As plans for data centers with energy needs bigger than many cities pour into communities and electric utility business offices, some people are asking: “what will that do to the reliability of the electric system?” I was alarmed to learn that the collective body of utilities focused on reliability is just starting to answer that same question over the last few months.
That organization, the North American Electricity Reliability Corporation—known to its friends as NERC—is on a multi-year journey of exploration to understand this question. NERC took a top-level action May 4 issuing seven multi-part “Essential Actions” to collect information from their data center customers, revise definitions for studies, and create checklists for tests and operations. These arcane precautionary steps fill a dozen pages, but are just a first step toward addressing the big issues. The core problem with these facilities is, despite new data centers being larger than the majority of facilities or utilities that NERC registers, monitors, and audits, there are no rules or oversight for NERC to interact with data centers.
In this blog, I’ll explain where NERC’s Level 3 Alert fits in the web of actions being taken to address the ways that data centers stress the grid. In short, while this is an important step addressing one aspect of reliability issues, there are other serious concerns about how data centers impact energy costs, resource adequacy (another aspect of reliability), and the clean energy transition overall.
What is and what isn’t on NERC’s agenda?
NERC does its work within highly structured processes. NERC’s action on May 4 does not bring data centers into the “registered entity” regime. “This means that large loads are not required to adhere to Reliability Standards.” That’s a direct quote! Registering data centers could happen, depending on both NERC and Federal Energy Regulatory Commission (FERC) decisions to extend their oversight.
Because it can’t yet put data centers into its system, NERC is also not yet able to introduce new standards for dealing with their impacts, but that process has started. Also, because it is not part of NERC’s role, this action has nothing about costs imposed by data centers or who should pay. Costs are sorted at FERC and state utility commissions, with active debates about who benefits, who pays, and how in those arenas.
Further, little in this effort addresses datacenter impacts on electric generators, either the voracious demand consuming supply or the potential for damage done by data centers’ rapid second-by-second changes in demand. These topics are absent by design – resource (i.e. supply) adequacy is assessed periodically in separate reports and generation owners were not consulted in this present effort, or the level two alert and report that preceded it. In NERC’s July 2025 report on data center impacts, brief discussion can be found of generator failures from electronic equipment oscillations.
While the tasks are large and need to be focused, there are impacts from one decision to the next, and from NERC to FERC, and then to states. This works in every combination: state decisions about customers affect what FERC does; NERC reliability issues will lead to clarification of costs caused by customers, etc. This interconnected web of actions has led to a situation where utilities and state regulators have often been pointing fingers and waiting for others to take action, rather than engaging in these efforts and taking steps to address the reliability risks of data centers within their own realms while supporting NERC’s holistic process.
So how does NERC work?
In a few words: carefully and with deference to the utilities affected.
The electric power system depends on tens of thousands of people and machines working within set rules. Most NERC rules require electric utilities, generation owners, and transmission owners to have written procedures for all sorts of problems, and to follow those procedures. NERC often writes an authoritative report about a blackout or the characteristics of data centers as a first step. These are the careful parts.
NERC deliberations and decision-making are extensive. Let me say that for the utilities that have the time and expertise to participate over years, this process works well. However, the process is built on deference to each utility to address—or not—the issues raised by the careful deliberations and fact-finding reports. Past blackouts due to inadequate protection of gas-burning plants from cold weather, for example, were repeatedly described by NERC but did not lead to anything other than voluntary recommendations. Deference then and in the present are not so reassuring to consumers.
To this point, the action expected May 4 comes with this disclaimer:
This Level 3 NERC Alert is not the same as a Reliability Standard, and it does not create a mandatory obligation to take the Essential Actions. Your organization will not be subject to penalties for failure to implement the Essential Actions.
What is NERC looking to learn?
Translating and simplifying, the urgent actions that NERC calls for utilities to take are:
- Collect and use a list of specific details about what should be known about computational loads (NERC’s proposed name for data centers and similar loads).
- Review and study the types of grid challenges made worse by data center loads.
- Implement monitoring and protections to protect reliability from data centers.
How’s that sound?
This is an important start. Certainly, NERC and the engineers participating are concerned about the risks created by data centers on the grid. However, there is some irony that the electricity providers are struggling to get information from the Information Technology industry.
This situation is also complicated by two key issues. Utilities have an unprecedented opportunity to raise profits by accommodating data centers that will be amongst their largest customers. At the same time, rules for electric companies normally put the costs for this growth onto the bills of all customers. The utilities have multiple functions, and assigning costs happens differently in each. Data centers have been welcomed by utilities who are actively cost-shifting at the same time state and federal regulators are scrambling to find the policy reforms to sort the costs and assign them properly. These layers are shaped by past reforms that introduced competition, or protected utilities from competition.
Clearly NERC is taking action to improve understanding about some aspects of data centers’ impacts on the grid. That’s good. We also need rational, appropriate reforms that cover costs, including those costs raised by NERC highlighting serious reliability concerns. The data center industry proposes to “move fast and break things.” The electric utility sector can’t move as fast, and existing customers shouldn’t have to pay for what gets broken.