FERC Takes Action on AI Data Centers’ Impact on Grid Reliability

FERC has launched a review into the co-location of AI-driven data centers with power plants in the PJM region to evaluate its impact on grid reliability and consumer costs. This decision follows concerns raised during a November 2024 technical conference and a complaint by Constellation Energy against PJM. The Commission found that PJM’s tariff might lack clarity, leaving generators and large load customers uncertain about compliance. In response, FERC issued a show cause order, giving PJM 30 days to justify or modify its tariff.

Chairman Mark Christie emphasized the urgency of addressing these issues due to their major implications for grid stability and pricing. Additionally, FERC rejected Exelon Companies’ proposed tariff revisions, stating they exceeded their filing rights, though related concerns may still be reviewed. As co-location of AI data centers with power generation sites is a relatively new practice, clear regulations are needed to prevent disruptions. FERC aims to establish rules ensuring fair integration of large electricity consumers without compromising grid reliability. The outcome of this proceeding could set a precedent for how other regional grids manage similar challenges in the future.

FERC Takes Action on AI Data Centers’ Impact on Grid Reliability

The Federal Energy Regulatory Commission (FERC) has unanimously voted to initiate a review of issues related to the co-location of large electricity consumers, such as AI-powered data centers, at generating facilities within the PJM Interconnection region. The review will assess whether PJM’s current tariff sufficiently addresses these arrangements while ensuring grid reliability and fair consumer costs. Given the increasing number of proceedings related to co-location in PJM, the Commission is focusing its inquiry on this region, which operates the largest electrical grid in the U.S.

This action stems from concerns raised at FERC’s November 2024 technical conference, which examined the impact of large load co-location on the grid. Additionally, the Commission has consolidated the records of two ongoing proceedings: the technical conference and a complaint filed by Constellation Energy Generation, LLC against PJM Interconnection, L.L.C. The decision to combine these cases was made due to the overlapping issues involved.

Chairman Mark Christie underscored the urgency of addressing co-location challenges, stating that the feedback from stakeholders at the November conference made it clear that immediate action was necessary. He emphasized that co-location is a relatively new practice with significant implications for grid stability and electricity pricing, making it imperative for FERC to carefully evaluate its impact.

FERC’s review indicates that PJM’s existing tariff may not adequately define the rates, terms, and conditions governing co-location arrangements. The lack of clear guidelines may leave both generators and consumers uncertain about how to establish compliant co-location setups. The Commission’s concern is that without explicit rules, these arrangements could be implemented inconsistently, potentially leading to disruptions or unfair cost allocations.

As a result, FERC has issued a show cause order requiring PJM and its transmission owners to respond within 30 days. They must either demonstrate why the current PJM tariff remains just and reasonable or propose necessary modifications to address the Commission’s concerns.

In a separate ruling, FERC rejected proposed tariff revisions submitted by Exelon Companies, which sought to clarify how co-located loads should be treated under PJM’s rules. The Commission determined that Exelon exceeded its filing rights in making the proposal. However, broader issues related to co-location raised in Exelon’s submission may still be considered as part of the larger PJM proceeding initiated by FERC.

The Commission’s actions reflect a growing recognition of the challenges posed by AI-driven data centers and other large electricity consumers co-locating with power generation sites. These facilities demand substantial power resources, raising questions about how they should be integrated into the grid while maintaining stability and equitable cost distribution.

By launching this review and requiring PJM to justify or modify its tariff, FERC aims to establish clearer regulations that balance innovation in energy use with the need for a reliable and fair power system. The outcome of this proceeding will likely influence how similar co-location arrangements are handled across other regional transmission organizations in the future.