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When FERC initially rejected the Talen Energy–Amazon co-location rate agreement at the Susquehanna nuclear facility in May 2024, it did more than block a single behind-the-meter arrangement. It opened a jurisdictional question the agency has yet to fully close: under what conditions can a large load customer interconnect directly to a generation asset, bypass the ISO/RTO queue, and avoid socializing network upgrade costs across the broader ratepayer base? Industry participants are now actively anticipating a ruling that would establish the framework answer — and the implications for every PPA currently in negotiation are material.[1]
The Co-Location Fault Line: Jurisdiction, Cost Allocation, and Queue Integrity
FERC's posture on co-located data center load has been described as operating at "the absolute edge of precedent."[1] That framing is precise. The agency is being asked to resolve whether a hyperscaler's direct interconnection agreement with a generator — structured to avoid or abbreviate the ISO/RTO interconnection queue — constitutes a jurisdictional wholesale transaction subject to FERC cost allocation rules, or a private commercial arrangement outside the Commission's reach.
PJM is the primary battleground. The combination of FERC Docket ER24-1943 (the Susquehanna proceeding), active RM22-2 transmission cost allocation proceedings, and PJM's Large Load Interconnection Process (LLIP) now under Commission scrutiny creates a layered regulatory exposure for any large load customer in PJM's footprint — which covers the densest concentration of AI data center development in Northern Virginia, Ohio, and Illinois. The core risk is straightforward: if FERC determines that co-located arrangements improperly shifted network upgrade costs onto the broader ratepayer class, the agency has both the jurisdictional hook and the administrative precedent to reprice those arrangements — potentially retroactively on executed deals and prospectively on transactions currently at term sheet stage.
For PPA counterparties, the contractual implication is acute. Standard EEI power purchase agreement templates were not drafted to account for FERC co-location reclassification risk. Regulatory change-in-law provisions — typically written to address tariff modifications affecting energy pricing — may not cleanly capture the scenario where FERC redefines the interconnection cost responsibility of the load-side party. Practitioners negotiating active deals in PJM right now should be scrutinizing whether their change-in-law language is broad enough to allocate this specific risk, and to which party.
Hyperscaler Lock-Up and the Mid-Market Supply Squeeze
The regulatory risk does not exist in isolation — it compounds a structural supply constraint that is already reshaping mid-market procurement economics. Hyperscalers absorbed the dominant share of U.S. renewable PPA volume in 2025, executing fixed-price, long-tenor deals largely in 2023–2024 when utility-scale solar pricing in PJM and MISO was materially softer than today. Mid-tier operators in the 50–500 MW load range are now competing for a thinner pipeline of uncontracted generation, frequently at index-linked or merchant-risk structures that expose them to price volatility their larger competitors locked out.
IEA confirmed in April 2026 that solar led all global energy source growth in 2025, with electricity demand growth driven explicitly by EVs and data centers — validating the structural load thesis while simultaneously explaining why renewable supply absorption by hyperscalers is tightening mid-market access.[2]
The Lydian Energy acquisition of Hanwha Renewables' Atlas North portfolio, announced 22 April 2026, is a direct market signal: large renewable project portfolios are clearing quickly to specialized acquirers, further compressing the optionality available to mid-tier buyers who are not moving at hyperscaler speed or scale.[3] Amazon's concurrent execution of nine new renewable PPAs in Australia — spanning wind, utility-scale solar-battery hybrids, and distributed solar across New South Wales — confirms this is a global sourcing strategy, not a regional anomaly, and that hyperscalers are willing to accept more complex hybrid offtake structures when clean supply is constrained.[4]
On-Site Self-Generation: From Hedge to Strategic Imperative
The convergence of interconnection repricing risk and PPA supply compression points to a structural re-evaluation of on-site and behind-the-meter generation that goes beyond simple cost optimization. For mid-tier data center operators, on-site self-generation is increasingly the most effective instrument available to reduce exposure on both vectors simultaneously.
The logic is direct. A facility that generates a meaningful share of its load from on-site solar, combined heat and power, or co-located battery storage reduces its net withdrawal from the grid — and therefore its exposure to network upgrade cost allocations that FERC may soon require large load customers to bear more explicitly. Simultaneously, it reduces the volume of renewable MWh that must be sourced through an increasingly competitive utility-scale PPA market. The Amazon Australia playbook — distributed solar stacked alongside utility-scale and storage offtake — is precisely this hybrid architecture deployed at hyperscaler scale. Mid-tier operators should be modeling a U.S.-market equivalent now, not after the FERC ruling lands.
The practical execution path involves several near-term steps: assessing site capacity for rooftop or ground-mount solar under applicable state net metering or behind-the-meter tariff structures; evaluating co-located battery storage to firm on-site generation and participate in demand response programs that can offset capacity costs; and structuring any remaining utility-scale PPA exposure with explicit FERC co-location change-in-law carve-outs. States with favorable distributed generation interconnection rules — notably those outside PJM's direct footprint or with active community solar programs — offer additional optionality for operators with multi-site portfolios.
On-site generation does not eliminate regulatory exposure, but it materially reduces the surface area of that exposure — particularly if FERC moves to assign full network upgrade costs to large co-located loads.
What to Watch: Dockets, Deadlines, and Decision Points
Three near-term milestones will determine how quickly this risk reprices into active deal negotiations. First, the anticipated FERC ruling on co-located load framework — likely emerging from either a Declaratory Order in the Susquehanna lineage or a formal NOPR on large load interconnection classification — is the trigger event. When it lands, it will immediately reprice the risk profile of every unexecuted PPA with a co-location or behind-the-meter component in PJM. Second, PJM's LLIP compliance filing response to FERC scrutiny will clarify whether fast-track large load interconnection survives in recognizable form or is substantially restructured with materially higher cost allocation to load customers. Third, state PUC proceedings in Virginia, Ohio, and Illinois — where data center load growth is most concentrated — will follow the federal ruling with their own proceedings on distribution-level interconnection cost responsibility, creating a second wave of repricing risk that practitioners should be tracking in parallel with the FERC docket.
The Susquehanna proceeding left the framework question open. The market has been operating in that ambiguity for nearly two years. The window for structuring around it — through on-site generation, refined PPA risk allocation language, and hybrid offtake architecture — is narrowing as the ruling approaches.
References
- Industry Participants Anticipate FERC Ruling that Could Alter the Regulatory Framework for Data Center Interconnection. National Law Review, 22 April 2026. https://natlawreview.com/article/industry-participants-anticipate-ferc-ruling-could-alter-regulatory-framework-data
- IEA: Solar overtakes all energy sources in a major global first. Electrek, 19 April 2026. https://electrek.co/2026/04/19/iea-solar-overtakes-all-energy-sources-in-a-major-global-first
- Lydian Energy Acquires Atlas North Portfolio from Hanwha Renewables. Yahoo Finance / Energy M&A and Deal Flow, 22 April 2026. https://finance.yahoo.com/sectors/energy/articles/lydian-energy-acquires-atlas-north-103000403.html
- Amazon Australia inks nine new renewable energy PPAs. ESD News, 22 April 2026. https://esdnews.com.au/amazon-australia-inks-nine-new-renewable-energy-ppas
