Stuck in Line: FERC’s Interconnection Reforms

No one enjoys waiting in line. Typically, long waits are associated with some of our least-favored experiences, like spending a day at the Department of Motor Vehicles or calling the cable company. Yet in some parts of the country, years-long queues have become the norm in the process of interconnecting new electric generation resources to the power grid. These delays, which often involve false starts and “re-dos,” have become a source of frustration for project developers and for the utilities and grid operators responsible for the interconnections. In an attempt to address these issues, the Federal Energy Regulatory Commission (FERC) recently released a notice of proposed rulemaking proposing to overhaul the generator interconnection process (the Interconnection NOPR). See Improvements to Generator Interconnection Procedures and Agreements, Notice of Proposed Rulemaking, 87 Fed. Reg. 39,934 (July 5, 2022). While the reforms proposed in the Interconnection NOPR are sweeping and ambitious, it remains to be determined whether they will prove effective in speeding up those queues that are indeed overwhelmed without disturbing existing processes that have functioned well to date.

So, what is ailing the nation’s interconnection queues? The answer lies, at least in part, in the power sector’s evolution over the last several decades. Back when FERC established standardized generator interconnection procedures, most new additions to the grid were large-scale, fossil-fuel-fired generators. This dynamic has shifted significantly toward smaller-scale renewable generators. Unsurprisingly, solar is now dominating the interconnection queues. A recent Lawrence Berkeley National Laboratory study found that solar accounted for the largest share of generation capacity in the queues, with solar and battery storage together constituting nearly 85% of new capacity entering the queues in 2021. Lawrence Berkeley Nat’l Lab., Queued Up: Characteristics of Power Plants Seeking Transmission Interconnection as of the End of 2021 (2022). Given the relatively small size of generator capacity per project, this translates into a massive number of projects to be processed.

This increased volume of projects has, in many cases, proven challenging. The approach to queue processing reflected in FERC’s pro forma procedures for interconnecting large generating facilities calls for interconnection applications to be addressed on a serial first-come, first-served basis. That means that each project is considered on a stand-alone basis depending on when its application is submitted, and the necessary studies to determine the transmission upgrades needed to reliably interconnect the generator to the grid are specific to that generator. Since the adoption of FERC’s pro forma procedures, many utilities and grid operators have opted for alternative approaches that consider multiple projects concurrently (see discussion of the “cluster” approach below). However, these alternative approaches have not been uniformly efficacious, and some utilities that retain the serial process have succeeded in avoiding the delays experienced elsewhere.

Cost issues have also contributed to existing backlogs. Typically, the costs of needed upgrades to the transmission system are assigned to the generator that first triggers the upgrade, even if that upgrade will ultimately benefit other projects. This can result in significant cost responsibility for small-scale projects, which can ultimately compromise their economics. When costs become too high for a generator seeking to interconnect to the grid, that generator may instead withdraw from the queue and seek to interconnect elsewhere where the upgrade costs will be less. Further exacerbating the issue of queue withdrawals, the realities of the solar project financing, development, and procurement processes often dictate that projects enter the queue before they have secured all of the elements needed to ensure their viability, such as critical land rights, or, in nonmarket regions, a purchaser for the power to be generated. Of the projects submitted for interconnection between 2000 and 2016, Lawrence Berkeley National Laboratory estimates that 72% were withdrawn.

Once a project withdraws, it impacts all of the other projects in line behind it, which can trigger the need for so-called restudies and the shifting of network upgrade costs to lower-queued customers. This, in turn, can lead to cascading withdrawals throughout the queue. The constant churn of project withdrawals and restudies has played a significant role in the current predicament that FERC now seeks to address through the Interconnection NOPR.

In the Interconnection NOPR, which comes in at a whopping 407 pages, FERC lays out its plans to resolve the backlogs in the nation’s interconnection queues. The main reforms proposed by FERC are discussed below.

Moving to a first-ready, first-served cluster study process

FERC proposes to revise its standardized procedures for interconnecting large generating facilities and direct those still using the serial study process to move to a cluster study process. Under the proposed approach, all generators meeting a set of enhanced readiness requirements would be studied together, in an effort to gain additional efficiencies and a more holistic identification of network upgrades needed. Once the necessary upgrades are identified, FERC proposes to allocate their costs using a “proportional impact method” that measures the contribution of each generator to the need for the upgrade.

Increasing the speed of interconnection queue processing

In an effort to encourage more efficient queue processing, FERC proposes to change the existing standard governing the completion of interconnection studies. Currently, utilities and grid operators are required to use “reasonable efforts” to complete the necessary studies on time. Under the new standard, they will be subject to firm study deadlines and penalties for failing to meet them.

Incorporating technological advancements into the interconnection process

FERC also proposes reforms covering a variety of other issues, many of which relate to the evolving resource configurations seen in interconnection requests, such as various combinations of renewables and storage.

Will these reforms succeed? The jury is still out. In October 2022, more than 130 commenters weighed in on the proposals set out in the Interconnection NOPR. The overwhelming point of consensus seen throughout the comments was a recognition that things have changed, and that the nature of the nation’s interconnection queues is evolving in a manner that has introduced new pressures. However, the comments made clear that there is no accord on whether or not interconnection processes are broken uniformly across all regions. Queue delays have created significant hurdles for renewable developers in many parts of the country, and yet the existence and severity of these delays have not been consistent.

Those favoring reform also disagreed on the appropriate means for bringing order and efficiency to those queues that are lagging behind. In general, commenters responded favorably to the notion of studying multiple requests together. However, commenters advancing developer interests voiced strong objections to imposing certain of the proposed readiness requirements on interconnection customers, while utilities and grid operators generally opposed the inflexible study deadlines and attendant penalties, as well as FERC incentivizing study speed over accuracy. Commenters on both sides pointed to the fact that there are aspects of the project selection, development, and study processes that are ultimately beyond their control. Thus, it appears that many of the delays that are now being experienced may simply be inherent in the changed industry conditions.

With reply comments submitted in December 2022, and with FERC unlikely to issue an order until mid-2023 at the earliest, it remains to be determined which reforms FERC will choose to undertake. Further, very few (if any) transmission providers strictly follow FERC’s pro forma interconnection procedures, with there being great diversity across the country. Given the sweeping nature of the proposed changes and the lack of clarity of how any such changes will apply to the variety of existing approaches, it is likely that they will take years to implement. Even then, only time and experience will tell whether or not FERC’s proposals will ultimately increase the speed of the queues and better accommodate the evolving electricity sector.