As Interest Grows, FERC Announces Technical Conference Regarding Co-Locating Data Centers

On August 2, the Federal Energy Regulatory Commission (FERC or Commission) issued a notice of a Commissioner-led technical conference this fall to discuss issues related to co-locating large loads, such as data centers, at generating facilities. A supplemental notice will be issued with the date and time of the technical conference, as well as further details regarding the agenda. As transformative developments in artificial intelligence drive increasing power demand for data centers, the August 2 notice signals that the Commission has begun to contemplate new policies regarding the use of facilities connected to the FERC-regulated transmission grid to meet this demand. The technical conference will be a significant opportunity for interested parties to highlight various benefits or concerns regarding such arrangements to the Commission.

Nuclear Power for Data Centers

A study released in late May by the Electric Power Research Institute estimated that data centers could account for 9% of U.S. electricity demand, twice today's estimated level, by 2030. With the around-the-clock load profile of data centers, discussions regarding power supply options often reference the potential of nuclear generators, dispatchable resources that produce carbon-free electricity. While small modular nuclear reactors are often discussed as promising future solutions, proposals to use existing reactors as near-term supply solutions are gaining momentum.

Last month, for example, the Nuclear Energy Institute published a paper describing the merits of co-locating large data centers with existing nuclear reactors. The paper highlights that the infrastructure modifications needed to allow an existing reactor to serve as the power source for a new co-located data center may be minimal and cost-efficient. In such a case, an existing reactor may offer a much quicker path to operation, as the paper notes that some utilities have projected a five-year wait time to serve new data center customers. The paper also asserts that data centers co-located with existing reactors, if properly insulated from the grid, would not have negative effects on grid reliability or increase costs for other customers.

Market Costs and Reliability Concerns

Because of their value as reliable, baseload resources, some policymakers have raised concern with power supply arrangements for data centers that would make existing nuclear plants unavailable to grid operators. On July 12, Rep. Cathy Rodgers (R-WA), Chair of the U.S. House's Energy and Commerce Committee, and Jeff Duncan (R-SC), Chair of the Subcommittee on Energy, Climate and Grid Security, sent a letter to FERC Commissioners raising a number of questions regarding FERC's planning for projected power demand growth. The letter notes that while there may be a powerful financial incentive for data centers to enter into power purchase agreements with baseload facilities such as nuclear generators, such agreements risk "taking reliable sources of generation out of the market." The letter also asks the Commissioners to address a number of related questions, including whether FERC is monitoring the potential for such arrangements, and what actions FERC is considering to address the impacts of them.

Many existing nuclear plants that could be potential power providers for co-located data centers operate in the wholesale electricity markets overseen by PJM Interconnection (PJM). Opponents of co-located data centers are likely to point to the results of PJM's most recent base residual auction as evidence that PJM's markets cannot sustain such developments. The auction, through which PJM procures sufficient capacity from market resources to meet projected demand for a future year, produced record-high clearing prices. Because nuclear generators comprised 21 percent of the capacity that cleared the auction, critics may argue that data center arrangements that remove such generators' capacity from future base residual auctions, in isolation, may lead to even higher clearing prices. However, adding the power demand from data centers to the projected load in those future auctions, in isolation, may also lead to higher clearing prices, as noted in NEI's July paper.

Susquehanna Nuclear Interconnection Agreement Proceeding

The August 2 notice was issued by FERC on the same day that FERC staff issued a deficiency letter to PJM regarding the well-publicized amended interconnection service agreement (ISA) among PJM, Susquehanna Nuclear, LLC (Susquehanna) and PPL Electric Utilities Corporation (PPL). The ISA, filed June 3, revises the terms of interconnection service for Susquehanna's 1.6 GW nuclear facility in Salem Township, PA in order to allow the facility to serve new data centers located on-site. The ISA drew a spirited joint protest by owners of the largest load-serving utilities in the PJM region, which is supported by the Pennsylvania Public Utilities Commission. The protest raises questions regarding whether the new data center load will truly have no impact on the grid, as the ISA filing by PJM suggests.

While the deficiency letter issued by FERC staff seeks greater explanation from PJM regarding the need for the amended language in the ISA, the letter does not appear to address a key complaint of the protestors: that the ISA filing was an end-run around a stakeholder process where PJM's policies on co-located load could be developed. Given this omission, and the July letter from Reps. Rodgers and Duncan, it is likely that the technical conference held by FERC this fall will address similar high-level policy questions, in addition to examining the technical impacts of large co-located loads. It is possible that the Commission will consider, for example, what factors a grid operator should consider in examining a co-location request, and whether grid operators should set caps on the size of co-located load for a given generator. Once the technical conference is held, the Commission may move forward with soliciting comments on a proposed policy statement or initiating a new rulemaking proceeding regarding co-locating large loads.