The order follows a recent FERC notice initiating a rulemaking proceeding at the U.S. Department of Energy’s request, which involves certain more general inquiries and issues involving the interconnection of data centers to the interstate transmission grid.

On December 18, 2025, the Federal Energy Regulatory Commission (FERC) issued a long-awaited order involving large colocated loads, such as data centers, in the PJM Interconnection LLC region.[1] Colocation is a process in which loads are sited next to a generator to provide energy directly to the load. The order follows a recent FERC notice initiating a rulemaking proceeding at the U.S. Department of Energy’s request, which involves certain more general inquiries and issues involving the interconnection of data centers to the interstate transmission grid.[2]

The current order arose from a complaint by Constellation Energy Generation alleging that the PJM tariff is not just and reasonable because it does not contain rules for generators to follow when seeking to serve certain colocated load configurations. In response to Constellation’s complaint, FERC initiated a show-cause proceeding in February 2025 to address colocation issues in the PJM footprint more broadly. Based on the record in the consolidated show-cause and complaint proceedings, the FERC order mandates the creation of three new types of transmission service that customers may use to serve colocated loads in PJM. Although the order is limited to PJM, it is significant because it may establish a template for dealing with colocated loads, including data centers, in other regions.

Under the FERC order, customers desiring to serve colocated loads will have access to the following new types of transmission service: (1) firm contract demand transmission service; (2) nonfirm contract demand transmission service; and (3) interim nonfirm transmission service. Currently, all FERC open access transmission tariffs provide for two main types of transmission service: network integration transmission service (NITS) and firm and nonfirm point-to-point transmission service (PTPS). The new design allows customers to serve colocated loads by using the new firm and nonfirm contract demand services instead of NITS, although customers also could continue using the traditional NITS arrangement, if they so choose.

The key feature of the new contract demand transmission services is that they reflect the ability of the customer serving colocated load to limit withdrawals from the transmission system and potentially avoid costly and inefficient transmission system buildout that may not be necessary. The firm contract demand transmission service will allow a colocated load to reserve and pay for a certain amount of transmission service from the grid and receive the rest of its capacity needs from its colocated generator. PJM would then have no obligation to serve the colocated load above the reserved amount. For the nonfirm contract demand transmission service, a colocated load would pay for transmission service on an as-needed basis, and PJM would have no obligation to serve the load if no grid capacity was available. Where the customer elects to supply colocated loads through NITS, the order provides for an interim nonfirm service until all network upgrades required to provide NITS are in service. Additionally, the order makes it clear that colocated loads must pay for certain required ancillary services (i.e., regulation service and black start service) regardless of the transmission service arrangement they may choose. FERC also directed PJM to clarify its generator interconnection procedures and agreements to ensure that it is clear to both new and existing interconnection customers (i.e., generators) how to interconnect in a colocation arrangement. 

To determine the just and reasonable rates, terms and conditions for the three new services, FERC established a paper hearing process. The order specified a number of questions that would need to be addressed at the paper hearing, including the following:

• What are the appropriate rates, terms and conditions for the new firm and nonfirm contract demand transmission service, including whether it would be just and reasonable to apply the current zonal firm and nonfirm PTPS charges to this new service and whether it would be just and reasonable and consistent with cost causation to include charges for any of PJM’s administrative services?
• Should the rate paid by an eligible customer on behalf of a colocated load taking only the new nonfirm contract demand transmission service that elects to not reserve any amount of that service for a period of time (e.g., one month) reflect not only charges for regulation and black start services, but also an additional charge given that regulation and black start services could not be provided without the transmission system? If so, how should that additional charge be determined?
• Should the rate paid by an eligible customer on behalf of a colocated load taking only a de minimis amount of the new contract demand transmission services reflect not only (i) charges for regulation and black start service and (ii) the transmission service charges for that de minimis amount of service, but also an additional charge reflecting that the colocation arrangement is physically connected and synchronized to the PJM transmission system? If so, how should that additional charge be determined?
• What is the appropriate penalty charge or other remedial action that PJM should take to address any unreserved use of the PJM transmission system for an eligible customer taking firm and nonfirm contract demand transmission services on behalf of a colocated load?
• What are the appropriate mechanisms for an anti-toggling feature for the firm contract demand transmission service, including the appropriate minimum service period and minimum notice period for discontinuing or modifying the level of service? (“Toggling” is the opportunistic switching between compensation structures.) 
• What interconnection requirements and operational practices are necessary for special protection schemes to maintain system reliability (e.g., the need for full redundancy of such schemes) in the event that a colocated load itself or its associated generator trips offline?
• What communications, alarm, supervisory control, data acquisition or other requirements are necessary for PJM to monitor colocated load transmission system demand status; ensure that relay settings are consistent with special protection scheme design; and inform system operator action, in order to limit withdrawals from eligible customers on behalf of colocated load that exceed the amount of firm or nonfirm contract demand transmission services?
• What other eligibility requirements (e.g., interconnection requirements or operational practices) are necessary for an eligible customer to take firm and nonfirm contract demand transmission services on behalf of colocated load?
• What are the appropriate procedures to govern the circumstances under which PJM curtails an eligible customer taking the new transmission services on behalf of a colocated load during emergency procedures, including load shedding?

Lastly, the order requires PJM to reform its current retail behind-the-meter generation (BTMG) rules, which FERC found to be unjust and unreasonable. Specifically, the order requires PJM to propose a new megawatt threshold for the amount of load at a particular electrical location that network customers may net by using BTMG. The order also establishes a transition period for network customers currently using PJM’s existing BTMG rules and offers certain grandfathering for entities that have existing contracts with the specific purpose of effectuating a BTMG arrangement in the current term remaining under the existing contract.

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Notes

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