Let’s Make It Easier To Plug Data Centers Into Power Plants, FERC Says

Federal energy regulators don’t want utilities and electricity market rules getting in the way of data centers connecting directly to power plants.

That was the consensus message from both Republican and Democratic commissioners on the Federal Energy Regulatory Commission Thursday, when it issued its long-awaited order on co-location in PJM Interconnection, the country’s largest electricity market, covering the Mid-Atlantic and Midwest.

The question is a holdover from last year, when Amazon struck a deal with independent power producer Talen Energy to co-locate an Amazon Web Services data center with the Susquehanna nuclear plant in Pennsylvania. Amazon eventually amended the deal to a more traditional power purchase agreement after failing to win regulatory approval for a behind-the-meter arrangement. Constellation, which owns a number of nuclear power plants in the PJM territory, had asked FERC to force PJM to adopt co-location rules and prevent what it saw as utilities obstructing co-location projects.

More broadly, though, the dispute is between independent power plants and their owners and utilities who build and operate the transmission grid. The latter want the former to essentially pay full freight for grid services for co-located power plants, even if they are largely or exclusively serving a single customer — such as, let’s say, a data center. Even co-located loads still incur substantial grid costs, utilities have argued, which should be paid for in their entirety.

Co-location has become attractive lately as a way to get data centers online faster and limit expensive grid upgrades that could drive up costs for everyone on the grid. Up until now, though, PJM didn’t really have a way to determine the distribution of costs and responsibilities when some or all of a new demand source is served by a co-located generator — and it wasn’t really in a particular rush to set one up, FERC said.

“The Commission finds that PJM’s tariff does not appear to sufficiently address the rates, terms and conditions of service that apply to co-location arrangements,” FERC said in its order. “The absence of this information may leave generators and load unable to determine what steps they can take to set up co-location arrangements of various configurations, and how to do so in an acceptable way.”

The commission was unanimous in its order, showing that despite the increased partisanship of regulatory politics in Donald Trump’s Washington, FERC is still operating under its traditional consensus-based approach. The consensus also shows the high level of dissatisfaction across the political spectrum with rising electricity prices, and specifically with PJM, which has combined rising prices with a clogged interconnection process and concerns about reliability.

“If a new large load wants to connect directly with a power plant and operate in a way that lowers grid costs, we should let it. If the current rules don’t let this work in a way that’s fair for everyone,” said Commissioner David Rosner, a Democrat. “We should change those rules so we can deliver the savings that consumers need and ensure reliable electricity for everybody.”

In its order, the commission asked PJM to come up with new arrangements that will allow transmission costs to scale with actual usage of the transmission system.

To do so, the new rules will have to reflect the actual usage of the transmission system of a co-located data center or other large load, Rosner explained.

He gave the example of a 1,000-megawatt data center co-located with a new 900-megawatt power plant. Its draw from the grid would be 100 megawatts, but “under PJM status quo rules,” Rosner said, “the data center needs to take the full 1,000 megawatts of front-of-meter transmission service from the grid, despite being directly connected to the co-located power plant.”

With the new options FERC is mandating PJM come up with, “the data center will now have the option to purchase what we call firm contract demand to take just 100 megawatts of firm service,” Rosner said, which will help cut costs across the board, he added.

The order also touches on the other hottest subject in grid policy today: flexibility. Because PJM will no longer be required to plan transmission or assure it has capacity for directly-connected loads, Rosner said, a big customer will have to accept the risk of being curtailed “if its usage exceeds what it’s contracted for in advance.”

The renewables industry cheered the order, especially the message that PJM needs to embrace flexibility and enable new generation and load to get online quickly.

“PJM needs to heed FERC’s message that grid flexibility enables speed, affordability, and reliability. As PJM proposes new rules to enable fast-tracking large load interconnections, it should prioritize the advanced energy technologies that are quickest to build and enable flexibility,” Jon Gordon, policy director at Advanced Energy United, said in a statement.

Independent power producers — i.e. the companies that own that power plants — also seemed happy with what the commission had to say. Talen, Constellation Energy, and Vistra Energy, all of whom have substantial footprints in PJM, saw their share prices rise at least 3% in early Thursday trading.

Thursday’s order comes as “large load interconnection” — i.e. data centers hooking up to the grid — dominates the energy regulatory discussion. Secretary of Energy Chris Wright has asked FERC to come up with new rules early next year to speed up interconnection without jacking up consumer electricity prices. At the same time, PJM’s market is under stress, with another capacity auction this week resulting in yet another round of record-setting payments to generators — plus, this time, a failure to secure its typical margin over and above its minimum projected capacity needed to ensure future reliability.

PJM is working on its own new set of rules to connect large loads without large price impacts, a process that has so far resulted in not much, as the market’s board has yet to agree on a proposal to bring to FERC.

Beating up on PJM was a bipartisan affair Thursday morning.

“The order recognizes that PJM existing transmission services are insufficient in that they do not recognize the controllable nature of co-location arrangement’s,” the commission’s Republican Chair Laura Swett said in her statement at Thursday’s meeting.

“Flexible options for co-located load means carving a path for minimizing expensive and time-intensive network upgrades in circumstances where they’re not needed,” Commissioner Lindsay See, another Republican appointee, said.

Rosner’s statement echoed his colleagues’, arguing that the existing PJM rates and contracts are “unjust and unreasonable” because they do not “contain provisions addressing with sufficient clarity or consistency the rates, terms and conditions of service that apply to interconnection customers serving co-located load and eligible customers taking transmission service on behalf of co-located load.”

He also addressed the electricity market’s board directly: “In my opinion, PJM board, tomorrow, once you’ve read this order, would be a great day to file this with us,” Rosner said.