less politically powerful than they have been in a long time, and that is not going to last forever." She said that is why lawmakers need to move fast.

A 2024 bipartisan permitting bill with weaker FERC authority went nowhere after Donald Trump won the election and Republicans took Congress. The new text still has to pass the Senate and the House, and it is expected to change along the way.