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Key Takeaways
What's Happening: Stemming from its February 2025 show cause order concerning co-location issues, on December 18, 2025, the Federal Energy Regulatory Commission (FERC) issued a final order finding 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 for interconnection customers serving co-located load." FERC accordingly directed PJM to revise its tariff to establish transparent rules that support service for large loads — i.e., AI-driven data centers and other energy-intensive industries — co-located with generation.
New Transmission Services: FERC's order requires PJM to develop three new types of transmission service that PJM must offer as alternatives to traditional Network Integration Transmission Service (NITS):
- Interim non-firm service, which requires the transmission provider to provide transmission service on an interim basis while the transmission provider constructs the upgrades necessary to fully accommodate the transmission service.
- Firm Contract Demand service, which recognizes that loads co-located with generation can meet specific transmission demand limits by deploying on-site generation to service the co-located load.
- Non-firm Contract Demand service, similar to Firm Contract Demand service, but available on a non-firm basis.
Who's Impacted: Large energy consumers, independent power producers (especially those co-locating with load), transmission customers, and utilities within PJM's footprint. Ultimately, FERC's decision will likely affect co-location agreements in other parts of the electric grid as well.
How to Respond and When: PJM must propose revised tariff language, including three new transmission service options, early in the new year. FERC also established a paper hearing to determine just and reasonable rates, terms, and conditions for the new services. Interested stakeholders should engage in PJM's compliance filings and the upcoming paper hearing to influence how new services are rolled out. Customers outside PJM should pay close attention to FERC's actions in this proceeding, which may be cited as precedent for the treatment of co-located loads in other parts of the nation's electric grid.
Cause for Action
FERC's order stems from concerns that PJM's Open Access Transmission Tariff does not clearly explain how large loads can be served when they are co-located with generation. The Commission therefore directed PJM to "establish transparent rules to facilitate service of AI-driven data centers and other large loads co-located with generating facilities."
FERC found that PJM's existing tariff failed to offer services that reflected how co-located customers may limit withdrawals from the transmission system, leaving developers and other market participants uncertain about how to structure such arrangements. The Commission concluded that PJM's tariff "does not include transmission services that reflect Eligible Customers taking service on behalf of Co-Located Loads that are willing and able to limit their energy withdrawals from the transmission system under certain conditions."
FERC's Directive
In the order, FERC directs PJM to propose tariff revisions to create new transmission service options for co-located loads that reflect reduced grid usage. The three new service options include:
- Network Integration Transmission Service with a new interim, non-firm transmission service;
- a new Firm Contract Demand transmission service; and
- a new Non-Firm Contract Demand transmission service.
FERC also found PJM's Behind-the-Meter Generation rules (BTMG) "no longer just and reasonable" because the tariff does not fully account for loads with BTMG in resource adequacy planning. FERC accordingly directed PJM to revise its BTMG rules, including a transition and grandfathering process for certain existing customers. FERC also directed PJM to submit a report on the reliability impacts of data centers and other large-load customers.
Next Steps
By January 20, 2026, PJM must make compliance filings describing how co-located customers can access provisional interconnection, request service below nameplate capacity, and accelerate interconnection processes. By February 16, 2026, PJM must file additional tariff revisions detailing service options and procedures for co-located loads.
FERC also established a paper hearing process to determine the final rates, terms, and conditions for the new transmission services. FERC seeks additional input on numerous issues, with PJM's initial brief in Docket No. EL25-49-000 due February 16, 2026, responses due March 18, and replies due April 17.
Impacts of Future Co-Location Rules
For large energy consumers and data centers, FERC's order ideally creates a path toward service options that better match how co-located loads draw from the grid. For independent power producers and developers, the coming revisions will shape how projects are structured and costs allocated.
PJM is the largest grid operator in the country, and its actions now could become precedent for future data-center-specific services in other regions. With compliance deadlines looming, stakeholders should closely monitor PJM's compliance filings and related docket activity to determine whether participation could be fruitful.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
