On June 18, the U.S. Federal Energy Regulatory Commission (FERC) issued show-cause orders to all six regional grid and independent system operators. Those orders, under Section 206 of the Federal Power Act, force ISOs and regional transmission operators (RTOs) to try and revolutionize timelines under which “speed to power” projects are achieved for the nation’s amassing new GWs of digital and industrial infrastructure capacity.

These reforms should positively impact development of microgrids, co-located “energy parks” and behind-the-meter projects built and paid for in large part by the data center or manufacturing site customer.

If these FERC show-cause orders hit their targets with the grid system operators, on-site prime power may be elevated to a norm rather than exception in industrial power.

“All of the FERC commissioners want action on the transmission grid integration of large loads and co-located generation quickly and they will not be tolerant of much deviation from their identified reforms,” said Eric Runge, who is an attorney within the national energy practice group of law firm Day Pitney LLP.

“Rapid development and implementation of tariff provisions to accommodate large loads, such as data centers, and their supporting co-located generation will be a FERC priority for the foreseeable future,” Runge added. “Recognizing and addressing the importance of co-located generation is a major part of that priority for the FERC and for the ISOs that operate and plan the grid.”

Runge’s practice at Day Pitney includes representing next-gen electricity industry clients at both federal and state levels. For decades he has done extensive work in front of FERC and numerous state regulatory agencies in New England. Prior to that he represented New England Electric System companies.

Runge’s electricity sector legal experience is undeniable, as is the U.S. pressure to push large load generation reforms forward.

Guardrails that Protect Affordability and Accelerate On-Site Power

Foreboding predictions highlight the criticality of this race against time with respect to winning and powering AI. Respected researchers such as the Electric Power Research Institute and the U.S. Department of Energy’s (DOE) Lawrence Berkeley National Laboratory are forecasting that U.S. data center consumption could expand from its current approximately 4.4% of total U.S. electricity to more than 10% and maybe even 17% by the early 2030s, swamped by perhaps more than 100 GWs of new digital computing capacity.

Without guardrails, that potentially blows up the whole supply-and-demand dynamic as well as affordability. Former FERC commmissioner Chairman Mark Christie sound the alarm on this threat at last year's Schneider Electric Innovation Summit in Las Vegas.

"We are sitting on a volcano," Christie said during a keynote panel on skyrocketing AI energy demand. "The political volcano could be from energy prices, and we've got to address that. We cannot forget that what retail customers are paying is going to be a huge part of it. If we don't, the volcano could blow up and it could be bad.”

Things are already heating up. The volcano's arrival might heat things slowly but clearly and alarmingly. In the PJM interconnection, for instance, rates for some residential customers have risen $10 to $21 per month just in the past year, according to the Institute for Energy Economics and Financial Analytics.

FERC and DOE are pushing hard both on the capacity issue and energy affordability, well aware of the tenuous supply-and-demand equation. They want large-scale customers such as AI computing hyperscalers not only to participate in building this new co-located power quickly but also pay for much of it along the way.

“The show-cause orders issued on June 18 preliminarily found that the six ISO tariffs are unjustified as related to large loads,” Runge pointed out. “FERC has identified five main categories of reform that are needed.”

For starters, FERC found that there is not an adequate set of tariff provisions and process for interconnection of large loads to the transmission grid, specifically. These include study and transmission service provisions with reliability protections.

“The new power dynamic must be “integrated in a way that is efficient, quick and reliable, and provisions for such a process need to be spelled out in a tariff,” he added. “The second main reform is to ensure cost transparency and prevent cost shifting from the large load customer to other customers.”

Building and paying for “bringing your own power,” to use a phrase popular at microgrid conferences, may be a key strategy for dealing with both challenges of power availability and affordability.

Of course, part of the cost scrutiny and rate debate “will take place at the state level,” Runge noted. “States and their consumer advocates have a strong role in scrutinizing costs and trying to ensure affordability for customers.”

Getting up front about behind the meter

The third main category of FERC-induced reform is focused on developing tariff rules to accommodate generation co-located with large loads, including behind-the-meter generation, he added.

“Use of co-located arrangements is already a reality and will increase significantly,” Runge said. “We already know that will be the case in ISO New England. ISO-NE has already proposed that large loads must bring their own generation to serve that load.”

The longtime energy lawyer believes this will expand as the future norm—bring your own generation for large load integration.

Whether this is called a microgrid, energy park or co-location arrangement is almost beside the point. Whatever it’s called, behind-the-meter prime power may become a macro-scale reality sooner than later due to data centers, AI and re-industrialization repowering within a grid system which did not anticipate this type of load growth in the decade previous.

Fourth among the FERC show-cause orders focused on making sure that electric transmission services will match how the new load uses the system, taking “behind-the-meter” into account in ways not considered before now.

“They will need to recognize that the large loads being serviced by co-location power, are not drawing from the system the way they would if served primarily from the grid,” Runge noted. “Flexible transmission service will allow large loads to match their actual use of the transmission system and enable such loads to connect quicker and cheaper,” he added.

Speed wins … and speed kills

The fifth main category of reform speeds co-located generator interconnection. It requires tariff provisions that recognize that generators located on-site with or near large load and dedicated to serve that load can and should be interconnected much more quickly.

“This reform would allow such generators to avoid the main interconnection queue and move through a fast-track process to promote speed to power,” Runge said.

Finally, FERC and DOE want the interconnection study process streamlined and get the speed up to save hundreds of days from the usual queue stretch. In laying out these reforms, FERC hopes to simplify the design objective.

The hard part now will be to fill in the details and implement such a new process of large load and co-located power integration into real action. Doing this in a shorter time will also be a challenge for the ISOs and transmission providers, given limited staff and many other priorities on the grid.

“It’s a very significant piece of work that must be done quickly with a lot of regulatory pressure applied, and that’s a big deal,” Runge said. “It’s a big burden on ISOs and their stakeholders and staff.”

Where does all of the hubbub land?

The grid operators are working with their stakeholders now on tariff proposals reflecting the FERC-identified reforms. They have until mid-November to file those proposals with FERC.

Of course, the speed-to-power movement also has other challenges, including siting, state and local permitting processes. Data centers are facing resistance from residents in proposed building areas, so this kind of headwind could blow up for the co-located power generation, not to mention unique state regulatory pathways.

All true. The U.S. has 50 states, 50 policies when it comes to energy or anything else.

“This is clearly a new phase for the integration of large loads and their co-located generation,” Runge said. “The process for such integration will no longer be ad hoc but instead will be subject to clear tariff rules and schedules that will emphasize rapid integration, appropriate cost allocated and reliability protections for the grid.

“Stay tuned for the ISO filings in November and FERC response in early 2027—it’s an ongoing story,” he added.

One might say it’s so unique that it morphs into a new story really, redefining how on-site power will be built, paid for and how big it can be.

 Microgrids, or whatever they will be called down the road, are entering the macro conversation in the nation’s energy industry as it tackles an unprecedented era of AI load.

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