FERC Proposes Major Interconnection Process Reforms

On June 16, 2022, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) proposing significant reforms to the procedures under which electric generators obtain interconnection to the transmission grid and which are intended to address the current interconnection queue backlogs and delays. FERC proposes to mandate that transmission providers study interconnection requests in clusters, rather than the current inefficient serial study process used by many utilities, and to take a first step toward addressing the uncertainty caused by inconsistent procedures for neighboring “affected systems” to make a claim for the generator to pay for transmission upgrades on its system by creating a standardized process for affected system participation in the interconnection study process. But the proposal also could create new, unnecessary obstacles to interconnection, and it fails to address some significant barriers to interconnection such so-called participant funding rules under which interconnection customers can be saddled with the full cost of system expansions, ignoring the fact that other system users benefit from these expansions.

The nation’s current procedures for processing electric generator interconnection requests suffer from severe delays, and interconnection customers routinely wait years longer than intended under the current rules just to complete the study process, effectively suspending any development efforts during that time. At the end of that study process, customers may be assigned significant transmission system upgrade costs that, in many regions, are borne solely by that customer. And even customers that are able to accept the assigned costs are subject to ongoing cost uncertainty, exacerbated by potentially significant late-stage upgrade costs that may be imposed by neighboring “affected systems” that do not adhere to a consistent study process or timeline, that can drive late-stage projects to withdraw, triggering a cascade of restudies and further queue chaos.

FERC’s proposal may improve the process

FERC proposes to require significant queue processing changes, many of which should improve the situation. One example is that interconnection customers would be able to access more system information earlier, such as publicly posted system information including a heatmap of available megawatt (MW) capacity at each bus, and be able to make better informed interconnection decisions early in the process. 

And the interconnection queue process could also become more efficient. A key improvement is that transmission providers would be required to study interconnection requests in clusters and would be required to adopt a structured basis for allocating study and upgrade costs among the cluster requests, rather than studying each interconnection request serially as is the current process of many utilities, which can be inefficient and subject to cascading restudies when one customer drops out of the queue. 

The proposal could provide additional incentives for timely queue processing through increased financial requirements and monetary penalties. Interconnection customers would be asked to commit to projects earlier in the process by, among other things, posting increased deposits throughout the study process and being subject to increasing penalties for withdrawing from the queue. At the same time, transmission providers that routinely disregard interconnection study deadlines under the current rules would be subject to enforceable study deadlines subject to monetary penalties of $500/day.

Significantly, costs imposed by neighboring affected systems late in the process are an ongoing source of delay and cost uncertainty in navigating interconnection queues, and the proposal would establish standardized rules and a timeline for the affected system coordination process that may reduce some of the current uncertainty. This includes a specific schedule for affected system notification and affected system engagement, standardized agreements and delivery of the affected system study within 90 days of receiving the executed agreement, subject to similar monetary penalties for missing study deadlines.

FERC’s proposal does not address some significant problems and may create new ones

But the proposal has some significant flaws and omissions that need to be addressed to achieve the stated goals. For instance, interconnection customers are already asked to commit to projects earlier in the process by posting increasing deposits, but FERC would also require interconnection customers to have (i) an executed term sheet or agreement for sale of the facility or its output, (ii) evidence that the project was selected in a resource plan or solicitation, or (iii) a provisional interconnection agreement, simply to demonstrate that they are ready to be enter and remain in the queue to be studied. These so-called “readiness” requirements could create new, unrealistic obstacles to interconnection. For instance, it is difficult to see how a new generator could already have a provisional interconnection agreement before even entering the interconnection study process, and it is often unrealistic to expect that a new generator would have a term sheet or sale agreement before having even begun the interconnection process. Indeed, offtakers generally will not consider entering into agreements with projects that have not already executed an interconnection agreement. And, unless this requirement is significantly changed to more reasonably reflect realistic commercial “readiness,” it could hamstring interconnection and generation development.

In addition, in many regions of the country, interconnection customers may be assigned significant upgrades to the high-voltage transmission system because they are deemed the sole beneficiaries and assigned all the associated costs. The increasing costs that interconnection customers in many regions must bear alone under “participant funding” rules ignore the benefits of these upgrades realized by many other system users and can be fatal to a project’s development no matter how serious it was at the outset. Yet this elephant in the room is unaddressed in the NOPR and must also be reformed to improve the interconnection process and facilitate generation development.

Comments on the NOPR are due 100 days after date of publication in the Federal Register and reply comments are due 130 days after date of publication in the Federal Register.