The Federal Energy Regulatory Commission (FERC) on Thursday voted to launch a review of issues related to the co-location of power generation facilities and large loads, such as data centers, in PJM Interconnection territory.
The Commission said its inquiry is initially focused on PJM, the nation’s largest grid operator, because of the number of co-location proposals popping up in its territory.
In the most notable proposal, AWS would co-locate its data center with Talen Energy’s Susquehanna Nuclear Plant in Pennsylvania, which is in PJM territory. AWS would purchase power from the plant in 120 MW increments.
FERC rejected the AWS-Talen proposed interconnection service agreement (ISA) and more recently led a technical conference to discuss the co-location of large loads at generating facilities.
FERC is combining this new review with the technical conference, along with a complaint from Constellation Energy over PJM’s co-location rules.
“The clear message from across the spectrum of views represented at our November 2024 technical conference was that FERC needs to act and act soon to address these issues,” FERC Chairman Mark Christie emphasized.
FERC will examine whether PJM’s rules for large electricity users—like data centers—located at power plant sites are fair and clear.
The core debate revolves around whether these co-located loads should pay for grid services they may still benefit from, who should regulate them and how their presence impacts grid reliability and costs.
Some proponents of co-location argue it reduces the need for expensive grid upgrades, while others worry that it could lead to unfair cost shifts and market disruptions.
Based on the information gathered from the conference and Constellation’s complaint, FERC said it believes PJM’s current rules may be unjust or discriminatory. Constellation’s complaint claims that PJM’s rules are unclear and unfair. Specifically, it argued the grid operator’s transmission tariff does not properly address how generators should handle supplying electricity to on-site customers that are not connected to the broader grid.
FERC is now requiring PJM and transmission owners in its territory to justify their current rules or propose changes within 30 days.
The co-location debate
The debate comes down to whether large electricity-consuming facilities that co-locate with existing power generators should undergo the same interconnection and reliability planning processes as other grid-connected loads.
Co-location proponents say it can streamline the interconnection process, reducing the need for expensive grid upgrades and delays in bringing new generation online.
Supporters have also noted that large users like data centers tend to locate in areas with surplus renewable energy, which can prevent wasted energy from curtailment and reduce congestion costs. Others say co-location arrangements can include benefits like demand response participation and more efficient energy use.
Opponents argue that co-locating allows these large loads to bypass critical planning and reliability checks, creating unexpected demands on the grid without proper forecasting. They worry that this could lead to grid instability, unexpected power shortages and higher costs for other consumers. They call for comprehensive studies and stricter planning requirements to ensure reliability.
Utilities and state regulators have argued that even if a facility doesn’t directly use the grid for power, it still benefits from grid services like voltage control and backup power.
Ultimately, a significant opposing argument focuses on ensuring fairness — making sure data centers don’t unfairly shift costs to other grid users while also clarifying who has regulatory authority over these arrangements.
Some have suggested requiring financial commitments from large new loads to improve planning accuracy, while others argue that regulatory barriers could discourage investment in new generation altogether.
Overall, the discussion highlights the contrast in goals between ensuring grid reliability and allowing market-driven flexibility in how large energy users obtain power.
