Even as headlines warn of grid reliability concerns and soaring electricity demand from artificial intelligence, Cheryl LaFleur remains mostly unconcerned.
“I kind of reject the trope you sometimes see in the press that the grid is so dilapidated,” said the former Federal Energy Regulatory Commission chair on a recent episode of the Columbia Energy Exchange podcast. “We have a really amazing machine here, but there’s no question that that machine was built for the past and the present and not built for where we’re going in the future.”
LaFleur, who served as one of FERC’s longest-serving commissioners, has a perspective that is shaped by decades of industry evolution. She pointed out that the challenge of building infrastructure and how to allocate the costs has arisen many times since the centralized grid was built.
“We thought we overbuilt nuclear in the 1970s. Now, we’re paying to extend the life of some of those units now because they’re so valuable and carbon-free, even though we thought they were so expensive and overbuilt 50 years ago,” LaFleur said. “So of all the things I worry about, having too much electric infrastructure is not one of them. I worry far more about having too little.”
That’s why the real challenge today isn’t grid fragility, but the age-old question of how to build out generation capacity and transmission lines to serve new large loads — especially, in this case, data centers.
The new load coming from data centers present two major challenges for the grid: reliability and costs. LaFleur is concerned about how the costs and upgrades to connect data centers will impact residential consumers.
“Basically everything on the system in some way, shape or form is paid for by electric consumers,” she said. “So if data centers are allowed to just plop down on the system, they might take a lot of the power and also take a lot of the carbon-free resources that the states are coming on to make their goals.
Solutions are emerging, though they vary by region and circumstance. For example, LaFleur mentioned partnerships between tech companies and energy providers like Exxon, to build their own power supply with back generation “islanded off the grid”, as a way to mitigate impact on residential customers. She said these efforts are different from trying to rely on the central grid for power supply — but those who plan to draw power from the central grid “should have to pay their own way”.
Data center electricity demand is a departure from historical demand patterns. “Back in the 80s and 90s when I was in the industry, we used to say that organic growth was about 2% a year from just people buying new appliances and stores opening,” LaFleur recalled.
But then the next two decades saw very little growth because of energy efficiency and a slower economy. In 2024, though, “you can’t pick up an article in the energy press without reading that electricity is going to increase by some startling percentage over the next decade,” she added.
LaFleur warned that if more supply is not added to meet growing demand, consumers will suffer from higher power prices. “Prices go up if there’s not enough supply to meet demand,” she said.
For instance, she pointed to a capacity auction in the PJM market this year as a “warning sign” to other markets that not having enough power will come with a high cost. In July, the market reached a record high for its capacity auction. As a result, electricity delivery for 2025-2026 is expected to cost PJM consumers $14.7 billion — $2 billion more than the previous auction.
“PJM has had a ton of data center development, and the way markets work is when you need something, the price goes up, and that sets a very strong price signal,” said LaFleur. “Ultimately, customers pay for everything that’s on the system,” she added.
The key, she suggests, is in thoughtful regulatory oversight that balances growth with consumer protection. Regulators at both state and federal levels, she said, must “wrestle with how we make sure the customers overall are fairly treated and that they appropriately get the reliability they need while also recognizing this is a big new economic driver of the data centers.”
In November, FERC held a technical conference on co-locating large loads at generation facilities. The conference emphasized that while data centers are willing to pay for grid services, there’s no clear consensus on how to determine and recover these costs in utility rate designs.
Hours after the conference, FERC rejected Talen Energy’s recent proposal for additional onsite power for a data center from a nearby nuclear facility in Pennsylvania.
LaFleur said that the commission still has a lot of work to do on the data center front: “There’s a lot more that has to happen. They’ll look at the facts and they’ll probably come up with different rules depending on how the data center is connected and where the data center is connected.”
Listen to Cheryl LaFleur’s whole interview on Columbia Energy Exchange:
This story borrows from an interview that appeared on the Columbia Energy Exchange, a Latitude Studios partner podcast.
Columbia Energy Exchange is a show that features in-depth conversations with the world’s top energy and climate leaders from government, business, academia, and civil society, produced by Latitude Studios for Columbia University. Follow on Apple, Spotify, or wherever you get your shows.
