Federal–State Jurisdictional Issues Raised by Data Centers and Large Load Interconnections

The interconnection of data centers and other large loads is testing the boundaries of long-standing jurisdictional lines between federal and state regulatory authority.

The Federal Energy Regulatory Commission’s (“FERC”) regulatory oversight= includes interstate electric transmission and wholesale sales of electricity.  The agency does not regulate retail sales of electricity, distribution service, or decisions related to siting (apart from FERC’s conditional backstop siting authority over certain interstate transmission facilities). Instead, the Federal Power Act reserves these powers to the states.  FERC has grappled with the scope of its authority and, in turn, the states’ authority in the context of the explosive growth of data center load, with increasing pressure and suggested willingness on the part of FERC to push further to accelerate interconnection of data center load.  

This article, part of Womble’s Powering the Future: Legal Challenges in Grid Modernization and Transmission series, explores recent and expected FERC action on data centers and large load interconnection that raises key questions about the federal-state jurisdictional divide, as well as how some states are addressing these challenges through their own mechanisms. 
 

FERC’s Recent Decisions Highlight Jurisdictional Boundaries 

The jurisdictional tensions related to data center interconnections were in sharp focus in FERC’s recent decision on proposed tariff provisions in the Mountain West region.  In Tri-State Generation & Transmission Ass’n, Inc., 193 FERC ¶ 61,070 (2025) (“Tri-State”), FERC rejected a proposed “High Impact Load Tariff”—intended to service data centers and other large energy consumers—after finding that key provisions impermissibly regulated terms and conditions of retail electric service.  Although Tri-State framed the tariff as operating “in connection with” FERC-jurisdictional wholesale service, FERC concluded that provisions imposing minimum retail demand and energy requirements as well as monthly caps crossed the jurisdictional line into retail regulation reserved to the states.   

Citing to U.S. Supreme Court precedent, FERC emphasized that it may not regulate retail sales “no matter how direct, or dramatic” the effect on wholesale rates.  FERC noted that the Court’s clarification on this point “presents a limit on the Court’s finding that the Commission has authority under the [Federal Power Act] to ensure that practices directly affecting wholesale rates are just and reasonable.”  

FERC’s December 18, 2025 Order related to the PJM region further demonstrated the agency’s continued sensitivity to jurisdictional boundaries related to data center interconnections.  In directing revisions to PJM’s tariff, FERC emphasized the exclusive authority that states retain over matters such as retail sales, siting, the generation resource mix, and how wholesale costs are allocated among retail customers. FERC stated that it cabined its actions within its authority over generator interconnection procedures and agreements and transmission cost allocation, which fall within its broader authority over wholesale sales of electricity and interstate electric transmission rates.

While cognizant of jurisdictional issues, the December 18th Order waded into service closer to the line between wholesale and retail, finding that PJM’s tariff was unjust and unreasonable because it did not sufficiently include and define service to generators serving co-located load and for customers taking transmission service on behalf of co-located load.  The co-located load would ultimately cover service to data centers taking retail electric service.  PJM actively engaged stakeholders in attempting to develop tariff revisions addressing costs and reliability issues involved with adding significant load both independently and in response to December 18th Order, and on January 20th and February 23rd filed tariff revisions addressing the first parts of FERC’s December 18th Order, along with briefs responding to FERC’s initiation of paper hearing proceedings to determine just and reasonable rates of the new services.  

Read together, the PJM proceeding and Tri-State illustrate both the reach and the limits of FERC’s authority in addressing large load interconnections.  As data center development continues to accelerate, the jurisdictional boundaries drawn by the Federal Power Act will remain a key issue and one that will require close attention to the specific co-location arrangements in play.  FERC’s response to the recent advance notice of proposed rulemaking (“ANOPR”) on large loads will be crucial in demonstrating its ability to navigate those boundaries. 
 

Large Load Advance Notice of Proposed Rulemaking

In late 2025, the Department of Energy requested that FERC institute a rulemaking to ensure data centers and other large energy users can more expeditiously connect to the grid.  FERC quickly invited stakeholders to file comments on the DOE’s proposal.  The ANOPR recognizes jurisdictional issues, but is largely drafted to support an expansive federal role in the interconnection process for these large loads.  Nearly 200 comments were submitted before year-end, including filings by technology companies, developers, consumer groups, utilities, industry groups, state commissions, and regional organizations. 

Stakeholder comments generally fell along expected lines, with large customers and generation developers supporting quick action on the rulemaking, along with provisions providing faster and more predictable interconnection timelines.  Consumer groups expressed concerns about cost-shifting and supported robust protections to ensure costs of large load interconnections are not borne by residential customers.  

Many stakeholders commented on the jurisdictional line between state and federal regulation, and some cautioned FERC not to overstep its jurisdiction and advocated against one-size-fits-all mandates that ignore regional differences and state progress, with a common theme that reforms must be legally robust in not overstepping. Some parties further warned that impeding on state jurisdiction could result in legal battles that would delay needed reforms. State commissions, including the California Public Utilities Commission and the Georgia Public Utilities Commission, urged FERC to collaborate with states to ensure states’ retail jurisdiction is preserved and to avoid overriding already implemented successful state programs. 

Following the Tri-State order, FERC—with two new members, including a new Chair—has made multiple public statements suggesting strong support for FERC taking a policy lead in ensuring timely and adequate supply for data center load growth, highlighting national security implications of AI advancement, in addition to the bedrock FERC guiding principles of grid reliability and ratepayer protection from unjust and unreasonable rates.  These statements suggest that FERC will take prompt action on the ANOPR as requested by DOE, though FERC’s recent orders indicate that it will carefully navigate jurisdictional boundaries in exercising authority. Chairman Laura Swett, in particular, has repeatedly taken the opportunity at Commission open meetings to highlight the issue, praise the efforts of utilities, RTOs, and state regulators in forwarding these goals, and maintained calls for swift action to expedite interconnection of large loads.
 

State Regulation of Data Centers and Large Loads 

As noted above, states regulate retail electric service and they have been far from idle as FERC considers the large load ANOPR, co-location and other transmission level issues. Many states have approved new rules through utility tariffs either specifically related to data centers, or applicable to large customer loads, and a growing number of legislatures are passing bills aimed at ensuring the costs to bring on high-load customers are not shifted to the broader customer base.  

While the precise requirements in each state are different, the general frameworks developed have many similarities. State regulators are largely looking to ensure that these high-load customers pay the costs they cause, including in the event that the anticipated demand does not materialize. Key considerations include the load size to qualify for applicability under these new tariffs, what kinds of security or collateral must be provided, minimum contract terms and exit fees, and minimum bills or minimum demand charges.  

Two recent examples can be found in Pennsylvania and Michigan, as both states’ public utility commissions issued recent orders on large load tariffs. In November, the Pennsylvania Public Utility Commission issued a Tentative Order proposing frameworks and seeking comments on large load customers’ interconnection costs, interconnection studies, minimum contract terms, exit fees, and collateral, among other areas. As proposed by the Tentative Order, large load tariffs will apply for customers exceeding 50 MW individually or 100 MW in the aggregate. The Tentative Order has received dozens of comments and awaits final action by the Pennsylvania PUC.

Also in November, Michigan regulators approved the state’s first data center tariff, applying to loads of 100 MW or more. The Michigan PSC followed this with approval of energy contracts between a state utility and a data center including enhanced financial protections and assurances that data center load will be shed prior to services to other utility customers during emergency conditions. Both states include specific security requirements, minimum billing terms and exit fees and both commissions emphasized the importance of ensuring that large load customers pay the costs of interconnection—and that those costs are not unreasonably shifted to other ratepayers.

With the increased attention on data center development, more and more state legislatures are also getting into the mix. Lawmakers are largely focused on the costs to customers, but the approaches taken to control or prevent cost shifting in each state vary. For example, Idaho recently proposed legislation allowing new loads over 10 MW to receive service from energy providers other than the local utility, and just last week legislators added a proposal to block data center load coming online from raising utility rates for other customers. Maryland directed its utility commission to develop regulations to ensure “that residential retail electric customers in the State [do] not bear the financial risks associated with large load customers[,]” defined as 100 MW or more, interconnecting to the electric system. Oregon lawmakers recently directed its state commission to create a new class for loads over 20 MW that mitigates the risk of shifting costs to other customer classes. Expect more local legislation in this area as data centers increase their presence in states that previously were not targeted for data center development.  
 

A Counter Movement for Less Regulation  

While much of the discussion has been about who and how to regulate these large loads, others have put forth proposals to exempt large loads from regulation.  Just last month, lawmakers proposed a bill to exempt new, physically isolated off grid systems from FERC regulation to give large loads like data centers an alternative path. The Decentralized Access to Technology Alternatives Act of 2026 (“DATA Act”) would limit eligibility to systems serving new loads that are fully isolated from the bulk power grid to preserve grid reliability and public safety.  A similar measure recently passed in New Hampshire, exempting “off-grid providers” from utility regulation. Proponents of these measures claim. Others note that this path leaves large loads isolated from the benefit of backup power from the grid. It is unclear, however, what direction federal legislation may take in data center regulation, with a recent bipartisan bill proposed to limit data center impact on consumer power bills by requiring data centers to bring their own generation when interconnecting. Similar “bring you own generation” forms parts of proposals by PJM and other grid operators to address large load growth from data centers.  

Conclusion  

In addition to operational and other issues raised by the interconnection of data centers and other large load customers, regulators at all levels are working through the jurisdictional issues that these arrangements present. While there are jurisdictional concerns on federal regulators dipping too deeply into the retail sale implications of the customer load growth, there is also interest from the Department of Energy and some stakeholders to expansively consider FERC’s authority and support more accelerated load growth. Ongoing proceedings at FERC and in the states, as well as pending legislation, will determine how large loads interconnect to the transmission system, as well as the rules and costs for limited interconnections and fully isolated systems of off-grid supply.  This jurisdictional debate will play out while states are under increasing pressure from both industries looking to interconnect and build and price-sensitive residential customers as retail rates reflect this growth.