With the explosive growth of data centers and other large-scale energy consumers, the nation’s electric grid is facing unprecedented strain. Navigating this new landscape is Christopher Hailstone, a veteran expert in energy management and electricity delivery, whose work provides critical insights into the complex challenges of grid reliability and security. In a recent landmark decision, the Federal Energy Regulatory Commission (FERC) approved a transmission agreement for a new Amazon data center in Pennsylvania, a case that has thrown a spotlight on the growing tensions between accommodating new industrial loads and protecting everyday consumers. We sat down with Christopher to dissect this decision and explore its broader implications, touching on the fine line regulators must walk, the jurisdictional gaps that can leave ratepayers vulnerable, and the innovative policies that might shape the future of the U.S. power grid.
The PJM market monitor’s concerns about grid reliability and ratepayer costs were deemed “outside the scope” by FERC. Could you walk us through FERC’s specific reasoning for this and explain what metrics or terms within the PECO-Amazon agreement satisfied the commission’s more narrow focus?
This is a classic example of regulatory perspective. From FERC’s viewpoint, this proceeding was not about the entire PJM power system; it was a microscopic look at one specific contract: the transmission security agreement between PECO and Amazon. The commission’s logic was that this agreement was solely designed to ensure Amazon would cover its slice of the transmission revenue pie. The core of the deal included terms that protected other utility customers from the direct costs of the grid upgrades needed for the data center. It even had provisions for what would happen if the project wasn’t built as planned, which is a crucial safeguard. So, when the market monitor brought up broader concerns like where the generation capacity to power the data center would come from or the potential ripple effects on regional energy costs, FERC essentially said, “That’s a different conversation for a different day.” They were focused entirely on the financial and contractual mechanics of the transmission connection, not the holistic impact on the grid.
FERC applied the Mobile-Sierra presumption to this agreement. Given Commissioner Chang’s warning that private deals shouldn’t be assumed to be in the public interest, can you detail the specific legal criteria for this presumption and provide an anecdote of how it could potentially disadvantage customers?
The Mobile-Sierra presumption is a powerful legal doctrine that gives significant deference to privately negotiated contracts. The core criteria are that the contract was reached freely between independent, sophisticated parties. Once those boxes are checked, FERC must presume the terms are “just and reasonable” and can only intervene if there’s a compelling finding that the contract would “seriously harm the public.” Commissioner Chang’s warning gets to the heart of the risk here. Imagine a scenario: a utility and a large industrial customer lock in a long-term transmission rate in a private deal. FERC approves it under Mobile-Sierra. Five years later, due to unforeseen supply chain issues and inflation, the actual cost to maintain and operate that part of the grid skyrockets. Because the industrial customer’s rate is locked in by the contract, the utility has to recover those soaring costs from someone—and that someone is its captive base of residential and small business customers. In this way, a private agreement that seemed perfectly reasonable on paper ends up socializing risk and financial pain across the entire customer base, which is precisely the kind of outcome that erodes public trust.
Commissioner Chang highlighted the risk of “jurisdictional silos” between federal and state regulators. Could you illustrate with a step-by-step example how a large load addition could exploit these gaps, and what specific coordination efforts between FERC and state commissions are needed to close them?
These jurisdictional silos are a very real problem. Let’s walk through how it can play out. First, a massive data center approaches a utility for service. At the state level, they negotiate a retail tariff, which the state utility commission reviews, maybe focusing on local job creation and economic benefits. Simultaneously, the utility and the data center craft a transmission service agreement for the high-voltage grid upgrades, and they take that agreement to FERC for federal approval. FERC, as we’ve discussed, might apply the Mobile-Sierra presumption and approve it based on its narrow focus on transmission costs. The danger is that neither regulator ever sees the full picture. The state commission might not have the authority or expertise to evaluate the wholesale market impacts, while FERC waves off the retail ratepayer concerns as a state matter. The result is a loophole where the full, cumulative costs and reliability risks are never holistically assessed. Closing this gap requires proactive, formal coordination: joint technical conferences, shared dockets, and perhaps even formal protocols where a state commission’s assessment of retail customer impact must be given material weight in a FERC proceeding, and vice versa.
The article mentions adapting the “higher of” pricing policy from generator interconnections. Can you first explain how this policy insulates existing customers from generator upgrade costs, and then detail how it could be specifically applied to protect ratepayers from the transmission costs of a new data center?
The “higher of” policy is a really elegant solution to the “who pays?” question. Historically, when a new power plant wanted to connect to the grid, the cost of the necessary transmission upgrades would be rolled into the rates for all customers. This meant your monthly bill could go up to help pay for infrastructure needed by a private generator. The “higher of” policy flipped that. Now, the utility calculates two rates: the average embedded cost rate that everyone else pays, and an incremental cost rate based on the specific, brand-new upgrades the generator requires. The new generator has to pay whichever of those two rates is higher. This effectively creates a financial firewall, insulating existing customers from those new system costs. Applying this to a data center would be very direct. Instead of socializing the cost of new substations and high-voltage lines for the Amazon facility across all of PECO’s customers, you would calculate the precise incremental cost of that new infrastructure. Amazon would then be charged that specific, higher rate for its transmission service, ensuring that Philadelphia residents and Main Street businesses aren’t left subsidizing the grid buildout for a single, massive new user.
What is your forecast for how FERC and state commissions will manage large load interconnections over the next five years, especially with over 60 tariffs under consideration and a new DOE proposal on the table?
My forecast is for a period of rapid, and frankly necessary, regulatory evolution. The current case-by-case approach, where we have these one-off bilateral agreements like the PECO-Amazon deal, is simply not sustainable. With states looking at over 60 different large load tariffs and the Department of Energy now weighing in with its own proposal, the pressure is immense to create a standardized, predictable, and fair framework. I believe we will see FERC move decisively away from relying on the Mobile-Sierra presumption for these cases and toward adopting more proactive customer protections, with the “higher of” pricing policy being a top contender. The jurisdictional silos Commissioner Chang warned about will become a major focus, and I expect to see more formal mechanisms for state and federal collaboration. The fundamental principle that will guide this shift is that large, sophisticated energy users must pay for the system impacts they create. The next five years will be about turning that principle into enforceable, nationwide policy.
