AIDC Investor

Behind-the-Meter Power and Co-Location, While the Rules Are Being Rewritten

Putting a data center next to a power plant looks like a way around the grid queue. FERC has found the rules governing it unjust and unreasonable and ordered them rewritten. What that proceeding says, and what it means for a project that depends on the answer.

If getting a grid connection is the hardest part of building an AI data center — and it is — then building next to an existing power plant and taking the electricity directly looks like the obvious way around the problem. That arrangement is called co-location, and when the generation serves the load without using the transmission system it is behind-the-meter generation.

It is also the subject of an active federal proceeding in which the governing rules have been found unjust and unreasonable and ordered rewritten. Any project whose economics depend on this structure is exposed to a rulebook that is being rewritten right now, and that is a risk an investor can read about in primary documents rather than guess at.

The distinction that matters

In front of the meter. The data center is a normal load. It takes a grid connection, pays transmission and distribution charges, and waits in whatever queue the region operates.

Behind the meter. Generation delivers energy to the load without using the transmission system. PJM's tariff defines behind-the-meter generation as "a generation unit that delivers energy to load without using the Transmission System or any distribution facilities", with exclusions for capacity designated as a Generation Capacity Resource and for output sold to another entity (quoted in FERC, Docket EL25-49-002, 18 June 2026).

The appeal of the second is obvious: speed. The problems are also real, and they are what the regulator is working through. A load sitting next to a plant still relies on the grid when that plant is down; it may remove capacity other customers were counting on; and who pays for the transmission system it uses occasionally, or relies on as backup, is contested.

What FERC has actually decided

On 18 December 2025 the Federal Energy Regulatory Commission issued an order in Docket No. EL25-49-000, under section 206 of the Federal Power Act, finding PJM's tariff unjust and unreasonable because it "does not contain provisions addressing with sufficient clarity or consistency the rates, terms, and conditions of service that apply to generators serving Co-Located Load and Eligible Customers taking transmission service on behalf of Co-Located Load."

The Commission then directed PJM to file, within 60 days, a compliance filing that would:

It established a paper hearing to determine what those services should cost.

Separately — and this is the part that bears directly on behind-the-meter projects — the Commission "found the Behind the Meter Generation (BTMG) rules in the Tariff to be no longer just and reasonable", and directed PJM to revise the retail BTMG netting rules and "to implement a transition process for existing BTMG participants."

The proceeding continued: on 18 June 2026 FERC issued an Order on Rehearing, Clarification, Compliance Filing, and Paper Hearing in Docket Nos. EL25-49-002 et al. (195 FERC ¶ 61,209), the document quoted above.

Two details worth noticing in that sequence. First, the Commission wrote a transition process for existing participants — which tells you that parties already operating under the old rules needed one. Second, the rates for the new services were not set in the order; they went to a paper hearing. A rate that is still being litigated is not a rate you can put in a model.

Why this matters to a retail investor

A behind-the-meter or co-location arrangement changes three things in a projection, each of which should be stated explicitly:

1. The timeline. This is why sponsors pursue it. If it works, power arrives years before a conventional interconnection would deliver it, and every month saved is a month of rent earned earlier. See the risks page on what delay does to a return.

2. The cost of power. A behind-the-meter arrangement typically avoids some transmission charges. How much it avoids is exactly what is being decided in proceedings like the one above. A model built on today's charges — or on no charges — may be modelling a regime that no longer exists by the time the building opens.

3. The firmness of supply. Non-firm service means the withdrawal can be curtailed under defined conditions. For a tenant running training workloads, "your power may be limited under certain conditions" is a commercial term, not a footnote, and it will show up in what the tenant is willing to pay — or whether it signs at all. See what a hyperscaler lease contains.

The questions to ask

  1. Is the project's power in front of or behind the meter? If the answer is a mixture, which load is served by which.
  2. Which market and which regulator? PJM, ERCOT, MISO, SPP, or a state- regulated utility. This decides whose rules apply.
  3. What is signed? A letter, a proposal, a study agreement and an executed electric service agreement are four different things, and only the last is a commitment. A written supply proposal is not a service agreement — that distinction is the single most common overstatement in this category.
  4. Is the service firm or non-firm, and under what conditions can withdrawal be curtailed?
  5. What transmission charges does the model assume, and what happens to the return if those charges turn out higher?
  6. Is the project relying on a rule that is currently under challenge? If so, in which docket, and what is the timetable?

Question 6 is the one almost nobody asks, and today it has a specific answer in PJM's footprint.

The honest summary

Co-location and behind-the-meter supply are a genuine answer to a genuine bottleneck, and they are being used because the conventional route is slow. They are not a loophole and there is nothing improper about them.

They are, at this moment, governed by rules the federal regulator has found unjust and unreasonable and ordered rewritten, with the prices for the replacement services still being litigated. A project whose schedule and power cost both depend on that outcome carries a risk that is public, dated and documented. An offering that presents behind-the-meter power purely as an advantage, with no mention of the regulatory position, has not told you the whole of it.

What to read next: why power is the constraint for the underlying problem, and the risks for how delay and cost changes propagate into a return.

Nothing here is investment advice or a recommendation of any security. See how this site is funded.