US energy regulator directs PJM to set AI data center rules

By Timothy Gardner

WASHINGTON, Dec 18 (Reuters) - The U.S. energy regulator on Thursday directed the largest U.S. grid operator, PJM Interconnection, to establish rules on the connection of artificial intelligence-driven data centers and other large electricity loads located next to power plants, a move an analyst says benefits existing natural gas and nuclear plants.

Backers of AI and other facilities that consume large amounts of power say that co-locating them near power plants offers efficiency benefits, including cutting the need for new transmission lines. Opponents say it can damage grid reliability and raise power bills for surrounding communities by reducing electricity available for public use.

The Federal Energy Regulatory Commission said the move will protect consumers in the mid-Atlantic region that serves about a fifth of Americans in 13 states and the District of Columbia.

Laura Swett, the FERC chairman, said the order was a "monumental step towards fortifying America's national and economic security in the AI revolution," and would ensure power rates remain "just and reasonable."

PJM said it is reviewing the order. "We share FERC’s focus on clear and transparent rules as data centers expand their role as an engine of the U.S. economy," said PJM spokesperson Jeffrey Shields.

Washington policy advisory firm Capstone called the order a "major victory" for existing nuclear and gas plants, as it directs PJM to implement rules that allow power stations to reduce output to the grid to serve new behind the meter customers such as data centers.

Power bills for the region are expected to continue to rise after PJM on Wednesday reported fresh record-high capacity prices that reflected electricity demand by data centers overtaking supplies.

The expansion of Big Tech's data centers has driven up so-called capacity prices in PJM by about 1,000% over a roughly two-year period, intensifying energy affordability problems for those living and working in the region.

FERC took aim at PJM's open access transmission tariff, which the operator says governs its services in the region to allow for a fair and competitive wholesale electricity market.

The agency said the tariff was "unjust and unreasonable due to a lack of clarity and consistency in the rates, terms, and conditions." It directed PJM to revise its tariff to detail the terms and conditions for interconnection customers to follow when using generating facilities to serve co-located load.