The “bring your own generation” model to meeting the power needs of data centers and AI

Introduction

President Trump recently announced that certain large tech companies have made “Ratepayer Protection Pledges” to address public concerns about the impacts of data center / Artificial Intelligence (“AI”) load on other retail power customers and on the reliability of the local power grid.  These Pledges provide that the companies should, among other things, develop their own new generation resources to meet their energy needs and pay the full costs of those resources as well as related grid infrastructure. 

Both the states and the Federal Energy Regulatory Commission (“FERC”) have been hyper-focused on cost allocation issues with respect to the costs of electrical infrastructure needed to meet surging data center demand.  The question of cost allocation of electrical infrastructure has also made its way into the news cycles and become a flash point in election politics.¹ For several years, the “bring your own generation” (“BYOG”) concept embedded in the Pledges has been gaining traction at the federal and state regulatory levels as a potential solution to these issues.

The impact of data centers on retail rates and the Administration's response

For the past two years, discussions about the potential impacts of data centers and AI on retail electricity prices have dominated the agendas of state legislatures and state public utility commissions.  According to a recent report, retail power prices in the U.S. have increased by 13% since 2022.²  Retail power prices have been increasing faster than inflation since 2022 and are expected to continue on an upward trajectory.³ These rate increases appear to be more dramatic in states with significant data center development.  State legislatures and public utility commissions have responded with legislative and regulatory proposals to mitigate these rate impacts.

The equitable allocation of grid costs between data centers and other customers has also been a focus of the myriad of proceedings before FERC related to ensuring grid access and power supply to data centers.⁴

These topics were highlighted recently during President Trump's 2026 State of the Union speech, where he announced that the Administration had reached deals with a number of major tech companies with respect to the costs of powering data centers:

Tonight I'm pleased to announce that I have negotiated the new ratepayer protection pledge. You know what that is. We're telling the major tech companies that they have the obligation to provide for their own power needs. They can build their own power plants as part of their factory, so that no one's prices will go up, and in many cases prices of electricity will go down for the community, and very substantially down. This is a unique strategy never used in this country before. We have an old grid. It could never handle the kind of numbers, the amount of electricity that's needed. So I'm telling them they can build their own plant. They're going to produce their own electricity.  It will ensure the company's ability to get electricity while at the same time lowering prices of electricity for you, and could be very substantial, for all of your cities and towns. You are going to see good things happen over the next number of years.

A few days later, the White House announced details on these “Ratepayer Protection Pledges.”⁵ Among other things, the companies signing the Pledge committed to (i) bring new generation resources to meet their energy demand and paying the full costs of those resources; (ii) pay for the infrastructure necessary to deliver power to serve the data centers; and (iii) pay for the costs for new infrastructure to meet their power needs, regardless of whether they actually use the power.  While these Pledges appear to be non-binding, they do establish a general agreement for data center developers to be responsible for the costs of meeting their own power needs, without imposing those costs on other customers.

Putting the pledges into the correct regulatory context

First, it is useful to understand the division of responsibility over the U.S. power sector between FERC and the states.  FERC has responsibility for establishing rates for wholesale power sales (i.e., sales for resale) and use of the transmission (i.e., high voltage) grid.  States have responsibility for setting the rates for retail power sales (i.e., sales to end users) and the related costs of distribution (i.e., low voltage) facilities.

A core tenant of federal and state public utility law in the U.S. is and has always been that costs should be allocated to customers (or customer classes) based on the customers that incurred those costs and the customers who benefit from the related infrastructure.⁶  In that respect, the recently-announced Pledges are not necessarily noteworthy – they state what has generally been understood to be one of the fundamental goals of federal and state utility ratemaking (e.g., equitable cost allocation). 

In addition, traditional electric utility ratemaking mechanisms adopted by the regulators are not tailored to the particular problem posed by the data center build-out, specifically the rapid introduction of large quantities of generation serving a small number of customers in a short period of time.  There are few “off-the-shelf” cost-allocation solutions available to resolve public and regulatory concerns about the cost of supplying data centers  The process of allocating utility costs to customers is a complex issue that involves both the states (acting through their public utility commissions) and the federal government (acting through FERC) and is often resolved only after lengthy ratemaking proceedings (months if not years) involving multiple stakeholders and competing policy goals. 

The Pledges are significant in that they appear to represent a commitment by the signatory companies to work with the regulators and other stakeholders to develop processes and procedures that allocate those costs equitably among all customer classes.

What is the BYOG model?

As noted above, one of the fundamental tenants of the Pledges is for data centers to “bring your own generation” (“BYOG”) as a means of reducing the potential burden on other utility customers.  

As described by the President at the State of the Union, BYOG is often understood to refer to the construction of private generation facilities by the data center developer as an integral part of its data center campus. But BYOG can also mean that a data center developer partners with another entity to develop generation to meet the data center's demands, either on-site at the data center, adjacent to the data center campus, or even elsewhere on the grid.  In most scenarios, the data center and the generation are likely to be owned by separate legal entities, which may or may not be affiliates.

The BYOG model has largely been considered by state and federal regulators as a means of protecting other retail customers from the increased costs and adverse reliability impacts of utilities supplying power to meet the surging data center demand.  However, a BYOG strategy can also provide a number benefits to a data center.  It can permit the data center to come on line much more quickly than it would if had to wait for the local utility to construct generation to supply the power, or upgrade the related electrical infrastructure on the grid to enable that power supply.  On-site generation can provide more independence to the data center from grid outages and give the developer more direct control into its energy costs. BYOG can also give the data center more direct control into the types of generation – on site distributed, micro-grids, gas facilities, renewables – than it otherwise may not have.

The BYOG concept is not new.  In 2024, when the issues of grid access and supplying power to data center was emerging as a major topic of the U.S. power/utility sector, FERC held a technical conference to discuss the impact of surging large load demand on the bulk power grid.  Joseph Bowring, the Independent Market Monitor for PJM, stated the following:

So, the solution I think is try to figure out ways to bring new gen online, and that would mean hopefully some of our colleagues from the data center world and others, to figure out how to bring new generation online.⁷

Even prior to the recent wave of data center development, it was relatively common for entities with large loads, such as factories, to construct their own generation.  However, these solutions were generally one-offs, rather than a broad policy and pragmatic choice to accommodate a rapid technological expansion.

The role of the states in implementing the BYOG model

Despite the seemingly simple proposition of a data center pairing its own load with its own generation, BYOG is not a straight-forward proposition. For purposes of the  discussion here, we emphasize that it is the individual states, and not the federal government, that have the ability to regulate retail power sales – i.e., sales to an end user such as a data center.⁸ As a result, the purchase of power by a data center (or any end user for that matter) is wholly a matter of state law.

In almost of the states, retail power sales can only be made by the local utility.  The local utility has an exclusive right (i.e., a monopoly) to serve the customers within its designated service territory.  This has been a fundamental aspect of the regulation of electric utilities since the early 20th century.  If you are an end-user of power – regardless of whether you are a homeowner, a small business owner, or the owner of a large industrial facility – your only option for power supply in these states is from your local utility, and the rates you pay for that power, as well as the related terms and conditions, are established by the state public service commission.  As described below, the  BYOG model can be very difficult to implement in these states.

However, there are a handful of states that allow end-users to purchase power from third parties other than the local utility.  These states, referred to as so-called “retail choice” states, largely restructured in the 2000s to introduce competition in the retail supply of power.  They include Texas, Illinois, Ohio, Pennsylvania, New York, Maryland Pennsylvania, Delaware, Connecticut, New Hampshire, the District of Columbia, and Maine. In these states, end users, including data centers, have multiple options for sourcing their power, either from on-site or adjacent power plants or from generation located elsewhere on the grid.

And other states, such as Virgina, Michigan, California, Nevada and Oregon, have established limited retail choice for large industrial customers, such as data centers, that meet certain requirements.  For example, in Virginia, end users with annual demands in excess of 5 MW can obtain their power from competitive electricity suppliers.⁹

As a result, the availability and implementation of a BYOG model by a data center depends on the state where the data center is located. 

In almost all states (even in the states without retail choice), if the direct owner of a data center also directly owns the on-site generation used to power the data center (i.e., the same legal entity owns both the data center and the co-located generation), then that data center would likely be permitted under state law to supply power to itself. This is a generally-accepted “self use” exception to the regulatory requirement in non-retail choice states that retail sales be made only by the local utility.  If an entity is providing power to itself, then it is, by definition, not a state-jurisdictional retail sale and is therefore permissible.

In some states, the self-use exception is more expansive and permits an entity to supply power not only to itself, but also to its tenants. Arkansas law, for example, permits these types of structures if the lease meets certain conditions. Typically, where a lease structure related to the retail supply of power is permitted under state law, the costs of the power must be included in the lease payments, and the lease payments cannot vary based on the tenant's power consumption.

However, if the direct owner of a data center also directly owns on-site generation to meet its own power needs, that model could create structural issues for developing and financing a joint data center / generation project.  As a result, the self-use exception is not always an attractive or available BYOG option for developers.  Therefore, data centers and generation facilities used to power those data centers are often separated into separate legal entities, either affiliates or non-affiliates.  As described above, however, in the states without retail choice, data centers are generally not permitted to purchase power from any entity (including onsite generators) other than the local utility, even if they are affiliates. 

It should be emphasized that each state, whether a retail choice state or a non-retail choice state, has its own unique regulatory requirements with respect to retail sales that must be considered when evaluating the viability of a BYOG model.  For example, one option that is available in many non-retail choice states (Wyoming, for example) is for the local utility to “sleeve” the power between a generator and a data center.  In this structure, a data center could partner with a generation developer to construct a power plant to supply power to the data center.  Specifically, the generator would sell the power to the local utility (a wholesale sale that is subject to FERC, and not state, jurisdiction) and the utility would make the state-jurisdictional retail sales of the power to the data center.  However, such arrangements require the cooperation of the utility, and often of the state regulatory commission.

Recent state developments related to BYOG

There have recently been some interesting state legislative developments that impact a discussion of BYOG in the context of regulatory requirements applicable to retail sales.

West Virginia, for example, is not a retail choice state.  However, as we have reported here, in May 2025 the Governor signed into law a program to enable certain qualifying “high impact data centers” to obtain their power supply from certain behind-the-meter renewable resources rather than from the local utility. While not couched as a BYOG initiative, the impact was to permit data center developers to seek power supply alternatives instead of being dependent on the local utility.  

More recently, in 2026, the POWER Act was introduced into the legislature of Illinois, which is a retail choice state.  The Illinois act is a comprehensive piece of legislation that addresses water, environmental, and energy issues related to data centers.  Significantly, the act has a “bring your own clean capacity and energy” component applicable to certain qualifying hyperscale data centers.¹⁰ BYOG supply is defined in the act as “new, deliverable clean energy or capacity that a hyperscale data center project applicant develops itself or procures from a third-party, or sources from other customers.”  The POWER Act qualifies a number of electric generation, storage and demand side resources and technologies as “clean.” 

The Illinois act would require hyperscalers to connect to the local grid on a non-firm basis for any load that is not supported by its own generation, and the data center would be required to reduce its load when directed by the utility under certain circumstances. The hyperscaler would be able to establish firm transmission service over time in proportion to the new clean energy that it brings.  In addition, the act would establish a fast-track load interconnection process for hyperscalers that have BYO supply at certain levels.

Similarly, a bill was recently introduced into the Connecticut House that would require an end user with a peak demand of at least 50 MW to either contract with a “collocated supplier” (which is defined an a generation resource physically connected to the end user behind the customer's meter) or demonstrate that it can meet its entire anticipated load from new generation.¹¹

We expect to see more state legislation of this type introduced in the near future.

Conclusion

BYOG is widely touted by federal and state regulators as a solution to powering new data center / AI capacity while minimizing the impacts on other customers and on the reliability of the grid.  However, the details of a BYOG arrangement will depend heavily on the state in which the data center is located.  In our next article, we will discuss the role played by FERC in implementing BYOG solutions.

Authored by Chip Cannon and Porter Wiseman.