Federal Regulators Issue Order Requiring Large-Load Users Pay To Grow Grid

Authored by John Haughey via The Epoch Times,

Federal regulators have directed the nation’s largest regional electricity transmission organization to link, or “co-locate,” data centers and other industrial users with existing or new power-generating plants in order to speed development, trim infrastructure costs, and require large-load users to pay for expanding the grid.

The five-member Federal Energy Regulatory Commission (FERC) on Dec. 18 unanimously ordered PJM, which delivers electricity to more than 1,100 utilities serving 67 million customers across 12 Mid-Atlantic and Midwest states, to create two new transmission contract types, revise generator interconnection rules, respond within 30 days with options to meet demand, and provide a report detailing “ongoing initiatives to reduce practical and financial barriers … to efficiently connect new large loads” by February 2026.

Under the commission’s order, PJM must clarify that a power generator cannot leave the grid to serve a co-located load until all transmission upgrades needed to maintain reliability are installed, an interim network service is established “to provide a bridge” while new infrastructure is being built, and rules that “safeguard grid reliability and protect consumers” are strengthened.

“Today, FERC is pushing our country forward in the artificial intelligence and manufacturing revolution,” FERC Chair Laura Swett said. “While uncertainty has abounded across our country on how we will facilitate data centers, my colleagues and I are taking a critical step to give investors and consumers more certainty.”

She assured any member of the public who might qualify as a “non-FERC nerd” that the rule, which is more than 100 pages long and “highly technical,” can “solve the problem of meeting historic surging demand and realize our greatest potential as a country also while safeguarding the prices that we pay for electricity.”

In highlighting “a few core concepts,” Swett said the commission’s first priority was to ensure households and small businesses are not forced to pay for grid expansions fostered by demand from data centers and other large-load electricity customers.

“The reality is that large loads can be flexible in the amount of transmission service they use, but that they should pay their fair share for that service so consumers are not overly burdened,” she said.

The order recognizes PJM’s existing transmission services “are insufficient” and “do not recognize the controllable nature of co-location arrangements,” Swett said, adding that PJM’s current rate allocation imposes an “unjust and unreasonable” expense on existing customers.

The rule was issued a day after PJM’s capacity auction for the 2027–2028 delivery year fell short by 6,600 megawatts—enough electricity to power 4 million homes—of its reliability requirement and in the wake of a June report by Monitoring Analytics, its independent market monitor, that fast-tracked data center development will cost PJM customers as much $9.4 billion in coming years.

“PJM is not alone,” Commissioner Judy Chang said. “We just see it more visibly with PJM. So I think there’s just a lot more work to do” in ensuring households and small businesses do not foot the bill for data center-driven grid expansion.

Florida-based Data Center Map identifies 4,297 data centers that are operating in the United States, including 668 in Virginia, 245 in Illinois, and 217 in Ohio.

Definitions vary on what a “data center” is, and some estimates suggest there are more than 6,000 of them in the United States. An operation can generally be defined as a data center if it supplies power for AI, quantum computing, or cryptocurrencies.

President Donald Trump has identified rapid grid expansion to power data centers and AI development as a national priority. In October, he cited a Rand Corporation report that said that while China increased its power generation capacity by approximately 429 gigawatts in 2024, the United States only added about 65 gigawatts and must add 80 to 90 gigawatts a year in new generation to keep pace with demand.

Trump issued a July executive order that streamlines permitting for data center projects that produce at least 100 megawatts of new electricity load dedicated to AI, training, simulation, or synthetic data generation” and are supported by at least $500 million in committed private capital investment—especially if they generate their own “behind-the-meter” electricity and can be a generative source for nearby utilities.

Good Day For ‘Non-FERC Nerds’

“Behind-the-meter” electricity generation that supplements existing “front-of-meter” utility capacity or is built and consumed by new large-load users in a grid network is one of the goals of the new rule, Commissioner David Rosner said.

“What we’re enabling through these new co-location options is really simple,” he said. “When you connect a power plant directly to a large load like a data center, you minimize the impact on the grid because you don’t use the grid as much, and in turn, this limits the impacts on the bills that regular families and small businesses see.”

Of course, to a “non-FERC nerd,” there’s nothing simple about the nation’s electric grid and the matrix of federal, state, and local laws, regulations, and rules that apply to its 7,300 power plants, 160,000 miles of high-voltage power lines, millions of miles of low-voltage power lines, and distribution transformers managed by more than 3,000 utilities and regional transmission operators in wholesale and retail markets.

But Rosner gave it a shot.

“Today’s order directs PJM to create two new transmission services. We call them firm and non-firm contract demand,” he said, describing “firm” demand as what the developer and utility agree to in “net withdrawal” from its generation capacity and “non-firm” demand as its “behind-the-meter” generation.

“So for example,” Rosner explained, “consider a 1,000 megawatt data center that co-locates with a new 900 megawatt power plant. The data center wants to take 100 megawatts from the PJM grid [firm] and get the remaining 900 megawatts of supply from the on-site power plant [non-firm].”

The order directs PJM to clarify that a generator cannot leave the grid to serve a co-located load until all transmission upgrades needed to maintain reliability are in service, with the cost of those upgrades allocated 100 percent to the new large-load user, he said.

“So this means that generators comprising the backbone of today’s grid cannot abandon existing customers, unless and until those generators and their large load customers—not other ratepayers— build the transmission upgrades needed to maintain reliable service for everyone else,” Rosner said.

The order requires PJM to establish an interim network service to provide “a bridge” while the infrastructure needed to serve a large load with traditional front-of-meter network integration and transmission service is being built, he said.

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The bottom line, Rosner said, is that similar orders that will largely replicate directives issued to PJM are going to be the standard in addressing the nation’s need to quickly grow its grid.

“It takes too long to build new infrastructure in this country and that definitely includes transmission. So building the upgrades we require to convert an existing power plant to hook into a co-located load” is the swiftest, least expensive, and fairest way to do it, he said.

Commissioner David LaCerte, noting the commission hasn’t created a “major new transmission service” since the 1990s, said the order “marks an important milestone here at FERC and for our nation, a giant leap forward for President Trump’s agenda of American energy dominance and artificial intelligence advancement.”

Even “non-FERC nerds” will understand that, he said.

“Artificial intelligence data centers and re-industrialization are dominating our dialogue, not only here at FERC, but at the kitchen tables of America. AI has the potential to revolutionize our way of life in nearly every manner, but we must first build it,” LaCerte said. “We must acknowledge that we need to think differently, be bold yet smart with our actions, and we need to accept the reality that the status quo has become untenable.”