FERC Directs PJM to Facilitate Co-Location Arrangements
On December 18, 2025, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order (the “Order”) directing PJM Interconnection, L.L.C. (“PJM”), the largest independent grid operator in the United States, to develop rules to facilitate the co-location of generation and large loads (e.g., data centers) within PJM.1 Among other things, the Order requires PJM to establish three new transmission service options, clarify generator interconnection procedures for co-located project configurations, and revise its retail behind-the-meter generation (“BTMG”) rules.
The Order provides much-needed regulatory guidance to generators, large-load projects, and investors seeking to participate in co-located project configurations in the PJM market, and it may serve as a roadmap for similar co-location reforms in other FERC-jurisdictional markets.
Background
The Order follows a February 2025 show cause order2 in which FERC directed PJM and PJM transmission owners to demonstrate whether the PJM tariff and other governing documents (the “Tariff”) remained just and reasonable despite the lack of clear, consistent provisions addressing the rates, terms, and conditions of service applicable to large loads physically connected to an existing or planned generating facility (“Co-Location Arrangements”).3
The show cause order followed several co-location disputes among PJM market participants and a November 2024 technical conference regarding the co-location of large loads at generating facilities.
Key Findings and Timeline
In the Order, the Commission finds that PJM’s current Tariff does not clearly or consistently specify the rates, terms, and conditions of service applicable to Co-Location Arrangements. Based on the record before FERC, the absence of standardized rules in PJM’s Tariff has left generators and large loads unable to determine the steps necessary to implement Co-Location Arrangements, leading to disparate treatment across the PJM footprint based on individual transmission owner procedures and introducing a risk that large-load projects co-located with generation may receive certain grid services without contributing to the recovery of associated costs. The Commission also finds that PJM’s Tariff does not provide sufficient transmission service flexibility for large-load projects that are willing and able to limit their withdrawals from the transmission system.
Accordingly, the Commission directs PJM to establish rules to facilitate Co-Location Arrangements and to submit expedited filings implementing the reforms, as summarized below.
Definition of Co-Located Load and Jurisdiction: The Commission directs PJM to define “Co-Located Load” in the Tariff as “a configuration that refers to end-use customer load that is physically connected to the facilities of an existing or planned Customer Facility on the Interconnection Customer’s side of the Point of Interconnection to the PJM Transmission System.”4 Over the objection of certain PJM transmission owners, the Commission finds that this definition correctly reflects that the Co-Location Arrangement—and, in particular, the generator—is “physically connected to and synchronized to the transmission system” and is “critical” to the regulatory framework established in the Order.5
With respect to jurisdiction, the Commission reaffirms that states retain exclusive authority over the specific terms of retail power sales (i.e., sales directly to end users), including authority to regulate which entities may make such sales within their borders, as well as over generation siting and resource mix. At the same time, however, FERC retains authority over the terms and conditions of generator interconnection to any FERC-jurisdictional distribution or transmission facilities, including generators serving Co-Located Load, and over rates for transmission service in interstate commerce. Notably, the Commission declines to address FERC jurisdiction over the interconnection of retail loads served through a Co-Location Arrangement to the interstate transmission system, an issue pending in FERC’s Advance Notice of Proposed Rulemaking on the interconnection of large-load projects (the “Large Load Interconnection ANOPR”), which Mayer Brown’s Energy and Projects & Infrastructure teams discussed in a November 2025 Legal Update.
New Transmission Services for Serving Co-Located Load: The Commission directs PJM to require an interconnection customer that will use its generating facility to serve Co-Located Load to specify an “Eligible Customer”6 that will, in turn, take and pay for one of three new transmission services:7
- An interim, non-firm transmission service when the Eligible Customer requests Network Integration Transmission Service (“NITS”) on behalf of the Co-Located Load, available until all network upgrades necessary to provide the requested NITS are complete; or
- If the Eligible Customer will not take NITS on behalf of the Co-Located Load and the Co-Located Load can prevent or limit energy withdrawals and is separately metered from the associated generator, either or any combination of: (1) “Firm Contract Demand” transmission service, under which the Co-Located Load may withdraw a specified firm megawatt quantity of power from the grid with the same curtailment priority as existing firm transmission services, up to the reserved contract quantity (i.e., the contract demand); and/or (2) “Non-Firm Contract Demand” transmission service, under which the Co-Located Load has no firm right to withdraw any amount of power from the grid but may withdraw on an as-available basis during non-emergency operating conditions up to a specified megawatt quantity,8 similar to existing non-firm transmission service.
Subject to further FERC proceedings, Firm Contract Demand transmission service must be reserved for a minimum of one year, and Non-Firm Contract Demand service will be available for terms ranging from one hour to one month. Energy withdrawals in excess of the Firm or Non-Firm Contract Demand reservation will be subject to PJM unreserved use charges or other remedial action. Furthermore, all Eligible Customers taking any form of transmission service on behalf of Co-Located Load will be assessed baseline charges for regulation and black start services on a gross demand basis and may be subject to additional baseline charges, pending further FERC proceedings. Eligible Customers taking NITS or Firm Contract Demand service will be charged for PJM capacity based on, respectively, gross demand9 or contract demand. Eligible Customers taking Non-Firm Contract Demand service are not required to pay PJM capacity prices due to the interruptible nature of that service.
PJM must make compliance filings implementing the new transmission service framework by February 16, 2026. To determine the specific rates, terms, and conditions of service for the new transmission options, the Commission establishes a paper hearing for interested parties to submit additional record evidence and directs PJM to file an initial brief by February 16, 2026. Responses to PJM’s filing are due March 18, 2026, with replies due April 17, 2026.
Generator Interconnection Clarifications for Serving Co-Located Load: The Commission directs PJM to revise its generator interconnection procedures to provide clear guidance to both new and existing interconnection customers on how to interconnect generating facilities in a Co-Location Arrangement.
- For newly interconnecting generating facilities seeking to serve Co-Located Load, PJM must clarify that an interconnection customer may: (1) obtain interconnection service at a level below the facility’s nameplate capacity; (2) accelerate the interconnection process if the request involves no cost allocation for network upgrades and requires no further studies; (3) request provisional interconnection service; and (4) request surplus interconnection service.
- For existing interconnection customers seeking to modify interconnection service levels to serve Co-Located Load, PJM must clarify the applicable interconnection study procedures necessary to determine the interconnection facilities modifications or network upgrades required to maintain grid reliability, including that the interconnection customer must: (1) pay the full cost of any such modifications or network upgrades; and (2) ensure that all required facilities, including any special protection schemes, are in service before the existing generating facility may withdraw its capacity from the PJM system.
PJM must make various compliance filings to implement these reforms, with certain filings related to newly interconnecting generating facilities due January 20, 2026 and the remainder of the compliance filings due February 16, 2026.
Retail BTMG Reforms and Transition: The Commission requires PJM to revise its retail BTMG rules to propose a new megawatt threshold limiting the amount of load at a particular electrical location that a NITS customer may net using BTMG to reduce transmission charges. The Order provides for a three-year transition for existing customers using BTMG and allows certain entities with existing contracts entered into specifically to effect a BTMG arrangement to be grandfathered for the remainder of the current contract term. PJM must make compliance filings implementing these changes by February 16, 2026.
CONCLUSION
The Order is the most concrete Commission guidance to date on large-scale co-location in the United States. Subject to further FERC proceedings, the Order provides large, co-located load customers and generators in PJM with an initial framework for faster, more flexible transmission and generator interconnection service designed to better align cost allocation and system planning with actual grid use. In particular, the Firm and Non-Firm Contract Demand transmission services have the potential to deliver significant cost savings for co-located project configurations, and forthcoming PJM Tariff revisions addressing interconnection procedures for both new and existing generators seeking to implement a co-location configuration should meaningfully reduce interconnection risk for project developers.
Although the Order applies only to projects within PJM, it will likely inform similar reforms in other FERC-jurisdictional markets and may signal how the Commission will approach any final action in the Large Load Interconnection ANOPR.
The Mayer Brown Energy and Projects & Infrastructure teams will continue to monitor these and other developments impacting the US energy and infrastructure industries. Please feel free to reach out to discuss any aspect of this Legal Update with your regular Mayer Brown contacts or any member of our Energy and Projects & Infrastructure teams.
1 PJM Interconnection, L.L.C., 193 FERC ¶ 61,217 (2025).
2 PJM Interconnection, L.L.C., 190 FERC ¶ 61,115 (2025).
3 The Order’s references to Co-Location Arrangement include both the Co-Located Load (as defined below) and the associated generator.
6 An “Eligible Customer” in PJM is: “(i) Any electric utility … or any person generating electric energy for sale for resale … (ii) Any retail customer taking unbundled transmission service pursuant to a state requirement that the Transmission Provider or a Transmission Owner offer the transmission service, or pursuant to a voluntary offer of such service by a Transmission Owner, is an Eligible Customer under the Tariff . . . .” See Order at P 10.
7 If an interconnection customer wishes to serve Co-Located Load using its generating facility without identifying an Eligible Customer, the Commission notes that the interconnection customer may terminate its facility’s interconnection to the PJM transmission system and serve the Co-Located Load on a fully islanded basis, separate from PJM’s system. See Order at P 189.
8 The Commission also notes that an Eligible Customer may elect not to reserve any amount of transmission service to the extent that the Co-Located Load will not withdraw any electricity. However, an Eligible Customer taking zero megawatts of Non-Firm Contract Demand transmission service on behalf of a Co-Located Load will be responsible for certain baseline charges, including regulation and black start services charges, subject to the outcome of further FERC proceedings. See Order at P 178, n. 380.
9 However, Eligible Customers taking NITS on behalf of Co-Located Loads may be able to reduce their transmission charges under the new BTMG rules, subject to a new megawatt-threshold cap, as summarized below.
