The rapid growth of data centers is exposing the limits of the U.S. electricity regulatory framework that was built for incremental, predictable load growth. That framework is now under scrutiny in proceedings before the Federal Energy Regulatory Commission (FERC) that could materially reshape how large electricity consumers like data centers obtain power and connect to the grid.

At its core, these FERC proceedings raise deceptively simple but consequential questions: Who gets to decide the rules for connecting large loads like data centers to the transmission system—the federal government or the states? Similarly, should large loads be able to access power generating stations directly? The answer to these questions will be shaped by the competing priorities of key stakeholders, including data center developers and owners, hyperscalers, grid operators and ratepayers, in addition to the federal and state governments themselves.

A Regulatory Framework Under Strain
Electricity regulation in the United States rests on a system of “cooperative federalism” embedded in the Federal Power Act (FPA). FERC regulates transmission and wholesale sales of electricity in interstate commerce while states retain authority over retail sales to end-use customers, local distribution, and utility service obligations. States also retain jurisdiction under the FPA to decide the location and type of power generators allowed to be built within their boundaries. For decades, this balance of power between FERC and the states has meant that even very large customers like steel mills, refineries, and, more recently, data centers are treated as retail load subject to state oversight because such large customers are end-use consumers of power.

That framework reflected long-standing assumptions: load growth would be relatively predictable, utility planning would be centralized, and large customers would have limited direct interaction with generation resources. Those assumptions are increasingly misaligned with today’s reality in which large corporate offtakers often contract directly with power generating stations, whether via a physical or virtual power purchase agreement. This trend of direct corporate procurement started over a decade ago, driven in part by the growth of renewable resources and corporate procurement goals designed to advance sustainability initiatives.

However, the explosive growth of data centers has exposed and intensified the strain. In many regions, traditional utility interconnection processes now involve multi-year delays, uncertain upgrade requirements, and service terms such as interruptibility that are incompatible with modern data center operations that require firm, 24-7 baseload electric service. What once functioned for incremental load growth is now a bottleneck for large-scale data center development. As a result, many data center developers and operators are exploring behind-the-meter solutions, though those options present their own set of unique challenges. Meaningful regulatory reforms are therefore needed to reduce interconnection delays and enable the build out and hardening of the grid to meet rapidly growing data center demand.

Forecasts for Data Center Load Growth
As of November 2025, the United States had approximately 5,427 data centers—nearly half of all data centers worldwide. Power demand from these data centers more than doubled between 2017 and 2023, driven largely by the rapid expansion of artificial intelligence (AI) services. That growth is expected to continue. According to a 2025 Berkeley National laboratory report, domestic energy usage from data centers could double or triple by 2028. In major data center hubs like Northern Virginia, these facilities already consume roughly 26% of the state’s total electricity, more than all the households in the region combined. For comparison, a small city typically requires enough power to serve 80,000 to 100,000 homes, while a medium-sized city serves 400,000 to 500,000 homes. A single data center, by contrast, can demand as much electricity as a small city and, in some cases, up to twice that of a medium-sized city. Nationally, data center power demand is projected to increase from 30 gigawatts today to 134 gigawatts by 2030—17% of the total U.S. peak electricity demand.

Competing Visions for the Future
As the federal government’s energy regulators consider the massive need to power data centers, regulatory tension came to a head in October 2025 when Secretary of Energy Chris Wright challenged the historical framework for powering and interconnecting data centers to the grid. Through an Advanced Notice of Proposed Rulemaking (ANOPR), the Department of Energy directed FERC to explore whether large loads greater than 20 megawatts (MW) that interconnect directly to the transmission system should be treated as transmission-level assets subject to federal jurisdiction, effectively bypassing local distribution interconnection entirely. In short, Secretary Wright argued that large data centers should be treated as the functional equivalent of wholesale power generators—exempt from state jurisdiction and eligible for expedited connection or direct powering from adjacent power plants (a practice called co-location).

FERC’s request for comment drew hundreds of responses from states, utilities, grid operators, consumer advocates, data center developers, and technology companies. While commenters broadly agreed on the problem—existing interconnection processes are too slow, inconsistent, and uncertain—they sharply disagreed on the solution to powering large data center load.

States and consumer advocates argued that the proposal represents an unprecedented expansion of federal authority into the exclusive province of the states over retail regulation. They warned that federalizing large load interconnection could undermine state-approved tariffs, interfere with retail rate design, and shift the costs of new transmission upgrades onto existing customers. This is possible, they say, because FERC-regulated transmission providers can pass new costs onto the states directly without state energy and public utility commission approvals. Several state commissions emphasized that they already have bespoke large load frameworks in place and cautioned against replacing them with a one-size-fits-all federal regime, particularly on an accelerated timeline. Both states and consumer advocates also clarified that the issue of powering and interconnecting large loads is being addressed at the state level through existing integrated resource planning and transmission planning processes. Some advocated for greater regional coordination among states and utilities to address cross-border transmission impacts while preserving the retail rate authority of the states.

Utilities and grid operators struck a more nuanced tone. Many support greater standardization and clarity from FERC but caution that creating parallel federal interconnection queues alongside existing state interconnection queues could conflict with regional transmission planning processes. Cost allocation emerged as a central issue: utilities emphasized that if large loads are permitted to interconnect at the transmission level, the governing framework must ensure that those large load customers bear the full incremental costs of network upgrades driven by their interconnection. In particular, the process should avoid shifting upgrade costs to existing customers or undermining long-standing transmission ratemaking principles where customers that cause costs—or benefit from investments—are responsible for paying for them.