On March 30, 2012, the Federal Energy Regulatory Commission (“FERC”) issued two orders related to the Midwest Independent System Operator, Inc.’s (“MISO”) policies and procedures for the interconnection of generation facilities, which are set forth in Attachment X of MISO’s tariff.
FERC in one order (“Net Zero Complaint Order”) granted a complaint by three renewable energy project developers claiming that MISO improperly processed generator interconnection requests by applying a “Net Zero” interconnection policy – a policy that was not part of MISO’s FERC-filed tariff at the time the complaint was filed. The Net Zero policy effectively facilitated the allocation of already interconnected generation facilities’ unused megawatt capacity at their point of interconnection to new facilities without such facilities being required to follow the standard interconnection procedures outlined in Attachment X.1
In a second order (“Queue Reform Order”) FERC conditionally accepted several significant changes to MISO’s interconnection procedures aimed at addressing backlogs in the existing interconnection queue and “late-stage” terminations of generator interconnection agreements. As part of these changes, FERC also conditionally accepted a formal Net Zero interconnection service for incorporation into its MISO’s tariff.2
The Net Zero Complaint Order
On July 15, 2011, Shetek Wind Inc., Jeffers South LLC, and ALLCO Renewable Energy Limited (“Complainants”) filed a complaint asking FERC to determine that MISO’s application of the “Net Zero” interconnection policy to process generator interconnection requests was unjust and unreasonable and in violation of MISO’s tariff and FERC’s non-discrimination requirements. Complainants argued that the policy allowed some customers to receive interconnection service on an accelerated basis and, in some cases, avoid upgrade costs that otherwise might have applied absent the sharing of interconnection capacity with existing resources. Complainants claimed that as a result, lower-queued projects were allowed to effectively “jump over” other projects that entered the interconnection queue at an earlier date.
In its order FERC determined that by providing Net Zero service without such service being part of its tariff, MISO had violated its tariff. Specifically, MISO’s tariff did not provide for such a service, including the sharing of interconnection capacity among different generators, or the modification of study requirements and interconnection procedures based on such sharing. To the extent MISO did not follow its standard interconnection study approach (e.g., by allowing for truncated study approaches for Net Zero projects), it violated those standard tariff provisions. FERC also agreed with complainants that MISO is not authorized to implement whatever policies and procedures that it chooses as long as they are not specifically prohibited by the MISO tariff.
As a result, FERC directed MISO to discontinue processing all Net Zero interconnection applications with the policy on MISO’s website and noted that FERC (as described below) is conditionally accepting MISO’s tariff revisions implementing a Net Zero service in the Queue Reform Order. FERC directed that going forward, all requests for Net Zero service must be processed according to those provisions.
FERC further determined that, although Complainants raise issues of material fact related to interconnection requests processed under MISO’s Net Zero interconnection policy, Complainants did not provide enough information to allow a determination of whether MISO’s previous applications of this policy were unduly discriminatory. FERC therefore directed the initiation of a trial-type evidentiary proceeding, subject to the outcome of any settlement discussions, to consider whether undue discrimination in fact occurred.
Queue Reform Order
FERC also accepted revisions to MISO’s interconnection procedures set forth in Attachment X to MISO’s tariff. These revisions continue to support a “first-ready, first-served” approach to managing the interconnection queue. FERC accepted these revisions, subject to certain compliance filings changes, effective January 1, 2012.
One of the more significant changes was the implementation of new milestone payments required of projects prior to entering the Definitive Planning Phase and within 30 days from execution of the Generator Interconnection Agreement. The purpose of these milestone payments is to require parties applying for interconnection to place more cash at risk earlier in the interconnection process, thereby increasing the likelihood that these parties will ultimately proceed to commercial operation. In its order, FERC provided guidance on which projects will be responsible for the new milestone payments. MISO’s intention to apply the changes to existing projects in the queue was a major issues for parties intervened in the proceeding. FERC also required certain changes regarding in what circumstances these payments may be refunded for withdrawing customers.
FERC also accepted MISO’s proposal to allow customers to remain in the initial stage of the interconnection process (System Planning and Analysis) indefinitely, so long as their studies are refreshed every 18 months. A customer can elect to proceed to the Definitive Planning Phase at any time following submission of the milestone payment, another study deposit and other technical data. A separate queue position also will be assigned for each stage. Additional changes were accepted regarding re-studies, what constitutes a material modification, MISO’s ability to change the point of interconnection and the treatment of study deposits.
Finally, FERC accepted MISO’s proposal to incorporate a Net Zero interconnection service into its tariff, agreeing that such a service will promote more efficient utilization of MISO interconnection capacity. FERC expressed concern however that the manner in which MISO proposes to implement this service could result in potential competitive issues. FERC explained that once an existing facility decides to offer Net Zero service, it must provide such service in a just and reasonable and not unduly discriminatory or preferential manner. FERC concluded that MISO’s current proposal does not meet this standard and ordered MISO to make a compliance filing within 180 days of the date of the order to revise its tariff to ensure that Net Zero service is offered on a fair, transparent, and non-discriminatory basis.