The Federal Energy Regulatory Commission has directed PJM Interconnection to rewrite its tariff rules so that large data centers can connect directly to power plants, a move that forces the grid operator serving parts of 13 states and the District of Columbia to balance surging AI-driven electricity demand against the risk of shifting costs onto residential customers. The order, filed under Docket No. EL25-49-000, requires PJM to craft new provisions addressing how these so-called co-location arrangements work, who pays for them, and what happens to grid reliability when a massive new load plugs into a generator that previously fed the broader network.
What FERC ordered and why it matters
FERC launched a formal Section 206 review of PJM’s existing tariff treatment of co-located large loads, finding that current rules raise both reliability and cost-allocation concerns. Under Section 206 of the Federal Power Act, the Commission can require a utility or grid operator to show that its rates and practices are just and reasonable, or else accept new ones. In this case, FERC determined that PJM’s tariff does not adequately address what happens when a data center or similar facility draws power directly from a generating plant sitting on the same site, bypassing the normal transmission system in whole or in part.
The Commission consolidated two earlier records into the new docket. The first was a technical conference that gathered evidence on reliability impacts, cost-shifting risks, market design questions, and jurisdictional boundaries tied to co-located loads. The second was the Constella record, a separate proceeding that raised overlapping issues about how behind-the-meter arrangements interact with PJM’s capacity and energy markets. By folding both into Docket No. EL25-49-000, FERC created a single proceeding broad enough to address the full range of problems.
In a plain-language fact sheet released alongside the order, FERC framed its directive as an effort to support innovation while protecting consumers. The Commission tied the action explicitly to AI-driven data centers and other large loads, signaling that the rapid buildout of computing infrastructure has outpaced the grid operator’s existing rulebook. The fact sheet emphasized transparency and consumer protection as twin goals, an acknowledgment that letting generators sell power directly to on-site customers could reduce the revenue those plants contribute to shared grid costs, effectively pushing those costs onto everyone else.
The order initiating the review describes co-location as a structural change in how big loads interact with the grid. Instead of connecting through the traditional transmission and distribution network, a data center can locate on the same site as a power plant and take energy through a private line. FERC signaled that this arrangement raises novel questions: how to measure the load for planning purposes, how to treat the generator’s remaining output in PJM’s markets, and how to ensure that emergency operations are not compromised if the plant is effectively split between on-site and grid-facing obligations.
What is verified so far
The strongest confirmed facts center on FERC’s procedural actions rather than on the substance of the tariff changes PJM will eventually propose. FERC initiated the Section 206 review, cited reliability and fairness as the basis for the proceeding, consolidated the technical conference and Constella records, and directed PJM to file new rules. The order launching the review is public, as is the docket number, EL25-49-000, which appears on FERC’s PJM market materials.
The technical conference record confirms that FERC heard testimony on four distinct issues: how co-location affects grid reliability, whether current cost-allocation methods allow large loads to avoid paying their share, how PJM’s wholesale market design should adapt, and where federal jurisdiction ends and state authority begins. Those four threads now feed directly into the compliance filing PJM must prepare.
For residential and commercial customers across PJM’s footprint, the core risk is straightforward. When a data center connects behind the meter at a power plant, that generator’s output no longer flows through the transmission system in the same way. If the generator was previously counted toward PJM’s capacity obligations, removing some or all of its output from the shared pool could tighten supply for everyone else and raise capacity auction prices. FERC’s order signals that the Commission views this risk as real enough to require new rules, not just voluntary guidelines.
The order also highlights concerns about transparency. Under traditional arrangements, both load and generation are visible to the grid operator, which can forecast demand, schedule resources, and plan transmission expansions. Co-located data centers change that visibility. If a large portion of a plant’s output is carved out for an on-site customer, PJM must still know how much capacity remains available to meet regional needs, and how quickly that capacity can be redirected during emergencies. FERC’s directive indicates that the current tariff language does not provide sufficient tools to ensure that clarity.
Another verified element is the explicit link to AI and high-performance computing. FERC’s public materials describe data centers running AI as a primary driver of new co-location proposals, underscoring that the Commission sees this as a forward-looking issue rather than a narrow dispute over a single project. By acting through a generic Section 206 proceeding rather than a one-off complaint, the Commission is signaling that it expects similar arrangements to proliferate across PJM’s territory.
What remains uncertain
Several critical details are missing from the public record. The exact language PJM must include in its compliance filing has not been published. FERC set the direction, but PJM retains discretion over how to structure the new tariff provisions, subject to Commission approval. That means the specific cost-allocation formulas, interconnection requirements, and reliability safeguards are still being drafted and could evolve through stakeholder negotiations and subsequent FERC orders.
No quantitative estimates of potential cost shifts to residential ratepayers appear in the FERC fact sheet or the order itself. Consumer advocates and state utility commissions will likely produce their own analyses once PJM files its proposal, but for now there is no publicly available figure showing how much bills could rise or fall under different co-location scenarios. The absence of hard numbers makes it difficult to assess whether the order will deliver on its consumer-protection promise or simply create a faster lane for data center developers.
Direct statements from PJM or from the utilities and generators that would be most affected are also absent from the Commission’s public materials. PJM has not issued a detailed public response outlining how it plans to comply or what timeline it expects. Similarly, the large technology companies pursuing AI-focused data centers have not, in the available record, laid out how they view the trade-offs between lower connection costs and potential new obligations under a revised tariff.
It is also unclear how state regulators will respond. Co-location arrangements straddle the line between federal and state jurisdiction, because they involve both wholesale power markets and retail service territories. The technical conference record notes that jurisdictional boundaries were a central topic, but the order does not resolve those questions. Instead, it leaves room for future disputes over which aspects of a co-located data center fall under FERC’s authority and which remain the purview of state public utility commissions.
Finally, the timeline for implementation remains open-ended. FERC has directed PJM to submit a compliance filing, but the subsequent steps-stakeholder review, potential settlement discussions, and Commission approval-could take months or longer. During that period, developers may continue to pursue co-location projects under existing rules, even as those rules are being reexamined. How PJM handles interim requests, and whether FERC intervenes in specific cases while the broader proceeding is pending, are questions that the current public record does not answer.
What to watch next
The next major milestone will be PJM’s compliance filing in Docket No. EL25-49-000. Observers will be looking for clear definitions of co-located load, standardized procedures for measuring and forecasting that load, and explicit rules governing how much of a generator’s capacity can be dedicated to an on-site customer before triggering new obligations. The filing will also need to propose a method for assigning transmission and capacity costs so that data centers pay an appropriate share without discouraging efficient siting decisions.
Stakeholder reactions will shape the final outcome. Consumer advocates are likely to press for strong protections against cost shifting, while generators and data center developers may argue for flexibility and streamlined approval processes. State regulators, meanwhile, will be focused on preserving their authority over retail rates and local reliability planning. FERC’s order opens the door to a more transparent framework, but the balance among these competing interests will be struck in the details that PJM and the Commission have yet to reveal.
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*This article was researched with the help of AI, with human editors creating the final content.
