Improvements to Generator Interconnection Procedures and Agreements

Overview of Order 2023 – The Final Rule

Issues With Previous System and Final Rule Overview.

Long wait times have been an ongoing problem for new generation projects attempting to interconnect with the interstate transmission grid. The average queue wait time for generation projects connected in 2022 was five years; these projects languishing behind other projects which were never developed, many of which were never intended to be developed and others of which simply “died on the vine” due to their own long wait times. Just 1 in 5 projects that joined interconnection queues between 2000 and 2017 were actually built by the end of 2022.

FERC issued a Notice of Proposed Rulemaking (“NOPR”) in June 2022, proposing reforms intended to improve the interconnection process. FERC’s stated primary considerations were to increase the percentage of interconnection requests that lead to successful projects and improve queue processing by shifting away from the “first-come, first-served” process. As reasons for the queue backlogs, FERC cited the increasing volume of interconnection requests, relatively slow gains in necessary transmission infrastructure, and issues with the current interconnection process. FERC also identified several areas of concern with the current interconnection process, including (1) the lack of information available to interconnection customers about the process, (2) serial processing of interconnection requests and loose study deadlines, (3) protocols for affected system studies, (4) treatment of co-located generation and alternative transmission technologies, and (5) performance requirements for inverter-based technologies.

FERC’s final rule, in an attempt to mitigate these issues, enshrines several major changes, including reforms that: (1) implement a “first-ready, first-served” process meant to prioritize projects that are more likely to be built, (2) increase how quickly requests in the interconnection queue are processed, and (3) incorporate processes that account for technological advancements in generation and transmission.

The Commission determined that “certain revisions to the pro forma open access transmission tariff and the Commission’s regulations are necessary to ensure rates that are just, reasonable, and not unduly discriminatory or preferential.”³ The final rule “requires all public utility transmission providers to adopt revised pro forma Large Generator Interconnection Procedures (LGIP), pro forma Small Generator Interconnection Procedures (SGIP), pro forma Large Generator Interconnection Agreements (LGIA), and pro forma Small Generator Interconnection Agreements (SGIA),” as set out in the final rule.⁴

The final rule allows for a transitional process. There are three options for interconnection requests currently in the queue: (1) customers who have executed (or been tendered) a facilities study agreement may proceed to a transitional (serial) facilities study, or opt to move to a transitional cluster study followed by an individual facilities study;⁵ (2) customers not yet tendered a facilities study agreement are eligible for the transitional cluster study and individual facilities study;⁶ (3) any customer may withdraw without penalty.⁷ Any generation already in the queue as of 30 days after filing their initial compliance filing (due 90 days after the final rule is published in the Federal Register) is eligible for these options. All new requests made more than 30 days after the initial compliance filing are fully subject to the final rule.⁸

Of note, the final rule does not adopt numerous proposals from the NOPR, including, but not limited to: an information interconnection study;⁹ shared network upgrades;¹⁰ non-financial commercial readiness demonstrations;¹¹ the optional resource solicitation study,¹² and the alternative transmission technologies annual report.¹³

Solutions Enacted in the Final Rule.

First-Ready, First-Served Process.

FERC’s final rule makes three major changes to the current system in order to implement the “first-ready, first-served” process.

First, the final rule replaces the sequential process based on submission date (“first-come, first-served”) with a “clustering” approach that requires transmission providers to study interconnection requests in groups.¹⁴ This requires transmission providers (including those operating outside organized markets) to study groups of projects together, rather than conducting individual studies for individual projects.  Under the final rule, interconnection customers submit interconnection requests during a 45-day interconnection request window set by each transmission provider, along with a non-refundable $5,000 applicable fee.¹⁵ The transmission provider will then consider all interconnection requests from this period as having equal queue priority; part of this process requires that transmission providers hold a scoping meeting with all timely received interconnection request customers.¹⁶ For transparency, the final rule requires transmission providers to post metrics for cluster study processing time and cluster re-study processing time, including the number of cluster studies completed within 150 calendar days of the close of the customer engagement window.¹⁷

One problem the final rule sought to solve was the cascading effects of withdrawals. However, the final rule is clear that cluster restudies can be triggered by a withdrawal or modification by a higher or equally queued interconnection request, if the transmission provider assesses that re-study is necessary.¹⁸ When a re-study is necessary and how it will be conducted is left up to each transmission provider.¹⁹

The final rule requires transmission providers: (1) to allocate network upgrade costs based on a proportional impact method;²⁰ (2) to allocate the costs of network upgrades located at substations equally among each generating facility interconnecting to the same substation;²¹ and (3) to directly assign the cost of shared transmission provider’s interconnection facilities to interconnection customers on a per capita basis (i.e., on a per generating facility basis).²²

Second, the final rule requires transmission providers to publicly post, within 30 days of each cluster study and re-study, available information pertaining to generator interconnection, including a heatmap that shows, at each point of interconnection: (1) the distribution factor; (2) the megawatt (“MW”) impact (based on the proposed project size and the distribution factor); (3) the percentage impact on each impacted transmission facility (based on the MW values of the proposed project and the facility rating); (4) the percentage of power flow on each impacted transmission facility before the proposed project; and (5) the percentage power flow on each impacted transmission facility after the injection of the proposed project.²³

Third, the new process increases the readiness requirements and financial commitments that a prospective interconnection customer must make to join a cluster in an attempt to decrease the number of speculative requests submitted before an entity has fully developed or committed to a project. These requirements are intended to increase the financial commitments for interconnection customers to enter, and remain, in the queue, with the stated goals of discouraging speculative, commercially non-viable interconnection requests and allowing transmission providers to focus on processing requests that have a greater chance of reaching commercial operation.²⁴ The final rule institutes changes regarding: study deposits, demonstration of site control, commercial readiness, and withdrawal penalties.

• Study Deposits: Current procedures require deposits of $10,000 for a feasibility study, $50,000 for a system impact study agreement, and $100,000 for a facilities study agreement. The final rule requires a single cluster study deposit be made upon entry into the cluster, depending on the generation size of the proposed facility (see Table 1).²⁵ This is a departure from the NOPR, which proposed to require multiple deposits at different stages of the cluster study process.

Table 1
Size of Proposed Facility	Study Deposit Amount
Between 20 and 80 MW	$35,000 + $1,000/MW
Between 80 and 200 MW	$150,000
Greater than 200 MW	$250,000

• Site Control: Currently, interconnection customers can demonstrate site control in numerous ways, or submit a $10,000 deposit in lieu of demonstration. The final rule requires greater demonstration of site control, or, in limited circumstance, a higher deposit, at the time the interconnection request is submitted.²⁶ Site control may be demonstrated by: securing exclusive development, construction, operation, and maintenance land rights, or, for co-located facilities, the same shared land use rights.²⁷ Failure to demonstrate site control at the relevant milestones will lead the request to be deemed withdrawn.²⁸ If regulatory limits prohibit an interconnection customer from obtaining site control, a (refundable) deposit can be placed in the amount of $10,000/MW, with a minimum of $500,000 and a maximum of $2 million.²⁹
• Commercial Readiness Deposits: There are no current commercial readiness requirements. The final rule requires interconnection customers to pay a commercial readiness deposit at the beginning of each study in the cluster study process (i.e., the initial cluster study, the cluster re-study, and the facilities study).³⁰ The commercial readiness deposit is separate from the study deposit. In a deviation from the NOPR, the deposits made at multiple times during the process are no longer solely tied to the study deposit amount shown above (See Table 1).³¹ The first commercial readiness deposit will be due at the time an interconnection request is submitted, in an amount two times the study deposit amount. The second, third, and fourth deposits (due, respectively, at the time of the cluster re-study, the facilities study, and when executing the interconnection agreement) are tied to the increasing percentages of the interconnection customer’s identified network upgrade cost assignment (See Table 2).³² The deposit made in each stage must bring the total amount of the customer’s commercial readiness deposit to-date equal to the stated percentage.³³ The Commission declined to adopt the non-financial commercial readiness demonstrations proposed in the NOPR.³⁴

Table 2
Time Deposit is Due	Deposit Amount
Cluster Study	2 Times the Study Costs
Cluster Re-Study	5 Percent of Identified Network Upgrade Cost
Facilities Study	10 Percent of Identified Network Upgrade Cost
Executing Interconnection Agreement	20 Percent of Identified Network Upgrade Cost

• Withdrawal Penalties: There are no current withdrawal penalties for leaving the queue. The final rule establishes withdrawal penalties related to commercial readiness.³⁵ The penalties increase in amount as the process advances, incentivizing customers to continually evaluate commercially viability, with a goal of reducing the number of late-stage withdrawals and accompanying re-studies.³⁶ The penalties are the greater of either the actual study costs, or an escalating percentage of the interconnection customer’s assigned network upgrade costs (see Table 2).³⁷ These penalties apply if: (1) a customer withdraws at any point during the interconnection process; (2) a request has been deemed withdrawn; or (3) the customers’ generating facility does not reach commercial operation.³⁸

Increase Interconnection Queue Processing Speed.

The final rule also implements two additional changes to increase the speed of interconnection queue processing.

First, the final rule imposes stricter deadlines for interconnection studies with penalties for transmission providers that do not meet these deadlines. Current processes require transmission providers to use “reasonable efforts” to complete interconnection requests in a timely manner. Nearly all transmission providers fail to meet the current study deadlines, but there are no consequences for doing so.  The final rule replaces the “reasonable efforts” standard³⁹ with firm study deadlines, with penalties for late completion of each study by transmission providers as set out in Table 3.⁴⁰ Penalties are capped at 100 percent of study deposits in each cluster received for each study,⁴¹ will be distributed to the affected customers,⁴² and transmission providers may appeal any study delay penalties to the Commission.⁴³

Table 3
Study	Penalty per business Day
Cluster Study	$1,000
Cluster Re-study	$2,000
Affected Systems Study	$2,000
Facilities study	$2,500

Second, the final rule establishes a detailed affected system study process, including uniform modeling standards, firm deadlines, and new pro forma agreements.⁴⁴ Currently, there is no uniformity for affected systems studies, which evaluate the impact of proposed interconnection requests on neighboring transmission systems, across transmission providers. The final rule is intended to expedite and standardize the affected system study and upgrade process. This includes two new pro forma agreements, a pro forma Affected System Study Agreement and a pro forma Affected Systems Facilities Construction Agreement.⁴⁵

Technological Advancements in Generation and Transmission

Finally, because the current interconnection process was created for older forms of generation and has not kept up with technological advancements, like co-located and electric storage resources, the final rule implements three major changes to the current system to ensure the interconnection process accounts for technological advancements in generation and transmission facilities.

First, the final rule changes the interconnection process to: (1) allow co-located resources behind the same interconnection to share an interconnection request;⁴⁶ (2) prevent loss of queue position if proposed projects add a storage component before executing a facilities study agreement but do not change the requested service level;⁴⁷ (3) allow certain interconnection customers to request surplus interconnection service prior to commercial operation;⁴⁸ and (4) require that the operating assumptions for interconnection studies reflect the proposed operation of electric storage (which are not in conflict with good utility practice⁴⁹) or co-located resources upon the interconnection customer’s request.⁵⁰ These changes are intended to reduce the barriers that electric storage and co-located resources currently face in the interconnection process.

Second, the final rule provides a process for the evaluation of advancements in transmission resources. The final rule requires transmission providers to evaluate, without request, the following enumerated alternative transmission technologies during the interconnection process: static synchronous compensators, static VAR compensators, advanced power flow control devices, transmission switching, synchronous condensers, voltage source converters, advanced conductors, and tower lifting.⁵¹

Third, the final rule establishes modeling and performance requirements for non-synchronous generating facilities.⁵² The current interconnection process was created for synchronous generating facilities that convert mechanical energy into electrical energy, rather than non-synchronous generating facilities which use solid-state switches. Recent technological advances have increased the prevalence of non-synchronous generation. The final rule imposes additional modeling and performance requirements for non-synchronous generating facilities and modifies the current “ride-through” provisions to account for non-synchronous generation.⁵³ These changes are intended to ensure that transmission providers receive accurate and validated models of these facilities and to ensure non-synchronous generators do not threaten grid reliability.

Final Rule Intersection with Actions by RTOs

In February 2022, FERC approved PJM’s interconnection reforms. PJM’s reforms similarly moved to a first-ready, first-served cluster model, increased study deposits, and imposed escalating readiness deposits and strict, periodic site demonstration requirements. PJM also implemented accelerated procedures that allow projects to directly proceed to interconnection-related agreement if certain conditions are met. In some respects, PJM’s reforms go farther than FERC’s by attempting to cut down on requests. For example, PJM no longer permits a deposit in lieu of demonstrating site control.

Midcontinent Independent System Operator, Inc. (“MISO”) is currently in the developmental stage of its own interconnection reforms, but anticipates filing with FERC before the end of 2023. MISO’s current reform package similarly involves increases to milestone payments, increased site control requirements, and escalating withdrawal penalties. A distinct aspect of the MISO proposal imposes limits on the number of MWs a developer can submit in a given cycle.

FERC staffs’ presentation on the final rule recognized that several regional transmission organizations (“RTOs”) (including PJM, California Independent System Operator (CAISO), MISO, and New York Independent System Operator Inc. (NYISO)) have also recently taken actions to address the interconnection queue, and that this final rule is not intended to divert or slow the potential progress represented by those efforts. Compliance obligations that result from the final rule will be evaluated in light of the “independent and entity variation” standard for RTOs and independent system operators (“ISOs”), and the “consistent with or superior to” standard for non-RTO or ISO transmission providers. That approach continues the Commission’s past practice in evaluating proposed variations to standard interconnection procedures and agreements.

Relationship Between Interconnection Process and Transmission Development

While the final rule is intended to alleviate the backlog in interconnection queues, interconnection to the grid is irrelevant if the transmission system cannot handle the power that is generated. One recent study estimates the need to expand its transmission systems 60 percent by 2030 and to triple it by 2050 to meet U.S. climate goals. Some policymakers, including Senate Majority Leader Schumer, have said that FERC has not gone far enough to address issues with transmission system development. We discussed efforts by FERC and the U.S. Department of Energy to speed the development of transmission lines in a recent article. While those efforts may be able to speed transmission development at the margins, Congressional action may be needed on subjects such as permitting reform and eminent domain over state-owned land in order to make a substantial difference.

Next Steps

A transitional process is available for all interconnection customers who have a place in the queue within 120 days of the final rule’s publication in the Federal Register.

The effects of Order 2023 are likely to be profound on the interconnection process. The true on-the-ground impacts of this final rule will not be fully explored until multiple cluster-based processes unfold. That said, there will be winners, and there will be losers. Until several cycles of the new processes occur, who they might be is impossible to predict. Interconnection customers that would otherwise languish in the queue will now be able to proceed through the process faster than ever before. Customers who have already waited in the queue for long periods of time may find that continuing through the process is cost-prohibitive. RTOs and ISOs must adapt, or formulate rules that comply with the independent entity variation standard; non RTO/ISO transmission providers must adapt, or formulate rules that are consistent with or superior to the final rule.⁵⁴

Vinson & Elkins lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Vinson & Elkins lawyer with whom you usually work, any member of the firm’s Energy Regulatory or Energy Transactions & Projects practice groups, or the following authors:

William Scherman – Washington, DC (+1 (202) 639-6650, wscherman@velaw.com)
John Decker – Washington, DC (+1 (202) 639-6599, jdecker@velaw.com)
Jeff Jakubiak – New York, NY (+1 (212) 237-0082, jjakubiak@velaw.com)
Jason Fleischer – Washington, DC (+1 (202) 639-6554, jfleischer@velaw.com)
Phillip Washburn – Washington, DC (+1 (202) 639-6565, pwashburn@velaw.com)
Jessica Rollinson – Washington, DC (+1 (202) 639-6587, jrollinson@velaw.com)
Andrew DeVore – Washington DC (+1 (202) 639-6742, adevore@velaw.com)
Jennifer Mansh – Washington DC (+1 (202) 639-6557, jmansh@velaw.com)
Laura Swett – Washington DC (+1 (202) 639-6555, lswett@velaw.com)

¹ Order 2023, 184 FERC ¶ 61,054 (2023) (“Order 2023”).

² Order 2023, at P 1762.

³ Id. at P 37.

⁴ Id. at P 1. New Pro forma agreements can be found in Appendices C–F.

⁵ This includes any interconnection customers tendered a facilities study agreement as of 30 days after the filing date of the transmission provider’s initial filing to comply with this final rule. Id. at P 865. Interconnection customers electing the transitional serial study must provide a deposit equal to 100 percent of the interconnection facility and network upgrade costs allocated to the interconnection customer in the system impact study. Id. at P 859. Site control demonstration is also required.  Id. at P 870.

⁶ This includes interconnection customers with an assigned queue position as of 30 calendar days after the filing date of the transmission provider’s initial filing to comply with the final rule. Id. at P 855. Interconnection customers electing the transitional cluster study must provide a deposit equal to $5 million. Id. at P 859. Site control demonstration is also required. Id. at P 870.

⁷ Customers that withdraw during a transitional study will pay a withdrawal penalty equal to nine times the study cost. Id. at P 860.

⁸ See id. at P 855.

⁹ Id. at P 89.

¹⁰ Id. at P 486.

¹¹ Id. at P 690.

¹² Id. at P 1322.

¹³ Id. at P 1619.

¹⁴ Id. at PP 177, 276–278. But, importantly, the final rule does not require transmission providers to conduct cluster studies on subgroups of interconnection customers based on areas of geographic and electric relevance, nor adopt provisions governing how cluster subgroup areas should be formed at all, except to allow for sub-grouping in the transmission providers discretion. Id. at PP 179, 363–365.

¹⁵ Id. at P 223. There is no option for a interconnection request to be processes outside of the cluster study process.  See id. at P 392.

¹⁶ Id. at P 245.

¹⁷ Id. at P 259.

¹⁸ Id. at P 335.

¹⁹ Id. at P 374. Apportionment of study costs is left to each transmission provider to establish, they must allocate between 10 and 50 percent of study costs on a per capita basis (to account for the number of requests), and the remainder (between 90 and 50 percent) may be pro rata by MW (to account for the size of proposed generating facilities). Id. at PP 416–418.

²⁰ Id. at P 453.

²¹ Id.

²² Id. at P 454. Interconnection customers may agree to share interconnection facilities, using a per capita allocation, or a different mutually acceptable cost sharing arrangement. Id.

²³ Id. at P 135. In part, this change is meant to compensate for the removal of feasibility studies. See id. at P 316.

²⁴ Id. at P 177.

²⁵ Id. at PP 502–503.

²⁶ Id. at P 594. The final rule clarifies that, at the time request is submitted, interconnection customers must provide evidence of 90 percent site control, and provide evidence of 100 percent site control at the time the facilities study agreement is executed, and at the time of execution (or unexecuted filing) of the interconnection agreement. Id.

²⁷ Id. at P 584–585.

²⁸ Id. at P 595. This will subject the request to withdrawal penalties.

²⁹ Id. at P 605. The final rule found that allowing a deposit in lieu of site control, except in this limited circumstance, would not demonstrate that an interconnection customer has the exclusive right to develop a site, and so would not help to prevent speculative, commercially non-viable interconnection requests from entering the interconnection queue. Id. at P 601. If the proper demonstration of regulatory limitations is shown (i.e., a federal, state, Tribal, or local law that makes it practically infeasible to obtain site control within the time frame detailed, id. at PP 606–607), the deposit will be accepted and held by the transmission provider until the interconnection customer can demonstrate the requisite site control. Id. at P 605. The deposit may not be applied to study costs or withdrawal penalties. Id.

³⁰ Id. at P 690. These deposits will be used as part of the security an interconnection customer must provide for the construction of network upgrades and transmission provider’s interconnection facilities. Id. at P 716. They are refundable, subject to withdrawal penalties, if a customer withdraws after executing an interconnection agreement. Id.

³¹ Id. at P 690.

³² Id. at P 693.

³³ Id. at PP 693, 714. The NOPR proposed that these deposits be equal to, respectively, five times, seven times, and nine times the study deposit amount.

³⁴ Id. at P 694.

³⁵ Id. at P 780.

³⁶ Id. at P 781. Withdrawal penalties will be used first to fund studies conducted under the cluster study process in the same cluster, and thereafter any remaining withdrawal penalty funds will be used to offset net increases to network upgrade cost assignments experienced by interconnection customers from the same cluster that remain in the interconnection queue and are directly affected by the withdrawal of an interconnection request because they previously shared an obligation to fund a network upgrade. Id. See id. at PP 800–809 for a summary of the steps a transmission provider must follow in distributing withdrawal penalty funds.

³⁷ Id. at P 791–792.  Penalties are not capped.  Id. at P 793.

³⁸ Id. at P 783. A transmission provider must assess a withdrawal penalty if withdrawal has a material impact on the cost or timing of any interconnection requests with an equal or lower queue position. If the transmission provider determines that the impact of the withdrawal is immaterial, the transmission provider must not assess a withdrawal penalty. Id. A customer is also exempt from the penalty if they withdraw a request after the most recent cluster report increases their assigned network upgrade costs by at least 25 percent, or if the individual facilities study report increases the same by more than 100 percent. Id. at P 784.

³⁹ Id. at PP 962, 965.

⁴⁰ Id. at PP 962, 973. See id. at P 963 for more greater detail on the features of the study penalty delay structure for late interconnection studies. See also id. at PP 965–1007. No penalties will be assessed until the third cluster study cycle after the Commission-approved effective date of compliance filing with the final rule.  See id. at P 979.

⁴¹ Id. at P 984.

⁴² See id. at P 990.

⁴³ Id. at P 987.

⁴⁴ Id. at P 1110.

⁴⁵ For more detail see id. at PP 1110–1169, 1192–1198, 1231–1255, and 1276–1293.

⁴⁶ Id. at P 1346.

⁴⁷ Id. at P 1406.

⁴⁸ Id. at P 1436.

⁴⁹ Id. at P 1511.

⁵⁰ Id. at P 1509.

⁵¹ Id. at PP 1578, 1580.

⁵² Id. at P 1659–1660.

⁵³ Id. at PP 1711, 1733.

⁵⁴ See Concurrence of Commissioner Danly, Order 2023, Docket No. RM22-14-000.