(Bloomberg) -- Talen Energy Corp. and other US power company stocks slumped Monday following the rejection by the country’s top energy regulator of Talen’s plan to supply a data center.
The Federal Energy Regulatory Commission voted 2-1 late Friday against the proposal that would have increased the amount of power supplied to an Amazon.com Inc. data facility adjacent to Talen’s Susquehanna nuclear plant in Pennsylvania.
The decision comes as data centers are poised to drive unprecedented growth in electricity demand. Artificial intelligence is evolving quickly, and the data centers being planned to support it use as much power as entire towns. But the concern is that such deals will allow them to shunt costs to other consumers.
The FERC decision is “a major setback for the nuclear data center thesis,” Jefferies LLC analysts led by Julien Dumoulin-Smith said in a note.
Constellation Energy Corp. tumbled as much as 13% in New York, its biggest intraday decline ever. The drop came even after the company reported strong third-quarter results and raised its guidance, citing surging demand from technology companies.
Talen slumped as much as 8.6%, the most in three weeks, while Vistra Corp. fell as much as 6.7%. All three companies have seen their shares more than double this year amid very bullish predictions for artificial intelligence-driven power consumption.
Amazon Web Services paid Talen $650 million in March for a 960-megawatt data center campus adjacent to Susquehanna, and signed a long-term agreement to buy power from the plant.
“FERC’s decision will have a chilling effect on economic development in states such as Pennsylvania, Ohio, and New Jersey,” Talen said in a statement, adding that it is evaluating its options.
On Friday, FERC ruled on a rather routine, technical amendment made by the largest US grid operator on behalf of a Pennsylvania nuclear plant.
In June, PJM Interconnection, which operates the eastern US grid, sought approval from FERC to increase the amount of power used onsite at Susquehanna to 480 MW from 300 MW. Utility owners American Electric Power Co. and Exelon Corp. opposed the move, arguing it could threaten grid reliability and raise customer rates.
FERC ruled Friday that the plan didn’t adequately show why the special contract should be allowed under federal rules. The plan would set a precedent and the issues should be reviewed more closely, it said. Commission Chairman Willie Phillips dissented, saying that the grid operator addressed reliability issues and called the order “a step backward” for both electricity reliability and national security.
The federal order on Friday came at the end of a day-long FERC technical conference that discussed the merits and challenges of co-locating data centers with existing power plants, also dubbed “behind-the-meter” demand.
Phillips said AI and related technologies represent a generational opportunity for national security and economic growth.
While PJM made the filing to enable the Amazon-Talen deal, the grid operator has warned that it’s facing a potential shortfall of generating supply by 2030, Stu Bresler, executive vice president of market services and strategy, said in a statement for the technical meeting on Friday. Big consumers located at power plants may create reliability concerns and hinder proper planning, he said.
--With assistance from Will Wade.
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