After years of stagnant or declining growth, electricity demand in the United States is rising rapidly. This shift has created several challenges, including potentially higher costs for consumers, delays in interconnecting new resources, and reconsideration of retiring traditional energy resources.

One emerging solution for large electricity consumers, such as data centers, is to co-locate their operations with existing power generation facilities. While this approach addresses some constraints, the Federal Energy Regulatory Commission (FERC) must focus on the regulatory complexities this strategy creates.

Late last year, FERC recognized that broader policy reforms may be needed to direct the increasing interest in co-located load.

For water power facilities, paying attention to these regulatory developments is critical, as FERC’s increased scrutiny of filings modifying Interconnection Service Agreements (ISA) may serve as a possible roadblock for organizations proposing co-location behind the meter of a hydro facility.

Read on to learn more about how the outcome of a co-location case, which began last summer, could influence future regulatory decisions.

The Federal Energy Regulatory Commission’s headquarters in Washington D.C.

BACKGROUND

In June 2024, PJM, a regional transmission organization, submitted an amended ISA to FERC regarding the Susquehanna Nuclear Plant in Pennsylvania (Docket No: ER24-2172).

Generally, an ISA sets the rates and conditions between transmission owners and its generation customers. An ISA is set by pro forma terms and conditions, so any amendment modifying the terms and conditions has a ‘heavy burden’ to be found just and reasonable by the FERC. Yet, a filing can be made to alter those terms and conditions if there are specific reliability concerns, legal issues, or other unique factors; additionally, to be approved, the change must be “consistent or superior” to the pro forma agreement.

PJM filed the amended ISA because the plant’s owner, Talen, sought to increase its behind-the-meter data center load from 300 MW to 480 MW. Expanding beyond 480 MW would require additional infrastructure to separate the data center’s electricity use from PJM’s broader network. Under the proposal, Talen would develop the data center and subsequently transfer ownership to Amazon Web Services.

While some stakeholders supported the filing, others raised concerns. Opponents argued that allowing this amendment would shift costs from interconnection customers to consumers and that the co-located load would receive benefits from the transmission system—such as load following and black start capabilities—that a nuclear plant alone does not provide.
Given these concerns, they contended that the proposed revisions did not meet the high legal standard required to modify a pro forma ISA.

On November 1, 2024, FERC, in a 2-1 decision (with two Commissioners abstaining), rejected the filing, stating that it failed to meet the necessary legal threshold. However, FERC’s decision suggested an awareness that broader policy reforms may be needed to address the increasing interest in co-located load.

Following this decision, FERC denied a rehearing request, prompting Talen to seek a review of the order by the U.S. Court of Appeals for the Fifth Circuit.

The John Minor Wisdom U.S. Courthouse, home of the United States Court of Appeals for the Fifth Circuit, New Orleans, Louisiana.

WHY IT MATTERS

The same day it issued its decision, FERC held a technical conference to examine the broader implications of co-located loads. FERC Commissioners acknowledged that this growing trend affects resource adequacy, system reliability, and cost allocation. Since then, FERC has received numerous public comments on the issue (Docket No: AD24-11).

For water power facilities, these regulatory developments are critical. If large electricity consumers propose to co-locate behind the meter of a hydropower facility, utilities will likely need to submit amended ISAs. Given FERC’s increased scrutiny, such filings must meet the stringent legal standard required to modify a pro forma agreement.

In addition to reviewing individual cases, FERC is expected to take broader action, either through a policy statement or a formal rulemaking. For example, FERC has open a Section 206 docket for PJM (EL25-49), directing them to answer a number of questions as to why their tariff is just and reasonable as it relates to the co-location of large loads.

The National Hydropower Association (NHA) will continue monitoring these developments and will keep the industry updated about any changes that may impact water power.