Few questions in US power regulation have been argued as hard over the past two years as this one: when a data center is built next to a power plant and takes electricity directly from it, what does it owe the grid? On December 18, 2025, the Federal Energy Regulatory Commission gave PJM Interconnection its answer. In Docket EL25-49, the Commission found PJM's tariff unjust and unreasonable because it lacks clarity and consistency on the rates, terms and conditions that apply to generators serving co-located load and to customers taking transmission service on behalf of such load. It directed PJM to write new rules.
The order is the end of a process that began with the Commission's February 2025 show cause order, which raised concerns that PJM's tariff was unclear on co-location and asked PJM and its transmission owners to justify the existing rules or propose changes. It does not settle every dispute. But it replaces a patchwork of contested interconnection agreements with a menu of defined transmission services, and it gives PJM deadlines to implement them.
The core finding
The Commission's reasoning centers on a gap in the tariff. PJM's rules did not account for transmission services in which a customer manages energy withdrawals for co-located load. A data center behind a plant's fence may draw almost nothing from the grid most of the time and then rely on it when the plant trips or goes into maintenance. Treating that customer as either fully grid-dependent or fully islanded misses the point. FERC directed PJM to revise its tariff so that customers serving co-located load choose from several transmission service options.
PJM's summary of the order, presented to stakeholders on January 9, lists them. The first is network integration transmission service, the standard service most load takes, with an interim, non-firm version available until required network upgrades are complete. The second is firm contract demand transmission service, where the customer reserves a fixed amount of firm service. The third is non-firm contract demand service, which can be interrupted. Each has different costs and different rights. A co-located data center that is willing to be curtailed when the grid is stressed can choose a cheaper, non-firm service. One that wants guaranteed backup must pay for firm service.
Costs and the existing customers
The order also deals with cost shifting, the issue that animated opposition from utilities and consumer advocates. According to PJM's summary, interconnection customers seeking to serve co-located load must pay the full costs of any facilities needed to maintain reliability for existing customers, and those facilities must be in service before the co-located arrangement proceeds. PJM must also revise its retail behind-the-meter generation rules to include a new megawatt threshold on how much load at a particular location network customers can net against on-site generation. The concern was that the existing netting rules allowed large loads to avoid charges for grid services they still benefit from.
The deadlines are short. PJM's summary lists 30-day and 60-day compliance obligations, including a filing on transmission service options within 60 days, which falls on February 17, 2026, and procedures for interconnection customers seeking to serve co-located load within 30 days, by January 20.
The supply question
The Commission's press release adds a second directive that may matter as much as the co-location rules. FERC told PJM to report by January 19, 2026, on the status of its proposals to speed up the addition of generating capacity, including an expedited interconnection process for shovel-ready projects, changes to the reliability backstop mechanism for resource shortfalls, and enhanced load forecasting and demand flexibility measures.
That directive reflects the context. PJM's 2027/2028 capacity auction, published the day before the order, cleared 6,623 MW short of the reliability requirement, with nearly 5,100 MW of the increase in forecast peak attributed to data centers. Co-location was always partly a supply argument: if data centers take power directly from existing nuclear and gas plants, that capacity is not available to the rest of the grid. Clear rules on co-location help, but they do not create new megawatts. FERC's report requirement pushes PJM to show how it will.
What it means for nuclear deals
The co-location fight began in earnest with arrangements at existing nuclear plants. Data center developers wanted to locate at nuclear sites because the plants offer large amounts of firm, carbon-free power and existing high-voltage connections. Utilities and some consumer advocates objected that co-location would remove capacity from the market and let data centers avoid transmission charges. The best-known case shows the alternative. After FERC rejected an amended interconnection agreement for expanded sales to a co-located Amazon Web Services campus at Talen Energy's Susquehanna plant in November 2024, Talen signed a 1,920 MW power purchase agreement with AWS in June 2025 and said its existing 300 MW co-location arrangement would shift to a front-of-the-meter framework that does not require FERC approval. Under that structure the plant injects power into the PJM grid, Talen acts as retail supplier, and the local utility, PPL Electric Utilities, handles transmission and delivery. The data center becomes an ordinary grid customer that buys power from a specific plant under contract.
The new options give developers a clearer choice. A behind-the-meter arrangement with non-firm service will be cheaper but carries interruption risk. A front-of-the-meter contract keeps the plant's capacity in the market and the data center under normal network service. With the rules defined, the choice becomes a commercial calculation rather than a regulatory gamble.
What to watch
The compliance filings will determine how much the order changes in practice. The key details are the price of each service, how interim non-firm service converts to firm service once upgrades are built, and how the behind-the-meter netting threshold is set. The Commission's chairman, Laura Swett, described the order as a monumental step for national and economic security in the AI revolution while preserving just and reasonable rates. Whether it lives up to that will depend on whether developers find the new services attractive enough to use, and whether the generation that co-location consumes is replaced by new supply.