FERC Proposes Overhaul of Generator Interconnection Process to Address Queue Backlogs

On June 16, 2022, the Federal Energy Regulatory Commission issued a notice of proposed rulemaking (NOPR) to reform its standard large generator interconnection procedures and pro forma interconnection agreement to address the growing backlog of interconnection requests. The proposed reform is part of FERC’s efforts to remove obstacles that have delayed efforts to enable renewable energy projects to provide power to the grid.^[1] FERC Chairman Richard Glick stated that the goal of the NOPR is to address “the urgent need to update, expedite and streamline our processes to interconnect new resources to the grid” due to “unprecedent[ed] demand for new resources.”^[2] While the proposed reforms, such as more stringent financial commitments, commercial readiness, and site control requirements, should reduce delays in interconnection queues, the increased financial burdens of maintaining queue position and risks associated with withdrawal from the queue could act as a barrier to entry for less well-heeled developers.

FERC last addressed interconnection queue reform in 2018, when it issued Order No. 845, which directed reforms to the pro forma LGIP and LGIA, but since then the queue backlog has worsened.^[3] According to FERC, at the end of 2021, interconnection queues included requests associated with more than 1,400 gigawatts of proposed generation (including storage), which is more than triple the amount of generation that was in interconnection queues at the end of 2016. The average time that projects spend in interconnection queues before starting construction has increased to over three years. FERC states in the NOPR that, at the end of 2021, nearly 1,900 interconnection requests were waiting for studies that had not been performed by the deadline established in the transmission provider’s interconnection procedures. Based on these widespread delays, FERC determined that reforms were necessary. 

The NOPR, which received unanimous support from the five FERC commissioners, proposes several major reforms:

1. Implement a “first-ready, first-served” cluster study process. FERC proposes to direct transmission providers to implement a “first-ready, first-served” approach to interconnection requests, in which requests would be processed based on when interconnection customers meet certain project development milestones. Many regional transmission organizations and independent system operators already conduct cluster studies, but FERC’s pro forma interconnection procedures require only serial studies of individual projects and assigns queue position based solely on the date of entry. FERC’s proposal would require all transmission providers, including those that do not operate within an organized market, to study groups of projects rather than conducting separate studies for individual projects. In support of its proposal, FERC states that, by studying interconnection requests in groups, transmission providers will be able to address more interconnection requests in a shorter amount of time.

2. Increased financial commitment and readiness requirements. To discourage speculative interconnection requests and to allow transmission providers to focus on processing viable interconnection requests, FERC proposes to require increased study deposits, more stringent demonstrations of site control and commercial readiness, and increased withdrawal penalties.

   1. Deposits. Under current FERC interconnection procedures, an interconnection customer must submit study deposits of: (1) $10,000 with its interconnection request, which is used for the feasibility study; (2) $50,000 when executing the system impact study agreement; and (3) $100,000 when executing the facilities study agreement. In the NOPR, FERC proposes to increase deposit amounts and to require that deposits be collected before each phase of the first-ready, first-served study process (i.e., before each of the cluster study, the cluster re-study, and the facilities study): (1) for facilities greater than 20 MW but less than 80 MW, a deposit equal to $35,000 + $1,000/MW; (2) for facilities greater than or equal to 80 MW but less than 200 MW, a deposit of$150,000; and (3) for facilities greater than or equal to 200 MW, a deposit of $250,000.

      The initial study deposit would be submitted along with the interconnection request and would be used to pay for the cluster study. The second deposit for the same amount would be due within 20 days of the interconnection customer’s receiving the cluster study report and would cover the cost of any clustered re-studies. The third study deposit of the same amount would be due with the executed facilities study agreement. Interconnection customers would also be required to submit a deposit equal to nine times the amount of their study deposit when they execute the interconnection agreement. This deposit would be fully refunded once the facility achieves commercial operation. However, if the interconnection customer withdraws after executing the interconnection agreement, the deposit would be refunded subject to a withdrawal penalty,

   2. Site Control. FERC proposes to require interconnection customers to demonstrate site control for the proposed facilities when they submit their interconnection request, which represents a significant additional burden over current requirements. Under FERC’s existing policy, interconnection customers need to demonstrate ownership, a leasehold interest, or a right to develop a site, an option to purchase, or a business relationship with an entity having the right to allow the interconnection customer to develop the site. Interconnection customers must submit demonstration of site control with the interconnection request or submit a $10,000 deposit in lieu of demonstrating site control. FERC proposes to increase the demonstration of site control standard to require interconnection customers to secure the exclusive land right to develop, construct, operate, and maintain the facility, or, for co-located facilities, to demonstrate a shared land use right to develop, construct, operate, and maintain the co-located facilities. FERC also proposes to provide an option for interconnection customers to submit a deposit in lieu of demonstrating site control, which would be available only when regulatory limitations prohibit the interconnection customer from obtaining site control. In those circumstances, the interconnection customer would submit an initial deposit of $10,000/MW, subject to a floor of $500,000 and a ceiling of $2 million.

   3. Commercial Readiness. FERC’s current interconnection procedures do not require interconnection customers to demonstrate progress towards achieving commercial readiness throughout the interconnection process. In the NOPR, FERC proposes several options for interconnection customers to demonstrate commercial readiness before entering a cluster study or cluster re-study: (1) an executed term sheet for the sale of the constructed facility, the facility’s energy or capacity, or the facility’s ancillary services; (2) evidence that the project has been selected in a resource plan or solicitation process by or for a load serving entity, is being developed by a load serving entity, or is being developed for the purpose of being sold to a commercial, industrial, or other large end-use customer; or (3) a provisional interconnection agreement (executed or unexecuted) on file with FERC includes a commitment to construct the facility. Additional, similar commercial readiness criteria must be satisfied for an interconnection customer to enter into the facilities study phase. Under the NOPR proposal, interconnection customers may provide a commercial readiness deposit in lieu of meeting these commercial readiness requirements, in the following amounts (which are separate from the study deposit): (1) two times the study deposit amount to enter the initial cluster study phase; (2) five times the study deposit amount after the initial cluster study phase and before the system impact re-study phase; and (3) seven times the study deposit after receipt of the facilities study agreement.

   4. Withdrawal Penalties. FERC’s current pro forma interconnection procedures do not require transmission providers to assess withdrawal penalties when an interconnection customer withdraws from the queue. To account for harms to other customers that occur when interconnection customers withdraw from the queue, FERC proposes to establish withdrawal penalties for interconnection customers that have demonstrated commercial readiness and for interconnection customers that have provided a deposit in lieu of demonstrating commercial readiness. For customers that have demonstrated commercial readiness, the withdrawal penalties would be equal to the study costs with no cap unless the customer has an executed interconnection agreement, in which case the penalty would be nine times the study costs with no cap. For customers that are still in the study phase and have submitted a deposit in lieu of demonstrating commercial readiness, the withdrawal penalties would be calculated as multiples of the study costs up to the cap that increases to $2 million at the facilities study phase.

3. More stringent study deadlines. The current FERC interconnection procedures require transmission providers to use “reasonable efforts” to process and analyze interconnection requests without penalty or financial consequence for failure to meet deadlines. FERC proposes to eliminate the reasonable efforts standard and instead to establish penalties for transmission providers that fail meet deadlines for completing studies. For failure to timely complete a cluster study, cluster re-study, facilities study, or affected system study, the transmission provider would be subject to a penalty of $500/day for each day the study is late, with a cap of 100% of the total study deposit received. FERC proposes a 10-day grace period where no penalties will be assessed. The parties can mutually agree to extend the deadline for a particular study by 30 days, in which case no penalties would be assessed for missing the original deadline.

4. Co-location of multiple resources behind a single point of interconnection. To remove barriers in the interconnection of co-located resources, FERC proposes to require transmission providers to allow two or more resources to locate on a shared site behind a single point of interconnection and to share a single interconnection request. In addition, FERC proposes to define “co-located resources” as more than one resource behind the same point of interconnection, and to modify the definition of site control to allow interconnection customers to demonstrate shared land use for co-located facilities.

5. Updated modeling and performance requirements for non-synchronous generating facilities. To address the concern that studies of non-synchronous facilities, such as solar photovoltaic projects, may not appropriately identify interconnection facilities and network upgrades absent accurate and validated models, FERC proposes to require interconnection customers requesting to interconnect a non-synchronous facility to provide the transmission provider with the models needed for accurate interconnection studies. Specifically, an interconnection customer proposing to interconnect a non-synchronous facility would be required to submit a validated user-defined root mean square (RMS) positive sequence dynamics model, a generic library RMS positive sequence dynamics model, and a validated electro-magnetic transients (EMT) model, if the transmission provider performs an EMT study.

Although FERC’s proposal includes some requirements that could prove onerous for developers, the NOPR represents a significant effort by FERC to accelerate clean energy development by clearing current and preventing future queue backlogs. More stringent deadlines for transmission providers and a penalty structure could incentivize expedited review of interconnection requests, increase transmission provider accountability, and provide additional transparency into the process for interconnection customers. Allowing multiple customers to use a single interconnection point and interconnection request and to modify existing interconnection requests without risk of loss of queue position could streamline studies, result in cost savings, and reduce withdrawals from the queue. However, the increased burden associated with satisfying more stringent site control and commercial readiness requirements, and the increased risk of incurring significant penalties for withdrawing from the queue could deter some new developers from entering the queue. 

Comments on the NOPR are due by October 13, 2022 and reply comments are due by November 14, 2022. The NOPR is available on the FERC website and can be accessed at this link: https://www.ferc.gov/media/rm22-14-000.