The United States’ top energy regulator has ordered grid operators to either overhaul how they connect data centers to the grid, or justify their current strategy. The highly anticipated set of directives, issued 18 June by the U.S. Federal Energy Regulatory Commission (FERC) targets six regional transmission grid operators that together supply a majority of national electricity demand.

FERC’s move aims to alleviate the backlog of data centers waiting to connect to power grids while safeguarding consumers from electricity price hikes. Both have become problems in some regions of the U.S., and major political issues.

The challenge is that connecting data centers and other large electricity users often requires significant grid planning and investment in new power generation and transmission. This takes time and money, resulting in years-long connection queues for data centers and the potential for utilities to pass on those costs to other customers. With demand for data centers escalating, and electricity prices already climbing for other reasons, energy analysts and the public have made clear that something must change.

“FERC is telling regional operators that the old methods aren’t good enough anymore for customers with larger, more concentrated loads that seek faster connections,” says Costa Samaras, an engineering and energy policy researcher at Carnegie Mellon University and former energy policy staffer at the White House Office of Science and Technology Policy.

Chipmaker Nvidia, which supplies most major American data centers, called the FERC orders “a pro-growth, pro-affordability and pro-reliability policy…FERC has taken an important step forward, and NVIDIA welcomes this leadership.” And the Edison Electric Institute, which represents investor-owned utility companies, told Politico that the commission was advancing shared goals.

What’s still unclear is whether FERC’s approach is bold enough to bring about the change it’s seeking.

FERC’s orders give grid operators two ambitious deadlines. First, they must report within 30 days how they ensure adequate power generation for existing and anticipated demand. Then, within 60 days, they must either explain how they can meet large load connection requests within their existing rules and prices, or else change the way they do things.

For those who choose the latter, FERC suggested specific reforms tailored to each grid operator. One reform would ensure that grid operators make agreements with new large load customers to recover the cost of interconnections. The hope is that this would help prevent costs from getting passed elsewhere. Many large data center operators have tried to assuage public concerns about electricity prices by promising to pay for such upgrades, but those promises are not legally binding.

The transparency required in these cost recovery agreements is helpful, Samaras says. “It’s essential that policymakers ask, ‘Who pays and who benefits?’ If a network upgrade is built to accommodate a data center, the consumer should know how much that’s going to cost,” he says.

However, the directives may not go far enough in requiring transparency around the cost of new data center connections, and may be watered down in practice, says Ari Peskoe, electricity policy researcher at Harvard Law School, “I think when it’s implemented it will be less transparent than FERC would like.”

Even if operators have to report the costs of connecting a new data center, many states, which have historically led transmission grid management, have no way of preventing residential customers from paying the bill. Congress has tried to give FERC more authority over transmission facility permitting with limited success.

FERC also affirmed the value of several new technologies that better utilize grid power that’s already available. For example, the commission says grid operators should examine tools that maximize the current and optimize power routes in transmission lines. These measures could allow grid operators to offer more power in the medium term, while they build enough capacity to meet future demand.

And FERC recognized that power-flexible data centers—a concept enabled by a suite of novel technologies—could speed interconnection because they can be responsive to grid needs. Some emerging data centers can move compute workloads to different locations along transmission routes that have more power available, for example. It’s in the grid operator’s interest to encourage that kind of user to participate in the grid, rather than install their own independent power sources and treat the grid only as emergency backup, Samaras says.

Faster data center grid connection

The directives come eight months after U.S. Secretary of Energy Chris Wright urged FERC to take more control over making sure AI data centers got connected to the grid faster. But rather than taking control, the commission’s new orders take a more flexible, tailored approach that allows grid operators and FERC to approach the problems in dialogue with each other.

Still, the commission didn’t shy away from addressing a wide range of complex issues in the orders, including attempting to correct a perverse incentive that has dogged the industry for years: speculative requests. Data center developers can shop around for a quote, both in terms of price and schedule, by requesting connection from multiple regional grids. Those requests are time-consuming and costly for grid operators to assess. The redundancies may also cause grid planners to overestimate demand.

So, to shift the incentive, FERC proposes that grid operators offer increasing amounts of planning information in phases, called escalating readiness, after data center builders are financially or otherwise more committed to a particular grid connection point. In other words, “they should wait until there’s more steel in the ground,” Samaras says.

Another measure to speed up the preparatory studies proposes that when a power plant operator and a large load customer of a similar size both apply for access to the grid, only one study of the impact of both players joining should be conducted, rather than sequential studies. “So long as they are electrically proximate, you can combine studies before connecting and it goes quicker,” Samaras says.

Other reforms include developing an efficient transmission service application process, and accommodating large load customers who bring their own power, known as co-located or behind-the-meter generation.

If FERC is unsatisfied with any operator’s responses, it could initiate a slower process to make new rules, typically two to five years. Such rule-making is subject to more public comment and likelier to provoke legal challenges.

While data centers may dominate today’s political discussions, they will not be the only large, concentrated loads in the future, Samaras says. Grid operators must prepare for the next big wave of electrification, which will involve industry redesigning some factories to use electricity, residential consumers replacing gas heating and cooking with electric, and charging more electric vehicles. “These types of policies from FERC will hopefully pave the way for growth in electrification in those sectors, too,” Samaras says.