FERC Announces ‘Watershed’ Changes to Interconnection Policy

On July 28, the Federal Energy Regulatory Commission (FERC) issued a final rule (the Final Rule), which Chairman Willie Phillips calls the most significant change to FERC interconnection policy since the initial policy was put in place nearly two decades ago. FERC expects that these changes will “address interconnection queue backlogs, improve certainty, and prevent undue discrimination for new technologies.” Specifically, the Final Rule is “intended to ensure that the generator interconnection process is just, reasonable, and not unduly discriminatory or preferential.” The Final Rule will become effective 60 days after publication in the Federal Register.

In 2003, FERC issued Order No. 2003 requiring all public utilities that own, operate, or control facilities used to transmit electric energy to have on file standard procedures and a standard agreement for interconnecting generating facilities larger than 20 megawatts. In the following years, FERC adopted similar policies for smaller generators. However, the recent growth in new and diverse resources attempting to interconnect to the transmission system has highlighted problems within this policy scheme. Specifically, FERC points to “large interconnection queue backlogs and uncertainty regarding the cost and timing of interconnecting to the transmission system.” These problems have resulted in increased consumer costs and reliability issues as new generators are unable to connect in an efficient and timely manner. At the end of 2022, there were more than 2,000 gigawatts of new generation and storage awaiting connection in the United States.

In response to the issues highlighted above, FERC is adopting reforms to its pro forma Large Generator Interconnection Procedures and pro forma Large Generator Interconnection Agreement under the Final Rule. These reforms include: (1) implementing a first-ready, first-served cluster study process, including increased financial commitments for interconnection customers; (2) increasing the speed of interconnection queue processing, including major changes to the interconnection study process (discussed in more detail below); and (3) incorporating technological advancements into the interconnection process. Additionally, under the Final Rule, FERC will implement changes to its pro forma Small Generator Interconnection Procedures and pro forma Small Generator Interconnection Agreement.

Due to the size and scope of the changes contemplated here, transmission providers and project developers will need to increase their focus on regulatory compliance. Importantly, the Final Rule will eliminate the reasonable efforts standard for completing interconnection studies, by establishing firm deadlines for transmission providers and imposing stiff study delay penalties. Additionally, the Final Rule will require transmission providers to use a standardized and transparent affected systems study process.

While the changes discussed herein represent a “watershed” change to America’s power generation connection scheme, both FERC and stakeholders across the country recognize it is merely the first step in what is expected to be a larger regulatory overhaul. For example, the Final Rule does not address the allocation of project costs or long-term and regional transmission planning; however, FERC is already eyeing potential changes in these areas.

For assistance or questions concerning this legal insight, please contact the authors or any member of the Steptoe & Johnson Energy Team.