FERC’s PJM Co-Location Order: A Turning Point for AI Data Center Power Strategy

On December 18, 2025, the Federal Energy Regulatory Commission (FERC) issued an order (Order) finding that the tariff administered by grid operator PJM Interconnection (PJM) is unjust and unreasonable as applied to generators serving co-located loads, including large AI data centers. Acting under Section 206 of the Federal Power Act, FERC directed PJM to revise its tariff on an accelerated schedule to establish clear, enforceable rules for these arrangements while preserving reliability and cost-causation principles.

At the center of the Order is a recognition that legacy interconnection assumptions no longer reflect how large, data-driven infrastructure is being developed. FERC confirmed that new generators co-located with large loads may seek interconnection based on their actual net injections to the grid rather than full nameplate capacity. The Order illustrates this with a straightforward example: A 1,000-megawatt generator paired with a 900-megawatt data center may reserve most of its output to serve on-site load and request interconnection rights for only the remaining 100 megawatts. Studying the project at that net injection level can significantly reduce transmission upgrades, compress development timelines, and improve cost certainty.

FERC did not stop at conceptual guidance. It directed PJM to operationalize this framework through explicit tariff pathways and imposed unusually short compliance deadlines, including near-term filings addressing interconnection below nameplate capacity, provisional interconnection service, and related tools intended to accelerate the integration of new generation. In practical terms, FERC is signaling that ad hoc solutions are no longer sufficient and that co-located generation serving large loads must be accommodated transparently and expeditiously within the wholesale market.

The Order also squarely addresses jurisdictional concerns raised by commenters. FERC rejected arguments that co-located generation creates a regulatory gap where retail sales to a data center coexist with wholesale sales to PJM. FERC reaffirmed its authority over generator interconnection and wholesale market participation, while preserving state authority over retail sales, franchise rights, and distribution facilities. For developers, the message is clear: These projects fall within an established federal framework, but state laws remain a gating consideration that must be addressed early and deliberately.

For AI data center developers, e.g., engineering, procurement, and construction firms and land developers, the implications are immediate. Pairing new generation with new load is no longer a workaround at the margins of the tariff. It is a planning model FERC expects system operators to support. Projects that integrate power planning early, align interconnection requests with actual system use, and coordinate proactively with utilities and regulators will be best positioned to move quickly as PJM implements this new framework.

Although the Order applies directly to PJM, its reasoning is unlikely to remain isolated. Other organized markets facing similar large-load pressures will be forced to confront the same questions about interconnection assumptions, upgrade obligations, and development timelines. In that sense, this decision is best understood as an early indicator of how regulators intend to respond as data center-driven infrastructure becomes a defining feature of the power system.

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