FERC Moves to Fill the Tariff Gap on Co-Located Load in PJM

A little more than one year after the co-location of data centers and generation emerged as a defining issue for the Federal Energy Regulatory Commission, the agency established a regulatory runway for large load investments by resolving a consolidated group of PJM Interconnection proceedings at its open meeting on December 18. The order marks a turning point in how co-located load arrangements—particularly data centers paired with on-site generation—are treated under the PJM tariff. It also provides a model for broader FERC action, including addressing key components of the recent Advanced Notice of Proposed Rulemaking on interconnecting large loads (ANOPR).  

Acting unanimously, FERC concluded that PJM’s existing tariff procedures are unjust and unreasonable and directed in the December 18 Order a set of reforms aimed at providing clarity and consistency in how co-location arrangements interconnect, receive transmission service, and are charged for the grid services they use. 

Why FERC Acted

FERC found that PJM’s tariff fails to clearly specify the rates, terms, and conditions applicable to co-located load arrangements.  According to the December 18 Order, as a result of these deficiencies, the region has lacked a common understanding of what steps are required to implement these arrangements and, in turn, there has been disparate treatment across PJM as transmission owners have applied different requirements to similarly situated co-location proposals.  FERC also concluded that the tariff does not adequately address how co-located load should take transmission service when it is willing and able to limit withdrawals from the grid. Additionally, FERC found that the tariff fails to ensure that these co-located load arrangements contribute to the costs of regulation and black start services, creating a risk of cost shifting to residential customers and others. 

What FERC Ordered

Designation Requirement and Network Upgrade Costs

FERC directed PJM to revise its generation interconnection procedures to require that interconnection customers using a generating facility to serve co-located load designate an eligible customer to take transmission service on the load’s behalf. This would address FERC’s concern that the tariff provides no clear mechanism to address circumstances in which a co-located load withdraws energy from the transmission system. FERC further directed PJM to clarify that an interconnection customer seeking to serve co-located load using an existing generating facility must bear the full cost of network upgrades that PJM determines are necessary to maintain transmission system reliability.  The interconnection customer also cannot withdraw existing generating facility capacity to instead serve the co-located load until all such upgrades are constructed and in service.

Transmission Service Options

FERC directed PJM to establish new transmission service options tailored to co-located load:

• An interim, non-firm service available while network upgrades for Network Integration Transmission Service (NITS) are completed; and
• New firm and non-firm contract demand transmission services that reflect a large load customer’s ability to limit grid withdrawals under specified conditions.

These options are intended to recognize that some co-located loads may reflect limited-withdrawal configurations, and the change seeks to avoid unnecessary or inefficient transmission system buildout.  FERC established paper hearing procedures to determine the just and reasonable rates, terms, and conditions for these transmission services. 

Regardless of the transmission service involved, FERC is also requiring PJM to revise its tariff so that eligible customers serving co-located load are assessed regulation and black start charges on a gross-demand basis. FERC also seeks further briefing on whether a de minimis threshold for transmission service should be included, and if so, how it should be determined. This requirement and potential minimum service reflects FERC’s finding that co-locations are synchronized to and benefit from the transmission system.  

Information Filing on Broader Issues

Recognizing that co-location arrangements are part of a broader challenge posed by large load growth, FERC directed PJM to submit an informational report within 30 days addressing reforms under consideration in PJM’s Critical Issue Fast Path stakeholder process. The report must describe the status of proposals designed to ensure that data centers and other large load customers can be integrated into the grid rapidly and without compromising system reliability. This includes potential modifications to PJM’s reliability backstop mechanisms to address near-term resource adequacy shortfalls, as well as load forecasting and demand flexibility enhancements.

Jurisdictional Boundaries

In discussing the actions it is taking to address identified gaps in PJM’s tariff related to co-located arrangements, FERC recognized that the issues involved implicate both federal and state authorities.  FERC declined to address jurisdictional matters comprehensively in the proceeding. However, the order discussed the balance that the Federal Power Act strikes between respective jurisdictions.  FERC reaffirmed that it is a creature of statute, with exclusive jurisdiction over rates, charges, and classifications for the interstate wholesale sale of electricity and transmission.  This extends to practices directly affecting these wholesale sales as well as transmission.  FERC described how states retain exclusive authority over retail sales and retail rate design, generator siting, the generation resource mix, intrastate transmission, and how wholesale costs are allocated among retail customers. 

Drawing on long-standing precedent, FERC explained that its authority includes generator interconnection procedures and agreements, including where generators interconnect to distribution facilities under certain circumstances.  FERC also affirmed its authority over transmission cost allocation related to co-located load configurations. 

Referencing the guidance that the U.S. Supreme Court provided in FERC v. Elec. Power Supply Ass’n, 577 U.S. 260 (2016), FERC acknowledged that the federal–state boundary is not hermetically sealed and that jurisdictional outcomes will depend on the specific facts presented by individual co-location arrangements.  FERC concluded that the PJM tariff reforms it directed in the December 18 Order are proper exercises of its authority under the Federal Power Act.

Next Steps

The December 18 Order represents a shift away from the ad hoc adjudication of co-location issues in PJM toward a more comprehensive tariff-based approach.  The action now moves to implementation.  In the near-term, PJM is required to make a series of compliance filings on a tight timeline to translate FERC’s directives into tariff procedures.  FERC also directed a paper hearing to inform the rates and terms for the newly created transmission services applicable to co-located load. Concurrently, and consistent with engagement on any major FERC order, parties will likely file requests for rehearing and clarification. 

The December 18 Order also required PJM to submit a detailed informational report on the status of broader reforms under stakeholder discussion.  This directive—pressing PJM on a host of reliability and cost issues associated with the rapid growth of data center and other large load customers—signals that this order is one chapter in an evolving and continuing effort to wrestle with what Commissioner Judy Chang described as “the broader challenge of reliably, efficiently, and fairly interconnecting large loads and the generation needed to serve them remains before the Commission, the states, and industry.” 

That continuing effort will unfold not only through PJM’s compliance and follow-on proceedings, but also through FERC’s pending ANOPR docket, which places the framework provided by the December 18 Order within a broader inquiry into whether, and how, FERC addresses large load interconnection, cost allocation, and reliability issues on a more uniform and, potentially, nationwide basis.