Is AI nuclear power in danger? The proposal to increase power supply for Amazon's data center was rejected, leading to a sharp decline in U.S. nuclear power stocks

The surge in electricity demand caused by the AI boom has led many tech companies to sign power supply contracts with nuclear power plants for their data centers, reigniting hopes for the revitalization of U.S. nuclear power stations. However, the U.S. Federal Energy Regulatory Commission (FERC) voted last week to reject Talen Energy's plan to increase power supply for Amazon's data center, resulting in a significant drop in the stock prices of the company and other U.S. nuclear firms on Monday.

In March of this year, Amazon paid Talen $650 million to purchase a 960-megawatt data center campus near the Susquehanna nuclear power plant in Pennsylvania and signed a long-term agreement to buy electricity from the plant. To increase the power supply for Amazon, PJM Interconnection, one of the largest grid operators in the U.S. that operates the eastern grid, submitted an application to FERC in June to approve increasing the power supply from the Susquehanna plant campus from 300 megawatts to 480 megawatts.

However, two other power supply companies, American Electric Power Co. and Exelon Corp., opposed the proposal, arguing that it could threaten grid reliability and raise costs for consumers.

FERC ruled on Friday that PJM's plan failed to adequately justify its case. Analysts believe this ruling could set a precedent, indicating that related issues should be examined more closely.

This news led to a significant drop in U.S. nuclear stocks, with Constellation Energy's shares falling by as much as 13% on Monday, marking the largest single-day drop in the company's history. Talen's stock price fell by as much as 8.6%, the largest drop in three weeks. Additionally, Vistra's stock price decreased by 6.7%. All three companies have seen their stock prices double this year, primarily due to the market's very optimistic expectations for AI-driven electricity consumption.

Talen stated in a press release, "FERC's decision is wrong, and we are evaluating all options, focusing on commercial solutions." The company also stated that the Susquehanna nuclear project "is in the best interest of consumers."

"FERC's decision will have a chilling effect on economic development in states like Pennsylvania, Ohio, and New Jersey."

Analysts believe that this decision comes at a critical time when data centers are driving unprecedented growth in electricity demand. The rapid development of artificial intelligence, along with the electricity consumption of data centers planned to support it, is comparable to that of an entire town. However, the issue is that such transactions may pass costs onto other consumers. Analyst Julien Dumoulin-Smith from Jefferies LLC stated in a report that FERC's decision is a "significant blow to the investment theme of nuclear power data centers."

Talen previously reported strong third-quarter results and raised its earnings guidance, citing a surge in electricity demand from technology companies. The company's third-quarter net income per share was $3.82, far exceeding analysts' expectations of $2.66, and it expects adjusted earnings per share for the year to be between $8 and $8.40, up from the previous forecast of $7.60 to $8.40.

Talen CEO Joe Dominguez stated, "The importance of artificial intelligence and the data economy to the competitiveness of the U.S. economy and national security cannot be underestimated; there is no commodity more important in today's world than clean energy, especially when you need it."

However, FERC Chairman Willie Phillips expressed dissent regarding last Friday's ruling, stating that grid operators have resolved reliability issues and that the ruling is "a step backward" for power reliability and national security.

Phillips noted that artificial intelligence and related technologies represent a generational opportunity for national security and economic growth. Data centers are driving what could be unprecedented growth in U.S. electricity usage, with concerns that such transactions may shift costs to other consumers.

While PJM submitted the application to facilitate the transaction between Amazon and Talen, the grid operator warned of potential risks of power supply shortages by 2030. PJM's Vice President of Market Services and Strategic Execution, Stu Bresler, stated in a technical meeting on Friday that placing large electricity-consuming units at power plants could pose reliability issues for the grid and hinder proper grid planning