FERC on Friday partially approved Public Service Company of Colorado’s (PSCo) proposal to amend its generator interconnection process with changes intended to prevent unready projects from clogging the queue (ER23-629).

The Xcel Energy (NASDAQ:XEL) subsidiary in 2019 received commission approval to transition its interconnection process to a cluster study approach, but projects not ready to move forward have continued to slow the process for those that are ready. The unready projects end up withdrawing, leading to problems such as unreliable study results, cascading restudies and delays.

The most recent study cluster has been delayed for two years, PSCo noted, preventing the utility from meeting customers’ requested in-service dates and hindering future projects from estimating their interconnection costs.

Under PSCo’s existing rules, projects can qualify for the queue if they have offtake agreements, are part of a resource plan or have an in-service date. Developers can also enter a project into the queue if they submit additional security in lieu of making a “readiness demonstration.”

In its initial filing, PSCo sought to remove the option for projects to submit additional security, contending that developers picking that option have often wanted to use a large generator interconnection agreement to market their projects but wound up subverting the goal of a speedier processing of interconnection requests, even causing more advanced projects to withdraw from the queue process altogether.

The initial proposal would have replaced the security option with a “generation deployment plan” that would require a developer to have a plan to secure permits, build the facility and finance it. The generation deployment option would also include a $7.5 million deposit, along with withdrawal penalties that vary by project size and rise the later in the queue a project pulls out.

The Solar Energy Industries Association, Avangrid and HQC Solar argued the changes were too stringent and would prevent independent power producers from entering the utility’s queue. But they did win support from NextEra Energy, which said that while the outcome would be more restrictive than FERC’s pro forma rules, the changes make sense in Colorado, where generators generally transact with load-serving entities that can trigger clusters of resources in the queue.

PSCo came back with a later filing that added an option for developers using the generation deployment option to pay a $7.5 million security payment and face the heightened withdrawal penalties, without requiring them to meet the other requirements, effectively restoring the security option — which SEIA said was better than the first proposal.

The proposal led to a deficiency notice from FERC, with staff asking how PSCo would evaluate what constitutes a reasonable permitting plan under the generation deployment plan. The utility said it would accept permitting plans that demonstrate an understanding of the land use and environmental permitting process in Colorado.

Staff also asked how the utility arrived at the $7.5 million security amount and associated withdrawal penalties. PSCo said the old withdrawal penalties were capped at $2.5 million, which was not enough, and that $7.5 million is still lower than average interconnection costs.

Security Option Remains

FERC rejected PSCo’s initial proposal, but it accepted the alternative in which projects can put up $7.5 million in lieu of being ready to deploy.

“We find that PSCo’s proposal to require interconnection customers to either meet the requirements under the proposed generation deployment option or one of PSCo’s three existing, unchanged, commercial readiness demonstration options alone is likely too stringent for independent power producers to meet,” FERC said. “Based on the record in this proceeding, many independent power producers currently use the security in lieu of a commercial readiness demonstration option in PSCo because it is difficult for them to meet the requirements for the other existing commercial readiness demonstration options.”

FERC also agreed with protesters that the milestones in the generation deployment option might be misaligned with typical development cycles and business practices for IPPs.

But allowing projects to post $7.5 million and raising withdrawal penalties will help speed up the queue because PSCo has shown that speculative projects are slowing the process down, FERC said. The higher security requirement will cut the number of speculative projects and thus the associated withdrawals and restudies.

In the two clusters run in 2020, projects representing 66% of the requested interconnection capacity withdrew from the queue, as did 30% the next year, which shows that the current security and withdrawal penalties are not enough to deter unviable projects from getting in line.

Other Penalties

PSCo had also asked to increase to $5 million the security and penalty for projects that sign an interconnection agreement but do not enter service (except for those posting the higher $7.5 million security). It had penalized such projects under a formula of nine times study costs, which topped out below $1 million.

FERC approved the $5 million figure, saying it will increase the likelihood that projects with an interconnection actually get built. The amount is justified because projects that pull out are especially problematic because they cause more restudies than earlier withdrawals, the commission found.

None of the new fines or security requirements will go into effect until 120 days after the rules become effective, which FERC said gives projects that entered the queue under the old rules enough time to pull out in light of the new risks. PSCo initially filed for a 30-day transition, but then offered the 120 days in a subsequent filing to avoid favoring its own generation when it holds upcoming resource solicitation that projects presently in the queue can participate in, FERC said.

Commissioner Allison Clements concurred with the order, saying further changes might be needed to make PSCo’s interconnection process fairer when it comes to how penalties are distributed. Withdrawal penalties are currently used to fund generation interconnection studies, but the tariff does not address how such funds should be distributed when they exceed relevant study costs — a risk that is now higher, she said.

“I encourage PSCo to assess whether further changes to its [large generator interconnection procedures] may be necessary in light of the commission’s approval of increased withdrawal penalties,” Clements said. “If PSCo’s proposal renders its existing mechanism for distribution of withdrawal penalties unjust and unreasonable and further changes are not forthcoming, then action pursuant to Section 206 of the Federal Power Act may be appropriate.”