'Historic' Order From Regulator Could Ease Data Center Power Pinch

The country’s top energy regulator has ordered regional grid operators to develop new plans to connect data centers to power as fast as possible while preserving grid reliability and avoiding rising electricity bills for consumers.

The action carries vast implications for a data center sector contending with yearslong wait times for grid power and uncertainty about which solutions to the ongoing power crunch regional grids and regulators will allow. 

The orders “are a step in the right direction by prioritizing getting the most out of the grid we have, enhancing grid flexibility, and rewarding new loads that can positively impact the grid by bringing their own capacity or generation,” Utilize Coalition, a flexible power lobbying group, said in an email to Bisnow.

The artificial intelligence-driven wave of large-scale data center development across the U.S. continues to overwhelm regional power grids, which, after years of largely stagnant demand, are facing requests from data centers for gigawatts of electricity their systems aren’t able to provide.  

This supply-demand imbalance is already driving up utility bills in some markets and stoking fears of further rate hikes as consumers pay for billions of dollars of infrastructure upgrades largely to serve data centers. At the same time, the data center boom is creating reliability risks, with the disconnection of a single facility capable of causing regional blackouts. 

For data center developers, the lack of available grid power remains the primary constraint slowing the industry’s growth. Data center projects routinely wait years for a grid interconnection while power providers build new infrastructure or conduct studies to ensure they can deliver power safely. 

A central frustration for data center developers has been the lack of a clear, consistent process for connecting new facilities to the grid.

Those legacy rules are now straining under the rapid growth of AI‑driven power loads.

Grid operators’ outdated rule books have struggled to balance the need to connect new data centers quickly with maintaining reliability and protecting consumers from higher power costs.

While some have started reforming their large-load interconnection rules, changes have been slow to emerge, and reforms vary widely from one region to another. The result has been an increasingly fragmented and unpredictable regulatory landscape and a murky pathway to power for data centers.

But that pathway is about to become much clearer. 

The Federal Energy Regulatory Commission concluded late last month that none of the nation’s regional grid operators has adequate rules for connecting data centers to the grid. The agency issued orders to all six transmission organizations, giving them 60 days to either justify their existing protocols or submit plans to overhaul them. 

The directives also establish core principles that future large-load interconnection policies must meet, an effort to create a more predictable framework for acquiring power for data centers. 

“It also is critical that FERC provide certainty for investors by directing the markets to protect existing deals and unlock opportunities for technological advancement and economic expansion,” FERC Chairman Laura Swett said during a commission meeting. 

With the Trump and Biden administrations identifying the build-out of AI infrastructure as critical for U.S. economic competitiveness and national security, Swett lauded the action as a “historic” effort to address “the biggest priority our country is facing at the moment.”

The orders were also broadly welcomed across the data center industry, where leaders have long pushed for clearer and more consistent regional interconnection rules.

While industry advocacy group the Data Center Coalition praised the specific measures FERC is pushing to improve speed to power, DCC Vice President of Energy Aaron Tinjum said the greater predictability created by a more standardized interconnection framework alone should help developers secure power more quickly.  

“DCC continues to encourage clear, consistent and legally durable pathways for data centers to access reliable power in a timely manner,” Tinjum said. “This is essential to ensuring data centers remain able to support digital services at the pace that our modern economy demands while enabling the addition of historic levels of new generation and long-needed grid improvements that will benefit all customers.”

Beyond creating a more standardized interconnection framework, FERC's orders include several specific requirements for RTOs’ large-load reforms intended to get power to data centers faster. 

Among FERC’s top priorities is speeding up the interconnection process by streamlining application procedures and reducing the number of engineering studies required before data center projects can be approved.

FERC also wants regional grid operators to evaluate whether alternative transmission technologies can meet a specific project’s power needs before undertaking costly grid upgrades. Such technologies can increase the capacity of existing transmission infrastructure, potentially avoiding or delaying the need to build new power lines and thus accelerating interconnection timelines. 

FERC is also asking grid operators to develop clear rules governing “behind-the-meter” power agreements, through which data centers or other industrial customers buy a portion of their electricity directly from a power plant rather than through the regional grid. 

This “bring-your-own-generation” approach has become increasingly common for developers amid ongoing grid constraints, particularly in the independent Texas grid. But elsewhere, efforts to have power plants colocated with data centers or other behind-the-meter efforts have run into trouble amid fears that they can increase the price of grid power by undercutting supply and pushing costs to other customers.

In a landmark case last year, FERC rejected a proposed deal in which Talen Energy would sell power directly to an Amazon data center campus abutting a Pennsylvania nuclear power station. The ruling, which cited potential impacts on pricing and grid reliability, slammed the brakes on similar proposals across the U.S. 

FERC is now requiring RTOs to develop clearer behind-the-meter guidelines that would give these colocated data center projects a path forward while protecting consumers’ pocketbooks. The measures are intended to encourage data centers to pursue strategies of bringing their own power to constrained grids. 

“We need new generation of all kinds, which means we need to make bring-your-own new generation easier and faster,” FERC Commissioner David Rosner said at a June hearing. “That's the only way out of this problem.”

Others are lauding FERC’s efforts as an important step in bringing to fruition another oft-discussed but seldom implemented pathway to faster power for data centers: turning data centers into so-called flexible loads. 

There is a growing push for data centers to utilize on-site generation or energy storage to become “flexible,” meaning they are capable of reducing their power consumption or disconnecting completely from regional grids and operating under their own power at the behest of a utility.

For developers, it could unlock access to power on far shorter timelines. Typically, electricity demand only comes close to exceeding supply a few days a year, often during periods of extreme heat or cold.

By establishing a dynamic system in which a grid operator could curtail data centers’ power consumption as needed during the handful of days each year when demand is the highest, it would redistribute the capacity of the power grid.

For utilities and ratepayers, greater flexibility could ease reliability concerns and help contain the potential for rising costs. 

Yet data centers becoming more active grid participants would represent a fundamental change in the way that both data centers and utilities operate. Because of this, the much-discussed idea of flexible data centers has seen little real-world adoption, despite several industrywide efforts focused on power flexibility.

However, FERC’s orders mandate that regional transmission providers explore options for flexible loads or other demand-side solutions to unlocking underutilized capacity, potentially kick-starting more widespread adoption of these solutions. 

“We applaud any effort at the state, federal, or regional level that can help build a more flexible grid and ensure we are optimizing its utilization, while mindful of respective jurisdictions,” Utilize Coalition said.