FERC Instructs PJM and Transmission Owners to Address Co-Located Load Challenges, Including Data Centers

The Federal Energy Regulatory Commission (FERC) has ruled against PJM’s handling of co-located load issues, impacting data centers and grid operations. This decision challenges PJM’s treatment of behind-the-meter resources and could reshape energy market participation rules. Industry stakeholders are now assessing how this ruling will affect future grid planning and energy costs.

CONTENTS:

• Overview
• Key FERC Orders on Co-Located Loads and Data Centers
• What’s Next and Broader Implications

FERC Instructs PJM and Transmission Owners to Address Co-Located Load Challenges, Including Data Centers

On February 20, 2025, FERC issued two pivotal orders concerning the handling of co-located loads—including data centers—within the PJM Interconnection region. In these orders, Federal Energy Regulatory Commission directed PJM and its Transmission Owners (TOs) to resolve issues arising from current tariff practices by either showing that the PJM Open Access Transmission Tariff (and related governing documents) is already just and reasonable or by outlining the changes needed to remedy its shortcomings.

Overview

In its primary action, FERC consolidated several ongoing dockets into a single “show cause” proceeding under Section 206 of the Federal Power Act. The Commission has tasked PJM and its TOs with answering 38 detailed questions regarding co-located load arrangements. They must respond within 30 days—by March 24, 2025—either by defending the existing tariff or by proposing modifications that would address issues such as unclear rate structures, ambiguous service terms, and inadequate provisions for ancillary and black start services. FERC has also invited additional stakeholders to submit comments on these responses.

Key FERC Orders on Co-Located Loads and Data Centers

A. Consolidated Show Cause Order

Federal Energy Regulatory Commission ’s Consolidated Show Cause Order merges issues from a November 2024 technical conference and a complaint docket (brought by Constellation Energy Generation, LLC) into one proceeding. Although Federal Energy Regulatory Commission  did not formally grant the Constellation complaint, it indicated serious concerns that the PJM Tariff may be unjust and unreasonable. Specific concerns include:

• Clarity and Consistency: The tariff does not clearly define the rates, terms, and conditions for co-located load arrangements.
• Ancillary and Black Start Services: There is a lack of guidance on how these services should be priced and managed when provided to co-located loads.
• Data Transparency: The current rules do not give PJM sufficient information to properly analyze the impacts of these arrangements on system reliability.

Additionally, Federal Energy Regulatory Commission  addressed jurisdictional matters, clarifying that:

• Federal vs. State Oversight: FERC retains authority over interstate wholesale sales, transmission, and related facilities. In contrast, state regulators oversee retail sales and other non-interstate transactions. This means that while Federal Energy Regulatory Commission  regulates the wholesale aspect of co-location, states determine which entities may supply electricity directly to end-users in these arrangements—regardless of where the load connects.

FERC also expressed concern that co-located loads might not be paying their fair share for the wholesale services they consume—a potential violation of the cost causation principle. For instance, in arrangements involving nuclear facilities, it is generally undisputed that black start services are necessary and should be appropriately compensated.

B. Rejection of Exelon TOs’ Tariff Filings

In a related action, Federal Energy Regulatory Commission rejected filings by the Exelon TOs under Section 205 of the FPA. These filings proposed changes to the Exelon-specific sections of the PJM Tariff to require that co-located loads be either classified as “Network Load” or arrange dedicated point-to-point transmission service for their end users. FERC determined that these changes would effectively modify the “terms and conditions” of the PJM Tariff—a change that falls within PJM’s exclusive authority, not that of the TOs. Although FERC sidestepped the substantive issues raised by Exelon on this technical ground, Commissioner Willie Phillips acknowledged that these issues will play an important role in shaping future policy on co-location.

C. Status of Exelon’s Declaratory Petition

Federal Energy Regulatory Commission did not take action on Exelon’s earlier petition seeking a declaratory ruling on whether interconnecting end-use load should fall under state rather than federal jurisdiction. Given that the Consolidated Show Cause Order already addresses jurisdictional issues, FERC may opt not to pursue this separate petition further.

What’s Next and Broader Implications

Federal Energy Regulatory Commission ’s orders now require PJM and its TOs to respond within 30 days by either:

• Demonstrating that the current tariff is just and reasonable despite its shortcomings, or
• Detailing the tariff modifications necessary to correct these issues.

In addition, the extensive 38 questions posed by FERC cover topics such as:

• The appropriate allocation of transmission costs for co-located loads,
• How these loads should be charged for ancillary and wholesale services,
• The proper procedures for interconnection, cost allocation, and planning for system reliability, and
• The impact of co-location on resource adequacy and system operations, including during emergencies.

The outcome of these proceedings could have significant ramifications not only within the PJM region but also for other FERC-jurisdictional ISOs and RTOs. Stakeholders including generators, data center developers, transmission owners, and state regulators should monitor these developments closely and consider submitting their own comments when PJM’s and the TOs’ filings are released.