Federal regulators say more clarity is needed on how data centers connect to power sources

by Peter Hall, Pennsylvania Capital-Star
December 18, 2025

Federal regulators directed the operator of the nation’s largest electricity grid to establish transparent rules for AI data centers to connect directly to power plants.

The Federal Energy Regulatory Commission said the revisions will help to manage electricity costs as the race to develop artificial intelligence drives an unprecedented increase in electricity use across the country. 

In Thursday’s meeting, the commission unanimously approved an order directing PJM Interconnection to revise its tariff — a compilation of rate schedules and terms of a particular company or utility — to detail the terms and conditions for customers to follow when using generating facilities to serve co-located load. The order directs PJM to offer customers who want to co-locate four options to manage how data centers and other large loads interact with the grid.

Montgomery County-headquartered PJM manages the wholesale electricity market and grid for about 65 million customers in Pennsylvania and 12 other states plus Washington, D.C.

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“PJM has been actively engaged with stakeholders throughout 2025 to address the rapid growth of data centers and the related increase in demand for electricity,” spokesman Jeff Shields said in a statement. 

Shields added the PJM board intends to move forward with a proposal to FERC derived from its own process in which stakeholders have provided their input on possible solutions.

“We share FERC’s focus on clear and transparent rules as data centers expand their role as an engine of the U.S. economy. PJM is reviewing the order and will assess how it impacts efforts already underway.”

FERC Chairperson Laura Swett said Thursday the decision would advance the nation in the AI and manufacturing revolution while safeguarding the prices consumers pay for electricity.

“While uncertainty has abounded across our country on how we will facilitate data centers, this morning, my colleagues and I are taking a critical step to give investors and consumers more certainty on how FERC believes we can solve the problem,” Swett said.

In February, FERC initiated a proceeding to review issues associated with the co-location of AI data centers, which can use as much electricity as a small city, and generators to ensure the clarity of the rates, terms and conditions of service that apply to co-location arrangements.

“Co-location arrangements are a fairly new phenomenon that entail huge ramifications for grid reliability and consumer costs,” former Chairperson Mark Christie said in February.  “Given these ramifications, the commission truly needs to ‘get it right’ when it comes to evaluating co-location issues.”    

Advanced Energy United, an association for the renewable energy industry, said the order has potential to bring welcome regulatory clarity for large load customers and safeguards to minimize the impact of co-location on the electric rates and system reliability of all other customers.

Caitlin Marquis, managing director at Advanced Energy United, said demand is outpacing the ability of the market alone to reliably and affordably serve data centers and existing customers.

“Advanced energy solutions like battery storage, solar, wind, demand response, and distributed energy resources are well-suited to reliability and affordably serve new large loads in PJM and across the country,” Marquis said. “The advanced energy industry will welcome new rules within PJM that empower large load customers to bring their own new clean energy to the system, benefiting all energy users.”

Co-location, the group noted, is attractive to AI hyperscalers because it can result in faster connections for data centers, which companies like Amazon Web Services and Microsoft are competing to bring online first. 

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Microsoft has a $1.6 billion deal with Constellation Energy to restart the remaining nuclear reactor at Three Mile Island in Dauphin County to power its data centers elsewhere in the PJM service area. Amazon announced an agreement to buy a data center development adjacent to Talen Energy’s Susquehanna Steam Electric nuclear power station in Luzerne County. 

Co-location also raises questions about who will pay for additional transmission infrastructure and how large loads or other customers will be affected by fluctuations in electricity supply across the grid.

Todd Snitchler, president and CEO of the Electric Power Supply Association, which represents competitive power generators, said the order provides options, recognizing that there are a variety of approaches to co-locating large electricity users and generating stations. 

“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,” Snitchler said.

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