A Complete Guide To Order No. 2023-A, FERC's Interconnection Reform Rehearing Order - Energy Law

On Thursday, March 21, 2024, the Federal Energy Regulatory Commission ("Commission" or "FERC") issued its much-anticipated Order on Rehearing and Clarification on Order No. 2023 ("Order No. 2023-A"). In Order No. 2023-A, FERC acted on 31 rehearing or clarification topics requested by parties interested in the interconnection reforms announced last summer as Order No. 2023. As explained in Foley Hoag's FERC March 2024 Open Meeting Preview, these requests were denied by operation of law in September 2023 as the Commission did not act on them within 30 days; however, as is typical for the Commission, FERC reserved its right to issue further rulings in response to rehearing requests and did just that last Thursday.

Through its 683 paragraphs, Order No. 2023-A largely upholds the requirements established by Order No. 2023 but sets aside some aspects of the Order and offers clarification on several issues. In this post, we provide a high-level summary of each of the 31 Commission determinations in Order No. 2023-A, highlighting at the beginning a handful of determinations that may be of particular interest to the generator and energy storage development communities and thereafter summarizing all other determinations from Order No. 2023-A.¹

FERC issued Order No. 2023-A just two weeks before transmission providers, including the Regional Transmission Operators ("RTOs") and Independent System Operators ("ISOs"), were set to make their Order No. 2023 compliance filings under the then-current Order No. 2023 compliance timeline (due April 3, 2024). However, FERC announced in Order No. 2023-A that due to the breadth and substance of the issues contained within Order No. 2023-A, the Commission has extended the compliance filing deadline until 30 days after the date Order No. 2023-A is published in the Federal Register, which can take days or weeks after FERC issues an order. It remains to be seen how many transmission providers will take advantage of this extension or make their compliance filings in the first week of April as planned, but we expect to see compliance filings trickle in between now and the new deadline. Notably, on March 21, 2024, the Commission also acted on three early-made compliance filings by Duke Energy Carolinas, LLC, Arizona Public Service Company, and Idaho Power Company. In all three instances, the Commission determined that the submissions partially complied with the requirements of Order No. 2023 and directed the entities to make additional compliance filings by the deadline established in Order No. 2023-A.

Summary of Order No. 2023-A Determinations

Highlights for Generation and Storage Developers:

Restoration of Interconnection Customer Option to Build (P 141): The Commission set aside part of Order No. 2023 and revised the definitions of stand-alone network upgrades in the pro forma Large Generator Interconnection Procedures ("LGIP") and pro forma Large Generator Interconnection Agreement ("LGIA") and the option to build section of the pro forma LGIA to "allow interconnection customers to exercise the option to build whether the stand alone network upgrade is attributable to a single interconnection customer or a shared network upgrade shared by multiple interconnection customers."
Financial Security—Addition of Surety Bonds Generally (P 185): The Commission accepted arguments to allow a greater number of acceptable forms of security for commercial readiness deposits and certain study deposits; in addition to cash or an irrevocable letter of credit, the Commission found that "surety bonds or other forms of financial security that are reasonably acceptable to the transmission provider," are also acceptable forms. The Commission also clarified that transmission providers may allow interconnection customers to pay cash for any amount drawn by the transmission provider rather than drawing on a letter of credit or surety bond.
Demonstration of Site Control (P 197): The Commission denied several requests to rehear or clarify its decision to apply site control demonstration requirements only to the land associated with a proposed generating facility (and not also interconnection facilities), and also denied requests to accept a site control term shorter than the expected operation of the generating facility or expand the options to submit a deposit in lieu of site control beyond the regulatory limitations established in Order No. 2023.
Co-Locating Generating Facilities Behind a Single Point of Interconnection (P 545): Order No. 2023-A clarified that co-located resources sharing an interconnection request do not need to be owned by the same interconnection customer in order to submit a single interconnection request and also specified that transmission providers should determine whether the withdrawal of one of the co-located projects would result in the withdrawal of the entire interconnection request, and that such determination should be proposed in Federal Power Act ("FPA") section 205 filing.
Storage Operating Assumptions for Interconnection Studies (P 575): Order No. 2023-A reiterated that transmission providers will need, at the request of interconnection customers, to study whether an energy storage resource ("ESR") will or will not charge during peak load. The Commission noted that the additional administrative burden of doing so, to the extent there is any, will be outweighed by the benefits of this reform. The Commission also acknowledged that this will not require creation of new base cases; that Order No. 2023 does not require transmission providers that did not already study charging as part of the interconnection process to do so now; and that on compliance, RTOs and ISOs may seek independent entity variations regarding this requirement. The Commission declined to extend the requirement to use more accurate operating assumptions in the interconnection studies beyond ESRs.
Compliance Timelines and Compliance Filing Effective Dates (P 667): The Commission extended the deadline to submit compliance filings from April 3, 2024, to 30 days after the publication of Order No. 2023-A in the Federal Register and clarified that the Commission may grant effective dates for the compliance filing that pre-date the Commission's order on the compliance filing.

Other Determinations:

General Need for Reform and Interaction with Other Reform Efforts

Need for Reform (P 35): The Commission upheld its findings in Order No. 2023 that "existing pro forma generator interconnection procedures and agreements are unjust, unreasonable, and unduly discriminatory or preferential," and sustained the need for revisions to the pro forma open access transmission tariff and Commission regulations to overcome those issues.
Arguments Regarding Conflicts with Ongoing Queue Reform Efforts and Evaluation of Variations on Compliance (P 73): The Commission clarified that all transmission providers, even those that already have cluster study processes, have a "compliance obligation" to review and modify their current processes and pro forma agreements to comport with Order No. 2023. The Commission also clarified that transmission providers that have already adopted or are in the process of adopting a cluster study process are not required to, but may, implement the transition process established in Order No. 2023.

First-Ready, First-Served Cluster Study Process

Public Interconnection Information (P 95): The Commission declined to clarify whether transmission providers may use Energy Resource Interconnection Service ("ERIS") or Network Resource Interconnection Service ("NRIS") assumptions for public heatmaps, rather than just NRIS, but provided that a transmission provider may propose on compliance an option for heatmap users to view results using ERIS assumptions in addition to NRIS assumptions.
Allocation of Cluster Network Upgrade Costs (P 175): The Commission clarified that, regarding the location of details on the "implementation of the proportional impact method" that, "consistent with the rule of reason," the Commission will consider the details of the transmission provider's proposed proportional impact method as part of each transmission provider's Order No. 2023 compliance filing.
Shared Network Upgrades (P 181): The Commission clarified that Order No. 2023 "does not require transmission providers to eliminate, change, or re-justify existing tariff mechanisms regarding cost sharing of network upgrades between earlier-in-time and later-in-time clusters," but rather that transmission providers need only "seek approval to maintain previously approved variations" from the pro forma LGIP and pro forma LGIA if the approved variations are impacted by Order No. 2023.
Increased Study Deposits (P 188): The Commission clarified the applicable study deposit requirements for small generating facilities requesting NRIS that submit an interconnection request under a transmission providers' LGIP and also clarified that the $5,000 application fee is non-refundable.
Commercial Readiness (P 205): The Commission declined to establish an evaluation framework for non-financial commercial readiness demonstrations to ensure they were not unduly discriminatory or preferential because it did not adopt non-financial commercial readiness requirements as part of Order No. 2023.
Withdrawal Penalties (P 230): The Commission clarified that the withdrawal penalties assessed when an interconnection customer withdraws from an interconnection study process: (i) cannot exceed the dollar amounts collected from interconnection customers; (ii) will not be assessed if the customer's withdrawal does not have a material impact on any interconnection request in the same cluster; (iii) will "not reduce the total network upgrade cost that a transmission provider places in rate base" if used to offset financial security payments made to the transmission provider by the interconnection customers that remain in the study. The Commission also clarified: (a) that transmission providers are required to take certain procedural steps for a withdrawal penalty application within 30 calendar days of "all interconnection customers in the cluster having either withdrawn or been deemed withdrawn, executed an LGIA, or requested the LGIA be filed unexecuted;" (b) that transmission providers must first use collected withdrawal penalties to fund all interconnection studies for remaining customers in the cluster; (c) differences between requirements to return withdrawal penalty funds established in several sections of the pro forma LGIP; and (d) study costs include "all costs incurred by the interconnection customer in the transmission providers existing interconnection study process" prior to the effective date of the transmission provider's compliance filing.
Transition Process (P 257): The Commission denied several requests for rehearing or clarification regarding the transition process, including requests to revise the deposit amounts and withdrawal penalty amounts for the transitional process. The Commission also declined to revise the eligibility date for participation in a transitional cluster study or set a size threshold for the transitional cluster study.

Increasing Speed of Interconnection Queue Processing

Elimination of the Reasonable Efforts Standard and Implementation of a Replacement Rate (P 280): The Commission did not accept any arguments challenging the elimination of the reasonable efforts standard as applied to interconnection studies and upheld its prior determination that replacing this standard with firm steady deadlines was "warranted as part of a package of comprehensive reforms to address interconnection queue delays and backlogs."
Adoption of a Study Deadline and Penalty Structure Replacement Rate (P 314): The Commission did not accept any arguments challenging the study deadlines established in Order No. 2023 and upheld the study deadlines in Order No. 2023, including the 150-day timeframe for completion of the cluster studies, as just and reasonable; in doing so, the Commission acknowledged that though the interconnection studies may now be more complex, additional efficiencies established by Order No. 2023 make the study deadlines just and reasonable.
Reasonableness of the Study Delay Penalty and Appeal Structure (P 358): The Commission affirmed the justness and reasonableness of the study delay penalty and appeal structure adopted in Order No. 2023, notwithstanding rehearing requests that argued, among other points, that the study delay penalty and appeal structure "assigns penalties to transmission providers without an assessment of fault . . . until they demonstrate their lack of fault through the appeals process."
RTO/ISO Issues Regarding the Penalty Structure (P 400): The Commission did not accept claims raised in several requests for rehearing that the Commission's treatment of RTOs/ISOs under the deadline and penalty structure is inappropriate or unduly discriminatory and found that the penalty scheme appropriately accounts for differences between RTOs/ISOs and non-RTO/ISO transmission providers. The Commission reiterated that RTOs/ISOs may, but do not have to, make FPA section 205 filings to propose mechanisms by which to recover such penalties.
Statutory Authority to Implement Study Delay Penalty Structure under FPA Section 206 (P 411): The Commission rejected arguments from several transmission providers that it lacked authority to implement Order No. 2023's performance expectations and incentives through establishing deadlines and penalties under FPA 206, rejecting the arguments both because their proponents failed to raise them in comments on the Notice of Proposed Rulemaking and because such deadline-and-penalty mechanism is within its scope under FPA 206 and is not "in tension with" the civil penalty provisions in the FPA.
Commission Precedent Regarding the Penalty Structure (P 423): The Commission declined rehearing requests that argued the deadline and penalty structure in Order No. 2023 is inconsistent with Commission precedent, or to the extent that it is inconsistent, that such change is insufficiently explained. The Commission acknowledges that Order No. 845 declined to establish study delay penalties but noted that Order No. 2023 was issued to address worsening queue delays and interconnection issues. The Commission also distinguished this penalty from Order No. 2003's determination not to include a liquidated damages provision in the LGIA as that provision related to construction of interconnection facilities.
Alternative Approaches & Miscellaneous Issues Related to Penalties (P 439): The Commission: (i) clarified that penalty waiver requests will not be subject to the traditional Commission four-prong waiver analysis standard but rather the Commission will determine "whether good cause exists to grant relief from the study delay penalty"; (ii) declined to modify the timing of when the penalties will commence to a time after the third cluster study cycle; (iii) clarified that transmission provider delay penalties must be distributed to interconnection customers on a "pro rata basis proportionate to the final study costs" paid by each customer and that the interconnection penalties will not accrue on a per customer basis but rather on a per-study basis, per business day that the study is delayed past the tariff deadline; and (iv) clarified that transmission providers have flexibility to propose penalty recovery mechanisms that are best for their regions.
No Interest Owed on Study Penalties (452): The Commission clarified that transmission providers and transmission owners liable to pay study penalties will not be liable to pay interest on those penalties, and similarly that distribution of study delay penalty amounts will not include interest accrued prior to distribution.
Affected Systems Study Process (P 492): The Commission: (i) confirmed that there are deadlines for determining that an affected system study is needed and when the estimated costs and schedules must be provided; (ii) declined to clarify that an interconnection customer is exempt from its requirement to post security where a transmission provider determines a material impact from delay and requires the customer move forward with execution of the LGIA; (iii) clarified that an affected system provider may pause its study if it learns the host transmission provider is conducting a cluster restudy; (iv) declined to allow penalty-free withdrawals for interconnection customers that receive network upgrade cost estimates over a certain threshold; and (v) declined to include network system upgrade costs in the withdrawal penalty exemption calculations.
Affected System Pro Forma Agreements (P 523): The Commission: (i) clarified that Order No. 2023 does not impact the existing reimbursement requirements for affected system network upgrades; (ii) clarified that the pro forma LGIA applies to all jurisdictional affected system operators; and (iii) removed two sections of the pro forma affected system facilities construction agreements (Sections 3.1.2.2 – Recommencing of Work and 3.1.2.3 – Right to Suspend Due to Default) on the grounds that they are inconsistent with the pro forma LGIA and are not necessary.
Affected Systems – Miscellaneous (P 537): The Commission rejected MISO's request to direct MISO, PJM, and SPP to coordinate their affected system reviews on compliance because they have joint operating agreements ("JOAs"), as the Commission said it instead expects the parties to submit proposed revisions to their JOAs to avoid conflicts between the JOAs, interconnection processes, and Order No. 2023. The Commission also observed that Order No. 2023 does not modify or address seams agreements, which are not part of the LGIP.

Incorporating Technological Advancements into the Interconnection Process

Revisions to the Modification Process to Require Consideration of Generating Facility Additions (P 554): The Commission sustained its findings that (i) an automatic determination that adding a generating facility to an existing interconnection request is a material modification without further study would be a significant, unjust, and unreasonable barrier to the interconnection process; (ii) at any point prior to the return of the cluster study agreement from the transmission provider to the interconnection customer, a decrease of up to sixty percent of a generating facility's electrical output cannot be considered a material modification; and (iii) before the return of an executed interconnection facilities study, an additional 15 percent decrease in electrical output cannot be considered a material modification if the change is requested through a decrease in plant size or interconnection service level. The Commission also declined to establish any presumptions of immateriality for other specific changes to an interconnection request but noted that Order No. 2023 did not make any changes to the Order No. 845 technological change procedures.
Availability of Surplus Interconnection Service (P 560): The Commission affirmed that transmission providers must allow interconnection customers to apply for surplus interconnection service after the customer has either executed an LGIA or requested that an unexecuted LGIA be filed with the Commission. The Commission clarified that this does not mean that transmission providers must allow interconnection customers to receive surplus interconnection service at that point.
Consideration of the Enumerated Alternative Transmission Technologies in Interconnection Studies Upon Request of the Interconnection Customer (P 615): The Commission declined requests to revisit the requirement that transmission providers evaluate the list of alternative transmission technologies and noted that as long as a transmission provider has evaluated the list, it has complied with Order No. 2023. The Commission also affirmed its prior decision not to include dynamic line ratings or storage-as-a-transmission-asset on the list of alternative transmission technologies.
Modeling Requirements for Non-Synchronous Generating Facilities (P 650): The Commission sustained the requirements that models must be submitted with the interconnection request to prevent future delays and restudies. The Commission denied requests to allow developers to provide models for newer equipment later in the interconnection process without subjecting them to materiality determinations.
Ride Through Requirements (P 659): The Commission declined requests to modify the LGIA to limit prioritization of active power to frequency response disturbances, instead reiterating that the extent to which a non-synchronous generating facility prioritizes real or reactive power is best handled on a case-by-case basis by the transmission provider.

Order No. 2023-A will take effect 30 days after its publication in the Federal Register.

The Foley Hoag FERC team is closely monitoring FERC and transmission provider actions with respect to Order No. 2023 compliance and looks forward to sharing additional findings and analysis regarding interconnection reform and transmission expansion.

Footnote

1. The included paragraph numbers refer to the paragraph in the Rehearing Order where the Commission's determination on that topic begins.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.