The Grid Supporting the Cloud: FERC’s Regulatory Response to Data Center Co-Location in PJM

The build-out of large, energy-intensive data centers at an accelerated pace will demand massive upgrades to the transmission system and the development of new electric generation on an unprecedented scale. Data centers are critical to supporting U.S. leadership in the digital and innovation economy and have implications for national security.  At the same time, they introduce a set of novel, and largely uncharted, regulatory challenges.  Against the backdrop of commercial deals, the Federal Energy Regulatory Commission (“FERC”) has been wrestling with how its existing interconnection rules and precedent apply to data centers co-located with generation and whether new regulatory structures are needed to meet evolving challenges.  As a stakeholder recently commented to FERC on the high stakes involved: “[I]nterconnection policy has become inseparable from the United States’ prospects to lead the next great industrial era.”¹

FERC’s primary focus related to data centers has been on co-location, where large loads connect to generation behind the interconnection to the transmission system.  And nowhere in the U.S. has attention to data center interconnection been as acute as in the PJM Interconnection (“PJM”)—the largest Regional Transmission Organization (“RTO”) in the nation whose territory includes all or parts of 13 states and the District of Columbia.  Companies have pursued co-location arrangements in an effort to speed deployment by avoiding the often-lengthy process of interconnecting at the transmission level with attendant studies and potential upgrades.  Much of the debate has centered on the reliability impact of large loads on the transmission system, how to allocate cost responsibility, and jurisdictional questions.

This article—part of Womble’s Powering the Future: Legal Challenges in Grid Modernization and Transmission series—provides a brief survey of  FERC actions related to large load and data center interconnections in PJM. The next article in this series will touch on state-level actions around data center integration, as well as a broader FERC proceeding currently pending, an Advance Notice of Proposed Rulemaking (“ANOPR”) related to the interconnection of data centers and other large load customers.

The Path to Action: FERC Dockets on PJM Data Center Interconnection Leading Up to the December 18, 2025 Order

Susquehanna/Talen 

On November 1, 2024, FERC addressed what then-Chairman Phillips described as a “first of its kind” co-location arrangement.²  In PJM Interconnection, L.L.C., 189 FERC ¶ 61,078 (2024), a divided FERC rejected proposed amendments to an interconnection service agreement for the existing 2,520 MW Susquehanna nuclear facility (owned by Talen Energy) that paired its generation with a large, high-load-factor data center.³  Under the arrangement, Susquehanna would supply up to 480 MW to serve data center load, with the potential to provide more power with future upgrades.  The filing included a set of operational, planning, and reliability provisions reflecting the co-located load configuration, which departed from standard practices.  

In a 2-1 decision, FERC rejected the proposed amendments.  With Commissioners Christie and See ruling in the majority, FERC found that PJM failed to meet its burden of demonstrating a need to deviate from standard interconnection terms.  The order acknowledged that there was broader market interest in co-location arrangements and that, while the “filing leaves multiple important questions unresolved,”⁴  the case at hand concerned a specific set of issues that was resolved on the basis that PJM did not meet the requisite legal standard. 
  
Chairman Phillips dissented, warning that the majority’s decision “is a step backward for both electric reliability and national security.”5  In his view, PJM’s filing addressed reliability concerns and included a suite of protections—separation schemes, operational controls, and limits on back-up service—that supported FERC approval while leaving the agency room to address broader policy questions in parallel through a technical conference record and subsequent filings.

FERC Technical Conference

On the same day that FERC issued its order related to the co-location arrangement in the Susquehanna/Talen proceeding, it hosted a technical conference on “Co-location of Large Loads at Generating Facilities.”⁶  The conference covered a range of issues that large load interconnection and co-located generation raise for system reliability and operations, planning and forecasting, and cost allocation. Many market participants and stakeholders submitted additional comments after the event, creating a significant record for FERC to consider in evaluating whether to take action in PJM or more broadly in connection with data center interconnection and related issues.

Constellation Complaint

On November 22, 2024, Constellation Energy Generation, LLC (“Constellation”) filed a complaint at FERC against PJM, asserting that its tariff was unjust, unreasonable, and unduly discriminatory because it lacked rules for “Fully Isolated Co-Located Load”—i.e., arrangements where “generation and end-use load” are co-located and behind-the-meter while using equipment that prevents that load from receiving power from the grid.⁷  Constellation argued, among other things, that the absence of such rules has impeded competition in PJM to serve large load customers such as data centers and resulted in inconsistent treatment across the PJM footprint.  

Show Cause Order

FERC soon stepped squarely into the regulatory arena to address escalating issues around the co-location of generation and data centers in PJM.  On February 20, 2025, the agency issued a “show cause” order to PJM and transmission owners to press the region toward a comprehensive resolution to questions around how large co-located loads are treated under the PJM tariff.   FERC consolidated this new proceeding with the dockets established for its technical conference and the Constellation complaint.  

In its Order, FERC found that PJM’s tariff “appears to be unjust, unreasonable, unduly discriminatory or preferential.”⁹  This included FERC’s preliminary determination that the tariff lacked clear and consistent rules governing the rates, terms, and conditions applicable to co-location arrangements, leaving market participants uncertain about how such configurations should be classified, what wholesale services (if any) they must take, and whether charges for those services are appropriate. Absent that clarity, FERC expressed concern that co-location arrangements could allow participants to avoid paying for the services they receive, in violation of FERC’s cost causation precedent. 

FERC also preliminary found that a gap in tariff provisions governing co-location arrangements created a risk of undue discrimination or preferential treatment. The order expressed concerns that transmission owners have taken inconsistent approaches to similar co-location proposals—delaying requests in some cases while permitting others without requiring comparable transmission service. 

The Show Cause Order directed PJM and the identified transmission owners either to demonstrate that the existing tariff remains just, reasonable, and not unduly discriminatory or preferential, or propose tariff revisions that would address FERC’s concerns should the tariff be found deficient.

PECO/Amazon Order 

In a more recent and limited case, PECO Energy Company, 193 FERC ¶ 61,148 (2025), FERC issued an order on November 21, 2025 that accepted a transmission security agreement between PECO Energy Company (“PECO”) and Amazon Data Services (“Amazon”).  The agreement included provisions to ensure that Amazon—the developer of a large data center campus—would make a minimum and contractually enforceable contribution to PECO’s transmission revenue requirement in line with the load it adds under PECO’s state-jurisdictional retail tariff.  The arrangement did not include generation co-location.  

While PECO stated that Amazon would not be taking transmission service under the PJM tariff, the agreement could affect FERC-jurisdictional transmission rates, particularly through committed revenue contributions, shortfall payments, credit support, and early-termination fees that are credited back to PECO’s transmission cost of service.  

FERC accepted the agreement as a bilateral, arm’s-length contract between sophisticated parties and in light of important consumer protections in the agreement. The order rejected a request to wrestle with broader issues around PJM-wide resource adequacy, concluding that those concerns were outside the scope of the proceeding. The order also highlighted the limited nature of FERC’s action—applying only to the parties and circumstances presented—as well as the authority that the host state’s public utility commission retained to establish terms of retail service between the parties.

While joining the order, Commissioner Chang authored a concurrence to emphasize the jurisdictional and policy tensions that arise as large new loads drive significant new transmission investment. Although she agreed that the agreement before FERC met the legal standard for acceptance, Commissioner Chang cautioned against relying on bilateral contracts as a substitute for more comprehensive frameworks.  She also underscored the role that state regulators play in protecting consumers and cautioned FERC against allowing jurisdictional “silos” or “loopholes” that constrain state oversight.

FERC’s December 18th Order

On December 18, 2025, FERC issued its awaited order in the Show Cause proceeding, resolving the consolidated set of PJM dockets related to the co-location of generation and large load customers.¹⁰  As discussed in more detail in this recent Client Alert, in a unanimous ruling, FERC concluded that PJM’s existing tariff is unjust and unreasonable and unduly discriminatory and directed a set of reforms designed to bring clarity and consistency to co-location arrangements.

FERC directed PJM to revise its interconnection procedures to require that any generator serving co-located load designate an eligible customer to take transmission service on the load’s behalf, and to clarify that interconnection customers must bear the full cost of any network upgrades necessary to preserve system reliability. The Commission also required PJM to establish new transmission service options—including firm and non-firm contract demand services and an interim non-firm option—that better reflect configurations in which co-located load is willing and able to limit withdrawals from the transmission system, while ensuring that such load contributes to regulation and black start costs on a gross-demand basis. 

FERC established paper hearing procedures to inform the development of procedures related to these transmission services to ensure that rates, terms, and conditions are just and reasonable.  The agency requested briefing on whether a de minimis threshold for transmission service should be included, and if so, how it should be determined. This requirement and potential minimum service reflects FERC’s finding that co-locations are synchronized to and benefit from the transmission system.  

In addition, recognizing that co-location issues are part of a broader challenge associated with rapid large load growth, FERC further directed PJM to submit a detailed informational report on stakeholder proposals under consideration to address issues such as reliability, resource adequacy, load forecasting, and demand flexibility.  

The December 18 Order reflects a concrete shift away from ad hoc adjudication of data center issues toward a more holistic approach, while signaling that its directives to PJM may inform broader FERC action.  This could include issues—including fundamental jurisdictional questions—under review in FERC’s pending ANOPR on large load interconnection. 

¹Reply Comments on OpenAI Group PBC, Docket No. RM26-4-000 (filed Dec. 5, 2025) at 1 (emphasis omitted).
²PJM Interconnection, L.L.C., 189 FERC ¶ 61,078 (2024) (“2024 Order”) (Phillips, Chairman, dissenting) (“Phillips Dissent”).
³The parties to the agreement were Susquehanna Nuclear, LLC, PJM, and PPL Electric Utilities Corporation.
⁴2024 Order at P 88.
⁵2024 Order, Phillips Dissent, at P 1.
⁶A recording and related materials for this technical conference, docketed as AD24-11-000, are available at https://www.ferc.gov/news-events/events/commissioner-led-technical-conference-regarding-large-loads-co-located.
⁷Constellation Energy Generation, LLC, Complaint Requesting Fast Track Processing, Docket No. EL25-20-000 (filed Nov. 22, 2024).
⁸PJM Interconnection, L.L.C. et al., 190 FERC ¶ 61,115 (2025) (“Show Cause Order”).
 ⁹Id. at P 2.
¹⁰PJM Interconnection, L.L.C. et al., 193 FERC ¶ 61,217 (2025).