Overview
In a sweeping move to address the rapid grid integration of data centers and other large electricity users, the Federal Energy Regulatory Commission (FERC or the Commission) has launched a broad effort to reshape how Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs), provide transmission service to Eligible Customers on behalf of (retail) "large loads," including those large loads that can meet the relevant tariff definition of Eligible Customer. The Commission aims to speed the integration of large loads into the transmission system while protecting existing wholesale transmission customers from paying for transmission upgrades that primarily benefit new large loads. FERC also seeks to preserve the existing commercial arrangements and build on stakeholder efforts already underway.
The Commission initiated this reform effort following direction from the Department of Energy, first issuing an Advance Notice of Proposed Rulemaking (ANOPR) late last year that included fourteen principles that the DOE believed should inform FERC's rulemaking process.[1] Now, rather than pursuing a nationwide rulemaking (as many in the industry expected), FERC has issued separate "show cause orders" addressed to each RTO/ISO and the respective transmission-owning utilities in their regions (the Show Cause Orders).[2] The Commission emphasized that a regional approach would allow reforms to move more quickly while recognizing differences among organized markets. This approach also avoided the controversial jurisdictional issue of whether FERC had jurisdiction over the interconnection of large loads directly to the transmission system in all cases.
A show cause order requires regulated entities to revise their existing rules or to explain why their rules already comply with federal law. The Show Cause Orders make preliminary findings of non-compliance with the Federal Power Act (FPA), but these are not final and the entities subject to the Show Cause Orders have an opportunity to respond before the Commission reaches any final conclusions.
The Show Cause Orders include policy directives for RTOs/ISOs providing transmission service to Eligible Customers for large loads or to large loads relating to transmission studies, cost-allocation transparent databases, and flexible loads. The Show Cause Orders also address interconnection and transmission services for Eligible Customers for co-located large loads and electrically proximate large loads. This alert breaks down the core policy issues at the focus of these Show Cause Orders and the compliance process.
Striking a Jurisdictional Balance and Building on Existing Efforts
FERC seeks to balance the need for reforms with a desire for stakeholder-driven and regional solutions to take precedent. Regional show cause orders preserve flexibility to tailor reforms to each region and preserve progress already made by the RTOs/ISOs and the states. Accordingly, the Show Cause Orders allow regions to request to extend their response deadline for 90 days to provide time to address the reforms via affirmative stakeholder solutions. The Show Cause Orders are also prospective only and will not undo commercial agreements that are in place or under negotiation.
The Commission also seeks to avoid conflict with state regulators, as the Show Cause Orders emphasize that interstate transmission service falls within its exclusive jurisdiction under the Federal Power Act, while states retain authority over retail electric service, facility siting, and determining which entities may serve retail customers (including large loads and co-located loads). The Commission bypasses the issue of whether large load customers are Eligible Customers, a question that evidently would be determined by interpreting the term in a particular RTO/ISO tariff. Thus, the term Eligible Customers "for" or "serving" large loads is used below to reflect the fact that the large load is not necessarily an RTO/ISO transmission, let alone an interconnection, customer.
Lastly, the Commission's decision to pursue reforms through RTOs/ISOs means that transmission providers and other entities operating outside of these entities' footprints are not required to consider reforms at this time. However, as Chairman Swett indicated in her concurrence, the Commission's choice to direct its efforts towards RTOs/ISOs " does not foreclose the possibility of a future rulemaking," and does not "prevent [the Commission] from acting on filings made under sections 205 and 206 of the FPA." Chairman Swett "encourage[d] transmission providers and other stakeholders outside RTO/ISO regions to make individual filings to address the issues" covered in Show Cause Orders.
Policy Directives and Areas for Potential Reforms
Through the Show Cause Orders, FERC identifies five categories of reform: (1) faster application and study processes for Eligible Customers for large loads; (2) cost transparency and protecting existing wholesale transmission customers from cost shifts; (3) transmission services tailored to Eligible Customers for co-located loads and loads served by behind the meter generation; (4) transmission service tailored to Eligible Customers for flexible large loads; and (5) streamlined interconnection processes for large loads paired with nearby generation. Unlike other large load interconnections, FERC has asserted jurisdiction over the interconnection of generators with co-located large load, although individual states retain the authority to decide which entities are legally permitted to provide electricity to large load customers, even co-located large loads.
Category 1: Application and Study Process for Large Load Transmission Service
The Show Cause Orders requests that RTOs/ISOs' tariffs address: a definition for large load as a separate category of load; an application and study process that considers the unique operational challenges of Eligible Customers serving large loads; ongoing requirements to ensure reliable service to all given the operational impacts of large loads; and a pro forma transmission service agreement for Eligible Customers for large loads.
FERC seeks a response on inclusion of stronger safeguards against speculative requests, proposing reforms such as non-refundable application fees, readiness requirements, and the disclosure of parallel pending service requests from Eligible Customers for the same large load. The Show Cause Orders emphasize the need to consider the use of "alternative transmission technologies" or "grid enhancing technologies" and propose that tariffs should include an affirmative requirement to explain why if these technologies are not deployed.
Category 2: Addressing Cost Shifting Risk Among Transmission Customers for Serving Large Load
To protect against potential cost shifts and to promote transparency, Respondents must consider a centralized, searchable database on their websites detailing Eligible Customer-requested large load services (including the aggregate amount of those requests, planned Network Upgrades, and cost estimates) and a pro forma cost recovery agreement between the RTO/ISO, transmission owner, and Eligible Customers for large load that addresses a minimum financial contribution (based on requested megawatt capacity) and sufficient credit support or financial security to ensure the requesting entities bear the grid expansion risks.
Given that many Eligible Customers (i.e., transmission owners) are entering into cost recovery agreements with large loads, to reduce duplicative credit requirements and transaction costs, the Commission directed further briefing on whether, and under what circumstances, it would be appropriate for such an agreement to substitute for the requirement on the Eligible Customer to enter into a cost recovery agreement with the transmission owner. The Commission's inquiry is focused on circumstances where the agreement with the large load customer provides comparable or greater protection against cost shifting among transmission customers than an agreement between the transmission owner and the Eligible Customer (which may be one and the same entity).
Category 3: Co-Location Arrangements and Behind-the-Meter Generation
RTOs/ISOs must address services for co-located load including: interim network integration transmission service ("Interim NITS") and firm and non-firm contract demand transmission services. Interim NITS would be a bridge service for Eligible Customers for large loads seeking NITS service to receive some measure of service while network upgrades are being constructed. Firm and non-firm contract demand transmission service offerings would allow Eligible Customers for large loads to seek service up to a specified MW quantity, i.e., the contract level, on a firm or non-firm basis. As an example of these reforms, the Show Cause Orders point to the progress already underway in PJM in response to earlier Commission orders that PJM must develop transmission service tailored to Eligible Customers for co-located loads.
The Commission also clarified its views on questions of how costs should be assigned to Eligible Customers for co-located load and requests Respondents address those views including the view that co-located load should pay for critical ancillary services, specifically regulation and black start services, on a gross demand basis regardless of actual withdrawals. And, for Eligible Customers for co-located load taking NITS service, transmission service charges should no longer be netted. As to Eligible Customers for co-located loads receiving other forms of service—interim NITS, and firm and non-firm contract demand service—FERC suggests that transmission service charges should flow from their actual use of the system.
Finally, the Show Cause Orders propose that co-located load looking to benefit from these new services should be required to install automated control technologies and protection systems to limit real-time energy withdrawals.
Category 4: Extending Transmission Services to Eligible Customers for Flexible Large Loads
The Show Cause Orders also address the needs of Eligible Customers for flexible large load customers; that is, large loads that are able to limit their withdrawals from the transmission system under certain conditions. The Commission proposes that, like for Eligible Customers for co-located load, interim NITS and firm and non-firm contract demand transmission services should be available for Eligible Customers for flexible large loads.
Category 5: Integrating Electrically Proximate and Co-Located Generation
Respondents must also address the need for interconnection application and study processes that are tailored to electrically proximate Eligible Customers for large load customers and co-located load customers. An electrically proximate large load is a project where a new generator's output can be matched to the load, even if it is not "co-located" in the ordinary sense. The Show Cause Orders require Respondents to address the need for an expedited, separate serial study process and interim generator service for electrically proximate large loads and co-located load. These new study processes could be modeled after SPP's HILL/HILLGA process. The Show Cause Orders also invite consideration of processes that would allow new generation and Eligible Customers for large loads to utilize the existing interconnection capacity of an established generator behind the same point of interconnection, or introduce a permanent, load-limited service that leverages automated control technologies.
Mandating Proactive Informational Reports
The Show Cause Orders direct RTOs/ISOs to submit a detailed informational report within 30 days of the order's issuance and explicitly mandate that this report detail any proposals currently under consideration within regional stakeholder processes. These reports must also outline comprehensive schedules, key stakeholder milestones, and anticipated filing dates for any upcoming tariff initiatives. These directed disclosures are designed to accelerate the addition of generating capacity and align regional resource planning with the rapid onboarding timelines of large loads.
Briefing Questions and Open Items
The Commission also directs the RTOs/ISOs and TOs to provide additional briefing on key questions related to implementation:
- Protecting existing arrangements: Identify a reasonable implementation period and transition approach to avoid disrupting existing or near-finalized commercial agreements.
- Planning impacts of new services: Explain how new transmission services for Eligible Customers for flexible large loads would affect regional and local transmission planning and load forecasting.
- Design of cost‑shift protections: Propose structures and parameters (including minimum contributions and financial security) for agreements to prevent unjust cost shifting tied to large-load-driven upgrades.
- Evaluation of alternative technologies: Address whether and how transmission providers should be required to study and justify the use (or non-use) of alternative transmission technologies.
- Market and resource adequacy treatment of paired generation: Analyze how generators serving electrically proximate or co-located load would participate in energy/capacity markets and be treated for resource adequacy purposes.
Compliance Timeline:
FERC set a compliance timeline that acknowledges reform efforts are already well underway in some regions.
- Informational Reports are due within 30 days of each order's issuance on July 20, 2026.
- Requests for the proceeding to be held in abeyance for 90 days, as described above, are due within 45 days of each order's issuance on August 3, 2026.
- Responses are due within 60 days of each order's issuance on August 17, 2026.
- Answers to responses are due 30 days after responses, on September 16, 2026.
Conclusion
If adopted, these reforms would fundamentally change how Eligible Customers for large load customers obtain transmission service. Eligible Customers and transmission owners will likely see new study procedures, new transmission service options, expanded financial obligations, and greater transparency around transmission upgrades, which in turn will impact large load customers either directly or indirectly. The compliance proceedings will determine how these reforms are implemented in each organized market.
[1] See RM26-4, Notice Inviting Comments (issued Oct. 27, 2025); Notice Granting Extension of Time re Interconnection of Large Loads to the Interstate Transmission System under RM26-4 (issued Nov. 7, 2025).
[2] We refer to those entities that must respond to the Show Cause Orders by region as Respondents.
