As part of its continuing efforts to streamline the generator interconnection process and address the nationwide backlog of interconnection requests, the Federal Energy Regulatory Commission (FERC) has responded to requests for rehearing and clarification of its final rule on interconnection process reforms in Order No. 2023.
In Order No. 2023-A, issued March 21, FERC reaffirms that reforms are needed and upholds the bulk of Order No. 2023. Notably, Order No. 2023-A maintains readiness and site control requirements, elimination of the reasonable efforts standard, and the penalty structures for withdrawal of an interconnection request and delay in issuing an interconnection study.
In addition, FERC made some clarifications in Order No. 2023-A that provide additional flexibility to interconnection customers, such as additional acceptable forms of financial security and the scope of upgrades subject to the option to build.
Given some of the confusion raised in requests for rehearing regarding implementation of some more complex reforms, such as the withdrawal penalty structure, transmission providers may need to revisit their compliance proposals in light of the additional guidance provided in Order No. 2023-A.
FERC issued Order No. 2023-A just two weeks before the April 3 deadline for transmission providers to submit Order No. 2023 compliance proposals. FERC has extended the compliance filing deadline to 30 days after the date Order No. 2023-A is published in the Federal Register, which as of the date of this alert, has not yet occurred.
FERC Order No. 2023-A: 4 Things to Know
- There is no presumption of compliance.
- The new order maintains a “first-ready, first-served” approach.
- Order No. 2023-A clarified some FERC directives on queue processing.
- FERC upheld providing increased flexibility for technological advancements.
In More Detail
1. There is no presumption of compliance.
Even before FERC issued Order No. 2023, some transmission providers had implemented cluster study processes, an element now required under Order No. ;2023.
In Order No. 2023-A, FERC clarified that all transmission providers, including those with existing cluster study processes, must evaluate and modify their current pro forma interconnection procedures and agreements to comply with Order No. 2023.
However, transmission providers that have already adopted a cluster study process or are undergoing a transition to a cluster study process are not required to implement the transition process laid out in Order No. 2023. This clarification should resolve some concerns of overlapping reforms being implemented within the transition period.
FERC also clarified that transmission providers are still required to adopt the increased readiness and site control requirements established in Order No. 2023.
With respect to transmission providers that have already adopted queue reforms, such as PJM, FERC clarified that transmission providers will be expected to explain variances on compliance and provide an “item-by-item justification” for deviations from the pro forma generator interconnection procedures and agreements.
2. The new order maintains a “first-ready, first-served” approach.
In Order No. 2023-A, FERC upheld its directive to replace the sequential interconnection process, which determines queue priority based on the date of the interconnection requests, with a “first-ready, first-served” approach, which prioritizes interconnection requests for customers that meet project development milestones.
Expanded Rights for Customers to Use Option to Build
With respect to the definitions of stand-alone network upgrades in the pro forma Large Generator Interconnection Procedures (LGIP) and the option-to-build section of the pro forma Large Generator Interconnection Agreement (LGIA), FERC set aside Order No. 2023 and revised the definitions. This will allow interconnection customers to exercise the option to build whether the stand-alone network upgrade is attributable to a single interconnection customer or a network upgrade shared by multiple interconnection customers.
Expanded Financial Security Options
FERC decided to allow additional forms of financial security that are reasonably acceptable to the transmission provider for the commercial readiness deposit and study deposits to ensure that interconnection customers do not face unjust and unreasonable or unduly discriminatory hurdles to the interconnection process. FERC found that acceptable forms should include cash, an irrevocable letter of credit and surety bonds.
Increased Study Deposits
In Order No. 2023, FERC adopted the below study deposit framework. It required transmission providers to collect the study deposit once upon entry into the cluster. Given that interconnection customers developing small generating facilities and requesting Network Resource Interconnection Service (NRIS) submit their interconnection requests under the LGIP, FERC clarified that study deposits required for such small generator interconnection (i.e., for projects with generating or storage capacities that do not exceed 20 MW) will be equal to those required for large generators that do not exceed 80 MW, as reflected in the table below. FERC also clarified that the $5,000 application fee is nonrefundable.
FERC Clarifies Withdrawal Penalties
In Order No. 2023, FERC adopted withdrawal penalties as part of its strategy to address backlogged interconnection queues caused in part by speculative interconnection requests. In Order No. 2023-A, FERC affirmed that withdrawal penalties assessed to interconnection customers withdrawing from the interconnection queue will decrease the risk of large cost shifts. In addition, FERC clarified that withdrawal penalties cannot exceed the dollar amount collected from interconnection customers. FERC also clarified that withdrawal penalties will not be assessed if the withdrawal does not have a material impact on any interconnection request in the same cluster (materiality determined by transmission provider).
3. Order No. 2023-A clarified some FERC directives on queue processing.
Order No. 2023 included reforms to address speculative interconnection requests by imposing more stringent requirements on interconnection customers seeking to enter and remain in the interconnection queue. It also included reforms intended to increase the speed of interconnection queue processing. These reforms included heightened standards for transmission providers to improve the efficiency of interconnection studies and ensure that interconnection customers can interconnect in a timely manner. In Order No. 2023-A, FERC clarified some of its directives with respect to queue processing, as outlined below.
Elimination of Reasonable Efforts Standard
Prior to Order No. 2023, transmission providers were only required to use “reasonable efforts” to complete interconnection studies on time. In Order No. 2023, FERC eliminated the reasonable efforts standard and replaced it with firm study deadlines to address the unjust and unreasonable rates resulting from interconnection queue delays and backlogs.
In Order No. 2023-A, FERC upheld its finding that eliminating the reasonable efforts standard and replacing it with firm study deadlines is warranted. FERC reiterated that while the record reflects that the reasonable efforts standard fails to ensure that transmission providers take adequate steps to ensure study timeliness, the reasonable efforts standard is not the only factor behind delayed interconnection studies.
Because there were previously no explicit consequences in the pro forma LGIP for transmission providers that failed to meet study deadlines, and transmission providers had limited incentive to perform interconnection studies in a timely manner and significant discretion to extend their own deadlines, elimination of the reasonable efforts standard and penalty structure (discussed below) is likely to result in a change of pace in study processing. At a minimum, interconnection customers will have more certainty as to when to expect study results.
Study Deadlines and Delay Penalties
In Order No. 2023, FERC adopted a 150-calendar day cluster study deadline for performing the stability analyses, power flow analyses and short circuit analyses required in the cluster study process. FERC explained that the 150-day calendar day period balanced the need for transmission providers to have sufficient time to perform cluster studies while providing certainty about the timeline for the interconnection process and ensuring that cluster studies progress in a timely manner. FERC affirmed that the 150-day time frame for completion of cluster studies adopted in Order No. 2023 is just and reasonable. While FERC acknowledged that conducting a cluster study of many interconnection requests may be more complex than studying a single interconnection request on a serial basis, the 150-day time frame is designed to take into account the full package of reforms aimed at improving efficiency of the study process and strikes a reasonable balance of competing interests.
FERC rejected arguments on rehearing and affirmed its finding that the study delay penalty and appeal structure adopted in Order No. 2023 is just and reasonable. FERC clarified, however, that penalties for delayed studies apply on a per-study basis, per business day that the study is delayed past the tariff-specific deadline, rather than per interconnection customer. As noted in Order No. 2023, delays of cluster studies beyond the tariff-specified deadline will incur a penalty of $1,000 per business day, delays of cluster restudies beyond the tariff-specified deadline will incur a penalty of $2,000 per business day, delays of affected system studies beyond the tariff-specified deadline will incur a penalty of $2,000 per business day, and delays of facilities studies beyond the tariff-specified deadline will incur a penalty of $2,500 per business day.
FERC clarified that its four-prong waiver analysis will not be the relevant standard in the penalty appeals process. The Commission has granted request for waivers where the applicant acted in good faith and the waiver:
- Is limited in scope.
- Addresses a concrete problem.
- Does not have undesirable consequences, such as harming third parties.
Instead of that standard, the Commission will evaluate whether good cause exists to grant relief from the study delay penalty and will issue an order granting or denying relief.
Affected Systems Study Deadlines
Sometimes, interconnection to a transmission provider’s transmission system triggers the need for upgrades on affected neighboring transmission systems. In Order No. 2023, FERC adopted penalties for transmission providers that delayed preparing affected system studies. In Order No. 2023-A, FERC established deadlines for determining that an affected system study will be needed and when the cost estimate and schedule must be provided. FERC clarified that the affected system transmission provider is required to respond in writing within 20 business days of receipt of the initial notice from the host transmission provider that interconnection requests may impact the affected system transmission provider’s transmission system. From the point of written notification of intent to conduct the affected system study, the affected transmission system transmission provider then has 15 business days to share a nonbinding good-faith estimate of the cost and schedule to complete the affected system study.
4. FERC upheld providing increased flexibility for technological advancements.
Colocated Generating Facilities Behind a Single Point of Interconnection
Developers have long sought to colocate multiple generating facilities behind a single point of interconnection but faced barriers to interconnection under prior interconnection procedures. To accommodate these configurations and to reduce requests in the queue and costs for interconnection customers, FERC adopted reforms in Order No. 2023 to require transmission providers to allow more than one generating facility to colocate on a shared site behind a single point of interconnection and share a single interconnection request.
On rehearing, transmission providers raised conflict concerns and management challenges, such as when one of multiple interconnection customers withdraw from a single interconnection request. FERC rejected such arguments, stating that transmission providers can address such instances using the existing withdrawal and material modification procedures of the LGIP.
FERC declined to limit colocated resources sharing an interconnection request to a single interconnection customer. Rather, FERC upheld the requirement in Order No. 2023 that transmission providers must allow more than one generating facility to colocate on a shared site behind a single point of interconnection and share a single interconnection request. Colocated generating facilities can be owned by a single interconnection customer with multiple generating facilities sharing a site, or by multiple interconnection customers that enter into a shared facilities agreement addressing, among other things, shared land rights.
Storage Operating Assumptions
With respect to energy storage resources, FERC affirmed that transmission providers are required, upon request of the interconnection customer, to study the proposed charging behavior of energy storage resources. FERC clarified that this requirement does not necessitate transmission providers to develop new base cases for interconnecting storage resources. Rather, the reform requires transmission providers to reflect whether a storage resource will or will not charge in any studies of peak load conditions in the interconnection process.
What’s Next?
Even though FERC extended the deadline to submit Order No. 2023 compliance proposals, it is likely that transmission providers will begin filing compliance proposals in the coming weeks. In light of some of the clarifications, and the Commission’s declaration of “no presumption of compliance,” transmission providers that have already prepared or submitted reforms may want to consider additional adjustments.
While some entities have already submitted interconnection reforms or have adopted cluster study processes, given the Commission’s expectation that all entities will evaluate and modify their current pro forma interconnection procedures and agreements to comply with Order No. 2023, we can expect further modifications to those preexisting processes in addition to initial compliance proposals in the coming weeks.
