Federal Energy Regulatory Commission (FERC)

When the legendary writer John McPhee described a blind, over-the-shoulder basketball shot of the equally legendary Bill Bradley, he fixed on Bradley’s explanation of how he managed to score apparently without looking at the basket. Bradley simply said, “you develop a sense of where you are.” That ‘sense’ allowed him to accomplish his purpose with no immediate idea about how his goal would be affected by events around him.

Industry participants, watchers, and regulators might enquire where we are in the complex but seemingly endless process of modernizing the U.S. electric system. Is the current focus on streamlining regulatory approval processes for infrastructure development generally— and the siting and permitting of electric transmission in particular—a sign that it’s time for the easy stuff since the Rubik’s Cubes of access, planning, cost allocation, and accommodating new technology are approaching resolution? Will this in turn be followed by a surge in electric transmission grid expansion and market integration? Ironically, during the decade of debate over siting and permitting—while policymakers make corridor determinations, run steering committees, and manufacture procedural shortcuts—U.S. transmission construction has declined precipitously. Does this give confidence that we know where we are, where the grid is headed, and how the industry will get there?

On December 19, 2024, FERC issued a Notice of Proposed Rulemaking (NOPR) to approve the addition of the newly defined term “Ride-through” to the North American Electric Reliability Corporation (NERC) Glossary of Terms and to approve the proposed Protection and Control (PRC) Reliability Standards PRC-024-4 (Frequency and Voltage Protection Settings for Synchronous Generators, Type 1 and 2 Wind Resources, and Synchronous Condensers) and PRC-029-1 (Frequency and Voltage Ride-through Requirements for Inverter-Based Resources (IBR)). According to FERC, these reliability standards are intended to address reliability gaps associated with IBRs tripping or entering momentary cessation in aggregate. The new rules will ensure that IBRs are able to “ride through” frequency and voltage excursions, such as faults on the transmission or sub-transmission system. In the NOPR, FERC seeks comments on the proposed rules and the need for informational filings that would help FERC analyze the impact of proposed exemptions in the rules for certain IBRs.

distribution electric substation with power lines and transformers

On October 17, 2024, the Federal Energy Regulatory Commission (FERC) issued Order No. 904, Compensation for Reactive Power Within the Standard Power Factor Range, 188 FERC ¶ 61,034 (2024) (Final Rule). With this Final Rule, FERC is eliminating all compensation for reactive power provided by generators within the standard power factor range of 0.95 leading to 0.95 lagging.

The Federal Energy Regulatory Commission (“FERC”) recently approved the North American Electric Reliability Corporation’s (“NERC”) request to expand registration and compliance requirements to inverter-based resources (“IBRs”) that meet or exceed 20 MVA and are interconnected at or above 60 kV.  This will impact certain wind, solar, battery, and fuel cell facilities that were previously too small to be required to register with NERC.

On June 13, 2024, the Federal Energy Regulatory Commission (FERC) issued an “Order to Show Cause”[1] (Order) under Section 206 of the Federal Power Act to four regional transmission organizations (RTOs) and independent system operators (ISOs). FERC is concerned that the RTOs/ISOs’ open access transmission tariffs (OATT) are unjust, unreasonable, and discriminatory because they allow transmission owners (TOs) to unilaterally elect “TO Initial Funding” (a funding mechanism that allows TOs to fund network upgrade capital costs upfront and then recover those costs from interconnection customers) which FERC believes may create barriers to interconnection and result in discrimination.

FERC is directing the Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) to either show cause as to why their OATTs are just and reasonable or explain what changes they would make to remedy the concerns. The Order acknowledges and discusses the background of the issue, including FERC’s Order No. 2003, which established an interconnection pricing policy that allows RTOs/ISOs to propose alternative pricing mechanisms.

However, FERC is concerned about the potential for discrimination when the transmission provider is not independent. The Order further discusses the different ways that network upgrade costs can be funded in the Midcontinent Independent System Operator (MISO) region, recent case history related to TO Initial Funding, and a number of proceedings related to the issue. The Order also raises concerns about potential discrimination by transmission owners in PJM, Southwest Power Pool (SPP), and ISO New England, as well as questions about whether transmission owners face any uncompensated risks associated with owning, operating, and maintaining network upgrades.

FERC requests the RTOs/ISOs to address these concerns and answer a number of questions related to increased costs and potential discrimination.  Under its Section 206 authority, FERC directs each of the four RTOs/ISOs, within 90 days of the date of the Order (i.e., Wednesday, September 11, 2024), either: (1) to show cause as to why its OATT remains just and reasonable and not unduly discriminatory or preferential and provide responses to the questions set forth in the Order; or (2) to explain what changes to its OATT it believes would remedy the identified concerns if the commission does determine the self funding to be unjust and unreasonable.

The impact of “TO self funding” on generation developers can be substantial. Here is a breakdown of the potential impacts on generation developers:

  • Increased Costs: When transmission owners can pass on the upfront capital costs of network upgrades to generation developers, it significantly increases the cost of connecting to the grid, impacting the financial viability of new generation projects.
  • Barrier to Entry: These additional costs serve as a barrier to entry, particularly for smaller developers or those with more innovative or less capital-intensive technology, impacting resource diversity and competitiveness of the market.
  • Project Delays: Disputes over cost allocations and the process of funding network upgrades lead to project delays, harming generation developers who rely on predictable timelines to plan and execute their projects and secure financing.
  • Financing Challenges: The uncertainty and potential for increased costs associated with network upgrades make it more difficult for generation developers to secure financing, as lenders and investors may see the projects as riskier investments.
  • Operational Risks: Questions raised by FERC about whether transmission owners face any uncompensated risks associated with owning, operating, and maintaining network upgrades might affect terms and conditions of interconnections, potentially passing more risks onto generation developers.
  • Discrimination Concerns: The potential for discriminatory practices by transmission owners could undermine the fair and competitive access to the grid for new generation developers, potentially favoring incumbent players or certain types of generation.

The FERC directive for RTO/ISOs to either justify the fairness of these practices or propose changes is therefore very significant for generation developers, who stand to benefit if the costs and risks associated with network upgrades are distributed more equitably and transparently.

For more information about the Order’s potential impact on your specific situation or to explore the next steps in light of the Order, please contact Michael Blackwell or a member of Husch Blackwell’s Energy Regulation team.

[1] Midcontinent Indep. Sys. Operator, Inc., et al., 187 FERC ¶ 61,170 (2024) (FERC Docket Nos. EL24-80-000, EL24-81-000, EL24-82-000, EL24-83-000).

At its May 13, 2024 open meeting the Federal Energy Regulatory Commission (FERC) unanimously approved Order No. 1977,[1] which updates the process FERC uses when exercising its transmission siting authority under Section 216 of the Federal Power Act, as amended by the Infrastructure Investment and Jobs Act of 2021 (IIJA). 

At its May 13, 2024 open meeting, the Federal Energy Regulatory Commission (FERC) approved a groundbreaking final rule—Order No. 1920[1] —requiring public utilities to undertake new long-term regional transmission planning over a 20-year horizon and allocate the cost of selected transmission projects in a manner that corresponds to the benefits they provide. 

NERC recently filed rule changes with FERC that propose to significantly expand NERC registration and compliance requirements to inverter based resources, such as renewable energy and battery facilities, that historically were too small to be subject to such requirements.  NERC’s proposed rule changes are one of the latest developments in NERC’s multi-year effort to address the “reliability gap” associated with these types of resources.