Federal energy regulators on Thursday opened new pathways for data center developers to tap into electricity from “co-located” power plants — putting artificial intelligence companies on more sure footing as they seek to build infrastructure.
The order approved unanimously by the five-member Federal Energy Regulatory Commission applies only to PJM Interconnection, the grid operator that coordinates electricity flows to 67 million customers in 13 states. Observers viewed FERC’s action as a critical start of a process designed to ease the way for electricity contracts to power the booming AI industry.
“It has become persistently difficult and expensive to build new grid infrastructure in this country, both generation and transmission,” said Commissioner David Rosner. “A business-as-usual approach will not work to meet growing demand while also keeping prices reasonable and power reliable.”
“Today’s order will help break the logjam,” Rosner said.
The co-location issue erupted in November 2024, when FERC rejected PJM’s request to allow an Amazon data center in Pennsylvania to increase the power it pulls from the nearby Susquehanna nuclear plant. The proposal raised fears that major power plants will divert electricity to serve technology giants, shrinking supply available to the public and raising utility bills.
The ruling will still require PJM to implement the order, and the advocates for a wide variety of approaches were still sorting through complex details. But FERC’s decision Thursday gives a green light to specified co-location arrangements. And it attempts to cut down on the data center capacity that could end up relying on the regional grid during periods of stress and power shortages.
How the new rules will impact the AI transformation and whether policy aimed at PJM will apply to other regional grid operators was not clear, industry and trade group officials said Thursday. While FERC acted on the co-location issue, it is just beginning work on a broader rulemaking called for by the Department of Energy to speed up the process of connecting AI data centers to the grid.
FERC does not regulate policy for adding new power plants to the grid, the responsibility of the states. But its oversight of interstate transmission rules and rates offers opportunities to speed up development of data centers and power sources.
Caitlin Marquis, managing director at Advanced Energy United, a group supporting carbon-free power, said PJM’s current rules lack clarity about how technology companies requiring a lot of power can build or sign on to their own electricity generation.
“Co-location can create some certainty for new large loads that want to contract with new generation to reduce some of the financing and project risk,” Marquis added. “That could make it easier for projects to get built.”
PJM’s leadership has been criticized by governors, various grid sector factions, consumer advocates and environmental groups for moving too slowly on each sides’ separate agendas.
PJM has been in a state of turmoil and indecision for months. PJM President and CEO Manu Asthana is leaving his job at the end of this year with no permanent replacement appointed. PJM’s industry members voted two people off the board earlier this year, and governors in the region have demanded representation on PJM’s board.
PJM members last month rejected an entire set of policy proposals for connecting large loads to the grid, proposed by a cross-section of its membership.
PJM’s board is preparing its own solution to getting more generation connected to the grid. But FERC’s order directed PJM’s board to report its plans within 30 days, indicating it will be watching PJM closely.
“The PJM board intends to move forward with a proposal to FERC,” said PJM spokesman Jeff Shields. “PJM is reviewing the order and will assess how it impacts efforts already underway.”
The order requires a rule from PJM to prevent a generator from “leaving the grid” to channel its power to a data center unless it finances upgrades to the surrounding transmission grid, allowing the same amount of power to flow in from more distant sources.
“This means that generators comprising the backbone of today’s grid cannot abandon existing customers,” Rosner explained, “unless and until those generators and their large load customers — not other ratepayers — pay for the transmission upgrades needed to maintain reliable service for everyone else.”
Another pathway called “interim, non-firm transmission service” would permit expedited construction of a data center connected to a power plant before the surrounding grid is strengthened. But the center would accept having its power supply cut off when the grid is stressed. The data center “is bearing the risk of being curtailed,” Rosner said.
Commissioner David LaCerte, appointed by President Donald Trump to complete a Republican majority on the commission, praised his colleagues for coming together behind a bipartisan policy, after long discussions. “I’m very ecstatic that it’s unanimous,” LaCerte said.
But he added a partisan edge that may indicate more challenges in the future as FERC moves forward on the data center challenge.
“This action amounts to a giant leap forward for President Trump’s agenda of American energy dominance and artificial intelligence advancement,” LaCerte said. “How have we gotten here? The answer is … failed policies of the previous administration, President Biden.”
