United States: FERC Rulemaking State Of Play

Federal Energy Regulatory Commission (FERC)-watchers have their eyes squarely on  recent reports that Senator Joe Manchin, Chair of the Senate Energy and Natural Resources Committee, won't schedule a hearing on Chairman Richard Glick's re-appointment this year, meaning that Glick will leave FERC when his term expires in January 2023. Glick has led FERC in pressing reforms to modernize the country's transmission system and help bring more renewable and energy storage resources online. If he leaves, four commissioners will remain—two Republicans and two Democrats—and three votes will be needed to make decisions. President Biden will nominate one of the two Democrats, Willie Phillips or Allison Clements, to serve as Chair.

Even while Glick's position on the Commission is in limbo, the wheels of regulatory progress may continue (slowly) to turn. Three ongoing initiatives in particular—the Transmission Notice of Proposed Rule Making (NOPR), the Interconnection Reform NOPR, and regional transmission operator (RTO) and independent system operator (ISO) compliance efforts for Order 2222—could significantly impact projects in New York and New England. But they could slow or even falter under a split Commission.

Transmission Notice of Proposed Rulemaking

In April 2022, FERC issued the Transmission NOPR, which if adopted would, among other things, attempt to address the thorny issue of cost allocation for regional transmission projects. In particular, the rule would require transmission providers to allocate costs for certain regional transmission projects through (1) a predetermined regional cost allocation method, (2) a "state agreement" process by which states may voluntarily agree to a cost allocation method, or (3) a combination of the two. While cost allocation is mainly an issue for state governments and ISOs, it impacts project timelines and thus is an important consideration for developers, too.

Speakers at last month's  New England Electricity Restructuring Roundtable, hosted by Foley Hoag, addressed this issue of transmission development bottlenecks, cost allocation being one of them. The speakers—FERC Chairman Richard Glick, MA Department of Public Utilities Chairman Matthew Nelson, NY State Energy Research and Development Authority President Doreen Harris, NJ Board of Public Utilities General Counsel Abraham Silverman, Midcontinent Independent System Operator (MISO) Vice President of System Planning Aubrey Johnson, and ISO New England (ISO-NE) Vice President of System Planning Robert Ethier—agreed that current approaches to transmission planning were falling short of helping states meet their renewable energy goals. Chairman Glick and Chairman Nelson identified a need for more long-term planning, including projecting what the generation mix will look like 20 years from now and planning transmission projects based on those projections.

Developing transmission projects is  critical to decarbonizing the grid while maintaining reliability, so these projects are top of mind for regulators and leaders across the energy sector. More transmission capacity is needed in New York to bring renewable energy generated upstate to downstate load centers to help retire fossil fired units in New York City and facilitate the State's Climate Leadership and Community Protection Act. More transmission capacity is also needed in New England to bring the energy generated by offshore wind facilities under development from their interconnection points near the coast to the mainland. Massachusetts DPU Chairman Nelson noted at the Roundtable that transmission is the cornerstone to achieving Massachusetts's goals.

Rulemaking Status: Dozens of parties submitted initial comments and reply comments on the NOPR, which were due in August and September, respectively. FERC's final rule on transmission planning, if issued, could represent a new chapter for regional transmission cost allocation and long-term transmission planning. It remains to be seen, however, whether Chairman Glick's departure could affect whether or how the rulemaking progresses.

Interconnection NOPR

FERC has also set its sights on reforming the interconnection process. In June 2022, it issued the Interconnection NOPR, which, among other things, proposed to establish a "first-ready, first-served" cluster study process for interconnection requests. Under this process, transmission providers would conduct broader interconnection studies for multiple generation projects, rather than separate studies for each facility, and shovel-ready projects would move to the front of the queue. The proposed changes are meant to address the interconnection backlog and discourage speculative projects. They are also meant to prevent cascading re-studies, in which system operators must continuously amend feasibility and reliability studies for projects in the queue as preceding projects drop out.

Fixing these problems would be a significant improvement for developers with viable projects. As the Roundtable panelists noted, interconnection backlogs can get developers stuck in a "death spiral of restudies" as non-viable projects with queue positions drop out. According to Chairman Glick, nationwide, projects spend approximately 3.7 years in the interconnection queue. And there is little to nothing developers can do about the wait. At the New York Independent System Operator, Inc. (NYISO), a developer can expect to be in the interconnection process for 2–3 years from initial interconnection request to the end of the Class Year process (i.e., a study of cumulative impacts on the system from a group of projects). At ISO-NE, projects face a similar timeframe from initial request to the expected date of commercial operation. These needlessly long queue times may stifle project development in both New York and New England by raising costs and injecting uncertainty into project timelines.

Rulemaking Status: Initial comments submitted in October largely support the proposed reforms, though many also cautioned against a one-size-fits-all approach for all RTOs and ISOs. The reply comment deadline was extended to December 14, 2022, due to the volume of comments FERC received. The final rule should issue in the first half of 2023—again, subject to the uncertainty surrounding Chairman Glick's likely departure from the Commission.

Order 2222 Compliance

Although FERC issued Order 2222 two years ago, it remains a central (and contentious) topic at the Commission. Order 2222 was intended to help reduce barriers to allowing distributed energy resources (DER)—think rooftop solar, etc.—to participate in the wholesale markets. The Order required ISOs and RTOs to submit plans to allow DERs access to those markets. However, ISOs and RTOs are stuck in a seemingly never-ending cycle of compliance filings and requests for additional information as they attempt to meet FERC's requirements, which many (including Commissioner Danly) argue are unclear and arduous.

Since NYISO made its initial compliance filing in July 2021, FERC has asked for additional information twice, and NYISO has complied. Yet FERC remains unsatisfied with NYISO's market design. NYISO sought, and was subsequently denied, rehearing on FERC's June 2022 order directing NYISO to file more information regarding a market design where heterogeneous Aggregations could provide all of the ancillary services that they are technically capable of providing. This led NYISO to  sue FERC in DC Circuit Court. While FERC clarified in an October 2022 order that NYISO may begin implementing its market design as proposed in Q4 2022, it remains unclear when the revised ancillary services market design will be implemented.

The NYISO's troubles aren't limited only to the FERC process. Stakeholders have criticized NYISO's market design for expensive metering and telemetry requirements and for excluding energy efficiency resources from the definition of DER. Notably, FERC affirmed the exclusion of energy efficiency resources in October.

ISO-NE is facing similar headwinds in its efforts to comply with Order 2222. ISO-NE made its initial tariff filing in February 2022. In May 2022, FERC responded with a 25-page request for additional information on topics ranging from interconnection procedures to the proposed effective date. In June 2022, ISO-NE filed its response to the information request. ISO-NE is planning to allow DERs to participate in its forward capacity auction, FCA 18, in spring 2023, but is not anticipating completing design changes until 2026 for its energy and capacity markets. Like the NYISO proposal, ISO-NE's proposal has also drawn significant criticism, including from Senators Elizabeth Warren and Bernie Sanders. The critics take issue with ISO-NE's baseline methodology and its exclusion of some behind the meter DERs due to metering and telemetry issues.

It's anyone's guess when FERC will approve either the NYISO or ISO-NE market designs. But what's clear is that the longer the proceedings drag out, the more uncertainty is injected into the markets. That uncertainty could stifle development of DERs—the opposite of Order 2222's intended effect. Such uncertainty could be exacerbated by the likely litigation that will come from FERC's orders. Commissioner Danly in particular has cautioned that FERC is micromanaging RTOs and ISOs and could be overstepping its jurisdictional bounds.

Conclusion: The Chairman Glick Dynamic

Not only has Chairman Glick been instrumental in pressing for the reforms discussed here, but he has been the third vote for a majority inclined to move such improvements ahead.

Some believe that Senator Manchin's decision not to hold a hearing for Chairman Glick is a response to President Biden's comments less than two weeks ago about shutting down coal plants, which Manchin opposes. Manchin has also expressed concerns about Glick's leadership on decisions relating to interstate natural gas pipelines, which FERC is responsible for permitting.

We will continue to monitor progress on these initiatives, both as they progress on the FERC dockets and as the politics plays out with respect to Chairman Glick's nomination. If these FERC proceedings lose momentum because of Glick's departure, renewable energy market participants should expect the status quo ante for years to come.