What took them so long?

The D.C. Circuit Court of Appeals on Tuesday upheld FERC’s May 2020 rejection of Public Service Company of Colorado’s proposal to change its large generator interconnection procedures, agreeing that the changes could have given the utility an unfair advantage over competing generators (20-1295).

PSCo, an Xcel Energy (NASDAQ:XEL) company, had proposed a fast-track process for generators looking to replace an existing power plant with a new one on the same site, saying it would avoid wasteful grid-impact studies and would allow new generators to interconnect more quickly.

But while FERC had previously granted a virtually identical request by MISO, it said such procedures had different implications for vertically integrated monopolies such as PSCo. Because 60% of PSCo’s existing designated network resources are generators owned by itself or an affiliate, “we find that the proposed generator replacement process could give PSCo an undue preference,” FERC said (ER20-1153). (See FERC Rejects PSCo’s Interconnection Process.)

The D.C. Circuit’s July 19 ruling upholding the commission came more than a year after FERC approved PSCo’s modified fast-track plan.

Order 2003

Under FERC Order 2003, grid operators generally consider interconnection requests on a first-come, first-served basis. The commission said vertically integrated operators cannot deviate from the standard interconnection process unless they show that their proposed changes are “consistent with or superior to” the commission’s standard large generator interconnection procedures (LGIP).

Because they do not own generation, independent grid operators such as MISO can win FERC approval for more flexible rules under the “independent entity variation” standard.

In March 2019, FERC accepted MISO’s proposed generator replacement procedure, saying it “will avoid duplicative study costs and operational costs that otherwise would occur when the request to replace an existing generating facility must proceed through the interconnection study queue process” (ER19-1065).

In rejecting PSCo’s proposal, FERC noted that when an existing generator retires, its transmission capacity can be made available for a new generator. But under PSCo’s plan, the retiree’s transmission capacity would instead likely be locked up by incumbent generators, such as the company itself.

Unlike PSCo, MISO does not “have an incentive to obstruct independent generation from accessing the grid,” the commission said.

The D.C. Circuit said FERC had provided an adequate explanation of its rejection.

“There was nothing arbitrary or capricious about its decision to bar a vertically integrated grid operator from adopting a rule that could favor its own generators and so cement its dominant market position,” it said. “The commission’s holding is consonant with decades of agency policy reflected in orders upheld by the Supreme Court and our court.”

Decision Moot

The court noted that the impact of its ruling was moot, however.

Shortly after rejecting PSCo’s proposal, FERC in November 2020 accepted Dominion Energy’s (NYSE:D) plan for a streamlined replacement generator program administered by a neutral third party, which the commission said would protect “against discriminatory implementation” of the new process (ER20-1668-003).

“In 2021, while this case was pending here, [PSCo] filed a request with the commission to adopt a streamlined replacement generator program administered by an independent entity,” the court noted. “The agency approved that proposal for the same reasons it gave in Dominion Energy” (ER21-1287).