NERC Files Revisions to Rules of Procedure Subjecting Certain Unregistered Inverter Based Resources to Mandatory Reliability Standards

If approved, the changes proposed by NERC, primarily changes to the definition of Generator Owner and Generator Operator, would require a significant number of smaller IBRs to register with NERC for the first time and be subjected to NERC’s mandatory Reliability Standards. In addition to the proposed ROP changes to the registration thresholds for IBRs, NERC is also developing new Reliability Standards to address reliability issues posed by smaller IBRs consistent with FERC’s directives in Order No. 901.³ Taken together, the new registration criteria and upcoming Reliability Standards will impose significant new compliance obligations on smaller, grid-connected IBRs. FERC set a comment period ending April 18, 2024 for any comments on the registration changes proposed by NERC. For entities not involved in the NERC stakeholder process, this may be the first and only opportunity to comment on these changes.

NERC’s proposed revisions are part of the larger effort by NERC (and FERC) to address what they call the “high impact and high likelihood”⁴ of reliability risks posed by interconnected IBRs. Underlying the proposed revisions is the fact that the 16% (and growing) of IBR owners and operators that are interconnected with and have a material impact on the bulk power system are not currently required to register with NERC under its definitions. FERC explained when initiating this revision process that unregistered IBR resources have not previously been required to comply with NERC Reliability Standards but now are viewed as a material risk to the reliability of the bulk electric system, both individually and in the aggregate.⁵

The NERC proposal seeks to close the gap between the coverage of Reliability Standards and facilities that could impact reliability, while parallel proceedings⁶ will revise the Reliability Standards themselves. Once the definitions in NERC’s ROP are updated, the next two stages in the FERC-ordered process will require (1) by November 2025, the identification of candidates for registration under the revised ROP, and (2) by November 2026, registration and compliance with mandatory Reliability Standards. These dates are in general alignment with the process for updating the Reliability Standards in the separate proceeding initiated by FERC Order No. 901. Of note, the IBRs addressed by these changes do not target distributed energy resources, which are being reviewed separately by NERC.⁷ With the latest revisions to the definitions in NERC’s ROP, the scope of the burden for unregistered IBRs is beginning to come into focus, but will not be fully known until both of the parallel revision processes conclude.

Looking at the specific definition changes proposed in NERC’s latest filing, the proposed revisions change the registration requirements for Generator Owners and Generator Operators that own or operate non-Bulk Electric System inverter-based generating resources that (i) have or contribute to an aggregate nameplate capacity greater than or equal to 20 MVA, and (ii) are connected through a system designed primarily for delivering such capacity to a common point of connection at a voltage greater than or equal to 60 kV.

The 20 MVA aggregate nameplate capacity was selected by NERC following a study in which it determined that unregistered IBRs impacting reliability are primarily those with a generating capacity of 20 MVA or above.⁸ NERC opted for a bright-line generation capacity threshold of 20 MVA because the urgency of the problem demands more efficiency than case-by-case determination would allow.⁹ However, NERC clarified in its proposed revisions that new entrants triggering the threshold could seek to use the NERC-led Review Panel process for seeking an exemption from registration.¹⁰

As to the second criteria setting a 60 kV interconnection voltage threshold, NERC performed a technical analysis wherein it balanced the aggregate reliability risks posed by IBRs with the burden of complying and the possibility of inadvertently requiring distributed energy resources to register.¹¹ Overall, the new registration criteria vis-à-vis the definition changes have the potential to cover not only utility-scale solar, but potentially even some distributed energy resources on the distribution grid.¹²

Ongoing reforms affecting IBRs are complex and span multiple FERC proceedings. Ultimately, there are likely to be major changes approved by FERC and NERC affecting how these resources are regulated, and the true scope of these reforms are only beginning to come into focus. Moreover, although this latest NERC filing resulted from its stakeholder process and appears to follow the work plan that NERC previously filed with FERC, this is the first opportunity for comments to be filed directly with FERC on these proposed revisions to NERC’s ROP.

As noted, interested entities have until April 18, 2024 to intervene in the proceeding or comment on NERC’s proposed changes. Vinson & Elkins has a team of attorneys with deep experience who can assist with commenting on these developments, seeking exceptions to compliance, or analyzing the business risks these reforms are generating.

¹ North American Electric Reliability Corporation, North American Electric Reliability Corporation Request for Approval of Proposed Revisions to the Rules of Procedure to Address Unregistered Inverter Based Resources and Request for Expedited Review, Docket No. RR24-2-000 (filed Mar. 19, 2024) [hereinafter “NERC Request”].

² Registration of Inverter-Based Resources, 181 FERC ¶ 61,124 (2022) [hereinafter “IBR Order”].

³ Order No. 901, Reliability Standards to Address Inverter-Based Resources, 185 FERC ¶ 61,042 (2023). The directive to develop new Reliability Standards was issued in FERC Docket No. RM22-12.

⁴ Inverter-Based Resource Strategy: Ensuring Reliability of the Bulk Power System with Increased Levels of BPS-Connected IBRs, at 1 (June 2022), https://www.nerc.com/comm/Documents/NERC_IBR_Strategy.pdf.

⁵ IBR Order at PP 2-3.

⁶ See supra Order No. 901; FERC Docket No. RM22-12.

⁷ See North American Electric Reliability Corporation, North American Electric Reliability Corporation Inverter Based Resources Work Plan Progress Update, at n.5, Docket No. RD22-4-001 (filed Aug. 16, 2023). For more information on NERC’s efforts to address IBR-DERs, see Reliability and Security Technical Committee website, https://www.nerc.com/comm/RSTC/Pages/default.aspx.

⁸ NERC Request at 16-17.

⁹ Id. at 18.

¹⁰ Id. Following this process, the entity seeking the exception would bear the burden of proof to show in a NERC proceeding called the Determination of Material Impact, where NERC reviews a request for exception based on material impact to the bulk power system.

¹¹ Id. at 19-21.

¹² Id. at 20.