FERC Faces Debate Over Co-Located Loads Amid Data Center Boom

The electric industry is buzzing with the latest developments surrounding co-located loads—those hefty industrial power consumers positioned next to existing power generation facilities. This arrangement has piqued the interest of heavy hitters like data centers and electrolyzer facilities, particularly as they seek reliable, round-the-clock power. The appeal lies in a streamlined interconnection process that promises to meet their insatiable energy demands while sidestepping some of the traditional roadblocks posed by regulated utilities. However, the waters are murky when it comes to regulatory clarity, with the Federal Energy Regulatory Commission (FERC) stepping into the fray to untangle the complexities of these arrangements.

On November 1, 2024, FERC tackled this hot topic in two separate dockets. In Docket No. AD24-11, a technical conference convened to grapple with the myriad issues surrounding co-located loads. The discussions revealed a chasm of opinions among commissioners. Chairman Phillips raised a red flag about national security implications, arguing that fostering co-location is crucial for maintaining the U.S. competitive edge in the booming artificial intelligence sector. On the flip side, Commissioner Christie adopted a more cautious stance, voicing concerns over grid reliability and the fair allocation of costs. His worries stem from the potential for co-located loads to dodge certain charges that all retail loads typically shoulder.

The conference highlighted a critical debate: how do we frame the resource adequacy issue? Critics of co-location contend that designating capacity from existing generators for behind-the-meter loads could diminish the grid’s overall capacity, thereby compromising reliability. Proponents counter that these loads will require capacity regardless of their location. The discussion spiraled into whether established models from combined heat and power systems could inform the future of data center growth, or if a fresh approach was necessary to capture this evolving landscape.

As FERC seeks comments on the conference discussions, the energy sector is left in a state of uncertainty. Stakeholders are clamoring for clarity on how their business arrangements will align with regulatory requirements. With data center growth projected to surpass $150 billion by 2028, the urgency for a cohesive regulatory framework for co-located loads is palpable.

However, the story took a turn when FERC issued an order rejecting an amended interconnection service agreement (ISA) in the PJM region. This decision dealt a significant blow to developers eager to expedite their connections to the grid. The majority opinion, led by Commissioners Christie and See, determined that PJM’s proposal did not meet the stringent criteria for non-conforming provisions, which are typically reserved for unique interconnection challenges. Commissioner Christie, while expressing an open mind toward co-location, noted that the specifics of this case fell short of justifying a departure from established agreements.

The implications of these developments are profound. As the conversation around co-located loads continues to evolve, the tension between innovation and regulatory compliance will shape the future of energy consumption. With the stakes high and the landscape shifting, stakeholders must navigate these complexities to ensure their operations remain viable in an increasingly competitive market. The outcome of these deliberations may very well dictate the pace at which new energy-intensive industries can flourish, or conversely, how existing frameworks might stifle innovation in the name of reliability and cost-sharing. The road ahead is fraught with challenges, but the potential rewards for those who can successfully maneuver through this regulatory labyrinth are significant.

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