# Behind-the-Meter Generation located on the customer's side of the utility revenue meter, serving that customer's load directly rather than delivering into the grid. "Co-location" describes the same arrangement from the siting angle: put the data center next to the power plant and skip the wires in between. The appeal for an AI operator is obvious. Transmission is the binding constraint and the [[Interconnection Queue]] is years long; a plant already connected to the grid has capacity available today. Build beside it, take power directly, and the speed-to-power problem dissolves. ## The regulatory question The arrangement raises one question that turned out to be worth billions: **what does a co-located load owe the grid it is not using?** Two answers were available. **The netting answer.** The load is not drawing from the transmission system, so it should not pay transmission charges. Its on-site generation nets against its demand, and it pays only on the residual. This was the position implied by legacy behind-the-meter generation rules, which were written for industrial hosts with firm load. **The gross-load answer.** The load still relies on the grid — for stability, for frequency regulation, for restart after an outage, and as backup whenever the adjacent plant is down for maintenance or forced outage. It benefits from a system it is not paying to maintain, and every dollar it avoids is a dollar allocated to someone else. This is the free-rider framing. > [!important] FERC chose the gross-load answer in June 2026 > In its 2026-06-18 show-cause orders, FERC determined that allowing large loads to net on-site generation against demand in order to reduce wholesale transmission service charges is **unjust and unreasonable**, and directed grid operators to establish a strict megawatt materiality threshold limiting netting. > > It went further: co-located load must pay for **regulation service and black start service on a gross demand basis** — on its full consumption, even if it withdraws nothing from the interstate system. The stated reasoning is that co-located load relies upon and benefits from grid stability whether or not it takes energy. > > FERC also created a favorable counterpart: dedicated, expedited study processes for generation serving "electrically proximate" load, defined as within two buses or no more than two substations of the generating unit. Faster interconnection in exchange for paying gross. ## Why this was the hinge Behind-the-meter was, for about two years, the most attractive route around every constraint in the system simultaneously. A co-located data center could avoid the queue, avoid transmission charges, avoid the [[Capacity Market]] cost allocation, and avoid state retail jurisdiction — while drawing on grid services it did not pay for. The economics were so favorable that they distorted siting decisions across the industry and drove a wave of nuclear co-location deals with operators including [[Talen Energy]] and [[Constellation Energy]]. FERC's finding does not ban co-location. It prices it. That distinction is the whole substance of the reform: the arrangement remains legal and remains fast, but it stops being a way to consume grid services for free. ## The gas variant The other behind-the-meter play is on-site gas generation, which avoids not only transmission charges but the interconnection queue and, in many configurations, state utility regulation entirely. An Environmental Integrity Project analysis counted **74 proposed behind-the-meter gas plants** nationwide for AI data centers, with **32 in Texas**. The regulatory concern raised by analysts is that these plants escape utility-regulator jurisdiction while still influencing regional marginal prices — the load exits the rate base but its emissions and its effect on the market do not. This figure comes from a single advocacy-organization report and should be treated as such pending corroboration from a regulatory or trade source. ## The reading Behind-the-meter is the clearest available case of a general pattern: when a regulatory regime prices an activity by where it sits rather than by what it does, the activity moves. The response is either to police the boundary or to price the underlying thing. FERC picked the second, which is the more durable choice — but it took roughly two years, during which the boundary arbitrage shaped billions of dollars of siting decisions that are now built. ## See Also - [[Federal Energy Regulatory Commission]] — the 2026 finding - [[Cost Allocation]] — the principle the netting question turns on - [[Interconnection Queue]] — the constraint co-location was built to escape - [[Capacity Market]] — the other charge co-located load avoided