FERC rejects interconnection deal for Talen-Amazon data centers

The regional PJM grid operator filed for an amended interconnection service agreement on behalf of the companies to facilitate expanded power sales—increasing from 300 MW to 480 MW—directly to AWS. Opponents of the plan argued that such a deal could threaten grid reliability and raise customer rates.

In its 2-1 ruling on November 1, FERC said the parties did not make a strong enough case to prove why a special contract allowing for expanded “behind-the-meter” power sales should be allowed in this instance. Two of the five commissioners did not participate in the vote.

Background: In March, Talen Energy announced its sale of a 960-MW data center campus to cloud service provider AWS, a subsidiary of Amazon, for $650 million. The data center sits on a 1,200-acre campus and is directly powered by the adjacent Susquehanna plant, which generates 2.5 gigawatts of power.

The deal aims to supply fixed-price nuclear power to AWS, ramping up minimum contractual power commitments in 120-MW increments over several years.

Company response: “Talen believes FERC erred, and we are evaluating our options with a focus on commercial solutions,” the company said in a statement released over the weekend. “We believe this ISA [interconnection service agreement] amendment is just and reasonable and in the best interests of consumers. FERC’s decision will have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey.”

Talen said it will continue developing the first phases of the AWS data center campus under the existing ISA that allows for 300 MW of co-located power at Susquehanna.

Opposition: In June, American Electric Power and Exelon requested a hearing on the issue with FERC, or in lieu of a hearing, asked the commission to deny the ISA. They argued the agreement would allow data centers to derive benefits from the transmission system without paying for them.

Further, AEP and Exelon said the deal between Talen and AWS could shift as much as $140 million each year to ratepayers.

“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,” the filing said. “We have no objection to co-location, per se, but such load should pay its fair share of system use and other charges, just like other loads and customers.”

While supporting the Talen-AWS deal, PJM has also warned of a potential shortfall of generation by 2030.

Split decision: FERC chair Willie Phillips dissented from the majority ruling and called the decision “a step backward for both electric reliability and national security.”

“There is a clear, bipartisan consensus that maintaining U.S. leadership in artificial intelligence (AI) is necessary to maintaining our national security,” he said. “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. 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. That is simply unacceptable,” Phillips added.

In the majority ruling, FERC commissioners Mark Christie and Lindsay See said PJM did not meet the high burden of demonstrating that this deal should require special circumstances. Also, they said Phillips “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.”

The big picture: Investment firm Jefferies told Utility Dive that FERC’s decision was a surprise: “Very few investors, including us, expected an outright FERC rejection.” The company predicted negative share response for Talen and other generation companies.

This FERC precedent could hinder plans announced by other nuclear companies to provide carbon-free energy to big tech data centers. Constellation recently announced plans to restart Three Mile Island-2—now called the Crane Clean Energy Center—in Pennsylvania to supply power directly to Microsoft; and NextEra leaders said last week they are considering bringing the Duane Arnold plant in Iowa back on line amid growing interest from data center companies.

What’s next? Talen said it will explore other commercial solutions while it continues to push for the amended ISA.

“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-located primary power behind the meter while using grid power for backup, and front-of-the-meter connections to utility transmission,” Talen said.