Proposed rule could reshape how data centers plug into the grid.
The Federal Energy Regulatory Commission (FERC) is weighing a proposal that could accelerate one of the fastest-growing flashpoints in U.S. electricity demand: the surge of data centers and AI hubs seeking to colocate directly with power plants. The move comes as utilities warn of grid constraints and tech giants push for faster, cheaper connections to meet skyrocketing electricity needs.
Colocation—placing energy-hungry facilities like data centers alongside generation assets—promises to ease transmission bottlenecks and reduce costs for tech companies.
But Big Tech's savings may come at the expense of utilities navigating new infrastructure demands, or consumers if upgrade costs are spread across the wider grid.
FERC first put co-location on its docket in February 2025, and by commission standards the review is still on pace — these kinds of rulemakings often take a year or more. But while regulators measure progress in months, the buildout of data centers and AI hubs is unfolding in real time. That mismatch between the speed of federal rule-making and the demands of the tech sector is what has utilities and companies on edge.
What’s at stake
For technology companies, the stakes are clear: they need faster, more reliable interconnections if they are to scale up artificial intelligence, cloud computing, and other digital services without delay. For utilities, billions of dollars in potential investment are on the line, with estimates suggesting up to $60 billion in grid expansion tied to data centers may be required this decade. For everyday consumers, the implications are more complicated.
Depending on how tariffs are designed, households could benefit if costs are shifted toward large industrial users—or face higher bills if utilities spread those expenses broadly across all ratepayers. And for local communities, the question is whether the promise of economic development offsets the burdens of new siting pressures, including water use, land demands, and the environmental footprint of sprawling facilities tethered to existing plants.
The Bottom Line
Colocation raises thorny questions about who pays for grid upgrades, how much flexibility utilities must offer, and whether local communities will bear new environmental and land-use impacts.
FERC’s decision could set the rules of the road for a new era of electricity demand. With power use rising after decades of flat growth, the outcome will influence how quickly the U.S. can expand its digital economy—and whether the benefits outweigh the tradeoffs for consumers and the grid.
As AI and cloud computing reshape the energy map, all eyes are on FERC. Its ruling could determine whether colocation is a lifeline for the grid or a new strain on communities and customers.
Ebony Flake
