A new rulebook for Bring Your Own Generation in PJM

PJM Interconnection (PJM) hosts the highest concentration of data center load growth in the US, managing regional transmission across 13 states in the Eastern US, and commercial operation dates for new generation projects in its current interconnection queue stretch into the early 2030s. Bring Your Own Generation (BYOG) has become the fastest speed-to-power path around that bottleneck. 

BYOG allows large loads, such as data centers, to draw power directly from a co-located generation source connected to the bulk power grid, enabling developers to avoid lengthy interconnection queues and costly transmission upgrades, while drawing limited to no power from the bulk power grid.

The Federal Energy Regulatory Commission’s (FERC) April 16 order is now the rulebook that governs the tariffs that facilitate these BYOG arrangements. Any deal built on the paths FERC closed off must now find a way to align with one of the four approved mechanics before PJM's May 18 compliance refile. Deals that clear the refile could begin to energize as early as this summer.

Below are the top questions the Carbon Direct Power Advisory Team is fielding most from hyperscalers, large commercial power buyers, and power producers navigating the mechanics of PJM’s BYOG tariff and the engineering realities of running a co-located project. 

What is co-location?

Co-location refers to a power generation facility sited in close proximity to a large load, such as a data center, that interconnects directly to the bulk power grid. The generator serves that load contractually via a power purchase agreement (PPA), with power flowing through the meter.

BYOG is the predominant co-location model in PJM. Under a typical BYOG arrangement, on-site generation covers the majority of the data center's load (~90%), with only a small residual portion (~10%) supplied from the grid. Each co-located project effectively functions as its own mini-grid, with explicit operational obligations that are less forgiving than standard transmission service (NITS).

Why did FERC keep behind-the-meter (BTM) and co-location separate?

While BTM and co-location may look similar, they sit in different regulatory buckets. That said, the line between them is less clear-cut than it once was. FERC found existing BTM rules inadequate to address the grid impacts of large co-located loads and directed PJM to treat co-location as a distinct framework. 

At the same time, BTM rules, including how tariffs and distribution charges are applied, remain under revision in a separate PJM proceeding. The two tracks moving in parallel have contributed to the conflation of the frameworks in industry discussion.

How does co-location differ from BTM generation?

• Co-location, as this order defines it, is a bulk grid-interconnected arrangement. The host generator remains on the same interstate grid, maintains its interconnection service agreement, and continues exporting power to the grid. The co-located load connects through an approved interconnection mechanic and takes transmission service under a PJM tariff product.

• BTM is a distinct arrangement. The generator sits on the consumer's side of the utility meter and serves the load through a private line, without an interconnection agreement. The load may typically have a grid connection; however, in some circumstances, the generation may be fully off-grid or islanded. By setting a megawatt (MW) threshold for BTM, larger loads with co-located generation may no longer net out their load to reduce transmission and grid charges. FERC's jurisdiction over a BTM arrangement is narrower, and the tariff mechanics that apply to co-location do not apply in the same way.

FERC's rejection of PJM's proposed BTM rule changes illustrates this distinction. The commission is keeping the two categories separate on purpose. Ultimately, FERC’s intention seems to signal that large loads co-located with generation may not be adequately reflected in grid and transmission upgrade costs when these assets are behind the meter. Historically, BTM assets were exempt from these costs because their relatively insignificant power contributions had no meaningful financial impact on the bulk power grid.

That said, the BTM track is still moving. PJM's BTM application rules, including the netting-off mechanism that lets BTM loads avoid utility tariffs, remain under review in parallel proceedings.

For developers, regulatory clarity on co-location and BTM is increasingly critical. In April 2025, FERC upheld its rejection of the Talen-Amazon Susquehanna nuclear BTM interconnection agreement proposal, declining to rehear arguments on the initial decision. To many experts, the split ruling signaled that the structure of PJM’s interconnection service agreement (ISA) is inadequate for large loads operating behind the meter. 

However, in the initial challenge to the Talen-Amazon proposal, utility companies argued that the arrangement would unjustifiably shift transmission costs to other PJM customers. Ultimately, in June 2025, Talen Energy entered into a 1,920 MW, front-of-meter power purchase agreement with Amazon Web Services, which does not require FERC’s approval. 

FERC has always regulated generators, not loads. What changed?

The April 16 order lands inside a larger jurisdictional shift. FERC does not typically regulate load interconnection; its authority sits with the bulk power grid. Under Orders 888 and 2003, FERC has regulated how generators connect to that system (with standardized study deposits, readiness requirements, and withdrawal penalties) while load interconnection has historically been regulated at the distribution level under state jurisdiction.

That generation-only approach to FERC regulation worked for three decades. Now, the scale of AI data centers and other large loads creates interstate impacts that state-level load regulation cannot fully address. Generation co-location breaks the pattern by routing the load through a FERC-regulated generator interconnection agreement rather than a state-regulated load-serving entity, pulling it into federal jurisdiction.

In December 2025, FERC declared PJM's existing interconnection rules (tariff) unjust and unreasonable in the PJM Co-Location Order and directed PJM to revise the tariff. The April 16 order is FERC's review of that rewrite. 

As FERC Commissioner David Rosner wrote in his concurrence to the December 2025 PJM Co-Location Order: "We are trying to meet surging demand while upholding two fundamental values that underpin the electric industry in our country: first, that all customers have a right to receive electric service on a timely basis, and second, that electric service should be reliable and affordable for all customers. Given the scale of new large loads putting demand on our grid today, it is clear that fostering both of these values requires intervention."

Figure 1. FERC is charged with ensuring consumers have access to reliable, safe, secure, and economically efficient energy services at a reasonable cost through the regulation of regional transmission organizations and independent system operators, with the exception of ERCOT. PJM’s footprint across 13 states requires coordinating reliable wholesale power markets for 65 million Americans. 

Which four interconnection mechanics did FERC approve?

The April 16 order (Docket ER26-1088-000, 195 FERC ¶ 61,030) approves four ways for a data center to plug into the PJM grid. Each solves a different bottleneck: available capacity, queue position, study timing, or pre-studied capacity. All four rely on existing PJM and FERC tariff mechanics rather than new constructs, a deliberate choice to reduce legal exposure and speed up adoption. 

• Sub-full-capacity interconnection service (available capacity). The data center co-locates with an existing host generator, and interconnects at less than the host generator's full capacity, using the portion of the existing interconnection rights the generator does not need.

• Request acceleration at Decision Points I and II (queue position). Co-located load applications can move ahead of the standard queue at defined checkpoints, subject to PJM's study results. Co-located loads place less demand on the bulk power grid than new large loads without co-located generation, justifying the accelerated treatment. To qualify, projects must demonstrate there will be no significant network updates required or network impact, among other readiness milestones. 

• Provisional Interconnection Service, or PIS (study timing). Interim interconnection services are provided during the full study, giving developers a bridge to early operations.

• Surplus Interconnection Service, or SIS (pre-studied capacity). Use of unused capacity at an already-studied generator’s interconnection point, without triggering a new full study.

The four mechanics are different ways of answering the same operational question—how a co-located data center plugs into the grid without triggering a multi-year re-study of the host generator's interconnection—enabling faster speed-to-power.

Which generators gain most from Surplus Interconnection Service (SIS)?

SIS is the most commercially interesting of the four mechanics for existing generator owners because it monetizes previously stranded capacity.

The generators that benefit most include:

• Retiring or derated thermal units with unused megawatts of interconnection rights at high-value points (for example, retiring coal plants in PJM's eastern and mid-Atlantic footprint).

• Existing nuclear and large thermal plants near concentrated load growth, particularly in Dominion, American Electric Power (AEP), and ComEd territory (the Northern Virginia, Columbus, and Chicago metro zones), where PJM load is most concentrated.

• Storage-paired assets where the underlying generator has capacity headroom that the storage does not fully use (for example, solar-plus-storage or gas-plus-storage sites where the battery sits below the full interconnection rights).

For illustration, a host generator running at roughly 85% of its interconnection rights with a forced outage rate near 5% has material surplus capacity (10%) available to a co-located load, depending on how PJM studies the combined profile.¹

Owners of underutilized interconnection rights now have an approved tariff path to extract value from them by attracting data centers to co-locate with these generators.

What transmission service does a co-located load receive?

Connecting to the bulk power grid and taking service from it are two separate decisions. PJM's default transmission service for any load on the system is the Network Integration Transmission Service (NITS), the standard contract for firm power year round. NITS commits PJM to serve a customer’s full load at any and all times, meaning that PJM may need to wait for generation and/or transmission upgrades before offering it to a large load. 

Recently, PJM reopened its generation interconnection queue after pausing to study its backlog of proposed projects. With 800 proposed projects representing approximately 220 GW in new capacity in 2026, this growth signals progress, but it does not address the underlying permitting and financing challenges that have prevented projects already in the queue from being built.

Figure 2. NITS reflects a conventional interconnection configuration for a large load, through which the load sources its full demand directly from the interstate power grid. 

The BYOG mechanics are variations that waive or defer parts of NITS for faster speed-to-power. PJM delivers the resulting service through three tariff product types:

1. Firm contract demand: The co-located load holds firm transmission service (consistent with most aspects of NITS) and operates like any other firm load on the system. Availability is site-specific, depending on the point of interconnection. Unlike other NITS customers, entities contracting firm contract demand transmission on behalf of co-located loads cannot exceed the contracted demand level, and loads would be subject to a penalty if they withdraw additional energy beyond the contracted demand capacity. 

2. Non-firm contract demand: The load accepts interruption risk in exchange for faster interconnection or lower-cost service, making it better suited to loads with operational flexibility. It is available at more interconnection points than firm service, but power delivery is subject to curtailment based on real-time grid conditions. This service intends to provide brief and intermittent energy access from the bulk power grid, during available periods, under unanticipated circumstances, such as downtime for the co-located generator. 

3. Interim NITS: A bridge product that provides firm service on an interim basis while the co-located generator is still under construction. The load energizes early; once the generator and any transmission upgrades are complete, the project transitions to a standard NITS arrangement, and the generator can participate in the broader PJM market. However, while the load pays the NITS rate, the load is subject to curtailment under system emergency conditions, posing reliability challenges. 

In practice, a 1,000 MW data center co-located with a 900 MW on-site generator would request 100 MW from PJM under one of these three products.

Figure 3. Under FERC’s direction, PJM has proposed tariffs for firm and non-firm contract demand transmission services. Under both arrangements, the generator connects directly to the bulk power grid. For firm contract demand transmission service, the large load receives power directly from the generator and contracts its remaining demand through the bulk power grid (which PJM is required to serve). In contrast, a non-firm contract demand transmission service allows large loads to procure power from the bulk grid as it’s available, but PJM is not required to serve the load. 

The interconnection mechanic (how the load connects) and the tariff product (what service the load receives) are two distinct decisions. For example, in the case of an interim NITS, a data center and co-located load could connect through a Provisional Interconnection Service (PIS). Other co-located loads may connect by submitting a request for acceleration at Decision Points I and II to secure firm contract demand service. The connection mechanism and tariff will vary based on each co-located load’s unique characteristics and project configuration. 

For clients evaluating specific sites, the right path depends on how much of the host generator's interconnection capacity is available, how sensitive the load is to interruption, and how fast the site needs to energize. Grid modeling allows project teams to quantitatively assess their risk exposure before committing to a tariff product. 

Which two PJM proposals did FERC reject?

Two elements of PJM's original filing did not make it through the April 16 order.

1. Point of Change in Ownership substitution: PJM proposed swapping in "Point of Change in Ownership" for FERC’s mandated term "Point of Interconnection" in the definition of Co-Located Load. FERC rejected the swap as an unexplained deviation from the Co-Location Order's definition and because it could let transmission owners delay or effectively veto the Point of Change in Ownership location, creating uncertainty for co-located projects.

2. BTM application-rule changes: PJM tried to fold changes to its BTM application rules into this same compliance package. FERC rejected that on the ground the changes did not fall within the scope of the initial order. BTM remains a separate regulatory track; the April 16 order does not settle it.

Project configurations built on either rejected proposal need restructuring before PJM's May 18 refile.

The order also directs PJM to add the PIS definition to the Open Access Transmission Tariff (OATT), Part I, section 1 (paragraph 26), and flags items in paragraph 29, including assessment of the reliability of co-located loads paired with electric storage, as out of scope. 

These determinations should not be seen as FERC rejecting these tariff changes, but rather deeming them outside the scope of the order. They are open questions that belong in a separate docket. The direction to include PIS while declining to address issues not included in the compliance proceeding demonstrates FERC’s focus on speed-to-power, clarifying the rules for new co-located generators to connect to the grid more quickly.  

What is the Two-Strike reliability rule, and why does it matter?

The rules for violating a co-location interconnection service agreement are still being developed, but FERC has urged PJM to issue robust protections to maintain reliability and cost allocation equity. 

For both firm and non-firm contract demand transmission service, PJM will apply a penalty rate to transmission service customers who withdraw more energy from the grid than was contracted. The precise design of these rates for unreserved use is scheduled for a paper hearing this spring; however, developers should cautiously size and appropriately model load and generation sizes, as the penalties for jeopardizing PJM’s reliability are not limited to rates. 

While penalty rate design for unreserved use is actively underway, PJM has indicated an intent to propose a strict Two-Strike reliability rule for co-located projects. If a co-located customer fails to adequately implement automated load shedding or generator tripping mechanisms during unusual grid conditions, PJM has previewed severe consequences:  

• First strike: a 120-day operational pause for review.

• Second strike: termination of the transmission service contract and return to the NITS interconnection waitlist.

The entire purpose of pursuing a co-located large load configuration is to ensure speed-to-power while maintaining reliability. In PJM's current queue, that waitlist implies commercial operation dates well into the early 2030s, meaning the stakes are high for data centers to ensure reliable load management. Data centers will need to rigorously model and design their co-located load and generator facilities with the understanding that multiple reliability violations could strand billion-dollar assets for multiple years. 

Which BYOG deals need restructuring before the May 18 refile?

Any deal built around the Point of Change in Ownership substitution or the BTM application-rule changes that FERC rejected needs restructuring. 

In addition, co-located projects that relied on one of the four approved mechanics, but used PJM tariff language from the original December filing, may also need re-papering against the language PJM submits in its forthcoming May 18 compliance filing. Until PJM files that package and FERC accepts it, the operative document is the April 16 order itself.

Counterparties should confirm that operational controls, curtailment rights, and dispute mechanisms in the contract align with the proposed Two-Strike regime and the approved mechanics the project uses.

What does grid modeling reveal for a co-located project?

Non-firm service is the lowest-cost tariff product for the portion of load the co-located generator does not serve, but availability depends on real-time grid conditions. Grid modeling is how developers size that exposure before signing.

Take the same 1,000 MW data center paired with a 900 MW on-site generator, contracting 100 MW of non-firm service for the residual load. Grid modeling might show non-firm power dropping out in roughly 15% of hours during the summer peak.

If the on-site generator also carries a 5% forced outage rate, the developer faces a meaningful probability of a compound event: grid supply drops out at the same moment the on-site unit trips offline.

In that window, the data center has three options, none of them free: 

1. Curtail load. 

2. Shift the load to another site. 

3. Draw more from the grid than the contract allows, which triggers a Two-Strike violation.

Grid modeling converts that risk into decisions the developer can price. A developer can test whether adding 50 MW of battery storage, contracting 150 MW of firm service instead of 100 MW of non-firm, or adding a smaller backup generator delivers the best risk-adjusted return.