As data centers with energy demands surpassing those of many cities are increasingly established in communities and utility companies, concerns arise about their impact on the reliability of the electrical grid. It has recently come to attention that the utilities tasked with maintaining reliability are only now beginning to address these concerns.
The North American Electricity Reliability Corporation, or NERC, is on a prolonged mission to explore these questions. On May 4, NERC issued a Level 3 Alert with seven detailed “Essential Actions” aimed at gathering data from their data center clientele, redefining study parameters, and creating operational checklists. Although these steps are extensive, spanning a dozen pages, they merely initiate a process to tackle more significant issues. A major challenge is that despite new data centers being larger than many facilities or utilities NERC oversees, there is no existing framework for NERC to regulate or interact with them.
This article will clarify NERC’s Level 3 Alert’s role within the broader efforts to manage the strain data centers place on the grid. While it addresses one reliability aspect, there are additional concerns about data centers’ effects on energy costs, resource adequacy, and the transition to clean energy.
What is and what isn’t on NERC’s agenda?
NERC operates through structured processes. The May 4 action does not integrate data centers into the “registered entity” category, meaning they are not obligated to adhere to Reliability Standards. The possibility of registering data centers depends on decisions by NERC and the Federal Energy Regulatory Commission (FERC) to expand their oversight.
Currently, NERC cannot incorporate data centers into its system and is unable to establish new standards for their impact, although this process has commenced. Additionally, NERC’s role does not cover costs associated with data centers or their allocation, which are debated at FERC and state utility commissions.
This initiative does not significantly address data centers’ effects on electric generators, either through high demand or potential damage from fluctuating demand. These issues are intentionally excluded and assessed in separate reports. NERC’s July 2025 report briefly discusses generator failures due to oscillations in electronic equipment.
Decisions made by NERC, FERC, and states are interconnected, with each affecting the others. This complexity often leads to inaction, as utilities and regulators hesitate to address the reliability challenges posed by data centers, preferring to wait for others to act while NERC continues its comprehensive approach.
So how does NERC work?
In short: methodically and with respect for affected utilities.
The power grid relies on numerous individuals and machines operating under established rules. NERC requires utilities, generation, and transmission owners to implement written procedures for various issues. NERC often issues comprehensive reports on incidents like blackouts or data center characteristics as initial steps.
NERC’s deliberations and decisions are thorough. For utilities with the capacity to engage over long periods, this process proves effective. However, it also respects each utility’s discretion to address or ignore identified issues. Past blackouts from insufficient protection of gas plants in cold weather were documented by NERC without resulting in mandatory measures. Such deference is not always comforting for consumers.
The May 4 action includes this caveat:
This Level 3 NERC Alert is not equivalent to a Reliability Standard and does not impose a compulsory obligation to undertake the Essential Actions. Your organization will not face penalties for failing to implement them.
What is NERC looking to learn?
The key actions NERC urges utilities to undertake are:
- Gather and utilize specific information regarding computational loads, NERC’s term for data centers and similar entities.
- Examine and analyze grid challenges exacerbated by data center loads.
- Establish monitoring and safeguards to maintain grid reliability amid data center operations.
How’s that sound?
This marks a significant beginning. NERC and participating engineers are evidently concerned about the risks data centers pose to the grid. However, there is an irony in electricity providers struggling to acquire data from the Information Technology sector.
This scenario is further complicated by two primary issues. Utilities have a unique opportunity to boost profits by accommodating data centers, which are projected to become major customers. Concurrently, electric company rules typically allocate the costs of this expansion to all customers. Utilities perform multiple roles, and cost allocation varies accordingly. While utilities welcome data centers, they are actively redistributing costs, while state and federal regulators scramble to implement policy reforms to appropriately allocate expenses. These complexities are influenced by past reforms that either introduced competition or shielded utilities from it.
NERC’s efforts to enhance understanding of data centers’ grid impact is commendable. However, rational, suitable reforms are necessary to address costs, including those highlighted by NERC’s reliability concerns. The data center industry’s approach to “move fast and break things” contrasts with the slower pace of the electric utility sector, and existing customers should not bear the cost of the fallout.
