FERC issues Notice of Proposed Rulemaking concerning generator interconnection; aims to speed, simplify processes

Electric transmission planning processes have not been able to keep pace with demand for interconnection service, leaving over 1,000 gigawatts (GW) of generation and 400 GW of storage stranded in the nation’s interconnection queues. In response to the backlog, PJM Interconnection LLC—the nation’s largest RTO by load served—recently imposed a two-year pause on new interconnection requests and asked the Federal Energy Regulatory Commission (FERC) to consider reforms to its interconnection process. At present, projects seeking interconnection service in the United States are only about 28% likely to finish the process, and face an average interconnection timeline of 3.7 years. This state of affairs has not only undermined investor and developer confidence, but has also led to concern that developers hedge against uncertainty by submitting more requests than needed or by submitting requests in advance of hitting important project milestones.

In public comments submitted to FERC prior to the issuance of the NOPR, groups like the American Clean Power Association (ACPA) and the Solar Energy Industries Association (SEIA) identified a number of interconnection-related problems faced by industry participants. ACPA wrote that generators have “little cost certainty throughout the interconnection process” and that affected system rules, intended to ensure reliability on adjacent systems affected by interconnection upgrades, are “badly broken.” SEIA explained that, because interconnection upgrades have grown “significantly” in cost in recent years, many previously viable projects are now less economic or even non-competitive.

On June 16, 2022, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) specifying Improvements to Generator Interconnection Processes and Agreements. The NOPR follows an Advance Notice of Proposed Rulemaking (ANOPR), released in July 2021, which sought public comment on a broad range of potential reforms to processes for planning and investing in transmission and interconnection infrastructure. (That ANOPR and subsequent proceedings produced in April 2022 another NOPR, which concerns long-term regional transmission planning and cost allocation.)

The June 2022 NOPR lays out FERC’s likely approach to improving the procedures used by transmission-owning utilities and RTOs/ISOs to interconnect new generators and other customers to the power grid. Acknowledging the uncertainty and reliability challenges created by lengthy interconnection delays, and affirming the need for transmission providers to serve interconnection customers in a “reliable, efficient, transparent, and timely manner,” FERC proposed in the NOPR to “(1) implement a first-ready, first-served [interconnection] cluster study process; (2) increase the speed of interconnection queue processing; and (3) incorporate technological advancements into the interconnection process.” The proposed reforms, if implemented, would constitute a significant step forward in unbottling the country’s interconnection backlog—and thereby in bringing a significant influx of renewable generation onto our electricity system. It is essential for developers and investors to understand how the changes described in the NOPR may affect project development cycles, timelines and risks.

The changes proposed by FERC in the NOPR include:

I. Instituting a first-ready, first-served cluster process for studying interconnection requests in groups.

FERC proposes to universally require the simultaneous processing of several interconnection requests, a method already in use at some RTOs/ISOs. The proposed cluster study process would further provide:

  • Increased informational availability for interconnection customers.
  • Pro-rated allocation of cluster study costs according to participating projects’ requested transmission capacity.
  • Allocation of network upgrade costs according to a proportional impact method.
  • Partial allocation of costs from earlier network upgrades to later beneficiaries.
  • Increased financial commitments and readiness requirements, which would encourage project developers to achieve project milestones before seeking interconnection service and ensure that “first-ready” interconnection customers are served quickly

II. Accelerating the speed of interconnection request processing.

In the NOPR, FERC preliminarily finds that its current standards and procedures for encouraging timeliness by transmission providers in processing interconnection requests are insufficiently stringent. Accordingly, FERC proposes several changes aimed at reducing delays and encouraging cooperation among parties affected by interconnection requests, including:

  • Elimination of the “reasonable effort” standard and imposition of strict deadlines, enforceable by penalties against transmission providers.
  • Early involvement of affected systems in the interconnection planning process and the creation of a pro forma affected system study agreement.
  • Enabling resource planning entities to facilitate interconnection requests in furtherance of their resource-related policy goals via Optional Resource Solicitation Studies.

III. Requiring incorporation of technological advancements into the interconnection process.

FERC expresses its view that existing interconnection study processes may be too old-fashioned or insufficiently flexible to adequately comprehend the new types of resources and interconnection requests they are now asked to contemplate. Accordingly, FERC suggests requiring several changes to how transmission providers regard the interconnection requests of their would-be customers, including:

  • Increased flexibility with respect to customer co-location.
  • A higher bar for transmission providers to declare an interconnection request “modified,” which can trigger re-studies or further delays.
  • More accurate assumptions regarding the operating characteristics of interconnecting resources.
  • Enabling would-be customers to access existing unused interconnection capacity.
  • Contemplating alternative transmission technologies in formulating interconnection solutions.
  • Modeling the behavior of non-synchronous generating facilities more accurately.

The NOPR received favorable votes from all five FERC Commissioners, reflecting their shared agreement that reforms to interconnection processes are necessary, though perhaps not their agreement on the ultimate details of how those reforms should be implemented. Industry observers, like Rob Gramlich of Grid Strategies LLC and Jeff Dennis of Advanced Energy Economy, expressed approval that the proposed reforms would set minimum “best practice” standards for transmission-owning utilities and RTOs/ISOs around the country, and that tardiness in serving interconnection customers would now be more strongly discouraged through the imposition of fines.

Interested parties may submit comments regarding the proposed changes to FERC by October 13, 2022, with reply comments due November 14, 2022. A final rule will likely be issued in early 2023, and will be followed by implementation of the new rules via amendments to transmission-owning utilities’ and RTOs/ISOs’ tariffs.

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