The Federal Energy Regulatory Commission (“FERC”) has been active in recent weeks considering issues relating to co-located large load customers, being driven primarily by the announcements of planned investments by data center hyperscalers. On November 1, 2024, FERC convened a technical conference relating to large loads co-located at generating facilities (Docket No. AD-11-000) (the “Technical Conference”). On the same day, a divided Commission issued an Order rejecting amendments to an interconnection service agreement proposed by PJM Interconnection, LLC (“PJM”), relating to a proposed arrangement to allow Susquehanna Nuclear, LLC to sell power from the Susquehanna nuclear power plant directly to a co-located large-load customer. This client alert addresses both of these developments.

As a preliminary point, it is important to understand the context of why large load co-location is becoming an urgent issue requiring FERC’s and state regulators’ attention. On the supply side, lengthy interconnection queues and difficulties in upgrading and building new transmission capacity have been widely cited as causes for delays in the development of new generating assets. FERC has not been idle in the face of these challenges. Last year, FERC issued Order No. 2023 to address interconnection delays by mandating transmission providers plan for necessary upgrades by considering applications in clusters rather than on a simple first-come-first-serve basis. Further, earlier this year FERC issued Order No. 1920, which aims at mandating transmission providers develop updated long-term transmission plans to improve forward-looking transparency. While these developments are generally welcomed and supported by industry participants, it is too early to determine what consequences they will have on the speed at which new generating and transmission assets are deployed. Large customers are not content to wait and see, and efforts to co-locate load with existing or new generation is one significant avenue to avoid transmission-related delays.

As for the demand side, load growth has historically been relatively flat, though an increasing need for power has been on the radar for at least a decade due to greater electrification in transportation, heating and cooling, and a number of other applications. However, the development of artificial intelligence (“AI”) applications, such as large language models, has resulted in a significant increase in anticipated power demands in the coming years. These developments, coupled with greater digitization and the shifting of activities to the cloud, have resulted in data centers becoming one of the primary drivers of expected load growth over the next 10-20 years. Although hydrogen production and cryptocurrency mining have also been cited as examples of anticipated demand growth, investments in these applications are currently only a fraction of what has been announced by major data center operators.

For data center operators, there is a competitive advantage in developing and constructing their projects quickly, and securing a reliable supply of power is critical to achieving this. There has been an increased focus on co-locating data centers with generating assets in a behind-the-meter configuration to avoid the hurdles associated with upgrades to the transmission system.

Technical Conference

The Technical Conference was attended by all five FERC Commissioners who asked questions of the twenty-five speakers invited to participate in three panel sessions. The panelists represented a wide spectrum of stakeholders, including representatives from independent power producers, electricity utilities, regional transmission organizations / independent system operators (“RTOs/ISOs”), data center operators, and state regulators and lawmakers. The first panel provided an overview of co-located large load customers, while the second panel explored some of the relevant issues in greater depth. The third panel was a roundtable discussion involving state representatives.

The Technical Conference covered a wide range of topics, but some of the key points of discussion are set out below.

Resource Adequacy and Reliability. The primary consideration from RTOs/ISOs is resource adequacy to ensure the overall reliability of the grid. If data center operators are able to contract directly with existing generators – particularly nuclear plants which provide baseload carbon-free electricity – the capacity markets in affected areas will be impacted by those resources being taken out of the supply stack. This issue has been acutely felt in the PJM region, with capacity auctions earlier this year resulting in prices of $270 / MW per day in 2025 – a nearly tenfold increase from current capacity prices. A number of panelists observed that price signals were not working quickly enough to encourage the development of new generating assets. Although the distinction between greenfield power plants and power purchase agreements (“PPAs”) with existing facilities was not teased out at length, Commissioner Christie recognized that these are distinct fact patterns that may require differentiated treatment.

Cost Allocation. A number of panelists expressed concern that permitting co-located large-load customers would enable them to avoid the costs associated with grid maintenance and upgrades due to the absence of any transmission tariffs in a behind-the-meter configuration. Several panelists observed that transmission costs include ancillary services provided by the grid, such as frequency balancing, back-up power supply, etc., though these services are often not explicitly set out in transmission tariffs. Although some panelists voiced concerns that data center operators were planning to co-locate in a behind-the-meter configuration to avoid these costs, representatives from the data center industry were clear that data center operators intended to pay appropriate costs for the services they receive. Indeed, given the significant capital costs involved in developing data centers, it is difficult to imagine operators allowing projects to be delayed or cancelled due to the relatively minor costs associated with transmission upgrades.

Grid Connectivity. There was a technical debate surrounding the question of whether a behind-the-meter load can be entirely cut-off from receiving any service from the grid. As an initial point of consideration, the prospect of completely isolating generation and co-located load from the transmission system was identified as being irrelevant in the context of nuclear power plants, as the licensing regime requires nuclear generators to be interconnected to offsite electric power systems for safety purposes.¹ Because some ability to draw power from the transmission system is required for nuclear power plants, the commissioners and panelists explored how to plan for and address the possibility of inadvertent flows from the transmission system to the co-located load. Further, one of the power utilities present at the Technical Conference noted that load following is common in the context of nuclear facilities, which are generally unable to meet load demands on a moment-to-moment basis. As a result, rather than curtailing output in real time, nuclear plants transmit excess generation to the grid in order to match load demand of the co-located customer. The ability to do so requires interconnection to the grid, meaning the generator and co-located customer are benefiting from grid interconnection. In contrast, many generators and independent consultants focused on the ability to physically prevent the co-located customer from ever drawing power directly from the grid. Whether it is possible to be entirely disconnected from the grid, particularly in the context of co-location with a nuclear facility, is an open technical question which needs to be addressed. Further, whether it is just and reasonable for utilities to charge rates for interconnection despite the large-load customer being physically unable to draw from the grid, is also a point for FERC to consider further.

Federal and State Jurisdiction. There was significant discussion regarding the nature of sales under private PPAs and, specifically, whether such sales should be classified as retail trading. Since FERC’s jurisdiction relates to interstate wholesale markets, retail sales falling entirely within a single state would be outside of FERC’s direct jurisdiction. Although many of the panelists were calling on FERC to provide guidance on how state public utility commissions, utilities and RTOs/ISOs should address co-located large load customers, the contours of the overlapping jurisdictions need to be taken into account when new regulations are proposed.

Susquehanna Amended Interconnection Service Agreement

On the same day as the Technical Conference, FERC issued its Order rejecting amendments to the PJM pro forma interconnection service agreement (“ISA”) proposed by PJM pursuant to Section 205 of the Federal Power Act. The amended ISA was to be entered into among PJM, the local transmission utility, PPL Electric Utilities Corporation, and the interconnection customer, Susquehanna Nuclear, LLC.

FERC Order No. 2003 requires public utilities transmitting electricity in interstate commerce to maintain pro forma interconnection agreements for facilities larger than 20 MW. In the event an interconnection agreement does not conform with the pro forma agreement, the transmission provider must file the non-conforming agreement with FERC and explain the justification for each non-conforming provision. FERC has typically accepted non-conforming interconnection agreements if they address specific reliability concerns, novel legal issues, or other unique factors. Further, based on FERC’s precedent rulings, transmission providers bear a high burden in demonstrating that the changes are “not merely consistent with or superior to the pro forma agreement, but are necessary changes.”

FERC rejected the application in a 2-1 decision, with Commissioners Christie and See in the majority. Chairman Willie Phillips dissented. After extensively covering the background and providing concise summaries of the arguments raised by the applicants and intervening parties, the majority essentially determined that PJM did not meet its burden in establishing that the non-conforming ISA is necessary for the particular arrangement at Susquehanna. The majority noted that “significant aspects of the proposed non-conforming provisions rely heavily on a generally applicable document, the PJM Guidance Document.” As such, the particular arrangement does not contain any unique elements that would necessitate an amended ISA, according to the majority.

In dissent, Chairman Phillips refers to the Susquehanna arrangement as being a “first of its kind” co-located load configuration, meaning there is sufficient novelty to the legal issues and other unique factors at play. Further, in a footnote, Chairman Phillips disputes the majority’s reference to PJM’s Guidance Document as an indication that the proposed amendments to the ISA are not necessary. He further stated “[t]here is no indication that the provisions of the Guidance Document the majority highlights will, or even should, apply to all co-located arrangements.”

While the Commission rejected the specific application, there is reason to believe that this will delay, but not derail, similar proposals (or indeed, the proposal for the Susquehanna nuclear plant). The 2-1 decision represented an uncommon configuration, with the Chairman in dissent and two seated commissioners not participating. Additionally, Commissioner Christie was clear in concurrence that this particular application failed to adequately support the proposed interconnection agreement revisions but emphasized that the rejection was without prejudice to a new filing that could demonstrate that the proposed arrangement made sense and was acceptable under the Federal Power Act. There is clear pressure among the commissioners to move deliberately and “get it right” when it comes to evaluating co-location issues, but no overt hostility or suggestion that the Commission will not accept such arrangements in the future.

Final Thoughts

The arrival of co-located large load arrangements, driven primarily by the power demands of data centers, presents a number of nuanced technical and legal issues that need to be considered. FERC has recognized the novelty of these proposed projects and has taken the initiative in convening stakeholders to assist in informing the regulatory process. Similar initiatives are also occurring at the state level; for example, the State Corporation Commission of Virginia will convene a similar technical conference on December 16, 2024. Additional regulatory certainty will be helpful in permitting the development of new power generating assets and the large-load customers they are intending to supply.

¹ 10.C.F.R. § 50, Appendix A, General Design Criterion 17.

Tom Dougherty, Partner at Lewis Roca, contributed to this article.