At its latest open meeting on February 20, 2025, the Federal Energy Regulatory Commission (FERC) issued an order directing PJM Interconnection, L.L.C. (PJM) and the PJM Transmission Owners (PJM TOs) to demonstrate why the PJM Tariff’s lack of clear rules for co-location arrangements is acceptable or to explain the Tariff changes they would propose to address co-location issues (Show Cause Order). FERC’s Order is focused on the PJM region because there are several contested FERC proceedings involving co-location arrangements in PJM. However, FERC has indicated that it intends to act quickly on co-location arrangements across its jurisdiction. Accordingly, the results of the PJM Show Cause proceeding will likely serve as precedent in other RTO and non-RTO regions under FERC’s jurisdiction.
In instituting this new proceeding, initiated under Federal Power Act Section 206, FERC consolidated the record from a recent technical conference that examined issues related to large loads co-located at generating facilities (Docket No. AD24-11-000) with a separate pending complaint proceeding, initiated on November 22, 2025 by Constellation Energy Generation, LLC (Constellation) against PJM (Docket No. EL25-20). The Constellation complaint alleged that the PJM Tariff is unjust, unreasonable, and unduly discriminatory because it “does not contain rules for interconnected generators to follow when seeking to serve a co-located load configuration that Constellation argues is fully isolated from the grid.”[1]
The Show Cause Order was prompted because the proliferation of data centers in the U.S. has caused a surge of interest in various types of co-location arrangements in PJM and has thus presented FERC with several “significant and novel issues.”[2] These issues involve (1) the interplay between federal and state jurisdiction; (2) the appropriate tariff provisions for wholesale transmission or ancillary services that should apply to co-location arrangements; and (3) the impact of co-location arrangements on reliability and resource adequacy.
Federal and State Jurisdiction
According to FERC, the co-location issues “implicate both federal and state interests, and their resolution will require the involvement of both federal and state actors, including the Commission, state public utility commissions, and other state and local entities.”[3] FERC’s jurisdiction covers the wholesale sale and transmission of electricity in interstate commerce, along with the facilities used for such sales and transmission. States have authority over retail sales, wholesale sales not in interstate commerce (e.g., in ERCOT), facilities used for distribution of electricity, and facility siting. As applied to co-location issues, states have the authority to determine who can make retail sales to co-located load, while FERC has jurisdiction of over the provision of transmission service used to serve co-location arrangements, including the interconnection of the generator used to serve co-located load. FERC emphasized that jurisdiction depends heavily on the specific facts of the co-location arrangement. For example, configurations can include a co-located load that is connected to the transmission system directly, or connected indirectly through the generator, or is characterized as fully isolated from the grid.[4] FERC invites comments on how state and federal jurisdiction may vary depending on specific technical co-location configurations.
Wholesale Transmission or Ancillary Services
FERC found that PJM’s Tariff appears to be unjust and unreasonable because it lacks provisions addressing the terms and conditions of transmission service that would apply to co-location arrangements. The lack of tariff provisions may leave entities unable to understand the steps they need to follow to effectuate co-location arrangements in a consistent and efficient manner. FERC found that Tariff provisions are also needed to ensure that such entities are required to pay for the wholesale transmission services they may be using consistent with FERC’s cost causation principles. Finally, Tariff provisions are needed to ensure that transmission owners are not taking different approaches to co-location arrangements that raise the potential for undue discrimination or preference.
FERC is interested in comments regarding whether co-located loads should be required to pay for either network or point-to-point transmission service or some other type of transmission or ancillary service that has not yet been defined, based on the benefits they receive from the transmission system. FERC also raised questions regarding how co-location arrangements should be studied for reliability impacts on the grid, how the cost of network upgrades should be allocated, and whether co-located loads should be required to pay administrative or non-bypassable wholesale charges.
Reliability and Resource Adequacy
PJM and other parties have raised reliability concerns associated with co-location of large loads, particularly in terms of their potential lack of visibility to the grid operator during day-to-day transmission operations. For example, the large scale of some behind-the-meter co-located loads can cause grid reliability issues if the generator or the load trips offline. In addition, if co-located loads are not considered “network loads,” they may not be studied for grid planning purposes.
The PJM Independent Market Monitor raised resource adequacy concerns in connection with the market impacts of removing generation, such as large nuclear units, from the capacity markets. The PJM Independent Market Monitor emphasized that significant capacity price increases could result if large generators with high capacity values exit the capacity market and dedicate their output to behind-the-meter co-load. FERC recognized that these issues could arise from load growth in general and are not unique to large data center loads, except to the extent that large data center loads are unique in terms of the speed with which they are contracting with existing generation and removing it from the markets.
Next Steps
The Show Cause Order provides an expansive list of briefing questions directed at PJM and the PJM TOs on topics such as transmission service (including reference to a potential new as-yet undefined type of transmission service for co-locations), allocation of costs for ancillary or other wholesale services, interconnection procedures, the PJM Capacity Market, reliability (including for transmission customers and co-located load), and resource adequacy.[5]
At FERC’s February 20, 2025 Open Meeting, the Commissioners discussed the importance of the Show Cause Order. Chairman Christie emphasized that data center development, especially AI-driven data center developments, are driving load forecasts that need to be met with generation. He noted that co-location has tremendous implications for reliability and consumer costs and that there is no question we need to serve large load customers in a way that is “fair” without “cost shifts.” He also underscored the importance of robust comments in the new proceeding, even for those that had already participated in the previous technical conference or Constellation complaint proceeding.
FERC directed PJM and the PJM TOs to file a response to the Show Cause Order by March 24, 2025, addressing the issues in the consolidated proceeding, including: (1) whether the existing PJM Tariff remains just and reasonable and not unduly discriminatory or preferential; and (2) if not, what changes to the PJM Tariff should be implemented. Interested entities may intervene in the proceeding by March 13, 2025, and may respond to PJM and the PJM TOs within 30 days of their filings.
Related Proceeding
Simultaneously with issuing the Show Cause Order, FERC separately issued an order in Atlantic City Electric Co., et al., rejecting proposed tariff revisions filed by several Exelon Companies in PJM relating to co-location arrangements within their service territories. The Exelon Companies proposed to require co-located load to obtain transmission service and to treat generators that served co-located load as load serving entities. FERC rejected the Exelon Companies filing on procedural grounds, specifically that their proposed revisions are outside of their filing rights as transmission owners because they seek to impermissibly change the PJM Tariff’s definition of “Network Load.” FERC’s rejection of the Exelon Companies’ transmission-owner specific tariff revisions is consistent with FERC’s preference for addressing the multiplicity of co-location issues on a region-wide basis through the Show Cause Order proceeding.
FERC’s Show Cause Order is available here: PJM Interconnection, L.L.C., 190 FERC ¶ 61,115 (2025) (Docket No. EL25-49 et al.). FERC’s Order rejecting the Exelon Companies’ tariff revisions is available here: Atlantic City Electric Co., et al., 190 FERC ¶ 61,109 (2025).
For more information about the Show Cause Order proceeding, including how it affects your company and project development strategy, please contact Linda Walsh, Sylvia Bartell, Corban Coffman or a member of Husch Blackwell’s Energy Regulation team.
[1] Show Cause Order at P 1.
[2] Id. at P 65.
[3] Id. at P 66.
[4] Id. at 73.
[5] A full list of the briefing questions can be found in the Show Cause Order starting at paragraph 88.