Unpacking FERC Order No. 2023’s Implications for Interconnection Reform

Posted by Caitlin Marquis and Doug Pietrucha on Sep 13, 2023 3:00:00 PM

An Important Step Toward Fixing the Broken Interconnection ProcessThis is a brief summary of the ins and outs of Federal Energy Regulatory Commission (FERC) Order 2023, issued on July 27, 2023. For more, we encourage you to download our recently released FERC Order 2023 Toolkit or view our webinar recording, “FERC Interconnection Ruling: The First Domino in Transmission Reform,” which discussed how FERC Order 2023 will affect interconnection queues across the country, including the impact on energy customers, developers, and other stakeholders.

Across the country, more than 2 GW of projects—mostly solar, wind, storage, and hybrid projects—sit in interconnection queues waiting to connect to the transmission grid. The process governing these queues is overseen by the Federal Energy Regulatory Commission (FERC), and on July 27, 2023, the Commission took an important step toward un-jamming clogged queues when it unanimously voted to finalize Order No. 2023, a landmark rule directing interconnection reforms. While much work lies ahead to successfully implement the reforms approved by FERC, and to pursue further reform needs not addressed by Order No. 2023, the rule is likely to result in important incremental improvements to the badly broken interconnection process. 

The Order is the result of a long effort by FERC and input from a broad array of stakeholders. FERC issued an Advanced Notice of Proposed Rulemaking (ANOPR) in July 2021 to solicit stakeholder feedback on regional transmission planning requirements and cost allocation related to transmission network upgrades and interconnection facility upgrades. Based on the responses to the ANOPR, FERC decided to split the issues into individual proceedings, and in June 2022 issued an interconnection-specific Notice of Proposed Rulemaking (NOPR) in docket RM22-14 

The Order requires all public utility transmission providers, meaning Regional Transmission Organizations and Independent System Operators (RTOs/ISOs) and utilities in non-RTO/ISO regions, to file compliance plans within 90 days of publication of the final rule in the Federal Register. How transmission providers propose to comply—and how FERC rules on those proposals—will have significant implications for the actual impact of the Order; in many places, FERC leaves significant implementation decisions to the transmission providers’ discretion, and transmission providers can also deviate from FERC’s requirements if they can justify such deviations. 

The Order codifies many of the transmission requirements in the NOPR, some with modifications—including many recommended by United and our members in our comments and engagement with the Commission:

  • Interconnection Information Access: Order No. 2023 requires transmission providers to publicly post interconnection generator information. United supported this requirement, which is intended to address the lack of information currently available to project developers prior to entering the queue; while developers will still face significant uncertainty and risk that will cause some projects to drop out, additional transparency and information is a good step forward.

  • First-Ready, First-Served Cluster Study Process: FERC’s Order requires all transmission providers to utilize a first-ready, first-served cluster study process (in place of a serial first-come, first-served process), a change that many RTOs/ISOs and some utilities have already made. Order No. 2023 sets parameters around how cluster studies should be conducted, specifying that studies should be conducted annually with a 60-day customer engagement window, 150-day deadline for both the initial cluster study and for re-study (more on the repercussions of missing those deadlines below), and 60-day negotiation window to reach alignment on the Interconnection Agreement. The Order also specifies how network upgrades should be shared among interconnection customers within the same cluster, with shared system network upgrade costs to be allocated based on technical analyses to be specified under the transmission provider’s proportional impact method, the details of which are left to the transmission provider and can be defined in business practice manuals rather than filed with FERC. While United is broadly supportive of the transition to a cluster study process, we did jointly file for rehearing of a number of specific elements of the cluster approach as finalized in the Order, such as restrictions on the ability of interconnection customers to self-build needed upgrades, the lack of a requirement for transmission providers to be present at scoping meetings, and lack of flexibility to make reasonable adjustments to size and/or point of interconnection as new information is gained through the interconnection process.
  • Increased Financial Commitments and Readiness Requirements: Implementing an effective “first ready, first served” interconnection process requires setting parameters to ensure that projects moving through the interconnection queue are “ready.” In doing so, it is critical to strike a balance between setting requirements that are stringent enough to deter speculative projects and incentivize against late-stage withdrawals that can lead to delays and cost increases that harm other projects while avoiding setting parameters that are so stringent or unworkable that viable projects struggle or fail to meet them. United, our members, and other industry advocates argued that FERC’s proposed commercial readiness requirements failed to strike the right balance. In particular, the Commission had proposed non-financial readiness benchmarks, such as proof of an offtake agreement or selection in a utility resource plan, that were both inconsistent with the development process and discriminatory against projects that choose to sell their electricity directly into bulk power markets. In the final Order, the Commission recognized these objections and removed the non-financial readiness provisions. The Commission revised but kept in place the other proposed readiness requirements: site control requirements and financial deposits to be paid as the project moves through the interconnection process, with higher withdrawal penalties as the study process proceeds. In the final Order, FERC lowered the 100% site control requirement at the time of interconnection request to 90%, a change United advocated for. The Commission also changed milestone deposits to be based on a percentage of identified network upgrade costs rather than the initial study deposit, more accurately reflecting the project’s actual costs and also the impact of its withdrawal from the queue.

  • Transition Process: For those transmission providers that have not yet implemented a cluster study process, the Order lays out a transition process with three options for interconnection customers already in the queue to proceed: (1) participate in a transitional serial study (2) participate in a transitional cluster study, or (3) withdraw from the queue without penalty (and re-enter under the new cluster process if the project intends to proceed). FERC maintained high deposit requirements for transition studies, requiring interconnection customers to deposit 100% of interconnection facility and network upgrade costs allocated in the system impact study to participate in the transitional serial study or deposit $5 million to participate in the transitional cluster study, a requirement that United and allied trades sought rehearing of on August 28.
  • Elimination of the Reasonable Efforts Standard: The final Order finalized the NOPR proposal to remove the “reasonable efforts” standard, which only held transmission providers accountable for missing study deadlines to the extent that challengers could demonstrate that they had failed to undertake “reasonable efforts” to complete studies on time—a standard that has proven impossible to enforce in practice. In its place, the Commission imposed firm study deadlines and daily penalties on transmission providers that fail to meet deadlines, helping to balance the responsibility between parties in moving projects through the queue. The penalty amounts ramp up as studies progress, but do not take effect until the third cluster study cycle. 

  • Affected Systems: Affected systems studies occur when a transmission provider identifies an interconnecting project as having potential impact on a neighboring transmission system. For example, if MISO is studying a large generation facility interconnecting to an interregional transmission line close to PJM territory, any line capacity changes that could result from that generation facility may require an affected systems study. Currently, affected systems studies processes are not uniform and do not have set deadlines, leading to poor coordination planning between the host system, affected system, and interconnection customer resulting in processing delays. To remedy this issue, the Commission has imposed deadlines for study notices and replies between the parties, including the timeline for scheduling a required scoping meeting. Financial penalties are imposed on the host system operator and affected system operator if either party fails to meet deadlines in the affected system study process. The parties will sign an affected system facilities study agreement after the process is complete, which will contain agreed-upon system upgrade costs which are assigned to the interconnection customer based on the proportional impact method.

  • Increasing Flexibility in the Generator Interconnection Process: This group of proposals aimed to better accommodate the types of resources entering and moving through interconnection queues, including storage and hybrid storage-plus-generation projects. Specifically, the Order provides interconnection customers with greater ability to co-locate generation resources or hybrid generating facilities behind a single point of interconnection and share a single interconnection request. In addition, the Order allows projects to add capacity if they do not change the original interconnection service level, e.g., adding storage to a generating facility without increasing the number of MWs the facility would inject into the system. The Order also allows interconnection customers to access the surplus interconnection service process earlier than is currently allowed. Finally, the Order requires transmission providers, at request of the interconnection customer, to use operating assumptions for electric storage resources that reflect proposed charging behavior unless good utility practice, including applicable reliability standards, requires use of different operating assumptions. This is critical to avoid assigning unnecessary and excessive upgrade costs to energy storage. 

  • Incorporating Alternative Transmission Technologies (ATTs) into the Generator Interconnection Process: The Order requires that transmission providers evaluate whether specific ATTs would be better suited to address identified constraints relative to traditional network upgrades. In an improvement over the proposal, the Commission requires this evaluation as a default rather than only requiring it when requested by interconnection customers, a change that was requested by United and allies. Unfortunately, FERC did not include dynamic line ratings (DLRs) or storage in its listed technologies for consideration, and also left significant discretion to transmission providers with respect to the evaluation and selection of ATTs, both issues that United and allies sought rehearing of.

  • Modeling and Performance Requirements for Non-Synchronous Generating Facilities: FERC adopted the NOPR proposal to require that all interconnection requests for a non-synchronous generating facility (e.g., wind or solar) provide the transmission provider with models needed for accurate interconnection studies. The Order also requires all newly interconnecting large generating facilities (non-synchronous and synchronous) to have the capability to ride through abnormal frequency and voltage conditions.

On the Horizon

With respect to Order No. 2023, there are two primary things to watch: rehearing and compliance. Initial requests for rehearing and clarification have now been filed; the Commission will issue an Order within 30 days, but it could and likely will issue a non-substantive dismissal of all rehearing requests and follow up later with a substantive order on rehearing. This process may lead to eventual legal challenges and could take months or years to fully resolve. In parallel, transmission providers will be working on and eventually filing compliance plans, which are due 90 days after publication of the final rule in the Federal Register, which has yet to happen. Extension requests may filter in—already, MISO, PJM, and SPP jointly filed requesting an extension until 90 days after a substantive Order from FERC on rehearing. 

Beyond Order No. 2023, there is a need for additional interconnection reform—something that Acting Chair Phillips and Commissioner Clements were candid in recognizing even as they celebrated the achievement of unanimous approval of sweeping interconnection reforms.  

In Commissioner Clements’ concurrence, she left a lengthy description of what policies she would like to see considered down the line, categorizing them as “deeper reforms” and “general improvements.” Deeper reforms include linking the interconnection process to overall transmission planning, aligning the interconnection process with competitive resource solicitations, and facilitating a “focused” interconnection process, something that United and member companies strongly support. General improvements include refining study assumptions, using automation to improve interconnection efficiency, and reducing delays and cost overruns in network upgrades. 

United and our member companies will be actively engaged on all fronts: rehearing, compliance, and further reforms. Just like Rome, a reformed interconnection process cannot be built in a day, but the Commission’s unanimous approval of Order No. 2023 was a significant building block toward a better process.

Download the FERC Order 2023 Toolkit

For more, we encourage you to download our recently released FERC Order 2023 Toolkit or view our webinar recording, “FERC Interconnection Ruling: The First Domino in Transmission Reform,” which discussed how FERC Order 2023 will affect interconnection queues across the country, including the impact on energy customers, developers, and other stakeholders.

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