Energy Regulator Staves Off Critique in New Data Center Orders

The Federal Energy Regulatory Commission’s instructions to the country’s grid operators to get more organized on data center policies create, for now, a shield against litigation over the reach of its authority, energy analysts say.

FERC issued show cause orders last week to six regional operators to either propose changes or demonstrate within 60 days how their tariffs, or rulebooks, can be considered “just and reasonable” without clear protocols addressing large electricity consumers like data centers.

The move allows the commission to stay within the confines of what the Federal Power Act authorizes while also serving as an aggressive push toward clearer large load protocols specific to each region’s needs.

“The advantage is that each RTO will need to respond specifically with facts and data from their region—there will be a chance for the states to weigh in if they have any lingering concerns,” said Jennifer Danis, federal energy policy director at the Institute for Policy Integrity, referring to regional transmission organizations.

“It will give a much more robust and detailed administrative record, so I think it really reduces future litigation entry points,” she said.

A Strategic Route

Energy lawyers, trade associations, and state regulators have repeatedly expressed concerns over how FERC would interpret its authority under the Federal Power Act when tackling data centers’ effects on power prices and grid reliability.

Connecting to the grid is FERC’s territory, but data centers are considered end customers of power under state jurisdiction.

“I don’t think anything that FERC proposed to do impedes on states’ authority,” Matthew Christiansen, a partner at Wilson Sonsini Goodrich & Rosati working in the firm’s energy and climate practice, said in an interview.

Any legal questions are more likely to show up in whatever solutions the grid operators present in response to the show cause orders, he said.

“FERC was trying very hard to respect the jurisdiction of the states in whatever process they put into place,” Larry Gasteiger, executive director of WIRES who spent almost two decades working at FERC, said in an interview.

He called the decision a “FERC alternative approach to what the DOE proposed” consistent with what the Energy Department was looking for: “standardized and streamlined timelines and processes for getting these large loads integrated and interconnected into the grid.”

Coming up with solutions on how to connect large load to the grid quickly was also a priority for FERC.

“Going through the show cause process makes a lot of sense, because you don’t have all of the time lags associated with a lengthy rulemaking process,” Gasteiger said.

Former Republican FERC Chairman Mark Christie in a statement also praised FERC’s decision to issue individual show cause orders rather than go with what he called “the very flawed regulation” from the Energy Department.

The orders were “specifically designed” to get “a just and reasonable tariff in place for each of the RTOs much faster than if FERC had tried to do this through a one size fits all nationwide rulemaking,” Danis said, noting that FERC focused on transmission issues, which fits within its jurisdiction.

The Road to Co-location

The Energy Department’s unusual request to FERC asking the commissioners to look into speeding up connecting data centers to the grid initially set off questions about the commission’s independence under the Trump administration.

The Energy Department can make suggestions to FERC—an independent agency—under Section 403 of the Department of Energy Organization Act, but FERC doesn’t have an obligation to adopt those recommendations.

President Donald Trump has made several moves during his second term that have provoked concerns about maintaining the boundaries of independent agencies. That includes trying to fire members of the Federal Trade Commission and Nuclear Regulatory Commission. That led to lawsuits where the US Supreme Court heard arguments over whether to uphold job protections for officials at independent agencies.