2026 FERC Outlook: Rising Costs Constrain Regulator's Policy Space on Data Centers, Transmission, and Other Issues

The U.S. Federal Energy Regulatory Commission (FERC) is facing a challenging year: the Trump administration is pressuring it to accelerate data center development, while concerns over energy affordability and grid reliability are growing. At the same time, FERC must oversee compliance deadlines for new rules on transmission planning and cost allocation, which are rapidly approaching.

"These two matters will consume a great deal of FERC's energy," said Devin Hartman, director of energy and environmental policy at the free-market-oriented think tank R Street Institute. "Especially on the policy front, it will be difficult to find room for much else."

The Trump administration's intense focus on data center development comes amid questions about FERC's status as an independent agency. Two of the five commissioners are recent additions nominated by President Donald Trump, who has also sought to impose new requirements on regulatory agencies through executive orders.

New FERC Chairman Laura Swett echoed the administration's priorities at her first public meeting in November, saying that interconnecting data centers is her top priority, while emphasizing that the agency must fulfill its duty to ensure grid reliability and fair electricity rates. Hartman predicted: "Chairman Swett is likely to follow the White House's priorities more closely than any previous chairman."

However, former Chairman Willie Phillips, now a partner at the law firm Holland & Knight, expressed confidence in the commissioners' independence: "If you value energy dominance, if you value reliability, and you want FERC to play the role of an impartial referee, then you must value independence. I believe we have a FERC that does that."

Phillips believes that for Swett and FERC, the core of 2026 lies in ensuring that recent transmission and interconnection reforms take effect, that approved projects get built, and that new rules are established for large loads. "In many ways, this year is more about implementation and enforcement than new policy reforms."

DOE co-location plan dominates early agenda

In the near term, FERC is focusing on the U.S. Department of Energy's (DOE) proposal to connect co-located loads to the transmission system. The proposal, issued in October and aimed primarily at data centers, surprised many observers, with some describing it as "an unusual move to expand federal authority."

FERC responded quickly, seeking public comment four days later with a deadline of November 14, which was later extended by two weeks. DOE has asked FERC to issue a final rule by April 30—a timeline that the National Association of State Utility Consumer Advocates called "clearly unreasonable."

Public comments on the DOE proposal reflect deep concerns from state legislators, regulators, grid operators, and consumer advocates, particularly regarding the division of federal and state regulatory authority. The National Association of Regulatory Utility Commissioners (NARUC) stated that under the Federal Power Act, states have jurisdiction over the interconnection of retail loads, regardless of load size, including "end-use" electricity sales. The association noted that FERC has never asserted jurisdiction over end-user load interconnection.

"If FERC asserts jurisdiction over a limited category of retail customer service, it would interfere with the balancing work of state regulators in retail rate cases—a decision that falls entirely within state authority," said the organization representing state regulators.

Steven Shparber, a member of the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, believes that clarifying the federal-state jurisdictional question will be an important part of the rulemaking process. "How far FERC can go in asserting jurisdiction over large load interconnection will be interesting. I think FERC will be very careful to ensure that any final rule is legally durable."

Karen Brunie, a partner at Steptoe, is focused on how detailed FERC's response to the DOE proposal will be: "Will it be a clear directive framework for regional transmission organizations and transmission providers nationwide, or a higher-level, broader document that requires compliance filings and allows regional flexibility?"

Josh Price, director of the energy team at research firm Capstone, expects FERC to maintain the existing jurisdictional divide to avoid backlash from states and utilities, focusing on matters purely within federal jurisdiction, such as generation interconnection reform, new demand response products, and capacity markets.

New transmission planning compliance deadlines approach

Meanwhile, FERC must also respond to compliance plans from regional transmission organizations and transmission providers regarding its Order No. 1920 on transmission planning and cost allocation. The rule requires grid planners to develop transmission plans with at least a 20-year outlook, use multiple scenarios, and consider grid-enhancing technologies, among other things. The rule also gives states a more significant role in the cost allocation process—a provision expected to be a major point of contention.

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"We all know that cost allocation is where policy meets politics."

Willie Phillips

Former FERC Chairman

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FERC Commissioner Judy Chang warned in January that efforts to bring generation online quickly through improved interconnection processes could be ineffective without adequate transmission planning. "Without sufficient grid and reliability upgrades, we can't actually operate just by accelerating the front-end process for generation and load interconnection," Chang said at a FERC open meeting on January 22.

Most compliance plans for Order No. 1920 are due this year and could be critical to addressing Chang's concerns. Hartman of the R Street Institute said: "How thoroughly FERC reviews these plans and requires adjustments to set a high standard for Order 1920 compliance will be very important for the future of transmission planning."

Meanwhile, the Fourth Circuit Court of Appeals is hearing appeals from state attorneys general, utility commissions, environmental groups, and others on multiple aspects of Order No. 1920. The rule was issued in May 2024 and revised in November of that year. Several federal agencies under the Trump administration have stopped defending Biden-era rules or withdrawn them entirely, but FERC has so far stood by Order No. 1920 and defended it in a brief filed with the court on January 5.

The brief stated that the Commission issued Order No. 1920 to "correct an urgent, widespread, and growing problem—the failure of existing transmission processes to produce new transmission infrastructure in a cost-effective manner to meet long-term transmission needs. The result is an aging grid, with transmission providers updating in a piecemeal, siloed fashion, leading to inefficient and costly transmission investments and rates that fail to meet the 'just and reasonable' standard of the Federal Power Act."

Brunie said it will be interesting to see how the current Commission handles compliance filings and whether the court orders modifications. "This is definitely worth watching closely, because it will give Chairman Swett an opportunity."

Soaring power prices could drive market reforms

Soaring electricity demand forecasts and tight supply in parts of the United States could also lead to changes in the wholesale electricity markets FERC oversees. PJM Interconnection, the nation's largest grid operator, coordinates electricity sales for most of 13 states in the mid-Atlantic region, serving 67 million people. In its last three base capacity auctions, prices soared to new highs, even though the system did not meet capacity targets.

Former FERC Chairman Mark Christie, who stepped down last year and is now director of the Center for Energy Law and Policy at William & Mary Law School, said PJM is "absolutely in a crisis phase, and it's going to get worse."

Phillips noted that existing wholesale electricity markets were designed for an era when demand was relatively flat and changes in the resource mix were more predictable. System operators are trying to adapt. PJM's board has called for a comprehensive review of its market structure, and ISO New England recently proposed a complete overhaul of its capacity market, shifting from a forward market to "prompt" auctions.

At the direction of PJM's board, its stakeholders have begun considering "reliability backstop" auctions for power supply serving data center loads—potentially the most controversial element of the board's large load interconnection plan. PJM's trustees and the Trump administration also want special auctions for data center loads at PJM.

"We will continue to see opportunities for FERC to adjust markets across the country," Phillips said.

Hannah Rogers, an analyst on Capstone's energy team, said the Trump administration has given clear direction—and FERC seems to agree—to find ways to increase capacity revenues for thermal generation resources. "We may see FERC or different regional transmission organizations like PJM take action to value specific attributes such as fuel security as a way to pick winners and losers or incentivize more thermal generation like natural gas and coal." Changes to capacity accreditation—which measures a resource's contribution to reliability during grid stress—could also be used to favor thermal resources, Rogers added. Grid operators' capacity accreditation frameworks must be approved by FERC.

Capstone's Price believes that under the banner of energy affordability, the Trump administration may also try to shift costs onto renewable resources through interconnection rules, market structure, and must-run requirements. "I think that strategy will permeate FERC policy."

Affordability looms over FERC decisions

FERC's efforts to facilitate data center development, and the question of how to allocate the billions of dollars in costs of interconnecting new power plants and transmission lines, come at a time of intense focus on electricity affordability. With the November midterm elections approaching, affordability will be a central topic at the federal level, Brunie said: "I think that message has been conveyed to FERC."

At FERC, the issue could manifest in decisions on transmission project cost allocation and the costs of interconnecting large customers and the power projects they need. Former Chairman Christie warned that if FERC allows existing generation to be "cannibalized" to serve a single customer, such as a data center, it would have negative effects on the entire grid and other ratepayers.

"The most important issue FERC faces this year is how to respond to the massive load growth from data center development and how to balance the need for new generation to maintain supply," he said. "FERC must ensure that in any regional transmission organization rules, especially on co-location, the costs of data center interconnection are not passed on to all other consumers, such as residents and small businesses."

Former Chairman Phillips echoed similar views: "The challenge is to ensure that large loads are interconnected in a way that is transparent, predictable, and fair to existing customers. Of course, we all know that cost allocation is where policy meets politics—FERC's challenge, as always, is to ensure that beneficiaries pay and to do so in a way that does not undermine or deter much-needed infrastructure investment."