FERC on Nov. 24 accepted a tariff revision from the California ISO to close a loophole in the generator interconnection process that has allowed generators to reduce their financial burden for canceling projects in the interconnection queue.
The order addresses the practice of downsizing a generation project before it is withdrawn from the interconnection queue solely to reduce the generation owner’s non-refundable interconnection financial security. In its Sept. 30 filing, the California ISO said that the downsizing process that was added in 2014 is being used in a manner not intended by the grid operator.
Because generators could avoid paying for transmission upgrade work by gaming the downsizing process, Pacific Gas & Electric asked FERC to hold any downsizing generation customer financially accountable for their actions that affect transmission owners.
The California ISO tariff change to allow power plant owners to downsize their projects in an annual process was added in 2014 to address generator requests that they be allowed to “right-size” their projects to match the amount of generation capacity financed or awarded a power purchase agreement, FERC related in the order (Docket No. ER15-2752). Generation owners post a financial security based on the size of their projects, which is refunded if they drop out of the interconnection queue.
The California ISO asserted that in the most recent downsizing process, a number of interconnection customers appeared to have already decided to drop out of the queue, but used the downsizing process to game the system, FERC said. The California ISO explained that if a 50 MW project posted a financial security of $1 million, it would be reimbursed $500,000 at the time of withdrawal from the queue at its full size, but at a size of 0.1 MW, it would be reimbursed $999,000.
California ISO told FERC that many project owners are “taking advantage of this loophole to reduce the amount of their non-refundable financial security,” noting that the vast majority of the interconnection customers downsizing their facilities did so by more than 99 percent.
It proposed to change the process so that if a generator withdraws from the interconnection queue during or after downsizing, the calculation of the refundable portion of its financial security would be based upon the project capacity prior to the downsizing request. Thus, any project owner that has decided to cancel their project will not benefit by lingering in the interconnection queue and waiting for the annual downsizing opportunity, the California ISO said.
While PG&E supported the proposal, the utility subsidiary of PG&E Corp. asked FERC to require any downsizing generator to cover any costs incurred by the utility for any transmission network upgrades that were needed before the generator reduced the size of a project. PG&E said it incurred engineering and pre-construction costs associated with transmission facilities deemed to be needed near Fresno, Calif., for generation projects that were subsequently dropped.
PG&E asked FERC to require the generators that downsized the projects to cover – from their financial securities – all costs associated with the cancelled transmission facilities.
FERC said that the tariff change appears to be just and reasonable and accepted it.
The order also found good cause to waive FERC’s 60-day notice period and approved an effective date of Oct. 14 because the generator downsizing process began on Oct. 15.
“We reject PG&E’s requested relief as it is beyond the scope of this proceeding,” FERC said, noting that the California ISO tariff gives transmission owners the ability to retain from any interconnection customer’s posted financial security all costs and expenses to cover any preconstruction activities for network upgrades on behalf of that customer.
PG&E has not demonstrated that the costs it incurred for the cancelled projects exceed the amount of posted financial security it holds for those customers, FERC added. The commission will assess the reasonableness of PG&E’s transmission revenue requirement and the costs the utility incurred when PG&E submits any revenue requirement to FERC, according to the order.