8SEP

DOE curtailment order faces taking claim

3 min read

13:06UTC

Parties challenging the DOE's Section 202(c) curtailment order filed a rehearing on 28 May, calling it a physical and regulatory taking of property without compensation.

← Back to Brazil bill ties tax break to a water cap Jump to analysis ↓

IndustryDeveloping

Key takeaway

The DOE 202(c) rehearing tests whether emergency curtailment counts as a compensable seizure of property.

Parties challenging the DOE (Department of Energy) Section 202(c) curtailment order, Order 202-26-06, filed a rehearing request on 28 May 2026 arguing it is "both a physical taking and a regulatory taking" of property without just compensation. The order is the same emergency authority that PJM now wields over backup-equipped data-centre generators . The petition lands at FERC (Federal Energy Regulatory Commission), where resolution is not expected before 2027.

This challenge borrows the constitutional weapon RCM Hill aimed at Hill County the same week, but the federal facts cut the other way. A construction moratorium stops a project that never started; curtailment reaches into a running facility and orders its operator to shed load on command, which is why the petitioners frame it as a physical seizure of generating equipment, not merely a limit on use.

The counter-argument rests on a century of utility law. Section 202(c) of the Federal Power Act lets the DOE compel generation and load-shedding during a grid emergency, and courts have long treated emergency curtailment as conditional regulatory power rather than a compensable taking. DOE lawyers argue a data centre running a backup generator accepted that reliability condition the day it interconnected. Whether FERC and the courts accept the seizure framing will set the price of every future emergency order against a data centre.

Deep Analysis

In plain English

The US Department of Energy has the power, under a law called Section 202(c) of the Federal Power Act, to order certain large electricity users to cut their power use during a grid emergency, like an extreme heat event. In May 2026, DOE used this law to allow PJM, the grid operator, to switch off backup generators at data centres if needed. Now, the companies affected are arguing that this is unconstitutional. They say the government is effectively taking their property, the backup generators they own, without paying them compensation. Under the US Constitution's Fifth Amendment, the government must pay fair value when it takes private property. The same constitutional argument appears in the Hill County case {{EVREF:/t/data-centres/2/twinsburg-and-ypsilanti-use-utility-hookup-denial/}}, making this a coordinated legal challenge across two different levels of government.

Deep Analysis

Root Causes

Section 202(c) of the Federal Power Act predates the data-centre era by nearly 90 years and was written for fuel-supply and physical-plant emergencies affecting public utilities. It grants the Secretary of Energy authority to order temporary generation and load-curtailment measures during a reliability emergency, but its legislative history contains no reference to private commercial buildings, behind-the-meter backup generation, or AI compute loads.

The absence of a settled statutory framework for managing large dispatchable private loads, precisely the gap that FERC's Docket RM26-4-000 is meant to close, forces the DOE to use emergency authority as a workaround.

The taking challenge will not resolve before 2027 because it depends on FERC's RM26-4-000 rulemaking establishing the permanent framework. Until that rule sets what obligations data-centre operators carry as a condition of grid connection, every 202(c) order is litigable as either an overstep of emergency authority or a regulatory taking of property that was never explicitly made subject to grid-control conditions in the first place.

What could happen next?

Risk
A court ruling that repeated use of Section 202(c) for a structural load-management problem violates procedural requirements would force the DOE to pursue notice-and-comment rulemaking, removing emergency curtailment as a tool until a formal rule is in place, potentially through 2028.
Medium term · Suggested
Precedent
If the taking theory survives threshold review and reaches a damages assessment, it would set a price for all future grid emergency curtailments applied to private commercial buildings, changing the risk calculus for every future DOE 202(c) order.
Long term · Suggested
Consequence
Uncertainty over curtailment authority accelerates data-centre operators' investment in physical islanding, where a campus generates and stores its own power and reduces reliance on grid-connected backup, to remove the regulatory handle DOE is using.
Short term · Suggested

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: In 2001, California's electricity crisis triggered multiple Section 202(c) orders requiring utilities to maintain output beyond their contracted obligations. The Ninth Circuit in 2006 upheld those orders in Pacific Gas and Electric Co. v. Lynch, holding that grid emergency curtailment does not constitute a taking because the burden is temporary and the government does not acquire the property.

The DOE's 2026 data-centre orders track the same statutory authority, but the Pacific Gas precedent involved utility generators with contractual public-service obligations, not private commercial buildings whose backup generation was installed for their own business continuity rather than grid support.

Counter-parallel: In the 1970s, the Federal Energy Administration issued price and allocation controls under the Emergency Petroleum Allocation Act that courts ultimately found exceeded the agency's emergency authority as the crisis became prolonged and structural. The D.C.

Circuit held in 1976 that emergency authority cannot substitute indefinitely for ordinary rulemaking once the situation it addresses becomes a systemic condition. If the DOE continues issuing 202(c) orders for data-centre load through the summer of 2026, the challengers' procedural argument gains force from that precedent even if the taking theory fails.

Consensus view: Federal Power Act energy-law scholars, including Professor Jim Rossi at Vanderbilt Law School and RTO Insider's legal analysts, assess that Section 202(c) of the Federal Power Act grants the Secretary of Energy emergency curtailment authority that courts have consistently upheld as a valid exercise of the federal commerce power over interstate electricity.

Curtailment during a declared grid emergency, such as the PJM heat event that triggered Order 202-26-06, sits on the strongest possible statutory footing: it is time-limited, is responsive to a real-time reliability threat, and does not permanently extinguish any property right. The taking theory faces an additional structural obstacle: the data centres' backup generators were installed under utility interconnection agreements that carry conditional-reliability obligations, meaning the owners accepted grid-control conditions at the time of connection.

Counter-view: Cato Institute constitutional law scholars and energy-law practitioner groups note that Section 202(c) was enacted in 1935 for coal and oil supply emergencies and has never been construed to cover dispatchable private generation assets attached to commercial buildings.

The DOE's May 2026 order is the second in months , and the challengers argue that repeated use of emergency authority to manage a structural, non-emergency condition, the chronic gap between data-centre load growth and grid capacity, transforms a temporary war-powers tool into a de facto regulatory programme, which requires notice-and-comment rulemaking rather than emergency decrees.

Key tension: Whether courts will treat the second consecutive use of Section 202(c) authority within weeks as an emergency response or as evidence that DOE is managing a structural condition with a tool designed for crises, which would require a different legal basis and is susceptible to a taking challenge on procedural grounds.

Sources:PJM Interconnection·Virginia Mercury·Virginia Mercury

Mentions:Department of Energy →PJM Interconnection →FERC →California →Cato Institute →Hill County →

First Reported In

Update #5 · Who pays when the grid bends for AI

PJM Interconnection· 2 Jun 2026

Read original →

Causes and effects

Caused by

DOE lets PJM switch off data centres

The DOE 202(c) order (ID:3627) is the instrument under challenge; the rehearing taking claim is a direct response to that specific order.

Occurred 18 May 2026

Read story →

Texas developer sues county over pause

RCM Hill's Hill County taking suit and the DOE 202(c) taking challenge invoke the same Fifth Amendment doctrine against two distinct restraint instruments, making them a coordinated legal pattern.

Occurred 28 May 2026

Read story →

This Event

DOE curtailment order faces taking claim

A taking finding against emergency curtailment would raise the cost of every future grid-emergency intervention, not just this one order.

Different Perspectives

NVIDIA

NVIDIA told the Securities and Exchange Commission on 26 August it had signed memorandums aiming to mobilise over $500bn for buyers' equipment purchases, then said in the same filing the arrangements may not become definitive. It may also carry limited residual-value risk on the equipment itself.

IREN Limited

IREN signed $2.4bn of financing on 25 August that only releases cash once its Mackenzie GPU servers are accepted, and only through 31 December 2026. A shipping delay from here now creates a funding problem as well as a revenue one.

Energy Commission (Malaysia)

Malaysia's Energy Commission recorded data centres at 9.3% of national power in one hot week in August, against a 7% year-to-date average, and is projecting 31% of peninsular demand by 2035. It wants roughly 9 GW of new gas-fired capacity by 2032 to cover the gap.

Economic Development Board and Infocomm Media Development Authority

Singapore's EDB and IMDA rationed 200 MW across four operators on 21 August and followed with a tropical liquid-cooling standard six days later, fixing the terms before construction starts. The agencies will decide within 18 to 24 months whether to run a third call.

Legal Resources Centre

The Legal Resources Centre put the water and power draw of two approved Cape Town Equinix sites in public, at roughly 4.4 billion litres and 1.4 to 1.5 billion kWh a year, because the city and the operator would not. It wants a cumulative assessment before any more of the five approvals proceed.

Ministerio de Minas e Energia

Brazil's energy ministry published Redata's five conditions after the Senate passed PL 278/2026 on 1 September, betting a repeatable annual water test enforces cooling design better than a one-off approval. Redata now needs President Lula's signature before any of it takes effect.