In its first meeting of the new Administration, FERC focuses on supplying power to data centers

Co-location of data centers with generation in PJM: FERC’s order to show cause 

The primary focus of the open meeting was the Commission’s continuing efforts to accommodate unprecedented load growth across the nation driven largely by the demand for data centers to handle the processing requirements of AI technology. These issues have been particularly controversial in the PJM Interconnection, L.L.C. (“PJM”) region³, which has become the largest market for data centers in the world⁴. Specifically, the practice of placing load “behind-the-meter” of a generator has become a critical issue in PJM, particularly with respect to locating data centers at existing nuclear plants⁵. 

Generation combined with behind-the meter-load is, of course, not new, and has been common for industrial facilities for decades. The controversy arises from the scale and rapidity of the increased demand, as well as plans to put load behind the meters of existing generation, which functionally removes that generation from the grid. Questions surrounding such arrangements include whether, and the extent to which, behind-the-meter load is dependent on the grid for back-up power and other grid services (and the related question of the load’s cost responsibility for such services) and the impact of removing existing generation from the grid on both grid operations and resource adequacy. 

Chairman Christie has previously expressed strong opinions regarding the integration of new data centers into the electric grid, informed in part by his former role as a Commissioner on the Virginia State Corporation Commission⁶. In particular, he has expressed concerns about who will bear the expense of adding large amounts of load to the grid - not just the cost of physical interconnection, but also the need to construct new generation, upgrade transmission, and provide grid services⁷. During the meeting, Chair Christie restated these concerns about cost allocation, fairness, and reliability. But, significantly, he also emphasized a core tenet of utility regulation - that all customers who want service must receive service at a just and reasonable rate. And that includes data centers and other large load. The question, therefore, is not whether increased data center capacity will be accommodated, but rather how such accommodation will take place and which entities will bear the costs. 

PJM does not currently have any provisions in its FERC-approved Open Access Transmission Tariff (“Tariff”) that set forth procedures and standards for co-locating large load with generation. During the meeting, the Commissioners explained that, to address this deficit, FERC was issuing an order under Section 206 of the Federal Power Act (“FPA”) (the “Show Cause Order”)⁸. The Show Cause Order consolidates the records of two existing proceedings: (i) the technical conference regarding Large Loads Co-Located at Generating Facilities (the “Large Load Technical Conference Proceeding”)⁹, and (ii) a complaint proceeding initiated by Constellation Energy Generation, LLC (“Constellation”) against PJM regarding the lack of specific co-location provisions in the PJM Tariff (the “Constellation Complaint Proceeding”)¹⁰. Based on those records, the Show Cause Order finds that PJM’s Tariff “appears to be unjust, unreasonable, unduly discriminatory or preferential” because it does not contain provisions addressing the co-location of large loads with generation on a uniform basis. Therefore, PJM and the utilities that own the transmission assets in the PJM region must either (i) “show cause” as to why the PJM Tariff remains just and reasonable without specific provisions addressing co-location, or (ii) explain what changes to the Tariff are needed to address the Commission’s concerns regarding the lack of guidance in the Tariff.¹¹

Order rejecting proposed tariff provisions regarding co-location 

In addition to issuing the Show Cause Order, FERC issued an order rejecting proposed PJM Tariff revisions relating to co-location that had been filed by a group of Exelon utility affiliates under FPA Section 205. The Exelon utilities argued that load that is co-located with generation must be designated as “Network Load” or receive “Point-to-Point Transmission Service.” The Exelon utilities’ filings were essentially an effort to move certain grid-related costs to the load.  

The Commission rejected the Exelon utilities’ proposed Tariff provisions on procedural grounds. However, the Show Cause Proceeding provides a venue for the Exelon utilities to argue for similar provisions to be included in the Tariff.

Resource adequacy technical conference 

The specific questions surrounding the co-location of data centers and other large load with generators are just a small (if pressing) part of a larger decision arising from the abrupt surge in load growth after decades of mostly flat demand. While the Show Cause Order is intended to address a specific issue (co-location) in a particular region (PJM), the need to account for what are expected to be exponentially greater demands on the grid, as a result of both a rapid expansion of data centers and increased electrification, implicate a much wider range of issues and participants. 

FERC, therefore, has scheduled a technical conference for June 4 and 5 to address resource adequacy issues in the organized electric markets (i.e., the regional transmission organization and independent system operator regions (“RTOs/ISOs”)). Specifically, the technical conference will explore issues such as the “current and impending risks to resource adequacy, including increasing load forecasts, potential resource shortfalls and reasons therefore; the efficiency and effectiveness of capacity markets in achieving resource adequacy at just and reasonable rates; design and performance comparisons between capacity markets and alternative resource adequacy constructs; and the roles and interests of states or other entities with legal authority in achieving resource adequacy.”¹² 

Comments made by the Commissioners during the meeting suggest that they may be open to considering major structural changes to address resource adequacy challenges. It was also noted that the RTO/ISOs are only the first phase of a larger process, because they manage the grid for three quarters of the population. FERC plans to address areas outside the RTO/ISOs at a later date. 

Authored by Chip Cannon and Porter Wiseman.