The Federal Energy Regulation Commission proposed new rules in June to revamp the way interconnection requests are processed, and PJM, the electricity grid in the mid-Atlantic states and parts of the Midwest, made proposals of its own.

The goal of each is to accelerate interconnection studies and the execution of interconnection agreements by weeding out speculative projects and allowing projects more likely to proceed to commercial operation to leapfrog other projects in line.

The PJM proposal, which was overwhelmingly approved by PJM stakeholders, would apply only to PJM interconnection requests.

On the other hand, the FERC notice of proposed rulemaking, or NOPR, would apply to all regional transmission organizations, including PJM, and all investor-owned public utilities outside of regional transmission organizations. In addition, all municipal and cooperative utilities not regulated by FERC would be subject to the rules to the extent they use any transmission system of a FERC-regulated public utility under a so-called reciprocity tariff requirement.

However, the FERC proposal would not apply to entities in Texas. The ERCOT grid is not subject to FERC jurisdiction.

To the extent that a utility or RTO (a regional grid operator like PJM) has in place an interconnection tariff that is equivalent to or better than the tariff requirements that FERC requires ultimately in its final rule, that utility or RTO can keep its tariff provisions in place.

The window for public comments on the PJM proposal closed in mid-July, and PJM recently provided responses to those comments.

FERC is collecting comments on its proposals until late September.

PJM has proposed that FERC accept its proposal by October 3, 2022, to become effective January 1, 2023. The effective date is important for reasons discussed in more detail below.

On the other hand, the FERC process will take more time to complete. Not only is there a reply comment period following the issuance of the final rule, but FERC's proposals are more far-reaching than PJM's proposals and contain requests for suggested alternative solutions to a number of elements. A final rule would probably not be issued before the end of the first quarter of 2023, with a right for parties to seek rehearing of the final rule. FERC will also have to allow a reasonable period for each RTO and utility to make a compliance filing to amend its interconnection tariff consistent with the final rule. All of this means the FERC final rule is unlikely to be implemented before 2024.

The basic approach under both the PJM proposed tariff and FERC proposed rule is the same: transition will switch from the current first-come, first-served approach to a first-ready, first-served approach.

This means that instead of evaluating a single project ahead of later-filed projects with minimal cost of entry into the queue, all projects that apply within an application window will be part of a cluster grid-impact study for all projects within that window, and will have to post much higher deposits initially and, after the completion of each level of study, provide more evidence of site control and project development, in addition to payment of the cost of the study itself.

PJM Approach

Additional elements of the PJM proposal include three types of cluster system-impact studies rather than the current individual feasibility, system-impact study and facilities study.

After a cluster study is completed, each project studied will have 30 days to decide whether to move on to the next study. To do so, the project would have to post a higher amount of credit support, reconfirm its site control, show additional readiness requirements and pay for its share of the study cost.

If the second cluster study shows that the project would be allocated no network upgrade costs or will have an upgrade cost allocation below $5 million, then there would be an expedited process to allow that project to go directly to a project-specific facilities study and generator interconnection agreement or GIA.

If the second study shows allocated network upgrade costs above $5 million, then the project would have to move to the third cluster study and post additional collateral equal to its percentage of the expected costs of the network upgrades, as well as reaffirm its site control and pay the study deposit.

Existing Queue Positions

Existing projects in the queue that have received a facilities study or an executable interconnection agreement before the effective date of the PJM proposal, which PJM proposed to be January 1, 2023, will not be subject to the new queue reform and will proceed to interconnection under existing rules on a project-specific basis.

Existing projects that have not received a facilities study or an executable interconnection agreement before the effective date will be subject to transition rules under the new queue reform. Each will be subject to a restudy of its system impact study. If the result is an allocation of network upgrade costs below $5 million, then the project will be on a so-called "fast track" — it will proceed individually to get its study done and GIA executed outside of a cluster study — to be completed in the 2023 – 2024 time frame.

If restudy shows more than $5 million in allocated network upgrade costs, then the project will have to go into a new cluster study with other existing projects and post a readiness deposit, demonstrate site control consisting of land ownership, lease or option to own or lease that is good for at least a year, as well as the study deposit. These cluster studies will not commence until the fast track projects are completed, which probably means 2025 for the start of the studies.

Existing projects with filed dates in the queue from October 2020 through September 2021 will have to wait until the earlier project studies have been completed before their studies can commence, which may mean a deferral until 2026.

All other projects with filed dates from October 2021 through March 2022 and after will have to supplement and update their interconnection requests by providing readiness deposits, demonstrate site control and pay a study deposit of between $75,000 and $400,000, depending on the capacity of the project in megawatts, and their studies will have to await the results of the prior queued studies.

Refunds

Ten percent of the study deposit is refundable if a project withdraws after the first study cycle.

The deposits become increasingly non-refundable over time. However, if a later cluster study shows that the network upgrade allocation would exceed the prior study's allocation by 25% or more and by more than $10,000 per MW, and the project then withdraws, it can receive a full refund.

In addition, because of the cluster study approach, where a withdrawal or delay could trigger the need for restudies and there is a need to provide certainty in network upgrade cost allocation for remaining projects, PJM has proposed to eliminate the right currently available under PJM interconnection agreements of the project to suspend its application for up to three years.

FERC Approach

FERC, like PJM, has proposed to move from individual grid-impact studies on a first-come, first-served basis to cluster studies on a first-ready, first-served basis.

FERC noted that several RTOs and utilities outside of RTOs already have moved or are planning to move in the same cluster direction. To the extent that RTOs and utilities can demonstrate that their interconnection procedures are equivalent to or better than the requirements FERC ultimately establishes in the final rule, those RTOs and utilities can retain those procedures.

The first-ready, first-served and cluster study approach will almost certainly be retained in the final rule as will the three cluster study process for all projects applying within an application window.

The studies, which continue to be called feasibility study, system impact study and facilities study, will get priority over subsequent interconnection requests in later application windows. The utilities and RTOs also have to offer an initial optional "informational interconnection study" to prospective projects so that they can decide whether to submit an interconnection request in specific locations.

The new rules will require higher study deposits, more stringent site control, demonstration of commercial readiness, and higher withdrawal penalties that increase with each level of study.

The studies will determine how to allocate any network upgrade costs among projects in each cluster.

More FERC Details

For the first time, RTOs and utilities will have to pay penalties if they miss a specific deadline for completion of the study.

Failure to issue a required study within 150 days will require payment of $500 per day until the study is completed, capped at the total cost of the study. If a restudy is needed, the RTO or utility has the same 150-day deadline and penalty provision.

The transmission provider must also get affected systems into the process much earlier. Projects must pay currently not only for network upgrade costs on the grid to which they interconnect, but also on neighboring grids, called "affected systems." For example, in the case of an interconnection in PJM, the affected system could be MISO to the west or NYISO to the north. If the direct interconnection is with a utility that is not in a regional grid managed by an RTO, the affected system would be any grid that is interconnected with the transmission system to which the project interconnects. That affected system must be informed of the requests and respond quickly whether there will be an impact on its system. If it has to perform a study, it will have the same 150-day time limit and $500 per day penalty if it fails to meet the affected system study deadline.

At each stage of cluster study process, to proceed to the next level of cluster study, a project has to post higher levels of security and demonstrate site control.

It must also demonstrate commercial readiness by providing an executed binding term sheet for a contract to sell the completed facility or to sell energy, capacity or ancillary services for at least five years, or evidence that the project has been selected in a resource plan or RFP solicitation process by a load serving entity or by a commercial, industrial or other large end-user.

FERC also requested comments about what other comparable evidence of project development might qualify as showing commercial readiness, including a site-specific purchase order for generating equipment specific to the interconnection request.

Alternatively, the project can provide a large commercial readiness deposit of two times the amount of initial study deposit for the initial study, five times the amount of initial study deposit for the system impact study or re-study of the initial system impact study, and seven times the amount of initial study agreement after signing the facilities study agreement. These are in addition to the costs of the studies themselves.

There are higher withdrawal penalties for interconnection projects that make commercial readiness deposits in lieu of demonstrating commercial readiness.

The project must show it has exclusive land rights necessary to construct the facility. This evidence must be provided with the initial interconnection request and be reconfirmed with each additional study.

The project has the option to post security in lieu of showing site control equal to $10,000 per MW, subject to a floor of $500,000 and ceiling of $2 million. This security could later be applied to interconnection studies or withdrawal penalties. It is in addition to increased study deposits.

The study deposits are proposed to be increased as follows. For projects between 20 and 80 MW, the deposit would be $35,000 plus $1,000 per MW. For projects between 80 and 200 MW, the deposit would be $150,000, and for projects above 200 MW, the deposit would be $250,000. These deposits would be required from each project before going forward to the next phase of cluster study.

In order to execute a GIA, the project would have to provide a deposit of nine times the amount of its initial study deposit. This deposit would be refunded after commercial operation, but could be refunded in whole or in part if a project withdraws without adverse effect on the other projects.

Network upgrade costs would be proportional, based on each cluster project's contribution to the need for network upgrades.

The amount of withdrawal penalties will depend on the impact of a project's withdrawal on the remaining projects.

Penalties will not apply if there is no impact on remaining projects in the cluster, if the withdrawal will not delay the time for study completion for the other projects in the cluster, if the project withdraws after receiving the most recent cluster study that allocates more than 25% of the network upgrade costs to the project compared to a previous cluster study, or if a project withdraws after an individual study report where allocated costs have increased more than 100% compared to a previous cluster study.

Unlike the PJM proposal, which proposes to do away with the right to suspend the interconnection process for up to three years, FERC would retain the three-year suspension right, but the extension would be tied to the commercial operation date proposed in the original interconnection request.

Already Queued Projects

Existing interconnection projects in the queue will have the option to enter into a serial interconnection study or a transitional cluster study, with commercial readiness requirements or they may withdraw from the queue without penalty.

Late-stage interconnection projects with a facilities study agreement can continue under the serial study approach and enter into an interconnection agreement if they show commercial readiness to move forward to commercial operation. The RTO or utility would have 90 days to complete the studies for these projects.

If a project has not yet entered into a facilities study agreement, it would have to post a deposit equal to 100% of interconnection facilities and network upgrade costs shown in the system impact study. If the project reaches commercial operation, the deposit can be used toward the construction costs of the interconnection facilities and upgrades. If a project withdraws prior to commercial operation, it will be subject to a withdrawal penalty of nine times the study deposit costs.

Existing projects that opt to enter into a transitional cluster study would be allocated proportional network upgrade costs based on the study outcome.

They would also be subject to an expedited cluster study combining the system impact and facilities studies, and they would have to post a $5 million deposit and meet the same site control and commercial readiness requirements. The transmission providers would have 300 days to complete the studies. The transmission provider would be subject to the same $500 per day penalty for delay.

In short, both the PJM and FERC approaches attempt to eliminate the backlog in processing interconnection requests in similar ways: by studying many projects at once through cluster studies and reducing the number of existing and new applicants by raising deposit and credit support levels after each study and requiring evidence of development progress.

This is intended to induce speculative projects to wait until they are further developed or to withdraw from the queue to make room for those ready to move forward.

The result of this approach may be to leave the field to deep-pocket players or to force more speculative projects and smaller developers to partner with deep-pocket players to maintain their viability in the interconnection process.