FERC takes historic action, orders US grid operators to ‘defend or revise’ large load interconnection tariffs

The Federal Energy Regulatory Commission (FERC) met this morning to modernize the process of connecting to the U.S. power grid, which is increasingly imperiled by the doomed marriage of unprecedented electric load growth and slow, methodical queues designed for the days before TikTok and artificial intelligence. The interstate transmission regulator has determined, in no uncertain terms, it’s time for some changes.

Today, FERC issued tailored show-cause orders under section 206 of the Federal Power Act to each of the six regional grid operators within its jurisdiction, directing them to either justify or reform the rules governing how large energy users data centers connect to the electric grid. The regional transmission operators (RTOs) and independent system operators (ISOs) are PJM Interconnection (PJM), Midcontinent Independent System Operator (MISO), Southwest Power Pool (SPP), California Independent System Operator Corporation (CAISO), ISO New England (ISO-NE), and New York Independent System Operator(NYISO).

FERC’s action on Docket RM26-4-000 is one of the most significant the Commission has ever taken to modernize the nation’s electric markets, aiming to “push the economy into the future by speeding integration of large energy users onto the grid.” By requiring RTOs, ISOs, and their transmission operators to either defend or revise their tariffs, FERC says it is acting to ensure that Americans have reliable, affordable power, even as electricity demand accelerates.

“We are setting the stage for a resilient, reliable, and forward-thinking grid that empowers communities and safeguards consumers by transforming the way large energy users access the grid. It is also critical that FERC provide certainty for investors by directing the markets to protect existing deals and unlock opportunities for technological advancement and economic expansion. We can facilitate both, which is exactly what we did today,” said FERC Chairman Laura V. Swett.

FERC’s action focuses on the unique operational profiles of large energy users, including those co-located with their own generation, and on the distinct challenges each regional grid operator faces in meeting soaring demand from the proliferation of large loads.

Five Categories of Reform

Under the orders, each RTO/ISO and its transmission owners have 60 days to either justify why their current tariffs remain just and reasonable without provisions tailored to large loads, or to file tariff changes that address the issues the Commission identified. Each tailored order tees up five categories of reform for the grid operators to address:

• Developing efficient transmission service application and study processes, including consideration of alternative transmission technologies
• Preventing cost shifting and requiring transparency into transmission costs
• Accommodating co-location agreements and behind-the-meter generation
• Providing new transmission services for flexible large loads
• Developing a process to study generating facilities that serve electrically proximate large loads and co-located loads

Additionally, within 30 days, each grid operator and its transmission owners must submit a detailed informational report describing how the grid operator intends to ensure that adequate generation will be available to serve existing and new large loads. The reports should include:

• Any proposals under consideration in its stakeholder process to address the issue of resource adequacy to serve new large loads
• A detailed schedule of key milestones, such as stakeholder or board votes, that includes the estimated date by which they expect to file any such proposal with FERC, and any ongoing stakeholder processes aimed at accelerating the addition of generating capacity in the region.

The reforms could create much-needed regulatory certainty and transparency, says the national clean energy business association Advanced Energy United, as well as safeguards to ensure that co-location won’t negatively impact electric rates and system reliability for all other customers.

“Addressing the rapid influx of new large loads requires speed, clarity, and transparency, and FERC’s orders today make meaningful progress on all those fronts,” summarized Caitlin Marquis, managing director at Advanced Energy United and guest on the newly-launchedFactor This Policycast. “Importantly, FERC recognized that grid flexibility, advanced transmission technologies, and new co-located generating resources are critical to solving the challenge of accommodating large load. Now it is up to grid operators and the industry to respond to FERC’s directives quickly with workable, durable solutions that are fair for all customers.”

Among the highlights, according to Marquis:

• The orders indicate that grid operators must accommodate large loads either through co-location or through flexibility that allows for potential curtailment during peak energy demand.
• The orders require cost recovery agreements and leave states responsible for ensuring that transmission costs flow to large-load customers and are not shifted to other customers.
• The orders require grid operators to examine installing advanced transmission technologies (ATTs) when making transmission upgrades. 

“Deploying more advanced energy technologies and enabling more grid flexibility are essential to meeting fast-rising energy demands, and we’re pleased to see the commissioners prioritize these solutions in their Order,” added Marquis. “These changes must be complemented by fixes to the generator interconnection process for energy projects, or supply won’t keep up with fast-rising energy demands. We look forward to working with state leaders and grid operators on reforming the grid-connection processes that are still too slow and unpredictable for this demand-growth moment.” 

Regional Differences

Because the six grid operators are unique in their individual progress toward large load innovation and structure, market design, stakeholder composition, and geography, the Commission’s orders recognize that a one-size-fits-all solution is not currently the most efficient solution for integrating large, energy-intensive loads onto the nation’s electric grid. FERC recognizes that regional differences exist in the procedures and strategies implemented by grid operators to date, and will continue to shape future proposals.  The orders have been designed to reflect these variations.  Several significant distinctions include:

• The RTOs, ISOs, and their transmission owners have different existing processes for studying transmission service requests on behalf of large loads, with some already pursuing stakeholder efforts to address the proliferation of large loads in their footprints.
• SPP stands out for its High Impact Large Load and High Impact Large Load Generation Assessment processes, which are expedited frameworks created to reliably serve massive new power demand from large loads such as data centers.
• FERC addresses co-located loads in PJM in a separate proceeding, in which it takes the next step with the issuance of item E-2 on this morning’s agenda.
• Transmission service models differ, including in CAISO, which does not offer traditional Order No. 888 transmission services.
• Roles and responsibilities for transmission planning are split differently among RTOs, ISOs, and transmission owners across the regions.
• The orders leave room for each RTO and ISO to define large loads and to create operational requirements for those large loads that are particular to their region.
• The orders also account for regional differences on topics such as cost transparency, study processes, and network upgrades.

FERC notes that nothing in today’s orders intrudes on the authority of states to select, site, and permit generating resources or on the authority of state public utility commissions to set the rates, terms, and conditions of retail sales of electricity. The orders also make clear that the Commission acts today to guard against cost shifting among transmission customers, but leaves to the states the responsibility to ensure that there is no cost shifting among retail customers.  In addition, FERC insists the orders are not intended to disrupt existing agreements that large loads have negotiated, or are in the process of negotiating, for the provision of transmission service. These orders provide that the RTOs/ISOs should allow a reasonable amount of time to finalize agreements that are nearing completion when any tariff revisions are filed with the Commission.