FERC Approves PJM Interconnection Process Reforms to Address Backlog

10 minute read | December.21.2022

On November 29, 2022, FERC issued an order[1] approving a proposal by PJM to reform its interconnection procedures to enable it to process new interconnection requests more efficiently.[2] The PJM reforms represent one of several proposed remedies by transmission providers and FERC to address significant delays and backlogs resulting from the influx of interconnection requests by renewable energy developers. Notably, FERC approved PJM’s reforms while it is still considering comments filed in response to its proposed rulemaking to alleviate backlogs and streamline processes to prevent interconnection delays.[3] In addition, PJM’s new interconnection procedures may be subject to further revisions consistent with the final rule that FERC will issue in the pending interconnection rulemaking proceeding.

PJM’s Queue Reform Proposal

PJM’s queue reforms shift the way PJM processes interconnection requests from its prior “first-come, first-served” approach to a “first-ready, first-served” clustered cycle methodology. The shift to a first-ready, first-served approach is intended to reduce the number of speculative projects that withdraw from the interconnection queue late in the interconnection process, triggering restudies of later-queued projects that are responsible for much of the current backlogs.

Under its revised interconnection procedures, PJM will use an application and study process that includes three study phases and three decision points to evaluate clusters of interconnection requests. The revised application process will require a study deposit, ranging from $75,000 to $400,000 depending on the capacity of the generation facility seeking interconnection.[4] Ten percent of the study deposit is non-refundable and can be used by PJM to fund any restudies that are required in the event the applicant withdraws from the queue. PJM will refund any of the remaining 90% of the deposit that remains after the applicant pays its actual study costs. In addition to the study deposit, an applicant must submit: (i) “Readiness Deposit #1,” calculated as $4,000 per MW; and (ii) evidence of site control for at least one year from the application deadline for all of the generating facility site.

PJM will conduct a system impact study in each of the three phases for each cluster of interconnection requests. PJM will use “reasonable efforts” to complete the first phase within 120 days and to complete each of the second and third phases within 180 days. Project developers will have three decision points at which they will decide whether to remain in the cycle or withdraw. Interconnection customers that choose to remain in the study process must satisfy additional readiness criteria at each decision point, as follows:

  • Decision Point I. Interconnection customers that decide to proceed must submit Readiness Deposit #2, calculated as 10% of the cost allocation for the network upgrades calculated in Phase I minus Readiness Deposit #1. In addition, customers must provide evidence of 100% site control for an additional year and of site control for 50% of the interconnection facilities for one year. Withdrawal from the queue at this point will result in a 50% refund of Readiness Deposit #1 and a 100% refund of Readiness Deposit #2.
  • Decision Point II. Customers that decide to continue beyond Decision Point II must submit Readiness Deposit No. 3, calculated as 20% of the cost allocation for the network upgrades calculated in Phase II minus the total Readiness Deposits already paid.Withdrawal from the queue at this point will result in a 100% refund of Readiness Deposit #2, up to 100% of Readiness Deposit #1, and up to 90% of the study deposit, less any actual costs.[5]
  • Decision Point III. Customers that decide not to withdraw and instead to proceed beyond Decision Point III must submit a security deposit equal to 100% of the network upgrades costs allocated to the generator. In addition, interconnection customers must provide evidence of 100% control of the generating or merchant transmission facility site and 100% control of the site for the interconnection facilities for a three-year term. Concurrent with Decision Point III, PJM will commence the negotiation of an interconnection-related agreement.[6]

PJM’s interconnection reform eliminates the right of interconnection customers to suspend work by the interconnecting transmission owner under the interconnection service agreement (“ISA”). Instead, project developers are granted a one-time option to extend their milestones (other than those related to site control) for a total period of one year regardless of cause. According to PJM, elimination of the suspension right will reduce both the number of speculative projects that ultimately withdraw from the queue and uncertainty and delays to lower-queued projects resulting from lengthy suspensions. Additional extensions of milestones for factors outside of the control of the project developer remain available on a case-by-case basis.

Implementation

To implement the interconnection reforms and clear the backlog, PJM has adopted procedures to sort and prioritize the processing of projects (“Transition Period Rules”). PJM will process the queue backlog using the Transition Period Rules prior to the date that the reformed interconnection procedures (“New Rules”) becoming effective. The New Rules apply to interconnection requests submitted on or after October 1, 2021, the date PJM opened the “AH2” queue window. The Transition Period Rules apply to pending interconnection requests submitted between April 2018 and September 2021.

  • Project Sorting Process

    PJM will divide pending interconnection requests into multiple groups, rather than including them all in one large study group. PJM’s division of interconnection requests into groups and the processing of these requests will be based on project maturity, study complexity, and interconnection costs. Projects in queue windows AD2 or earlier – i.e., requests submitted before April 1, 2018 – will remain subject to PJM’s prior interconnection procedures. Projects in the AE1, AE2, AF1, AF2, AG1, AG2, and AH1 queue windows (i.e., requests received between April 1, 2018 and September 30, 2021) that have not received an ISA or a Wholesale Market Participant Agreement (“WMPA”) by the “Transition Date” will be subject to the Transition Period Rules. The Transition Date is the later of (i) January 3, 2023, or (ii) the date by which all AD2 and prior queue window ISAs or WMPAs have been executed or filed unexecuted (which has not yet occurred).

  • Transition Period Rules

    Under the Transition Period Rules, interconnection customers in queue windows AE1 through AG1 that have not received or executed an ISA will have 60 days after the Transition Date to provide the required readiness deposits and evidence of site control. Failure to provide the readiness deposits and evidence of site control will result in termination and withdrawal of the request from the queue. PJM will conduct a restudy of projects in the AE1 through AG1 queue windows that are able to provide the requisite readiness deposits and demonstrate site control. Based on the results of that restudy, projects that trigger network upgrades costing more than $5 million will be processed as Transition Cycle #1. Projects in queue windows AG2 and AH1 will be processed as Transition Cycle #2.

    Projects that do not trigger network upgrades or that trigger network upgrades costing $5 million or less will be processed on an expedited track (“Expedited Process”). Projects subject to the Expedited Process will be studied serially and will be subject to the existing serial cost allocation rules, meaning that the interconnection customer is responsible for its own study and network upgrade costs rather than those costs being shared among members of a cluster. PJM will conduct facilities studies for projects that enter the Expedited Process and tender an ISA. The Expedited Process is only available during the Transition Period.

    PJM will begin processing Transition Cycle #1 upon completion of its eligibility review for the Expedited Process, but in any event, no later than one year from the Transition Date. Transition Cycle #1 will run concurrently with the Expedited Process. PJM anticipates completing Transition Cycles #1 and #2, including execution of final ISAs, by Q4 2026.

  • New Rules

    Once Transition Cycles #1 and #2 are complete, all applications submitted in queue window AH2 (October 1, 2021 through March 31, 2022) will proceed under the New Rules as Cycle #1. These projects will be classified as “in process” but on hold while PJM processes the Transition Cycles. PJM anticipates starting application review and Phase I for Cycle #1 in early 2026.

  • Acceleration Procedures
    Separate from the Expedited Process, PJM has adopted Acceleration Procedures that will apply to Transition Cycles #1 and #2 and the New Rules prospectively. The Acceleration Procedures allow a project that does not need to go through the full interconnection process to proceed directly to negotiation of an interconnection-related agreement. A project that is found after completion of the Phase I or Phase II system impact studies not to have network impacts may proceed directly to negotiation of an ISA. Projects proceeding under the Acceleration Procedures must post security, demonstrate site control, and meet other readiness requirements prior to entering into an interconnection-related agreement.

Next Steps

As stated above, FERC accepted PJM’s interconnection reforms subject to certain conditions for further compliance. FERC directed PJM to submit a compliance filing within 30 days of FERC’s acceptance order memorializing PJM’s representation that only projects with no network upgrade cost assignment and that do not require further studies are eligible for acceleration. PJM must also revise the definition of the “Transition Date,” which does not correctly reference the full docket number of this proceeding. In addition, PJM must submit a second compliance filing to provide the effective date of the New Rules (Part VIII of the proposed Tariff), no less than 60 days prior to the effective date.

FERC also directed PJM to submit informational reports beginning after the Transition Date (January 3, 2023) until PJM completes processing all interconnection requests under the Transition Period Rules. The informational filings will provide: (1) the number of studies completed by study phase and the average time for study completion under the Transition Period Rules; (2) the number of interconnection requests remaining in the Expedited Process, Transition Cycle #1, and Transition Cycle #2, by queue window and study phase; (3) updates on whether PJM is meeting timelines for the completion for each phase in Transition Cycles #1 and #2 (i.e., whether it completed the Phase I system impact study in 120 days, the Phase II system impact study in 180 days, and the Phase III system impact study in 180 days), and how long PJM took to complete each phase; and (4) updated timelines on when PJM expects to commence and complete the remaining phases of Transition Cycles #1 and #2 and the Expedited Process and commence Cycle #1 under the New Rules.

Impact

PJM’s interconnection reforms represent a positive step toward clearing its interconnection queue backlog, accelerating clean energy development, and streamlining the interconnection process. However, delays will continue while PJM implements its reforms, with many projects being put on hold while PJM processes higher priority cycles. In addition, prospective interconnection customers will be required to satisfy more stringent readiness requirements at earlier stages in the interconnection process, including payment of higher deposits and demonstration of comprehensive site control, which may dissuade developers from entering the queue. In addition, the one-year extension option that is replacing a customer’s right to suspend will limit opportunities for customers to manage project development schedules, including with respect to securing financing or permits. However, additional extensions of milestones for factors outside of the control of the project developer remain available on a case-by-case basis. Finally, although PJM’s interconnection reforms share some common goals with FERC’s ongoing queue reform rulemaking, a final rule in the rulemaking proceeding could require additional further changes to the new PJM interconnection processes.



[1] PJM Interconnection, L.L.C., 181 FERC ¶ 61,162 (2022).

[2] PJM Interconnection, L.L.C., Docket No. ER22-2110-000, Tariff Revisions for Interconnection Process Reform (filed June 14, 2022) (“Proposal”). FERC accepted PJM’s proposed reforms subject to PJM’s making revisions and filing them with FERC in a subsequent filing.

[3] Improvements to Generator Interconnection Procedures and Agreements, Notice of Proposed Rulemaking, 179 FERC ¶ 61,194 (2022) (“Interconnection NOPR”).

[4] The study deposit breakdown is as follows: (1) $75,000 for projects up to 20 megawatts (MW); (2) $200,000 for projects over 20 MW – 50 MW; (3) $250,000 for projects over 50 MW – 100 MW; (4) $300,000 for projects over 100 MW – 250 MW; (5) $350,000 for projects over 250 MW – 750 MW; and (6) $400,000 for projects over 750 MW.

[5] For example, assume the customer withdraws an interconnection request for a 50 MW facility at Decision Point II with a cost allocation for network upgrades of $100,000. The customer has paid (1) the $200,000 study deposit for projects over 20 MW and less than 50 MW; (2) Readiness Deposit #1 ($4,000/MW = $200,000); and (3) Readiness Deposit #2 (10% of cost allocation for network upgrades = $10,000). The customer would be refunded 100% of Readiness Deposit #2 ($10,000), up to 100% of Readiness Deposit #1 ($200,000), and up to 90% of the study deposit ($180,000). The amount to be refunded may be reduced by the costs of underfunded Network Upgrades associated with the withdrawal and the actual costs to conduct the studies to date. In this example, assuming $30,000 in actual costs, the customer would be refunded $380,000 of the $410,000 paid at this stage.

[6] Under Part IX of the Tariff, an “interconnection-related agreement” may include a Generation Interconnection Agreement (which may be combined with a Construction Service Agreement), a Cost Responsibility Agreement, an Engineering and Procurement Agreement, or a Necessary Study Agreement.