The filing of a generator interconnection agreement at the Federal Energy Regulatory Commission (“FERC”) is typically a non-controversial administrative matter that does not attract much public attention. However, the industry response to the June 3, 2024, filing by PJM Interconnection, L.L.C. (“PJM”) of an amended Interconnection Service Agreement (the “Amended ISA”) between PJM, Susquehanna Nuclear, LLC (“Susquehanna”) (a subsidiary of Talen Energy Corp.), and PPL Electric Utilities Corporation (“PPL”) demonstrated that PJM’s filing was anything but non-controversial.  The decision is one of many recent energy-related developments in the data center space, which has seen a surge in unprecedented growth over the past year.

The Amended ISA relates to Susquehanna’s 2,520 MW nuclear generating facility, consisting of two 1,260 units, which interconnects to the PPL transmission system in Pennsylvania, within the PJM region (the “Susquehanna Station”).  The Amended ISA was intended to accommodate a large co-located data center load behind the Susquehanna Station’s point of interconnection with the PJM grid.  Under the Amended ISA, Susquehanna would provide power directly from the Susquehanna Station to the data center, and the data center was not intended to take any power from the grid.

The proceeding was heavily litigated, resulted in a deficiency letter from FERC Staff seeking additional information, and prompted FERC to conduct a technical conference on co-located data center load.  FERC rejected the Amended ISA on November 1, largely avoiding directly addressing the numerous substantive concerns raised by parties in the proceeding.  FERC found in the November 1 Order that PJM had not demonstrated that the proposed deviations from PJM’s pro forma ISA were justified.

By way of context, a Regional Transmission Organization/Independent System Operator (“RTO/ISO”), like PJM, or a non-RTO/ISO transmission provider must file a generator interconnection agreement with FERC if the agreement deviates from the transmission provider’s FERC-approved pro forma interconnection agreement. An agreement that deviates from the pro forma agreement is referred to as “non-conforming.” Under FERC precedent, a transmission provider filing a non-conforming interconnection agreement bears a high burden to justify its changes.  PJM was required to file the Amended ISA because it did not conform to PJM’s pro forma ISA.

Impact of the November 1 Order

In the November 1 Order, FERC essentially found that a generating resource in PJM, either existing or new, cannot accommodate large co-located load behind-the-meter configurations through a non-conforming amendment to an existing ISA or a new non-conforming ISA.  FERC suggested, but surprisingly did not expressly state, that PJM should file proposed changes to its tariff to establish procedures for accommodating behind-the-meter load that could address the reliability, cost allocation, and other issues raised by the parties in the proceeding. FERC would then have an opportunity to determine whether such procedures are just and reasonable under the Federal Power Act.  However, given that the PJM stakeholder process has thus far failed to result in rules governing co-located load configurations, the timing for such a filing is uncertain.  And it is not clear what incentives PJM has to seek approval of such changes needed to accommodate such co-located load, given the potential impacts that such load may have on resource adequacy in the region (i.e., because of existing resources exiting the market to serve their load).

In the absence of any PJM tariff changes, the November 1 Order creates deal and timing uncertainty for large behind-the-meter load arrangements.  And the impact of the November 1 Order is not just limited to PJM. Other RTO/ISOs (outside of ERCOT) and transmission providers in non-RTO/ISO regions will be similarly constrained in accommodating behind-the-meter load in the absence of tariff changes.

We believe the November 1 Order will lead data center providers to consider islanded micro-grid configurations (i.e., configurations with no grid configurations) in addition to front-of-the-meter-configurations, at least until there is resolution on the regulatory issues for behind-the-meter configurations left in the wake of the November 1 Order. 

Significantly, and as discussed by Chairman Phillips in his dissent, the November 1 Order “is a step backward for both electric reliability and national security” and rises to the level of “a national security risk.”

Background

The original ISA between PJM, Susquehanna, and PPL with respect to the Susquehanna Station was accepted by FERC in 2015. In 2021, PJM studied proposed changes to the Susquehanna Station’s interconnection arrangement to determine whether certain planned large co-located data center load behind the Susquehanna Station’s point of interconnection would adversely impact the grid. In 2023, after finding that the co-located load did not raise any reliability concerns, PJM filed and FERC accepted an amended ISA to accommodate 300 MW of co-located load. The 2023 ISA permitted Susquehanna to add up to 150 MW of co-located load behind each of the units at the Susquehanna Station. Significantly, the 2023 ISA required Susquehanna to install and operate protections to ensure that no power would flow from the PPL transmission system to the data centers, and that the data centers would separate in the event of a loss of on-site generation. In early 2024, PJM filed, and FERC accepted, an additional amended ISA to reduce its Capacity Interconnection Rights to reflect that co-located load.   

The Amended ISA filed by PJM in June 2024 contained substantial revisions to the prior ISA which were intended to address the treatment of Susquehanna’s co-located load. The Amended ISA would increase the co-located load from the previously authorized 300 MW to 480 MW, which PJM determined would not have a material impact on the transmission system. PJM also explained that that the data center load was not intended to consume energy or capacity from the PJM system, and that a protection scheme had been installed to ensure that the data center load separates if there is a loss of output from the Susquehanna Station to ensure that no power flows from PPL’s facilities to the load.

Arguments raised in protests to the Amended ISA

Protests to PJM’s filing of the Amended ISA were submitted by American Electric Power (“AEP”), Exelon Corporation (“Exelon”), and others.  AEP and Exelon argued that PJM had not demonstrated why the proposed non-conforming provisions of the Amended ISA were appropriate or necessary.  They noted that the Amended ISA was likely to be the first of many similar non-conforming ISAs and, if a large number of similar agreements are executed, load may be harmed. They expressed a concern that accepting the Amended ISA could set precedent for an anticipated wave of co-located data centers at other nuclear plants within the PJM region, and requested that FERC either initiate hearing procedures to resolve the issues raised by the Amended ISA or to simply reject the Amended ISA. 

AEP and Exelon questioned why Susquehanna’s co-located load would not pay any transmission rates if it is receiving benefits from the transmission system. They claimed that the Amended ISA could result in an annual transfer of up to $140 million in transmission-related costs to PJM ratepayers, even if the load doesn’t receive power from the system. They further noted that the co-located load would also receive capacity and ancillary services from the system, and raised the concern that the PJM capacity markets would be harmed as more resources exit to serve co-located load that derives benefits from, but does not incur any costs for, the system.

AEP and Exelon also argued that the Amended ISA would effectively introduce significant new terms and conditions to the PJM tariff. In particular, they argued that this would be the first time that co-located would be designated as “not Network Load.”  By way of context, under the PJM tariff, there are only two types of load: (1) Network Load and (2) load that must make its own arrangements for Point-To-Point Transmission Service.  Exelon and AEP claimed that the co-located load would be synchronized to PJM’s transmission system, and so should be designated Network Load. 

PJM and others filed responses to the protests in support of FERC accepting the Amended ISA. They argued that the scope of the proceeding was limited, that the protests raised a number of extraneous issues that should be addressed in other proceedings, and that the proposed revisions in the Amended ISA were necessary. They argued that rejecting the Amended ISA would “frustrate commercial arrangements involving data center load growth.”  PPL, the utility interconnecting to the Susquehanna Station, also argued that the Amended ISA was necessary for reliability reasons.  A number of other parties filed answers opposing the Amended ISA, raising concerns about the precedential effect of Commission action in the proceeding. 

On August 2, 2024, FERC Staff issued a deficiency letter asking PJM to explain why the proposed revisions to the co-location load arrangement are necessary deviations from PJM’s pro forma ISA.  In particular, Staff asked PJM to explain whether there are any specific reliability concerns, novel legal issues, or other unique factors that make the non-conforming language necessary.

There were additional rounds of filings after PJM’s response to the deficiency letter, largely making the same arguments made in earlier filings.

FERC’s decision rejecting the Amended ISA

While FERC’s November 1 decision rejecting the proposed Amended ISA was relatively lengthy (89 paragraphs), the substantive discussion explaining its rationale was brief (only 5 paragraphs). 

FERC’s decision to reject the Amended ISA rested on its conclusion that PJM’s proposed changes to the pro forma ISA were not justified.  Specifically, FERC noted that many of the non-conforming provisions of the Amended ISA were based on non-binding, generic guidance that PJM had issued with respect to the co-location of large load within the PJM region.  FERC concluded that “[t]his raises questions regarding whether PJM intends to offer these terms to all similarly situated interconnection customers.”  However, as FERC noted, that guidance document is not part of the PJM tariff and was never approved by FERC. FERC concluded that the record in the proceeding demonstrates that “other parties are interested in pursuing similar arrangements wherein a large load co-locates with an existing generator.  Therefore, we find that the proposed non-conforming provisions that mirror provisions that PJM has included in the PJM Guidance Document, do not meet the requisite standard.”

While FERC did not say so directly, FERC appears to be suggesting that PJM should file revisions to its Tariff to accommodate co-located load.  In such a proceeding, FERC would evaluate whether those proposed provisions are just and reasonable pursuant to Section 205 of the Federal Power Act. 

FERC acknowledged what many in the industry will likely see as an understatement:  the PJM filing of the Amended ISA “leaves multiple important questions unresolved.”

Concurrence and dissent

Chairman Phillips issued a vociferous dissent and “is a step backward for both electric reliability and national security” and rises to the level of “a national security risk.”  He noted that maintaining the nation’s leadership in Artificial Intelligence will require huge amounts of investments in data center, and that the regulatory uncertainty created by the order is “unacceptable.”  

He also concluded that the arguments relied on in the November 1 Order “miss the forest for the trees.”  He found that the Amended ISA “represents a ‘first of its kind’ co-located load configuration that presents precisely the sort of specific reliability concerns, novel legal issues, and other unique factors that should have justified the filing of a non-conforming interconnection agreement.”  He stated he would have accepted the Amended ISA and directed PJM to submit regular informational filings that would have provided transparency into the co-location arrangement, including issues in dispute in this proceeding (i.e., back-up service).  In his view, that would have allowed PJM to conduct a stakeholder process for relevant tariff revisions to address these issues on a region-wide basis.

He also raised the concern that rejecting the Amended ISA creates a national security risk, given the importance of U.S. leadership in Artificial Intelligence.

Commissioner Christie issued a concurrence to the November 1 Order.  He agreed that PJM failed to meet its burden of proof, but also emphasized that the PJM filing was rejected without prejudice.

He stated that he issued his concurrence to underscore that “[c]o-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.”   He further noted that, if FERC had accepted the Amended ISA, it would have set precedent that could be used to justify similar or identical arrangements in the future.

Next steps after the FERC Order

There are other proceedings before FERC regarding the co-location of data centers that could provide guidance on some of the issues left unresolved by the November 1 Order.  We expect that FERC will rule in at least one of these proceedings before the end of 2024.  We also think it is likely that FERC will use the recent co-location technical conference to initiate a generic rulemaking proceeding, although the timing of the issuance of a Notice of Proposed Rulemaking is uncertain.  In addition, it is likely that the November 1 Order will result in a number of new filings by stakeholders in an attempt to attain more clarity on behind-the-meter arrangements.  Interested parties – regulated utilities, independent power producers, and data center developers/operators – should carefully review these developments as they happen for indications of FERC’s emerging policies in this area.

Data centers energy needs and nuclear power plants

There have been a number of announcement between data centers and nuclear power plants, especially over the last few weeks.  These include “behind the meter” arrangements directly between an operating nuclear power plant and the data center, like the Susquehanna arrangement, as well as re-starting shut down nuclear power plants for dedicated data center use, and building new, advanced reactors to provide power for large tech company’s data centers.  In mid-October, Constellation announced the planned restart of a nuclear power plant in Pennsylvania and more than 5,500MW of planned new nuclear power projects were announced—all to support power for data centers.  Nuclear power is uniquely of interest to meet data center power demands because of it can produce large amounts of reliable, carbon-free power.

Large data centers can consume about the same amount of electricity as a medium-sized city.  The Electric Power Research Institute estimates that data centers alone, which currently consume about 4% of U.S. electricity, could consume up to 9% of U.S. electricity generation annually by 2030.  Adding in projected increases from new domestic manufacturing, rise in electric vehicles, and broader electrification, the total energy demand in the United States could grow 25-29% in the next decade alone—doubling projections from just last year and a figure that continues to rise.  

This skyrocketing demand increase is putting pressure on utility companies to meet U.S. electricity needs.   Fears of the increased household electricity rates that often follow increased demand caused U.S. Secretary of Energy Jennifer Granholm last month to urge tech companies to provide their own energy sources for data centers.  Tech companies are poised to do this—capital investments by tech companies were $54 billion just last quarter—but will need to navigate a complex network of regulations and other considerations—such as energy prices and grid reliability, in making this happen.

Authored by Chip Cannon, Neil Chatterjee, Amy Roma and Porter Wiseman.