Energy Law Alert: FERC Approves Southwest Power Pool's Reformed Interconnection Procedures
8/3/2009

On July 31, 2009, the Federal Energy Regulatory Commission conditionally approved the Southwest Power Pool's ("SPP") reformed interconnection procedures. SPP hopes that the reformed procedures will help the transmission provider more effectively process the approximately 255 pending interconnection requests in the queue that account for 57,000 megawatts ("MW") of generation. SPP now joins other independent system operators that have undergone interconnection queue reform—the Midwest ISO and California ISO revised their interconnection procedures in 2008.

SPP will replace its existing interconnection queue with three separate queues, each having different deposit and milestone requirements. The three queues are the (i) Interconnection Feasibility Study ("IFS") queue; (ii) Preliminary Interconnection System Impact Study ("PISIS") queue; and (iii) Definitive Interconnection System Impact Study ("DISIS") queue. Each queue will be studied on a cluster-study basis, with each cluster being determined by geographic and electrical relatedness. Only electrically remote generators will be studied individually. Both the IFS queue and the PISIS queue are optional; only the DISIS queue is mandatory, and an interconnection customer ("IC") may begin in this queue if it can make the appropriate showings.

Making an Interconnection Request.

To initiate the interconnection process, an IC must submit a valid interconnection request that consists of (i) a completed interconnection request form; (ii) a demonstration of site control; and (iii) a $10,000 deposit. For wind generators, SPP requires 30 acres/MW for sufficient site control, although SPP may modify that standard depending on a specific turbine layout. If an IC cannot make all three showings, then the interconnection request will be withdrawn provided, however, that an IC must be given a reasonable time to cure a deficient interconnection request. In addition, an IC entering either the PISIS queue or the DISIS queue must be able to demonstrate site control through specific real estate rights, and may no longer complete the requirement by submitting a deposit in lieu of site control. An IC that cannot show site control will be placed in the IFS queue.

The Three Queues.

The IFS queue will provide an interconnection customer ("IC") with information useful for determining whether an interconnection is economically and operationally feasible. An IC entering the IFS queue must submit an additional $10,000 deposit that will be used to fund a cluster feasibility study performed during a 90-calendar-day period. SPP will not perform feasibility restudies and, upon SPP's posting of the feasibility study, an IC must proceed to either the PISIS queue or the DISIS queue, or withdraw from the interconnection process altogether.

To enter the PISIS queue, an IC must (i) demonstrate site control; (ii) submit an additional deposit that varies between $40,000 and $90,000 depending on generator size; (iii) provide a one-line diagram, a point of interconnection, plant size, and generator step-up transformer data; and (iv) provide additional technical data for wind generators, if applicable. SPP will complete each preliminary system impact study within 180 days after the close of a window and, similar to the IFS queue, an IC will not be entitled or subjected to restudies. At this point, an IC has its final opportunity to adjust the point of interconnection or lower its plant size (an increase to plant size must be made as a new interconnection request) prior to entering the DISIS queue.

As stated above, the DISIS queue is the only queue that is mandatory. To enter, an IC must also complete the following milestones: (i) demonstrate site control and site adequacy; (ii) submit an additional deposit that varies between $75,000 and $150,000 depending on generator size; (iii) provide a definitive point of interconnection and plant size (i.e., neither may be adjusted going forward); and (iv) complete only one of the following "readiness" milestones:

1. Submit a refundable deposit equal to $2,000/MW;
2. Provide proof of an executed power purchase agreement;
3. Make a showing that the generator is part of a State Resource Plan;
4. Submit evidence that the generator qualifies as a "Designated Resource";
5. Submit a purchase order for generating equipment (either a site-specific or blanket purchase order is sufficient);
6. Submit an air permit application, if applicable; or
7. Show that the IC has filed a Notice of Proposed Construction or Alteration with the Federal Aviation Administration, if applicable.

Unlike the IFS and PISIS queues, SPP will allow restudies for ICs in the DISIS queue if a higher or equally queued project withdraws from an active study, if a higher-queued project makes a material modification, or if SPP redesignates an IC's point of interconnection. An IC that has completed the DISIS queue moves on to the final stage of the interconnection process—a facilities study that analyzes each IC individually rather than in a cluster.

Cost Responsibility for Cluster Studies.

The costs of each cluster study will be divided among the participating ICs in two ways: 50 percent of the cost will be allocated pro rata to each IC in the study, and the remaining 50 percent will be allocated to ICs based on the MWs that they have included in the study. These costs will be deducted from deposits that each IC submits, and any remaining deposits will be applied to the costs of subsequent interconnection studies or refunded to the IC. Of course, ICs are responsible for paying any study costs that exceed the submitted deposits.

Facilities Study.

To begin a facilities study, an IC must complete milestones that are nearly identical to those required for entering the DISIS queue. The only distinction is that if the IC submitted the $2,000/MW "readiness" milestone in the DISIS queue, then the IC must complete one additional "readiness" milestone and post a letter of credit or payment for the IC's share of estimated Network Upgrade costs. SPP will issue a draft facilities study within 90 calendar days, and the study will provide a +/- 20% estimate of the IC's interconnection costs. SPP no longer offers a 180-day facilities study that provides a +/- 10% estimate, which option was available prior to the reform. SPP will perform facilities restudies if a higher or equally queued project withdraws from the queue, or if there is a material modification to a higher-queued project.

Allocating Network Upgrade Costs.

An IC's responsibility for the costs of shared network upgrades identified in a cluster study will be determined pro rata based on the average positive incremental flow impacts of the requested service over the identified network upgrade, in proportion to the total positive incremental flow impact over the same upgrade. An IC having a negative flow impact over a particular network upgrade will not share in the costs of that upgrade.

The Cost of Withdrawal.

If an IC withdraws during an active study in the DISIS queue, the IC will be responsible for an amount equal to twice the actual costs allocated to the IC for the system impact study. Furthermore, if an IC suspends or withdraws during or after a facilities study, then the IC will be responsible for the costs needed to study its project and any restudies caused by the suspension or withdrawal. SPP will refund any unused portion of an IC's deposits.

Suspension.

SPP's reformed interconnection procedures provide that an IC's ability to suspend the construction of network upgrades and interconnection facilities will be limited to those facilities for which the IC has sole cost responsibility. An IC may no longer suspend construction of a project for which it shares costs.

Where suspension is allowed, an IC may suspend for up to 18 months from the effective date of its interconnection agreement; however, for the suspension to continue beyond six months, the IC must post security in amount that is the greater of (i) the allocated share of network upgrade costs or (ii) $5 million for generators larger than 100 MW, $2.5 million for generators between 50 MW and 100 MW, or $1 million for generators smaller than 50 MW. However, an IC's security may be limited to its allocated share under certain circumstances. If suspension extends beyond six months, or the IC terminates the interconnection agreement after its effective date, the IC will remain liable for the cost of the IC's network upgrades.

Transitional Period.

SPP's reformed interconnection procedures will apply to ICs at various stages of the interconnection process in the following ways:

1. ICs with executed interconnection agreements as of June 2, 2009 are exempt from the reformed procedures.
2. ICs that executed a facilities study agreement by August 1, 2009 are subject to only the new suspension procedures.
3. ICs without an executed facilities study agreement by August 1, 2009 are subject to all of the reformed procedures, and must designate a queue, submit the appropriate deposits, and complete the applicable milestones by September 30, 2009.

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:

In Minnesota:
William Holmes at whholmes@stoel.com or (612) 373-8817
Kevin Johnson at kdjohnson@stoel.com or (612) 373-8803

In Oregon:
Jennifer Martin at jhmartin@stoel.com or (503) 294-9852
Pamela Jacklin at pljacklin@stoel.com or (503) 294-9406
Marcus Wood at mwood@stoel.com or (503) 294-9434
Jason Johns at jajohns@stoel.com or (503) 294-9618

In Washington:
Kathleen Doll at kjdoll@stoel.com or (206) 386-7629

In California:
Seth Hilton at sdhilton@stoel.com or (916) 319-4749
John McKinsey at jamckinsey@stoel.com or (916) 319-4746