FERC Proposes Broad Reforms to Interconnection Process

At its June 16, 2022, open meeting, the Federal Energy Regulatory Commission (FERC or Commission) issued a notice of proposed rulemaking (NOPR), Improvements to Generator Interconnection Procedures and Agreements, 179 FERC ¶ 61,194 (2022), proposing reforms to the Commission’s standard generator interconnection procedures and agreements.  The goal of the NOPR is to reduce queue backlogs and expedite the process for connecting new electric generation facilities to the transmission grid, and to do that the Commission has proposed altering its 20-year-old approach to processing interconnection requests to align with “first-ready, first-served” methods used in the organized markets around the country.

At the end of 2021, more than 1,400 gigawatts of generation and storage were waiting in interconnection queues throughout the country.  This backlog in the interconnection queue has created uncertainty regarding the costs and timing of interconnecting projects, many of which will be needed to maintain reliability in the wake of generation retirements across the country.  The NOPR seeks to address these issues through (1) implementing a first-ready, first-served cluster study process, (2) increasing the speed of interconnection processing, and (3) incorporating technological advancements into the interconnection process.  We’ve summarized several highlights of the NOPR below; however, there is a lot to digest in its 258 pages of proposals.  As is standard with any proposed rulemaking, the Commission has requested comments on specific topics.  Comments are due 100 days after publication of the NOPR in the Federal Register.  Reply comments are due 130 days after publication in the Federal Register.

First-Come, First-Served Study Process

The chief reform proposed in the NOPR is to eliminate the first-come, first-served, aka serial, approach to studying generation interconnection requests and replace it with a “first-ready, first-served” cluster study procedure like that deployed in various markets around the country.  The Commission proposes the first-ready, first-served cluster study process to include the following elements:

Increased access to information prior to entering the queue:  FERC recognizes that the material information available to customers in the interconnection queue has largely been available only to those who apply, and that means some projects enter the queue to do little more than assess the viability of a particular interconnection.  And that causes complications for customers that are beyond the point of information gathering.  Consequently, FERC has proposed creating a “waiting room” if you will, where potential customers can receive high-level information and studies about potential interconnections.  The costs are relatively small to enter the waiting room, and it comes with no financial risk to those parties.  It also leaves the interconnection queue itself—where projects commit to a path toward interconnection—for developers that are more ready to proceed with a specific plan.  This “waiting room” comes with several features:

• Customers will benefit from publicly available information, including available capacity, to assess certain interconnection points before committing to any studies.
• A customer may request a limited number of studies to evaluate the estimated costs of interconnection.
• Customers that use this “waiting room” are not assigned any queue priority, nor are they subject to any costs other than paying for the requested studies.
• Customers may use the “waiting room” to inform their decisions when applying to the more-rigorous first-ready, first-served process.

Increased financial commitments and readiness requirements to enter and proceed through the queue:  FERC has proposed that more stringent financial commitments and readiness requirements be imposed on interconnection customers, including increased study deposits, more stringent site control requirements, a commercial readiness framework, and higher withdrawal penalties.

Entering the Queue and the Study Process:  Cluster studies are common around the country; however, FERC has never proposed using them in its pro forma interconnection procedures.  Until now.  Per the NOPR, transmission providers would be required to implement a single, annual cluster study application window that is open for 45 days and in which customers may apply for interconnection service.

Entering the queue will also require larger deposits to pay for study costs:  for projects greater than 20 MW, but less than 80 MW, the deposit would be $35,000 + $1,000 per MW; for projects between 80 MW and 200 MW, the deposit would be $150,000; and for projects over 200 MW, the deposit would be $250,000.  New customers to the cluster study will also need to demonstrate that they have obtained 100% site control with respect to their proposed generating facility, with transmission providers being able to determine the appropriate acreage requirements depending on generating facility technology.  Customers would, however, have a limited option to provide a $10,000/MW deposit in lieu of site control (subject to a $500,000 minimum and $2 million maximum), but only when a customer was prohibited from obtaining site control as the result of regulatory limitations.  The interconnection customer would be required to demonstrate 100% site control prior to the facilities study.

In addition, the Commission proposes requiring customers to demonstrate some level of commercial readiness to enter the cluster study process.  The Commission proposes to require, prior to entry into the cluster study process, either:  (i) an executed term sheet for the sale of the constructed generating facility, the facility’s energy or capacity, or the facility’s ancillary services; (ii) reasonable evidence that the project has been selected in a resource plan or resource solicitation process by or for a load serving entity (LSE), is being developed by an LSE, or is being developed for sale to a large end-use consumer; or (iii) a provisional large generator interconnection agreement (“LGIA”) that has been filed at the Commission (executed or unexecuted), which is not suspended and includes a commitment to construct the generating facility.  Customers could provide a deposit in lieu of a demonstration of commercial readiness totaling two times the study deposit amount to enter the initial cluster study phase.

All customers submitting within a window will be considered to have equal queue priority, and they will be studied (and costs will be allocated) as a group with respect to upgrades that may be needed for the cluster as a whole (or in sub-regions).  In addition, the cost of network upgrades will not be shared solely within a single cluster; rather, FERC has proposed a method that would also allocate network upgrade costs to customers that connect to, or benefit from, an upgrade that has been in service for less than five years, with those later-queue customers paying a portion of the depreciated capital cost of the upgrade.

Remaining in the Queue:  Once a customer is in the cluster study process, FERC has proposed requiring customers demonstrate financial and commercial readiness.

• Customers will be required to post study deposits two additional times: a second time when the system impact study results are released, and again with the execution of a facilities study agreement.  And when a customer signs its interconnection agreement, it will be required to post an amount equal to nine times its interconnection study deposit.  That amount would be fully refunded to the customer when its generating facility achieves commercial operation.  But if the customer fails to build its generating facility and ultimately withdraws, the amount is subject to the withdrawal penalties discussed below.
• Customers will also be required to continue demonstrating commercial readiness. To enter into a facilities study, a customer would be required to provide either:  (a) an executed contract as opposed to an executed term sheet for option (i) above; (b) the same requirements for option (ii); or (c) a provisional LGIA that has been accepted for filing by the Commission and is not suspended, with reasonable evidence that the generating and interconnection facilities have commenced design and engineering.  And if instead a customer chooses to provide a commercial readiness deposit instead, the amount required jumps to five times the study deposit amount after the initial cluster study phase and before the system impact re-study phase, and then seven times the study deposit after receipt of the facilities study agreement.

Leaving the Queue:  Leaving the queue may not be painless.  The Commission proposes to revise the pro forma LGIP to require transmission providers to assess withdrawal penalties to interconnection customers when a customer withdraws at any point in the interconnection study process or does not otherwise reach commercial operation unless:  (1) there is no delay to other facilities in the same cluster; (2) there is no increase in network upgrade costs for other facilities in the same cluster; (3) the withdrawal is due to a study that shows at least a 25% increase in interconnection costs compared to the previous cluster study report; or (4) the withdrawal is due to a facilities study report that shows a greater than 100% increase in allocated interconnection costs compared to the cluster study report.  The proposed withdrawal penalties vary from one to nine times the study costs, depending upon whether the customer withdraws during the study process or after signing an interconnection agreement, and whether a commercial readiness demonstration has been provided.  Customers that provide a commercial readiness deposit in lieu of a demonstration will be subject to higher withdrawal penalties, and in some cases withdrawal penalties are subject to no cap.

Transition Process:  Most existing interconnection customers will be subject to the new study process, financial commitments, and readiness requirements, while certain late-stage customers will be allowed to finish the interconnection process under the existing rules.  The Commission proposes to have interconnection customers either elect to enter a transitional serial facilities study or transitional cluster study, or withdraw from the interconnection queue without penalty.  Both study processes will require the interconnection customer to demonstrate exclusive site control and commercial readiness.  The transitional serial facilities study process would be available to late-stage interconnection customers that have executed a facilities study agreement and provide a deposit equal to 100% of their interconnection facility and network upgrade costs.  The transitional cluster study would be available to earlier-stage customers that provide a $5 million deposit.

Speedier Processing

One of the more unanticipated proposals by the Commission would eliminate the reasonable efforts standard for transmission providers and impose firm deadlines for completing studies and penalties for non-compliance with the deadlines.  However, it remains to be seen whether the penalties for delayed studies will sufficiently compensate customers or incentivize transmission providers to maintain their schedule.  In addition, the Commission proposes requiring transmission providers to allow a resource planning entity to initiate an optional resource solicitation study, thus grouping together resources vying for selection in a competitive solicitation process for the purpose of informational interconnection studies.

Reforms to Incorporate Technological Advancements

The remainder of the NOPR proposes an assortment of changes to the interconnection process to incorporate technological advancements:

• Co-located Resources: Transmission providers would be required to allow more than one resource to co-locate on a shared site behind a single point of interconnection and share a single interconnection request.
• Generator Add-Ons: Interconnection customers would also be able to add a generating facility to an existing interconnection request under certain circumstances without automatically losing their position in the queue.
• Surplus Interconnection Service: Interconnection customers would be able to request surplus interconnection service earlier in the process—once the original interconnection customer has an executed LGIA or requests the filing of an unexecuted LGIA.
• Refined Operating Assumptions for Storage: Transmission providers, at the request of the interconnection customer, would be required to use operating assumptions for interconnection studies that reflect the proposed operation of an electric storage resource or co-located resource containing an electric storage resource (including hybrid resources), e., whether the interconnecting resource will or will not charge during peak load conditions, unless good utility practice, including applicable reliability standards, otherwise require the use of different operating assumptions.  Transmission providers would have the option of memorializing these operating restrictions in the LGIA or requiring control technologies where appropriate.
• Alternative Transmission Solutions: Transmission providers would be required to evaluate, upon the request of the interconnection customer, alternative transmission solutions, such as advanced power flow control, transmission switching, dynamic line ratings, static synchronous compensators, and static VAR compensators.
• Updated Modeling and Performance Requirements for Non-Synchronous Generating Facilities: Interconnection customers requesting to interconnect a non-synchronous generating facility would be required to (i) provide models necessary to accurately model the performance of the facility in response to system disturbances in accordance with the control system settings that would be used by the interconnection customer during the commissioning and operation of the generating facility; and (ii) maintain ride-through capability to ride-through abnormal frequency and voltage conditions.

Transmission providers would be required to submit compliance filings within 180 days of the effective date of the final rule revising their interconnection agreements and procedures.