AI companies are starved for power. Electric power, that is. Silicon Valley’s appetite for rapid development is running up against the slow and plodding pace of government rule-making.
The five-member Federal Energy Regulatory Commission, or FERC, is drafting a new proposal that would expand its authority to manage the country's surging demand for electricity. But in the meantime, AI developers’ ambitions to hook up a fleet of data centers throughout the country to the power grid is colliding against the fragmented governance between state regulators, public utilities, and the federal government.
Experts have long said the antiquated power grid is in dire need of upgrades, given its original aim of generating electricity for American homes from coal and gas plants. The little-known FERC now sits in the middle of the maelstrom, between hyperscalers pushing for more access to a grid under strain and its responsibility to shield ratepayers from painful price hikes.
“FERC is doing its best to be proactive and anticipate these changes,” Daniel Palken, the director for infrastructure energy and permitting at Arnold Ventures, told Quartz. “They're trying to make it so that new power can come online as quickly as reasonably possible, while making sure that costs aren't being unfairly shifted."
A sharp increase in electricity prices nationwide is stoking frustration among voters already struggling with the rising cost of living. Since early 2020, prices have shot up by 46% for residential customers, according to the Bureau of Labor Statistics.
The Trump administration has scrambled to curtail power bills, starting with President Donald Trump’s push to allow tech companies to construct their own power plants to accommodate data centers in a “speed to power” campaign. It has supporters in Congress as well, who view it as an opportunity to crisis-proof an ancient grid.
“If you're going to do data centers, plan on bringing your own power, and let's put some incentives in so that they can actually build the power with the data centers,” South Dakota Republican Sen. Mike Rounds told Quartz. “I like that idea because as we grow, it means we could have excess capacity in some areas in case we ever needed it in an emergency.”
That’s where FERC steps in. The regulator is charged with overseeing wholesale power in the U.S. Its jurisdiction encompasses three main power grids divided by region, while state-level utilities manage local power plants and set retail rates for both commercial and residential customers. Most utilities have a monopoly over their local energy market relying on a public mandate to provide low-cost electricity.
The rapid velocity of the AI boom, though, is outpacing regulators’ ability to draw up fresh rules on power generation. The scale of their challenge is enormous: Some data centers devour enough electricity to power cities or small states like Vermont. Currently, data centers consume 4% of the U.S.’s electricity, and projections show that figure could triple to 12% by 2028.
“Our demand growth for electricity was flat for many, many years, really more than a decade, until this recent boom that we've seen in data centers,” said Jeff Dennis, an ex-FERC official who is now executive director of the Electricity Customer Alliance. “So there wasn't a very strong signal to keep building forward for the future.”
There's an unmistakable signal now. The private sector is flooded with capital spending that can't get enough of AI. Tech companies such as Google, Amazon, and Meta are projected to spend at least $700 billion to develop artificial intelligence.
‘They don’t speak FERC’
Liza Reed, a climate and energy expert at the Niskanen Center think tank, said the Trump administration was seeking to create "a North Star" for the business community on a compressed timeline. It hasn't always gone according to plan.
FERC initially blew past an April 30 deadline from the Department of Energy to establish national standards for linking data centers to the power grid. The agency released those orders in mid-June obligating regional grid operators to justify within two months how their pricing structures can pave the way for more data centers or they must alter them right away. Analysts say the rapid timeline will likely slash the multi-year interconnection backlog.
Laura Swett, who chairs FERC, said in March that there has been tension between AI hyperscalers and government regulators, describing a landscape fraught with “a breakdown of communication in many instances.”
“The hyperscalers, when they do come speak to us, they don’t speak FERC,” Swett said. “Their complaints about the utilities, quite frankly, to me show a lack of understanding of how the utilities normally function and how the grid functions.”
Swett compared the electric grid to a “slow-moving ship” that must be overhauled into a “speedboat” on short-notice so it can function as intended.
FERC's attempt to expand federal authority onto managing the grid may run into legal obstacles as well.
"It's almost definitely going to lead to litigation from states who think FERC shouldn't have the authority," Reed said.
FERC has been prodding PJM Interconnection — the largest power market on the eastern coast of the U.S. spanning 13 states and Washington D.C. — to reform its process so more energy-producing projects can be connected to the electric grid faster. PJM recently said it will set up a temporary fast-track route to consider up to ten interconnection requests every two years.
What's at stake, though, goes far beyond the conundrum of connecting data centers onto a decrepit grid. “This stops being a question just about data centers, and starts being a question about any ambition that the country has to grow its electrical use,” Palken said. “So whether it's about re-shoring manufacturing of traditional industries like aluminum smelting or stata eel, or new industries like battery manufacturing.. all of these things are going to require a lot more electricity."
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