Dive Brief:
- The Federal Energy Regulatory Commission on Friday rejected an amended interconnection service agreement, or ISA, that would have facilitated expanded power sales to a co-located Amazon data center from a nuclear power plant in Pennsylvania that is majority owned by Talen Energy.
- On a 2-1 vote, with FERC commissioners Mark Christie and Lindsay See in the majority, the agency found that the PJM Interconnection, which filed the amended ISA, failed to show that provisions in the agreement that contravene the grid operator’s existing, or pro forma, ISA were needed due to “specific reliability concerns, novel legal issues or other unique factors.”
- In a dissent, FERC Chairman Willie Phillips said the decision threatened national security and grid reliability. “In failing to accept the agreement, we are rejecting protections that the interconnected transmission owner says will enhance reliability while also creating unnecessary roadblocks to an industry that is necessary for our national security,” Phillips said. FERC commissioners David Rosner and Judy Chang didn’t participate in the case.
Dive Insight:
FERC’s decision is a surprise to investors, according to the investment firm Jefferies. “From our extensive investor conversations ... very few investors, including us, expected an outright FERC rejection of the ISA,” the company said Sunday. Jefferies expects a “sharp negative share response” for Constellation Energy, Talen, Vistra and Public Service Enterprise Group — companies that own nuclear power plants that could serve data centers.
Constellation’s shares fell 12.6% to $225.65/share on Monday morning, while Talen stock dropped 8% to $160/share, PSEG dipped 4.8% to $33.10/share and Vistra declined 6.3% to $112/share.
FERC’s order likely adds to uncertainty about the agency’s position on co-location, according to ClearView Energy Partners. “Amid this ambiguity, data centers could pursue more virtual power purchase agreements, at least in the near term, but we are skeptical that interest in co-location with existing, new (or reopened) power plants could completely wane,” the research firm said Monday.
The decision comes as data center companies have been exploring co-locating their facilities at existing power plants. FERC held a technical conference on the issue on Friday during which one of the main issues was ensuring that co-located load paid its fair share of grid costs.
In the move that led to FERC’s decision on the ISA, Talen Energy said in March it sold a data center campus in Pennsylvania to Amazon’s cloud computing unit, Amazon Web Services, for $650 million. Talen intends to sell power to AWS from its 2,228-MW stake in the Susquehanna nuclear power plant, according to the company.
AWS has agreed to buy power from Talen in 120-MW increments for the data center, which could grow to 960 MW, according to Talen.
To facilitate the sale of power to the co-located data center, PJM in June asked FERC to approve an amended ISA among the grid operator, Susquehanna Nuclear and PPL Electric Utilities. The amended ISA would have increased the behind-the-meter connection between the power plant and the co-located data center to 480 MW from 300 MW in the existing ISA.
American Electric Power and Exelon — on behalf of their utilities — challenged the ISA, in part because they claim it could cause an annual shift of up to $140 million in transmission costs onto PJM ratepayers.
PJM failed to meet high burden
In its decision, FERC said PJM failed to meet its high burden to show that its pro forma ISA was inadequate for the Talen-Amazon arrangement at the Susquehanna nuclear plant.
PJM claims that the proposed amendments in the ISA address specific circumstances around the Susquehanna interconnection, and that its approval by FERC could be limited to those circumstances, according to Christie and See.
However, significant aspects of the proposed non-conforming ISA provisions rely heavily on a co-location guidance document PJM issued after a stakeholder process failed to reach an agreement on rules for co-locating load, according to the decision.
“This raises questions regarding whether PJM intends to offer these terms to all similarly situated interconnection customers,” Christie and See said. “We conclude that these provisions demonstrate that PJM has not met its burden to show that these provisions are necessary for any interest unique to the interconnection of the Susquehanna [power plant.]”
In his dissent, Phillips said the “first of its kind” co-location arrangement raised unique issues that warrant a non-conforming ISA.
Phillips said he would have accepted the proposed ISA and required PJM to submit regular filings to provide transparency into the arrangement’s operations, including on disputed issues, such as back-up service.
The decision creates a national security risk, according to Phillips. “Maintaining our nation’s leadership in this ‘era defining’ technology will require a massive and unprecedented investment in the data centers necessary to develop and operate those AI models,” Phillips said. “And make no mistake: Access to reliable electricity is the lifeblood of those data centers. I am deeply concerned that in failing to demonstrate regulatory leadership and flexibility we are putting at risk our country’s pole position on this critically important issue.”
Christie and See said Phillips failed to show how they made a legal mistake in their decision. “The dissent makes generalized claims about alleged adverse impacts that the order will have on reliability and national security, but offers no details about how the order will impinge on either,” they said.
In a concurrence, Christie said he has an open mind on co-location issues. “Co-location arrangements of the type presented here present an array of complicated, nuanced and multifaceted issues, which collectively could have huge ramifications for both grid reliability and consumer costs,” Christie said. “Were we to approve this proposal at this time, as the dissent advocates, we would be setting a precedent that would be used to justify identical or similar arrangements in future cases.”
Talen is evaluating its options after FERC’s decision, with a focus on commercial solutions, the independent power producer said in a statement Sunday.
“FERC’s decision will have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey,” Talen said. “The data center economy will require an all-of-the-above approach to satisfy the increased demand, including co-location such as Talen’s arrangement with AWS, hybrids that co-locate primary power behind the meter while using grid power for back-up, and front-of-the-meter connections to utility transmission.”
Exelon said it appreciates FERC creating an opportunity to consider co-located load in a holistic way. “Exelon is excited about the economic possibilities data centers can bring to the communities we serve, and we also believe the U.S. needs to be a leader in artificial intelligence,” the Chicago-based company said in a statement. “However, the energy demands must be met in a way that is fair to all customers.”
