Legal & Regulatory

FERC Adopts ‘Historic’ Reforms to Ease Nationwide Generation Interconnection Backlog

The Federal Energy Regulatory Commission (FERC) has approved key transmission reforms aimed at clearing a staggering backlog of more than 10,000 generation and storage projects—more than 2,000 GW—stalled in interconnection queues across the country.

Order 2023, a final rule unanimously adopted by FERC’s four commissioners at a July 27 open meeting and posted in full late on July 28, reforms FERC’s standard generator interconnection procedures and agreements with the intent to improve cost and timing certainty, and prevent “undue discrimination” for new technologies.

While several industry groups said they are still reviewing the final rule, comparing it to FERC’s June 2022 Notice of Proposed Rulemaking (NOPR), most lauded the regulatory body’s first efforts to address the nation’s glaring interconnection backlog. Some, however, suggested the reforms won’t go far enough. 

Improvements to Generator Interconnection Procedures and Agreements

The final rule is rooted in an order adopted in 2003 (Order 2003), in which FERC first required public utility transmission providers that own, control, or operate facilities used for transmitting power in interstate commerce to adopt standard procedures (called pro-forma Large Generator Interconnection Procedures [LGIP]) and agreements (pro-forma Large Generator Interconnection Agreements [LGIA]) for interconnecting generating facilities larger than 20 MW. Three years later, in Order 2006, FERC adopted standard procedures for interconnecting generating facilities no larger than 20 MW (called pro-forma Small Generator Interconnection Procedures [SGIP] and pro forma Small Generator Interconnection Agreements [SGIA]).

However, owing to significant changes in the electric industry, FERC in 2018 adopted Order 845, essentially amending the pro forma LGIP and LGIA to address interconnection delays and uncertainty. Since 2018, FERC notably approved proposals from five transmission providers to switch over from the existing pro forma LGIA process to a “cluster study” process. The process crucially allowed transmission providers and regional grid operators to pivot from a “first-come, first-served” method to study processes that comprise “clusters” of multiple proposed generating facilities.

The new final rule (Order 2023), essentially codifies the cluster study process, requiring transmission providers to use it over the prior “serial first-come, first-served study process.” As FERC staff noted during the open meeting on Thursday, the cluster study process “is a more efficient way of processing a large interconnection queue because it allows transmission providers to study numerous proposed generating facilities at the same time, rather than study each individual interconnection customer’s request separately and serially.” Staff also reasoned that conducting a single cluster study and cluster restudy each year “can minimize delays overall and minimize the risk of cascading restudies when a higher-queued interconnection customer withdraws its request.”

As significantly, the new rule requires interconnection customers to boost their financial commitments to enter in and remain in the interconnection queue, including through increased study deposits. It also requires stricter site control requirements and “commercial readiness” deposits, and it imposes withdrawal penalties on interconnection customers that withdraw requests from interconnection queues. FERC staff noted that those reforms would “discourage speculative, commercially non-viable interconnection requests and allow transmission providers to focus on processing interconnection requests that have a greater chance of reaching commercial operation.”

In a bid to increase the speed of interconnection queue processing, the final rule establishes firm study deadlines for transmission providers enforced with penalties. It also seeks to require transmission providers to use a “standardized and transparent affected systems study process that includes firm study deadlines and uniform modeling standards.”

The new rule also includes reforms to incorporate technological advancements into the interconnection process. “For example, the reforms would require transmission providers to allow more than one generating facility to co-locate on a shared site behind a single point of interconnection and share a single interconnection request, and would require transmission providers to use operating assumptions in interconnection studies that reflect the proposed charging behavior of electric storage resources,” FERC staff said. The reforms also require transmission providers to evaluate specific alternative transmission technologies in their cluster studies and determine “whether any of these technologies should be used, consistent with good utility practice, applicable reliability standards, and other applicable regulatory requirements.”

Finally, the final rule establishes modeling and ride-through requirements for non-synchronous generators. These requirements derive from recommendations made by the North American Electric Reliability Corp. to address several disturbances stemming from the unexpected loss of inverter-based resources.

A 2,000-GW Interconnection Queue Backlog

As FERC’s staff on Thursday underscored, the reforms are urgently needed to address a dramatic increase in the number of interconnection requests and limited transmission capacity across all U.S. regions. The final rule references April 2023–released research by Lawrence Berkeley National Laboratory (Berkeley Lab), which suggests that at the end of 2022, more than 10,000 interconnection requests were active throughout the U.S. That represents more than 2,000 GW of potential generation and storage capacity, 95% of which was solar, battery storage, or wind energy. “In fact, the combined solar and wind capacity now actively seeking grid interconnection (~1,250 GW) approximately equals the installed capacity of the entire U.S. power plant fleet,” Berkeley Lab noted in April.

Capacity in interconnection queues as of the end of 2022. *Hybrid storage capacity is estimated in some cases using storage: generator ratios from projects that provide separate capacity data. Storage capacity in hybrids was not estimated for years prior to 2020. Source: Lawrence Berkeley National Laboratory (April 2023)

FERC underscored that the potential generation represents the largest interconnection queue size on record—more than four times the total volume (in GW) of the interconnection queues in 2010, and a 40% increase over the interconnection queue size from just the year prior.” A huge industry concern is rooted in interconnection uncertainty and delays, which have “resulted in fewer than 25% of interconnection requests (by capacity) reaching commercial operation between 2000 and 2017 in any region of the country—with some regions as low as 8%,” the rule notes.

Interconnection timeframes are also a major hurdle. “Despite efforts to address these challenges, interconnection queue backlogs and delays have persisted and worsened,” the rule notes. “For generating facilities built in 2022, wait times in the interconnection queue saw a marked increase to now roughly five years.”

Berkeley Lab’s research suggests myriad reasons for the bottlenecks. “Projects are taking longer and longer to complete the interconnection study process and come online, and most of these interconnection requests are ultimately canceled and withdrawn,” the lab says. “Entering an interconnection queue is only one of many steps in the development process; projects must also have agreements with landowners and communities, power purchasers, equipment suppliers, and financiers, and may face transmission upgrade requirements.”

FERC, however, pointed to a larger systemic problem, suggesting these trends affect “every single region” in the country, including regional transmission organizations (RTOs) and independent system operators (ISOs) alike. It specifically highlighted delays in the interconnection study process. For example, it said that of the 2,179 interconnection studies completed in 2022 in compliance with Order 845, 68% were issued late, and all RTOs/ISOs (except the California ISO and 14 non-RTO/ISO transmission providers) reported delayed studies at the end of 2022.

Visualizations from Berkeley Lab’s April 2023 “Queued Up” study show U.S. interconnection queues by region, state, and country. See the full interactive graphic here. Source: Berkeley Lab

The regulatory body suggests numerous factors have contributed to the increasing interconnection request volume. These include a rapidly changing resource mix, market forces, and emerging technologies. “In addition to the drastic increase in the number of interconnection requests in all regions of the country, evidence shows that interconnection studies have increased in complexity since [FERC] issued Order 2003, potentially straining transmission provider resources,” it noted. “At the same time, we find that available transmission capacity has been largely or fully utilized in many regions, creating situations where interconnection customers face significant network upgrade cost assignments to interconnect their proposed generating facilities.” 

In the Midcontinent ISO (MISO), for example, interconnection costs doubled for generating facilities for which interconnection studies were completed between 2019 and 2021 compared to those completed before 2019, and costs may have tripled for facilities still active in the queue, one study suggests. In the New York ISO (NYISO) and PJM, interconnection costs per kW have doubled or more for recently completed generating facilities.

‘Much More to Do’

While FERC’s commissioners hailed the new rule’s potential to improve the interconnection process’s reliability, efficiency, and transparency, several commissioners noted more action is warranted.

“Our transmission policies must keep pace with the rapid changes in the makeup of our nation’s power generation resource mix. Today’s rule is an important milestone. But there is so much more to do,” said FERC Chairman Willie Phillips. Phillips said FERC is currently “working diligently” on how to address the key issues of regional transmission planning and cost allocation. “We need to take a longer-term, forward-looking approach to planning for essential transmission facilities and to allocate the costs of those facilities in a just and reasonable manner while enhancing the reliability and resilience of the grid,” he said.

During the commission meeting on Thursday, Commissioner Allison Clements offered a more detailed outlook on work that remains. “What was perhaps considered a straightforward kitchen renovation has become more complicated. After we have removed the cabinets and taken out the drywall, we have discovered outdated wires, rusted pipes, and cracks in the foundation. None of these additional challenges are insurmountable, but they are in some ways more fundamental to getting that modern, working kitchen up and running.”

“Deeper” reforms will be needed to more efficiently arrive at cluster study scopes that could ultimately interconnect to the system, she suggested. Efficiency is also needed to address the enormous cost uncertainty project developers face. “Initial study results may be far different from final costs because the number of projects reaching the facilities study stage (the final stage before the execution of a generator interconnection agreement) can be far fewer than those earlier examined in the cluster study stage,” she said.

Clements also suggested linking the interconnection process to proactive transmission system planning, aligning the interconnection process with competitive resource solicitations, and transitioning to a “focused” interconnection process or “connect and manage” approach for all energy-only resources.

“While challenges remain, the Commission’s issuance of a final rule today is an important step forward in the effort to address interconnection backlogs around the country,” she said. “I encourage transmission providers, interconnection customers, and other stakeholders to consider the rule’s requirements a strong baseline and not a ceiling, and to continue to engage on the topics I have addressed herein.”

Mixed Industry Reactions

A handful of power industry groups issued statements on the final rule on Thursday. For the most part, they expressed optimism, but some experts suggested the reforms don’t go far enough.

Edison Electric Institute (EEI) Executive Vice President of the Business Operations Group and Regulatory Affairs Phil Moeller—a former FERC commissioner—said the industry group that represents investor-owned utilities is still reviewing several modifications from the NOPR. However, “EEI and our member companies are pleased to see the Commission beginning to act on its pending rulemakings. We applaud Chairman Phillips and the other commissioners for developing bipartisan solutions that require key changes, such as cluster studies and increased financial commitments, that will reduce interconnection backlogs,” he said.

Gregory Wetstone, CEO of the American Council on Renewable Energy (ACORE), more prominently hailed the new rule as “an important first step on this crucial issue for the energy transition.” Compared to the NOPR, the final rule includes measures to advance the use of grid-enhancing technologies, he said. 

“But it is only a start,” Wetstone said. “We encourage the Commission to build on today’s forward progress in addressing the grid backlog by finalizing a rulemaking requiring comprehensive long-term transmission planning, initiating a process to reform the dysfunctional funding model for new transmission lines, and establishing a minimum transfer capability requirement to help address the clear need for greater interregional transmission. These steps will lower electricity costs, enhance grid reliability, and provide for a cleaner and more climate-safe electrical grid.”

The American Clean Power Association (ACP) said its members support the action. Generation interconnection is a “key step towards allowing new clean energy resources to predictably and cost-effectively interconnect to the electric grid,” the group noted. “This action will help provide relief to the nearly 2 TW of renewables and energy storage that are currently waiting to interconnect.” ACP said it looks forward to reviewing the final order and “working in all regions of the country to expedite the ability of clean energy resources to interconnect in a timely manner and deliver multiple benefits to customers.”

R Street Institute, a think tank that promotes “pragmatic” policy solutions, delivered a more nuanced response. Devin Hartman, director of the R Street Institute’s energy and environmental program, commended FERC for taking “productive steps” to reduce regulatory barriers to generator interconnection. However, “the new status quo will still leave years worth of interconnection backlogs, keep grid upgrade costs at multiples of what is necessary, and delay new supply needed for grid reliability and clean transition,” he predicted. “Interconnection reform needed a home run, and FERC hit a single. FERC must prioritize supplemental efforts to resolve the unfinished business in interconnection reform. If not, Congress should,” he said.

Hartman noted that R Street filed expert comments to shape FERC’s reform agenda and spearheaded a consumer letter to make sure regulators prioritized deep reforms. “Unfortunately, the longstanding rules are the largest barriers to new power plant development and the largest driver of increased energy contract prices in many regions,” he said. “FERC ultimately opted to pursue the low-hanging fruit, leaving the most important reforms unaddressed.”

Sonal Patel is a POWER senior associate editor (@sonalcpatel@POWERmagazine).

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