Constellation Energy has reaffirmed its commitment to developing data centers on the sites of its US power plants.
This follows a ruling by the Federal Energy Regulatory Commission (FERC) that rejected a proposed interconnection service agreement (ISA) to increase the power capacity of an AWS data center connected to the Susquehanna nuclear power station in Luzerne County, Pennsylvania.
In rejecting the amended proposal, FERC stated that the proposal had not provided sufficient justification for the nonstandard provisions allowing a “unique” arrangement for the data center. FERC members determined that the ISA could raise public power bills and affect the grid's reliability.
Subsequently, the ruling has poured cold water on future colocated arrangements, potentially setting a precedent for future projects that plan to colocate data centers with power plants, which could significantly limit potential innovation around standardized interconnection agreements.
Despite the ruling, Constellation CEO Joseph Dominguez was confident it would not scupper future colocation plans, arguing during Constellation's Q3 2024 earnings call that: “colocation in competitive markets remains one of the best ways for the US to quickly build the large data centers necessary to lead on AI.”
To facilitate this, Constellation believes narrow reforms are required to provide clarity, fair pricing, and price stability for customers and generators alike.
The call highlighted several pathways to resolve the issues. Constellation advocated that colocated load should be used to support the grid when needed, backup power should be allowed to offer power to the grid, and colocated load should pay its fair share of grid costs for what it uses.
Constellation argued that colocation would not detract from reliability across PJM, contending: “First, in times of emergency, our power should support the grid. Nuclear energy supporting a colocated load will be switched to the grid when needed to prevent the reliability crisis.”
“Part of the issue with the ISA proceeding is that it did not bring these issues together, and understandably, some of the commissioners want to see the complete package,” stated Dominguez.
Following the ruling, Constellation said it is now seeking guidance from the regulator about colocation while simultaneously pursuing commercial colocation strategies permitted under existing rules.
Despite the confidence, the FERC decision had an adverse impact on Constellation's market position, with shares in the company dropping almost 10 percent despite reporting strong earnings in Q3.
Constellation has a vested interest in the colocated sector after signing a 20-year power purchase agreement with Microsoft to provide 100 percent of the energy from the revived Three Mile Island nuclear power plant, subject to regulatory approval.
