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How FERC’s interconnection ruling could impact MISO’s proposed reforms

How FERC’s interconnection ruling could impact MISO’s proposed reforms
Transmission lines outside Houston, Texas (Courtesy: BFS Man/Flickr)

The Federal Energy Regulatory Commission (FERC) Order 2023 on generator interconnection reforms has finally arrived. This Order 2023 was at least a couple of years in making, with the Advanced Notice of Proposed Rulemaking released in 2021, followed by the Notice Of Proposed Rulemaking in 2022. It is too early to decide whether or not Order 2023 will pave the way for more renewables and reduce the current queue backlogs at most grid operators. 

But since the Midcontinent Independent System Operator (MISO) has started stakeholder discussions on a reform package, comparing MISO’s proposal to FERC Order 2023 makes sense. And this comparison indicates that while MISO’s reform package and Order 2023 include strict site control requirements, and penalties for withdrawing from the queue, the clear difference is that FERC does not require milestone payments and a cap on MW size or limit the number of applications per developer. As a result, MISO is unlikely to gain FERC’s approval for those elements of the reform package. 

GO DEEPER: FERC Commissioner Allison Clements joined Episode 16 of the Factor This! podcast to discuss record heat, resilience, and the agency’s interconnection reform effort. Subscribe wherever you get your podcasts.

FERC Order 2023 does not require Milestone Payments

MISO proposed increasing milestone payment M2 from $4,000 per MW to $12,000 per MW. FERC Order 2023 requires MISO to collect a single study deposit only once upon entry into the DPP cycle. And that amount varies according to the MW size of the project. 

Projects greater than 20 MW and less than 80 MW must pay a study deposit of $35,000 plus $1,000 per MW. So, a 50 MW solar project would pay a $85,000 study deposit, but the M2 payment alone is $600,000 under MISO’s current proposal. This increase in MISO’s milestone payments is the clear difference between what MISO proposes and what FERC requires in Order 2023. FERC refused to implement a phased study deposit approach to avoid the administrative burden on grid operators like MISO to collect and manage the deposits. 

In FERC Order 2023, a solar project greater than or equal to 80 MW and less than 200 MW must pay a study deposit of $150,000. And a project greater than or equal to 200 MW must pay $250,000. FERC also removed the monthly invoice requirements for transmission providers to invoice the interconnection customers monthly for facilities study. Would MISO decrease this $12,000 M2 milestone payment or keep it? It depends on MISO stakeholder feedback since renewable developers know what FERC requires of all other transmission providers. FERC’s refusal to adopt a phased study deposit approach makes it harder for MISO to justify higher milestone payments.     

FERC requires 90% site control at the time of submission

MISO proposes increasing site control from the site to the Point Of Interconnection (POI) in its yet-to-be-filed reform package. Interconnection Customer (ICs) should have 50% site control from the generator site to the POI upon application, 50% site control and 50% of the IC switchyard before Phase 2, and 100% site control before the Generator Interconnection Agreement (GIA) negotiations. 

FERC Order 2023 requires 100% site control before the facilities study, DPP Phase 3 at MISO. But FERC also requires 90% site control at the time of submission of interconnection request, which is stricter than the 50% MISO requirement. Additionally, FERC requires “exclusive land rights” – only one interconnection customer has the exclusive right to the site, not multiple developers – to reduce the number of speculative projects unless the site is large enough to develop several projects. 

So, there are some differences in how MISO is proposing site control compared to Order 2023, but the major one is the 90% site control at the time of submission in Order 2023 compared to the 50% in MISO’s reform, but MISO’s reform includes site control from the site to the POI. MISO must reconcile its definition of site control with FERC’s Order 2023.   

FERC only requires penalties for withdrawal from the queue if there is a material impact.

MISO’s proposed reform package proposed that if an IC withdraws before the start of DPP – they pay 10% of M2, which is $12,000 per MW. If an IC withdraws at DPP 1, they pay 25% of M2. And if an IC withdraws at DPP 2, they pay 50% of M2. If an IC withdraws at DPP 3, they pay 75% of M2. Finally, if an IC withdraws during the GIA negotiations and beyond, they pay 100% of M2. So, a 100 MW solar project developer will pay $1.2 Million upfront as an M2 payment and another $1.2 Million if they withdraw during the GIA negotiation phase. 

Like site control requirements, FERC received many comments on the withdrawal penalty. FERC Order 2023 requires MISO to collect a withdrawal penalty only if the withdrawal has a material impact on the cost or timing of any interconnection requests with an equal or lower queue position. If there are material impacts, under this Order 2023, MISO can collect twice the study deposit costs if a project withdraws during the initial cluster study – DPP Phase 1. So, in that 50 MW earlier example, MISO will collect $170,000 if the project withdraws during DPP Phase 1. 

If the project withdraws during “cluster restudy” the withdrawal penalty is 5% of the network upgrade costs. If the project withdraws during DPP Phase 3 (Facilities study), the withdrawal penalty is 10% of the network upgrade costs. If the project withdraws after the Large Generator Interconnection Agreement (LGIA) is executed or after the request to file LGIA, the withdrawal penalty is 20% of the network upgrade costs. The increase in penalties as a percentage of network upgrade costs is similar to the current MISO’s milestone payments. So, FERC Order 2023 and MISO’s reform package might be similar in that approach. The differences would be the material impact of withdrawals and higher M2 milestone payments of $12,000 per MW compared to FERC not requiring phased study deposits.        

FERC Order 2023 does not require a cap on MW size or number of applications per developer

MISO’s proposed reform package has a cap on the amount of capacity. In the FERC Order 2023, there is no such cap. It’s unclear if FERC would approve MISO’s proposed caps when MISO files its proposed reforms. 

However, FERC Order 2023 does include a cap on the penalties imposed on transmission providers (e.g., MISO). For cluster study delays, the penalty on MISO is $1,000 per business day. For cluster restudies delays, the MISO penalties are $2,000 per business day. And finally, for delays of facilities studies, the penalties on MISO is $2,500 per business day. 

These penalties are the first time FERC has ordered penalties on ISOs if they delay interconnection studies. In the NOPR, FERC had proposed a $500 per day penalty but was swayed by the comments received to increase the penalty amount. But FERC didn’t increase the penalty to $7,000 per business day, unlike some proposals. Also, FERC does not impose these penalties on existing queues because FERC is giving time to the ISOs and other transmission providers. 

FERC said no transmission providers will be assessed study delay penalties until the third cluster study cycle after the Commission-approved effective date of the compliance filing. In MISO’s case, this could mean that if FERC approves MISO’s reform package by December 1, 2023, and if the queue window opens in December, then the $1,000/$2,000/$2,500 per business day penalties apply to MISO starting with DPP Phase 3 in 2023 DPP cycle. It is unclear if those penalties are assessed on earlier DPP cycles, some of which are delayed by more than 3 years.  

Conclusion 

MISO’s proposed reform package filing date comes first compared to the timing of MISO’s compliance plan for Order 2023. MISO and MISO renewable project developers may have to come up with a strategy that efficiently increases the chance of receiving FERC approval on MISO’s proposed reform package this year and receiving FERC’s approval of MISO’s compliance plan for FERC Order 2023 because FERC is seeking MISO to submit its compliance plan 90 days after publication in the Federal Register. 

The 90 days time period is less than the typical 180 days time period that FERC gives transmission providers to put together compliance plans. But FERC realizes the urgency of generator interconnection reform. Assuming a September 1 publication in the Federal Register for Order 2023, MISO has until December 1 to file its compliance plan. Meanwhile, MISO has a workshop scheduled to discuss its reform package, and MISO proposes to file its reform proposal for approval by December 1. Until that FERC approval, the queue window for 2023 is closed.