FERC Orders PJM to Reform Tariff for Co-Located Generation and Load
On 18 December 2025, the Federal Energy Regulatory Commission (FERC) issued a long-awaited order finding that PJM Interconnection, L.L.C.’s (PJM) tariff is unjust and unreasonable as it relates to co-located load arrangements and directing PJM to establish clear, nondiscriminatory rules supporting co-location of electricity consumers—such as data centers—and generation facilities.1 PJM, which operates the nation’s largest electric grid across 13 states and the District of Columbia, has struggled to plan for and manage the significant increases in power demand from data centers. This order may prove to be a pivotal development for data centers: It potentially opens new pathways in PJM for integrating large loads with co-located generation. By directing PJM to clarify interconnection procedures and create new transmission services, FERC is enabling cost-effective project configurations that can accelerate development timelines, maintain grid reliability, and support innovative business models for both data centers and generation developers.
In regulatory parlance, a co-located load is an electrical configuration where an end-use (retail) customer load is physically connected to the facilities of an existing or planned generation facility.2 Importantly, the load connects to the generator’s side of the interconnection to the PJM-operated transmission system; the load does not necessarily connect directly to the FERC-regulated electric grid.3
Scope of FERC Jurisdiction
FERC’s order first addresses a threshold dispute about whether its authority under the Federal Power Act (FPA) extends to PJM’s treatment of co-located generation and large loads. Several parties argued that aspects of co-location—particularly where retail load is served behind the meter or where hyperscale data centers contract directly with generators—fall outside FERC’s jurisdiction and should be left to regulation by the state commissions. FERC rejected these contentions, finding that:
- FERC retains exclusive jurisdiction to oversee the interconnection of generating facilities to the interstate transmission system, including the generators that are used to serve co-located load. According to FERC, a generator’s interconnection to the interstate transmission system does not fall outside of its jurisdiction merely because there is a co-located load behind the generator’s point of interconnection.
- FERC has exclusive authority to regulate the procedures and agreements that apply to the interconnection of a generator that will make wholesale sales, both where the generator interconnects directly to the interstate transmission system and where a generator interconnects to dual-use distribution facilities.4
- Co-located arrangements necessarily involve transmission service, which FERC exclusively regulates.
Accordingly, even while the retail component of a co-located load is subject to state regulation, the wholesale and transmission components—including cost allocation, reliability, and nondiscriminatory access—are matters for FERC to regulate. For these reasons, FERC found that it has authority under the FPA to direct PJM to revise its tariff to establish clear, uniform rules for co-located generation and load without infringing on states’ authority.
what's Next? Directed Tariff Changes
Interconnection Reform
By 20 January 2026, PJM must file revised generation interconnection procedures to ensure that it is clear to both new and existing (generator) interconnection customers how to interconnect in a co-location arrangement.5 Specifically, PJM must revise its tariff to: (i) make clear how interconnection customers can make use of provisional interconnection service, (ii) permit requests for interconnection service below nameplate capacity, (iii) accelerate the interconnection process under certain circumstances, and (iv) make surplus interconnection service available to interconnect new generating facilities seeking to serve a co-located load. PJM must also clarify the procedures for studies to determine any modifications to interconnection facilities or network upgrades PJM deems necessary to maintain reliability when an interconnection customer seeks to modify its service level to serve a co-located load. Significantly, the interconnection customer is to bear the full cost of such modifications. A generating facility may not withdraw capacity to serve a co-located load until all required upgrades are in service.
Tariff Clarity
FERC found PJM’s tariff to be unjust and unreasonable because it lacks clear rates, terms, and conditions of service for co-location arrangements. According to the order, the lack of sufficient clarity and consistency with respect to the rates, terms, and conditions of service that apply to co-location arrangements has created uncertainty that has resulted in disparate treatment among generation interconnection customers.
PJM must submit by 17 February 2026, a compliance filing setting forth specific terms and conditions that an interconnection customer in PJM seeking to serve co-located load must follow to effectuate a co-location arrangement.6 An interconnection customer using its generating facility to serve a co-located load must take certain actions to designate the “Eligible Customer” that will take transmission services on behalf of the load. These requirements will ensure that applicable transmission and ancillary services charges will be assigned to responsible parties.
Three New Transmission Services
FERC disagreed with the view that a co-located load should only be allowed to take Network Integration Transmission Service (NITS),7 and it directed PJM to create three new transmission service options to facilitate co-location arrangements and that reflect a co-located load’s ability to limit withdrawals from the transmission system, as follows:
Interim NITS
Recognizing a key driver in co-location appears to be service delays in the traditional, front-of-meter interconnection, FERC directed PJM to file by 17 February 2025, a compliance filing to modify its tariff to create an interim network integration transmission product. Interim NITS is a temporary, non-firm transmission service subject to curtailment available to customers seeking NITS until the utility places into service network upgrades required for NITS. Customers taking interim NITS on behalf of a co-located load agree to load curtailments in advance of system emergency conditions. This service allows interconnection before network upgrades are complete, then transitions to full NITS once upgrades are in service. Customers taking Interim NITS pay the NITS rate and applicable ancillary and blackstart service charges but will not be charged for a generation capacity (resource adequacy) product. This transmission service may not be combined with the new Firm Contract Demand transmission service or Non-Firm Contract Demand transmission service.
Firm Contract Demand Transmission Service
Under the new Firm Contract Demand transmission service, customers may request transmission service on behalf of a co-located load up to a specified megawatt (MW) quantity, i.e., the contract demand, for a minimum term of one year. The Firm Contract Demand transmission service will have the same reservation and curtailment priority as existing firm transmission service at the level of the contract demand. Customers taking Firm Contract Demand transmission service will be charged based on its contract demand irrespective of usage. However, unlike NITS customers, customers taking Firm Contract Demand transmission service on behalf of a co-located load cannot withdraw energy beyond the contract demand level. FERC directed PJM to apply a penalty rate if a customer taking transmission service on behalf of a co-located load withdraws energy from the PJM system in excess of its contract demand, for example, due to a special protection scheme failure. The appropriate penalty charge and other terms of service have been set for a paper hearing, with briefing to begin in February 2026.
Non-Firm Contract Demand Transmission Service
This is a new, flexible, non-firm service based on a defined demand level. Reservations under this service would be available only when there is available transmission capacity and will be available for terms ranging from one hour to one month, similar to existing non-firm transmission service options in the tariff. Non-Firm Contract Demand transmission service must be available during normal operations and curtailed during emergency operations. This service is suitable for co-located customers seeking to withdraw energy from the transmission system from time to time when transmission capacity is available and not needed by firm customers, for example, during an expected outage of the co-located generator. Similar to Firm Contract Demand transmission service, customers must pay a penalty rate for unreserved use of the transmission system. As with Firm Contract Demand transmission service, terms of service are set for a paper hearing.
Customers can choose to take Firm Contract Demand transmission service or Non-Firm Contract Demand transmission service on behalf of a co-located load instead of taking NITS. The new Firm Contract Demand and Non-Firm Contract Demand transmission services will not require a co-located load to become a network load, and they will serve as permanent alternatives to existing transmission services. However, FERC directed PJM to limit a customer’s ability to “toggle” between Non-Firm Contract Demand and Firm Contract Demand transmission services.
Paper Hearing
FERC established a paper hearing to determine rates, terms, and conditions of the new transmission services. Hearing participants are asked to address 11 issues covering appropriate rate structures, cost allocation methodologies, and conditions and limitations on the new firm and non-firm service.
Behind-the-Meter Generation (BTMG)
Due to changed circumstances, FERC held that PJM’s BTMG rules are no longer just and reasonable, finding that loads with BTMG are not fully accounted for in resource adequacy planning and that netting BTMG against load shifts costs to other customers.8 According to FERC, large BTMG could mask true transmission usage and reliability and planning impacts, as well as undermine PJM’s ability to plan for capacity and transmission adequacy. However, recognizing that not all BTMG loads pose significant reliability risks, FERC directed PJM to propose a new MW threshold for the amount of load customers may net using BTMG and to maintain current rules for customers below the new MW materiality threshold. Accordingly, under the new rules, BTMG customers over the MW threshold will no longer be able to net out load without being studied for impacts on reliability. Instead, they will be required to follow new requirements that treat BTMG as part of PJM’s resource adequacy and transmission planning framework, which will include full cost responsibility for reliability upgrades and an obligation to take service under the new transmission categories. FERC directed PJM to establish a transition period for retail BTMG currently using PJM’s existing BTMG rules, including a grandfathering of certain contracts, to avoid sudden disruption and provide regulatory certainty while new rules are being implemented. PJM must revise its BTMG rules and file them with FERC by 18 February 2026. The transition design will be proposed by PJM in its compliance filing.
PJM Critical Issue Fast Path (CIFP) on Large Load Additions
FERC directed PJM to file by 20 January 2026, a detailed informational report on the status of the proposals considered in the CIFP stakeholder process, including the status of PJM’s proposed expedited interconnection process for large loads and the development of enhanced load forecasting. The informational report must specifically identify initiatives that would support the expedited addition of new generation capacity to serve large loads, like data centers, while meeting PJM’s near-term resource adequacy needs.
By mandating tariff reforms for co-located generation and load, FERC is fundamentally reshaping how large energy users—especially data centers—can integrate into the grid and how generation developers can participate in the PJM market. Data center developers will benefit from greater regulatory clarity, reducing project risk and enabling broader portfolio of solutions for power procurement. Generation facility developers could gain new opportunities to partner with large loads, optimize asset utilization, and access streamlined interconnection pathways. Stakeholders should closely monitor PJM’s stakeholder process (happening now) and compliance filings, which will affect how data centers and other large users secure power supplies, as well as how new generation capacity can be developed to meet the rapidly changing needs of the grid and large customers.
Ready to Help
The firm’s Power practice group is closely monitoring these developments and stands ready to assist clients in navigating evolving laws, regulations, and policies governing interconnection of data centers, industrial facilities, and large loads.
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.
