The Federal Energy Regulatory Commission has rejected PPL Corp.'s amended interconnection agreement with Talen Energy Corp.'s 2,494-MW Susquehanna Nuclear plant providing power to an Amazon.com Inc. datacenter campus.

After months of back-and-forth between utility companies Exelon Corp. and American Electric Power Co. Inc., which filed protests in June, and Talen, PPL, the PJM Interconnection LLC and other independent power producers, FERC late on Nov. 1 found that "PJM has failed to meet the high burden to demonstrate the non-conforming provisions are necessary."

Exelon and AEP protested the proposed amended interconnection service agreement (ER24-2172), which would have increased the colocated load at the Susquehanna facility from 300 MW to 480 MW. They asserted it would harm reliability in the PJM region, raise other customers' rates through additional transmission charges, and siphon off grid capacity despite that capacity sitting behind the meter.

PPL, along with independent power producers Calpine Corp., Constellation Energy Corp. and Vistra Corp., disputed AEP and Exelon calculations of the annual transmission system costs that would be borne by ratepayers as a result of the power supply deal. They also offered expert testimony rebutting claims that colocated loads fully isolated from transmission systems do not exist.

"PJM insists that the proposed amendments were developed to address the circumstances of this particular interconnection and that approval could thus be limited to these circumstances," FERC recalled. "However, significant aspects of the proposed non-conforming provisions rely heavily on a generally applicable document."

"This raises questions regarding whether PJM intends to offer these terms to all similarly situated interconnection customers," the agency continued. "Indeed, the record indicates that other parties are interested in pursuing similar arrangements wherein a large load colocates with an existing generator."

The order leaves in place the existing interconnection service agreement (ISA) allowing for 300 MW of colocated load at Susquehanna. But Talen Energy wrote in a Nov. 3 statement that FERC's decision will still "have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey."

Talen said Amazon will nevertheless go ahead with development of a datacenter campus for its Amazon Web Services Inc. subsidiary at the Susquehanna site using the 300 MW available.

Commission Chairman Willie Phillips dissented, claiming the ruling "is a step backward for both electric reliability and national security."

"I would have accepted the amended ISA and also required PJM to submit regular informational filings to provide transparency into the arrangement's operations over time, including certain of the issues in dispute, such as back-up service." Phillips said. "I am concerned that the arguments the commission relies on to reject the amended ISA lead it to miss the forest for the trees."

Commissioner Mark Christie concurred with the majority ruling, saying, "The specific colocation arrangement proposed here may make sense and be acceptable under the Federal Power Act, but on this record that claim simply has not been proven."

Commissioners David Rosner and Judy Chang did not participate in the ruling.

Power producers' shares slide after decision

Constellation's stock with down more than 10% as of about 11:a.m. ET Nov. 4, in heavy trading. Talen and Vistra shares were down more than 2.5%, also in heavy trading.

"About 45% of our Constellation valuation is datacenter uplift followed by about 20% for [Vistra and Talen]," analysts at Jefferies wrote Nov. 3. "From our extensive investor conversations, very few investors, including us, expected an outright FERC rejection of the ISA."

Guggenheim analysts described the FERC rejection as "not a panic button moment," since it leaves "multiple pathways" remaining for Talen and Amazon.

"Specifically, in our view the path of least resistance is now front of meter/virtual [power purchase agreements]," Guggenheim analysts wrote Nov. 3.