‘The absolute edge of precedent’: FERC prepares to take on data centers

The Federal Energy Regulatory Commission (FERC), with the backing of the White House and Energy Secretary Chris Wright, is preparing a significant regulatory proposal to assert federal control over the integration of large electricity customers, primarily data centers, onto the national power grid. The initiative, expected by June, aims to accelerate the build-out of AI infrastructure to meet the explosive energy demands of supercomputing hubs, which can consume enough electricity to power entire cities. FERC Chair Laura Swett has indicated a willingness to push the boundaries of federal regulatory power to achieve these goals, despite potential risks. TheThe proposed regulations seek to standardize the grid interconnection process for AI server farms and address the contentious issue of who pays for multibillion-dollar grid upgrades. Secretary Wright's original letter advocated for data centers to be responsible for 100% of network upgrades assigned through interconnection studies, a departure from traditional cost-sharing models. However, this approach faces opposition from various stakeholders, including utilities, who typically recover infrastructure costs through ratepayers, and industrial electricity consumers, who seek guidance rather than strict regulation. State regulators, represented by figures like former Trump-appointed FERC Chair Mark Christie and the National Association of Regulatory Utility Commissioners, are strongly cautioning against federal preemption of state laws. They argue that states are better positioned to manage local grid interconnections and prevent improper cost shifts to ratepayers, citing examples like Ohio's tariff requiring long-term contracts and collateral from large data centers. Public opposition to data centers is also growing in states like Arizona, Indiana, Virginia, New Jersey, and Georgia, driven by concerns over land use, water consumption, and rising utility bills, adding political complexity to the federal initiative. While some legal scholars, like Yale's Joshua Macey, argue FERC has the authority to centralize grid regulation, the policy's implementation promises to be highly contentious, balancing rapid tech development with existing regulatory frameworks and public interests.