The amount of power required by large data centers is now approaching 1,000 MW per site compared to just 100 MW typical in the recent past. To obtain sufficient power supplies as quickly as possible, some data centers are pursuing co-location: the establishment of direct connections with power plants at their own expense. For these data centers, nuclear plants are particularly attractive since they provide carbon-free generation at very high capacity factors. Co-location also removes the potential multiyear wait for new transmission lines to be built in a grid-connected configuration.
While the co-location strategy has many clear advantages for companies planning new data centers, a dispute has emerged in Pennsylvania surrounding whether a co-located data center is also being served by the regional grid operator, PJM in this case, and therefore needs to pay for that service. While the current dispute is limited to PJM, its ultimate resolution may influence whether the data center co-location strategy is viable nationwide.
In March 2024, Amazon purchased a data center in Pennsylvania co-located with the Susquehanna nuclear plant. The data center is located proximate to and interconnected with Susquehanna rather than being separately interconnected to PJM’s grid through a different substation. However, Susquehanna’s plan for backup power to the data center led some parties to question via a pending docket (ER24-2172) before the Federal Energy Regulatory Commission (FERC) whether the data center is totally isolated from PJM.
The dispute centers on Susquehanna’s June-2024 request to increase the amount of co-located load at the plant (the prior data center owner used 300 MW, while Amazon plans to expand to 480 MW). Subsequently, AEP and Exelon filed a protest of this Interconnection Service Agreement (ISA).
AEP and Exelon are unconcerned with the co-location of the data center. Rather, their concern is with the rate treatment of the associated load, primarily the claim that it is “not network load” and “will never consume capacity and/or energy from PJM.”
In the protest, AEP and Exelon assert:
- The data center would not automatically disconnect from Susquehanna if the latter trips. Rather, the data center would use backup service provided by the other Susquehanna unit, which is itself a PJM capacity resource, meaning the ISA arrangement is necessarily dependent on the PJM grid. If the Susquehanna unit not dedicated to serving the data center load provided backup power during an outage, the rest of PJM’s system would lose that resource, one for which ratepayers have already paid.
- Susquehanna would obtain transmission and ancillary services at no cost. The co-located load should “not be allowed to operate as a free rider, making use of, and receiving the benefits of, a transmission system paid for by transmission ratepayers.” If Susquehanna avoids certain charges, the resulting costs are unfairly shifted to other consumers, thereby breaching cost-causation and beneficiary-pays principles.
- There is no precedent for this rate treatment. This is the first ISA to claim exemption from charges applicable to network load. No earlier filing made that claim, and no earlier FERC order accepted it. The proposed terms are “unjust, unreasonable, in contravention of the PJM tariff,” and will impact others beyond this ISA, and “rates would no longer reflect the actual costs of service provision, undermining the fairness and transparency of the rate structure.”
Susquehanna and other intervenors claim that AEP and Exelon simply want to monopolize data center interconnections by limiting co-location alternatives, ensuring they can grow their rate base. Further, Susquehanna says it will find replacement capacity for any power from the backup Susquehanna unit, meaning the rest of PJM’s system would not lose capacity.
In response, AEP and Exelon explain that “such an arrangement could not be instantaneous, and in any case would further depend on PJM resources, being utterly dependent on Susquehanna shifting its obligations among generation resources scattered about the PJM grid.”
AEP and Exelon, along with other intervenors in this docket, are asking FERC for a hearing to clarify unresolved questions of fact. However, Susquehanna objects, stating that “AEP/Exelon seeks a hearing on its own concocted questions of fact because AEP/Exelon wishes to extract rents from large behind-the-meter loads that choose to pay for and provide their own private delivery service on their own private delivery lines. AEP/Exelon raises no questions of fact relevant to this inquiry. Setting this simple, routine, and non-controversial rate filing (with which PJM has taken no issue) for hearing would be erroneous and unwarranted.”
FERC issued a deficiency letter on August 2 requesting additional information of PJM to be filed within 30 days. FERC then has 60 days to respond and could set a hearing in that time frame.
With data center load anticipated to grow at a prolific rate across the country, the specifics of interconnection policy and rate design will be determined in various state and federal dockets in coming months and years. A high number of such dockets, as well as significant regional differences in the ultimate policies adopted and ambiguity in decisions by FERC and state commissions, may delay the electricity sector’s ability to meet a data center-driven surge in demand. However, in resolving the immediate dispute in PJM, FERC has an opportunity to clarify at least one key aspect of this transition: the viability of co-location and the ultimate responsibility for the associated infrastructure costs. Failure on the part of FERC to issue a clear decision may lead to further litigation and ambiguity, delaying the electricity sector’s ability to meet a data center driven surge in demand and increasing the ultimate costs to both utilities and ratepayers.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
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