FERC Adopts Policy on Allocating Capacity for New Transmission Projects and Proposes Simplified Interconnection Policy for Small Renewable Projects

by Pillsbury Winthrop Shaw Pittman LLP

In two significant transmission orders, the Federal Energy Regulatory Commission (“FERC”) adopted guidelines for allocating capacity on new merchant and participant-funded transmission projects and proposed reforms to streamline interconnection for small generators.

Allocation of Capacity on New Merchant and Nonimcumbent Cost-Based, Participant-Funded Transmission
In response to requests for guidance on the application of open access principles to new transmission projects, FERC issued a Final Policy Statement allowing transmission developers to select and negotiate with a subset of customers regarding the key rates, terms, and conditions for procuring up to the full transmission capacity of a project when the developers broadly solicit interest and demonstrate satisfaction of certain criteria.1

In considering negotiated rate authority for merchant transmission, the Commission uses a four-factor test to evaluate proposed projects, the second and third of which consider whether allocating new transmission capacity is unduly discriminatory or preferential.2 Similar open access considerations apply to nonincumbent, cost-based, participant-funded transmission, where customers assume development risk in exchange for defined capacity rights.3 For transmission developers complying with the guidelines set forth in the Final Policy Statement, the Commission will find that they have satisfied these considerations.

Broad Solicitation of Interest
Prior to negotiations with potential transmission customers, developers must provide broad notice to all potential and interested customers, including sufficient technical information regarding the proposed project and the criteria the developer will use to select transmission customers. FERC will allow developers to distinguish among customers based on material differences that do not result in undue discrimination or preferential treatment, such as more favorable terms and conditions for “first movers” or those with unique project-specific needs, provided developers can justify why such criteria are appropriate.

Previously, FERC required transmission developers to disclose the results of the open season in order to ensure the results of the process were not unduly discriminatory, with unsuccessful bidders able to file complaints under section 206 of the Federal Power Act. Disclosures under the new policy will be subject to Commission approval under sections 205 and 206, requiring developers to rigorously demonstrate that the identification of customers and associated contractual arrangements are consistent with the open access principles. The policy identifies minimum requirements for disclosure, noting that developers should include any price or risk-sharing terms or conditions that served as the basis selecting particular transmission customers. When the transmission customer is an affiliate, developers will need to make an affirmative showing that the affiliate has not been afforded an undue preference. Though developers will be able to request confidential treatment of submitted information, requests will be examined by the Commission on a case-by-case basis.

Existing transmission developers may utilize the capacity allocation process described in the final policy statement for unsubscribed capacity, after seeking FERC approval of deviations from the Commission order granting them negotiated rate authority.

Small Generator Interconnection
In light of recent growth of small generator interconnection requests, particularly those in connection with solar photovoltaic (“PV”) installations, FERC proposed four significant reforms to the pro forma Small Generator Interconnection Procedures (“SGIP”) and Small Generator Interconnection Agreement (“SGIA”) set forth in Order No. 20064 designed to reduce the time and expense of the transmission interconnection process for generating facilities of less than 20 megawatts (“MW”).

The first proposal will allow prospective interconnection customers to request a pre-application report from transmission providers, allowing customers to better evaluate points of interconnection prior to the submission of a formal request. Reports provided in response to these requests should reduce the number of formal requests typically submitted by customers evaluating potential interconnection points.

The second reform increases the threshold to evaluate requests for facilities participating in the Fast Track Process from the current 2 MW level to include facilities up to 5 MW. This revision allows more facilities to take advantage of the technical screens provided by the Fast Track Process, reducing approval times and costs for projects without reliability or safety concerns.

The third reform provides for a customer options meeting and supplemental review for projects that fail any of the Fast Track technical screens. During the customer options meeting, the transmission provider will provide additional information regarding the cost of modifications to address reliability or safety concerns, offer to provide supplemental review, or obtain the customer’s consent to begin the Study Process under section 3 of the pro forma SGIP. The reform includes three additional technical screens for the supplemental review process, designed to more accurately reflect relevant interconnection considerations.5

The final reform provides interconnection customers with the opportunity to submit written comments on the draft facilities study report regarding the cost of required interconnection upgrades. Although FERC believes that transmission providers should make the final determination as to required upgrades, the inclusion of formal comments in the final study report should increase dialogue between transmission customers and providers, reducing the likelihood of unjust or unreasonable upgrade costs.

FERC will schedule a workshop soliciting comments from members of the public, electric industry participants, and federal and state agencies within 60 days of publication in the Federal Register. Comments are due within 120 days of publication in the Federal Register.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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