A proposed framework from PJM Interconnection to support the colocation of large energy loads—such as data centers—with on-site power generation is drawing sharp criticism from across the energy and technology sectors.
Stakeholders including Vistra, Constellation Energy and the Data Center Coalition (DCC) argue the proposal introduces operational inefficiencies, unclear requirements and economic barriers that could hinder development.
“These proposals will not enable commercially viable arrangements,” the Data Center Coalition said in a filing.
“Instead, the proposals introduce significant operational rigidity, limit flexibility, and create disincentives that will impede the development of co-located load and associated generation,” the group added.
Independent power producer Vistra warned the framework would result in “long delays, unreasonable rates, and undue discrimination,” while groups such as Advanced Energy United and the Solar Energy Industries Association said the proposal is “unlikely to achieve the Commission’s objectives.”
The plan was developed in response to a directive from the Federal Energy Regulatory Commission (FERC), which in late 2025 instructed PJM to establish rules enabling large-load customers—particularly data centers—to colocate generation resources.
Such arrangements are seen as a potential solution to surging electricity demand from AI-driven data center growth, offering developers more control over power supply while reducing strain on transmission infrastructure.
However, critics say PJM’s approach undermines those benefits.
A central concern revolves around how power from colocated generation would be treated. Under PJM’s proposal, generation tied to a specific facility would still be considered part of the broader grid resource pool, rather than reserved for that facility.
“Even a customer that brings sufficient co-located generation to meet its load cannot avoid curtailment risk,” DCC said. “If co-location does not provide any meaningful ability to mitigate curtailment or ensure more predictable service, it is unclear why a customer would pursue this pathway at all.”
The group also criticized the lack of clarity around curtailment protocols, warning that customers could face severe penalties—including loss of transmission service—without clearly defined operational guidelines.
“Customers are being asked to comply with operational requirements that remain largely undefined, while bearing the full risk of immediate and potentially long-term loss of service for any failure — an approach that is patently unacceptable and emblematic of PJM’s broader effort to avoid implementing the Commission’s directive while shifting all compliance risk onto customers,” DCC said.
Concerns are not limited to project developers. Monitoring Analytics, PJM’s independent market monitor, warned that elements of the proposal could jeopardize grid reliability.
Specifically, the introduction of non-firm transmission services may allow large-load customers to bypass standard cost-sharing mechanisms.
“Non-firm CDS would effectively provide co-located generators a subsidized low cost option to use the system whenever they need backup,” Monitoring Analytics said. “All customers should share the costs of the transmission system.”
The group also raised questions about how PJM would allocate limited transmission capacity under its interim service model, particularly as demand from large-scale data centers continues to grow.
“PJM and the affected [transmission owners] would have to perform required studies to define the amount of Interim NITS that can be reliably provided,” Monitoring Analytics said. “This raises questions about which customers would be allowed to take Interim NITS if demand exceeds supply, which seems likely given the level of forecast large data center load.”
The debate highlights a broader challenge facing U.S. power markets: how to integrate rapidly growing, energy-intensive industries—especially hyperscale data centers—without compromising grid stability or fairness in cost allocation.
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Colocation has emerged as a promising model, allowing data center operators to pair facilities with dedicated or nearby generation sources such as natural gas, renewables or battery storage. In theory, this reduces reliance on congested transmission networks and accelerates project timelines.
However, PJM’s proposal, which includes new transmission service categories and a proposed implementation timeline extending to 2029, may arrive too late to meet immediate demand pressures, according to critics.
At stake is not just project economics, but the future structure of how large energy users interact with the grid. If regulators fail to strike the right balance, developers may look to alternative regions or push for more radical grid reforms.
As FERC reviews stakeholder feedback, the outcome will likely shape how utilities, developers and regulators approach the intersection of data infrastructure and energy systems in the coming decade.
Originally reported by Ethan Howland, Senior Reporter in Utility Dive.
