The Federal Energy Regulatory Commission on Friday rejected a request that would allow Talen Energy Corp.’s Susquehanna nuclear plant to divert some of its electricity output to Amazon’s data center. The deal had generated excitement for the ability of hyperscalers — the largest data center developers — to quickly gain access to power without years of waiting for new power plants or transmission to get built.

But now those plans are likely going to be deferred. FERC’s ruling creates a barrier to the quick supply of the massive electricity demand needed to power data centers as AI rapidly evolves. While carbon-free nuclear power may eventually help provide the needed energy, it now seems more probable that it will have to come from new reactors that are unlikely to be available anytime soon.

“No more behind-the-meter deals are likely at this point,” Julien Dumoulin-Smith, analyst at Jefferies LLC, said in an email, referring to agreements that tap directly into power plants without connecting to the grid. “The message is clear enough.”

Shares of generators plunged on the decision, with Constellation Energy Corp., the biggest US nuclear company, posting its biggest intraday decline even after reporting blowout earnings. Talen Energy and Vistra Corp. also tumbled. All three companies’ shares had more than doubled this year, in part on prospects for AI driving electricity demand growth to an unprecedented clip.

Temporary Setback

While the ruling may be revised in the long-term, “there’s uncertainty about the potential for co-location at nuclear plants,” said Paul Patterson, an analyst at Glenrock Associates LLC.

Constellation sees the ruling as a temporary setback and “not the final word from FERC on co-location,” according to Chief Executive Officer Joe Dominguez. He expects to see further guidance on the issue.

The Amazon deal for power from the Susquehanna plant was one of the first big transactions that signaled the tech industry’s growing demand for power. Another was Constellation’s agreement in September to restart its shuttered Three Mile Island plant in Pennsylvania and sell power to Microsoft Corp. That deal is unlikely to face the same pushback, because the reactor is now dormant. Getting it back on line will mean new supply rather than diverting it from existing customers, though the reactor is not expected to be in service until 2028.

The Pennsylvania deal was emblematic of the inherent misalignment between the fast-moving tech sector and the much slower pace for power infrastructure planning.

FERC Chairman Willie Phillips, who dissented in the 2-1 commission order, called AI a “generational” opportunity for US national security concerns and economic opportunities. But there are significant concerns that quickly building big data centers will add stress to a grid already strained by aging infrastructure and extreme weather, and shift significant costs to households and other businesses.

Constellation’s Dominguez noted that tech companies have said they are willing to foot the cost of building power plants and transmission. “This is not a dollars issue, this is a speed issue,” he said during an earnings call.

Reviewing Options

In the order Friday, FERC ruled on a technical “interconnection service agreement” that would have allowed a Pennsylvania nuclear plant to directly supply the adjacent data center campus, bypassing the 13-state Eastern US grid operated by PJM Interconnection LLC. The request was rejected because PJM didn’t adequately prove why a special contract should be awarded and that the deeper implications would need to be evaluated more closely.

“PJM is reviewing the commission’s order and assessing its implications,” Jeffrey Shields, spokesman for the grid serving more than 65 million people from Washington DC to Illinois, said in an email. Talen Energy also said it’s reviewing options.

The FERC decision Friday came after a day-long meeting discussing the merits and concerns about building data centers next to power plants.

The commission is likely to request comments about that proceeding, ClearView Energy Partners LLC analysts led by Timothy Fox said in a report. They noted that the decision doesn’t undo the 300 megawatts of power Amazon was already approved to take from the Pennsylvania plant, and that PJM and the parties could file for a rehearing.

However, Jefferies’ Dumoulin-Smith said he doesn’t expect a refiling due to a “protracted and uncertain process.”