FERC Accepts PJM’s Interconnection Queue Reform

Legal Alert

In a “FERC after dark” order issued late yesterday, November 29, the Federal Energy Regulatory Commission (FERC) largely accepted a comprehensive reform of the PJM interconnection process that applies to both generation and merchant transmission developers. The reform moves PJM’s interconnection study process to a “first-ready, first-served” cluster-style approach like those seen across the country in the various ISOs, however there are key differences that make PJM’s new procedures different than what developers may experience elsewhere.

Customers in the AD2 or earlier queue windows will remain subject to the existing study procedures and will be processed on an expedited and serial basis. Those customers (including qualifying facilities) in queue windows AE1, AE2, AF1, AF2, AG1, AG2, and AH1 that have not been tendered an Interconnection Service Agreement (ISA) or wholesale market participant agreement (WMPA) by the Transition Date will be subject to the Transition Period Rules in one of two cycles. The Transition Date is the later of January 3, 2023, or the date on which all AD2 and prior ISAs and WMPAs have either been executed or filed unexecuted with FERC—so yet to be determined.

“Transition Period Rules”

As of the Transition Date, customers in the AE1 through AG1 queue windows that have not executed or been tendered an ISA or WMPA for execution will have 60 days to provide the required $4,000 per MW readiness deposit and evidence of site control for the generating facility for a period of one year, or their projects will be withdrawn/terminated from the queue. That means customers with projects that are mature enough to currently be in the Facilities Study phase may be subject to these new rules.

All customers that post required security and site control evidence will then be processed by PJM under a retool study. Any customer in that retool study that is allocated $5 million or less of network upgrades will be permitted to use an Expedited Process to complete its interconnection studies and agreements on a serial (non-clustered) basis. Any customers triggering in excess of $5 million in network upgrades will be processed in Transition Cycle #1. Customers in the AG2 or AH1 queue windows will be processed in Transition Cycle #2. Both Transition Cycles #1 and #2 will be required to follow the Transition Period Rules found in Section VII of the tariff—these rules utilize a three-phase cluster study approach and are materially similar to the New Rules described below. PJM anticipates completing Transition Cycles #1 and #2 by Q4 2026, including the execution of interconnection-related agreements. Projects subject to the New Rules will begin the study process in early 2026.

The “New Rules”

PJM refers to its reformed procedures as the “New Rules,” and they are found in Part VIII of the tariff. The New Rules will use a single interconnection application and a study process that includes three phases and three decision points to evaluate new requests on a cluster basis.

The application requires a study deposit that will range from $75,000 to $400,000, depending on the size of the interconnection request. Ten percent of the deposit will be automatically non-refundable; the remaining 90% is refundable after a customer’s actual study costs are paid. Along with the application and study deposit, customers will also be required to pay Readiness Deposit No. 1, which is equal to $4,000 per MW. In addition, an interconnection application must also include evidence of site control for 100% of the generating facility (or for merchant transmission, the HV direct current converter station, phase angle regulator, and/or variable frequency transformer) for a period lasting at least one year from the application deadline.

PJM will conduct three system impact studies through the study phases—the first it plans to complete within 120 days, and the following two within 180 days. PJM will also perform facilities studies in the latter two phases. Much like in MISO, PJM will also include off-ramps following each phase—Decision Points I, II, and III—where customers must decide whether to withdraw or to satisfy additional readiness criteria. Customers that continue must submit additional deposits and, at times, site control demonstrations; those that withdraw or are terminated will be refunded a portion of their various deposits, all as follows:

  1. Decision Point I.
    • Continuing customers must submit Readiness Deposit No. 2 = 10% of cost allocation for network upgrades determined in Phase I, less Readiness Deposit No. 1.
    • Site control required – 100% of the generating or merchant transmission facility for an additional one-year term AND 50% for interconnection facilities for a period of one year.
    • Withdrawing/terminated customers will be reimbursed 50% of Readiness Deposit No. 1 and up to 90% of actual allocated study costs.
  2. Decision Point II
    • Continuing customers must submit Readiness Deposit No. 3 = 20% of cost allocation for network upgrades determined in Phase II, less the total Readiness Deposits already paid.
    • Withdrawing/terminated customers will be reimbursed 100% of Readiness Deposit No. 2 and up to 90% of their study deposit, less actual allocated study costs. Readiness Deposit No. 1 could also be fully refunded, however it is considered at-risk for purposes of funding underfunded network upgrades.
  3. Decision Point III
    • Continuing customers must submit Readiness Deposit No. 4 = a security deposit equal to 100% of the network upgrades allocated to the customer.
    • Site control required – 100% of the generating or merchant transmission facility AND 100% for interconnection facilities for a three-year term.
    • Withdrawing/terminated customers – all Readiness Deposits are considered at-risk, so may or may not be refunded. A customer would be reimbursed up to 90% of their study deposit, less actual allocated study costs.
    • Customers will also begin the Final Agreement Negotiation Phase concurrently with Decision Point III, in which customers will have roughly a total of 35 business days to negotiate the applicable agreements, initiate dispute resolution, or request the agreement(s) be filed unexecuted with FERC.

What will PJM do with retained deposits?

PJM will use retained deposits to fund underfunded network upgrades caused by withdrawn customers, as determined in Phase III. After all underfunded network upgrades are made whole, PJM will reimburse any remaining amounts on a pro-rata share.

Are changes to site control allowed?

Yes, with limitations. With respect to site control, a customer may make a change to its facility site at Decision Point I or Decision Point II if it has satisfied the site control requirements for the initial site and the new site simultaneously, and the initial site and the new site are adjacent.

What are the suspension rights under my interconnection agreement?

FERC also approved PJM’s proposed changes to suspension rights under an interconnection agreement. Going forward, customers will have a one-time option to suspend their milestones (other than milestones related to site control) for a total period of one year regardless of cause.

In summary, the reforms are substantial and will cause the interconnection process to both change dramatically and also be effectively paused for a period of years for some projects. If you would like to read FERC’s order, it is available in Docket No. ER22-2110 through FERC’s eLibrary. And please let us know if you have any questions.

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