Largest U.S. Grid Pitches Pathway For On-Site Data Center Power

PJM Interconnection, the largest grid operator in the U.S., is proposing new rules to open the door for data centers to get their electricity directly from power plants. 

PJM is asking federal regulators to approve changes to its rules governing “behind-the-meter” power agreements through which data centers or other industrial customers buy a portion of their electricity directly from a power plant rather than through the regional grid. 

Plans for behind-the-meter developments in which data centers are colocated alongside power plants have become increasingly common as developers look to circumnavigate acute grid constraints and yearslong interconnection timelines. But while these arrangements have strong appeal for data center operators and firms that develop and own power plants, they can increase the price of grid power by undercutting supply and pushing costs onto other customers.

In a landmark case last year, the Federal Energy Regulatory Commission rejected a proposed deal in which Talen Energy would sell power directly to an Amazon data center campus abutting a Pennsylvania nuclear power station.

The ruling, which cited potential impacts on pricing and grid reliability, slammed the brakes on similar proposals across the U.S. 

FERC subsequently ordered PJM to develop clearer behind-the-meter guidelines that would give these colocated data center projects a path forward while protecting consumers’ pocketbooks. PJM says its new rules do just that, but there is skepticism as to whether the plan successfully walks the tightrope. 

“PJM continues to work with its members to support efforts to accelerate the speed and increase the scale with which the United States can build the next generation of AI infrastructure, especially the necessary capacity to support this load while also ensuring reliability and fair treatment for all users of the grid,” PJM wrote in its proposal to federal regulators.

In March 2024, Amazon Web Services and Talen Energy announced a $650M deal in which the cloud computing behemoth acquired 1,200 acres adjacent to Talen’s 2.5-gigawatt Susquehanna Steam Electric Station in Berwick, Pennsylvania, one of the largest nuclear power plants in the country. AWS hopes to build as many as 15 data centers on the Luzerne County site powered by nearly 1 GW of electricity purchased directly from the nuclear plant next door. 

The deal was the first of its kind between a nuclear operator and a data center firm, but it provided a model that other power plant owners quickly sought to replicate. Companies like Dominion Energy, Constellation and Vistra unveiled plans for similar nuclear data center campuses in Connecticut, Maryland, Texas and Ohio. 

In their ruling rejecting Amazon’s deal with Talen, FERC commissioners said their decision was driven, at least in part, by the desire to avoid setting a precedent that would trigger a wave of similar projects before their ramifications for grid reliability and consumer costs were better understood. 

“Were we to approve this proposal … we would be setting a precedent that would be used to justify identical or similar arrangements in future cases,” FERC Commissioner Mark Christie wrote at the time.

FERC subsequently reaffirmed its ruling following an extended appeals process.

PJM says its newly submitted behind-the-meter rules address the competing goals of increased power load, grid reliability and cost suppression. 

Under the existing rules, PJM allows a facility’s on-site generation to “net” against its grid consumption when calculating charges. This means a data center is only charged transmission and other grid costs based on the difference between what it drew from the grid and what it self-produced. This arrangement gives significant savings for the data center but potentially shifts grid costs onto other customers.

Under PJM’s proposed changes, data centers or other industrial users above 50 megawatts would not be eligible to net their self-generation. 

While that would increase costs for some data center users and would make some on-site generation less economically attractive, the proposal also includes three new kinds of transmission service agreements intended to lower charges for colocated data centers.  

By offering transmission agreement options structured specifically for interruptible and temporary power consumption, the new contract structures mean data centers reduce costs by paying more accurately for the capacity they draw from the grid. Meanwhile, grid reliability is improved because PJM will have greater transparency into how data centers plan to use power. 

Data center developers and lobbying organizations have remained mum on PJM’s proposed changes so far, but other industry groups and consumer advocates have reacted with skepticism.  

The PJM Industrial Customer Coalition and the Industrial Energy Consumers of America have both filed motions arguing against the proposed changes, with support from Pennsylvania’s Office of Consumer Advocate. They argue that while the new regulations may make sense for data centers specifically, they will create unsustainably higher costs for manufacturers and other industrials using on-site generation.

“[T]he Order threatens to weaken some of the largest manufacturers in the PJM region, render hundreds of megawatts — if not more — of existing retail behind-the-meter generation uneconomic, stall new projects, and further stress the resource adequacy of the electric grid at an inopportune time,” the two trade groups wrote in a joint filing with FERC.