FERC Rules on MISO Queue Reform

September 8, 2008

On August 25, 2008, the Federal Energy Regulatory Commission (the "Commission" or "FERC") conditionally approved the Midwest Independent Transmission System Operator’s ("MISO") proposal to reform the generator interconnection queue process. This order is part of an ongoing effort by the Commission and Regional Transmission Operators ("RTOs") and Independent System Operators ("ISOs") to reform the process through which generators/developers interconnect to the transmission system.

Over the past year, the Commission recognized and has acted to address the overwhelming interconnection queue backlogs that plague the electric industry, noting that queue issues are most prevalent in RTO/ISOs. In particular, as of April 2008, MISO had 348 active interconnection queue requests that represented 80 GW of generation and, by MISO’s calculation, those active requests would take 42 years to completely process. These delays complicate project planning and increase transactional costs as well as frustrate the states’ goals of meeting Renewable Portfolio Standards.

MISO’s approved queue reform proposal differs significantly from the procedures and process used since Order 2003, and developers planning future projects greater than 2 MW within MISO should carefully consider the effects of new costs, timelines, and milestones that will result from the adoption of MISO’s proposal. In addition, many of the reforms are applicable to existing queue positions and thus, developers should understand the impact of the changes on their projects now in the queue. Generators within MISO will now proceed through the queue process by demonstrating certain levels of readiness. Notably, however, projects that have executed a Facilities Study Agreement need only comply with MISO’s new rules concerning suspension.

FERC approved the following proposed changes:

	•	Pre-Queue Phase. A new Pre-Queue Phase was proposed for interconnection requests to ensure that the generator (or "customer") is aptly prepared when entering the queue, and to reduce the number of interconnection requests clogging the queue. The Pre-Queue Phase is meant to provide interconnection customers with more information before authorizing a Feasibility Study so customers can more efficiently manage MISO’s interconnection procedures. No project will be denied entry into the queue as a result of the Pre-Queue Phase.
	•	Queue Position. Customers shall be assigned an initial queue position upon submitting a valid Interconnection Request. The queue position will be used in determining the order of performing Feasibility Studies and therefore entrance into either the Definitive Planning Phase or System Planning Phase. Additionally, each customer’s initial queue position will be used to assign responsibility for network upgrades, although customers liable for common facilities may have their cost responsibilities determined by factors other than queue position. Customers that do not proceed to either the Definitive Planning Phase and System Planning and Analysis Phase within one year will be considered as having withdrawn from the queue.
	•	Feasibility Study and Fast Tracking. MISO changed its Feasibility Study from an informational screen to a more qualitative screen of affected transmission facilities, which will then be used to direct projects into either a "fast track" through to a Definitive Planning Phase or a lengthier System Planning and Analysis Phase. Feasibility Studies will be performed at regular intervals and not be tied to any particular project. The Commission found that such a qualitative analysis will serve to discourage speculative or unviable projects and help viable projects proceed more quickly toward commercial operation. Furthermore, because Feasibility Studies will not be tied to any particular projects, customers included in the Feasibility Study will receive a more complete picture of the existing queue. In order to be placed on the fast track, a project may be no larger than 2 MW and must be able to interconnect with only minor modifications at minimal cost without the need for additional studies or significant costs to address safety, reliability, or power quality issues. Fast-track projects will enter the Definitive Planning Phase, which consists of two studies (System Impact Restudy and Facilities Study), and MISO estimates that fast-tracked projects could proceed through the queue in 459 days, down from an average of 884 days in 2007.
	•	Deposits. The Commission accepted a system of deposits in which deposit amounts will increase with the size of generators. For example, a generator of less than 6 MW will pay a $10,000 study deposit, while a generator of 1,000 MW or greater will pay $120,000. Furthermore, interconnection customers entering the Definitive Planning Phase must post an additional deposit ranging from $40,000 for generators of less than 6 MW to $520,000 for generators of 1,000 MW or more. Any unused amounts will be refunded upon commercial operation or forfeited if the interconnection request is suspended or terminated.
	•	Transition Period. To implement queue reform as quickly as possible, projects in the queue that do not have an executed Facilities Study Agreement will have 60 days to meet the milestones and deposit requirements of the new process. However, when it would be unfair to require that projects be fully compliant, MISO may seek a waiver of certain requirements.
	•	Suspension. Projects in the queue may no longer be suspended for economic reasons. Rather, projects may only be suspended under force majeure conditions, and a suspending interconnection customer must provide security for the cost of network upgrades associated with its request in order to prevent lower-queued projects from being harmed by the suspension. Interconnection customers are, however, given six months to complete Facilities Study milestones, plus three additional months to execute the interconnection agreement—a total of nine months that MISO believes eliminates the need for economic suspension.
	•	Temporary Interconnection Agreement. MISO amended its interconnection procedures to allow projects that are ready to proceed to use available transmission capacity (before network upgrades are completed). As a result, upon request of an interconnection customer and based on available studies, MISO may provide temporary interconnection for limited operations. Customers receiving such temporary service will be subject to operational limits that will be updated seasonally, and customers will be liable for potential future network upgrades to the same extent as those customers taking conditional interconnection service.

FERC conditionally approved the following proposed change:

	•	Milestones. MISO created milestones that will demonstrate a project’s readiness to proceed through the queue. Specifically, MISO created three levels of milestones: Application Milestones (M1) that require the inclusion of certain information in an interconnection application, Definitive Planning Milestones (M2) that require specific progress before MISO will begin the Facilities Study, and Facilities Study Milestones (M3) that have a different timeline than M2 Milestones but must still be completed before beginning a Facilities Study. M1 milestones require interconnection customers to submit a $5,000 application fee, a study deposit, a completed application, a demonstration of site control or posting of $100,000 additional security, a stability model, all applicable technical data, and an executed Interconnection Study Agreement. M2 milestones require a definitive point of interconnection, a one-line diagram of the facility and associated electrical equipment, a definitive amount of requested capacity, recertification of site control or designation of the $100,000 security as nonrefundable, and certain regulatory approvals or permits. M3 milestones require either security to fund network upgrades, certain assurances regarding the project’s sale of its output, or a demonstration that turbines have been ordered for the project. The Commission ordered MISO to continue to evaluate whether the milestones strike a reasonable balance between discouraging speculative projects from entering or remaining in the queue, and to file reports on the effectiveness of the queue reforms adopted in FERC’s order.

FERC denied the following proposed change:

	•	Energy Resource Interconnection Service. In its filing, MISO claimed that projects using Energy Resource Interconnection Service ("ERIS") gain an unfair advantage over those using Network Resource Interconnection Service ("NRIS") because projects using ERIS are not responsible for funding network upgrades. Accordingly, MISO proposed that ERIS customers fund certain network upgrades, reach alternative dispatch arrangements, or cap their output. The Commission flatly rejected MISO’s proposal, stating that Order 2003 clearly contemplated both ERIS and NRIS and that, although ERIS customers do not fund network upgrades, NRIS customers hedge congestion risks through such funding—risks that ERIS customers are susceptible to.

FERC denied the following requests by intervenors:

	•	Reassignment of Interconnection Rights. The Commission rejected the requests by intervenors desiring the right to partially assign interconnection rights among affiliated project companies. MISO answered the intervenors’ request by asserting that queue position splitting results in a multiplication of parties, administrative complexity and the likelihood that network upgrades or unused capacity will be withheld from the market while a project develops in phases. The Commission did not require MISO to include partial assignment as part of the queue reform proposal, but it directed MISO to make an informational filing within one year regarding the topic.

The changes approved by the Commission substantially alter the requirements, timelines, and expectations of parties within the MISO queue. As a result, generation developers should consult with experienced counsel to fully explore and efficiently address all MISO interconnection options that are available, and those options that may come about with a rehearing.

If you have further questions, please contact:

In Minnesota:
William Holmes at whholmes@stoel.com or (612) 373-8817
Kevin Johnson at kdjohnson@stoel.com or (612) 373-8803
Katherine Roek at karoek@stoel.com or (612) 373-8820

In Oregon:
Jennifer Martin at jhmartin@stoel.com or (503) 294-9852
Pamela Jacklin at pljacklin@stoel.com or (503) 294-9406
Marcus Wood at mwood@stoel.com or (503) 294-9434
Jason Johns at jajohns@stoel.com or (503) 294-9618

In Washington:
Kathleen Doll at kjdoll@stoel.com or (206) 386-7629

In California:
Seth Hilton at sdhilton@stoel.com or (916) 319-4749
John McKinsey at jamckinsey@stoel.com or (916) 319-4746

In Utah:
John Eriksson at jmeriksson@stoel.com or (801) 578-6937