In March 2024, AWS made headlines with the acquisition of the 960MW Cumulus data center in Luzerne County, Pennsylvania, from Talen Energy. The deal was not just another major data center acquisition; unbeknownst to the sector, it was set to have wide-ranging implications on how data centers are powered.

As part of the acquisition, the companies signed a behind-the-meter agreement that would have delivered 480MW of power directly to the data center from the 2.5GW Susquehanna Nuclear Power plant, located adjacent to the facility.

What followed, however, was a regulatory standoff that would make waves across the energy and data center markets, sparking unanswered questions about how regulators and utilities can best manage the explosive growth of power-hungry AI and cloud infrastructure.

Behind-the-meter

Unlike a grid-based or front-of-the-meter agreement, a behind-the-meter agreement involves power being supplied directly to an installation via a direct connection, known as a “private wire.”

As a result, behind-the-meter agreements bypass the main electricity meter for some or all of the consumer's power needs. For data centers, this can be especially beneficial, resulting in reduced energy costs, a faster connection time, and a more reliable source of energy.

While there have been many instances of behind-the-meter agreements in the data center sector, the AWS-Talen agreement differed in both scale and choice of energy. Unlike previous instances, often utilizing onsite renewables, the AWS deal involved a regional key generation asset, which provides consistent and reliable power to the grid.

As a result, to secure the go-ahead, PJM Interconnection, the regional transmission operator in charge of the utility services in the state, had to apply for an amendment to the plant's existing Interconnection Service Agreement (ISA), permitting the increased power supply.

However, rather than the swift approval the companies hoped for, two major utilities that operate in the region, Exelon and American Electric Power (AEP), vehemently opposed the amended ISA, submitting a formal objection to its provisions.

Exelon chief operating officer Michael Innocenzo revealed the rationale behind the opposition, stating: “Our main concern [was] that colocation shouldn’t be a way to bypass distribution or transmission charges. These facilities still rely on the grid, and we’ll need to invest in upgrades to support them, whether they’re inside or outside the fence.”

Due to the protest, the ISA proposal was escalated to the Federal Energy Regulatory Commission (FERC), which in November 2024 rejected the amended ISA in a two-to-one vote, stating that the parties did not make a strong enough case to prove why a special contract should be allowed in this instance.

“The burden is on PJM to show that nonconforming provisions are necessary, and PJM failed to carry that burden,” read a FERC statement at the time.

FERC reaffirmed its decision in April 2025 after a rehearing request from Talen, ultimately scuppering the agreement, leading to the companies having to explore further options. The implications of the FERC ruling are notable in setting a high legal bar for future behind-the-meter deals. But, despite the ruling, debate continues over why such barriers exist, highlighted best by then-chair of FERC Willie Phillips, who, amongst his peers, was the only dissenting voice, voting in favor of the amended ISA.

A missed opportunity?

The denial by FERC of the AWS-Talen deal was rooted in the belief that the parties involved did not make a strong enough case to prove why a special contract allowing for expanded “behind-the-meter” power sales should be permitted.

For Phillips, however, the case was never about approving the “perfect scenario” for colocation, but rather an opportunity for a test case of how colocation could function in the future.

In his support of the ISA, Phillips contended that it would have provided the ability for the generators, consumers, and broader regulatory community to better understand the potential of colocation, acting as a “pilot” for more flexible load models, which he considers a necessity to meet the staggering demand of data center growth.

“I saw the PJM case as a one-off opportunity to pilot colocation. We could have required updates on reliability risks, encouraged targeted investment, and learned from how it performed,” Phillips says.

In his statement explaining his dissent, Phillips went on to contend that, rather than just providing free rein, as feared by objectors, he would have ensured that PJM submitted regular informational filings to provide transparency into the arrangement’s operations over time.

In addition, he said that the deal would have allowed PJM to go through a further stakeholder process for tariff revisions and decide on generic next steps. Therefore, by rejecting the ISA, Phillips argued that FERC essentially “rejected protections that the interconnected transmission owner says will enhance reliability while also creating unnecessary roadblocks to an industry that is necessary for US national security.”

The centrality of data centers as a “national security asset” clearly played in the mind of Phillips in his decision-making. Data centers, after all, are some of the most sought-after infrastructure for national governments, due to their ability to attract capital and expertise to a nation's coffers.

In turn, Phillips believed that regulators should seek to support the sector through novel deals, as the skyrocketing demand offered an opportunity to act as “a catalyst to modernize and upgrade our transmission system” and support the projected demand growth across the country.

Consequently, Phillips' decision centered greatly around the notion of whether regulators should act as a roadblock or a facilitator of change. “One of the worst things regulators can do is become a bottleneck for innovation,” he says. “That’s what concerned me most. The PJM case could have been a learning moment. Instead, we missed a chance to get ahead and evaluate colocation in a real-world context.”

The learning moment could also have supported greater alignment between the regulators, which all play a crucial role in the process. Made even more important due to the scale and speed of demand growth emanating from the sector, at a rate “not seen since the Industrial Revolution,” Phillips continued.

Therefore, for Phillips, the lack of regulatory clarity within the industry as it pertains to how to power these massive facilities is proving a thorn in the side of progress, which in turn hurts planning procedures that could provide a streamlined process for large load connections while avoiding the worst impacts, namely shifting costs onto consumers.

Pay for play

The issue that ultimately scuppered the AWS-Talen deal was the notion that the companies, via a private wire, were shirking the responsibility to pay their fair share of infrastructure costs to upgrade the network.

As Michael Innocenzo puts it, it was never a problem with the idea of colocation itself. “To set the record straight, we’re not against colocation in any way,” he says. “If a large data center can colocate with a generator and get online faster, we fully support that.”

Instead, Exelon and AEP sought to ensure that “colocated facilities still use grid services and should not be exempt from paying for them. They are network load and should be treated accordingly,” Innocenzo argues.

The companies refuted the claim made in the proposal that colocation would remove all grid impact. Arguing that even if the load directly connects to the generator, the generator is still reliant on the grid itself for stability and voltage regulation. Under current US laws, the generator is not expected to pay for these grid services, with the load user (ratepayer) footing the bill. However, under the proposed ISA, AWS, as the ratepayer, would avoid the responsibility to foot the bill.

Therefore, for Exelon and AEP, it was all a “matter of affordability,” says Innocenzo, as while the companies want to support data center growth, they also want to avoid “shifting costs from high-usage customers onto residential ratepayers.”

This is an issue that Phillips agreed upon, viewing the importance of affordability as “critical.” However, he argued that this falls on the regulators to ensure proper planning and create provisions to prevent cost shifting onto residential and industrial customers who already fund the grid’s backbone.

What is even more crucial is wholesale investment in transmission and distribution infrastructure to meet the expected demand. Here is where Phillips has some concerns: “You don’t want a situation where investment in AI infrastructure outpaces the investments we need in transmission and generation. That’s where we risk falling behind.”

As a result, we are increasingly seeing utilities and state legislatures bring forward new rules on large-load customers and their contribution to funding grid infrastructure projects. Notable recent examples include Oregon, which recently passed a bill that would provide regulators the ability to ensure that data centers and other large loads cover a fair share of the costs associated with new power plants and transmission lines used to power their installations.

New Jersey and Ohio have also proposed similar bills to ensure this, marking a prevailing trend of regulators seeking increased protections for ratepayers over who bears the costs of generation and distribution.

Is this the end for behind-the-meter?

Since the rejection by FERC, Talen and AWS have reimagined the agreement, with it moving from behind to an in-front-of-the-meter arrangement. The 17-year PPA will see Talen supply AWS with 1.92GW of power, ramped up over the next seven years, with the power provided through PJM. This reflects a broader move within the sector, with both Talen and nuclear energy generator Constellation indicating their intention to focus on grid-based arrangements going forward.

Despite this, Phillips still believes that under the correct circumstances, colocation can be a powerful tool, especially for AI and hyperscale cloud deployments seeking to scale quickly. To ensure this is done effectively, however, Phillips contends that modernization is required across the broader regulatory landscape.

Phillips cited the 206 proceedings ordered by himself in February as a reflection of this urgency for reform, which he says could force through faster timelines for decisions on matters such as colocation. The proceeding aims to address regulatory gaps in how co-located large loads, particularly AI-driven data centers paired with on-site generation, are governed under the PJM Tariff.

In the current proceeding, FERC is evaluating whether PJM’s current rules are unjust or unreasonable and whether new provisions are needed to ensure transparent, non-discriminatory treatment of co-located load configurations. The ultimate goal is to provide regulatory certainty, support infrastructure investment, and ensure grid reliability amid a sharp rise in large-scale data center demand.

“What I liked about the 206 proceeding is that it boxes FERC in - it says, you have six months. You can’t take two years. And I’m hopeful we’ll get regulatory certainty from FERC very soon,” says Phillips.

As a result, while colocation appears to be very much on the back burner, it is unlikely to disappear completely, especially as data center growth continues.

A rallying call

While the future of behind-the-meter agreements, especially for large hyperscale facilities, remains uncertain, Phillips contends that what's key now is developing a clear and consistent regulatory regime to ensure that the concerns voiced over colocation, namely, costs falling on ratepayers, are accounted for.

Consequently, for Phillips, a key factor in supporting colocation is greater coordination and planning across federal and state bodies. “This can’t be business as usual,” he argues. “We need regional coordination, and I would support a national plan to integrate generation and transmission for data centers. They’re not like other loads—they’re something entirely new, and we have to plan accordingly.”

Subsequently, Phillips stated that “If I were still a regulator, I’d focus on three things: reliability, affordability, and boldness. We can't wait for a crisis before acting. We must lead—be proactive, not reactive—and lay the foundation for this next era of energy transformation led by data center demand.”