On February 20, 2025, the Federal Energy Regulatory Commission (“FERC”) issued a highly anticipated order under Section 206 of the Federal Power Act addressing concerns related to large loads co-located at generating facilities within the PJM Interconnection. The growing interest in co-location arrangements, particularly involving data centers and industrial facilities, has raised questions about how interconnected generators should serve these co-located loads when they are physically connected to an existing or planned generator on the generator side of the point of interconnection. These arrangements have introduced issues around potential cross-subsidization, cost shifting, grid reliability, resource adequacy, and jurisdictional boundaries.
In this show-cause order (“Order”), FERC found PJM’s Tariff to be potentially unjust, unreasonable, unduly discriminatory, or preferential for lacking explicit provisions on co-location arrangements. The Order highlighted several key issues:
1. Jurisdictional Debate:
Co-located arrangements introduce jurisdictional questions. Some stakeholders have argued that FERC’s jurisdiction should be limited to interstate wholesale transactions and that states should retain control over retail sales and behind-the-meter arrangements. Others argue that load served directly by a generator is analogous to behind-the-meter generation and is exempt from FERC oversight. PJM and others maintain that co-located loads still benefit from grid services and should thus fall under FERC’s oversight when those services affect wholesale rates and grid reliability.
2. Cost Allocation and Grid Services:
A significant concern is whether co-located loads can fully isolate from the electric grid and avoid paying their share of costs for transmission services and for ancillary services from PJM. PJM and its market monitor have argued that co-located loads should be treated like other grid-connected loads and should pay for network services, ancillary services, and capacity. Other stakeholders have countered that since co-located loads can fully isolate and not draw power from the grid, they should not incur transmission service charges.
3. Reliability and Resource Adequacy:
Several parties have highlighted potential risks that co-located loads might impose on grid stability, particularly when large loads bypass the traditional planning process. For example, sudden shifts in demand or the loss of a co-located generator could compromise grid stability. PJM emphasized that the rapid growth of such loads could strain existing capacity reserves and suggested that planning frameworks need adjustments to incorporate these arrangements effectively. However, proponents of co-located load arrangements have argued that such configurations can offer benefits like reducing grid congestion, easing interconnection backlogs, and energizing data centers more quickly.
In the Order, FERC directed PJM and the Transmission Owners to provide justifications for the current tariff or suggest changes within 30 days. These justifications must address concerns related to jurisdiction, cost allocation, reliability, and potential discriminatory practices. FERC requested answers to approximately 40 questions related to jurisdictional principles, the type of transmission service used under various configurations, cost allocation, and the impacts on the wholesale market and ancillary services.
Concentric Energy Advisors’ Wholesale Energy Markets practice helps utilities, independent power producers, and government entities shape and understand wholesale electric market design and operational issues. Contact Danielle Powers, Chief Executive Officer, at dpowers@ceadvisors.com or 508.263.6219 to learn more about our services.
— All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
Published: July 2, 2024
By: Concentric Staff Writer
A proposal for a special arrangement whereby a planned Amazon data center would be directly supplied by a co-located nuclear power plant in Pennsylvania sent rapid ripples across the industry this month. Other users of the transmission system are sounding the alarm over its possible effects on other customers and the precedent it could set, supported by Concentric Energy Advisors (Concentric).
There has been a quick line-up of parties filing to intervene in reaction to the proposal filed on June 3 with the Federal Energy Regulatory Commission by the PJM Interconnection LLC (PJM), the grid operator of the mid-Atlantic region including 13 states and the District of Columbia. The deal concerns a data center campus formerly owned by Talen Energy that the company sold to Amazon Web Services for $650 million earlier this year and sits next to the 2,514-megawatt (MW) Susquehanna Steam Electric Station, which Talen Energy also owns. Amazon plans to develop a large data center at the site to be powered by the close-by nuclear plant, which would be the largest such installation in U.S. history.
The proposal filed by and for PJM as transmission provider, Susquehanna Nuclear LLC as interconnection customer, and PPL Electric Utilities Corporation would amend the existing interconnection service agreement (ISA) to raise from 300 megawatts to 480 MW the amount of co-located load from the data center and make other revisions and changes [Docket No. ER24-2172].
Concentric is among the commenters; on June 24 filing an affidavit from Chairman of the Board, John Reed and Chief Executive Officer, Danielle Powers. Concentric, drawing from its decades of experience in utility regulation, filed the affidavit in support of a protest of PJM’s filing that was submitted to FERC by Exelon Corporation (Exelon) and American Electric Power Service Corporation (AEP).
“The significance of this case lies in its potential to set far-reaching precedents for how similar situations will be handled in the future,” the Concentric filing says. “The sheer scale of the Co-Located Load presents unique challenges and complexities that have not been encountered before on such a magnitude.”
Ms. Powers, in an interview, said that the proposed amendment to the ISA provided little detail on the costs to other customers. It is this lack of detail and impact on customers that are so important to understand and why FERC must set this matter for hearing, she said.
“We need to understand what the issues are and what you are requiring of both the generator and the co-located load,” Ms. Powers said of the amended ISA. “Since the load is located behind the generator, there are many unanswered questions around how much and how the generator offers its capacity and energy into the PJM wholesale markets, and what the co-located load will or should pay under the PJM Open Access Transmission Tariff.” She also said that PJM and market participants have been involved in lengthy discussions on how to deal with co-located load and have been unable to come to a consensus. A filing places these unresolved issues in front of the FERC, she said.
The Concentric affidavit says there are substantial implications for the case as it could “fundamentally impact the regulatory landscape, influencing how regulators address cost allocation and rate design.” If the agreement results in significant avoided costs it could lead to other similar arrangements, leading to widespread cost-allocation issues and leaving unresolved questions of cost responsibility for using the electric grid, the filing says. The cost shift could be up to $140 million per year and the avoided transmission component makes up approximately 98 percent of the avoided costs, Concentric said.
In the protest filed by Exelon and AEP, the two companies said the matter must be set for hearing because of many unresolved facts and that it includes “by the filing’s own admission, an ISA that establishes novel configuration.” If FERC does not set the matter for hearing, it should reject the ISA amendment because it amounts to an “end run” around PJM’s stakeholder process and violates PJM’s tariff by creating a new type of load, the protest says.
“The Parties’ non-conforming ISA must be set for hearing because it raises more questions than it answers,” Exelon and AEP said. “Given the scant information provided in the transmittal, absent further factual development, the Commission will be unable to make an informed decision whether to accept the ISA and parties to the proceeding will be denied necessary notice and opportunity to raise informed protests before the Commission.”
There are huge financial consequences around the filing as there are likely to be many other similar situations, the protest says, and in the absence of other precedent, it is reasonable to think that other parties could take a similar approach.
“The number of expected, non-conforming ISAs that the filing anticipates could have a profound effect on the market,” the protest says. “Should large quantities of load rush to co-locate with generation on terms that bear even a resemblance to the ISA at issue here, PJM capacity markets will have steadily decreasing volume as the capacity resources flee to serve load that uses and benefits from—but does not pay for—the transmission system and the ancillary services that keep the system running.”
But Talen Energy (Talen) fired back in the public arena, on June 27 issuing a press release characterizing the proposal as a new way to deal with rising data center demand. Powering this new category will require both metered and behind-the-meter solutions, the company said.
“Exelon and AEP’s protest of the Susquehanna ISA is a misguided attempt to stifle this innovation by interfering with an ISA amendment agreed to and supported by all impacted parties – which Exelon and AEP decidedly are not,” the press release says. “The factual recitations in the protest are demonstrably false. The legal positions are demonstrably infirm.”
Nearly all of the issues raised by Exelon and AEP are not even subject to FERC oversight, Talen argued, because transmission is not implicated, and Talen has a right to contract with Amazon for long-term, committed power. It also said that PPL agrees that Talen has the right to sell power directly to Amazon, and the filing is supported by PJM, it said.
The proposal to FERC by PJM and others involved in the co-located data center/power plant project raises many new questions regarding what is being recognized as a new frontier in energy infrastructure development. As of June 29, there were 33 motions to intervene filed in the docket.
—
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
Published: April 29, 2024
By: Concentric Staff Writer
Affordability has become front of mind for utilities and their regulators, who are now struggling to meet emissions goals while decarbonizing the electricity grid and switching to renewables, a transition that currently poses significant affordability concerns.
Central to these goals and the regulatory targeting of affordability are retail rates. When designing retail energy rates through rate cases at the state level, there has been a shift in the discussion from how to allocate costs to how various customer classes will afford those costs, Concentric Vice President Gregg Therrien said.
Therrien focuses on the electric, gas, and water sectors, primarily in Connecticut, New Hampshire, and New Mexico. Historically, rate cases have been about how to allocate costs across the different customer bases, including residential, commercial and industrial customers, municipalities, schools, and governments, Therrien said. But over the past year, more discussion has arisen in the context of affordability and lower income discount rates, also known as LIDR, he said.
“It’s a much bigger discussion than we’ve ever seen before, and that’s significant,” Therrien said of energy affordability. “I think it’s really in recognition that everybody knows prices are increasing.”
“LIDR is an acronym that has been around for a while but has gained prominence in rate design in the past couple of years,” he said. A discount rate in Massachusetts or New Hampshire has typically been 15 percent of either the distribution portion of a customer’s bill or their total bill. But now the trend for discounts is rising significantly, up to 50 percent or 60 percent of the total bill as recommended in Connecticut ongoing regulatory proceedings, he said.
Another guideline developed in the industry is the concept that an energy bill should be no more than 6 percent of monthly household income. This was an income threshold that was mentioned several times by Concentric experts.
“Now, with the energy transition, there’s the realization that there are people who need to have significantly discounted rates for the energy transition to occur without major disruption,” Therrien said. The current debate is how to structure these programs; for instance, should it be a straight discount for specific customer categories, or should it involve more detailed calculations?
Electric heat pumps, electric vehicles, and home solar equipment are examples of products that can be difficult for lower-income customers to afford. States are responding to zero-emission policies with more subsidies for cleaner equipment. Vermont has a program to give away electric heat pumps, and Maine has discount programs for such appliances. The federal government has incentives nationwide for customers to purchase electric vehicles.
Costs for these programs are often socialized across higher income brackets, according to Therrien. In California, state legislation has mandated that retail electricity charges be based on personal income, a contentious political issue that is receiving pushback from some (new legislation has been introduced to repeal that law). Another question is whether such programs should be subsidized only for residential customers or also for commercial and industrial customers.
Affordability is front and center when designing rates, according to Bickey Rimal, an Assistant Vice President at Concentric Energy Advisors. He said that a fixed monthly charge based on the cost of service tends to have a more significant impact on low-usage customers than a volumetric charge for energy usage. This is mainly due to the fact that the current fixed charges only recover a small proportion of the fixed costs, with the remainder of the fixed cost recovered from volumetric charges.
There is pushback because there are certain parties that incorrectly assume that low-usage customers are necessarily lower-income customers. According to Rimal, low-income customers are not necessarily low users, however, and similarly, high-income customers are not necessarily high users. Mr. Rimal recently conducted statistical analysis to compare the consumption patterns of low-income and non-low-income customers of a mid-western electric utility and found that the usage between the two groups was not statistically different.
For example, higher-income customers who own home solar might have lower overall usage than middle- and lower-income customer classes. On the other hand, low-income customers may have inefficient appliances or poor home insulation leading to higher usage, comparatively. For this reason, trying to keep the fixed charges artificially lower and volumetric charges artificially higher does not necessarily help the low-income customers, Rimal said.
It’s important to consider the significant challenges that low-income customers face in affording their energy bills. Additionally, there is growing concern that some customers may be left behind in the energy transition.
—
All views expressed by the article contributors are solely the contributors’ current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, related companies, or clients. The contributors’ views are based upon information the contributors consider reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.
Published: May 12, 2023
By: Danielle Powers, Chief Executive Officer
There is no question that expanding the electric transmission system is a key factor in achieving the nation’s clean energy goals. The most efficient way to ensure that this happens, however, is being strongly debated.
FERC Order 1000 established reforms in transmission planning and cost allocation, and eliminated the Right of First Refusal (ROFR) for those incumbent utilities involved in regional or inter-regional infrastructure construction, with limited exceptions.1 In Order 1000, FERC reasoned that by eliminating long-standing monopolies, competition would be created, and innovation and cost savings would result. In eliminating utilities’ monopoly over regional transmission, however, FERC expressly left it to states to enact their own ROFR laws.
Utilities in Kansas, Missouri, Oklahoma, Mississippi, and Montana have successfully persuaded lawmakers to prioritize ROFR legislation. Indiana recently passed ROFR legislation, and legislation is anticipated in other midwestern states this year. States including North and South Dakota, Nebraska, Texas, Iowa, and Michigan have ROFR laws in place.
ROFR issues are also being re-examined at the federal level. Questions around the effectiveness of competition in transmission have prompted the FERC to consider giving incumbent utilities the right to build regional transmission if they partner with one or more unaffiliated, non-incumbent partners.
Critics of the ROFR argue that it can limit competition and innovation in the industry. By granting the incumbent transmission provider the first opportunity to continue providing service, it can create a barrier to entry for other providers who may be better suited to meet the needs of the market. Additionally, the ROFR can limit consumers’ ability to access alternative sources of energy and limit the development of renewable energy sources.
These arguments have recently carried the day in Iowa, where the battle over who should be able to build and own the regional transmission projects necessary to support grid reliability and the shift toward renewable energy is currently playing out.
The Iowa Supreme Court recently halted a 2020 order giving incumbent utilities in Iowa the right of first refusal to build proposed transmission projects. Stating that the 2020 law would stifle competition and harm the business interests of out-of-state companies, the Iowa Supreme Court sent the case back to the district court to decide whether the ROFR is unconstitutional. The temporary injunction affects five transmission projects totaling about $2.64 billion that ITC Midwest, MidAmerican Energy and Cedar Falls Utilities intend to build in Iowa. The projects are part of the Midcontinent Independent System Operator’s Long Range Transmission Planning Tranche 1 projects, approved last year.
The battle over who builds the grid of the future will continue to be fiercely debated. Protracted debate, however, risks the grid transformation necessary to enable a clean energy future.
—
All views expressed by the author are solely the author’s current views and do not reflect the views of Concentric Energy Advisors, Inc., its affiliates, subsidiaries, or related companies. The author’s views are based upon information the author considers reliable at the time of publication. However, neither Concentric Energy Advisors, Inc., nor its affiliates, subsidiaries, and related companies warrant the information’s completeness or accuracy, and it should not be relied upon as such.