Federal Regulators Tell Electric Grid Operators to Fix Their Rules on Data Centers

The nation’s electric grid is stressed out.

Unprecedented energy demands for large customers, such as data centers and cryptomines, are straining power supplies, raising electric rates in some regions, and stoking consumer advocates’ concerns that residential ratepayers could get stuck with the bill.

Today federal energy regulators issued sweeping orders that require the nation’s six major grid operators within 60 days to propose reforms or justify their rules that govern how data centers and other large customers connect to the electric grid.

Additionally, within 30 days, each grid operator and its transmission owners must submit a detailed report describing how the grid operator will ensure there is adequate generation to serve existing and new large loads.

The purpose of the order is to expedite connections between large customers and utilities, but with some proposed protections for residential and small commercial customers.

The wholesale energy market for two-thirds of the United States, roughly 200 million customers, is managed and monitored by regional grid operators, such as PJM Interconnection, Midcontinent Independent System Operator (MISO) and the Electric Reliability Council of Texas (ERCOT).

U.S. Secretary of Energy Chris Wright ordered the Federal Energy Regulatory Commission (FERC) last October to begin rulemaking to address energy demands and grid stability related to large customers, in particular data centers for AI and cryptomining.

Although FERC’s order accounts for regional differences, its common goal is to stabilize the grid, add transparency to the ratemaking process and prevent utilities from shifting additional data-center energy costs to residential ratepayers.

“This product is not as ambitious as what Secretary Wright asked them to do,” said Nick Guidi, a senior attorney for the Southern Environmental Law Center. “I think they responded in a way that makes sense for traditional FERC activity, in a way that seems like it has some pluses and minuses.”

The order also requires grid operators to examine how they accommodate co-location agreements, which allow data centers to be built at or near power plants, and “behind-the-meter” energy supplies, in which the data centers themselves build their own power plants.

Additionally, within 30 days, grid operators must submit a detailed report describing how they intend to ensure that adequate generation will be available to serve existing and new large loads.

The order allows grid operators to define “large load.” Many states have set a threshold of 100 megawatts, but as more of these customers connect to the grid, it could be lowered.

Within the past three years, there have been several instances of large customers destabilizing the power grid. Two years ago, lightning hit a high-voltage transmission line in Dominion Energy’s territory in Virginia , within PJM, according to an incident report analysis by the North American Electric Reliability Corp.

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As a result, 60 data centers decided to simultaneously drop off the system and resort to their own backup power, causing a sudden loss of 1,500 megawatts in demand. That could have resulted in a voltage spike, according to the NERC report . Grid operators were able to reduce voltage levels to normal operating levels.

Meanwhile, in Texas, ERCOT reported five loss incidents of greater than 100 megawatts from October 2023 to October 2024.

Even with FERC’s order, state utility commissions still have latitude to regulate their respective power providers.

“Nothing in today’s orders intrudes either on the authority of states to select sites and permit generating resources or on the authority of states to set the rates, terms and conditions of retail sales of electricity,” said FERC Chairman Laura Swett at the meeting.

“We make clear that we act today to guard against cost-shifting among transmission customers, but the states have the responsibility to ensure that there is no cost-shifting among retail customers,” she said.

FERC Commissioner David Rosner speaks at a June 18 meeting. Screenshot: FERC livestream

The Sierra Club filed 4,000 comments to FERC from its members during an earlier public comment period. The nonprofit environmental group said in a prepared statement that “while the full orders have not yet been released, FERC’s announcement at today’s meeting is responsive to Sierra Club’s requests on several fronts, including protecting consumers from costs incurred by large loads.”

Many consumer advocates are concerned about utilities overbuilding natural gas to meet the forecasted demand. If the energy use never materializes, ratepayers could end up on the hook for the costs of these “stranded assets,” as they’re known.

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