New large loads, particularly data centers for artificial intelligence, are seeking to interconnect to the grid at a time when traditional generation resources are retiring and new resources with equivalent reliability attributes are not coming online quickly enough. Faced with long timelines to interconnect these data centers, developers — including some of the world’s largest companies — are proposing extraordinary ways to power their new large loads. One such approach is to co-locate data centers with existing or repowered generation resources.
Co-location poses complex and novel issues for the Federal Energy Regulatory Commission. The issue calls into question the limits of FERC’s authority to regulate these arrangements, how much benefit co-located loads receive from the interstate transmission system, and how much they should pay for those benefits. Other important questions are how co-location could affect grid reliability and how existing electric customers could be protected from cost or other impacts from co-location arrangements.
FERC Chairman Mark Christie understands that the commission must act quickly to address these difficult questions, but he has also emphasized the need to “get it right” when it comes to evaluating co-location issues. The electric industry — including public power — can make significant contributions to national economic growth and technological innovation by supporting the buildout of new data centers, but that cannot come at the expense of our long history of providing reliable and affordable electricity to all Americans.
In November 2024, FERC held a full-day technical conference on co-location to explore these issues in depth. The same day, it rejected an application that would have allowed Amazon to co-locate a large data center with a nuclear plant in PJM. Constellation Energy followed up by filing a complaint at FERC, alleging that PJM’s tariff is unjust and unreasonable because it does not contain rules for existing generators seeking to serve a co-located load.
While co-location arrangements are popping up in many regions in the country, the PJM region has seen the most activity. FERC decided to address all the co-location issues within PJM in a single, comprehensive proceeding that kicked off in February 2025.
The February order gave PJM and its transmission owners just a month to answer a series of technical, economic, and engineering questions and to justify why the PJM tariff is just and reasonable. PJM’s response in March defended its tariff and presented a menu of options for FERC to consider. While the response left much unanswered, it articulates several important principles.
First, PJM emphasized the role of state regulation. Some states specifically define and limit when and how a load within their jurisdictions can be served by a supplier other than a franchised public utility. Other states, particularly those that have deregulated, allow for greater flexibility. So, any co-location arrangements must comply with state law.
Second, PJM acknowledged that there are many kinds of co-location arrangements. Some data centers will rely on the grid for backup power, while others will install protection devices to avoid drawing power from the grid, even when the co-located generator is offline. This echoes the comments made by many panelists at FERC’s November 2024 technical conference, where large loads were compared to snowflakes: A data center running a critical defense application will have different needs from one that operates a sports betting site; some data centers will be able to respond to market signals while others won’t. PJM wants to facilitate efforts to timely integrate large loads in a manner that meets their unique needs.
Third, PJM debunked the notion that any co-located loads are truly isolated from the grid. As an engineering matter, the co-located load and generator are connected to and synchronized with the multistate bulk power system. As such, all co-location arrangements benefit from some level of ancillary grid service, such as load following, reserves, and black start capability. Participants involved in co-location arrangements must therefore pay the costs of any grid services they consume, and the arrangements must be reliable and operationally manageable.
FERC is hoping to issue a ruling on the PJM co-location proceeding as early as June this year. That ruling will likely shape how co-location arrangements proceed around the country in the coming years.
The American Public Power Association will continue to monitor this proceeding and related actions across the federal government. We will also continue to bring to members educational offerings not just on co-location, but on the full spectrum of issues related to large loads.
