Part 2 of 3 — The statutory divide and FERC’s PJM Co-Location Order
Part 1 described the surge in data center demand pushing very large electricity consumers onto the transmission grid, and the Department of Energy’s October 2025 direction ordering FERC to write rules for connecting them. The direction is an aggressive one. It tells FERC to assert authority over a kind of customer the Commission has historically left to the states, and it does so while a reliability crisis makes a quick federal answer attractive to almost everyone.
That ambition runs into a problem of power. FERC cannot regulate large-load interconnection at all unless the Federal Power Act authorizes it, and the Act draws a hard line between the parts of the electricity system FERC controls and the parts reserved to the states. Where large data centers fall on that line is the central question, and it is also where FERC, in its first concrete action, found a way to move without answering it.
The statutory framework: The federal-state jurisdictional divide
The DOE direction’s fate depends on three things: the statute’s text, the two Supreme Court decisions construing it, and the analogy at the heart of DOE’s claim.
The Federal Power Act’s architecture
The entire dispute turns on a jurisdictional line drawn in 1935. The Federal Power Act (FPA) gave FERC jurisdiction over “the transmission of electric energy in interstate commerce and the sale of such energy at wholesale in interstate commerce,” while expressly exempting “facilities used in local distribution or only for the transmission of electric energy in intrastate commerce.” In practical terms, FERC controls the high-voltage highway (though not the siting of transmission facilities, which generally remains a state function); states control the local roads and the customer relationships at the end of them.
What the Supreme Court has said
In New York v. FERC (2002), the Supreme Court held that FERC’s open-access requirements extended to unbundled retail transmissions. But the court confirmed that retail sales remain state-jurisdictional, reserving the question whether FERC could assert jurisdiction over bundled retail transmissions given their “even greater implications for the States’ regulation of retail sales.”
In FERC v. Electric Power Supply Association (EPSA), the court upheld FERC’s authority over demand response in wholesale markets, holding that FERC may regulate practices directly affecting wholesale rates even with incidental retail effects.
The core argument, and where it’s weak
The DOE direction’s central claim is that load interconnection is analogous to generator interconnection: if FERC has authority over generator interconnection as a critical component of nondiscriminatory transmission access, it should equally have authority when a large load directly accesses the interstate transmission system.
State commissions and NARUC have sharply contested this analogy. The FPA’s exemption for facilities used in local distribution encompasses direct-to-transmission retail interconnections, they argue, because the function performed (delivering power to an end-use consumer) is distribution regardless of voltage level. The statutory text lends support: the FPA defines wholesale as a sale to any person for resale, and a data center consuming power for its own operations is a retail customer, not a reseller. The countervailing force is EPSA’s directly affecting standard. Because large load interconnections affect wholesale capacity procurement, transmission planning, and clearing prices, DOE can argue that FERC’s jurisdiction attaches to the interconnection process itself even if the underlying sale is retail. The majority in New York v. FERC expressly declined to resolve this question; the ANOPR’s reliance on Justice Thomas’s concurrence, which has no precedential weight, is its most legally vulnerable point.
FERC’s December 2025 PJM Co-Location Order
While the rulemaking remained at the proposal stage, FERC took a concrete step in an adjacent proceeding. The December 2025 PJM Co-Location Order did not resolve the jurisdictional fight the DOE direction had started, but it created the first federal rules for arrangements in which a data center sits alongside its own power plant, and it showed how FERC might assert authority in this area without deciding whether it may regulate retail load interconnection at all.
Background and the three new services
On Dec. 18, 2025, FERC issued PJM Interconnection, L.L.C. (the PJM Co-Location Order), arising from a February 2025 show cause proceeding in which FERC directed PJM to justify its tariff’s nontreatment of co-located generation-load arrangements. PJM’s Open Access Transmission Tariff (OATT) contained no formal rules governing co-located arrangements; PJM had issued only informal guidance, which some transmission owners followed and others did not. After FERC rejected a nonconforming interconnection services agreement involving Talen Energy’s Susquehanna nuclear plant, Constellation Energy separately challenged the absence of OATT provisions as itself unjust, unreasonable, and unduly discriminatory. That challenge, along with several related proceedings, culminated in the Section 206 show cause order. The order was decided unanimously, with Chair Laura Swett emphasizing the need to expedite data center interconnections to avoid national security and economic risks. It applies only to PJM, though nationwide extension is widely expected. PJM filed initial compliance tariff revisions Jan. 20, 2026, with comprehensive revisions (including behind-the-meter generation (BTMG) threshold reforms and a three-year transition period) filed Feb. 16, 2026.
On April 16, 2026, FERC partially accepted and partially rejected PJM’s Jan. 20 compliance filing, directing further compliance by May 18, 2026. FERC accepted PJM’s procedural clarifications confirming that interconnection customers serving co-located load may request service below nameplate capacity and may access provisional, surplus, and accelerated interconnection pathways. But FERC rejected PJM’s attempt to substitute “Point of Change in Ownership” for “Point of Interconnection” in the co-located load definition, reaffirming the commission-mandated boundary, and rejected PJM’s effort to incorporate “co-located load” into the BTMG sections of the tariff as outside the scope of the proceeding. The April 16 order did not resolve the jurisdictional questions and delayed resolution of most substantive issues to a later date.
The PJM co-location order directs PJM to offer four transmission service options for co-located loads. This is a departure from recent practice: the commission very rarely introduces entirely new transmission service categories beyond the established Network Integration Transmission Service (NITS), firm, and non-firm frameworks. Co-located loads may elect traditional NITS on a gross demand basis, or one of three new services. The first, interim non-firm transmission service, is temporary, interruptible service for customers awaiting network upgrades; they pay NITS rates plus ancillary service charges but not generation capacity charges. The second, firm contract demand service, lets a co-located load contract for a specified MW quantity of firm transmission limited to its anticipated net withdrawals; it requires automatic protection schemes, and PJM plans and procures capacity only up to the contracted amount. The third, non-firm contract demand service, is a non-firm analog for episodic grid draws (during on-site generator maintenance, for example), available for one hour to one month; PJM neither plans transmission nor procures capacity for these customers, and anti-toggling provisions prevent switching between firm and non-firm service based on capacity market signals.
The question FERC left open
The order’s most important feature is what it did not decide. FERC explicitly declined to resolve the fundamental jurisdictional question of whether retail load interconnection to the transmission system falls within its jurisdiction. By grounding the order in established authority over generator interconnection and transmission service, FERC sidestepped the direction’s weakest jurisdictional claim but left the central question for the rulemaking.
The order faces legal challenges on multiple fronts. Rates for the new services are being established through implementation tariff revisions that FERC directed PJM to file, subject to extensive comment; a paper hearing is underway. Commissioner Chang flagged the need for a minimum charge to prevent co-located loads from free-riding on grid infrastructure while paying only de minimis ancillary service fees. Chang further cautioned that co-location may be viable only in restructured states where the generator is eligible to serve load directly, limiting nationwide replicability. Under Loper Bright Enterprises v. Raimondo, courts must independently review statutory jurisdiction questions without deference to FERC, reversing 40 years of Chevron practice. The West Virginia v. EPA major questions doctrine further requires “clear congressional authorization” for expansive claims of regulatory authority. A final large-load interconnection rule would face D.C. Circuit review under FPA § 313(b) and the Administrative Procedure Act.
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