AI Regulation Tracker / Federal energy regulation

FERC Orders PJM to Write New Grid Rules for AI Data Centers Co-Located With Power Plants

On December 18, 2025, the Federal Energy Regulatory Commission ordered PJM, the largest grid operator in the United States, to overhaul the tariff that governs how AI data centers and other large loads connect to power plants and the grid. The order in Docket EL25-49 directs PJM to create two new transmission-service categories and new rules for large behind-the-meter generation, with the first compliance filings due in January and February 2026. This is a binding order, not a proposal.

By Anthony Guerriero · The Leveraged Years Regulatory Research · Published July 20, 2026 · Last updated July 20, 2026

The short version

On December 18, 2025, FERC issued an order in Docket EL25-49 directing PJM to reform its tariff so that AI data centers and other large loads can connect to co-located power plants under transparent, filed rules. FERC found PJM's current tariff unreasonable because it has no service for customers who want to take power from the grid only some of the time, while sitting next to a generator. The Commission directed PJM to create two new transmission services, a Firm Contract Demand service and a Non-Firm Contract Demand service, and to set new terms for large behind-the-meter generation that stop big loads from netting themselves off the system without study. PJM must make compliance filings on the interconnection procedures by January 20, 2026 and on the co-location terms and behind-the-meter rules by February 17, 2026. This is a binding FERC order under section 206 of the Federal Power Act, and it reaches every state in PJM's footprint.

Regulatory Briefing

Instrument: FERC order on co-location of large loads and behind-the-meter generation in PJM, Docket No. EL25-49-000, 193 FERC ¶ 61,217 (2025), issued in a Federal Power Act section 206 show-cause proceeding
Authority: Federal Energy Regulatory Commission (FERC)
Jurisdiction: PJM Interconnection footprint, all or parts of 13 states and the District of Columbia, from the Mid-Atlantic through the Midwest
Bindingness: Binding. This is a Commission order that finds the existing tariff unjust and unreasonable and directs PJM to file specific reforms. The exact terms take effect once PJM files and FERC accepts the compliance filings, but the direction to file is not optional.
What Changed: FERC directed PJM to create two new transmission services for co-located load and to adopt new rules and a materiality threshold for large behind-the-meter generation, replacing a tariff FERC found lacked any clear path for these arrangements.
Who This Affects: Hyperscalers and data-center developers siting next to power plants in PJM, the generators they co-locate with, utilities, and the executives and counsel negotiating interconnection, power, and real-estate deals across the region.
Current Status: Order issued December 18, 2025. PJM compliance filings due January 20, 2026 (interconnection procedures) and February 17, 2026 (co-location terms, interim service, and behind-the-meter rules); paper-hearing briefing on the new service rates runs into 2026.
Primary Source: FERC fact sheet and order, Docket EL25-49, ferc.gov
Last Verified: July 20, 2026

If you are planning to power an AI data center in the eastern United States, this order is the ground shifting under the deal. On December 18, 2025, FERC told PJM, the grid operator that runs the system for all or parts of 13 states and the District of Columbia, that the way it handles data centers plugging into on-site power plants is broken, and that PJM has to fix it on a deadline. This is not a white paper. It is a binding order in a proceeding FERC opened in February 2025 to test whether PJM's tariff was lawful.

The reason this matters is simple. Interconnection queues in PJM are long, and a data center that waits years for a grid connection is a data center that does not get built on schedule. So developers have been co-locating, which means siting the load right next to a generator and drawing power directly, to skip the wait. The trouble is that PJM's tariff never had a clean rule for it. FERC's answer is to force a set of rules into existence rather than let each arrangement get negotiated in the dark.

What FERC actually found

FERC opened this docket as a show-cause proceeding under section 206 of the Federal Power Act, which is the tool the Commission uses when it thinks an existing rate or practice is unjust and unreasonable. After briefing, FERC concluded PJM's tariff fell short. The core defect is that the tariff had no transmission service tailored to a co-located customer who wants to draw from the grid only intermittently, when the on-site generator is not covering the full load and grid capacity is available.

In the Commission's words, the tariff failed to account for co-located customers "seeking to withdraw energy from the transmission system from time to time when transmission capacity is available." That is the gap the whole order is built to close. FERC also reaffirmed a jurisdictional line that developers should not misread: the Commission "retains exclusive jurisdiction to oversee the interconnection of generating facilities to the interstate transmission system." Co-location does not put these arrangements outside federal reach.

The two new transmission services

The center of the order is a directive to build two new products into the PJM tariff. Per the FERC fact sheet, "The Commission is proposing two new transmission services, a Firm Contract Demand transmission service and a Non-Firm Contract Demand transmission service, that an Eligible Customer may take on behalf of co-located load instead of taking NITS."

Firm Contract Demand service. A firm right to a contracted level of grid withdrawals for the co-located load, an alternative to full Network Integration Transmission Service.
Non-Firm Contract Demand service. A non-firm option for a load willing to take grid power only when capacity is available, which fits a data center backed by its own on-site generation.

The point of both is to give a co-located data center a filed, priced way to lean on the grid without pretending it is a normal full-requirements customer and without pretending it is fully islanded either. The rates and detailed terms for these services are being set through a paper hearing, so the price is not final yet, but the categories are now mandated.

Behind-the-meter generation gets a threshold

The second big piece is behind-the-meter generation, the on-site power that sits behind the customer's meter. FERC directed PJM to write rules so that large behind-the-meter generation above a new megawatt materiality threshold cannot simply net its load off the system without being studied. Above that line, the load has to be visible to PJM's resource-adequacy and transmission-planning processes rather than disappearing from them. FERC paired this with transition and grandfathering provisions for existing retail behind-the-meter arrangements, so live contracts are not blown up overnight.

Read plainly, the message to developers is that you can bring your own generation, but past a certain size you cannot use it to make your load invisible to the people who plan and pay for the grid.

The deadlines that make this real

An order without dates is easy to wave away. This one has them. FERC set staged compliance deadlines for PJM. Revised generation interconnection procedures and a related informational report are due by January 20, 2026. The terms and conditions for co-location arrangements, an interim Network Integration Transmission Service filing, and the revised behind-the-meter rules are due by February 17, 2026. The rates and terms for the two new transmission services are being developed through a paper hearing with briefing that runs into 2026. So the framework is not hypothetical. PJM is on the clock, and each filing is a place where the actual terms get pinned down.

Why this binds AI energy strategy across 13 states

This is the part that reaches beyond the utility bar. Nearly every serious plan to power large AI training and inference in the eastern United States runs through PJM, and co-location next to gas, nuclear, or other generation has been the fashionable way to get megawatts fast. FERC has now said that path has to run through filed federal rules, not bespoke handshakes. For a hyperscaler or a data-center developer, that changes the diligence on a site. The questions are no longer only about land, water, and a nearby plant. They are about which of the two new services the load will take, how the behind-the-meter threshold treats the on-site generation, and what the PJM compliance filings actually say once they land. Because PJM covers all or parts of 13 states plus Washington, one federal order now sets the template for interconnection and siting from Chicago to the Mid-Atlantic.

What to do now

If you have a co-located data center live or on the drawing board in PJM, treat the compliance filings as the documents that govern your deal, and read them as they post. Map your intended grid draw to the Firm or Non-Firm Contract Demand service, because that choice drives cost and reliability. Check your on-site generation against the behind-the-meter materiality threshold and confirm whether you sit inside the grandfathering window. And build the timeline around the January 20 and February 17, 2026 filing dates, because the terms that matter to your economics get set there, not in the order's headline. This is a case where the framework is decided and the details are still being written, which is exactly the window to have counsel at the table.

Questions professionals are asking

Is this a binding FERC order or just a proposal?

It is a binding order. FERC issued it in a Federal Power Act section 206 show-cause proceeding, found PJM's existing tariff unjust and unreasonable, and directed PJM to file specific reforms on deadline. The precise terms take effect once PJM files and FERC accepts the compliance filings, but the direction to reform the tariff is not optional.

What are the two new transmission services?

FERC directed PJM to create a Firm Contract Demand transmission service and a Non-Firm Contract Demand transmission service that an Eligible Customer may take on behalf of co-located load instead of taking Network Integration Transmission Service. The firm option secures a contracted level of grid withdrawals; the non-firm option fits a load that draws from the grid only when capacity is available.

How does the order treat behind-the-meter generation?

FERC directed PJM to adopt rules and a megawatt materiality threshold so that large behind-the-meter generation cannot net its load off the system without study. Above the threshold, the load must be reflected in PJM's resource-adequacy and transmission-planning processes. Transition and grandfathering provisions apply to existing retail behind-the-meter contracts.

When are PJM's filings due?

PJM must file revised generation interconnection procedures and a related informational report by January 20, 2026, and the co-location terms and conditions, an interim Network Integration Transmission Service filing, and revised behind-the-meter rules by February 17, 2026. The rates and terms for the new transmission services are being set through a paper hearing with briefing that runs into 2026.

Does this affect AI data centers outside PJM?

The order binds PJM specifically, covering all or parts of 13 states and the District of Columbia. It does not directly change the tariffs of other grid operators. But PJM is where much of the eastern data-center buildout sits, and FERC's approach here is widely read as a template other regions and operators may follow.

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Informational analysis for working professionals, not legal or energy-regulatory advice. Confirm how any order or filing applies to your project with qualified counsel in the relevant jurisdiction.