FERC adoption of PJM queue reforms start three-year overhaul of permitting process

FERC’s adoption of PJM’s queue reform proposal starts the clock on a painful but necessary transition period meant to work through a backlog of projects looking to interconnect and prevent a future pile up years from now.

The snowballing issue left the regional transmission operator without much of a choice, according to Jason Johns, partner at Stoel Rives and an advisor on energy markets and state and federal energy regulation.

“PJM had found itself between a rock and a hard place,” Johns told NPM in an interview in early December. “It’s interconnection queue study process had effectively stalled out for a number of projects and was not working, and they had to do something drastic to correct it. And that is what they have done.”

The reforms will transition the grid operator’s interconnection study process from a serial, first-come-first-serve model to a cluster study approach. Projects submitted in the AD2 cluster or before are grandfathered in and will go through an expedited version of the old process.

Projects proposed between April 2018 and September 2021 – AE1, AE2, AF1, AF2, AG1 – have until the “transition date” to secure an interconnection service agreement or a wholesale market participation agreement or will have 60 days to put down a USD 4,000 readiness deposit and evidence of site control for a year. Otherwise, their queue position will be terminated.

The transition date is the later of January 3 or the date which all the agreements for grandfathered projects, “have either been executed or filed unexecuted with FERC — so yet to be determined,” according to a report on FERC’s decision authored by Johns and his colleagues.

“They will announce the transition date when that occurs. And at that point, the projects that are on the other side of the line, on the transition side of the line, have a short period in order to kind of come up to the new procedures, or get out of the queue,” Johns said.

Projects that provide readiness deposits and evidence of site control during this window will enter a retool study. Projects that are determined to carry less than USD 5m in necessary grid upgrades will also enter an expedited, serial process. Projects filed before the end of September 2021 that carry in excess of USD 5m in related upgrades will enter Transition Cycle #1. Similar projects filed after October 2021 will enter Transition Cycle #2.

PJM expects to process all of these projects and start considering projects under the new cluster study approach by early 2026.

PJM filed its proposed revisions with FERC on June 14, but the changes are the result of a two-year stakeholder process that started in the fall of 2020. The long lead time has given developers time to get acquainted with PJM’s new normal.

“Given the broad consensus among stakeholders in support of PJM'S queue reform proposal, this was the expected outcome,” Open Road Renewables CEO Cyrus Tashakkori told NPM. “I think most stakeholders have internalized what queue reform means for them and are ready to get on with the transition to the new rules as reflected by PJM's proposal.”

Developers under commercial arrangements could find themselves in a situation where in-writing commercial operation dates become unreliable.

“Developers have a very firm timelines for getting these projects online, and if you get stuck in one of these transition clusters, and now your project is foreseeably delayed until 2026 until it might be operational, or even just through the study process, that can be a substantial impact to your project in terms of its commercial commitments,” Johns said.

The new rules that go into effect in 2026 will see projects studied across three phases and three “decision points.” One system impact study will take place within 120 days, and second and third studies will take place within 180 days. A study deposit ranging between USD 75,000 and USD 400,000, depending on project size, will be due at the time of the application along with a USD 4,000-per-megawatt Readiness Deposit No. 1. Of the study deposit, 10% is non-refundable and 90% is refundable only after “actual study costs” are paid. Each Decision Point offers an off-ramp to developers, as the costs of deposits rise with each step of the process.

In short, FERC’s decision is good news for developers frustrated at speculative queue positions gumming up the works. The new set-up is meant to give wallflowers a choice: put up or shut up. And the cost for loitering in the queue will grow with time.

“I think it's intended to be more expensive for developers, because they're trying to flush out the (nonviable) projects,” Johns said. “One of the indicia of that is whether someone is financially capable, so therefore, you have these amounts due that are increasingly large and somewhat nonrefundable. So, you are taking risks there.”

PJM has trailed behind other regions that have been instituting incremental reforms for decades, Johns said. But it has not wholly prevented similar bottlenecks as the number of clean energy projects looking to join the grid grows year-over-year.

“Unfortunately, this is something that we're experiencing around the country in various forms,” Johns said. “So even these ISOs that have instituted several rounds of queue reform over the last decade, they are still experiencing significant delays. And they have not quite put their finger on the solution.”

*This story was originally published exclusively for NPM subscribers last month.


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