Amazon nuclear deal may face FERC scrutiny

• Amazon sees the deal to co-locate with Talen's 2.5-gigawatt Susquehanna nuclear plant as a creative near-term way to meet its climate goals.

Friction point: Neighboring utilities Exelon and AEP argue that the agreement would enable Amazon to escape fees that other customers pay, shifting about $140 million to the rest of the grid at a time when prices for power plant capacity in the region are sharply rising.

• The utilities are pressing the Federal Energy Regulatory Commission to hold a hearing on the matter.
• FERC has asked Talen Energy for more information. It has also scheduled a Nov. 1 conference on the co-location of data centers, acknowledging the issue has become a broader concern.

The big picture: The deal comes as PJM Interconnection—a regional grid covering 13 states and the District of Columbia—reported an 800% price spike in July in consumer payments to generators to secure enough future power capacity to meet demand.

• The cost to consumers is real, said Colette Honorable, a former FERC commissioner who now leads the public policy team for Exelon, the largest U.S. utility by customer count.
• Baltimore-area Exelon customers, for example, face a $18 increase in residential monthly electricity bills just from the capacity charges, she said.
• The grid is in an "unprecedented and historic moment," she said, and "it's imperative that the commission take a moment to give us the rules of the road. How should we all go about meeting this large load growth?"

The other side: Amazon declined an interview request, but said in a statement that its nuclear deal is part of its goal to reach net-zero carbon emissions by 2040.

• "To supplement our wind and solar energy projects, which depend on weather conditions to generate energy, we're also exploring new innovations and technologies, and investing in other sources of carbon-free energy," the company stated.
• "Our agreement with Talen Energy for carbon-free energy is one project in that effort."
• Talen denies the arrangement will strain the grid.
• "It brings service to a new customer load quickly, which has arrived and is significant," the company said in a statement. "We remain resolute in the fact that we have a good solution to a growing need."

Between the lines: The market is working by sending a signal for more power plants to be built, which could relieve long-term cost concerns, said Todd Snitchler, head of the Electric Power Supply Association, which represents Talen Energy and other independent power producers.

• If regulators approve the Amazon-Talen tie-up, other companies could replicate it to avoid lengthy permitting timelines, especially if most deals involve new generation, Snitchler said.
• "I do think this could be a model that allows things to happen faster and in a way that eliminates some of the costs to consumers," Snitchler said.
• Already, at least one company — Calpine, an independent power producer — said it's ramping up power plant projects in response to price signals.

Our thought bubble: FERC will seek to strike a careful balance between consumer bills and developers' desire to avoid lengthy delays and costs of building long-range power lines.

• A ruling that rejects the deal or imposes onerous requirements would risk slowing these deals and forcing data centers to rely on a grid fed by mostly natural gas.
• But a blanket approval could divert large amounts of power from the existing grid to data center consumption — an outcome that also relies on burning fossil fuels.

What to watch: In the meantime, data center companies will likely continue to rely heavily on bringing new plants online.

• Amazon announced 74 power purchase agreements involving nearly 9 gigawatts of new wind and solar capacity in 2023, BloombergNEF reports.

Editor's note: This story was corrected to note that Colette Honorable leads the public policy team for Exelon (not lobbies for Exelon).