Constellation seeks data centers at power plants despite regulatory setback

NEW YORK (Reuters) -Constellation Energy will continue to pursue deals to develop data centers on the sites of its U.S. power plants, days after federal regulators dealt a blow to the so-called co-located arrangements, company executives said on Monday.

The Federal Energy Regulatory Commission on Friday rejected an agreement to increase the power capacity of an Amazon data center connected directly to Talen Energy's nuclear power plant in Pennsylvania in a decision seen as chilling similar deals.

Constellation said it is seeking guidance from regulators after FERC's decision about co-location, which had become a promising prospect for Big Tech's plans to quickly access large amounts of power for its AI expansion instead of waiting for years to connect to the grid.

"We will pursue this regular clarity while simultaneously pursuing commercial strategies for co-location that are permitted under our existing rules," Constellation CEO Joseph Dominguez said on a company earnings call.

Dominguez outlined what future co-located agreements would look like, including that nuclear energy directly fueling data centers be required to switch over to powering the grid in times of supply emergencies and that backup power for the centers could be sold back to the regional market.

"There are multiple regulatory and commercial pathways to resolve the co-location issues, and we will work quickly with customers and other stakeholders to put these in place."

Constellation, which is the largest operator of U.S. nuclear power plants, had backed Talen in the regulatory battle. Shares of the nuclear power operators had shot up this year partly on the prospect of developing co-located data centers.

Constellation stock was down about 10% on Monday.

The FERC fight was brought by electric utilities Exelon and American Electric Power, which opposed the Talen-Amazon data center interconnection agreement, saying that it threatened to raise power bills for everyday customers and erode grid reliability.

Talen's Susquehanna nuclear-powered data center campus, sold to Amazon this year, would have the capacity of 960 megawatts, or enough electricity for all of the homes in Philadelphia.

In a 2-1 vote, FERC shot down Talen's request to expand the capacity of data center beyond 300 megawatts. The vote followed a FERC technical conference to discuss broader concerns about co-locating data centers.

Diverting that electricity, which currently flows from the nuclear plant to the broader grid, could unfairly shift costs to the public and worsen a supply-demand imbalance in the PJM Interconnection regional power market, the majority of voting commissioners said.

Talen Energy, in a statement posted to its website on Sunday, said it would consider various methods to quickly power up data centers.

"The data center economy will require an all-of-the-above approach to satisfy the increased demand, including co-location," the company said.

(Reporting by Laila Kearney; Editing by Aurora Ellis)