Stakeholders see the recent Federal Energy Regulatory Commission (FERC) order for PJM Interconnection to write new market co-location rules as the first key step that will guide other grid operators to do the same.

On December 18, FERC issued an order directing PJM to create three new programs for temporary, firm, and non-firm capacity when it comes to co-locating data centers with power plants. Now, the grid operator has 30 days for a response to the commission. The order comes after a dozen proposals in a Critical Issue Fast Path (CIFP) process were shot down by stakeholders, forcing the PJM Board of Managers to return to square one to come up with a new proposal.

Norton Rose Fulbright Partner Caileen Gamache said that when PJM initially proposed eight options on co-location in 2024, that signaled to PJM that the grid operator didn’t know what to do.

“On first take, it appears FERC has told PJM to fix its tariff but has offered relatively little guidance regarding how to fix it. But it also means PJM will be a leader in sorting it out,” Gamache said. “It will set the stage for what will likely follow throughout the rest of the FERC-regulated markets.”

FERC gave PJM a framework for its new rules, stating that data centers will be allowed to contract to pay for power service from the grid, either to cover the remaining power that its co-located generator doesn’t produce or to purchase all of its power from the grid temporarily during maintenance operations. FERC also said in its order that the new rules should clarify that a generator cannot leave the grid to serve a co-located customer until all necessary transmission upgrades to maintain reliability are completed, with the cost of those upgrades allocated 100% to the existing generator and its load.

Electric Power Supply Association (EPSA) President and CEO Todd Snitchler said the decision was a win for independent power producers, especially gas and nuclear suppliers, and called it a “welcome first step.”

“The optionality that the commission laid out at the open meeting is helpful in recognizing the variety of co-location approaches that may be utilized to meet the moment. Clearly, this is the first step in a process that will require quick action and durable consensus from many stakeholders and highlights the urgency in getting solutions onto the system, and for that we applaud FERC’s approach.”

While Gamache said developers and data center companies will take heart in having increased certainty of their options, the order also addresses that individual state utility commissions and utility companies have been developing their own rules for managing data center co-location arrangements. With this order, she said it’s “unclear” how those decisions will be affected.

“It could be messy (if) PJM’s solution invalidates any individual utility’s system,” she said.

She added that it’s important to note, as FERC does in its order, that interconnection is only part of the solution.

“States have jurisdiction over the actual sale of energy between co-located generation and load. This can get interesting in a market like PJM, which covers 13 states and D.C.,” Gamache said. “Even if interconnection procedures are the same throughout PJM, the way electricity sales are structured between co-located generation, and load might still differ dramatically.”

Gamache said once PJM lands on a solution, “it will likely be trendsetting.”

*This story was originally published exclusively for NPM subscribers.