United States: FERC Makes Meaningful Revisions To Interconnection Process With Order No. 2023

On July 28, 2023, the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued Order No. 2023 requiring all public utility transmission providers to adopt reforms to FERC's pro forma generator interconnection procedures and agreements to address interconnection queue backlogs and prevent undue discrimination for new technologies.

In what FERC Chairman Willie Phillips referred to as "a watershed moment for our nation's transmission grid," the new rule includes several areas of reform. Order No. 2023 builds off FERC's June 2022 Notice of Proposed Rulemaking ("NOPR"), in large part adopting the NOPR but deviating in several key areas after the receipt of approximately 4,500 pages of comments helping FERC inform its decision. Reforms in Order No. 2023 include:

• Implementing a first-ready, first-served cluster study process, where transmission providers will conduct cluster interconnection studies encompassing numerous proposed generating facilities, rather than separate studies for each individual generating facility.
• Speeding up interconnection queue processing by imposing firm deadlines with penalties if transmission providers fail to complete interconnection studies on time.
• Requiring transmission providers to allow more than one generating facility to co-locate on a shared site behind a single point of interconnection and share a single interconnection
• Under certain conditions, allowing interconnection customers to add a generating facility to an existing interconnection request without such request being considered a material modification.
• Developing a withdrawal penalty framework for developers who withdraw their projects from the interconnection queue
• Requiring transmission providers to evaluate alternative transmission technologies in their cluster studies.

The final rule becomes effective 60 days after publication in the Federal Register. The Commission requires transmission providers to make compliance filings to revise their tariffs to reflect the new rules within 90 calendar days of the publication of Order No. 2023 in the Federal Register, rather than the 180-day compliance period included in the June 2022 NOPR.

Why Improve the Interconnection Process?

The Commission did not mince words when providing the grounds warranting these changes. Among other reasons, FERC noted that there is a backlog of more than 2,000 GW of generation and storage capacity waiting in interconnection queues around the country – an amount exceeding all existing installed capacity in the U.S. today. This backlog resulted in the typical project built in 2022 taking five years from the project's initial interconnection request to commercial operation. Moreover, transmission providers exceeded deadlines for more than two-thirds of the 2,179 interconnection studies completed in 2022.

Unsurprisingly, an outcrop of these backlogs and delays is uncertainty. FERC found that this uncertainty, whether endured by interconnection customers or transmission providers, hinders the development of new generation resources, stifles competition in the wholesale electricity marketplace, and ultimately increases costs to consumers. Accordingly, the Commission found there was sufficient legal foundation under section 206 of the Federal Power Act to conclude that certain revisions to the pro forma generator interconnection procedures and agreements were necessary to ensure rates are just, reasonable, and not unduly discriminatory or preferential.

A First-Ready, First-Served Cluster Study Process

Order No. 2023 directs transmission providers to move away from processing interconnection in a serialized fashion in the order they are received – the first-come, first served approach – toward an approach where multiple requests are processed at once based on when interconnection customers reach certain development milestones – a first-ready, first-served cluster study approach.

The cluster study process will increase the rate at which interconnection requests are processed, as transmission providers can perform interconnection studies for multiple requests instead of separate studies for each individual interconnection customer. In its current form, the serial first-come, first-served includes three distinct studies: a feasibility study to offer a preliminary evaluation of the system impact and cost of interconnecting the generating facility; a system impact study to further identify and detail the impacts to the transmission provider's system and other affected systems; and the facilities study that specifies and estimates the cost of the equipment, engineering, procurement, and construction work needed to implement the conclusions of the system impact study.

Order No. 2023 replaces this serialized approach with a new cluster study process where transmission providers will study groups of projects one at a time. This process will include: a cluster request window for customers to submit an interconnection request to join a cluster; a customer engagement window for customers to learn about other interconnection requests in the cluster and help determine project viability; an initial cluster study of the system impacts of the cluster of interconnection requests; potential cluster restudies triggered by interconnection requests or withdrawals within the cluster; and a facilities study.

FERC recognized that the existing first-come, first-served process created incentives for interconnection customers to submit speculative requests to secure favorable queue positions even if the underlying generator facility was not viable, leading to the late-stage withdrawals of requests. These withdrawals would then trigger reassessments and restudies, resulting in delays and increased costs for lower-queued requests, which would then propagate more late-stage withdrawals. To resolve this race to the queue, Order No. 2023 implements various mechanisms that incentivize only viable projects to submit interconnection requests or for interconnection customers to withdraw requests as early as possible in the interconnection process.

Pre-Interconnection Request Information and Heatmaps

The Commission identified an informational asymmetry between interconnection customers and transmission providers regarding the potential interconnection costs prior to submitting an interconnection request. FERC reasoned that this imbalance causes many interconnection customers to submit interconnection requests in an attempt to obtain information through the system impact study process about the costs associated with various project configurations.

To create a more transparent process, Order No. 2023 requires transmission providers to provide a means for interconnection customers to obtain additional information prior to entering the interconnection queue. Specifically, FERC set minimum requirements for transmission providers to publicly post available information pertaining to generator interconnection, including an interconnection heatmap after the completion of each cluster study. FERC intends for the heatmaps to benefit prospective interconnection customers by identifying areas of expected congestion and potential network upgrades.

Large Initial Deposit

As part of the first-ready, first-served cluster process, FERC will now require a sizable deposit at the time of an interconnection request. Order No. 2023 requires transmission providers to calculate the deposit amount using a tiered approach based on the proposed MW size of the facility.

Site Control

With respect to site control, FERC adopts revisions to its large generator interconnection procedures ("LGIP") to require an interconnection customer to demonstrate the exclusive land right to develop, construct, operate, and maintain its generating facility or, where facilities are co-located, to demonstrate a shared land use right to develop, construct, operate, and maintain co-located facilities. To prevent potentially speculative requests, FERC also eliminates the option for an interconnection customer to submit a deposit in lieu of site control, except in very narrow circumstances.

Commercial Readiness and LGIA Deposits

Declining to adopt a commercial demonstration requirement, FERC plans to mitigate late-stage withdrawals by requiring interconnection customers to submit commercial readiness deposits prior to the beginning of each stage of the cluster study process. The cluster study process includes the initial cluster study, the cluster restudy, and the facilities study. The initial cluster study deposit will be based on the size of the generating facility, whereas the cluster restudy and facilities study deposits will be based on estimated network upgrade costs.

Similarly, prior to executing a large generator interconnection agreement ("LGIA"), Order No. 2023 requires interconnection customers to provide an LGIA deposit, which increases the total commercial readiness deposit to be equal to 20% of the estimated network upgrade costs identified in the LGIA.

Withdrawal Penalties

In Order No. 2023, FERC remarks that it is necessary to adopt a withdrawal penalty framework to remedy the issue of speculative requests. Subject to certain exemptions, if the interconnection customer withdraws its request at any time during the interconnection process, the transmission provider deems a request withdrawn; or if the interconnection customer fails to reach commercial operation, then the transmission provider may assess a withdrawal penalty. There is an exemption for interconnection customers if the withdrawal follows a significant and unanticipated increase in the customer's network upgrade costs. The withdrawal penalties will be tiered based on the phase in the interconnection process and will be equal to the greater of the customer's study deposit or the amounts shown in the table below.

To ensure that transmission providers do not receive a windfall of withdrawal penalty amounts, Order No. 2023 requires the funds to be distributed to fund studies and restudies in the same cluster and be used to offset increases in costs borne by other customers in the same cluster for network upgrades.

Penalizing Transmission Providers for Missing Study Deadlines

In addition to addressing the incentives that may have created a race for queue position, Order No. 2023 also provides consequences for transmission providers that fail to meet deadlines for conducting interconnection studies. Until now, transmission providers were only required to use "reasonable efforts" to complete interconnection studies in a timely manner, which required them to take actions consistent with good utility practice. However, there were no consequences if transmission providers missed deadlines.

Order No. 2023 overhauls this construct, removes the reasonable efforts standard, imposes firm study deadlines, and establishes penalties for failure to meet those deadlines.

Transmission providers, other than regional transmission operators ("RTOs") or independent systems operators ("ISOs"), are not permitted to recover study delay penalties through transmission rates. Among other limitations, Order No. 2023 caps the study penalties at the amount the transmission provider received in deposits, either from the cluster as a whole or from the individual customer depending on the circumstances. Furthermore, the transmission providers must distribute the penalties to the affected interconnection customers.

Order No. 2023 also allows for two mechanisms by which study deadlines may be extended. First, a transmission provider and all the interconnection customers with requests in the relevant study may agree to a 30-day extension. Alternatively, if a mutual agreement cannot be reached, transmission providers may file an appeal with FERC to explain relevant circumstances, and FERC may grant an extension.

Affected Systems Studies

Order No. 2023 establishes a detailed affected system study process to provide uniformity to interconnection customers.

Enabling Grid Enhancing Technologies

There are several provisions in Order No. 2023 that provide clarifications intended to provide certainty to interconnection customers and facilitate technological advancements.

Co-located Generating Facilities

Addressing a void in the current LGIP, Order No. 2023 requires transmission providers to allow more than one generating facility co-located behind a single point of interconnection to share an interconnection request.

Revisions to the Modification Process

Because the current modification provisions in the LGIP are unclear as to whether an interconnection customer can modify its ongoing request to add another generating facility at the same point of interconnection, many transmission providers treat such a request as a material modification by default, even when the request would not increase the amount of interconnection service. Facing a loss of interconnection queue position, interconnection customers find this to be a barrier to the addition of facilities to an existing request that may improve system efficiency.

Order No. 2023 alleviates this concern by requiring transmission providers to evaluate the proposed addition of a generating facility at the same point of interconnection prior to deeming such an addition a material modification if the addition does not change the originally requested interconnection service level. Recognizing that performing an evaluation in the later stages of the interconnection process may have the adverse effect of causing lags in request processing, Order No. 2023 only extends this requirement until the interconnection customer returns their executed facilities study agreement.

Electric Storage Resource Interconnection Study Operating Assumptions

FERC adopts reforms to ensure the reliable interconnection of new electric storage devices by amending its pro forma LGIA and LGIP to allow interconnection customers with electric storage resources to request transmission providers use operating assumptions to reflect the resource's planned withdrawal of energy from the system during interconnection studies.

Alternative Transmission Technologies

FERC also adopts reforms requiring transmission providers to evaluate alternative transmission technologies during each cluster study and cluster restudy. The alternative transmission technologies include: static synchronous compensators, static VAR compensators, advanced power flow control devices, transmission switching, synchronous condensers, voltage source converters, advanced conductors, and tower lifting. FERC found that the listed technologies are scalable and have the potential to provide cost and time savings as an alternative to a traditional network upgrade.

New Modeling and Ride-Through Requirements for Non-Synchronous Generating Facilities

Order No. 2023 requires interconnection customers with non-synchronous generating facilities, such as inverter-based resources like wind and solar, to submit additional information at the time of their request. Specifically, such interconnection customers will now be required to provide accurate and validated models to transmission providers during the generator interconnection process that provide a comparable degree of accuracy as the models required of more conventional synchronous generators. It is intended that the more accurate non-synchronous generator data will decrease delays in interconnection studies and allow transmission providers to more precisely identify necessary interconnection facilities and network upgrades to accommodate the interconnection request.

Unlike synchronous facilities, which are required to inject electric current during transmission system disturbances, non-synchronous generating facilities often cease injecting current during disturbances through "momentary cessation." FERC identified this as a significant risk to the reliability of the bulk power system. Therefore, Order No. 2023 requires non-synchronous facilities, within the physical limitations of the facility, to configure or enable their facilities to ride through disturbances and continue to support system reliability.

Transition Process and Transmission Provider Compliance Filings

Order No. 2023 sets forth a timeline of events for transmission providers to adopt revisions to their interconnection procedures and agreements. First, Order No. 2023 will take effect 60 days after its publication in the Federal Register. Rehearing requests are due August 28, 2023.

Transmission providers are then required to submit compliance filings to adopt Order No. 2023's requirements 90 days after its publication in Federal Register, thirty days after Order No. 2023's effective date. After FERC approves an effective date for the transmission provider's compliance filing, the transmission provider is required to initiate a transition study process. In addition to the tariff reforms, the compliance filings must identify when after the conclusion of the transition study process that the transmission provider will begin its first standard cluster study process.

To facilitate the move to a first-ready, first-served cluster study process, Order No. 2023 also requires transmission providers to offer existing interconnection customers three options, depending on the phase of the interconnection process their request is in. An existing interconnecting customer may choose:

• A transitional serial study comprised of a facilities study,
• A transitional cluster study comprised of a clustered system impact study and individual facilities studies, or
• Withdrawal from the interconnection queue without penalty.

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