FERC Orders PJM to Create Data Center Co-Location Rules
In a landmark ruling, FERC ordered PJM Interconnection to file a compliance tariff by February 16, 2026, establishing formal rules for data centers co-locating behind-the-meter at power generation facilities. The order simultaneously eliminates the "first use" doctrine — a long-standing rule that prevented generators from selling power to on-site customers before delivering it to the grid — fundamentally reshaping how hyperscale AI data centers can structure their power supply agreements in the PJM footprint.
What the "First Use" Elimination Means
The "first use" doctrine historically required that any electricity generated at a facility must first be delivered to the transmission grid before it can be consumed by a co-located load. This created a significant regulatory and economic barrier for tech companies hoping to site data centers adjacent to power plants — particularly nuclear and gas generators.
With "first use" gone, a data center operator can now contract directly with an adjacent generator for behind-the-meter power without that electricity touching the transmission system or incurring full T&D charges. FERC's order requires PJM to define the cost-allocation rules, metering requirements, and capacity market treatment for these arrangements.
Co-Location Arrangement Comparison
| Factor | Traditional Grid Supply | Co-Location (Post-Order) |
|---|---|---|
| Transmission Charges | Full T&D (~2.5¢/kWh) | Reduced / Waived |
| Capacity Market Obligation | Full obligation | TBD by PJM tariff |
| Power Price | Market LMP | Bilateral (below market) |
| Grid Reliability Obligation | Shared with all load | Partial — under review |
Source: KilowattLogic analysis based on FERC Docket ER26-XXXX and PJM Interconnection co-location tariff filing (Feb 2026).
The Cost-Shifting Risk for Standard Commercial Accounts
Energy policy advocates and industrial consumer groups have raised concerns that if large data center co-locators escape full capacity market contributions, the costs will be redistributed to the remaining load — i.e., ordinary commercial and industrial customers. FERC's order explicitly requires PJM's compliance filing to address this, but the outcome depends heavily on how the tariff is structured.
- Scenario A (Cost neutral): Co-locators pay full capacity obligations. No impact on standard C&I accounts.
- Scenario B (Partial shift): Reduced obligations result in a 2-4% capacity cost increase spread across remaining load.
- Scenario C (Regulatory delay): PJM compliance filing contested; co-location deals stall, data centers remain on standard grid supply.
KilowattLogic is monitoring the PJM compliance filing closely. C&I accounts with large annual load profiles (>5 MW) in PJM territories should consult with their broker on hedge strategies ahead of the 2026/2027 capacity auction.
Is Your PJM Contract Exposed?
Regulatory shifts in capacity cost allocation can add 0.5–1.5¢/kWh to standard commercial accounts. A fixed-rate supply audit can quantify and lock in your exposure now.