The electrical grid has several layers, each regulated differently:

Transmission system (high voltage): The long-distance, high-voltage lines that move power from generators to substations. In Michigan, the Midcontinent Independent System Operator (MISO) operates the interstate transmission market. MISO sets interconnection rules and queues. A data center requesting grid connection must go through MISO’s interconnection process — which has a backlog of years.

Distribution system (local): The medium and low-voltage lines that deliver power from substations to end users. In West Michigan, this is Consumers Energy’s territory. Consumers Energy owns and operates the distribution infrastructure. When a new large load connects, Consumers Energy must build or upgrade the local distribution infrastructure.

Who regulates what: MISO and FERC regulate the transmission level. The Michigan Public Service Commission (PSC) regulates Consumers Energy’s distribution rates and determines what costs can be recovered from ratepayers. When Consumers Energy needs to build new infrastructure, it files a case with the PSC to recover those costs through rates — meaning all Consumers Energy customers pay.

When a data center requires a new substation, upgraded transmission lines, or new distribution infrastructure, there are three ways to pay for it:

Developer pays (direct cost): The developer directly funds the infrastructure as part of the project cost. This is how “shovel-ready” sites with pre-built utility infrastructure work — someone paid upfront. Some utility agreements require developers to fund specific upgrades in exchange for a guaranteed power allocation.

Ratepayer pays (socialized cost): Consumers Energy builds the infrastructure as part of its regulated rate base, files for PSC approval, and recovers the cost through rates paid by all 3.3 million customers. From a regulatory standpoint, this is justified when the infrastructure creates broad network benefits beyond the single large customer — a new substation serves many users, not just the data center. Critics argue that when infrastructure is clearly required by one customer, socializing the cost is a subsidy.

Shared cost: Developer and ratepayers split the cost through a negotiated contribution agreement. The developer may fund the site-specific portions and ratepayers fund the shared network portions.

Michigan PSC Case U-22103: This open proceeding is specifically examining how grid costs associated with large AI loads should be allocated. Consumer advocates, utilities, and data center developers are all parties. The outcome will set the framework Michigan uses for the next wave of projects after Gaines.

Virginia hosts the largest concentration of data centers in the world — Northern Virginia’s “Data Center Alley.” That density has produced the most developed body of policy experience on grid cost allocation:

What happened: As data center density grew, Dominion Energy (Virginia’s primary utility) began filing multi-billion dollar transmission upgrade requests with the Virginia State Corporation Commission (SCC). The cost allocations shifted hundreds of millions in costs to Dominion’s residential and commercial ratepayers who had no connection to data center operations.

The pushback: Virginia residential consumer advocates challenged the allocations. The SCC developed new frameworks requiring that costs “primarily benefiting” a specific large customer be borne by that customer rather than socialized. Virginia legislation in 2024 included provisions addressing data center cost allocation transparency.

The key lesson: Communities that approved data centers early, when grid capacity was ample, did not face this problem immediately. As density grew and grid capacity tightened, the infrastructure cost problem became acute. Michigan townships approving the first wave of data centers may not face this immediately — but the framework being set now will govern the next 10 projects after Gaines.

The Michigan Public Service Commission opened Case U-22103 to examine the grid implications of rapid large-load growth from AI data centers. This proceeding will shape how Consumers Energy and DTE handle the next wave of data center applications.

What is at stake:

• Whether Consumers Energy can recover data-center-specific infrastructure costs through general rates (paid by all customers) or must require direct developer contributions
• Whether large load customers (data centers) should face a different rate structure that better reflects their actual infrastructure costs
• How Consumers Energy’s Integrated Resource Plan must account for AI data center load growth when projecting generation needs
• What disclosure requirements data center operators must meet when applying for large power service

Who is a party: Consumers Energy, DTE Energy, the Michigan Attorney General (representing residential ratepayers), the Michigan Environmental Council, several large industrial customers, and data center developer representatives have all filed as parties. The proceeding is open and active.

Why this matters for Gaines: If the PSC concludes that data center infrastructure costs must be borne by developers, the economics of the Gaines Township project change. If the PSC allows socialized cost recovery, Consumers Energy’s 3.3 million customers help subsidize the build.

At the federal level, FERC (Federal Energy Regulatory Commission) regulates interstate transmission and sets interconnection rules through the regional grid operators (MISO in Michigan’s case).

FERC Order 2023 (2023): Reformed the interconnection queue process to reduce multi-year backlogs. The order shifted to a “first ready, first served” approach that penalizes speculative projects. Data centers with serious development plans generally benefit; speculative reservations are eliminated.

FERC AI infrastructure proceedings (2025): Following the Trump administration’s EO 14179 on AI leadership, FERC opened proceedings to explore whether AI-critical infrastructure should receive expedited interconnection consideration. Consumer advocates and renewable energy developers objected, arguing this advantages AI data centers at the expense of other grid users, including solar and wind projects.

HR 5213 (Grid Modernization Act): Pending federal legislation that would fund transmission infrastructure upgrades partly through federal appropriations. If passed, this could shift some cost from ratepayers to federal taxpayers. The bill has not passed as of April 2026.

The bottom line: FERC rules determine how fast a data center can get grid connection. State PSC rules determine who pays for the local distribution infrastructure. These are separate proceedings with separate outcomes — and both are live right now.

Before a township board votes on a data center permit, these are the grid-related questions that should have answers:

1. What is the requested peak power load? In megawatts, and what is the projected maximum? Many data centers expand after initial build.
2. Who is paying for the substation and distribution upgrades? Has Consumers Energy confirmed the project will require ratepayer-funded infrastructure? Is there a developer contribution agreement?
3. What is the interconnection queue position? Has the developer secured an interconnection agreement with MISO? Without one, the project timeline is uncertain.
4. What is the backup power plan? Large data centers run diesel generators during grid outages. What is the fuel storage capacity, air emission profile, and noise level of the backup power system?
5. What happens to local grid reliability? A large new load can affect voltage stability and reliability for adjacent residential and commercial users. Has Consumers Energy produced a grid impact study?
6. What is the renewable energy commitment? Microsoft has a 100% renewable energy commitment by 2030. How is that being met for this specific facility — and are the credits local or national?