FERC Targets Grid Rules for Data Centers, Large Loads
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The Federal Energy Regulatory Commission (FERC) on Thursday ordered the six largest US grid operators to defend or rewrite rules governing how large power users connect to the grid, opening a sweeping review of how regional markets serve large new loads as AI-driven electricity demand grows.
The commission issued show-cause orders to PJM, MISO, Southwest Power Pool, CAISO, ISO New England, and NYISO, directing them to explain within 60 days why their existing tariffs remain just and reasonable or propose reforms.
Grid operators no longer need to guess where demand is headed. They need a process for handling gigawatt-scale load requests, evaluating co-located generation, assigning upgrade costs, and ensuring enough generation is available when projects come online. FERC’s orders put every major market on the clock to prove it can do all four.
Tight Deadlines
“We’re holding grid operators accountable with tight, ambitious deadlines because the stakes are high and the country demands urgency,” FERC Chairman Laura Swett said during a briefing following the commission meeting.
The commission also directed each grid operator and its transmission owners to submit a resource adequacy report within 30 days detailing how they plan to ensure sufficient generation is available to serve existing customers and new large loads.
That requirement could prove as consequential as the tariff reforms themselves. While much of the debate around AI infrastructure has focused on interconnection queues and transmission capacity, the reports will require grid operators to publicly explain how they intend to support projected demand growth.
The challenge extends beyond generation or transmission shortages, according to Prithpal Khajuria, segment leader for energy and utilities at Intel, who said the current regulatory framework was not designed for the scale and concentration of AI-driven demand now emerging across the grid.
“The biggest challenge isn’t just capacity or cost, it’s that load growth is now outpacing the grid’s ability to plan, price, and integrate it under the existing framework,” Khajuria said.
PJM said it views the orders as a continuation of work already underway. “PJM has already begun this work under the Commission’s Order on Co-Located Load, and PJM and stakeholders are actively advancing initiatives designed to support the efficient integration of new large loads, strengthen reliability, and facilitate the fair and transparent allocation of costs,” Jeff Shields, senior manager of external communications at PJM, told Data Center Knowledge.
“We view the Commission’s order as a chance to build on that momentum,” Shields said.
At the center of the proceeding is a preliminary finding that existing tariffs may not adequately address the challenges of integrating large, co-located loads into regional transmission systems.
“The draft show cause orders preliminarily find that these markets’ existing tariffs appear to be unjust and unreasonable because they do not adequately address the challenges associated with the integration of large and co-located loads onto the transmission system,” the commission said in a presentation accompanying the orders.
Khajuria said the proceeding reflects a broader shift in how grid operators must think about large-load growth.
“Historically, grid expansion followed demand growth. Now, these large, concentrated loads are effectively dictating where and how the grid needs to evolve, which is a reversal of the traditional model and inherently more complex to manage,” he said.
Five Areas Targeted for Reform
The action builds on a Department of Energy large-load interconnection proceeding launched last year amid concerns that existing planning and interconnection processes were not designed for gigawatt-scale data center campuses and other rapidly growing sources of electricity demand.
FERC said the United States is experiencing unprecedented demand for electricity driven in large part by data center growth. The commission reviewed more than 3,500 pages of comments before issuing the orders.
The commission identified five areas where regional tariffs may require reform:
• Transmission service application and study processes, including the use of alternative transmission technologies.
• Cost-allocation mechanisms intended to prevent existing customers from paying for upgrades required by large new loads.
• Co-location arrangements and behind-the-meter generation.
• New transmission services tailored to flexible large loads.
• Processes for evaluating generating facilities serving electrically proximate or co-located large loads.
The focus on cost allocation reflects one of the central tensions in the large-load debate: who pays for the infrastructure needed to serve data centers and other power-intensive facilities.
In a post on X, Arushi Sharma Frank, senior associate (non-resident) with the Center for Strategic and International Studies’ Energy Security and Climate Change Program, said the commission’s approach is aimed at “guarding against cost misallocation,” adding that “free riding on other customers isn’t an option.”
The orders identify co-location and electrically proximate generation as key issues in how regional markets accommodate large new loads.
Utilities, power producers, and hyperscalers are already pairing data centers with nearby gas, nuclear, renewable, and hybrid generation projects. FERC’s focus on electrically proximate generation suggests regulators expect those arrangements to play a larger role as AI infrastructure expands.
Regional Solutions
The commission stopped short of imposing a single national framework. Instead, it acknowledged regional differences and cited progress made by PJM and Southwest Power Pool on large-load and co-location issues since October 2025.
“There’s no universal formula for landing this,” Swett said. “Each region and every grid operator faces unique challenges and opportunities.”
Interested parties will have 30 days to respond after grid operators submit their filings.
According to FERC, the proceeding affects markets serving roughly 200 million Americans across more than 30 states and the District of Columbia and covers nearly two-thirds of electricity demand served under commission-jurisdictional rates.
Swett said the commission’s goal is to accelerate large-load integration while protecting existing customers from cost shifting. The commission also signaled that the reforms are intended to apply prospectively rather than disrupt existing agreements. During the briefing, Swett said regional markets should not disturb large-load arrangements already underway or finalized before new tariff reforms are filed.
FERC left the broader Department of Energy large-load docket open, signaling that additional action could follow.
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