Energy Law Alert: Interconnection Customers Who Suspend Work May Forfeit Their Place in the Queue
11/16/2006

A recent Federal Energy Regulatory Commission (FERC) Order suggests that an interconnection customer may lose its place in the queue when it requests suspension of an interconnection agreement. The Order emphasizes that a transmission provider may consider the circumstances existing when a customer requests that work resume. The Order concludes that the provider may restudy the interconnection and provide a transmission customer with a revised schedule for the design, procurement, construction, and installation of interconnection facilities and network upgrades, taking into account that the project's capacity may have been used by another interconnection customer that was ready to proceed with its project. The Order notes that this outcome is consistent with the restudy provisions of FERC's pro forma Large Generator Interconnection Procedures (LGIP), which permit transmission providers to halt work and engage in additional study of interconnection feasibility, system impact, or necessary facilities whenever a request drops out of the queue.

The current regime of interconnection regulation began with the Energy Policy Act of 1992, which gave FERC the authority to require owners of the nation's high-voltage transmission network to offer access to their transmission lines. Pursuant to that authority, FERC issued orders directing transmission providers to open their networks to third parties at nondiscriminatory rates. FERC's Order 2003 established standard procedures (the LGIP) and a standard agreement (the Large Generator Interconnection Agreement (LGIA)) for the interconnection of generators of more than 20 megawatts. Order 2003 applies to approximately 176 investor-owned utilities that own, control, or operate interstate transmission facilities.

The LGIP requires transmission providers to prioritize interconnection requests on a first-come, first-served basis. The resulting queue determines the order in which work will begin on various interconnection requests. Once a transmission provider begins work on a customer's interconnection, the LGIA gives the interconnection customer the right to suspend work at any time by providing notice to the provider. The customer must then request that the provider resume work within three years of the initial suspension notice, or the LGIA is deemed terminated.

Recently, the Midwest Independent Transmission System Operator filed an unexecuted interconnection agreement with FERC following a transmission customer's protest of certain provisions of the interconnection agreement. The agreement provided that, if the transmission customer exercised its right under the agreement to suspend work on the interconnection, the transmission owner could, at the transmission customer's sole expense, restudy the interconnection and impose revised construction schedules, cost estimates, security requirements, and other conditions after the transmission customer lifted the suspension. Believing these conditions to be inconsistent with FERC's pro forma LGIA, the transmission customer suspended work by the transmission provider and protested this and other nonconforming provisions of the agreement. FERC issued an order in which it stated that the transmission owner could, consistent with the pro forma LGIA, impose the above-stated conditions regarding resumption of work on the interconnection. Midwest Independent Transmission System Operator, Inc., 116 FERC ¶ 61,252 (2006).

The result is that an interconnection customer that elects to suspend work under an interconnection agreement may face delay and additional expenses when and if it ends suspension of an interconnection agreement. Because of the negative implications of such an outcome, generators seeking interconnection should be aware of this possibility before exercising the right to suspend work pursuant to an interconnection agreement.

If you have any questions about this update or if you would like our assistance in connection with this matter, please contact your Stoel Rives lawyer or one of the following energy attorneys:

Stephen C. Hall, schall@stoel.com, (503) 294-9625
William H. Holmes, whholmes@stoel.com, (503) 294-9207
Pamela L. Jacklin, pljacklin@stoel.com, (503) 294-9406
Jennifer H. Martin, jhmartin@stoel.com, (503) 294-9852
Marcus A. Wood, mwood@stoel.com, (503) 294-9434