The US Federal Energy Regulatory Commission (FERC) has directed the country’s largest regional transmission operator (RTO), PJM Interconnection, to formulate new tariff rules governing the colocation of large electric loads, including data centers.

FERC directed the RTO to propose clear, standardized rules for how colocated loads connect to the grid, receive transmission service, and have costs allocated. The commission said PJM’s existing tariff does not adequately address these arrangements and could lead to unjust or unreasonable outcomes if left unchanged.

The regulator also directed PJM to propose three transmission service options for colocated loads: traditional network service, firm contract demand service, and non-firm contract demand service. These are intended to reflect better how colocated loads may rely on the grid differently than conventional customers.

Following the ruling, PJM will have approximately 60 days to file the changes. Following this, FERC will review them through a paper hearing process.

FERC ordered a review of colocated loads in February of this year, following a high-profile case regarding a proposed behind-the-meter agreement between AWS and Talen Energy. The companies proposed an amended interconnection agreement that would have allowed the data center to increase its behind-the-meter power usage from the Susquehanna nuclear plant in Pennsylvania. FERC ultimately rejected the ISA, citing concerns about reliability and cost impacts on other ratepayers. Subsequently, the two firms inked a front-of-meter Power Purchase Agreement to supply AWS with 1.92 GW of power from the 2.5 GW plant.

FERC said the proposal highlighted the lack of clear rules governing these types of agreements. The regulator argued that the lack of rules created uncertainty and raised the risk that colocated loads could avoid paying for transmission services they still rely on, leaving other customers to pick up the cost. The commission emphasized that any new framework must adhere to long-standing principles of cost causation and non-discrimination.

The implications for the data center sector could be significant, as it is likely to create defined pathways for colocated loads and ensure that colocated data centers cannot bypass the transmission system without contributing to the costs of upgrading and operating it.