Talen Challenges FERC's Amazon Co-located Data Center Rejection

Talen Energy, the owner of the Susquehanna nuclear power plant in Pennsylvania, has decided to challenge the Federal Energy Regulatory Commission's (FERC) rejection of an amended interconnection service agreement (ISA) that would have facilitated expanded power sales to an Amazon data center. The decision, announced on Monday, comes after FERC's 2-1 ruling on November 1, which rejected the proposed amendments to the ISA, citing a lack of necessity and unclear benefits.



The proposed amendments, filed by PJM Interconnection, sought to increase the co-located load at the Susquehanna nuclear power plant from 300 megawatts to 480 megawatts and make further revisions related to the treatment of co-located load. However, FERC found that PJM had not demonstrated the necessity of the proposed non-conforming provisions and that the benefits and potential impacts of the amendments were unclear.

Talen Energy believes that FERC erred in its decision and is evaluating its options with a focus on commercial solutions. The company maintains that the amended ISA is just and reasonable and in the best interest of consumers. Talen's stock fell more than 5% in premarket trading on FERC's denial order, indicating investor concern about the company's financial prospects.



The rejection of Talen's amended ISA has significant implications for the broader co-location market for data centers. The lack of clarity and guidance from FERC creates uncertainty for stakeholders, including data center developers, utilities, and grid operators. This uncertainty may discourage the interconnection of large data centers into the grid, as data center developers may look to true micro-grid configurations or prefer regulated markets on the margin.

The ongoing disputes around co-located load in PJM could push data centers away from the region, leading to delays in data center development and increased costs to serve data centers that are critical to national security, economic development, and other national priorities. Some local utilities may take advantage of the lack of tariff rules to thwart competition to serve large end-use loads, further delaying and increasing costs to serve data centers.

With upcoming leadership changes at FERC and in Congress, the electric regulatory landscape for co-located large loads is likely to remain uncertain. FERC may consider adopting rules for providing service to fully isolated co-located load, such as data centers, to address the issues raised in the Talen case and other disputes. This could have significant implications for the co-location market and the broader electric industry.

In conclusion, Talen Energy's decision to challenge FERC's ruling in court carries both financial and relational risks. The outcome of the legal challenge will significantly impact Talen's financial outlook and its relationship with Amazon Web Services. The broader implications of this legal battle for other nuclear power plant operators and data center companies looking to form similar co-location agreements include uncertainty, potential cost shifting, grid reliability concerns, potential precedent, investor sentiment, and regulatory scrutiny.