Gravel2Gavel Construction & Real Estate Law Blog
The explosive growth of data‑center load—driven by artificial intelligence, cloud computing and the expansion of digital infrastructure across industries—has forced U.S. energy regulators into unfamiliar territory. Nowhere is this more evident than at the Federal Energy Regulatory Commission (FERC), which is actively considering how large, concentrated loads can be powered without compromising grid reliability or shifting costs to other customers.
FERC has not yet issued a standalone rulemaking on data centers. But make no mistake, the regulatory framework is quietly and deliberately being built. For developers, hyperscalers, utilities and investors, the period before FERC finalizes its next round of decisions represents the critical window to crystallize advocacy and structure transactions in ways that anticipate regulatory change.
The Regulatory Direction Is Clear—Even If the Rules Are Not Final
FERC’s recent actions—particularly its December 2025 order directing PJM Interconnection to overhaul tariff treatment of co‑located generation and load—tell a consistent story: (i) data‑center load is now treated as a bulk power system planning and reliability issue; (ii) co‑located or behind‑the‑meter generation is permitted, but not as a cost‑shifting mechanism; and (iii) firm service is no longer presumed for new large loads.
This approach reflects FERC’s concern that unconstrained data‑center growth, if improperly structured, could drive unnecessary transmission expansion and spread the associated costs across customers who do not benefit from these projects.
What This Means for Structuring Transactions Today
While compliance proceedings remain pending, several structuring principles are already apparent:
- Transmission cost responsibility must be treated as a first-order deal term. Projects that contain ambiguity around network upgrades or congestion costs face heightened regulatory and financing risk. By contrast, transactions that expressly assign cost responsibility and repayment mechanics align with FERC’s trajectory.
- Developers should assume that non-firm, interruptible, or conditional service is the baseline. Firm service remains available, but only at a price. This implicates curtailment risk allocation, backup generation sizing and revenue certainty under hyperscaler power purchase agreements.
- Co-located generation should be positioned as a reliability asset, not a regulatory loophole. FERC is focused on whether a data center remains dependent on the grid at peak load and whether it externalizes reliability risks. Well-structured projects address these issues through operating protocols, reserve margins, transparent curtailment rights and sufficient co-located generation.
- Sophisticated transactions now deliberately allocate regulatory risk. Recent power purchase agreements incorporate targeted change-in-law provisions, repricing triggers, or service-classification adjustment mechanisms tied to future FERC action.
What Not to Do While FERC Is Deciding
Market participants should avoid: (i) assuming that regulatory silence equals approval; (ii) relying on indefinite access to firm transmission; or (iii) structuring transactions that only work if current ambiguity persists. The regulatory environment is tightening, not loosening.
The Strategic Opportunity
Regulatory flux can be an advantage. Transactions structured today with clear cost allocation, flexible service models and disciplined risk-sharing are more likely to advance through interconnection and have the flexibility to respond once FERC codifies its national approach. These projects will also be able to obtain construction financing more easily or with less stringent terms because they have structured their transaction to address and allocate the risk of regulatory uncertainty. When FERC ultimately speaks again, the market leaders will be those who anticipated the outcome rather than those who waited for it.
The question is no longer whether FERC will regulate data‑center power structures—it already is. The decisive issue is whether today’s transactions reflect the rules being written now, rather than assumptions from the past.
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Deal Checklist—Hyperscaler PPAs with Bring‑Your‑Own New Generation
- Clear service classification (firm versus non‑firm or conditional)
- Explicit curtailment rights and priority allocation
- Defined responsibility for transmission and network upgrade costs
- Dedicated generation availability standards and reserve margins
- Backup power and outage protocols
- Change‑in‑law and tariff reclassification protections
- Lender‑acceptable service durability assumptions
For questions about this article or to discuss how these developments may affect your data center projects, please contact your Pillsbury attorney or the authors of this alert.
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