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FERC Adopts a Wide Package of Interconnection Reforms with Order No. 2023

On July 28, 2023, the Federal Energy Regulatory Commission (FERC) issued Order No. 2023, a Final Rule adopting reforms of its standard generator interconnection procedures and agreements to address interconnection queue backlogs and promote new technologies.

The Final Rule:

  • mandates a first-ready, first-served cluster study process with greater financial commitments for interconnection customers;
  • imposes firm study deadlines and financial penalties for transmission providers that fail to complete their interconnection studies on time, as well as an ability to appeal such penalties;
  • requires technological advancement studies in the interconnection process; and
  • updates modeling and performance requirements for inverter-based resources in the interest of continued system reliability.

The Final Rule implements these reforms by revising FERC’s regulations, pro forma Large Generator Interconnection Procedures (LGIP), pro forma Small Generator Interconnection Procedures, pro forma Large Generator Interconnection Agreement (LGIA), and pro forma Small Generator Interconnection Agreement (SGIA). The Final Rule becomes effective 60 days after publication in the Federal Register and requires transmission providers to submit compliance filings within 90 calendar days of such publication.

Reforms to Implement a First-Ready, First-Served Cluster Study Process

To address perceived deficiencies in current procedures governing the interconnection process that result in backlogs, as well uncertainty regarding cost allocation of interconnection facilities, the Final Rule requires:

  1. Transmission providers to implement an annual cluster study process instead of a serial study process (i.e., studying numerous proposed generating facilities individually in queue entry order). FERC found a single cluster study each year will increase efficiency, increase certainty of timing for studies and the magnitude of network upgrade costs, disincentivize interconnection customers from submitting speculative requests, result in fewer withdrawals because there will be less delays, and minimize the risk of cascading restudies.
  2. Interconnection customers to comply with specific commercial readiness requirements, including financial deposits (though the Final Rule did not adopt proposed non-financial commercial readiness demonstrations) and site control conditions (e.g., interconnection customers must demonstrate individually their exclusive right to land to develop, construct, operate and maintain their generating facility or shared land use right for such purposes where facilities are co-located) to join and remain in the interconnection queue.

The Final Rule requires transmission providers to publicly post available information pertaining to generator interconnection or a “heatmap” that provides public interconnection information or an interactive visual representation of available interconnection capacity.

The Final Rule adopts a cluster request window in which interconnection customers must submit an interconnection request that includes a non-refundable $5,000 application. Transmission providers must post metrics for the cluster study processing time and cluster restudy processing time, including the number of cluster studies completed within 150 calendar days of the close of the window. Each transmission provider may propose its own study cost allocation ratio for allocating the shared costs of cluster studies between a per capita basis and pro rata by megawatt (MW), provided that: between 10 and 50 percent of study costs are allocated on a per capita basis and the remainder is pro rata by MW. Transmission providers may retain their current structures if they satisfy this requirement.

For facilities and network upgrade costs, the Final Rule requires the transmission provider to:

  • Allocate network upgrade costs based on a proportional impact method (i.e., a technical analysis conducted by the transmission provider to determine the degree to which each project in a cluster study contributes to the need for a specific network upgrade);
  • Allocate costs of network upgrades located at substations equally among projects at the same substation on a per capita basis; and
  • Directly assign the costs of transmission provider’s interconnection facilities that are shared to interconnection customers on a per capita basis (i.e., on a per generating facility basis).

To remedy issues with speculative interconnection requests, the Final Rule imposes monetary penalties for withdrawing (or deemed withdrawing) interconnection requests and for interconnection projects that do not reach commercial operation. These penalties increase as the customer progresses further in the interconnection process. The Final Rule also provides a transition process from serial studies to the cluster study process, with an option to withdraw for certain interconnection requests. Transmission providers that have already adopted a cluster study process are not subject to the transition mechanism.

The Final Rule did not adopt certain proposals from the NOPR, including: an informational interconnection study for prospective interconnection customers; sharing of the costs of network upgrades between interconnection customers in earlier and subsequent clusters; optional resource solicitation studies initiated by resource planning entities; and submittal of an annual informational report detailing whether, and if so, how, alternative transmission technologies were considered in interconnection studies in the previous year.

Firm Deadlines, Penalties, and Other Reforms Aimed at Increasing the Speed of Interconnection Queue Processing

Seeking to improve the speed of interconnection queue processing, the Final Rule eliminates the “reasonable efforts” standard, imposes firm study deadlines (as defined by the transmission provider’s tariff), and establishes financial penalties if transmission providers fail to complete interconnection studies on time. These penalties apply regardless of the number of requests in each study.

  • Cluster Study delays beyond the specified deadline will incur a penalty of $1,000 per business day;
  • Cluster Re-Study delays will incur a penalty of $2,000 per business day;
  • Affected Systems study delays will incur a penalty of $2,000 per business day; and
  • Delays of Facilities Studies beyond the tariff-specified deadline will incur a penalty of $2,500 per business day.

Deadlines for studies may be extended by mutual agreement of the transmission provider and all interconnection customers with interconnection requests in the relevant study. Transmission providers may appeal their penalties to FERC, with appeals filed no later than 45 calendar days after the late study has been completed. The transmission provider must distribute funds from study delay penalties no later than 45 calendar days after the late study is completed on a pro rata basis per interconnection request to interconnection customers and affected system interconnection customers that have not withdrawn from the relevant study.

The Final Rule prohibits transmission providers outside of an independent system operator or regional transmission organization (RTO) and transmission-owning members of RTOs from recovering study delay penalty amounts through transmission rates, and requires that the at-fault transmission provider’s shareholders pay the penalty, so customers and ratepayers will not bear the penalty costs through increased transmission rates. Moreover, transmission providers cannot recover study delay penalties from interconnection customers to the extent the interconnection customer is at fault; rather, the Final Rule identifies such fault as a compelling basis for FERC to waive the study delay penalty. Under section 205 of the Federal Power Act, RTOs may propose a default structure for recovering study delay penalties and/or make individual section 205 filings to recover specific penalty costs. For RTOs with transmission-owning members, study delay penalties will be imposed directly on the transmission-owning member(s) that conducted the late study.

The Final Rule adopts multiple additional reforms to remedy the previous inconsistencies between transmission providers in implementing affected system study processes. The term “affected system” is defined by the Final Rule to mean an electric system other than the transmission provider’s transmission system that may be affected by the proposed interconnection. The Final Rule requires affected system transmission providers to study all affected system interconnection requests using Energy Resource Interconnection Service modeling standards. FERC declined to adopt an earlier proposal that would have specified in the LGIP that affected system transmission providers may submit Federal Power Act section 205 filings, on a case-by-case basis, to request to use Network Resource Interconnection Service modeling standards to study affected system impacts.

In addition, the Final Rule adds pro forma versions of: (1) an affected system study agreement; (2) a multiparty affected system study agreement; and (3) an affected system facilities construction agreement as appendices to the pro forma LGIP.

Reforms to Incorporate Technological Advancements into the Interconnection Process

The Final Rule requires transmission providers to evaluate, but does not require them to deploy, alternative transmission technologies in their cluster studies. These grid enhancing 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. The Final Rule emphasizes that the transmission provider will retain the sole discretion to determine whether to deploy such technologies, consistent with good utility practice, applicable reliability standards, and other applicable regulatory requirements. The Final Rule also requires that transmission providers include in their feasibility study report and system impact study report for small and large generators an explanation of the results of the evaluation of each of these technologies for feasibility, cost, and time savings as an alternative to a traditional network upgrade.

The Final Rule requires transmission providers to allow interconnection customers to access the surplus interconnection service process once the original interconnection customer has an executed LGIA or requests the filing of an unexecuted LGIA.

The Final Rule also requires use of operating assumptions in interconnection studies that reflect the proposed charging behavior of electric storage resources, unless good utility practice and applicable reliability standards otherwise require the use of different operating assumptions.

Other Reforms – Co-locating, Adding Generation, Surplus Interconnection Service, Inverter-based Resources

The Final Rule also revises the pro forma LGIP and pro forma LGIA to require 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 request. The Final Rule asserts that the new process will create a more efficient standardized procedure for these types of generating facility configurations.

Interconnection customers may add a generating facility to an existing interconnection request under certain circumstances without such a request being automatically deemed a material modification. As long as the addition does not change the originally requested interconnection service level, transmission providers must evaluate the proposed addition of a generating facility to an interconnection request prior to deeming such an addition a material modification. Requests eligible for evaluation are limited to requests received prior to the interconnection customer’s return of the executed facilities study agreement to the transmission provider. There is an exception to this requirement for transmission providers that employ fuel-based dispatch.

The Final Rule also requires providers to allow interconnection customers to access the surplus interconnection service process once the original interconnection customer has an executed LGIA or requests the filing of an unexecuted LGIA.

The Final Rule also establishes modeling and performance standards for interconnection customers seeking to interconnect inverter-based resources. FERC revises the pro forma LGIA and pro forma SGIA to establish “ride through” voltage and frequency requirements during abnormal frequency conditions and voltage conditions within the “no trip zone” (i.e., a set of voltage and frequency no trip boundaries within which applicable protection and controls may not be set to cause the generating facility to trip or cease current injection) defined by NERC Reliability Standard PRC-024-3 or successor mandatory ride through reliability standards. However, the Final Rule acknowledges the physical limitations of newly interconnecting non-synchronous generating facilities and adopts certain modifications.

The Final Rule closes a previous gap in the applicability of ride through requirements for certain large generating facilities by requiring that all newly interconnecting large generating facilities provide frequency and voltage ride through capability consistent with any standards and guidelines that are applied to other generating facilities in the balancing authority area on a comparable basis.