On December 18, 2025, the Federal Energy Regulatory Commission (FERC or Commission) issued a sweeping order in its Federal Power Act (FPA) Section 206 proceeding relating to the PJM Interconnection, LLC (PJM) Tariff’s treatment of service for large loads co located with generation, declaring core portions of the PJM Tariff unjust and unreasonable, and directing PJM to file comprehensive tariff revisions on an expedited basis. While formally limited to PJM, the Commission’s findings and analysis provide the first clear indications regarding several core policy issues relating to co-location arrangements.
PJM’s current tariff no longer just and reasonable
FERC held that PJM’s tariff lacks sufficient clarity, consistency, and service options for co located arrangements, producing uncertainty, disparate treatment, and the risk of cost shifts to other customers. As the remedy, the FERC directed a “replacement rate” package that:
- Establishes clear interconnection and operational rules for generators serving co located load
- Requires the Eligible Customer serving the co located load to take transmission service under one of three defined options; and
- Revises PJM’s behind the meter generation (BTMG) rules and establishes a transition period for their application.
First, FERC found PJM’s tariff lacks a clear pathway for interconnection customers to add co located load and for Eligible Customers to secure corresponding transmission service, resulting in inconsistent practices and unpredictability. PJM must revise its interconnection procedures and pro forma agreements to require an identified Eligible Customer to take transmission service on behalf of any co located load and specify the study scope, upgrade responsibility, and prerequisites before service may commence.
New transmission services
Second, FERC concluded PJM’s tariff must offer transmission services that better reflect controllable reliance on the grid by co located loads. FERC directed PJM to make three service options available:
- Standard Network Integration Transmission Service (NITS), with an optional interim non-firm transmission “bridge” while any necessary transmission upgrades are built
- A new “Firm Contract Demand” service; and
- A new “Non-Firm Contract Demand service.”
Customers taking any of these services must pay for regulation and black-start services on a gross-demand basis because the co located arrangements are synchronized with and benefit from the transmission system, even at zero or de minimis net withdrawals.
Changes to BTMG netting
Third, FERC determined PJM’s existing BTMG rules are no longer just and reasonable for large loads. Unrestricted BTMG netting for determining a Load Serving Entity’s network load can no longer be permitted due to planning blind spots and potential cost shifting. The Commission directed PJM to propose a BTMG materiality threshold based on size, a three-year transition period for current network customers utilizing BTMG, and grandfathering for certain contracts based on the prior rules.
The three transmission service paths PJM must offer for co-located load
FERC’s order requires PJM to incorporate three potential service paths, each aligning charges and planning obligations to a co located load’s actual and controllable reliance on the grid.
Interim, non-firm “bridge” to NITS
If system conditions allow, Co located loads served by an Eligible Customer that has requested NITS may elect to begin limited withdrawals under a temporary, interruptible service while the Network Upgrades needed for NITS are constructed. Customers pay the NITS rate and applicable ancillary charges during the interim but incur no capacity obligation because the service is interruptible; the service terminates when upgrades are complete and the load becomes Network Load. This service cannot be combined with the new Contract Demand services (over which it has curtailment priority) and will be curtailed before firm services. FERC established a paper hearing to set curtailment tariff details and other terms.
Firm Contract Demand (permanent alternative to NITS)
Eligible Customers may reserve a specified megawatt “contract demand” with firm priority at that level. PJM plans transmission and procures capacity only up to the contract demand; withdrawals above that level trigger unreserved-use penalties and curtailment procedures to be developed in the paper hearing. Customers pay for transmission service and ancillary service based on the contract demand; Regulation and black-start charges apply on a gross-demand basis (not limited to the contract demand). FERC directs a minimum one-year term as “anti-toggling” protection to deter frequent switching between firm and non-firm service based on capacity market conditions.
NON-FIRM Contract Demand
Eligible Customers may obtain as available non-firm reservations, from one hour to one month, including to cover generator outages or to layer above a firm contract demand. The service is curtailed in emergencies and carries no capacity obligation; customers pay transmission and ancillary service charges based on reserved non firm contract demand plus regulation and black start on a gross demand basis. Unreserved-use penalties apply to withdrawals above reserved amounts; pricing and penalty levels will be set in the paper hearing.
Across all three options, FERC emphasized that co located configurations remain synchronized to PJM and, therefore, benefit from regulation and black start services even with zero net withdrawals, warranting gross basis assessment for those services and potential minimum or administrative charges, on which FERC seeks further briefing.
Interconnection and upgrade obligations for co-location
The order requires clear tariff rules for both existing and new generators engaging in co-location. Existing generators must complete all required upgrades and modifications identified in the “necessary study” and may not begin serving co located load until upgrades, protection schemes, and metering are in service; they must bear 100% of such costs and cannot reduce capacity interconnection rights to serve co located load until delisting steps are complete. PJM must specify the scope of the necessary study in the paper hearing, the information requirements for co located load, and confirm that special protection schemes will be assessed.
For new generators, PJM must clarify that the interconnection customer may request service below nameplate, seek provisional interconnection service where supported by studies, accelerate requests that impose no network upgrade costs and require no further studies, and use surplus interconnection service at existing points of interconnection where available. These clarifications aim to facilitate the interconnection of co-located “bring your own generation” projects, enabling them to proceed more quickly with fewer upgrades and more tailored study scopes.
The future of NITS and the end of large-scale netting
FERC reaffirmed that taking standard NITS on a gross basis remains just and reasonable for co located load, but held that netting BTMG for determining transmission charges for large configurations is inconsistent with cost causation and risks cost shifts. Co located loads that require the same rights as front of meter loads can take NITS on a gross basis; those able to limit withdrawals may select the new Contract Demand services to align charges with actual usage while protecting other customers.
Jurisdictional posture and state–federal coordination
FERC reaffirmed (1) that federal jurisdiction over generator interconnections to the interstate transmission system persists notwithstanding co located load behind the Point of Interconnection; and (2) that it has jurisdiction over the transmission service taken by an Eligible Customer on behalf of co located load. At the same time, retail sales to co located load and state siting/resource mix decisions remain within state jurisdiction, and the availability of specific co location supply models will turn on state law. The tariff must be flexible enough to operate across differing state frameworks without cost trapping or jurisdictional conflict.
Paper hearing and compliance timeline for PJM
FERC ordered tariff revisions to reflect certain clarifications within 30 days (Jan. 20, 2026), with proposed tariff revisions to implement the three new services, specify a MW threshold for BTMG, and address other issues.
FERC established a paper hearing to set the rates, terms, and conditions for the interim non-firm bridge, Firm Contract Demand, and Non-Firm Contract Demand services, including curtailment protocols, penalty structures for unreserved use, rate parity with point-to-point transmission services where appropriate, and whether to apply PJM administrative charges or additional minimum charges for synchronized but de minimis usage. PJM’s opening brief is due February 16, 2026; answers are due March 18, 2026; replies are due April 17, 2026.
Separately, PJM must file, within 30–60 days, tariff revisions implementing the interconnection clarifications for new and existing generators, the three new transmission services, and the BTMG threshold and transition, and must submit an informational report within 30 days on its broader “Critical Issue Fast Path – Large Load Additions” stakeholder initiative to accelerate new generation and reliably integrate large loads.
Implications beyond PJM
Although the order only pertains to the PJM tariff, the FERC’s findings suggest several generally applicable principles, such as:
- Co-located load that is connected to the transmission system benefits from the broader grid, even when net withdrawals are at or near zero, and, therefore, must take some type of transmission service.
- Unrestricted BTMG netting is not just and reasonable because it can result in cost shifts that are not consistent with cost causation principles.
- Because the benefits to co-located load from regulation and black-start service are not tied to withdrawal volumes, cost recovery for such services should be based on gross demand and not net demand.
- To the extent that co-located loads obtain something less than NITS, there must be penalties for unreserved use of the transmission system.
With the PJM order, FERC seeks to enable faster, lower cost interconnections for co located large loads in PJM while maintaining an appropriate level of system planning, reliability safeguards, and cost causation fidelity. While FERC has not yet directed other RTOs/ISOs or non-RTO transmission providers to propose tariff changes pertaining to co-location, such orders and/or voluntary transmission provider tariff filings are to be expected, as interest around such arrangements continues to grow unabated.
While the prospect of optimizing a proposed co-location configuration without fully fleshed-out rates and tariff terms poses challenges, customers considering co-location in PJM can immediately begin evaluating how their operational profiles, needs, and flexibilities fit within this framework at the conceptual level. Generators serving co located load should prepare for defined study scopes and full upgrade responsibility before serving new load.