The White House wants federal energy regulators to act on data centers. They’re gearing up to take a big swing.
Over the coming weeks, the Federal Energy Regulatory Commission will hammer out the details of a proposal that could be a striking assertion of federal power to manage the nation’s rapidly rising electricity demand. Under a plan put forward by Energy Secretary Chris Wright, FERC would regulate the way America’s biggest electricity customers are brought onto the power grid.
Much of this is to satisfy the energy consumption of data centers — the warehouse-sized hubs of supercomputers powering the digital economy and tech industry ambitions to dominate artificial intelligence.
The five-member commission has imposed a June deadline on itself to roll out a regulatory proposal aimed at accelerating the build-out of AI infrastructure, and it may even direct who pays for multibillion-dollar grid upgrades. FERC’s chair, Laura Swett, has echoed President Donald Trump’s willingness to test the limits of federal power to shape the U.S. energy economy.
“I know very well from litigating where the absolute edge of precedent, when it comes to FERC, is,” Swett, a former energy attorney at Vinson & Elkins, said of her leadership style at last week’s Energy Bar Association annual conference. “I have an appetite to push right up to that edge if it may secure effective results.”
“If I do something risky, it will be very deliberate,” she continued. “It will be grounded in the law. It will be grounded in my understanding of economic commercial realities from representing clients and with a very calculated determination that we will win.”
The explosive popularity of AI is driving companies to deploy fleets of data centers, some of them easily consuming enough energy to power cities the size of Indianapolis and New Orleans. That’s fueling concern that the nation’s wildly fragmented governance of the grid, and its aging infrastructure, can’t move as quickly as the giants of AI — Microsoft, Amazon, Google, Meta, OpenAI, xAI and Oracle — are demanding.
In October, nine months after Trump put AI at the center of his domestic economic agenda, Wright turned to FERC to standardize the approach.
“Asserting Commission jurisdiction is in the public’s interest,” Wright wrote to the commission. “This Administration is committed to revitalizing domestic manufacturing and driving American AI innovation, both of which will require unprecedented and extraordinary quantities of electricity and substantial investment in the nation’s interstate transmission system.”
Last week, just before FERC announced it couldn’t meet the Energy Department request for regulatory action by April 30, the White House commended the independent regulator.
“The President’s support for FERC Chair Swett was clearly demonstrated when he had the FERC commissioners stand and be recognized at the Ratepayer Protection Plan signing,” a White House spokesperson said in a statement, referencing a White House event in March that sought to address public anxiety about rising utility bills.
Buffeting the Trump administration’s policy drive are clear signs that data centers have become toxic to many voters. Land use, water use and concern they’re driving up household utility bills have packed city council chambers from Arizona to Indiana. The rising cost of living in mid-Atlantic states, including sharply higher electricity prices, contributed to last November’s Democratic wins in statewide elections in Virginia and New Jersey. And in Georgia, a data center hub, voters turned out Republican members of the state public utility commission over utility costs.
It’s been a sharp turn for Trump, who, from his first day back in office, hailed tech industry spending on data centers — and rarely talked about the energy challenge in terms of cost and the increasing strain on the grid.
Trump took to Truth Social in January to urge tech companies to “pay their own way.” By March, the White House had brokered a “Ratepayer Protection Pledge” with the largest AI companies, who agreed to pay “the full cost of their energy and infrastructure, no matter what,” according to the White House.
The devil is in the details. As FERC grapples with how to meet Wright’s request to take more control of grid interconnections for AI server farms, the agency is also ultimately tasked with sorting out which grid infrastructure costs are borne by the AI giants and which ones are passed onto utility ratepayers.
State regulators have long been wary of the type of federal control Wright wants FERC to assert over the grid.
“It is bad law, it is bad policy, and increasingly, it is bad politics,” former Trump-appointed FERC Chair Mark Christie said of Wright’s proposal to FERC in an interview. Christie, a former utility regulator in Virginia, is now the director of the Center for Energy Law and Policy at William & Mary Law School.
“Politicians and regulators who keep trying to push data center development over every other economic and social consideration will only fuel extreme measures,” Christie said, “like outright bans on data center development, which are deeply unrealistic because we all live life online, so we are all building data centers.”
DOE representatives didn’t immediately respond to a request for comment on Christie’s critique.
‘Laboratories of democracy’
Respecting the lines between federal and state jurisdiction has been baked into the messaging of FERC commissioners since the agency’s inception in the late 1970s.
Under federal law, FERC is in charge of the costs and reliability of interstate power markets delivering energy across vast regions. States regulate electricity generation, local power lines and the base utility rates their customers pay.
But the power system today is nothing like it was even two decades ago, when centralized coal plants still delivered much of the nation’s electricity. Now, roughly 40 percent of it comes from gas-fired generators, nuclear power is making a comeback, grid-scale solar power is growing fast and more battery technology is on the grid to help smooth out delicate supply and demand imbalances.
From Texas to the East, the scale of power that tech companies are trying to secure to run their AI models is unprecedented. Sprawling networks under FERC jurisdiction are seen as crucial to ensuring server farms keep humming, even as power plant owners and tech companies work on bilateral deals that would locate the two closer together.
In joint comments to FERC in November, Democratic Gov. Josh Shapiro of Pennsylvania and former Republican Gov. Glenn Youngkin of Virginia said federal standards should serve as “a floor, not a ceiling, for state and private sector creativity.” The governors backed faster interconnection and said large loads should face incentives to invest in nearby generation, accept curtailment during tight conditions and take responsibility for their network upgrade costs.
But they also warned that DOE’s proposed 20-megawatt threshold for using federal standards could intrude on traditional state jurisdiction. If FERC regulated loads 20 MW and up, that would not only include data centers but many Walmarts and other big box stores.
American Electric Power, Dominion Energy and Entergy are building power lines in the Midwest, mid-Atlantic and South for new data centers — giving three of the nation’s biggest utility companies a significant stake in the FERC “large load” rulemaking.
Perhaps no single policy choice before FERC is as politically fraught as the basis of Wright’s request: federal preemption of state laws.
Since the start of the decade, FERC has moved away from being the cautious regulator that defers to state grid interconnection rules for power producers during decades of slow electricity growth. Today, it’s challenging traditional lines of federal and state jurisdiction.
FERC established a national framework for energy planning during the Biden administration. In June, FERC could propose concrete rules for how states and grid operators handle everything from small factories to city-sized tech hubs. And it could direct interconnection agreements to bill tech companies for some infrastructure, and allocate the costs of other upgrades to utility ratepayers who might see a future benefit.
Christie, the former GOP chair of FERC, warned the rulemaking could constitute a “breach of trust” between the states and FERC.
While it has maintained a diplomatic tone, state regulators through their trade group, the National Association of Regulatory Utility Commissioners, are cautioning FERC against preempting states.
“State commissions are in the best position to ensure rational and efficient interconnections of new large loads while protecting all customers from improper cost-shifts or unfair interconnection processes,” the association wrote to FERC. “There is no regulatory gap.”
Among six examples, the association pointed to Ohio, which approved a tariff requiring large data centers to commit to long-term contracts, pay high minimum-demand charges, post collateral and face exit fees. That helped screen out speculative projects and sharply reduce inflated load forecasts.
“FERC should let states be laboratories of democracy, as Justice [Louis] Brandeis described them,” Christie said.
Unlike Christie, Joshua Macey, a professor at Yale Law School, says FERC has the legal authority under the Federal Power Act to assert more authority, even if it displaces the traditional role of states. He also generally supports centralization of grid regulation, arguing that special interests and outdated regulations are a major reason the nation lacks the long-distance transmission lines needed to meet electricity forecasts.
But just because FERC can preempt states doesn’t necessarily mean it should.
Karen Onaran, CEO of the Electricity Consumers Resource Council, representing industrial electricity customers, said the tech industry’s “speed to power” goals aren’t always met through strict regulation.
“Where FERC could be the most helpful is providing that guidance,” Onaran said. “Like: ‘Here’s all of these different scenarios and configurations that can be acceptable and should be looked at.’”
Follow the money
Cost allocation for expensive grid upgrades could be the most contentious piece of the puzzle.
Wright’s original letter states that data centers “should be responsible for 100% of the network upgrades that they are assigned through the interconnection studies.”
Wright did not specify how he thinks those should be assigned.
Macey, at Yale, expects that the commission will take up the issue of cost allocation, either through Wright’s proposal or a separate, concurrent docket about co-locating data centers at power plants.
“I think between those two proceedings we’re going to get something on cost allocation,” he said.
Assigning the cost of every upgrade made to deliver power to a single user would mark a stark departure from decades of spreading transmission costs among ratepayers.
“It’s a very different approach, and one that is inconsistent with, as a matter of principle, an approach that we’ve just spent two years kind of shoring up under Order 1920,” said Vince Duane, a former executive at PJM Interconnection, the country’s largest grid operator, serving the mid-Atlantic.
Order 1920, which sets planning requirements for regional transmission development, was approved by FERC in 2024 and rests on a socialized, networkwide view that transmission benefits are shared and costs should be shared, too.
Microsoft told the commission it could get behind a rule that directs more of the costs to the companies taking most of the power. But it also asked for utilities to credit large customers if upgrades they pay for later provide broader benefits to others.
With funding questions resolved, data centers could get up and running more quickly. To many, that seems like the best of both worlds: The wealthy tech companies that need power quickly pay a premium without affecting other consumers.
But utilities aren’t fully on board.
“Large load customers should be required to pay for their use of the transmission system,” the influential utility group Edison Electric Institute wrote in its filing to FERC, “rather than be directly assigned the costs of the network upgrades required to interconnect to the system.”
The reluctance to abandon the traditional cost structure may come down to incentives.
“A lot of utilities don’t want to just allow large customers to pay directly because it eats into their business of building that stuff and charging customers for it in rate base,” Jeff Dennis, executive director of the Electricity Customer Alliance, wrote on the social media site X.
Duane added that such a participant funding model could lead to planning around individual wealthy customers rather than the public, and that would be bad for the grid.
