By William Scherman, C.J. Polito, Jeffrey Jakubiak, Melinda Warner, Ankush Joshi, and Matthew Appel*
On December 18, 2025, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an Order directing grid operator PJM Interconnection, L.L.C. (“PJM”) to establish transparent rules to facilitate service of data centers and other large loads co-located with generating facilities. In the Order, FERC finds certain sections of the PJM Tariff unjust and unreasonable for failing to clearly and consistently address the rates, terms, and conditions of service that apply to generators serving co-located load and customers taking transmission service on behalf of co-located load.1 As discussed below, the Order creates a new menu of transmission service options for co-located loads seeking interconnection to the PJM grid that is meant to allow these loads to come online faster and minimize unnecessary transmission upgrades. The Order also required PJM to make multiple compliance filings to modify its Tariff and established a paper hearing to determine the just and reasonable rates, terms, and conditions for Eligible Customers taking transmission service on behalf of co-located loads.2
Basis for Jurisdiction
The Commission emphasized its respect for the traditional line between federal and state jurisdiction. The Order noted that states retain exclusive authority to determine the specific terms of retail sales and retail rate design, allocate the costs of FERC-approved transmission rates among retail customers (including co-located loads) and site generators, and regulate which entities may make retail sales within their borders through utility franchise laws.3 The Commission then stated that it has authority over generation interconnection and the provision of transmission service used to serve co-located load, citing this as the jurisdictional basis for the Order.4
Notably, the Commission declined to address jurisdictional matters regarding the interconnection of retail loads served through a co-location arrangement to the interstate transmission system, which the Secretary of Energy’s recent Advanced Notice of Proposed Rulemaking (“ANOPR”) argued falls under FERC’s jurisdiction.5 During the December Open Meeting, Commissioner David Rosner noted that the Order makes major progress on matters raised by the ANOPR, suggesting that the Commission might be looking for a way to accomplish the ANOPR’s goals without trying to expand its jurisdiction, as doing so could be subject to legal challenges and confrontations with the States.
Transmission Service Options for Co-Located Loads
In the Order, FERC directed PJM to submit a compliance filing to modify PJM’s Tariff to require that Eligible Customers (which may include utilities and power marketers) taking transmission service in PJM on behalf of a co-located load must take one of three services: (1) Network Integrated Transmission Service (“NITS”) or a new interim, non-firm transmission service while Network Upgrades to provide full NITS service are constructed; (2) a new Firm Contract Demand transmission service; or (3) a new Non-Firm Contract Demand transmission service.6
Under the new interim, non-firm transmission service, Eligible Customers will pay the NITS rate for the new service, as well as ancillary services charges and charges for black start service, but they will not be charged for generation capacity because, as interruptible loads, capacity will not be procured on their behalf until such time as the Network Upgrades are in place to serve them. In return, they must be willing to curtail their withdrawals from the grid in advance of emergency conditions.7 This service is only for Eligible Customers who plan to take NITS once all of the necessary Network Upgrades are completed.
Under the new Firm Contract Demand transmission service, Eligible Customers will have the right to request firm transmission service on behalf of a co-located load up to a specified megawatt quantity, but will not be permitted to withdraw energy from the grid beyond this contract demand. They will pay all transmission, generation capacity, and ancillary service charges based on the contract demand, with the exception of regulation and black start services, which they must pay on a gross demand basis. PJM will only be required to plan the transmission system and procure generation capacity to meet the contract demand.8
Under the new Non-Firm Contract Demand transmission service, Eligible Customers may reserve9 transmission service on behalf of a co-located load as needed during normal, non-emergency system operating conditions. Reservations under this service will be available only when there is available transmission capacity, and the service will be curtailed when there is no available capacity. Eligible Customers will pay transmission and ancillary service charges on an as-reserved contract demand basis (besides for regulation and black start services, which they must pay on a gross demand basis), but they will not pay generation capacity charges since PJM will have no obligation to plan the transmission system or procure generation capacity for them.10
In his concurrence, Commissioner Rosner provided the following chart to help visualize these new transmission service options:
Changes to Behind-the-Meter Generation (“BTMG”) Rules
Under PJM’s existing BTMG rules, loads with qualifying BTMG can reduce their costs by netting output from BTMG in the calculation of their peak demand for the purpose of determining NITS charges.11 The Commission found that these rules are no longer just and reasonable since netting large loads would present reliability and resource adequacy risks, and directed PJM to propose a new megawatt threshold for the amount of load at a particular electrical location that Eligible Customers may net by using BTMG.12 To address concerns from parties that relied on the existing rules, the Order also established a transition period of three years and grandfathered existing contracts for BTMG for their remaining term.13
Existing and New Generators
The Order directs PJM to clarify that an existing generator cannot remove its capacity from the grid to serve a co-located load until all Network Upgrades needed to maintain reliability are in service, with the costs of those upgrades allocated 100 percent to the existing generator.14 In contrast, new generators will be able to serve co-located loads under any of the transmission service options addressed above.
Paper Hearing for New Transmission Services
The Commission established a paper hearing to determine the appropriate rates, terms, and conditions of three new transmission services for co-located loads: (1) Interim, non-firm transmission service; (2) Firm Contract Demand transmission service; (3) and Non-Firm Contract Demand Transmission Service.15 The Commission directed interested parties to specifically address a series of 11 questions related to the rates, terms, and conditions for these new transmission services and whether PJM administrative services charges should be applied to the new services.
In addition to the paper hearing and PJM’s compliance filing deadlines, PJM must submit its initial brief on or before February 16, 2026. The deadline to file responses to PJM’s initial brief will be March 18, 2026, and the deadline to file replies to those responses will be April 17, 2026.16
PJM Compliance Filing Deadlines and Next Steps
The Commission also directed PJM to make a number of compliance filings to revise certain unjust and unreasonable Tariff sections:
- PJM must revise the generator interconnection application rules to add a list of requirements for New Service Requests that an Interconnection Customer who will use its generating facility to serve co-located load must specify an Eligible Customer who will take transmission service on behalf of the co-located load. The Commission also directed PJM to revise any generation interconnection procedures to specify operational procedures or data exchange requirements that PJM deems necessary for co-location agreements.17 PJM must make this filing by February 16, 2026.
- PJM must revise sections of its pro forma Generator Interconnection Agreement to specify that an Interconnection Customer that will use its generating facility to serve co-located load must specify an Eligible Customer that will take transmission service on behalf of the co-located load.18 PJM must make this filing by February 16, 2026.
- PJM must add a new Tariff provision that requires Interconnection Customers that wish to add co-located load or are currently servicing co-located load to notify PJM of the addition and identify the Eligible Customer that will take transmission service on behalf of the co-located load.19 PJM must make this filing by February 16, 2026.
- PJM must modify its Tariff to require an Eligible Customer taking transmission service on behalf of a co-located load to take one of three transmission services: (1) NITS or a new interim, non-firm transmission service while Network Upgrades to provide full NITS service are constructed, (2) a new Firm Contract Demand transmission service, or (3) a new Non-Firm Contract Demand transmission service.20 PJM must make this filing by February 16, 2026.
- PJM must create a new interim, non-firm transmission service that must allow an Eligible Customer that has requested NITS on behalf of a co-located load to take non-firm transportation service that can be interrupted until the Network Upgrades necessary to provide NITS are complete and the co-located load can be designated as a network load.21 PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to allow network customers already using BTMG rules to continue to do so for a transition period of three years from December 18, 2025.22 PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to grandfather entities with existing contracts for the specific purpose of effectuating a BTMG arrangement for the current term remaining under the existing contract.23 PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to clarify that an existing Interconnection Customer seeking to modify its Interconnection Service Agreement or Generator Interconnection Agreement to allow its generating facility to serve co-located load must follow the necessary process to effectuate such co-location arrangement.24 This also includes modifications reflecting reductions in Capacity Interconnection Rights. PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to add a description of the scope of analysis that it will perform as a part of the necessary study process when an Interconnection Customer seeks to use its existing generating facility to serve co-located load.25 The Commission stated that this will also help increase transparency around the new study process. PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to indicate that the Interconnection Customer will be responsible for the costs of any modifications or Network Upgrades that are needed as a result of PJM’s study of the change to an Interconnection Service Agreement or Generator Interconnection Agreement to allow the existing generating facility to serve co-located load inclusive of all necessary Network Upgrades.26 This also includes modifications reflecting reductions in Capacity Interconnection Rights. PJM must make this filing by February 16, 2026.
- PJM must revise its Tariff to clarify that it shall consider requests for interconnection service below the full generating capability of a generating facility, so that an Interconnection Customer may request service at a level below its maximum facility output to serve co-located load.27 PJM must make this filing by January 17, 2026.
- PJM must revise its Tariff to clarify that Interconnection Customers seeking to use new generating facilities to serve co-located load may use existing procedures to accelerate a new service request if they satisfy the criteria of PJM’s Tariff.28 PJM must make this filing by January 17, 2026.
- PJM must revise its Tariff to clarify that an Interconnection Customer seeking to use a new generating facility to serve co-located load may request provisional interconnection service.29 PJM must make this filing by January 17, 2026.
- PJM must revise its Tariff to clarify that an Interconnection Customer seeking to use a new generating facility to serve co-located load at an existing point of interconnection may request Surplus Interconnection Service, if the existing Interconnection Customer at that point of interconnection has made Surplus Interconnection Service available.30 PJM must make this filing by January 17, 2026.
To address concerns about reliability associated with co-location arrangements, the Commission also requires PJM to submit an informational report, within 30 days, regarding concerns about reliability associated with co-location arrangements, including the status of proposals considered in the PJM Critical Issue Fast Path stakeholder process that are designed to expedite the addition of generating capacity to the PJM system. This report will include the status of modifications to PJM’s reliability backstop mechanism to improve PJM’s ability to respond to acute resource adequacy shortfalls, the expedited interconnection process to enable generation projects to serve PJM more quickly, and the development of enhanced load forecasting and demand flexibility measures to assist PJM in determining the amount of new capacity that is needed to maintain system reliability.
*Matthew Appel is a law clerk in our Washington office.
1 PJM Interconnection, L.L.C., 193 FERC ¶ 61,217 at P 2 (2025) (“Order”).
2 Id.
3 Id. at P 167–169.
4 Id. at P 171–174.
5 Id. at P 170; Interconnection of Large Loads to the Interstate Transmission System, Docket No. RM26-4-000, Secretary of Energy’s Direction that the Federal Energy Regulatory Commission Initiate Rulemaking Procedures and Proposal Regarding the Interconnection of Large Loads Pursuant to the Secretary’s Authority Under Section 403 of the Department of Energy Organization Act, Oct. 23, 2025 (filed in Docket No. RM26-4-000 on Oct. 27, 2025) (“ANOPR”). For more information on the ANOPR, please see our prior V&E Energy Update: DOE Directs FERC to Address Large Load Interconnection Procedures.
6 Order at P 193.
7 Id. at P 200–202.
8 Id. at P 208–213.
9 Reservations for this service will be available for terms ranging from one hour to one month.
10 Id. at P 214–218.
11 Id. at P 7.
12 Id. at P 221.
13 Id. at 223–224.
14 Id. at P 176.
15 Id. at P 219.
16 Id. at P 220.
17 Id. at P 188.
18 Id. at P 190.
19 Id. at P 191.
20 Id. at P 193.
21 Id. at P 200.
22 Id. at P 223.
23 Id. at P 224.
24 Id. at P 226.
25 Id. at P 227.
26 Id. at P 228.
27 Id. at P 232.
28 Id. at P 233.
29 Id. at P 234.
30 Id. at P 235.