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FERC denies most of 2nd-round rehearing request on interconnection reforms

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FERC denies most of 2nd-round rehearing request on interconnection reforms

The Federal Energy Regulatory Commission offered clarification on the option to build aspect of its order mandating reforms to the interconnection processes for large generators, but refused to make any tweaks to the indemnity provisions.

FERC significantly revised (FERC docket RM17-8) its large generator interconnection procedures, or LGIP, and large generator interconnection agreement, or LGIA, in April 2018, adopting 10 out of 14 reforms outlined in a December 2016 notice of proposed rulemaking aimed at addressing growing concerns over the ability to connect new resources to the grid in a timely manner.

In February, FERC made a handful of technical corrections and clarifications to Order 845, in response to a dozen requests for rehearing or clarification. The order on rehearing, however, triggered another request for clarification, or alternatively rehearing, from several American Electric Power Co. Inc. utility subsidiaries.

AEP argued that FERC wrongly downplayed implications of a U.S. Court of Appeals for the District of Columbia Circuit decision related to Order 845 and asserted that the agency needed to address the ramifications of the court ruling in certain grid operators' Order 845 compliance plans.

Independent entity variation

FERC on Aug. 16 issued Order 845-B, offering clarification "to reiterate that [it] did not prohibit transmission providers, including [regional transmission organizations and independent system operators], from arguing that they qualify for a variation from the pro forma LGIP and the pro forma LGIA."

"RTOs/ISOs, in particular, were free to argue that they qualify for an independent entity variation," FERC added.

Interconnection customers that initially fund network upgrades are reimbursed under a crediting policy that requires the transmission provider to repay those costs through credits against the interconnection customer's payments for transmission services. Under the crediting policy, transmission providers include the cost of those network upgrades in their rate base, ensuring they earn a return on the costs of those facilities.

But FERC also contemplated situations in which a participant funding interconnection pricing policy, which directly assigns an interconnection customer the costs of network upgrades required for its interconnection request, may "provide more efficient price signals and a more equitable allocation of costs," according to the clarification order. Entities can seek an independent entity variation from FERC to pursue that cost recovery approach.

The D.C. Circuit in January 2018 struck down a variation FERC granted the Midcontinent ISO that empowered generators, rather than transmission owners, to elect to self-fund interconnection-related transmission upgrades as it improperly compelled transmission owners to construct, own and operate facilities without the ability to earn a return on the facilities (Ameren Services v. FERC, 16-1075). On remand, FERC reversed its prior determination (FERC docket EL15-36) and ordered MISO to give transmission owners the right to unilaterally elect to fund network upgrades.

AEP argued that FERC wrongly determined that the concerns identified in Ameren were unique to MISO and did not implicate its Order 845 reforms.

FERC in Order 845-B countered that it did not erroneously distinguish Ameren from Order 845 and that AEP "misapprehended" its discussion of Ameren in the agency's earlier order on rehearing, Order 845-A.

"Order No. 845 did not change the fact that the commission explicitly provided an option pursuant to which transmission providers can earn a return of, and on, the costs of network upgrades through the Order 2003 crediting policy," FERC said. Further, "nothing prevented RTOs/ISOs from addressing whether the relevant provisions in their tariffs implicate Ameren and ensuring that they address such concerns when they submitted their filings to comply with Order 845 and 845-A."

Indemnity provisions

AEP also accused FERC of failing to meaningfully respond to comments that sought to expand the applicability of the order's indemnity provisions and pitched additional tweaks to those provisions.

FERC said AEP had not demonstrated that the Order 845 provisions that require an interconnection customer, when exercising the option to build, to indemnify the transmission provider of any claims arising from their construction required any changes.

The commission reiterated its defense of the existing provisions. It added that AEP's request for clarification that the right to seek indemnification and damages for the life of the facilities was unnecessary as the current language already makes clear that such rights survive the termination of the LGIA.

As for AEP's claim that the use of the term "construction" to describe what was covered under indemnification was too vague, FERC said its word choice was purposeful as it intentionally omitted engineering and procurement.

Prior to Order 845, FERC's interconnection process had not undergone major reform since 2003.

The reforms issued in April 2018, and upheld in two subsequent orders on rehearing, pertain to generators with capacity greater than 20 MW.

Jasmin Melvin is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.