FERC's Data Center Colocation Ruling: The Complete Infrastructure Planning Guide
PJM's December 2025 capacity auction fell 6,623 MW short of its reliability target, with data centers responsible for nearly 5,100 MW of the demand surge. One week later, federal regulators responded with a ruling that could reshape how AI infrastructure connects to the power grid for the next decade.
TL;DR
The Federal Energy Regulatory Commission issued a unanimous order on December 18, 2025, directing PJM Interconnection to establish clear rules for data center colocation at power plants. The ruling creates three new transmission service options, reforms behind-the-meter generation rules, and sets compliance deadlines starting January 2026. For infrastructure planners, the order opens a faster path to power by allowing facilities to contract for specific grid capacity while drawing primary power from co-located generators. The ruling arrives as interconnection wait times in PJM have stretched beyond eight years, making direct power plant connections increasingly attractive for operators facing urgent AI deployment timelines.
What FERC Actually Ordered
The Federal Energy Regulatory Commission's December 18, 2025 order found PJM's existing tariff "unjust and unreasonable" because the grid operator lacked proper rates, terms, and conditions for generators serving loads physically connected on the generator side of the interconnection point.
Commissioner Rosner's concurrence summarized the reasoning: "If a new large load wants to connect directly to a power plant and operate in a way that lowers grid costs, we should let it. If the current rules don't let this work in a way that's fair for everyone, we must change those rules."
The Core Problem FERC Addressed
PJM's tariff provisions did not offer the types of transmission service that generators with co-located loads need for flexible use of the transmission system. The result was disparate treatment across the PJM footprint, where different transmission owners took different approaches to interconnecting generators serving co-located load.
FERC's order establishes a unified framework that applies across all 13 states and the District of Columbia within PJM's territory, serving over 67 million Americans.
Three New Transmission Service Options
FERC directed PJM to create three transmission services that reflect how co-located loads can limit their energy withdrawals from the grid:
| Service Type | Priority Level | Use Case | Capacity Charges |
|---|---|---|---|
| Firm Contract Demand | Highest | Planned grid backup with specific MW commitment | Based on contracted amount only |
| Non-Firm Contract Demand | Lower (interruptible) | Emergency backup during generator maintenance | None |
| Interim Non-Firm | Temporary | Bridge service while transmission upgrades complete | Minimal |
The Firm Contract Demand option allows a data center to contract for a specific MW quantity from the grid while drawing remaining power from the co-located generator. PJM plans transmission and procures capacity based only on that contracted amount.
For a practical example: A 1,000 MW data center co-located with a generator could elect to purchase just 100 MW of Firm Contract Demand service. PJM would study and plan for only that 100 MW, while the remaining 900 MW flows directly from the generator without grid infrastructure requirements.
Behind-the-Meter Generation Rule Overhaul
FERC found PJM's existing behind-the-meter generation (BTMG) rules "outdated and potentially unfair" for large loads. The order requires PJM to:
- Propose a MW threshold for load that can be netted using BTM generation
- Provide a three-year transition period for current BTM customers, expiring December 18, 2028
- Include grandfathering provisions for certain existing contracts
- Evaluate BTMG only to the extent of actual intended injection to the grid
The BTMG overhaul addresses a key complaint from utilities like Exelon and American Electric Power, who argued that colocation arrangements could shift up to $140 million in annual transmission costs to other PJM ratepayers.
The Grid Crisis That Forced FERC's Hand
The December 2025 capacity auction delivered results that underscore why FERC acted when it did.
PJM Capacity Auction Results: December 2025
| Metric | 2027/2028 BRA Result |
|---|---|
| Capacity Procured | 134,479 MW UCAP |
| Reliability Target | 145,777 MW UCAP |
| Shortfall | 6,623 MW |
| Installed Reserve Margin | 14.8% (target: 20%) |
| Price | $333.44/MW-day (FERC cap) |
| Total Capacity Cost | $16.4 billion (record) |
PJM's auction report revealed the forecast peak load for 2027/2028 runs approximately 5,250 MW higher than the previous year's forecast. Nearly 5,100 MW of that increase came from data center demand alone.
Without the temporary price cap negotiated with Pennsylvania Governor Josh Shapiro, capacity prices would have reached nearly $530/MW-day, roughly 60% higher than the capped price.
Interconnection Queue Delays
The timeline from interconnection application to commercial operation in PJM has risen from an average of less than two years in 2008 to over eight years in 2025. For AI infrastructure operators racing to deploy capacity, waiting nearly a decade for grid connection creates an untenable business reality.
PJM has processed more than 170,000 MW of new generation requests since 2023, with 30,000 MW remaining in the transition queue for 2026 processing. Approximately 57 GW of projects have completed PJM's study process and received interconnection agreements, but many remain stalled by local opposition, permitting delays, and supply chain challenges.
The Consumer Cost Impact
Analysis from Synapse Energy Economics projects PJM consumers will pay an extra $100 billion through 2033 as new data centers continue to exceed available power supply. The 67 million people served by PJM already absorbed an extra $9.4 billion in electricity bills during summer 2025, with another $1.4 billion increase locked in for summer 2026.
Major Colocation Deals Reshaping the Market
The FERC order arrives as several landmark power deals demonstrate the scale of data center-power plant partnerships.
Amazon-Talen: The $18 Billion Nuclear PPA
Talen Energy announced on June 11, 2025 a restructured and expanded agreement with Amazon Web Services: a 17-year, $18 billion power purchase agreement supplying up to 1,920 MW of carbon-free electricity from the 2.5-GW Susquehanna nuclear plant.
| Deal Element | Specification |
|---|---|
| Contract Duration | 17 years (through 2042) |
| Total Value | $18 billion |
| Power Capacity | 1,920 MW at full ramp |
| Full Volume Date | 2032 |
| Structure | Front-of-the-meter retail |
The deal restructures a previously approved co-located behind-the-meter model into a grid-connected, front-of-the-meter retail structure. Under the new arrangement, the 1,920 MW of energy Amazon purchased from Susquehanna flows through the grid rather than directly to the data center, addressing FERC's November 2024 concerns about the original colocation arrangement.
Amazon plans to spend $20 billion building data centers in Pennsylvania, including one complex adjacent to Susquehanna and another north of Philadelphia.
The companies also announced plans to pursue plant uprates to add net-new energy to the PJM grid and explore building Small Modular Reactors (SMRs) in Pennsylvania.
Microsoft-Constellation: Three Mile Island Revival
Constellation Energy's September 2024 announcement to restart Three Mile Island Unit 1 under a 20-year agreement with Microsoft represents another major data center-nuclear partnership.
| Deal Element | Specification |
|---|---|
| Contract Duration | 20 years |
| Power Output | 835 MW |
| Restart Investment | $1.6 billion |
| Expected Start | 2027 (one year ahead of original timeline) |
| Federal Support | $1 billion loan (November 2025) |
The Trump administration announced $1 billion in loan support for the project in November 2025. The facility, renamed the Crane Clean Energy Center, shut down in 2019 due to financial constraints and will create 3,400 direct and indirect jobs upon restart.
Microsoft's deal differs from Amazon's approach by taking power through a traditional grid-connected PPA rather than a colocation arrangement. The tech giant will purchase the plant's entire output to power data centers across the PJM region.
Equinix's Diversified Power Strategy
The world's largest data center operator announced partnerships with multiple energy companies in August 2025, including:
- Oklo: 500 MW from next-generation fission Aurora powerhouses (first data center SMR agreement)
- Radiant: 20 Kaleidos microreactors for portable, rapidly deployable power
- ULC-Energy: Up to 250 MWe for Netherlands data centers
- Stellaria: 500 MWe from molten salt Breed & Burn reactors for European expansion
Equinix is also investing in fuel cells and natural gas solutions to enhance operations while adding capacity resources to local grids.
Behind-the-Meter Power: Advantages and Trade-offs
The FERC ruling legitimizes colocation arrangements that data center operators have pursued to bypass grid constraints. Understanding the trade-offs helps infrastructure planners evaluate whether colocation fits their deployment strategy.
Why Operators Choose Colocation
Speed to Power: Grid connections in Tier 1 markets can take half a decade or more. Developers with land and capital cannot build without power commitments, leaving billions in stranded investment. Colocation with existing power plants sidesteps the interconnection queue entirely.
Grid Capacity Avoidance: Northern Virginia, Dublin, Singapore, and other key hubs have imposed moratoriums or multi-year wait times for new grid connections. Colocation reduces strain on congested transmission systems.
Cost Structure Benefits: Shifting generation behind the meter could free up grid capacity for new renewables, potentially reducing interconnection delays and curtailment rates for those resources.
Reliability Enhancement: On-site generation can bypass grid congestion, avoid transmission losses, and reduce vulnerability to grid-level outages.
The Trade-offs
High Capital Costs: Overbuilding generation for redundancy carries significant expense. Industry analysis indicates costs of $2,700 per kilowatt or higher, with systems sometimes requiring 2x overbuild for reliability.
Space Requirements: Solar colocation requires approximately 7 acres per MW. Powering a 100 MW facility would consume more than a square mile of land at roughly $350 million in solar farm costs alone.
Fuel Access Complexity: Natural gas availability varies by location. As one industry executive noted: "It's not true that I can just always stick a pipe in the ground and get an unlimited amount of gas."
Cost Shifting Concerns: The Exelon and AEP challenge to the Amazon-Talen arrangement cited potential $140 million in annual transmission cost shifts to other PJM ratepayers.
Market Trajectory
Bloom Energy projects more than 35 GW of data center power will be self-generated by 2030. A survey found 62% of data centers exploring on-site power generation, with 19% already implementing some form of behind-the-meter power by end of 2024.
Power Demand Projections: The Scale of the Challenge
The urgency behind FERC's ruling becomes clear when examining demand forecasts from multiple sources.
U.S. Data Center Power Demand Projections
| Source | 2024 Baseline | 2030 Projection | Growth |
|---|---|---|---|
| S&P Global | 61.8 GW | 134.4 GW | +117% |
| DOE | — | 50 GW additional | — |
| Gartner | 448 TWh | 980 TWh | +119% |
| WRI | 183 TWh | 426 TWh | +133% |
S&P Global projects utility power provided to hyperscale, leased, and crypto-mining data centers will rise by roughly 11.3 GW in 2025 alone to reach 61.8 GW, then expand to 134.4 GW by 2030.
The Department of Energy estimates an additional 100 GW of new peak capacity is needed by 2030, with 50 GW attributable to data centers specifically.
AI as the Primary Driver
AI-optimized servers represent the fastest-growing segment of data center power consumption. Gartner forecasts AI server electricity usage will rise nearly fivefold, from 93 TWh in 2025 to 432 TWh in 2030.
McKinsey projects data centers could account for up to 12% of total U.S. electricity use by 2030, compared to the current 3-4%.
PJM-Specific Demand Growth
Within PJM's territory, demand growth concentrates in specific zones:
| Zone | Projected New Peak Demand by 2034 |
|---|---|
| Dominion (Virginia "Data Center Alley") | 10,500+ MW |
| PPL (Pennsylvania) | 1,800+ MW |
| Total PJM | 32 GW (2024-2030) |
PJM projects peak demand will grow by 32 gigawatts from 2024 to 2030, with all but 2 gigawatts coming from data centers.
Compliance Timeline and Implementation
The FERC order establishes a compressed timeline for PJM compliance, with key deadlines approaching quickly.
Regulatory Deadlines
| Date | Requirement |
|---|---|
| January 19, 2026 | PJM informational report on reliability concerns and stakeholder proposals |
| January 20, 2026 | Tariff revisions for new generating facilities serving co-located load |
| February 16, 2026 | Tariff amendments establishing three new transmission services |
| March 18, 2026 | Responses to PJM's initial brief due |
| April 17, 2026 | Replies to responses due |
| December 18, 2028 | Three-year transition period for existing BTM customers expires |
What FERC Left Unresolved
The order declines to address jurisdictional matters regarding the interconnection of retail loads served through colocation arrangements. States retain exclusive jurisdiction over retail sales, generator siting, generation mix, and intrastate transmission.
FERC has directed PJM to file an informational report by January 19, 2026 regarding reliability concerns associated with colocation arrangements, including the status of proposals from the Critical Issue Fast Path stakeholder process designed to expedite adding generating capacity to the PJM system.
Regional Implications Beyond PJM
Although limited to PJM, the order may establish a template for handling co-located loads in other regions. MISO, SPP, and ERCOT face similar data center demand pressures and will likely monitor PJM's implementation closely.
Energy Secretary Chris Wright's October request to FERC to ensure data centers and large manufacturers get power "as quickly as possible" could leverage the PJM framework as a blueprint for broader application.
Infrastructure Planning Considerations
For organizations evaluating colocation arrangements, the FERC ruling creates new options but also introduces complexity that requires careful planning.
Site Selection Implications
The ruling favors sites adjacent to or near existing power plants with available capacity. Nuclear plants offer particular advantages given their high capacity factors and carbon-free output, but natural gas plants provide more flexibility in siting and faster development timelines.
Key evaluation criteria now include:
- Generator capacity headroom: Available MW beyond current grid commitments
- Transmission owner policies: Each TO in PJM has historically taken different approaches
- State regulatory environment: Retail sale terms remain under state jurisdiction
- Land availability: Campus expansion potential for phased development
Contract Structure Decisions
The Amazon-Talen restructuring from behind-the-meter to front-of-the-meter demonstrates how regulatory uncertainty can force deal modifications. Organizations negotiating colocation agreements should consider:
- Contract flexibility: Built-in provisions for regulatory changes
- Grid backup levels: Appropriate MW commitment for Firm Contract Demand service
- Curtailment tolerance: Willingness to accept Non-Firm service during emergencies
- Transition planning: Alignment with the December 2028 BTM rule transition deadline
Technical Requirements
Deploying AI infrastructure at power plant sites introduces requirements beyond traditional data center builds. Power quality considerations, switchgear configuration for dual-source operation, and cooling system design for generator-adjacent facilities all require specialized expertise.
Introl's network of 550 field engineers support complex infrastructure deployments across 257 global locations, including data center builds requiring power plant integration and specialized electrical systems. Learn more about our coverage area.
Key Takeaways
For Infrastructure Planners
- Evaluate colocation feasibility now: The FERC ruling creates a defined framework where ambiguity previously existed, making colocation arrangements more predictable
- Monitor PJM filings: Tariff revisions due January-February 2026 will establish specific rates, terms, and technical requirements
- Consider transition timing: Existing BTM arrangements have until December 2028 to comply with new rules
- Assess generator partnerships: Nuclear and gas plant operators now have clear pathways to serve co-located data center load
For Operations Teams
- Plan for dual-source power management: Colocation arrangements require seamless switching between generator and grid sources
- Build grid backup flexibility: The three new transmission services offer different reliability/cost trade-offs
- Prepare for reliability reporting: PJM must address reliability concerns in January 2026 informational report
For Strategic Decision-Makers
- Factor regulatory clarity into site selection: PJM territory now offers more defined colocation rules than other regions
- Watch for regional expansion: Other grid operators may adopt similar frameworks
- Consider long-term contract structures: The 17-20 year agreements from Amazon and Microsoft suggest market confidence in nuclear colocation
- Balance speed against flexibility: Colocation accelerates deployment but may limit future site evolution
References
Federal Energy Regulatory Commission. "FERC Directs Nation's Largest Grid Operator to Create New Rules to Embrace Innovation and Protect Consumers." FERC News. December 18, 2025. https://www.ferc.gov/news-events/news/ferc-directs-nations-largest-grid-operator-create-new-rules-embrace-innovation-and.
Federal Energy Regulatory Commission. "Fact Sheet: FERC Directs Nation's Largest Grid Operator to Create New Rules." December 18, 2025. https://www.ferc.gov/news-events/news/fact-sheet-ferc-directs-nations-largest-grid-operator-create-new-rules-embrace.
Federal Energy Regulatory Commission. "Commissioner Rosner's Concurrence on PJM Co-Location." December 18, 2025. https://www.ferc.gov/news-events/news/e-1-commissioner-rosners-concurrence-pjm-co-location.
Blank Rome LLP. "FERC Issues Order Clarifying Data Center and Large Load Interconnection Procedures in PJM." December 2025. https://www.blankrome.com/publications/ferc-issues-order-clarifying-data-center-and-large-load-interconnection-procedures-pjm.
Baker Botts. "FERC Issues Order Providing Guidance for 'Co-locating' Power Plants with Data Centers within PJM." December 2025. https://www.bakerbotts.com/thought-leadership/publications/2025/december/ferc-issues-order-providing-guidance-for-co-locating-power-plants-with-data-centers-within-pjm.
Akerman LLP. "FERC Directs PJM to Establish New Rules and Guidelines for Co-Located Load and Behind-The-Meter Generation." JDSupra. December 2025. https://www.jdsupra.com/legalnews/ferc-directs-pjm-to-establish-new-rules-1151049/.
Gravel2Gavel. "FERC's New Order on Data Center Co-Location: What Utilities Need to Know." December 22, 2025. https://www.gravel2gavel.com/ferc-new-order-data-center-co-location-what-utilities-need-know/.
Energy Law Blog. "FERC Directs Revisions To Enable Co-Located Load (Data Centers) And Generation." December 2025. https://www.energylawinfo.com/2025/12/ferc-directs-revisions-to-enable-co-located-load-data-centers-and-generation/.
Utility Dive. "FERC orders PJM to craft large load colocation rules." December 2025. https://www.utilitydive.com/news/ferc-pjm-colocation-data-center/808368/.
Utility Dive. "PJM capacity prices hit record high as grid operator falls short of reliability target." December 2025. https://www.utilitydive.com/news/pjm-interconnection-capacity-auction-data-center/808264/.
PJM Inside Lines. "PJM Auction Procures 134,479 MW of Generation Resources." December 17, 2025. https://insidelines.pjm.com/pjm-auction-procures-134479-mw-of-generation-resources/.
Canary Media. "PJM's capacity costs hit record as grid falls short on supply." December 2025. https://www.canarymedia.com/articles/data-centers/pjm-record-capacity-costs-rising-bills.
RMI. "PJM's Speed to Power Problem and How to Fix It." 2025. https://rmi.org/pjms-speed-to-power-problem-and-how-to-fix-it.
NRDC. "Breaking Through the PJM Interconnection Queue Crisis." 2025. https://www.nrdc.org/bio/dana-ammann/breaking-through-pjm-interconnection-queue-crisis.
Synapse Energy Economics. "Tackling the PJM Electricity Cost Crisis." April 2025. https://www.synapse-energy.com/sites/default/files/Evergreen PJM Queue Report 4.10.25_ final 24-145.pdf.
Utility Dive. "Solving PJM's data center problem." 2025. https://www.utilitydive.com/news/solving-pjms-data-center-problem/805600/.
PJM. "Interconnection Reform Progress Fact Sheet." 2025. https://www.pjm.com/-/media/DotCom/about-pjm/newsroom/fact-sheets/interconnection-reform-progress-fact-sheet.pdf.
Talen Energy. "Talen Energy Expands Nuclear Energy Relationship with Amazon." June 11, 2025. https://ir.talenenergy.com/news-releases/news-release-details/talen-energy-expands-nuclear-energy-relationship-amazon.
POWER Magazine. "Talen, Amazon Launch $18B Nuclear PPA—A Grid-Connected IPP Model for the Data Center Era." June 2025. https://www.powermag.com/talen-amazon-launch-18b-nuclear-ppa-a-grid-connected-ipp-model-for-the-data-center-era/.
CNBC. "Amazon to spend $20 billion on data centers in Pennsylvania, including one next to a nuclear power plant." June 9, 2025. https://www.cnbc.com/2025/06/09/amazon-to-spend-20-billion-on-data-centers-in-pennsylvania-including-one-next-to-a-nuclear-power-plant.html.
The Register. "Amazon, Talen Energy sidestep regulators with new power deal." June 12, 2025. https://www.theregister.com/2025/06/12/amazon_talen_nuclear_deal/.
Constellation Energy. "Constellation to Launch Crane Clean Energy Center." September 2024. https://www.constellationenergy.com/newsroom/2024/Constellation-to-Launch-Crane-Clean-Energy-Center-Restoring-Jobs-and-Carbon-Free-Power-to-The-Grid.html.
CNBC. "Trump administration backs Three Mile Island nuclear restart with $1 billion loan to Constellation." November 18, 2025. https://www.cnbc.com/2025/11/18/trump-nuclear-three-mile-island-crane-loan-constellation-ceg.html.
IEEE Spectrum. "Microsoft Powers Data Centers with Three Mile Island Nuclear." 2024. https://spectrum.ieee.org/three-mile-island.
World Nuclear News. "Constellation to restart Three Mile Island unit, powering Microsoft." September 2024. https://www.world-nuclear-news.org/articles/constellation-to-restart-three-mile-island-unit-powering-microsoft.
Equinix. "Equinix Collaborates with Leading Alternative Energy Providers to Power AI-Ready Data Center Growth." August 14, 2025. https://investor.equinix.com/news-events/press-releases/detail/1079/equinix-collaborates-with-leading-alternative-energy.
Data Center Knowledge. "The Pros and Cons of Behind-the-Meter Energy for Data Centers." 2025. https://www.datacenterknowledge.com/energy-power-supply/the-pros-and-cons-of-behind-the-meter-energy-for-data-centers.
Datacenters.com. "Behind the Meter: How On-Site Generation Is Becoming a Competitive Advantage in Colocation." 2025. https://www.datacenters.com/news/behind-the-meter-how-on-site-generation-is-becoming-a-competitive-advantage-in-colocation.
Data Center Knowledge. "Data Centers Bypassing the Grid to Obtain the Power They Need." 2025. https://www.datacenterknowledge.com/energy-power-supply/data-centers-bypassing-the-grid-to-obtain-the-power-they-need.
CoreSite. "More Power! Behind-the-Meter Power Systems for Data Centers." 2025. https://www.coresite.com/blog/more-power-behind-the-meter-power-systems-for-data-centers.
Latitude Media. "The case against relying on behind-the-meter power for data centers." 2025. https://www.latitudemedia.com/news/the-case-against-relying-on-behind-the-meter-power-for-data-centers/.
Utility Dive. "Existing nuclear power plants are best behind-the-meter option for data centers: NEI paper." 2024. https://www.utilitydive.com/news/nuclear-power-data-center-nei-colocating-talen-constellation/721743/.
FTI Consulting. "The Powerful Duo of Nuclear and Data Centers." 2025. https://www.fticonsulting.com/insights/articles/powerful-duo-nuclear-data-centers.
Bloom Energy. "Data Centers Are Turning to Onsite Power Sources to Address 35 GW Energy Gap by 2030." 2025. https://www.bloomenergy.com/news/data-centers-are-turning-to-onsite-power-sources-to-address-35-gw-energy-gap-by-2030/.
S&P Global. "Data center grid-power demand to rise 22% in 2025, nearly triple by 2030." October 14, 2025. https://www.spglobal.com/energy/en/news-research/latest-news/electric-power/101425-data-center-grid-power-demand-to-rise-22-in-2025-nearly-triple-by-2030.
Gartner. "Gartner Says Electricity Demand for Data Centers to Grow 16% in 2025 and Double by 2030." November 17, 2025. https://www.gartner.com/en/newsroom/press-releases/2025-11-17-gartner-says-electricity-demand-for-data-centers-to-grow-16-percent-in-2025-and-double-by-2030.
World Resources Institute. "Powering the US Data Center Boom: The Challenge of Forecasting Electricity Needs." 2025. https://www.wri.org/insights/us-data-centers-electricity-demand.
Department of Energy. "DOE Releases New Report Evaluating Increase in Electricity Demand from Data Centers." 2024. https://www.energy.gov/articles/doe-releases-new-report-evaluating-increase-electricity-demand-data-centers.
Bain & Company. "Next phase of data center growth to be more disciplined but risks of power constraints and construction delays remain." 2025. https://www.bain.com/about/media-center/press-releases/20252/next-phase-of-data-center-growth-to-be-more-disciplined-but-risks-of-power-constraints-and-construction-delays-remain-bain--co-research/.
Heatmap News. "Let's Make It Easier To Plug Data Centers Into Power Plants, FERC Says." December 2025. https://heatmap.news/energy/ferc-pjm-colocation-order.