FERC Issues Show-Cause Orders: Impacts on California

Background

On June 18, 2026, the Federal Energy Regulatory Commission (FERC) issued six show cause orders individually directed at the each of the regional grid operators under its purview. The orders are the result of the Secretary’s October 2025 advance notice of proposed rulemaking directing FERC to consider taking additional actions to address the addition of large and co-located loads to the transmission system.

Rather than issuing a broad final rule, FERC took a region-by-region approach, recognizing differences in market structure, stakeholder landscape, geography, and progress in addressing large-load integration. FERC states that the orders are intended to address rapidly growing demand from data centers.

FERC directed the RTOs and ISOs to address five key issues:

1. Transmission service application and study processes, including consideration of alternative transmission technologies.
2. Preventing cost shifting and requiring transparency.
3. Co-location arrangements and behind-the-meter generation.
4. New transmission service options for flexible large loads.
5. Generating facilities serving electrically proximate large loads and large co-located loads.

Applicability to California

The California Independent System Operator (CAISO) is one of the entities covered by FERC’s show cause orders. Therefore, California data center developers may see changes to transmission service rules, interconnection procedures, study requirements, and large-load tariff structures.

Compared to the other regions served by RTOs/ISOs, California faces distinct challenges due to rapidly growing electricity demand from data centers, electric vehicle charging, and broader electrification trends. The California Energy Commission projects that data center demand alone could increase by 1.8 GW by 2030 and 4.9 GW by 2040.

Unlike other RTOs/ISOs, CAISO does not provide traditional network integration or point-to-point transmission service, long-term firm transmission reservations, or a formal transmission-service application process. Instead, transmission access is generally provided through CAISO’s market framework, while transmission owners (TOs) take the lead on physical load interconnection. As a result, FERC’s concerns extend to both CAISO and its transmission-owning members. FERC’s show-cause order identifies several areas where CAISO’s current framework may be insufficient to support the growing number of large-load customers, particularly data centers. The Order finds that CAISO’s existing Open Access Transmission

Tariff and/or the Transmission Owner Tariffs of the Participating Transmission Owners appear to be unjust, unreasonable, or unduly discriminatory or preferential. CAISO has 60 days to demonstrate why its existing tariff provisions are just and reasonable. FERC also directed CAISO to submit an informational report on how CAISO intends to ensure that adequate generation will be available to serve existing and new large loads.

Key FERC Concerns in the CAISO Show Cause Order

Large-Load Study Process:

FERC is concerned that CAISO lacks a clear and coordinated framework for evaluating large-load interconnection and transmission needs. The division of responsibilities between CAISO and transmission owners could lead to delays, duplicative requests, inefficient upgrades, and uncertainty over accountability.

Cost Shifting and Cost Transparency:

FERC questioned whether CAISO has adequate safeguards to prevent transmission costs associated with large loads from being shifted to existing customers. The agency also cited a lack of transparency regarding which transmission costs are driven by large-load development.

Co-location and Behind-the-meter generation:

FERC believes CAISO’s tariff may not provide sufficient guidance for co-located facilities and behind-the-meter generation serving large loads. Key concerns include transmission service requirements, ancillary service obligations, grid withdrawals, and avoiding cost shifting.

Flexible Transmission Service:

FERC noted that CAISO currently provides limited transmission-service options for large loads that can operate flexibly or intermittently. The agency asked CAISO to justify why additional flexible service products, such as non-firm or contract-demand services, are unnecessary.

Electrically Proximate Generation and Load:

FERC expressed concern that CAISO lacks tailored procedures for situations where generation resources are located close enough to large loads that they effectively function as a single electrical arrangement. Existing study processes may not fully account for these configurations.

Alternative Transmission Technologies:

FERC also expects CAISO to consider whether its planning and study processes should evaluate grid-enhancing technologies—such as dynamic line ratings, advanced conductors, and power-flow controls—before relying on traditional transmission upgrades.

Next Steps

• August 3, 2026 is the deadline for abeyance requests, through which RTOs/ISOs can ask FERC to pause, for up to 90 days, the show cause proceeding.
• August 17, 2026 is the deadline for each RTO/ISO to respond to the briefing questions included in its respective Show Cause Order.
• Each RTO/ISO may also elect to develop tariff revisions to address any deficiencies identified in the response to the briefing questions.

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