Federal regulators on Thursday initiated a sweeping investigation into the way power grids and utility companies are dividing up the huge costs of delivering electricity to America’s data centers.
The five-member Federal Energy Regulatory Commission directed regional electricity grids serving nearly two-thirds of the country to show that the rates and conditions that apply to big data center connections are “just and reasonable” — or face federal fixes.
“Today we’re taking historic action to push our country’s electric markets and economy into the future,” said FERC Chair Laura Swett.
“We are simultaneously protecting customers and giving the states what we’ve heard they want,” Swett said. “Each market must show that it has adequate safeguards against cost shifting or take steps to create them.”
FERC is wading into questions that have loomed over the build-out of data centers across the U.S., including who pays for multibillion-dollar grid upgrades, how quickly tech companies can tie onto the grid and the role of the federal government over a process traditionally left to state regulators.
Since October, the commission’s wrestled with a request from Energy Secretary Chris Wright to assert power over the interconnection process. In doing so, FERC would have to push the limits of its jurisdiction under the law and by tradition — setting off a potential fight with state regulators.
Under the order, FERC chose not to deliver a nationwide approach to interconnecting so-called large loads to the grid. Instead, it is giving the organized power markets a few months to show they can get data centers onto their sprawling interstate grids in a timely way or enable data centers to co-locate with existing or future power generation.
The commission is steering clear of the closely guarded domain of state regulators to set retail utility rates. But FERC ordered regional transmission organizations and independent system operators under its jurisdiction to show that agreements with data centers keep those high costs of accessing the nation’s biggest, most reliable power systems from finding their way onto people’s electricity bills.
The stakes have always been high for Google, Amazon and other tech giants betting on the future of artificial intelligence. To make it all work long term, data centers need access to the high-voltage power grid.
“FERC’s actions today are a win for ratepayers, grid reliability, and American competitiveness,” said a statement from Nvidia, the largest AI chip maker in the world. “By speeding the integration of large energy customers, FERC ensures these new loads help shoulder infrastructure costs, lowering rates for everyone while bringing new generation online alongside new demand.”
Today’s FERC orders come as tech companies and utilities working with the major power markets spend billions of dollars to add more power generation and transmission to meet unprecedented demands from AI and electrification across the U.S. economy.
And it comes as bipartisan leaders from President Donald Trump to Pennsylvania Gov. Josh Shapiro and state and federal lawmakers push for more protections for utility ratepayers. Data centers that require enough electricity to power a city have triggered a public backlash, partly the result of double-digit increases to people’s utility bills starting last summer.
FERC issued six “show-cause” orders today targeting the organized power markets: PJM Interconnection, Southwest Power Pool, the Midcontinent Independent System Operator, the California ISO, ISO New England and the New York ISO. The orders don’t include the rapidly growing data center hub of Texas, which operates a grid outside of federal jurisdiction.
“By building on regional and state processes that are already driving progress, the commission is advancing our shared goals while supporting flexibility and innovation,” said a statement from the Edison Electric Institute, which represents investor-owned utility companies.
“We see FERC’s reforms as accelerating data center study timelines and offering new flexible (less expansive) transmission interconnection pathways — both actions benefit the speed-to-power push,” John Miller, an analyst for TD Cowen, said in a note to clients after the FERC orders. “In pivoting from the slower rulemaking process to a series of ISO/RTO-specific ‘show cause’ orders, FERC has accelerated the timeline in which reforms can be deployed.”
The commission has broad reach under the Federal Power Act to respond to problems in interstate power markets. FERC can be prescriptive when it’s deemed necessary to protect ratepayers from unfair transmission costs. But broad, assertive action out of Washington also invites litigation if it encroaches on state regulators whose role is to keep local utility rates under control.
“The design seems to target the core challenges on a region by region basis on a tight timeline,” said former FERC Chair Neil Chatterjee, a Republican. “Faster and likely more legally defensible than a rule but seems to pursue the same desired outcome.”
Robert Gramlich, president of the consulting firm Grid Strategies, noted that FERC deviated from the approach that Wright wanted to take — a rule that would push deeper into the states’ retail rate-setting terrain. Instead, Gramlich said, the commission went right up to the line of its jurisdiction.
Reporter Josh Siegel contributed to this story.
