FERC Issues Show Cause Orders to Six Regional Grid Operators

The unprecedented rise of AI and massive data centers is putting severe strain on the electric grid, prompting a major regulatory crackdown
. Large loads pose a unique threat because they are huge (sometimes requiring gigawatts of power), desperate for quick interconnection, and highly unpredictable due to the prevalence of "phantom loads"—projected facilities that sit in interconnection queues but may never actually be built
. Furthermore, these large language model operations can physically destabilize the grid by interfering with the 60-hertz sine wave and abruptly snapping offline during minor power quality fluctuations, which has already caused over-frequency events
.
To bring order to this chaotic "land rush" for power, the Federal Energy Regulatory Commission (FERC) has issued a show cause order under Section 206 of the Federal Power Act
. The directive targets six major regional grid operators: PJM, MISO, SPP, CAISO, ISO-NE, and NYISO
. Finding that current tariffs are likely "unjust and unreasonable," FERC is demanding that grid operators either justify their existing rules or file reforms within 60 days
.
FERC requires the grid operators to address five specific categories of reform:
Developing more efficient transmission study processes and evaluating Grid Enhancing Technologies (GETs) to maximize existing grid capacity without waiting for multi-year physical upgrades
.
Providing greater cost transparency to ensure the massive infrastructure costs of these upgrades are not unfairly shifted to everyday ratepayers
.
Accommodating co-location agreements, establishing clear procedures for data centers that bypass traditional grids to build directly next to power plants
.
Creating new transmission services for flexible loads that can throttle their operations or switch to onsite batteries to support grid reliability
.
Developing a transparent process to study how local grid stability is impacted when massive new loads are placed close to existing generation assets
.
In addition to the 60-day reform deadline, the grid operators have just 30 days to submit a detailed report outlining how they will ensure sufficient generation exists to serve both everyday users and these massive new data centers
. Ultimately, the mandate is designed to force grid planners to look at best practices across the country and implement rigorous rules so that existing ratepayers do not get hurt by the rapid expansion of AI technologies

Transcript

Why Large Loads Are Different

SPEAKER_00 0:03

A couple weeks ago, I dragged you down the regulatory rabbit hole of Urkhart's Batch Zero interconnection process for large loads. Then I gave you a regulatory reprieve with a light discussion on sodium batteries, but today we're going down another regulatory borrow. And again, this is related to large loads, aka data centers. Too bad, but it's got to be done. We'll be looking at the Federal Energy Regulatory Commission's FERCS show cause order under Section 206 of the Federal Power Act to each of the six regional grid operators under its jurisdiction, which directs them to justify or reform rules governing how data centers, manufacturing facilities, and other large energy users connect to the electric grid. Well, if you can get past your gleeful anticipation, let's jump in and first let's set the stage. Unless you've been under the proverbial rock for the past couple of years, you know that large loads, mostly data centers, are posing unprecedented challenges to many utilities and grid planners simply because they're A, huge, up to several gigawatts in some instances, or even more. B, desperate to connect to the grid with at least one estimate that advancing a gigawatt of load by a year is worth about $7 billion in revenues, and C, characterized by a high degree of uncertainty as to whether or not all these projected loads will come to fruition. So-called phantom loads, projects that may never be built, but they're in forecasts or interconnection queues, could be as much as 3 to 10x the actual number of projects that eventually find their way into the ground.

Grid Stability Risks From Data Centers

SPEAKER_00 1:31

Another issue, let's just discuss briefly, some of these data centers can be potentially highly destabilizing to the grid in two ways. First, because of the way chips process data in the large language models, they can really mess with a 60 hertz sine wave we all love, the so-called harmonics. And second, because if there are issues with power quality, like frequency and voltage, data loads can instantaneously come offline to protect their equipment and go to backup power. In Dominion, a couple of years ago, a failed lightning strike arrest or led to 1,500 megawatts of load snapping instantaneously off the system, resulting in an overfrequency event that jeopardized the grid. It's happened since then both there and multiple times in Texas, and the North American Electrical Reliability Corporation, NURC, recently issued a rare level three warning about this and discussed the need for ride-through capabilities to be created. Okay, so all this stuff is messy and detail laden, but assume you're still with me, let's get into the FERC show cause orders related to the grid and specifically to interconnections.

What FERC’s Show Cause Demands

SPEAKER_00 2:32

It informs each of the six ISOs and RTOs, so that's PGM, MISO, SPP, CAISO, ISO New England, and New York ISO, and relevant transmission owners, that they have 60 days to either justify why their current tariffs remain just and reasonable without provisions tailored to large loads, or to file tariff changes that address the issues the Commission has identified. And that's the traditional guiding principle for FERC: what's just and reasonable. So this action was taken in response to an October 2025 Department of Energy initiative to address the rapid growth in AI data centers and advance manufacturing loads. And FERC found in its initial review that these markets' existing tariffs do appear to be unjust and unreasonable because they don't adequately address challenges tied to the integration of large and co-located loads onto the transmission system. Per the FERC, each of the tailored orders tees up five categories of reform for the grid operators to address. So we'll address these one at a time, one through five.

Faster Studies And Grid Tech

SPEAKER_00 3:36

One, developing efficient transmission, service application, and study processes, including consideration of alternative transmission technologies. The traditional process of interconnecting to the grid takes years to process, and that's at odds with the data center's rapid build-out timelines and opportunity costs we discussed. So FERC is seeking a more efficient transmission application and study process, and it's also telling the grid operators that they have to evaluate grid enhancing technologies, so-called GETs. Those maximize the existing grid's capacity rather than always defaulting to slow, multi-year physical upgrades. These are things like topology flow optimization, moving power more efficiently across lines, or dynamic line rating, where if it's a colder or windier day, you can just move more power across a line that otherwise has a static rating. But crucially, FERC isn't mandating that the grid operators use these new technologies. And in my view, that's a mistake. These are already well known and well demonstrated in multiple markets. And we keep doing this pilot nonsense, and it's time to get serious on this, especially when new transmission takes so long. We look at the Sun Zine that just got completed, connecting New Mexico to Arizona. That was 17 years in the making. And last week in Texas, their transmission expansion plans for the 765 KV line build out there, those have now been heavily opposed by landowners, and the PUC is contemplating delays in that particular instance. So we got to get moving on that. Two,

Cost Shifts And Behind-The-Meter Deals

SPEAKER_00 5:05

preventing cost shifting and requiring transparency into transmission costs. A huge area creating political tension is this impact of new large loads on rates, on everybody's rates. In other words, who will pay for these massive new upgrades, especially in an era of rising supply chain costs. FERC is looking for more cost transparency with grid operators having to identify how these associated infrastructure costs are identified and allocated to prevent cost shifting to other parties. Three, accommodating co-location agreements and behind meter generation. So a lot of these data centers are now frequently bypassing the grid because they can't get the power fast enough, and they're co-locating data centers with power plants behind the meter. Just this week, Chevron and Microsoft announced a 2.67 gigawatt on-site deal in Texas, with most of that from large GE Vernova turbines and some additional capacity supplied by reciprocating engine turbines. The potential surplus energy in the future could be sold to the grid. So these co-location arrangements get sticky because the on-site gen may not run all the time. Among other things, they go down for maintenance or there are occasional unexpected outages. And if the grid jumps in and provides needed capacity, the question is, how much should the data centers pay for that privilege? And how much should they be compensated when they export power to the grid, like Chevron says it's going to do? Grid operators are going to have to develop clear procedures for these configurations while maintaining grid reliability.

Flexible Load Services And Local Flow Studies

SPEAKER_00 6:38

The fourth one, providing new transmission services for flexible large loads. So many large loads don't operate at 100% capacity 24-7, and some of them may be able to flex, either with software that helps them change the operations, or they can shift compute to another location. And also many of them are putting batteries on site so they can essentially go off-grid and take power from the batteries. So FERC is asking grid operators to develop new transmission services for these flexible large loads that can manage their demand, supporting reliability in exchange for optimized rates. And fifth and last, developing a process to study generating facilities that serve electrically proximate large loads. New large loads located near existing generation assets can change local power flows. Power flows on the path of least resistance. So if you plunk in a thousand megawatts of new load somewhere, that can change the power flows. So FERC wants a transparent process to study how these generating assets that serve nearby large loads would affect local grid stability and make sure it isn't unduly affected. Also, within just 30 days, each one of these entities must submit a detailed report outlining ways in which the grid operator will ensure that sufficient generation is available to serve both existing and new large loads. And good luck with that. We've already seen the challenges that PGM and others are facing. Each of the ISOs got its own show cause document addressed specifically to its region and will have the ability to create its own tailored plan, but the gist

Best Practices And The Short Deadline

SPEAKER_00 8:12

is the same. Get moving on this stuff. The time frame is pretty short, but there are examples from other locations to choose from. For example, Texas just started moving ahead on its batch zero interconnection process, whereby they put all large loads into a single batch for study with respect to impacts on transmission costs and grid reliability. It also has Senabel 6, which allows ERCOT to cut supplies to large loads before resorting to rotating blackouts. And next door, the Southwest Power Pool has its high-impact large load process that expedites interconnection for loads that can be interrupted. And then there are the various utility tariffs around the country, dozens of them, that are being implemented to protect ratepayers from the cost of adding new infrastructure with take or pay provisions and other things. So while the grid operators only have 60 days and they can seek an extension after 45 days for an additional 45 days, the Adroit ones should be able to find ways to beg, borrow, and steal best practices from others out there and come up with some reasonable proposals. It's to be hoped that in the near future we'll get at least some more clarity around what's been a pretty chaotic process thus far. But to be fair, ChatGPT only popped out of the jack in the box in November of 2022, with a land rush for power ensuing shortly thereafter and truly picking up speed just in the past year. That said, it's now time to put some rigor around this process so others don't get hurt, namely the rest of us who also take power from the grid. Well, thanks for watching, and we'll see you again soon.