FERC Issues Order Providing Guidance For "Co-Locating" Power Plants With Data Centers Within PJM

Commission directs PJM to provide new types of transmission service designedto "facilitate more rapid interconnection and operation of Co-located Loads"

On December 18, 2025, the Federal Energy Regulatory Commission ("Commission" or "FERC") issued its order in the show cause proceeding¹ ("Co-Location Order" or "Order") to address issues associated with large loads (e.g., AI-driven data centers) co-located at generating facilities in the PJM Interconnection, L.L.C. ("PJM") footprint.² To reduce grid costs and enable faster interconnection of co-located large loads and generators, the Commission directs PJM to offer new types of transmission service based on a large load's net withdrawals from the system, as opposed to requiring co-located loads to be served by traditional front-of-the-meter network transmission service. These new transmission service options—Firm and Non-Firm Contract Demand Service—will reduce the scope of required transmission upgrades thereby allowing co-location arrangements to more quickly interconnect to the grid. Large loads co-located at generating facilities maintain the option of acquiring network transmission service, and the Commission has directed PJM to adopt a new interim service that would allow co-location arrangements to access the PJM grid (subject to curtailment) while the transmission upgrades needed to accommodate network service are under construction.

The Commission's Order also made the following determinations, and directed PJM to make several compliance filings:

• The PJM Tariff is unjust and unreasonable because it lacks clarity and consistency in the rates, terms, and conditions for generators who seek to serve co-located load and for the transmission customers who would take transmission service on behalf of these co-located loads.
• The PJM Tariff is unjust and unreasonable because it does not include provisions for transmission services that reflect that transmission customers may take transmission service on behalf of co-located loads that are able to limit their energy withdrawals from the transmission system.
• The PJM Tariff's Behind-the-Meter Generation ("BTMG") rules are no longer just and reasonable.

The Commission directed PJM to submit two separate compliance filings with respect to its Order:

• Within 30 days of December 18, 2025 (January 20, 2026), PJM is directed to submit a compliance filing to revise its Tariff to show how Interconnection Customers (both generation and transmission) can:
  
  • Make use of provisional interconnection service;
  • Request interconnection service below nameplate capacity;
  • Seek to accelerate the interconnection process under certain circumstances; and
  • Use surplus interconnection service to interconnect new generating facilities seeking to serve Co-Located Load.³
• Within 60 days of December 18, 2025 (February 16, 2026) PJM is required to amend its Tariff, in part, to:
  
  • Provide clear direction so that generation and transmission interconnection customers can determine what steps they must take to set up Co-Location arrangements.⁴ This includes identifying an Eligible Customer who will take transmission service on behalf of the Co-Located Load, and specifying any operational procedures or data exchange requirements that PJM deems necessary for clarification.⁵
  • Add a new provision that requires Interconnection Customers with executed Interconnection Service Agreements ("ISAs") or Generator Interconnection Agreements ("GIAs") (or to be filed unexecuted) prior to the date of revised interconnection procedures directed in this Order that wish to add Co-Located Load or currently serve Co-Located Load to publicly notify PJM of that addition and identify the Eligible Customer that will take transmission service on behalf of the Co-Located Load.⁶
  • Clarify that an existing Interconnection Customer seeking to modify its ISA or GIA to allow its generating facility to serve Co-Located Load, must follow the necessary study process to effectuate such Co-Location Arrangement.⁷
  • Describe the scope of the analysis that PJM will perform as part of the necessary study process noted above.⁸
  • Indicate that the Interconnection Customer will be responsible for the costs of any modifications or Network Upgrades needed as a result of PJM's study to accommodate such a Co-Location Arrangement.⁹
• Within 60 days of December 18, 2025 (February 16, 2026), PJM is directed to submit amendments to its Tariff to provide that the Eligible Customer taking transmission service on behalf of a Co-Located Load can take one of three Transmission Services:
  
  • Network Integration Transmission Service ("NITS") on a gross demand basis;¹⁰
  • A new Firm Contract Demand transmission service; or
  • A new Non-Firm Contract Demand transmission service.¹¹
• The Commission also established paper hearing procedures to evaluate the rates, terms, and conditions of the interim, non-firm transmission service, Firm Contract Demand transmission service, and Non-Firm Contract Demand transmission service in Docket No. EL25-49.¹²
  
  • PJM's initial brief is due on, or before, February 16, 2026.
  • Responses to PJM's initial brief will be due on March 18, 2026.
  • Replies to those responses will be due on April 17, 2026.
• Consistent with the finding that the Tariff's BTMG rules are no longer just and reasonable, the Commission directs PJM to, within 60 days (February 16, 2026), submit a compliance filing that will:
  
  • Propose a new threshold for the amount of load at a particular electrical location that Network Customers may net by using BTMG.¹³
  • Include revisions to grandfather entities with existing contracts for the specific purpose of effectuating a BTMG arrangement for the current term remaining under the existing contract.¹⁴

The Co-Location Order arrives on the heels of the PJM capacity auction, which closed 6,600 MW short of its reserve margin in December 2025, underscoring the imminent need for additional generation in the region. The Order declines to address any jurisdictional issues concerning directly interconnecting large loads. It is expected that the Commission will address any jurisdictional issues in the Advance Notice of Proposed Rulemaking ("ANOPR")—directed by Secretary of Energy Chris Wright to FERC—to initiate rulemaking procedures to "ensure the timely and orderly interconnection of large loads to the transmission systems."¹⁵ The Co-Location Order will likely lay the foundation for the Commission's actions in the ANOPR docket.

Background

In its February 20, 2025 Show Cause Order, the Commission reasoned that PJM's Tariff did not appear sufficient to address the rates, terms, and conditions of service that apply to co-location arrangements. The Commission explained that ambiguity may leave generators and load unable to determine what steps they can take to set up co-location arrangements, and how to do so in an acceptable way. To assess whether the PJM Tariff remains just and reasonable with the rise of data center and co-location proposals,¹⁶ the Show Cause Order set forth with granularity several specific topics that must be addressed to inform Commission policy on co-located load arrangements, including jurisdictional issues, cost causation and allocation, and reliability and resource adequacy.

To address these concerns, the Commission directed PJM and the PJM Transmission Owners to address thirty-eight (38) questions related to state and federal jurisdiction; the transmission services provided to co-located entities under various configurations; ancillary and wholesale services provided to co-located entities under various configurations; the process for studying the interconnection of, and impacts associated with, co-located arrangements and the cost allocation related to the mitigation of those impacts; and potential changes to PJM's capacity market rules and planning processes to incorporate the anticipated growth in co-location arrangements. The Commission received fifty (50) comments on the Show Cause Order, including eight iterations of a proposal from PJM.¹⁷ In response to the Show Cause Order, PJM stated that its existing Tariff was just and reasonable, but noted that improvements and clarifications may be appropriate based on Commission guidance.¹⁸

Co-Location Order

In the Co-Location Order, the Commission extensively explores the wide range of technical issues, cost allocation considerations, and behind-the-meter generation rules implicated by co-location arrangements. The Commission ultimately found the PJM Tariff to be unjust and unreasonable—explaining that the Tariff fails to contain clear and consistent provisions on the rates, terms, and conditions of service that apply to co-located load arrangements. FERC further found that PJM's Tariff does not include transmission services for an eligible customer to take service on behalf of a co-located load, and for that customer to be able to limit its energy withdrawals from the transmission system under certain conditions. Moreover, the Commission found that the Tariff did not address charges related to co-located loads' use of regulation and black start services, which risks that co-located loads may benefit from regulation and black start services without contributing to cost recovery for such services, thereby creating unjust cost allocation concerns.¹⁹

To address these issues, the Commission:

• Directed PJM to submit various compliance filings to revise its Tariff;
• Instituted a paper hearing to obtain a technical record on the new transmission services; and
• Directed PJM to submit an informational report on several matters related to PJM's Critical Issue Fast Path ("CIFP") stakeholder process and PJM's integration of new generation sufficient to serve forecasted large load additions.

The Commission also addressed jurisdictional questions about co-located arrangements considering the long-standing jurisdictional line between federal and state authority under the Federal Power Act ("FPA"), a consideration also addressed by the ANOPR from Energy Secretary Wright.

Jurisdictional Issues

The Show Cause docket reflected Commenters' disagreements on whether the FPA's division of jurisdictional authority leaves a regulatory gap for co-location arrangements, as the issues presented in the Show Cause Order implicated both federal and state interests. In the Co-Location Order, FERC declined to comprehensively address jurisdictional matters regarding the interconnection of retail loads served through a co-location arrangement to the interstate transmission system. FERC also confirmed that states have authority over their generation resource mix, including through their siting authority. The Order concluded that the Commission has jurisdiction to oversee the interconnection of generating facilities, including the generators that are used to serve co-located load, to the interstate transmission system. It also concluded that the Commission has jurisdiction over the provision of transmission service in interstate commerce used by an eligible customer to serve co-located load.²⁰ FERC reasoned that these jurisdictional findings are sufficient to address the issues in the Show Cause Order.

Findings on Transmission Services

The Commission found PJM's Tariff to be unjust and unreasonable because it does not provide for clear rules for co-located arrangements. To resolve this issue, the Order requires from PJM:

• Revisions to the generation interconnection procedures of the Tariff, including to require an interconnection customer who will use its generating facility to serve co-located load to specify an eligible customer who will take transmission service on behalf of the co-located load;
• Changes specifying that an interconnection customer seeking to serve co-located load using an existing generating facility must bear the costs of all necessary network upgrades, and that an existing generating facility cannot begin service to a co-located load until all required network upgrades are in service; and
• Revisions to clarify that an interconnection customer seeking to serve a co-located load with a newly interconnecting generating facility can make use of provisional interconnection service, can request interconnection service below nameplate capacity, has the potential to accelerate the interconnection process under certain circumstances, and can request surplus interconnection service.²¹With these revisions, the Commission seeks to accelerate new generation.

Presently, under the PJM Tariff, there is only one option to take NITS under the Tariff. The Order directs PJM to create three new transmission services that reflect that eligible customers taking service on behalf of co-located loads are willing and able to limit their energy withdrawals from the transmission system under certain conditions:

1. New interim non-firm transmission service;
2. Firm Contract Demand transmission service; and
3. Non-firm Contract Demand transmission service.²²

Under the Co-Location Order, PJM must revise its Tariff to allow eligible customers seeking to take NITS on behalf of co-located load to take a new non-firm transmission service on behalf of that co-located load on an interim basis until all transmission network upgrades necessary to provide the requested NITS are complete—acting as a bridge while the infrastructure is being built. FERC further directed PJM to offer two other new transmission services—a Firm Contract Demand transmission service and a Non-Firm Contract Demand transmission service—that an eligible customer can choose to take on behalf of a co-located load instead of taking NITS. The new services allow a co-located load to contract and pay for service from the grid consistent with the load's actual net withdrawals, while ensuring that the load cannot take more service than the contracted amount. Under either new transmission service, the co-located load may be curtailed if its usage exceeds what it has contracted for in advance. Specific to these new transmission services, FERC established paper hearing procedures to determine the just and reasonable rates, terms, and conditions for such services.²³

In its Order, the Commission discussed cost causation principles and fair allocation as central tenets to a co-located regulatory framework. Noting the significant costs to building, operating, and maintaining the transmission system, FERC discussed the significant agreement in the record that co-located loads that are synchronized with the PJM transmission system use and benefit from at least some ancillary services and may be reasonably charged for such benefits.²⁴ Given these cost allocation issues, FERC reasoned that eligible customers taking one of the new transmission services on behalf of co-located load must be assessed for regulation service on a gross demand basis at the existing Tariff rate, consistent with the Commission's cost causation principles.²⁵ Likewise, FERC determined that co-located loads benefit from black start service even if they have zero net energy withdrawals and eligible customers taking one of the new transmission services on behalf of co-located load must be assessed for this service based on gross demand basis at the existing Tariff rate.²⁶

Additional Findings on Behind the Meter Generation

Additionally, FERC found PJM's BTMG Tariff rules to no longer be just and reasonable, finding that the rules shift costs unjustly. FERC explained that under the existing Tariff, loads with BTMG are not fully accounted for in resource adequacy planning. The existing BTMG rules may lead to both reliability and resource adequacy risks because PJM must serve transmission customers using BTMG, but PJM does not consider such customers in transmission and resource adequacy planning. Accordingly, the Commission directed PJM to revise its BTMG rules and implement a transition process for existing BTMG participants. FERC directed PJM to implement a two-part transition process for retail BTMG, including:

• the establishment of a three-year transition period; and
• the ability to grandfather certain entities with existing contracts.

The Commission reasoned that a materiality threshold for all BTMG should reduce the reliability and resource adequacy risks that large or increasing BTMG may pose to PJM, while also allowing for network customers to reduce their transmission charges in a transparent, not unduly discriminatory fashion.

Implications

With the recent results of PJM's capacity auction underscoring the imminent need for new generation in the region, FERC maintains that its new directives will enable PJM to plan less transmission and procure less generating capacity for new data centers, which will reduce the costs for both the new co-located load and for all other PJM customers. This will provide an opportunity for both new generators and new load to get online more quickly. The Order reflects the Commission's objectives under Chairman Swett's leadership to push forward the "AI revolution," provide more certainty for co-location arrangements, meet surging demand while maintaining reliability, and keep electricity costs low for ratepayers.

Commissioners Rosner and Chang both concurred with the Order, with Commissioner Rosner seeking to translate much of the technical complexities in the Order and Commissioner Chang writing to emphasize the importance of developing a minimum charge for the new transmission services. A copy of the Commission Order can be foundhere.

Footnotes

1. See PJM Interconnection, L.L.C. 190 FERC ¶ 61,115 (2025) ("Show Cause Order"). Given the overlap in issues, two prior Commission proceedings involving co-located loads (AD24-11-000, the technical conference addressing Large Loads Co-Located at Generating Facilities; and EL25-20-000, Constellation Energy Generation, LLC's complaint against PJM) were consolidated with the Show Cause Order.

2 PJM Interconnection, L.L.C., 193 FERC ¶ 61,217 (2025) ("Co-Location Order" or "Order").

3 Id. at P 232.

4 Id.

5 Id. at PP 187-188.

6 Id. at P 191.

7 Id. at P 226

8 Id. at P 227.

9 Id. at P 228.

10 Id. at P 195.

11 Id. at P 206.

12 Id. at P 219.

13 Id. at P 221.

14 Id. at P 224.

15 Advance Notice of Proposed Rulemaking, Ensuring Timely and Orderly Interconnection of Large Loads, DEPT. OF ENERGY (Oct. 23, 2025), available at https://www.energy.gov/sites/default/files/2025-10/403%20Large%20Loads%20Letter.pdf.

16 In November 2024, FERC rejected a request from PJM to allow an Amazon data center in Pennsylvania to increase the power load it would take from the adjacent Susquehanna nuclear plant, reasoning, in part, that the proposed non-conforming provisions in the Amended Interconnection Service Agreement raised questions regarding whether PJM intends to offer these terms to all similarly situated interconnection customers. See PJM Interconnection, L.L.C., 189 FERC ¶ 61,078 at P 87 (2024).

17 See Co-Location Order, 193 FERC ¶ 61,217 at PP 12-21.

18 Id.

19 Id. at P 159.

20 Id. at P 170.

21 Id. at P 176.

22 Id. at P 178.

23 See id. at P 219.

24 Id. at PP 182-3.

25 Id. at P 184.

26 Id. at P 185.

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