During its 20 February 2025 open meeting, the Federal Energy Regulatory Commission (FERC) launched a show cause proceeding, directing PJM Interconnection, L.L.C. (PJM) and its transmission-owning utilities to address the need for tariff changes regarding co-location arrangements. This move comes amid rising demand for dedicated energy sources by data centers and other large loads. Co-location, as defined in the order, involves connecting end-use customer load to the facilities of an existing or planned generator, located on the customer’s side of the interconnection to the interstate electric grid.
Chairman Mark Christie stressed the importance of the action, stating that it was critical not only for attracting billions in investment but also for ensuring grid reliability. He emphasized that while serving all customers is a key utility principle, this must be done fairly and in line with cost causation principles.
The proceeding is driven by several co-location-related disputes within PJM, which covers 13 states and the District of Columbia and is home to the nation’s largest concentration of data centers. PJM is expecting an additional 30 gigawatts of peak load in the next five years, heightening the need for clarity around co-location policies.
While the proceeding focuses on the PJM region, the outcome is expected to influence the broader regulatory framework for co-location arrangements nationwide, potentially guiding policies for other regional grid operators.
The scope of the proceeding is broad, addressing key issues such as:
Whether tariff, market rules, or interconnection procedures need to be revised to resolve issues related to jurisdiction, cost causation, and resource adequacy.
The role of the transmission system, ancillary services, and black start services in co-location configurations.
Whether co-located loads should be required to take traditional transmission services or a new form of service.
The adequacy of PJM’s interconnection study process for co-location arrangements.
Whether revisions to PJM’s capacity market rules or planning process are needed to accommodate co-location impacts.
FERC has set a fast-moving schedule for the proceeding, requiring PJM and the Transmission Owners to submit responses by 24 March 2025 and interested parties to comment by 23 April 2025. Additionally, FERC announced it will host a two-day technical conference in June 2025 to discuss resource adequacy issues in regional transmission organizations.
As the regulatory landscape evolves, businesses and stakeholders will need to navigate these changes, and FERC’s actions could have significant implications for the energy sector.
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