FERC just rewrote the rules for how data centers connect to power plants. If you're operating in PJM territory, which includes Maryland, DC, Virginia, and ten other states, you have until January 20, 2026 to understand what changed and how it affects your projects.
On December 18, 2025, the Federal Energy Regulatory Commission issued an order finding PJM's existing rules for co-located loads "unjust and unreasonable." The order creates three new transmission services, overhauls behind-the-meter generation rules that have been in place since the 1990s, and establishes for the first time a clear federal framework for data centers connecting directly to power plants.
This matters because the grid can't keep up with AI. One day before FERC's order, PJM's capacity auction fell 6,623 MW short of its reliability target, with data centers driving nearly all demand growth. The rules for who pays for infrastructure, who gets priority access, and how costs flow to ratepayers are being rewritten in real time.
What Changed
The Show Cause Proceeding
FERC initiated Docket No. EL25-49-000 in February 2025, directing PJM and transmission owners to justify why their existing tariff provisions for co-located loads remained just and reasonable. The answer, according to FERC: they don't.
The Commission identified three primary deficiencies in PJM's existing rules:
Lack of clarity. PJM's tariff had no clear mechanism for situations where a co-located load withdraws energy from the transmission system. Different transmission owners handled identical arrangements differently, creating a patchwork that made planning impossible.
Improper cost allocation. The tariff failed to properly charge co-located loads for ancillary services they actually use, particularly regulation and black start services. This violated basic cost-causation principles and shifted costs to other ratepayers.
Outdated behind-the-meter rules. Provisions designed for small installations like rooftop solar proved inadequate for 500 MW data center campuses. The old rules created reliability risks and enabled cost-shifting at scale.
The Amazon/Talen Backdrop
This order doesn't exist in a vacuum. In November 2024, FERC rejected an amended interconnection agreement that would have let Talen Energy sell 480 MW of behind-the-meter power from its Susquehanna nuclear plant to an adjacent Amazon data center. Exelon and AEP argued the deal would shift costs to ratepayers. FERC agreed, 2-1.
That rejection created over a year of regulatory uncertainty. Deals that made economic sense couldn't get approved because the rules weren't clear. The December 18 order is FERC's attempt to provide that clarity.
Three New Transmission Services
The core of the order is a menu of options for how co-located loads can take transmission service. Each represents a different trade-off between cost, reliability, and flexibility:
Interim Non-Firm Service. This allows temporary, interruptible access while network upgrades proceed. Customers pay transmission and ancillary charges but not generation capacity costs. The trade-off: you accept curtailment obligations during grid emergencies. This option exists specifically to let projects begin operations before full infrastructure is built, reducing deployment timelines significantly.
Firm Contract Demand Service. This provides guaranteed transmission up to specified megawatt quantities with minimum one-year terms. Customers pay transmission, capacity, and ancillary charges based on their contracted demand. PJM plans accordingly. This is the premium option for facilities that can't tolerate interruption.
Non-Firm Contract Demand Service. This enables flexible reservations from one hour to one month, available only when spare transmission capacity exists. No generation capacity charges apply. The trade-off: lower priority and willingness to be interrupted. This works for facilities with flexible load profiles.
The practical effect: data center operators can now choose their risk profile. Need to start operations fast while upgrades complete? Take interim service. Need absolute reliability? Pay for firm service. Have flexible AI workloads that can pause during grid stress? Non-firm may be cheaper.
Behind-the-Meter Generation Overhaul
The order also fundamentally changes how behind-the-meter generation (BTMG) is treated. Previously, loads could reduce their transmission costs by netting BTMG output against peak demand calculations. A 1,000 MW data center co-located with a 900 MW generator might only pay transmission charges on 100 MW.
FERC found this "no longer just and reasonable" due to reliability and resource adequacy risks. Under the new rules:
PJM must establish a new megawatt threshold limiting load netting at specific electrical locations. Existing BTMG arrangements get a three-year transition period from December 18, 2025. Grandfathering applies to contracts already in place through their remaining terms. But new arrangements face the full weight of the revised rules.
What This Means for Operators
For Data Center Developers
The good news: you now have a clear pathway to co-location that didn't exist six months ago. The Amazon/Talen uncertainty is resolved, at least at the framework level.
The compliance burden is real, though. By February 16, 2026, you'll need to:
Identify your transmission service preference. The three options have meaningfully different cost structures. Interim service gets you operating faster but with curtailment risk. Firm service costs more but provides certainty. Non-firm works only if your workloads can flex.
Establish an Eligible Customer designation. Someone has to formally execute transmission agreements on your behalf and interact with PJM. This entity takes on the contractual obligations and cost responsibilities.
Accept network upgrade cost responsibility. If your co-location arrangement triggers the need for grid upgrades, you can't begin service until those upgrades complete. And you're paying for them.
Budget for ancillary charges. Even if your net energy withdrawal from the grid is minimal because you're getting power from a co-located generator, you still pay for regulation and black start services assessed on a "gross demand basis." The old loophole is closed.
For Power Plant Owners
The order creates opportunities if you have spare capacity. Nuclear, gas, and even coal plants with excess generation can now pursue co-location deals with clearer regulatory footing.
New generators can use "provisional interconnection service" and request service "below nameplate capacity" to accelerate deployment. If you're building a 1,000 MW plant but only need 200 MW of grid injection capacity because an 800 MW data center is co-locating, you study and pay for 200 MW.
Existing generators face more friction. All network upgrade costs get allocated to you before any capacity can be removed from grid service. If you're modifying an existing agreement to serve co-located loads, you "must follow the necessary study process," which can be costly and time-consuming.
For Ratepayers and Consumer Advocates
The order explicitly addresses cost-shifting concerns. Co-located loads must pay their "fair share" of transmission costs. Penalties apply when loads exceed contracted demand amounts. The old behind-the-meter loopholes that let large loads avoid transmission charges are being closed.
But the broader cost picture remains challenging. PJM's December 17 capacity auction hit the $333.44/MW-day price cap for the third consecutive auction. Total capacity costs reached a record $16.4 billion. BGE customers in Maryland face potential bill increases of $21 per month. Pepco customers are looking at $14 monthly increases.
The order doesn't solve the fundamental supply-demand imbalance. It clarifies who pays for what. Whether that's enough to protect residential ratepayers from the full impact of data center demand growth remains an open question.
The Broader Grid Context
FERC's order arrives at an inflection point for the PJM grid.
The December 17 capacity auction secured 134,479 MW of generation but fell 6,623 MW short of the 20% reserve margin target. This is the first auction where the entire RTO, including Fixed Resource Requirement areas, fell short of reliability requirements.
The driver is data centers. PJM projects peak demand growth of 32 gigawatts from 2024 to 2030, with data centers accounting for 5,100 MW of the 5,250 MW increase in this auction cycle alone. Northern Virginia alone hosts 13% of global data center capacity. Contracted capacity between Dominion and its data center customers increased 185% between July 2023 and July 2025.
The infrastructure can't keep pace. PJM has proposed over $11 billion in transmission upgrades, primarily to serve new data center load. Including rate of return, the cost could reach $40 billion. These costs flow through to all ratepayers.
FERC Commissioner David Rosner called the capacity shortfall "unacceptable." His concurrence on the co-location order flagged ongoing reliability concerns even as he supported the framework.
A counterpoint worth considering: the industry reaction has been positive. Capstone analysts described the order as a "major victory" for independent power producers with gas and nuclear plants, calling it "a strong signal of FERC's position on the data center vs. affordability narrative." EPSA President Todd Snitchler called it "a first step" requiring "quick action and durable consensus from many stakeholders."
MD/DC Considerations
For operators in the mid-Atlantic, this order hits differently because the region is ground zero for the data center boom.
Northern Virginia market. Loudoun and Fairfax counties host the world's largest data center concentration. Current demand totals approximately 4,100 MW. Half of the world's internet traffic flows through these facilities, generating 74,000 jobs and $9.1 billion in annual economic impact. The new co-location rules directly affect how the next wave of capacity gets built.
Maryland bill impacts. BGE customers face the steepest increases in PJM territory: up to $21 per month from capacity costs alone. The BGE zone hit the auction price cap at $466.35/MW-day. Western Maryland (Allegheny zone) is seeing 24% bill increases. The Maryland Office of People's Counsel is actively monitoring.
Transmission buildout. The $11 billion in proposed PJM transmission upgrades primarily serves data center load in the DC-Virginia-Maryland corridor. Maryland and DC ratepayers share these costs even though most of the new demand is in Virginia. The cost allocation debate is just beginning.
DC renewable mandates. DC's 100% renewable electricity mandate creates tension with data center demand. The FERC order doesn't directly address renewable energy requirements, but the sheer scale of new load makes meeting those mandates harder.
State regulatory response. The October 2025 DOE directive asserting FERC jurisdiction over large load interconnections (loads over 20 MW) has sparked concerns from state regulators. NARUC argues that retail load interconnections remain state jurisdiction regardless of size. If the DOE rulemaking proceeds to final action by April 30, 2026, Maryland and DC utility commissions may find their authority over data center siting reduced.
Practical Takeaways
Actions for your team to think about:
Assess your current co-location arrangements against the new framework: If you have existing BTMG contracts, identify whether they're grandfathered under the three-year transition or need renegotiation. Calendar the December 18, 2028 expiration date.
Evaluate the three transmission service options for any pending projects: Model the cost differences between interim, firm, and non-firm service. The choice affects both economics and operational flexibility.
Identify your Eligible Customer: Someone needs to execute transmission agreements and take on PJM interaction responsibilities. This may require corporate structure changes or third-party arrangements.
Budget for ancillary service charges on gross demand: Don't assume co-location eliminates grid costs. Regulation and black start charges apply regardless of net withdrawal.
Review network upgrade cost exposure: If your project triggers infrastructure needs, you're paying before you're operating. Factor this into project timelines and financing.
Monitor the February 16 tariff filing: PJM's comprehensive amendments will fill in details the order left open. The specific rates for new transmission services won't be final until after a paper hearing process extending through April 2026.
Engage your state utility commission: The DOE large load interconnection rulemaking could shift jurisdiction. If your state regulator has historically controlled siting decisions, that may change.
Watchlist
PJM tariff filing (January 20, 2026): First set of compliance filings covering provisional service and below-nameplate interconnection requests. Watch for implementation details that affect project timelines.
PJM comprehensive amendments (February 16, 2026): The full tariff revision package covering transmission service options, cost allocation, and BTMG threshold changes. This is where the framework becomes operational rules.
DOE large load rulemaking (April 30, 2026): Final action deadline on the directive asserting FERC jurisdiction over loads above 20 MW. Could fundamentally reshape who controls data center interconnection decisions.
PJM revised load forecast (January 2026): PJM has indicated its next forecast may be "significantly lower" based on stricter vetting of potential large loads. If demand projections drop, some grid stress could ease.
BTMG transition period expiration (December 18, 2028): Existing arrangements get three years. After that, the new rules apply fully. Plan your transition now.
The Path Forward
The FERC order creates clarity where there was none. Data center operators have a menu of options. Power plant owners have a framework for co-location deals. Ratepayers have at least the promise that costs will be allocated fairly.
But clarity isn't the same as ease. The January 20 and February 16 deadlines require action. The cost exposure is real. The broader grid stress remains unresolved.
For operators who move quickly, the opportunity is significant. Nuclear plants with excess capacity, gas plants facing uncertain futures, data centers needing reliable power, all now have a clearer path to deals that make economic sense.
The infrastructure gap won't close overnight. PJM is still 6,623 MW short. But the rules for building the next increment of capacity are now written. The operators who understand them first will have the advantage.