Originally published for customers November 27, 2024.
What’s the issue?
The Federal Energy Regulatory Commission (FERC) has rejected amendments to an interconnection agreement that would have allowed a data center to co-locate at the Susquehanna nuclear power plant. Susquehanna Nuclear, LLC has responded with a rehearing request.
Why does it matter?
Because they require significant amounts of reliable, constant power, data center growth is reshaping generation planning and future infrastructure development. The regulatory structure is central to this planning, so FERC’s stance on co-location with large generation facilities will play a significant role for generators, data center developers, and stakeholders with interests in the generation mix.
What’s our view?
Growing data center demand makes similar co-location requests likely as generators and data centers seek reliable power arrangements. It may also reverse planned natural gas retirements, and may open opportunities for new natural gas generation development.
The Federal Energy Regulatory Commission (FERC) has rejected amendments to an interconnection agreement that would have allowed a data center to co-locate at the Susquehanna nuclear power plant. Susquehanna Nuclear, LLC (Susquehanna) has responded with a rehearing request.
Because they require significant amounts of reliable, constant power, data center growth is reshaping generation planning and future infrastructure development. The regulatory structure is central to this planning, so FERC’s stance on co-location with large generation facilities will play a significant role for generators, data center developers, and stakeholders with interests in the generation mix.
Growing data center demand makes similar co-location requests likely as generators and data centers seek reliable power arrangements. It may also reverse planned natural gas retirements, and may open opportunities for new natural gas generation development.
Understanding Large-Load Generation
FERC requires all public utilities that own, control, or operate interstate transmission facilities to maintain standard interconnection agreements for facilities generating more than 20 megawatts. This standardization, established through Order No. 2003, aims to prevent transmission providers from favoring their own generation, reduce interconnection time and cost, and encourage generation and transmission investment.
Co-location in this context has a specific meaning. It refers to an arrangement where a data center is built at the same site as its power source, with both connected to the grid "behind the meter." This means the power flows directly from the generator to the data center without first going through the broader transmission system. Think of it as a direct line between power production and consumption, reducing reliance on the wider grid while ensuring immediate access to electricity.
In the Susquehanna case, PJM Interconnection sought to amend its standard interconnection agreement to accommodate the data center's co-location needs. “Non-conforming interconnection agreements” like these must be filed with the Commission, along with justification for each non-standard provision.
FERC has contemplated deviations like these to address reliability concerns, novel legal issues, or other unique factors. Transmission providers have to show these changes are necessary, and not just preferable to the standard agreement.
Market Impact Takes Center Stage
At the heart of the dispute is whether PJM's proposed changes are truly necessary for this specific arrangement, or whether they represent a broader template for future co-location deals. The majority took issue with PJM's reliance on its general guidance document, suggesting these provisions could apply to many future cases rather than addressing unique circumstances at Susquehanna.
Chairman Phillips dissented, arguing this "first of its kind" co-location configuration presents exactly the type of specific reliability concerns and novel issues that justify special treatment. For Phillips, the broader implications for grid reliability and national security apparently outweigh concerns about setting precedent.
In the rehearing request, Susquehanna argues that FERC departed from its traditional "necessity standard" by creating a new and unworkable "unique interest" standard. Under this new approach, any non-conforming provision would need to be rejected if a third party expresses interest in using it.
The debate isn't just legal semantics; the practical impact is significant. If FERC maintains that non-standard agreements must be truly one-of-a-kind, it could limit how larger generation facilities adapt to serve growing data center demand. This interpretation could force developers to either stick with standard arrangements that might not fit their needs or pursue entirely different approaches like islanded microgrids.
Market Evolution and Changing the Retirement Equation
The timing of this decision and rehearing request coincides with a significant shift in how generators and energy providers like PJM are assessing their potential role in supporting data center growth. This evolution extends beyond simple supply and demand calculations and includes reliability engineering, transmission planning, and long-term market strategy. As a result, the constant power reliability requirements and rapid growth trajectories of data center demand may also change the timing of planned retirements of fossil fuel-based generation facilities and present new opportunities for existing large generators.
To add color to these potential shifts it is useful to examine the retirement and large-load generation profiles in states like Texas, Virginia, and California with significant existing or emerging data center markets. As you can see below, the amount of fossil fuel-based generation capacity that is planned for retirement in these three states is significant.
The large-load generation profiles vary in these states, but natural gas generation plays a big role, representing 46% of total large load generation in Texas, 52% in Virginia, and 42% in California.
Looking Beyond the Decision
The resolution of Susquehanna's rehearing request will likely set important precedents for how generation facilities can adapt to serve growing data center demand. From a policy perspective, as Chairman Phillips pointed out in his dissent, there are also implications for how we compete on the international scale in this emerging AI-driven data center marketplace.
It is also worth noting that the decision was 2-1, with new Commissioners Rosner and Chang (who has an electrical engineering background) not participating, likely due to recusal. If another similar agreement were to come before the Commission and they could weigh in, the decision might be less steeped in legalese and could weigh in more on the substantive and policy issues that remain unresolved.
Regardless of these considerations, the market is unlikely to wait for regulatory clarity. Generation facilities are already reassessing their roles, evaluating co-location opportunities, and developing innovative approaches to power supply arrangements. We will be following these trends as they develop.
For detailed analysis of generation facilities in your market area or to discuss specific implications for your assets, please contact us.