FERC Charts a New Path for Large Load Co-Location in PJM

At the December 18 Open Meeting of the Federal Energy Regulatory Commission (“FERC”), FERC took action to provide guidance on how large loads and generators may co-locate in the PJM Interconnection, L.L.C. (“PJM”). FERC’s decision in the PJM large load co-location proceeding comes amid a national debate over how best to meet surging electricity demand—spurred in large part by the buildout of artificial intelligence and other digital infrastructure—and how to overcome regulatory roadblocks to building new grid infrastructure. FERC underscored its priority in this debate: “if a new large load wants to connect directly to a power plant and operate in a way that lowers grid costs, we should let it.”[1] The Order charts a new path for the co-location of large loads in PJM and sheds light on FERC’s potential next steps.

FERC Order on PJM Show Cause Proceeding

On February 20, 2025, FERC voted unanimously to launch a review of issues associated with the co-location of large loads at generating facilities in PJM.[2] FERC is broadly concerned with the co-location of large loads, but it took particular interest in PJM following a November 2024 technical conference at which PJM filed a statement indicating that nearly 8.5 gigawatts of proposed large co-located loads had requested studies in the PJM market. On December 18, 2025, after FERC determined that PJM’s Tariff is unjust and unreasonable because it fails to adequately address the rates, terms, and conditions applicable to co-located generation and load, it directed PJM to take action to establish new pathways for co-location and load flexibility.

Key Findings:

FERC concluded that PJM’s rules were written for a grid in which large loads and generators were planned separately. As such, FERC determined that “PJM’s Tariff is unjust and unreasonable because it does not contain provisions addressing with sufficient clarity or consistency the rates, terms, and conditions of service” applicable to co-location arrangements. Specifically, FERC concluded that the Tariff fails to provide clear rules governing: (1) interconnection customers that seek to serve co-located load using generating facilities, and (2) eligible customers that take transmission service on behalf of co-located load.[3] FERC further found that PJM’s Tariff is unjust and unreasonable because it does not include transmission services that reflect circumstances in which an eligible customer serving co-located load is willing and able to limit its withdrawals from the transmission system under certain conditions.

In an effort to develop a replacement rate, FERC directed PJM to revise its Tariff to require that an interconnection customer serving co-located load must identify an eligible customer that will take transmission service on behalf of that load. FERC then required that the eligible customer take one of three forms of transmission services:

• Network Integration Transmission Service;
• A new Firm Contract Demand transmission service; or
• A new Non-Firm Contract Demand transmission service.

FERC explained that these new contract demand services are intended to reflect co-located load configurations that limit their withdrawals from the transmission system and therefore may not require PJM to plan transmission or procure capacity to serve the load at full gross demand. At the same time, the it emphasized that co-located loads taking these services must accept enforceable limits on their withdrawals and the risk of curtailment where applicable. FERC established paper hearing procedures to determine the just and reasonable rates, terms, and conditions for such services.

FERC also determined that the Behind the Meter Generation (“BTMG”) rules in PJM’s Tariff are no longer just and reasonable because loads with BTMG are not fully accounted for in resource adequacy planning and are not aligned with cost causation principles. FERC directed PJM to revise its generator interconnection rules to clarify how both new and existing generating facilities may co-locate with load.

Jurisdictional Considerations:

FERC held firm in respecting the long-standing jurisdictional balance concerning federal and state regulation. First, it determined that states retain exclusive authority over how costs assigned to eligible customers on behalf of co-located load taking Commission-jurisdictional transmission services are allocated to individual retail customers. Second, the Order concludes that the FERC has jurisdiction overseeing the interconnection of generating facilities, including the generators that are used to serve co-located load, to the interstate transmission service, as well as jurisdiction over the provision of transmission service in interstate commerce used by an eligible customer to serve co-located load. FERC declined, however, to comprehensively address jurisdictional matters regarding the interconnection of retail loads served through a co-location arrangement to the interstate transmission system.

Relationship to Resource Adequacy and Large Load Interconnection    

While the Order in this proceeding marks a step forward in the nation’s approach to co-location and to ensuring reliability and affordability, uncertainty continues to plague the country’s energy outlook. Just one day earlier, PJM announced that its 2027/2028 Base Residual Auction fell short of its reliability requirement by 6.6 MW, while simultaneously setting record-high prices for the third auction in a row.[4] Multiple Commissioners described those results as “sobering” and emphasized that co-location, by itself, cannot solve PJM’s resource adequacy challenge.

The U.S. Department of Energy Resource Adequacy Report, published in July 2025, warned that if the industry continues business as usual, the U.S. electric grid will be unable to support the nation’s economic and technological ambitions; it thus encouraged reforms.[5] This Order provides an early window into how FERC may approach the broader large load interconnection proceeding initiated at the direction of Department of Energy Secretary Wright.[6] Although that Advanced Notice of Proposed Rulemaking is national in scope and extends well beyond PJM or co-location, several themes from this Order are likely to carry forward. FERC is signaling an emphasis on load flexibility, cost causation principles, and carefully threading the federal-state balance.

This PJM Order marks a pivotal step forward in FERC’s approach to co-location. It also reflects FERC’s commitment to expediting new grid infrastructure while ensuring reliability and affordability. Whether FERC can continue to strike that balance—particularly on a national scale—remains the central question for 2026.

[1] Order on Show Cause Proceeding, Directing Compliance Filings, Establishing Paper Hearing, and Granting In Part and Denying In Part Complaint, 193 FERC ¶ 61,217 (2025) (C. Rosner concurring).

[2] PJM Interconnection, L.L.C., 190 FERC ¶ 61,115 (2025) (Show Cause Order).

[3] FERC adopts the following definition of Co-Located Load in this proceeding: a “configuration [that] refers to end-use customer load that is physically connected to the facilities of an existing or planned Customer Facility on the Interconnection Customer’s side of the Point of Interconnection to the PJM Transmission System.”

[4] Ethan Howland, PJM capacity prices hit record high as grid operator falls short of reliability target, UtilityDive (Dec. 18, 2025), https://www.utilitydive.com/news/pjm-interconnection-capacity-auction-data-center/808264/.

[5] Ken Irvin et al., U.S. Department of Energy: U.S. Grid Faces Urgent Reliability Challenges Amid AI-Drive Load Growth and Plant Retirements, Sidley Energy & Infrastructure Pulse (July 8, 2025), https://energyinfrastructurepulse.sidley.com/2025/07/08/u-s-department-of-energy-u-s-grid-faces-urgent-reliability-challenges-amid-ai-driven-load-growth-and-plant-retirements/.

[6] Terence T. Healey et al., Bringing Data Centers to the Grid; FERC’s Emerging Large Load Framework, Sidley Energy & Infrastructure Pulse (Nov. 17, 2025), https://energyinfrastructurepulse.sidley.com/2025/11/17/bringing-data-centers-to-the-grid-fercs-emerging-large-load-framework/; Energy Policy in Motion: What DOE Section 403 Instruction to FERC Means for Data Center Supply, Accelerating Energy (Nov. 5, 2025) https://www.sidley.com/en/insights/podcasts/2025/11/energy-policy-in-motion-what-doe-section-403-instruction-to-ferc-means-for-data-center-power-supply.

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