US FERC and PJM Both Release Parallel Proposals to Holistically Reform Interconnection Process

The intricate and challenging procedures for interconnecting new generation assets to the bulk-power grid—and allocating procedural, timing, and upgrade cost-sharing burdens—will be substantially revamped under proposals released on June 14, 2022, by PJM Interconnection, L.L.C. (PJM)¹ and on June 16, 2022, by the Federal Energy Regulatory Commission (FERC),² respectively.

That reform of the existing interconnection procedures is needed is difficult to dispute. As the recent study by the Lawrence Berkeley National Laboratory (LBNL) highlighted, the fundamental problems with current interconnection procedures include (1) high (and apparently rising) “drop out” rates (72% on average in the LBNL study but with significant variation across regional transmission organizations (RTOs) and independent system operators (ISOs)), (2) long lead-times (around three years and rising), and (3) low completion rates (30% for most RTO/ISOs).

FERC Proposal

Under longstanding FERC regulations and rulemaking orders, generator interconnection typically requires a generator to apply for interconnection, demonstrate site control (sometimes years before the generator is proposed to enter service), undergo a series of studies, commit to pay upgrade costs to the interconnected transmitting utility, and execute a tariff-based interconnection agreement, the terms of which are effectively non-negotiable. In some FERC-regulated organized markets, generators are grouped or “clustered” together for study purposes, based on common timing and characteristics; in other geographic areas, each individual interconnection applicant is studied alone.

The FERC notice of proposed rulemaking (NOPR) rests on the belief that speculative interconnection requests have resulted in delays to the interconnection process. The FERC NOPR proposes that:

• Transmission providers (including FERC-regulated organized markets—RTOs/ISOs—and transmitting utilities outside of organized markets) shift all interconnection studies to a cluster system in which interconnection applications will be aggregated and studied together;
• Interconnection applicants that are “first ready” be “first served”—that is, the more interconnection development work the generator has performed, the more rapidly the transmission provider is to process their studies. FERC proposes to implement first-ready, first-served in part by imposing earlier and more stringent site control requirements on applicants. Under the FERC NOPR, a generator must establish “100%” dispositive site control at the time interconnection is first sought by showing exclusive long-term rights to occupancy and use or payment of a forfeitable site control deposit of up to $2 million;
• Transmission providers collect potentially forfeitable preliminary study deposits (that is, solely for studies and not for interconnection itself) of up to $250,000 per generator applicant and up to nine times that amount as a forfeitable execution deposit when the actual interconnection agreement is signed;
• Interconnection applicants that do not demonstrate high readiness, or that are perceived to clog the interconnection queue, be subject to severe financial penalties such as increased study deposits, more stringent site control requirements, a commercial readiness framework, and higher penalties for withdrawing from the interconnection queue; and
• Transmission providers be required to publicly post interconnection technical information and offer optional studies to prospective applicants.

The FERC NOPR also proposes to create penalties for transmission providers, including organized market entities, that fail to comply with certain process requirements (such as meeting study deadlines). While interconnection applicants will be subject to considerable penalties of more than one class if they fail to proceed with the interconnection process, FERC proposes to impose penalties on transmission providers of $500 per day, not to exceed the total amount of the deposit applicable to the late study. These penalties will be subject to a number of mitigants. The penalties will not apply until the 10th business day of delinquency, which indicates that a transmission provider could cumulatively delay serial studies within a particular study cluster by multiple weeks without being exposed to any penalties at all. FERC expressed a goal of avoiding an “unnecessarily punitive” approach as to transmission providers.

FERC expects to address how a regional market entity, such as an ISO or RTO (which, as a regulated non-profit utility, has no distributable net income or surplus assets), may be allowed to simply pass any penalties along to others, potentially retaining no real punitive risk on its own account. The FERC NOPR does not explain how this will incent an ISO or RTO to comply with study deadlines.

PJM Proposal

The PJM proposal (PJM Proposal) is a nine-part revision to both currently effective and future interconnection requirements. It was filed with FERC two days prior to FERC’s release of the FERC NOPR. PJM relies literally on the term “first-ready, first-served,” the same as the FERC NOPR. Like the FERC NOPR, the PJM Proposal proposes to increase current generator site control requirements and to impose penalties on interconnection applicants that do not comply with readiness requirements. And the PJM Proposal includes provisions that would bless, in effect retroactively, the severe delays in PJM interconnection processing that date back to 2016 and would establish transition timelines that would permit PJM to ultimately delay some projects by multiple years apiece.

But the PJM Proposal is not a discussion piece or a tee-up to a final regulation. Instead, the PJM Proposal is a tariff filing. At press time, the PJM Proposal has been set by FERC for only a brief comment period, and the PJM Proposal is proposed to become effective in separate parts on October 3, 2022, January 3, 2023, or later. Even if FERC were to suspend the PJM Proposal for the maximum five-month period provided for under FERC’s enabling legislation, the PJM Proposal could become effective not long after the effective dates that have been requested by PJM. By contrast, the FERC NOPR will be subject, at minimum, to 100 days of initial comments, 30 days of reply comments, some period for FERC staff and Commission review (likely a minimum of 60 to 90 days), the issuance of a final rule, and then inevitable requests for rehearing and potentially appeals—and would need to be implemented via utility-by-utility tariff compliance filings. The result is that the PJM Proposal could take effect, in some form, many months before the proposals in the FERC NOPR have concrete form.

Comment Due Dates

Motions to intervene and comments on the PJM Proposal are due for filing by July14, 2022—a date that was already extended once and could be extended further. Comments in the FERC NOPR proceeding will likely be due during late September 2022, depending on the date of the FERC NOPR’s publication in the Federal Register.

¹ Tariff Revisions for Interconnection Process Reform, FERC Docket No. ER22-2110-000, Acc. No. 20220614-5081 (filed June 14, 2022)(“PJM Proposal”).  

² Improvements to Generator Interconnection Procedures and Agreements, Notice of Proposed Rulemaking, Docket No. RM22-14-000, 179 FERC ¶ 61,194 (June 16, 2022)(“FERC NOPR”).