WASHINGTON — Even if demand forecasts from new data centers are twice as large as what ends up being built, the growth is going to be at a scale where the power industry’s regulations need to change to keep up with it, former FERC Commissioner Allison Clements told the Energy Bar Association’s Northeast Chapter Winter Summit on March 12. 

“You have a desire for AI dominance, and then you still have this slow-churning, difficult regulatory process to get through,” said Clements, who since leaving FERC has started working part time at ASG, which helps build data centers. 

The power industry is among the most regulated in the country, and anytime a decision has to be made or money spent, it has to go through at least couple of proceedings, she added. The exuberance around data center expansion and artificial intelligence’s potential is starting to clash with that. 

“The reality is, whether or not Stargate is actually going to deploy $500 billion in the U.S. depends on all those regulatory check marks,” Clements said. “Nobody has stood up in this moment of exuberance and said, ‘I’m going to spend the money no matter what. That money is still going to go through each individual company and investment community, right? You’re still going to have to check all these boxes.” 

In the next few years, as Orders 2023 and 1920 are only being implemented; new natural gas turbines are taking five years to get installed; and clean, firm power supply options are not commercially viable, the industry is going need to get creative to serve new large loads, Clements said. 

“This isn’t a technological problem; it’s a political will, operational kind of structural/institutional issue,” Clements said. 

The existing grid can have its capacity maximized with new software and hardware; interconnections could be optimized across seams; and the industry could look to the new large customers themselves to help, she added. 

FERC Chair Mark Christie is split by the issue, with Clements saying he understands the concerns about holding other customers harmless from the infrastructure expansions required by large data centers but he also sees the other side. “He’s very clear about the political pressure and the market pressure to get something done, to unlock the jam.” 

Co-location has dominated the issue at FERC so far, with Christie saying he wants a proposed rulemaking, issued at February’s open meeting, to be finished quickly. (See FERC Launches Rulemaking on Thorny Issues Involving Data Center Co-Location.) 

The nuclear plants in PJM were initially paid for by ratepayers, and many wound up being subsidized to keep running by their states as cheap shale gas ate into their profits, but Clements noted they are often in fully restructured states. 

“Now those resources have found better commercial opportunities,” Clements said. “The way the market, if it was a fully functioning market, should work is that we facilitate those opportunities.” 

Co-located load can either be served entirely by its unit or get backup from the grid, said Jennifer Mansh, Talen Energy senior vice president of regulatory affairs. While the concept has been pursued around PJM and in other markets, so far Talen’s Susquehanna nuclear plant in Pennsylvania is the only one to have a co-located data center. 

FERC rejected an expansion of that co-located data center when it launched a broader look at the issue, and Talen is challenging the rejection in court, she added. The industry should get more clarity as PJM and other parties respond to the rulemaking and its dozens of questions in the next week, Mansh said. 

“There’s an acknowledgement that we need to move urgently, but then you see so many questions about the detail of how this might work,” said Carrie Allen, deputy general counsel for Constellation Energy, referring to FERC’s co-location proceeding. “And I would just suggest to the commission, if I had a chance to talk to all of them, that not every single one of those 39 questions needs to be addressed … in order to figure out the broader contours of a policy framework.” 

FERC says it wants to move quickly on the issue, but so far that has not been the case, said Nicholas Gladd, partner at Wilson Sonsini Goodrich & Rosati. “I also think what’s on their minds, based on that lengthy list of questions, is they want to do something big and great because they think this is a big problem,” he added. 

But not all of those questions need to be answered immediately, he said. Gladd would prefer to let the market work and bring its own solutions to the fore, rather than have too many top-down regulations around co-location. PJM is facing some resource adequacy issues, but throttling down large loads does not get to the markets’ root problems, in addition to being bad for national security, he said. 

“Given the capacity market has those flaws, and the interconnection queue has those flaws, the fact that there’s new large growth is an opportunity, not a risk,” Gladd said. “What better investment signal, or what better factor to indicate that an investor signal is robust, than hundreds of megawatts of load?” 

After years of flat load growth in most of the country that came with many traditional, thermal generators retiring and replaced by intermittent renewables, the growth in data centers has exposed some underlying tensions on the grid, said Mike Twomey, senior consultant for Charles River Associates. 

“This increased demand for electric service by data centers in many parts of the country is causing a lot of friction on issues that have been largely, I guess the right word is … ‘underground’ for the last 20 years,” Twomey said. 

Some parts of the grid might even be incapable of serving massive new load unless they bring supply along with the new demand, he added. Many of the data center developers want to be supplied by clean energy, but if they need it, they will not hesitate to supply a facility with natural gas generation, Twomey said. 

While some data centers can shop around for the best places to plug into the grid, that will not be possible in every case because of issues around latency, said Michael Armm, managing director of BlackChamber Group. Latency refers to the lag that happens when data is sent across long distances, which requires proximity for some applications. 

The need for latency has kept the sector growing in Data Center Alley in Virginia and nearby. Latency will be an even bigger issue as autonomous vehicles move beyond the pilot project stage. 

“Thinking about autonomous vehicles, if you’re at an intersection and there’s four cars and one’s going to start moving, the other one is going to react to it; you can’t wait for that signal to go 500 miles away to a data center to … go through an algorithm and [be] sent to the car next to you,” Armm said. “That timing is much faster, so you’re going to see more edge computing.” 

Autonomous vehicles could require smaller, distributed data centers sprinkled around cities that can handle a few blocks worth of traffic, he added.