On December 18, 2025, the Federal Energy Regulatory Commission (FERC) directed PJM Interconnection, L.L.C. (PJM) to create new rules around the co-location of generation and data centers (FERC’s Dec. 18, 2025 Order, Docket Nos. EL25-49, AD24-11, EL25-20). With several proceedings pending at the Commission to address the growing demand for energy from large load entities—including major rulemaking proceeding directed by the Department of Energy (DOE) on October 23, 2025—FERC’s December 18 order offers the first window into how the Commission will address the challenges facing the nation’s electricity grid. These challenges include balancing resource adequacy, grid reliability, and fair cost allocation for any needed grid expansions to accommodate new AI-driven data centers. FERC is expected to issue a proposed rulemaking in the coming weeks with additional guidance on how it plans to shape the future of data center development in the U.S.
FERC’s December 18, 2025 Order
FERC found that PJM’s tariff is unjust and unreasonable because it lacks the rates, terms, and conditions of service that apply to generators serving end-use customer load that is physically connected to a generator on the generator side of the interconnection (i.e., Co-Located Load). According to FERC, current tariff provisions do not offer the types of transmission service that generators with Co-Located Loads need for flexible use of the transmission system, including for load that is willing to limit energy withdrawals from the transmission system under certain conditions. FERC found that, without such provisions, entities are unable to determine how to effectively implement Co-Location Arrangements. This has resulted in disparate treatment in PJM, where transmission owners have taken different approaches to interconnecting generators to serve Co-Located Load, leading to inconsistent understanding of entities’ responsibilities with respect to their planned Co-Location Arrangements.
FERC also concluded that PJM’s tariff is unjust and unreasonable because it fails to address charges related to Co-Located Loads’ use of regulation and black start services. As a result, Co-Located Loads may benefit from regulation and black start services without contributing to the cost of those services.
Next Steps
Replacement Rate
To adequately remedy the lack of co-location provisions in PJM’s tariff, FERC directed PJM to revise its tariff to include several new provisions:
- A generator serving Co-Located Load must specify an Eligible Customer who will take transmission service on behalf of the Co-Located Load.
- PJM must establish three new transmission services to reflect that Co-Located Loads are able to limit their energy withdrawals from the transmission system under certain conditions. The three new transmission services include (1) an interim transmission service that allows Co-Located Load to take non-firm service until all Network Upgrades are completed; (2) a firm contract demand transmission service for up to a specified quantity; and (3) a non-firm contract demand service for taking energy from the grid from time to time. The latter two services are intended to give Co-Located Load options to limit withdrawals from the transmission system and avoid having to build Network Upgrades. The rates, terms, and conditions of the required new services are set for paper hearing.
- Co-Located Load that seeks to rely on the transmission system to the same extent as Network Load customers will continue to be eligible to take Network Integration Transmission Service (NITS), billed on a gross demand basis.
- All customers taking NITS or one of the new transmission services on behalf of Co-Located Load must be assessed charges for regulation and black start services on a gross demand basis, regardless of which transmission service they select, to ensure Co-Located Load contributes to cost recovery for such services.
- PJM must revise its behind-the-meter (BTM) generation rules with a proposed MW threshold for the amount of load at a location that can be netted by using BTM generation; include a transition period for current BTM customers of three years; and provide grandfathering provisions for certain existing contracts.
Revised Interconnection Process
FERC also directed PJM to revise its interconnection procedures to ensure that new and existing Interconnection Customers know how to interconnect in a Co-Location Arrangement.
- PJM must specify how Interconnection Customers can make use of provisional interconnection service; the ability to request interconnection service below nameplate capacity; the potential to accelerate the interconnection process under certain circumstances (e.g., where the request has no Network Upgrade costs and does not require further studies); and Surplus Interconnection Service to interconnect new generating facilities seeking to serve Co-Located Load.
- PJM must clarify the study procedures for Network Upgrades that are needed to maintain transmission system reliability for an existing generating facility to serve Co-Located Load. These clarifications also require existing Interconnection Customers to pay the full cost of any Network Upgrades and specify that an existing generator cannot withdraw its capacity from the system to begin serving a Co-Located Load until all such modifications and Network Upgrades necessary to maintain reliability for existing customers are in service.
- Existing generators that seek to modify their interconnection capacity rights to serve Co-Located Load must follow the Co-Located Load study process.
- PJM’s tariff changes must be submitted in compliance filings that are due between 30 and 60 days from the date of the Commission’s order.
What This Means to You
FERC’s directives for PJM mark a significant step toward clarifying and modernizing transmission and interconnection policy for Co-Located Loads. By establishing new transmission service options, revising interconnection procedures, and ensuring equitable cost recovery, FERC aims to balance reliability, fairness, and the evolving needs of energy consumers and generators. As PJM and its stakeholders implement these reforms, the region is poised to better accommodate emerging energy technologies and business models, fostering a more resilient and adaptable grid for the future.