Third Bridge 专家访谈讨论 FirstEnergy 数据中心负荷与 PJM 输电机会但未披露新增公司级催化

[[00:00:46]]
What are your views on the data centre opportunity for FirstEnergy, including any risks around that? In the company's service territory, it has a data centre project with Scrubgrass and a related waste coal-fired power plant project.

[[00:01:15]]
Yes, that is true. My idea around the risks associated with data centres is when you think about large load connections within the PJM footprint, which is the primary footprint for FirstEnergy's territories, I believe that you've seen a great deal of new data centre growth in the Virginia area, which has been primarily supported by Dominion. I think a lot of the knowledge and experience that Dominion had in developing those new data centres has been shared more broadly across all of PJM through the transmission owner sector. FirstEnergy has been able to leverage some of that knowledge as well as the knowledge sharing that went on when they went into a joint venture with Dominion and AEP for… I think it was PJM's… I think it was the 2024 open window where they were looking to build additional transmission to support, I won't just call it the data centre load, but large load connections throughout the entire territory.

I think there's a great deal of opportunity in terms of growth there with the additional load connections, but I do see from a risk perspective that as the load continues to submit requests, PJM is going to have to think through exactly how they're going to prioritise that investment, because if you look at the generation portfolio or the generation queue within PJM, what has happened is you have a lot of what we consider to be speculators in that generator queue that have an idea of a potential generation source, don't necessarily have the funding and don't necessarily have the siting that's required for it. It's really bogged down that queue substantially. I think that you're starting to see a lot of speculators even work into the data centre space. Until there's clarity in terms of how that queue is going to be managed from a load study perspective, there's just a great deal of uncertainty that's there, and that uncertainty leads to risk in terms of extended project lengths in terms of cost, in terms of basically managing the stakeholder process in PJM.

With all that being said, I think there are things that can be overcome. I know PJM has actually looked at revising their load connection process and specifically their load studies. As opposed to doing it on a one-off basis, they're doing a cluster approach associated with evaluating load connections, which should substantially reduce the time it takes. I think they're also contemplating measures within the load connection space similar to what they've done in the generation space, and that's requiring collateral requirements that typically haven't been requirements in the past that should eliminate some of that speculation that's there.

[[00:04:15]]
FirstEnergy has highlighted potential opportunities with generation development, specifically in West Virginia, given the current governor appears to be pushing for new generation capacity. What are your thoughts on that as an opportunity set?

[[00:04:33]]
I think it's a significant opportunity. If you look across PJM's footprint, a lot of states have either shut down generating plants or they're in the process of winding down the plants that they have there. West Virginia, being a coal-based state as well as seeing additional natural gas growth within the market, is a prime opportunity to be what… I think, at one point, the governor may have said that he wanted to be the breadbasket of PJM. That basically means that if they want to build generation, West Virginia doesn't have a significant concern with being that source of that supply because it gives them a lot of leverage within the marketplace. Obviously, with FirstEnergy having one of their state-owned utilities there, it provides them a great opportunity.

I believe in their latest rate case filing, they proposed a combined cycle natural gas unit. I think it's a couple of thousand megawatts. I can't remember exactly what the size is, but I believe that that unit would have some capacity to be able to be expanded. I think the CEO has said on several occasions that that's an opportunity that they want to pursue as long as there's a construct within PJM that allows generators to still be compensated in a way that doesn't put them in a punitive stand [sic] as some of the prior structures of generation investment has been within PJM's capacity market construct. I think there's a great deal of opportunity, and there's receptiveness by the legislator and the commission within West Virginia to be able to add additional generation and fill that void that exists within PJM in terms of generation investment.

[[00:06:28]]
What do you think about the existing structures such as the reliability procurement process and the capacity auction mechanism in PJM? Is that sufficient to incentivise FirstEnergy's participation in generation through its West Virginia service territory?

[[00:06:58]]
I would say, currently, as PJM is set up from a capacity standpoint… Let me address your question specifically. You talked about reliability. I think PJM's reliability construct and the measures and methods that they use to ensure that there is capacity within the system is sound. I don't think there's much debate around the rules that they use to gauge what their system requirements are. I think that has been relatively robust. The issue has been that that investment hasn't materialised in the way that they wanted it to, and I guess that takes us to the second part of your question around the capacity market. Since PJM's capacity market was put into place, it has been tweaked many, many times. I think that tweaking has got to the point where it's no longer sustainable as it was designed. PJM has come up with several new methods to incent new generation or fast-track new generation outside of the normal queue process. As I mentioned earlier on, I think some of that is to eliminate the speculators that are there, the folks that were really never going to build the generators at all. They were just looking at a possible opportunity to garner capacity and potentially sell that off to someone else once they saw where capacity prices were going to be.

Without a more long-term stable structure for compensation on generation assets, I think it will still be a challenge for PJM to manage that on their own. I think the benefit here goes back to the question that you asked earlier is what can the State of West Virginia do to help supplement what I consider to be the doughnut hole of compensation when it comes to generators within PJM's territory. A long-winded way to answer your question, but I think that as it's constructed right now, I don't think PJM has the long-term incentive structure to be able to get generation on the ground in the best capacity. I think that there is a possible supplement here for the FirstEnergy territory to be able to get something done with the West Virginia PSC that fills that void.

[[00:09:30]]
When we talk about FirstEnergy's ability to go after large-load interconnections, how do affordability concerns and political scrutiny of investor-owned utilities – especially in PJM – impact the company's ability to go after that, and therefore, what its growth outlook looks like?

[[00:09:51]]
More globally, not necessarily just when it comes to FirstEnergy and the investor-owned utility to be able to make transmission investment, I think that the infrastructure within the US, and I'll specifically target Pennsylvania, has gone through decades of underinvestment. I think that underinvestment, what we're starting to see is that it was looking at load growth that was in the range of 2-2.5% on an annual basis. With data centres and other large load connections coming on, you're seeing growth that's a lot larger than that. What that is ultimately doing is it's shining a light on the fact that transmission investment has been underserved over the past few decades. I think that several investor-owned utilities have started to make that investment, FirstEnergy being one of them. They had the Energizing the Future programme that started, man, I want to say, probably over 10 years ago, which really started to move from west to east in updating the transmission system, but as you see, with PJM having multiple open windows over the last five years, that still hasn't caught up with the demand that's there. I think that as that continues, the affordability question is going to become more significant because of the fact that you're going in for rate cases and most of these transmission companies have ROE of, let's just say, between 8% and 10%, which is fairly substantial, especially when you compare that to distribution companies.

I think that as long as we can continue to talk about the need for investment in the transmission system in order to support the growth that we want to have in this country, specifically in the Northeast, you could overcome that affordability question, but it's still going to be out there. I think right now, the way that FirstEnergy has gone about their regulatory ratemaking and regulatory filing process, they've been very thoughtful about that and when they've gone in for cases, thinking about what they need to do in terms of modifying or adjusting what their ROE is to be consistent with what the market is willing to bear. Again, I think it's an affordability question that's out there, but not one that can't be overcome by clearly articulating the need that's out there for the transmission to be able to supply the load that we're seeing come on.

[[00:12:34]]
FERC [Federal Energy Regulatory Commission] recently issued show-cause orders to the major RTOs [Regional Transmission Organizations] to address what it considered inadequacies with existing large-load interconnection rules. Some of the hot button topics include clear cost allocation, guidelines for colocation and behind-the-meter arrangements, frameworks for flexible large loads and transmission debottlenecking, whether it is via efficient processes or alternative technologies among other things. Thinking about what happens in the aftermath of these show-cause orders, depending on what PJM comes back with, what could that mean for FirstEnergy?

[[00:13:23]]
To break out those specific examples that you gave, the behind-the-meter rules that PJM has are consistent with the other behind-the-meter rules of other RTOs and ISOs, and I think that's fairly well-established. From a market capacity standpoint, you never look at those assets as true assets to PJM, but on the flip side of that is the co-located load. This is somewhat of a misnomer because some of the show-cause orders that have come from FERC were specifically related to situations where you had existing capacity sitting in PJM's current market. Obviously, PJM only has a three-year look forward when it comes to capacity requirements. If you get to that third year, fourth year and you no longer want to have that resource be an asset to PJM from a capacity standpoint, then you could take it out. What that does do is that when you think about colocation, one of those show-cause orders was to remove nuclear megawatts from PJM's generation stack in order to support a data centre that was under development. Those types of situations where you are now burdening the existing customer pool with less generation, therefore, moving them further up the stack, increasing the potential LMP prices for those customers is a detriment to the overall market.

The co-located loads conversation is one that I think is very interesting, and I think, in my opinion, if it was allowed under the early framework that it was put in, and again, like I said, this is one of the early show-cause orders that FERC issued, if it's allowed to be established the way that it's currently designed, it would limit FirstEnergy's opportunities because it's going to negatively impact the market. I think that that's going to have a backlash on potentially having incremental investment out there in the transmission system. If PJM responds to FERC's show-cause, and I think show-causes in other ISOs and RTOs as well, with a structure that does not allow existing generation to be removed from the generation stack, but allows new generation to be structured in the same way that behind the meter is structured and never looked at as a resource and never was looked at as a contributor to the overall PJM market, I think that's a way that it could be sustainable and wouldn't negatively affect investment opportunities for FirstEnergy or other transmission owners for that matter. I think there's a challenge there and how PJM responds is going to be a good leading indicator as to how that opportunity is going to be leveraged going forward.

[[00:16:34]]
The agreement between AWS [Amazon Web Services] and Talen Energy for the Cumulus data centre deal related to being co-located with Susquehanna and taking that existing generation offline and how that amended ISA [Interconnection Service Agreement] was blocked by FERC, if we had a framework where colocation agreements such as the original behind-the-meter deal were allowed, you're saying that would be a negative for FirstEnergy. However, if it was bring your own new energy or new generation framework where you can tie off in bilateral agreements, but it has to be new generation, that would be a positive for the company. Is that correct?

[[00:17:32]]
That is correct. Just to be very clear, the way I see that generation being removed from the market is a negative because, as you know, if you look at your supply curve or demand curve, basically, you would be reducing your supply curve and shifting out further on the demand curve where generation is going to come in. You think about nuclear plants, for example. As those are taken out of the market, you're replacing those with renewables, you're replacing them with natural gas, oil, whatever the case may be. I think that that would be detrimental because from a customer impact perspective, you would have a lot of customers intervening and customer groups intervening on increased transmission investment because you're doing it at the expense of those customers and where they currently sit on the generation stack.

[[00:18:41]]
Even if it is a framework that is saying that existing generators can't tie off with data centres and go off-grid, you can do that with new generators. Technically, isn't that still eating into the opportunity set for FirstEnergy, because it has been cut out as a middleman in any of those new agreements?

[[00:19:15]]
Yes. From a direct load perspective, I'm assuming, is what you're asking. From a direct load connection perspective, yes, you could lose opportunity with regard to new transmission coming online. FirstEnergy and other transmission owners wouldn't be serving that load directly, but there's two points to consider there. If you think about that backlash from a customer perspective, is that going to translate into FirstEnergy's existing and other transmission owners investment in the existing customers, potentially reducing the ROE that they can get the next time they have to go on rate cases because those customers believe that, "Hey, look, we're not getting the same level of support and access as what is happening when it comes to these larger data centres," number one. Secondly, I think when you look at the way that that transmission investment is handled overall, and this gets back to your earlier question around the rate structure that's there, those large transmission owners aren't a significant portion of the revenue component for most integrated utilities. It's not like you're having a windfall. Yes, it is great to have the additional load come on, but from a rate perspective, it's not as significant as some of your other customer classes.

[[00:20:52]]
It is more of a positive in the sense that ratepayers might be shielded from any upwards pressure from onboarding data centres, and therefore, there is less pressure on future rate cases. Is that how to interpret that?

[[00:21:12]]
Yes, that's exactly it. Again, I know we're talking significant size when it comes to these large load connections that are coming on, but you got to think about it. That's incremental to the existing rate base that they have already. If they were to lose what they're gaining on those, I think that would be a more significant financial impact.

[[00:21:38]]
There is a limit to the attraction of data centres, insofar that too much is a clear negative. How do we think about what is tolerable for FirstEnergy in terms of handling new large-load interconnections?

[[00:22:01]]
Again, being away from the organisation for over a year now, I think that question is going to come down to capacity. There's only so much existing capacity within the system right now… When I say capacity, I'm not just talking about transmission capacity, but generation capacity to support that. One of the things that we discussed with PJM several years ago was how do you share the knowledge across PJM's territory to understand what truly the system can hold because part of the reason why some of these larger loads, data centres, as an example, haven't been able to come on is because when you do a load study, you're not just looking at the load impact for your specific territory, FirstEnergy, AEP, Dominion, whatever the case may be. You're also looking outside of your territory and the potential implications to those surrounding territories that are there. You're not just talking about investment requirements sitting in your region, you're talking about expanded investment that's going outside of that. How does the transmission owner that's adjacent to you feel about that? Is that something they're willing to do? That's, again, going back to the comment that I made before around some of these joint ventures that are out there.

If you can look across the system and see that impact, you can come up with solutions that are advantageous for PJM. I think that's why PJM likes this approach of collaboration. It's going back to where the transmission system was decades ago when you did have this cross-company collaboration and looking at the system. Again, I'm not trying to knock PJM, but I don't think PJM has been able to work as closely as they would have liked to, to address some of these concerns. You see it in the generation space. They look at the LMPs to determine where they would need generation, but that doesn't necessarily mean that a developer is going to develop there. When they are able to look at on a more integrated basis, I think there's a lot more opportunity to solve the big constraints that are within the system.

I don't know if I'm getting exactly to answering your question because I don't know if it's a simple answer as to specifically say I can't say, I should say, what their capacity is because it's based off of where the potential data centre wants to locate. I think there are pockets that are absolutely available for additional investment. Again, until you start doing some significant investment, similar to what Dominion had to do for their data centre corridor in Virginia, until those significant investments are made and you see the large loads actually come online and consume at the level that they were projected to consume at, it's going to be hard for you to really evaluate what that total net capacity is.

[[00:25:15]]
FirstEnergy has asked FERC to require that data centres pay for any required transmission upgrades to facilitate interconnection rather than the usual practice of cost recovery through rate increases on the broader rate payer base. Given that would shift the risk to the data centre customer, and ostensibly, disincentivise them to interconnect at least in the FirstEnergy service territory, is that primarily because the company might be concerned with the affordability pressure related to that and the adverse outcomes on future rate cases because of that?

[[00:26:10]]
I absolutely believe that. AEP was the first one to propose that in, I think, their Ohio filing about the data centres taking on a greater responsibility when it comes to that. If you think about it, on the generator side, the generator has to take on that responsibility when they're looking to interconnect. The fear here is that you could have these data centres come on, and let's just say, as an example, the thought is that there's going to be significant load required for these data centres. If the data centre actually, let's say, is supporting AI, if AI becomes more efficient and it doesn't take the same amount of energy as you fine-tune these large language models, that reduces the consumption. Now, if we went under the old cost allocation structure, a lot of that investment would then fall on those existing customers where that data centre would (ph 27.11) because its load is lower than what it was expected to be. If that was to happen under the current process, that would be negative not only from the perspective of what FirstEnergy and other transmission owners expected, but like I said, it would be reallocating costs to those remaining customers that are there.

I think that's part of the fear that exists out there. If you shift it over, you look at these data centres, they're fairly significant corporations that are behind these data centres. What I've heard in conversations that I had during the data centre conversations that were out there is that a lot of these data centres have deep pockets is ultimately what I'm saying. If they have deep pockets, the cost associated with these interconnections or these connection requests isn't a detriment to them. The detriment to them is the long lead time necessary to get there, to get these loads connected. If you could overcome that, they probably pay 2x what the cost is for a load connection, but again, because of the system constraint, the load analysis that have to be done and the contingencies that have to be factored in, that to me is one of the bigger pieces of why you've seen a longer lead time in this and then, like you said, it's the impact on other customers that's a concern. To answer your question more succinctly, I do believe that the affordability question and the risk to customers is a significant one, and if FirstEnergy and other transmission owners can find a way to get past that, I think it would open up a greater propensity for some of these projects to be brought on.

[[00:29:04]]
Would it be fair to say that absent potential changes in RTO, relevant policy and absent the actual realities of new transmission development bottlenecks, the pace of interconnections that FirstEnergy would be willing to accept will err towards resulting in the balancing of load vs a gross increase in load? The company wants demand and supply to match as closely as possible to reduce the affordability risk as opposed to getting as many data centres as quickly as possible to increase its rate base as quickly and as large as possible.

[[00:29:50]]
Yes. Again, I'd say the affordability question is there, but also the reliability question. If FirstEnergy or any other transmission owner was to just go gung-ho on load connections and you didn't have the requisite generation within the system to be able to support that, the customers aren't going to call the data centres. They're going to call these transmission owners, and they're going to say, "Why are we having rolling brownouts? Why are we having blackouts?" if you don't properly balance that equation. Again, that's what is the function of the transmission owners, in conjunction with PJM and distribution companies, that's the whole model. I think that's where the stakeholder process, it's really important to make sure that reliability remains the number one priority. I think as I've seen in some of the interactions I've had, some of the stakeholders don't necessarily see that as the primary driver in what's going on, on the grid.

[[00:30:56]]
What are your views on the backstop auction planned for September 2026? How might its form impact FirstEnergy? The company's CEO Brian X Tierney previously stated his view that the plan is flawed in its current form and calls on utilities to take on extensive risk.

[[00:31:21]]
Again, I've been removed from the company for a while, but as I look at this backstop process, I do believe that it's very risky for utilities. If forced to go down that path, obviously, I think that the company would and others will participate, but I don't see that being the right solution long-term to this capacity incentive problem. It will be a challenge going forward because I don't think that shareholders and I don't think the leadership are in line with what they've proposed. As unfortunate as it is, as unlikely as I think it is, I think you need to go back and really evaluate the entire capacity construct as a whole and not continue to dabble on the fringe here.

[[00:32:13]]
What about its current form are you not a fan of from the perspective of FirstEnergy? We're talking about long-term bilateral agreements. What about it do you consider risky for the company?

[[00:32:34]]
I think that if you think about the way that PJM worked as an intermediary from a financial perspective when it came to capacity markets. By putting this burden now on the utilities, I think that you shifted that. It's a completely different construct. Again, I don't know all the specific details around the credit requirements that are there but now, the utilities have a much larger responsibility within this. What happens under a default situation, again, if you're not understanding the full details, I think that that just sits out there as a risk that didn't exist under the construct that you have right now.

Why that wouldn't be something that PJM would be willing to be the intermediary on a go-forward basis is somewhat limiting, in my understanding, as to if you're trying to incent reliability, if you're trying to incent generation, that's the purpose. That's the role that PJM should serve, as to make sure that you bring the right parties together and make a framework that supports both sides. I think this is shifting that and putting more of that onus on the utilities where it wasn't before.

[[00:33:58]]
What do you expect transmission projects aimed at large-load interconnections to look like? What will the interconnection study process look like? What would the main steps look like?

[[00:34:18]]
Again, as I mentioned, I don't think that the load study process needs to change materially. I think that the way that most transmission owners, most utilities manage that load study process is sound. I think the issue, as I mentioned before, is that where the load studies were looking at incremental load growth, not substantial load growth within their specific territories that only occasionally or sporadically, had impact on other transmission owners' territories. That's the most significant piece of it, where you're seeing that need to have further collaboration that's there. I think that it will add time because you need to bring that in. I think from the lessons learned as I mentioned before, from data centre and large load growth across PJM's footprint, there have been some things that companies can leverage off of that.

The part that I find interesting is, and I had some conversations with other transmission owners that looked at the data centre load growth as a competition. Maybe that's the way it should be. Again, being someone who's focused on the reliability of the grid, I don't see it that way. I think that, yes. You get incremental, then I consider it minimal incremental rate benefit associated with this investment. When I say that, I want to be clear. I'm not talking about from just the investments standpoint of, I'm talking about when you look at the overall rate structure across your different classes of customers. When I look at this, I don't see it as necessarily competition. I see it as how do we maintain the reliability of the grid and where is it best for us to put generation?

Where is it best for us to put load and ensure that we are not, in essence, overburdening particular zones within the system? That, to me, is PJM's primary goal. They don't care. I would hope that PJM is ambivalent to where it is outside of the fact, taking into consideration how their load analysis dictate what is going to be negatively impacting their system vs positively impacting their system. I think that from that perspective, there's opportunity but I'm looking at opportunity from a grid integrity standpoint, not necessarily opportunity from a financial standpoint. If you're looking at it specifically from a FirstEnergy standpoint, I think that you will increase the amount of time required to do the collaboration necessary for load study analysis. Since that's already been done to a certain extent, it shouldn't be substantial and limit investment opportunity.

[[00:37:31]]
You mentioned that you don't see there being much need to change the load study process for data centres. There is a lot of discourse currently and a lot of material, potential change or specific frameworks trying to be built around data centres because they're being seen as a special load category. Given the peculiarities, profile-specific risks or characteristics of this type of large load, which parts of the load study might need to be more stringent or extensive, considering that you expect it to potentially be a longer process with data centres?

[[00:38:22]]
I think the primary is understanding the operational performance associated with data centres. When you think about running scenario analysis around fluctuations in load, what you've seen is, and I know Dominion experienced some of this, where some of their data centres were configured that if there was ever a change in power quality, they would immediately shut down. What that does to the system is tectonic, in terms of trying to maintain system integrity overall. Understanding that and working hand-in-hand with, I would say the data centre coalition and not necessarily data centres overall, but obviously data centres, to understand their operational performance and the sensitivity to the new dynamic of data centres is going to be important. Again, I think that you've seen these data centres perform in the context of today, enough that that information has been discussed and shared.

I don't necessarily see that that should cause a significant impact in what the timing is associated with loads, I think it's just understanding. I think when the data centres think about their performance and they're coming up with their plans, sharing that with the transmission areas or transmission owners, that they're thinking about participating in. As opposed to just coming in and saying, "I'm a data centre, I want to connect." Understanding that operational characteristics is going to be important, but a data centre in Nebraska vs a data centre in Pennsylvania, the performance shouldn't be substantially different. Again, depending on what type of data centre it is.

I think about that in terms of you're looking at colocators or you're looking at AI-supported only, whatever the case may be. You could have some difference in performance, but I think that's been taken into consideration to a certain extent as well. I don't see that outside of understanding the overall operational performance of the units. I don't see many other factors that would drive that to prolong the study process, unless I'm just misunderstanding your question.

[[00:40:53]]
There has been quite a bit of pushback from the data centre coalition and data centres more generally to attempts by PJM and other RTOs to propose, push forward, connect and manage or load flexibility frameworks that would allow curtailment of data centres, especially during peak periods. How much of a difference does that make? How real is this opportunity? How feasible is it to facilitate these interconnections and facilitate the long-term execution on this demand opportunity?

[[00:41:42]]
I may need you to clarify a little bit. Are you asking if PJM and other RTOs and ISOs propose that data centre load is interruptible? What is the negative impact to onboarding new load?

[[00:42:03]]
The feasibility of operating that load in the long term in terms of, "We don't have to be as concerned about reliability issues because we have the ability and permission to curtail data centres, if they stress the grid too much during peak period."

[[00:42:28]]
To me, it's no different than when you had large, interruptible auto plants or steel mills. The functionality is no different than anything that the grid has seen before. It just gives them another, them being the PJM or the transmission operator, it gives them the flexibility to be able to manage. From that perspective, it's a huge win on their part. Where I see the negative is it's going to come down to what we talked about earlier in the conversation. I don't understand how the data centres could provide that flexibility when they don't necessarily know exactly how their load is going to be consumed day-to-day. They have a profile, but they could cease peak demand and in that peak demand, are they converting over to backup generators? The reason why I made the corollary there earlier in the conversation is, are they putting backup generation on premises?

If you're doing that and the only reason you're doing that from a load perspective is to expedite connection, then why not just go ahead and make the initial investment upfront and put the generator on as a behind-the-meter? I don't know. I'm probably not answering your question right. From the two perspectives that you asked, absolute benefit from a transmission operator perspective, anytime you would give a transmission operator flexibility when it comes to managing peak load, it's a win. It's a win-win. From the loads perspective, I don't see why you would do that or how you'd be able to manage that operationally without some type of alternative backup. What I've seen is a lot of these loads are looking at having green or renewable requirements associated with it. You're not going to put oil as a backup. Probably won't put gas as a backup. Maybe you would, depending on what type of environmental obligations or commitments that you've made.

[[00:44:47]]
Regarding the load study process for large loads, assuming not much has changed except certain phases may need to be more extensive and the overall duration may increase, what is the typical duration for load studies for large loads in key FirstEnergy service territories? What are the key steps? How does duration break out among them typically?

[[00:45:16]]
Again, being removed from I don't know if this has changed, but the load studies typically would take between four and eight weeks to complete. The primary steps I look at it is you have to understand the core requirements of the load that's connecting. You have to understand the zone that it's in. You have to put together what type of requirements are going to be necessary in order to upgrade that, if upgrades are required. Then looking at what the potential broader implications of that load connecting means. What does it do to not only the current territory but outside territory? I break it up into those four pieces, if you will. With large loads, as I said, maybe you add two weeks on to that in the middle and back end, to do more of that broader system impact portion of the study.

Again, I don't see it as being a significant addition of time or commitment of resources to it. Again, when I look at what's happened with load in the past, you've had 500MW and sometimes above, plants that have come on. You're not talking about multiple gigawatts of load that comes on. Again, if you understand the system, if you understand the zone that you're in, adding that load doesn't materially change what's in your system. You understand how to run the study to evaluate your system. The part that gets a bit more challenging is understanding the nuance and requirements of what's required outside of your system and how that integrates with your system overall.

[[00:47:22]]
How do you think about the key risk factors that drive approval and project execution? What dictates if a large-load interconnection will be approved and successful, in terms of executing that interconnection?

[[00:47:45]]
I'm going to start with the second part of that question first. I think what makes it successful is that you have a load that is financially sound and understands the process. Again, I say that and I'm not trying to be flippant about it but a lot of larger loads, especially in this new load space, data centre specifically, don't necessarily understand the dynamic of the electrical grid. They know that they want to be on. When you think about something this size, you need to have knowledge within the system to be able to say what's realistic and what's not realistic. If you go in as a load with unrealistic expectations of when you're going to be on, what the cost is going to be, what are the hurdles that you have to, as a load itself, go through, as well as what are the hurdles that the transmission owner that you're trying to connect to is going to have to go through. Understanding that sets a good foundation for success. If you fail to plan, you plan to fail. I think that's a relatively straightforward piece of it there.

Regarding the first part of your question, what's going to get it approved? To me, it's going to come down to you can approve anything. Any investment that you want to make from a transmission perspective as long as you have the system capacity to be able to support it. When I say that, I'm going to put it in two fronts, as I said before. Do we have the generation that we're not creating an imbalance within the system to be able to support it, that's (1). (2) The transmission investment. If the plan is developed from that load study about what the transmission upgrades are, they're required to support this load connection, if that's what they gather and that's understood very clearly and it's communicated clearly, I think that you can move forward with it. Those two things are the fundamental tenets of to me, what every load study that has ever been done and will ever be done will matter.

[[00:50:05]]
When you said that the typical load study takes 4-8 weeks and you expect it to be longer for data centres and large loads, do you have any thoughts on how much longer?

[[00:50:23]]
I think I might have said two weeks of additional time associated with that. When I say that, like I said, I think it's middle-term end of that time frame. That's where you're looking at how are you integrating your study with the load implications of territories around you.

[[00:50:43]]
In terms of facilitating new interconnections via new transmission development, I've seen estimates that, especially in PJM states, a new transmission project can take over four years to complete. How do you think about it in the context of the service territories of FirstEnergy? How might the company do it faster or slower than that?

[[00:51:11]]
No, I think I would have said 3-4 years for a transmission investment. Again, it's going to depend on the size. If you have relatively small projects that are going up, you can do those quickly if you have the expertise associated with it. I think the other factor is you have to get outage permission from PJM. That's going to dictate it. If there are other outages for other projects that are going on or generation assets within the territory that you're trying to make the low connection in or the zone that you're trying to make the low connection in, that's going to dictate it. Again, I would agree with where you pegged it. I think what FirstEnergy is doing, again, based on the time that I was there, what they're doing to expedite that process is they are working with people who have the expertise. I think they're trying to build that expertise within their own employee ranks.

As I mentioned before, I think that they did the one joint venture with AEP and Dominion and I thought I read somewhere that they had done another joint venture. I think that those types of scenarios and arrangements are going to become more prevalent because each different company has its own strength. If you can leverage that strength and diversify your experience, you're just going to learn from that. You're going to learn from it to build your own capacity, but you're also going to be able to expedite the completion of projects because you're not looking for contractors to help you do that. You already have a partner who understands maybe an aspect of 700kV or 365kV connections that you may not have had. You may be good in the 230kV space. Again, across those different entities, you'll start to build that expertise.

[[00:53:08]]
How would you expect capital costs to be handled and recovered under regulatory mechanisms related to new transmission for data centre interconnections? How much of that is still uncertain and based on what we expect to see with PJM, FERC and the rulings regarding data centres?

[[00:53:30]]
I don't necessarily know if I see a bright line from PJM rules to regulatory recovery. I think if you're putting it in the context of you could have a larger pool of capacity dollars available for investment if you have rules that provide more clarity and support that investment, I could see that. From a rate-making perspective, I believe FirstEnergy has done a fantastic job across all of its transmission companies to constantly evaluate where they are, relative to others and relative to what FERC's expectations are on returns on those investments. I think that FERC sees data centres as a priority to put a pin directly in data centres.

As FERC sees a priority there, that may be an impetus for them to continue to approve the current returns on investments that are out there and not put downward pressure on those, which in essence, would again, incent companies to invest in that. The thing that FERC has to be careful about, because I know the President put out a couple of executive orders around investments specifically related to data centres. If they are truly going to do that, coming up with clear guidelines on recovery is going to be important because uncertainty breeds uncertainty. That would limit the amount of dollars that companies want to invest if they don't know that they're going to have that investment return three years, 5-7 years from now.

[[00:55:28]]
I've seen estimates that each incremental gigawatt of data centre load could require USD 0.25bn, so USD 250m in transmission CAPEX. Does that seem right to you? What might drive that figure to the upside or downside?

[[00:55:56]]
You know what? I don't know if I have a good feel for that number. Again, I just haven't seen it, so I can't speak to it specifically. I can speak more generally, in terms of capital investment, what could incent it, what couldn't. Again, it's going to this is what we saw in generation. If we see some of these load connections not materialise in the way that they were supposed to, then I think what you're going to see is risk being built into that investment and potentially drive it up. Let's just say we see generation come on the system, capacity is there.

Let's just say even get some rules in place that allows for some flexibility with these data centres as you mentioned, maybe even interruptability, I think that you could see a reduction in the cost associated with it because it takes some of that risk away. I'll add the third component. If we are able to see a regulatory structure where transmission or large low data centres can actually take some of the burden of the cost of investment away, then that's a lower risk profile for the transmission owners as well.

[[00:57:19]]
What is your outlook for future rate cases across FirstEnergy's service areas, given the local stakeholder opposite to data centres and the overarching affordability concerns? Do you expect any issues with cost recovery?

[[00:57:39]]
To answer your last question first, under the current construct that FirstEnergy has, I don't see any type of risk with regard to regulatory recovery. I think they've been very thoughtful about how they've approached the different territories that they have and the investment that they've made. As I mentioned at the very onset of the conversation, the Energizing the Future program was really a west-to-east programme, trying to update the transmission system to make it more modern. I think this is just a continuation of that. As long as you can be prudent about how your investment is going and it's consistent with what PJM and I would say, even the FERC sees as priorities for reliability within the entire US grid, I think that that should be a favourable outcome for FirstEnergy as well as other transmission owners.

I think that there is an understanding the priority, and when I say that, understanding the priority of maintaining reliability and balancing the system to not put the system in jeopardy, coupled with a national priority. Again, I think it's been said, a national security priority of investment in data centres and the proliferation of data centres within the US borders. I think those two things, if they are continuing to be held in the forefront of what is most important, I think that there's a great deal of opportunity here.

[[00:59:16]]
We've seen some key PJM utilities withdraw rate requests. I'm talking about Peco Energy of Exelon. Do you see any risk that FirstEnergy will need to do the same?

[[00:59:30]]
It's a good question, it's a hard question because there's multiple factors that could go into that and not having direct insight into the strategy? My strategy knowledge is over 1.5 years old now, not having direct strategy into that, I'd say it's possible but to go back to the way I understood strategically approaching regulatory recovery, I think it would be a lower probability than some others, if I had to handicap it.

[[01:00:18]]
What would trigger any need to withdraw forward rate requests for FirstEnergy?

[[01:00:40]]
Honestly, I don't know if I have a good answer to that question because I don't know what the drivers were behind PECO and Exelon, so I don't know the specific details there about that. I can't speak specifically to it. I just don't know.

[[01:01:06]]
Would it have to do with nothing endogenous to FirstEnergy? Could it be the elements around it? For example, Shapiro and Cheryl have made energy affordability key on their agendas. They've put investor-owned utility returns in their crosshairs. Could that lead to rate hike request withdrawals?

[[01:01:43]]
I'm sorry. I was thinking more internally focused drivers, not externally focused. Yes. To me, that's always a challenge that's out there. I do believe Shapiro specifically, is an interesting one. You need to be very mindful of what you're going in for. I go back from a strategy perspective you don't go into, and I will say that in my time at FirstEnergy, I never saw them after the new leadership was put into place going after something that wasn't prudent investment. They hadn't done the due diligence to truly understand the viability of getting the rate recovery that they were going in for.

Barring some just mission-driven focus that's out there, which I don't believe that if they saw that as a risk, they would try to go in for something that might fall into that bucket. Outside of that, something just completely off the wall, then yes. That could drive them to withdraw. Again, that's something that it's just hard to guess what that's going to be. I don't know of anything that if they continue to maintain the strategy that they've had, that's not something that they would have to consider because they wouldn't go in with something that was controversial.

[[01:03:03]]
That brings me to the end of my questions, so I'll park it here. I just wanted to say thanks so much for joining me and sharing your insights on FirstEnergy. It's been very helpful.

[[01:03:17]]
Thank you very much. I appreciate the conversation. It's an interesting dynamic in this market right now and it's going to continue to drive it. Any time that I get a chance to talk about it, I'm always excited about it.

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