The Federal Energy Regulatory Commission (FERC) approved a series of orders requiring power grid operators to remove bottlenecks that could slow the AI boom. FERC ordered regional grid operators to expedite connections for large energy users, particularly AI data centers, to the nation’s grid. Under the order, data centers will bear the full cost of necessary grid upgrades, as consumers are concerned about potential increases in electricity costs. FERC’s orders cover six regional grids under FERC jurisdiction and exclude Texas. According to FERC, the order leaves states in control of retail electric rates, terms, and conditions. According to the Electric Power Research Institute, data centers currently account for 4% to 5% of U.S. electricity demand, but their demand could triple by 2035.
FERC told grid operators to respond within 30 days with plans to ensure adequate power supplies for new and future data centers, and within 60 days with plans to integrate large power users in line with the new guidelines. Grid operators and transmission owners have 60 days to explain why their current rules are justified or to state whether they will make changes in five main categories. Those categories include having clear processes for connecting very large energy users, such as data centers, and allocating costs to large energy customers for the infrastructure needed to serve them. FERC, in its orders, also encouraged new frameworks for very large energy users to bring their own power supplies, such as by building their own plants. The regulator wants grid operators to integrate advanced technologies to make existing infrastructure more efficient. FERC also indicated it would no longer automatically consider cumulative environmental impacts in its rulemaking under the National Environmental Policy Act.
In December, FERC took an earlier step on “co-location agreements,” allowing tech companies in the mid-Atlantic grid, PJM Interconnection, to effectively plug a data center directly into a power plant. It allowed the operator of the PJM Interconnection to develop rates and conditions for different colocation scenarios involving new power plants or sources. The new FERC order seeks to ensure that the option is accessible nationwide. The latest announcement comes eight months after Energy Secretary Chris Wright asked FERC to take more control over ensuring that the network of computing warehouses needed to power AI is connected quickly to high-voltage transmission lines, as it has become a national security issue, given that the United States is in a race with China for superiority.
FERC used Section 206 of the Federal Power Act to issue customized show cause orders to each of the six regional grid operators. The Federal Power Act gives FERC authority over the management of interstate transmission and the wholesale market, and leaves retail sales, local distribution, and siting to the states. According to FERC’s press release, these orders are aimed at “moving to ensure that Americans have reliable, affordable power—even as electricity demand and technology accelerates.” This approach avoids the need to issue a Notice of Proposed Rulemaking (NOPR) that typically takes a long time to finalize. In a NOPR, it could take 2 to 5 years to draft, review public comments, and finalize the rule, which could unilaterally tie the hands of the United States in its race with China.
The FERC order could prompt states to create a new utility rate class for large-load customers, especially AI data centers, to prevent spikes in residential rates. For example, Virginia’s state corporation commission (SCC) approved a new electricity rate for large-scale customers, including AI data centers, that will begin in January 2027. Under the new rate, affected customers must pay for at least 85% of contracted distribution and transmission demand and 60% of generation demand.
More than 4,000 data centers are in the United States, and an additional 3,000 are planned or under construction. There are concerns about the amounts of energy and water those data centers consume, as well as about noise and air pollution, water shortages, and a loss of open space or farmland. But the same people who are concerned about these issues are not concerned about the millions of acres of farmland now being used for wind and solar facilities. The Solar Energy Industries Association reports that solar occupies less than 1% of farmland in the United States. But 1% of U.S. farmland totals 8.74 million acres, as the Daily Caller reports.
President Trump has tried to deflect public concerns about AI, viewing the fast-evolving technology as important to the United States in attracting foreign investment and maintaining its economic, technological, and military superiority. He signed an executive order this month establishing a framework for the federal government to vet the national security risks of the most advanced AI systems for up to a month before their public release.
AP reports that tech companies have continued to increase spending on building and equipping data centers, but evidence suggests construction is lagging and projects are encountering roadblocks, including permitting delays, growing local opposition, and bottlenecks involving gas turbines, transformers, and skilled labor.
Conclusion
FERC has ordered six regional grid operators to expedite connections for large energy users, particularly AI data centers, to the nation’s grid. Grid operators have 30 days to respond with plans to ensure adequate power supplies for new and future data centers, and 60 days to respond with plans to integrate large power users in line with the new guidelines. Under the order, data centers will bear the full cost of grid upgrades, as consumers are concerned about potential increases in electricity costs. FERC used Section 206 of the Federal Power Act, which gives FERC authority over the management of interstate transmission and the wholesale market, and leaves retail sales, local distribution, and siting to the states. There are more than 4,000 data centers in the United States, and an additional 3,000 are planned or under construction.
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