FERC Institutes Show Cause Proceeding to Address Co-Location Issues Related to Data Centers Running AI in PJM and Requests Industry Comments

On February 20, 2025, the Federal Energy Regulatory Commission (FERC or Commission) issued an order instituting a show cause proceeding in Docket No. EL25-49 to review issues associated with the co-location of large loads such as AI-enabled data centers at generating facilities in the PJM region (Order).   FERC found that the PJM Open Access Transmission Tariff (OATT), the Amended and Restated Operating Agreement of PJM, and Reliability Assurance Agreement Among Load Serving Entities in the PJM Region (collectively, the “Tariff”) appears to be unlawful because it does not clearly or sufficiently address the rates, terms, and conditions of service that apply to co-location arrangements. Therefore, FERC directed PJM and the PJM Transmission Owners to either: (1) show cause as to why the Tariff remains just and reasonable or (2) explain what changes to the Tariff would remedy the Commission’s concerns.

Background and Overview

In November 2024, FERC hosted a technical conference addressing issues related to large loads co-located at generating facilities and requested post-technical conference comments on those matters in Docket No. AD24-11.  Around the same time, Constellation Energy Generation, LLC filed a complaint against PJM in Docket No. EL25-20-000 arguing that the PJM OATT is unlawful because it does not contain rules for interconnected generators to follow when seeking to serve a co-located load.  Based on the records developed in those proceedings, FERC instituted the instant investigation and consolidated it with the technical conference and complaint proceeding.

As detailed below, FERC is concerned that the lack of provisions addressing co-location in the Tariff may leave entities unable to determine what steps they can or must take to effectuate co-location arrangements of various configurations and how to do so in a manner consistent with law. For example, how should a co-location arrangement be categorized under the Tariff, which wholesale services, if any, would be necessary for that arrangement, and what are the appropriate charges for those services?  FERC also noted its concern that these arrangements may be developed in a manner that is itself unlawful or that may negatively impact other customers. FERC is particularly concerned these gaps create the potential that participants in a co-location arrangement may not be required to pay for wholesale services that they receive, in violation of cost causation principles. Finally, FERC is concerned that the Tariff’s lack of clarity creates the potential for variations in the processes across the PJM Transmission Owners. Additionally, FERC acknowledges that the regulation of co-location arrangements raises jurisdictional questions.

Tariff Provisions

FERC found that the Tariff may be unlawful because it does not include provisions to address (a) the transmission service that co-location arrangements must take, (b) interconnection service for, and studies of, the impacts of co-location arrangements, and (c) the use and sale of ancillary services and black start services by co-location arrangements.  An overarching concern with the lack of such provisions is that co-location arrangements may not be required to pay for wholesale services that they receive, as required by the cost causation principle.  The cost causation principle requires that costs must be allocated in a manner that is at least roughly commensurate with the benefits that entity receives.

Transmission Service

FERC found that the Tariff may be unlawful because it does not specify the transmission service that co-location arrangements must take, if any, or otherwise provide a process to ensure that co-location arrangements are paying for the benefits they receive from the transmission system consistent with the cost causation principle.  FERC noted that PJM does not appear to have a process for determining what transmission service different co-location configurations must take, including what costs, if any, should be allocated to co-location arrangements, which raises questions about whether co-location arrangements are paying an appropriate rate.

FERC requested that comments address the impacts that different configurations may have on use of the transmission system, costs on the transmission system or increased transmission costs allocated to other parties, transmission system upgrades, and cost allocations.  FERC also requested guidance on the type of transmission service needed for co-location arrangements, such as if a specific service should be required, if a new form should be developed, if there are circumstances where no transmission service is needed, how the service should be determined, and any cost allocation implications. While this proceeding is initially directed at PJM, the outcome is expected to have a larger impact, as Chairman Christie stated, “co-location arrangements are a fairly new phenomenon that entail huge ramifications for grid reliability and consumer costs.”  PJM and the PJM Transmission Owners are required to respond within 30 days of the Order, by March 23, 2025.  FERC strongly encourages other entities to provide comments on these issues. Interested parties must file an intervention within 21 days of the Order, by March 13, 2025. Interested parties’ responses are due within 30 days of PJM’s filing.