FERC Issues Landmark Generator Interconnection Reforms
On July 28, 2023, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 2023, its long-awaited final rule implementing sweeping reforms to generator interconnection processes. Order No. 2023 comes in the context of a nationwide grid transition, characterized by an unprecedented wave of new renewable and energy storage resources seeking to plug-in or “interconnect” to the transmission grid. The final rule follows on the heels of FERC’s June 2022 notice of proposed rulemaking (“NOPR”), which drew roughly 3,750 pages of initial comments and 750 pages of reply comments by the prescribed deadlines. Informed by these comments, FERC makes a core, threshold determination under Federal Power Act (“FPA”) section 206, finding that the prevalence of interconnection queue delays and backlogs demonstrates that FERC’s existing pro forma generator connection procedures and agreements (including the pro forma LGIP, LGIA, SGIP, and SGIA) constitute a systemic problem that has rendered existing tariff-based processes for interconnection to be unjust, unreasonable, and unduly discriminatory or preferential. Once FERC finds that there is a systemic problem that causes existing tariffs to be unjust and unreasonable, it is obligated under FPA section 206 to establish a remedy that shall apply prospectively.
The central reform effected by Order No. 2023 is a mandate that transmission providers transition from a serial first-come, first-served process to a first-ready, first-served cluster study process. This means that all interconnection requests submitted within a 45-day cluster request window with complete applications and the required fees and deposits will be studied together and receive the same queue position. FERC opines that this approach is more efficient because it eliminates the need for separate studies for each interconnection request.
After the cluster request window closes, transmission providers commence a 60-day customer engagement window, which involves scoping meetings, cost estimates, and other activities to prepare for the cluster study. Within 150 days of the close of the customer engagement window, transmission providers are required to conduct the cluster study, and the transmission provider must complete any necessary restudies within 150 days of notifying interconnection customers participating in the cluster that a restudy is required. In general, transmission providers are required to allocate the costs of network upgrades identified during the cluster study processes using a proportional impact method. Interconnection facilities studies will still be performed on an individual, non-clustered basis.
One of the most commented upon features of FERC’s NOPR was a proposal to address probing or speculative interconnection requests by increasing financial commitments and readiness requirements for interconnection customers. In the final rule, FERC increased required study deposits and instituted more stringent site control requirements for interconnection customers. However, FERC declined to adopt the non-commercial financial readiness demonstrations proposed in the NOPR and instead adopted a series of escalating commercial readiness deposits to be paid at progressive stages of the study process. FERC also adopted withdrawal penalties that apply if the withdrawal has a material impact on the cost or timing of interconnection requests with an equal or lower queue position, unless an exemption applies.
Another heavily debated issue from the NOPR was FERC’s proposal to eliminate the “reasonable efforts standard,” under which transmission providers must use reasonable efforts to complete interconnection studies on time, but there are no explicit consequences for failing to do. In the final rule, FERC adopted a regime of monetary penalties for each day a study is delayed, capped at the cost of the study. FERC hypothesizes that these penalties will provide a sufficient incentivize for transmission providers to meet interconnection study deadlines.
The Commission also issued reforms to standardize the affected system study process, in an effort to improve coordination, remove uncertainty, and avoid unnecessary delays and costs. These reforms include a comprehensive set of affected system procedures, a pro forma affected system study agreement, and a pro forma affected system facilities construction agreement.
The final category of reforms in Order No. 2023 are designed to incorporate technological advancements into the generator interconnection process. Many of these reforms are intended to provide additional flexibility in the interconnection process, such as by permitting multiple generating facilities to co-locate and share a single point of interconnection. Other reforms in this category require that transmission providers consider alternative transmission technologies in the generator interconnection process, and that interconnection customers seeking to interconnect non-synchronous facilities provide models needed for accurate studies.
Order No. 2023 will become effective 60 days after it is published in the Federal Register, and compliance filings are due 90 days after publication. That means that transmission providers will be working on a short timeline to adopt the requirements of the final rule via revisions to their LGIP, LGIA, SGIP, and SGIA, or to propose and justify deviations from these requirements. Requests for rehearing of Order No. 2023 are due at the end of August, and it is likely that many interconnection customers, transmission providers, and others impacted by the final rule will seek reconsideration of its extensive reforms.