current proposal would not necessarily accurately estimate the costs of
required network upgrades.\1364\ PJM contends that the Commission
should allow transmission providers to adopt security amounts and
structures that are rationally related to relevant costs.\1365\ Cypress
Creek asks the Commission to provide a non-arbitrary basis for its
proposed security deposit of nine times the study deposit.\1366\ Shell
argues that the LGIA deposit appears to be a security deposit and adds
that MISO and SPP use a separate security deposit obligation that the
Commission should consider.\1367\
---------------------------------------------------------------------------

    \1363\ Id.; Clean Energy Associations Initial Comments at 30;
ENGIE Initial Comments at 4; [Oslash]rsted Initial Comments at 9;
PJM Initial Comments at 24; Shell Reply Comments at 22.
    \1364\ [Oslash]rsted Initial Comments at 9.
    \1365\ PJM Initial Comments at 24.
    \1366\ Cypress Creek Initial Comments at 53.
    \1367\ Shell Initial Comments at 19.
---------------------------------------------------------------------------

    712. Several commenters argue that study deposits should be
refunded in certain circumstances.\1368\ Invenergy argues that any
deposit due at LGIA execution should be subject to a $2 million cap and
that deposit should be released dollar for dollar as the
interconnection customer posts security or makes required payments
under the LGIA.\1369\ Invenergy asks that the

Commission also clarify that, in the event a proposed generating
facility does not achieve commercial operation, any deposit forfeited
under this proposal offsets, and is not in addition to, any withdrawal
penalties that may be imposed. Invenergy adds that it is unreasonable
to require that additional deposits be provided when an interconnection
customer asks that the LGIA be filed unexecuted, and if the Commission
does nonetheless require interconnection customers to post the deposit
as a condition of having the LGIA filed unexecuted, the deposit should
be refundable if the interconnection customer elects to withdraw within
30 days of the date of the Commission's order in the applicable docket.
[Oslash]rsted and Shell assert that, for interconnection customers
withdrawing after executing the LGIA, all deposits should be refunded
in the event that the interconnection customer withdraws as a result of
circumstances outside of its control and the withdrawal does not harm
any other entity.\1370\ AES argues that all study deposits should be
refunded at the time of LGIA execution, and opposes any additional
deposits not tied to network upgrade costs.\1371\
---------------------------------------------------------------------------

    \1368\ AES Initial Comments at 14; Invenergy Initial Comments at
7; [Oslash]rsted Initial Comments at 10; Shell Reply Comments at 23.
    \1369\ Invenergy Initial Comments at 7-8.
    \1370\ [Oslash]rsted Initial Comments at 10; Shell Reply
Comments at 23.
    \1371\ AES Initial Comments at 14.
---------------------------------------------------------------------------

    713. Southern, on the other hand, argues that making deposits
refundable may not be stringent enough and therefore may not accomplish
the goals set forth in the NOPR.\1372\ NRECA also believes that the
Commission should consider whether to make these study deposits non-
refundable in the case of withdrawal, as a further disincentive for
speculative interconnection requests to enter the interconnection
queue.\1373\
---------------------------------------------------------------------------

    \1372\ Southern Initial Comments at 8-9.
    \1373\ NRECA Initial Comments at 26.
---------------------------------------------------------------------------

iii. Commission Determination
    714. We adopt, with modification, the NOPR proposal to revise new
section 11.3 of the pro forma LGIP to require interconnection customers
to submit a deposit when executing the LGIA, or requesting the filing
of an unexecuted LGIA,and add the new term ``LGIA deposit'' to section
1 of the pro forma LGIP.\1374\ Specifically, we modify the NOPR
proposal to require interconnection customers to provide a deposit that
will increase the total commercial readiness deposit paid to be equal
to 20% of the estimated network upgrade costs identified in the LGIA,
rather than providing a deposit equal to nine times the amount of the
interconnection customer's study deposit, as proposed in the
NOPR.\1375\ Additionally, revised section 11.3 of the pro forma LGIP
requires that interconnection customers submit the LGIA deposit when
returning the executed LGIA to the transmission provider, or within 10
business days of the interconnection customer requesting that the LGIA
be filed unexecuted at the Commission.
---------------------------------------------------------------------------

    \1374\ LGIA deposit shall ``mean the deposit Interconnection
Customer submits when returning the executed LGIA, or within 10
Business Days of the LGIA being filed unexecuted at the Commission,
in accordance with Section 11.3 of this LGIP.''
    \1375\ At LGIA execution or at the time the request is made to
file the unexecuted LGIA, the interconnection customer must deposit
the difference between its total commercial readiness deposits
submitted at that point and 20% of its estimated network upgrade
cost responsibility.
---------------------------------------------------------------------------

    715. In the NOPR, the Commission sought comment on whether to adopt
additional provisions or a different framework for deposits, including
the LGIA deposit.\1376\ In response, commenters provided suggestions,
including suggestions to base deposits on network upgrade costs.\1377\
We agree that tying the LGIA deposit to the network upgrade cost
estimate sends a more accurate cost signal to the interconnection
customer and better aligns the LGIA deposit to its function of ensuring
that network upgrades are paid for and constructed than the NOPR
proposal. We also agree with commenters that a deposit based on the
study deposit amount may make sense in the early stage of the cluster
study process when assigned network upgrade costs are not yet
estimated, but later in the process, when network upgrade cost
estimates are available, the use of percentages of network upgrade cost
estimates more closely indicates interconnection request
viability.\1378\ This approach also addresses comments that the LGIA
deposit, as proposed, may have been arbitrary, excessive, and
unreasonable.\1379\
---------------------------------------------------------------------------

    \1376\ NOPR, 179 FERC ] 61,194 at P 110.
    \1377\ See, e.g., Longroad Reply Comments at 13; PJM Initial
Comments at 24.
    \1378\ ACE-NY Initial Comments at 5; AES Initial Comments at 14;
Invenergy Initial Comments at 6.
    \1379\ AES Initial Comments at 14; Clean Energy Associations
Initial Comments at 30; ENGIE Initial Comments at 4; [Oslash]rsted
Initial Comments at 9; PJM Initial Comments at 24; Shell Reply
Comments at 22.
---------------------------------------------------------------------------

    716. The NOPR proposed that this deposit would be fully refunded
once the generating facility achieves commercial operation, but we are
modifying the NOPR proposal to remove that statement from pro forma
LGIP section 11.3, and as explained further below, this deposit will be
used as part of the security the interconnection customer must provide
for the construction of network upgrades and transmission provider's
interconnection facilities. However, this LGIA deposit could be
refunded, subject to the withdrawal penalty, if the interconnection
customer withdraws after executing the LGIA or after requesting the
filing of an unexecuted LGIA.
    717. We also revise the pro forma LGIP and pro forma LGIA, as
suggested by Invenergy,\1380\ to treat the LGIA deposit as part of the
security the interconnection customer must provide for the construction
of network upgrades and transmission provider's interconnection
facilities. Article 11.5 (Provision of Security) of the pro forma LGIA
requires that, 30 calendar days prior to the commencement of
construction under its LGIA, the interconnection customer must provide
security for a discrete portion of network upgrades and transmission
provider's interconnection facilities, as specified in its LGIA. We
revise section 11.3 of the pro forma LGIP and article 11.5 of the pro
forma LGIA to require the transmission provider to use the LGIA
deposit, in its entirety, before requiring the interconnection customer
to submit additional security for construction of network upgrades and
transmission provider's interconnection facilities. By allowing the
transmission provider to draw down this LGIA deposit as construction
proceeds, the construction of network upgrades and transmission
provider's interconnection facilities can commence quickly thereby
streamlining the interconnection process. With this revision, requiring
the LGIA deposit to be returned at commercial operation is now
unnecessary as there will be no deposit remaining to return; therefore,
we decline to adopt the NOPR proposal to do so.\1381\
---------------------------------------------------------------------------

    \1380\ Invenergy Initial Comments at 7.
    \1381\ NOPR, 179 FERC ] 61,194 at P 108.
---------------------------------------------------------------------------

    718. We also revise article 11.5 of the pro forma LGIA to require
transmission providers to draft Appendix B (Milestones) of the
interconnection customer's LGIA to clearly explain and estimate at
which point of construction the interconnection customer's LGIA deposit
will be depleted, and the interconnection customer must provide
additional financial security. In the event the interconnection
customer requests suspension of the LGIA under article 5.16 of its LGIA
prior to the commencement of construction, the transmission provider is
prohibited from using the LGIA deposit to commence construction until
the

interconnection customer requests to exit suspension and resume
construction, unless there is a need for the transmission provider to
use a portion of the LGIA deposit to ensure its system is left in a
reliable condition during the period of suspension.
    719. We do not adopt the suggestion of [Oslash]rsted and Shell
that, for interconnection customers withdrawing their interconnection
requests after executing an LGIA, all deposits should be refunded if
withdrawal is the result of circumstances outside the interconnection
customer's control and the withdrawal does not harm other
entities.\1382\ We believe that the exceptions to the application of
withdrawal penalties discussed in the section III.A.6.e below
appropriately balance the need to deter withdrawals with the reality
that withdrawal is not always due to circumstances within
interconnection customers' control.
---------------------------------------------------------------------------

    \1382\ See [Oslash]rsted Initial Comments at 10; Shell Reply
Comments at 23.
---------------------------------------------------------------------------

    720. In response to Southern's comments that making both study and
LGIA deposits refundable may not be stringent enough and therefore may
not disincentivize speculative interconnection requests,\1383\ we
reiterate that, as adopted, the deposits serve different functions. In
this instance, the LGIA deposit serves as a credit towards the security
the interconnection customer must provide for network upgrades and
transmission provider's interconnection facilities. To the extent the
LGIA deposit pays for the construction of network upgrades, such a
deposit would be refunded through transmission credits in regions that
follow the pro forma LGIA provisions on crediting.
---------------------------------------------------------------------------

    \1383\ Southern Initial Comments at 8-9.
---------------------------------------------------------------------------

e. Withdrawal Penalties
i. NOPR Proposal
    721. The Commission preliminarily found that withdrawal penalties
are needed to account for the harms that can occur when interconnection
customers withdraw from the interconnection queue.\1384\ The Commission
proposed to revise the pro forma LGIP to require transmission providers
to assess withdrawal penalties to interconnection customers in certain
circumstances. Specifically, the Commission proposed to revise the pro
forma LGIP to require transmission providers to assess withdrawal
penalties to interconnection customers that choose to withdraw at any
point in the interconnection process or do not otherwise reach
commercial operation, unless: (1) the withdrawal does not delay the
timing of other proposed generating facilities in the same cluster; (2)
the withdrawal does not increase the cost of network upgrades for other
proposed generating facilities in the same cluster; (3) the
interconnection customer withdraws after receiving the most recent
cluster study report and the costs assigned to the interconnection
customer have increased 25% compared to the previous cluster study
report; or (4) the interconnection customer withdraws after receiving
the individual facilities study report and the costs assigned to the
interconnection customer have increased by more than 100% compared to
costs identified in the cluster study report.\1385\ Thus, the
Commission proposed that interconnection customers would be exempt from
a withdrawal penalty if the withdrawal does not harm other
interconnection customers or if the withdrawal follows a significant
unanticipated increase in network upgrade cost estimates.
---------------------------------------------------------------------------

    \1384\ NOPR, 179 FERC ] 61,194 at P 140.
    \1385\ Id. P 141.
---------------------------------------------------------------------------

    722. The Commission proposed that the withdrawal penalty would
increase as the interconnection customer moves through the study
process and would also increase if an interconnection customer provides
a commercial readiness deposit in lieu of a demonstration of commercial
readiness.\1386\ For an interconnection customer that provides a
commercial readiness deposit in lieu of a demonstration of commercial
readiness, the Commission proposed that its withdrawal penalty would be
higher and increase as the interconnection customer progresses in the
interconnection process.
---------------------------------------------------------------------------

    \1386\ Id. P 142 (citing May Joint Task Force Tr. 75:23-76:1
(Kimberly Duffley) (``I think one of the best practices of the new
system that [Duke Energy Progress and Duke Energy Carolinas] have
implemented is the increase of withdrawal penalties as the
interconnection moves through the process.'')).
---------------------------------------------------------------------------

    723. The Commission proposed that the withdrawal penalty for an
interconnection customer that provides a commercial readiness deposit
in lieu of a demonstration of commercial readiness will be the greater
of the study deposit or: (1) two times the study cost if the customer
withdraws during the cluster study or after receipt of a cluster study
report, capped at $1 million; (2) three times the study cost if the
customer withdraws during the cluster restudy or after receipt of any
applicable restudy reports, capped at $1.5 million; (3) five times the
study cost if the customer withdraws during the facilities study, after
receipt of the individual facilities study report, or after receipt of
the draft LGIA, capped at $2 million; or (4) nine times the study costs
if the customer withdraws before achieving commercial operation and
after executing the LGIA or filing an unexecuted LGIA.\1387\ The
Commission also proposed that the withdrawal penalty revenues be used
to fund studies conducted under the cluster study process.
---------------------------------------------------------------------------

    \1387\ Id. P 143.
---------------------------------------------------------------------------

    724. The table below summarizes the proposed withdrawal penalty
structure for both interconnection requests that have demonstrated
commercial readiness and those that have not (by instead submitting a
deposit in lieu of demonstrating commercial readiness).\1388\
---------------------------------------------------------------------------

    \1388\ Id. P 144.

----------------------------------------------------------------------------------------------------------------
                                                                    Total withdrawal
         Phase of withdrawal             Commercial readiness     penalty (if greater     Withdrawal penalty cap
                                       demonstration provided?    than study deposit)
----------------------------------------------------------------------------------------------------------------
1....................................  Yes....................  1 times study costs....  No Cap.
2....................................  Yes....................  1 times study costs....  No Cap.
3....................................  Yes....................  1 times study costs....  No Cap.
LGIA.................................  Yes....................  9 times study costs....  No Cap.
1....................................  No.....................  2 times study costs....  $1 million.
2....................................  No.....................  3 times study costs....  $1.5 million.
3....................................  No.....................  5 times study costs....  $2 million.
LGIA.................................  No.....................  9 times study costs....  No Cap.
----------------------------------------------------------------------------------------------------------------

    725. The Commission also proposed to add the defined term
``withdrawal penalty'' to the pro forma LGIP.\1389\ The Commission
sought comment on: (1) how to define the circumstances in which a
withdrawal is deemed to have delayed the timing or increased the cost
of network upgrades for other proposed generating facilities in the
same cluster, including what criteria should be used to determine
whether the withdrawal caused the delay or increased cost, and whether
to establish a threshold for when a delay or increase in cost will
trigger a withdrawal penalty (and if so, what that threshold should
be); (2) whether the Commission should consider exceptions to the
proposed withdrawal penalties beyond those proposed in the NOPR; (3)
whether withdrawal penalties that increase with proposed generating
facility size (as measured by MW) would more effectively deter
withdrawals that cause the greatest harm; and (4) whether a correlation
exists between the size of a withdrawing proposed generating facility
and the relative level of harm (in terms of delays and increased cost)
to other interconnection customers as a result of the withdrawal.\1390\
---------------------------------------------------------------------------

    \1389\ Id. P 145.
    \1390\ Id. PP 145-148.
---------------------------------------------------------------------------

ii. Comments
(a) Comments in Support
    726. Multiple commenters generally support the Commission's
proposed withdrawal penalties and view the proposal as appropriate to
reduce the volume of speculative interconnection requests.\1391\
Environmental Defense Fund states that, if adopted with certain of the
other NOPR proposals, the Commission's proposed withdrawal penalties
are appropriate to address the delays and costs caused by speculative
interconnection requests.\1392\ Eversource states that properly
calibrated withdrawal penalties are essential to dissuade withdrawals
and reduce study process delays.\1393\
---------------------------------------------------------------------------

    \1391\ ACE-NY Initial Comments at 7; Ameren Initial Comments at
18; APPA-LPPC Initial Comments at 17-18; APS Initial Comments at 15;
CAISO Initial Comments at 21; Consumers Energy Initial Comments at
5; Dominion Initial Comments at 33; MISO Initial Comments at 66;
NARUC Initial Comments at 10; National Grid Initial Comments at 26;
NextEra Initial Comments at 6; NRECA Initial Comments at 9; NV
Energy Initial Comments at 6; NYTOs Initial Comments at 20-21; Omaha
Public Power Initial Comments at 9; PPL Initial Comments at 17;
SoCal Edison Initial Comments at 10; U.S. Chamber of Commerce
Initial Comments at 9; UMPA Initial Comments at 3-5; Vistra Initial
Comments at 6-7.
    \1392\ Environmental Defense Fund Initial Comments at 4.
    \1393\ Eversource Initial Comments at 18.
---------------------------------------------------------------------------

    727. MISO supports the Commission's proposal to impose a withdrawal
penalty on withdrawing interconnection customers, a penalty that MISO
suggests should be secured by the commercial readiness deposit.\1394\
That said, MISO asserts that the study cost for interconnection
requests is not that substantial, and MISO does not believe that paying
a withdrawal penalty in the amount of only the study costs would be a
sufficient deterrent to prevent speculative interconnection requests
from entering or remaining in the interconnection queue.
---------------------------------------------------------------------------

    \1394\ MISO Initial Comments at 66-67.
---------------------------------------------------------------------------

(b) Comments in Opposition
    728. Many commenters oppose the withdrawal penalty proposal.\1395\
CREA and NewSun encourage instead better cost certainty for
interconnection customers earlier in the study process.\1396\ CREA and
NewSun suggest that the Commission incorrectly assumes that the
interconnection customer has adequate visibility into likely
interconnection costs, and thus the financial viability of its proposed
generating facility before entering the interconnection queue and
becoming liable for these penalties. CREA and NewSun state that the
NOPR provides no realistic path to know likely interconnection costs
prior to entering the interconnection queue.\1397\
---------------------------------------------------------------------------

    \1395\ CREA and NewSun Initial Comments at 74-77; ENGIE Initial
Comments at 6; Hydropower Commenters Initial Comments at 26;
Interwest Initial Comments at 21; Northwest and Intermountain
Initial Comments at 12; New York State Department Initial Comments
at 11; Pacific Northwest Organizations Initial Comments at 3-4;
rPlus Initial Comments at 5; R Street Initial Comments at 12; SEIA
Initial Comments at 25-27; SEIA Reply Comments at 10-11; Shell
Initial Comments at 25.
    \1396\ CREA and NewSun Initial Comments at 74, 77.
    \1397\ Id. at 76.
---------------------------------------------------------------------------

    729. ENGIE does not support the implementation of withdrawal
penalties and notes that withdrawal penalties without meaningful
opportunity for interconnection customers to exit the interconnection
process are unlikely to incentivize withdrawal.\1398\ New York State
Department is skeptical that a withdrawal penalty program will be
beneficial to ratepayers.\1399\
---------------------------------------------------------------------------

    \1398\ ENGIE Initial Comments at 6.
    \1399\ New York State Department Initial Comments at 11.
---------------------------------------------------------------------------

    730. Pacific Northwest Organizations claim that, without access to
interconnection cost information and with larger withdrawal penalties,
independent power producers may be discouraged from entering the
interconnection queue.\1400\ Some commenters claim that withdrawal
penalties (including in a transitional cluster study process) can
result in the potential for discrimination against independent power
producers.\1401\ These commenters assert that LSEs can recover
withdrawal penalties they incur from their retail ratepayers, whereas
independent power producers must absorb these costs and risks in their
solicitation process bids. Interwest also suggests that the proposed
withdrawal penalties are less likely to apply to LSEs than to
independent power producers because LSEs will likely be able to use the
proposed commercial readiness demonstration path, as opposed to paying
the deposits in lieu of demonstrating commercial readiness, and would
thus not be subject to the harsher withdrawal penalties.\1402\
Interwest urges the Commission to require waiver of, or a substantial
reduction in, withdrawal penalties from the transition cluster or
resource solicitation cluster if the interconnection customer
participated in an RFP or other competitive solicitation process but
was not ultimately selected, or if a permit becomes unavailable due to
some regulatory or regime change.\1403\
---------------------------------------------------------------------------

    \1400\ Pacific Northwest Organizations Initial Comments at 3-4.
    \1401\ Interwest Initial Comments at 21; Northwest and
Intermountain Initial Comments at 12.
    \1402\ Interwest Reply Comments at 13-14.
    \1403\ Interwest Initial Comments at 21.
---------------------------------------------------------------------------

    731. R Street claims that the proposal risks imposing severe anti-
competitive barriers to entry.\1404\ New York State Department makes
similar anti-competitive impact arguments.\1405\ R Street asserts that
imposing financial commitments and readiness requirements can create
regulatory barriers to entry if they deter interconnection requests for
commercially viable generating facilities or increase financing
costs.\1406\ R Street argues that the proposal is misguided because it
would add another administrative process that increases implementation
complications and costs.\1407\ R Street suggests that the Commission
should instead use a simple loss of deposit as its financial lever.
---------------------------------------------------------------------------

    \1404\ R Street Initial Comments at 12.
    \1405\ New York State Department Initial Comments at 11.
    \1406\ R Street Initial Comments at 12.
    \1407\ Id. at 14.
---------------------------------------------------------------------------

    732. rPlus argues that withdrawal penalties, particularly when
coupled with the proposed study deposit requirements and study cost
allocations, are unduly discriminatory or punitive to

pumped storage as compared to other renewable technologies.\1408\ rPlus
and Hydropower Commenters claim that, under these proposals, a large
capacity pumped storage project (ranging from 400 MW to over 1,000 MW
in size, according to rPlus) would expect to hit the maximum deposit
and/or penalty in every stage of the interconnection process.\1409\
rPlus claims that the high cost of entry and the liability associated
with withdrawal may give large utilities an unfair advantage in
commercial negotiations.\1410\
---------------------------------------------------------------------------

    \1408\ rPlus Initial Comments at 5.
    \1409\ Id.; Hydropower Commenters Initial Comments at 26.
    \1410\ rPlus Initial Comments at 5.
---------------------------------------------------------------------------

    733. Shell calls for a reconsideration of the withdrawal penalties
proposed in the NOPR, claiming that the proposal could disrupt project
development when paired with the proposed commercial readiness
requirements and financial commitments (for deposits and site
control).\1411\ Shell suggests that the Commission adopt withdrawal
penalties modeled on MISO's framework, which encourages interconnection
customers to withdraw from the interconnection queue with refunded
deposits rather than penalizing interconnection customers for making
justifiable decisions. Shell contends that there should only be a large
penalty for late-stage withdrawals.\1412\ Shell contends that,
otherwise, the Commission is sending the wrong signal and driving out
competition without linking the underlying issue of unexpected network
upgrade costs that typically come from affected system studies that are
provided very late in the study process.
---------------------------------------------------------------------------

    \1411\ Shell Initial Comments at 9, 24; Shell Reply Comments at
26.
    \1412\ Shell Initial Comments at 25.
---------------------------------------------------------------------------

    734. Some commenters contend that increasing the amount of money at
stake for an interconnection customer without providing off-ramps from
the interconnection process at reasonable decision points where
previously unavailable information is supplied does not necessarily
incentivize interconnection customers to exit the interconnection
queue.\1413\ CREA and NewSun suggest that the proposed withdrawal
penalties may incentivize an interconnection customer to remain in the
interconnection queue waiting for other interconnection customers to
withdraw, and the penalty those interconnection customers pay will
eventually be distributed to the remaining interconnection customers in
the cluster, or interconnection customers may elect to remain in the
interconnection queue in the hopes that others in the cluster withdraw
to the point where the cost of network upgrades become more
palatable.\1414\
---------------------------------------------------------------------------

    \1413\ CREA and NewSun Initial Comments at 76; SEIA Initial
Comments at 25-27; SEIA Reply Comments at 10-11.
    \1414\ CREA and NewSun Initial Comments at 76.
---------------------------------------------------------------------------

(c) Comments on Specific Proposal
(1) Withdrawal Penalty Amounts
    735. Several commenters oppose the proposed withdrawal penalty
amounts.\1415\ AEE argues that the Commission's proposed withdrawal
penalty amounts are overly punitive, especially for those
interconnection customers that submit a deposit in lieu of
demonstrating commercial readiness, which many interconnection
customers will be forced to do under the Commission's proposed
commercial readiness requirements.\1416\ AEE and Clean Energy
Associations assert that the Commission's proposed withdrawal penalty
amounts also appear arbitrary, with no basis in the costs of conducting
studies or other relevant factors.\1417\ AEE argues that the Commission
should reduce these amounts and tie them more closely to its objectives
and to the study costs that transmission providers are expected to
incur, which it asserts will avoid turning the penalties into a
punitive measure that provides a profit opportunity for transmission
providers.\1418\ AEE contends that the withdrawal penalty frameworks
and time frames should be designed to discipline the decisions of
interconnection customers rather than being punitive. Google does not
support the proposal to impose higher withdrawal penalties on
interconnection customers that submit a deposit in lieu of
demonstrating commercial readiness.\1419\
---------------------------------------------------------------------------

    \1415\ AEE Initial Comments at 19; CREA and NewSun Initial
Comments at 75; Interwest Initial Comments at 22.
    \1416\ AEE Initial Comments at 19.
    \1417\ Id.; Clean Energy Associations Initial Comments at 41.
    \1418\ AEE Initial Comments at 19-20.
    \1419\ Google Initial Comments at 21.
---------------------------------------------------------------------------

    736. Interwest argues that some of the proposed withdrawal
penalties--those in the range of five to nine times the study costs--
far exceed reasonableness, especially in the face of the potential for
a myriad of ways in which an LSE can bias the bid review process and
slow the cluster study process under existing rules without stringent
oversight.\1420\ Interwest argues that the NOPR does not sufficiently
acknowledge the need to reform study processes to prevent inaccurate
studies, which create widely different results from one study to
another.\1421\ Interwest suggests that these inaccurate studies, along
with delayed affected system study results, lead to withdrawals,
strengthening the case that withdrawal penalties should not increase
dramatically toward the end of the study process and around execution
of an LGIA without appropriate recourse for the interconnection
customer. Interwest argues that a 25% increase in study costs from one
study to another should be a sufficient basis for withdrawal without
incurring withdrawal penalties, as part of a tariff with incentives for
transmission providers to provide accurate estimates of network upgrade
costs. Interwest argues that, for these reasons, withdrawal penalties
are redundant and punitive when combined with increasingly large at-
risk deposits as proof of commercial readiness.
---------------------------------------------------------------------------

    \1420\ Interwest Initial Comments at 22.
    \1421\ Interwest Reply Comments at 13-14.
---------------------------------------------------------------------------

    737. SDG&E asserts that a withdrawal penalty of nine times the
study deposit amount will provide a disincentive for late-stage
withdrawals in certain cases, but that a penalty alone should not be
relied on in lieu of other financial security mechanisms.\1422\ SDG&E
maintains that a more reasonable amount for a withdrawal penalty may be
the greater of nine times the study deposit and a CAISO-style financial
security posting that is based on factors such as network upgrade and
interconnection facilities costs.
---------------------------------------------------------------------------

    \1422\ SDG&E Initial Comments at 6.
---------------------------------------------------------------------------

    738. Some commenters argue that the Commission should adopt the
RTO/ISO model of financial readiness milestones that are tied to
network upgrade costs.\1423\ Clean Energy Associations submit that
tying deposits and penalties to network upgrade costs allocated to the
interconnection customer is superior because network upgrade costs are
a better indicator of the harm that may be caused by a withdrawal than
generating facility size.\1424\
---------------------------------------------------------------------------

    \1423\ ACE-NY Initial Comments at 8; AES Initial Comments at 19;
AES Reply Comments at 3-6; Enel Initial Comments at 4; Invenergy
Initial Comments at 24; Pine Gate Initial Comments at 34.
    \1424\ Clean Energy Associations Initial Comments at 41.
---------------------------------------------------------------------------

    739. AES contends that tying the withdrawal penalty to the
percentage of network upgrade deposit at risk provides a better
incentive for interconnection customers with proposed generating
facilities with high network upgrade costs to withdraw earlier in the
interconnection process, rather than risk losing their posted
security.\1425\ Invenergy suggests that any withdrawal penalty imposed
after LGIA execution should be tied to assigned

network upgrade costs and should be subject to a $2 million cap to
avoid unnecessarily punitive penalties, as the LGIA may impose
additional financial obligations for construction of the assigned
upgrades.\1426\ CAISO argues that network upgrade-based financial
requirements are far more effective than the withdrawal penalties
proposed in the NOPR because network upgrade-based requirements are
tied to the project's actual interconnection costs, which correlate
with its competitiveness to obtain a power purchase agreement and
therefore its likelihood to remain in the queue.\1427\
---------------------------------------------------------------------------

    \1425\ AES Initial Comments at 19.
    \1426\ Invenergy Initial Comments at 24.
    \1427\ CAISO Initial Comments at 23.
---------------------------------------------------------------------------

    740. NYISO argues that the withdrawal penalty amounts proposed in
the NOPR, which are tied to study costs, are unlikely to provide
sufficient capital to cover the costs of constructing the network
upgrades of withdrawn generating facilities on which other
interconnection customers are relying.\1428\ SoCal Edison suggests
that, instead of using study costs as the basis for the withdrawal
penalty amount, which would not be known until completion of the
interconnection studies, the Commission should require that withdrawal
penalties be calculated based on increasing multiples of the study
deposits, which are known and serve as a proxy of the study
costs.\1429\
---------------------------------------------------------------------------

    \1428\ NYISO Initial Comments at 25.
    \1429\ SoCal Edison Initial Comments at 10.
---------------------------------------------------------------------------

(2) Proposed Withdrawal Penalty Exemptions
    741. Some commenters support the NOPR proposal to exempt
interconnection customers from withdrawal penalties in certain
instances, stating that the proposal achieves a workable balance
between the needs of interconnection customers and transmission
providers.\1430\ For example, MISO agrees that interconnection requests
that experience significant cost increases should be able to withdraw
without a penalty.\1431\ Omaha Public Power states that the four
scenarios proposed in the NOPR for interconnection customers to qualify
for exemptions to withdrawal penalties seem to properly acknowledge
instances where other interconnection customers are not negatively
impacted by a withdrawal, or when it is no longer economically viable
for the interconnection customer to move forward with the generating
facility due to drastically increased network upgrade costs.\1432\
---------------------------------------------------------------------------

    \1430\ MISO Initial Comments at 68; Omaha Public Power Initial
Comments at 9-10.
    \1431\ MISO Initial Comments at 68.
    \1432\ Omaha Public Power Initial Comments at 9-10.
---------------------------------------------------------------------------

    742. On the other hand, SEIA contends that, although the NOPR
proposal exempts interconnection customers from withdrawal penalties if
there is no impact to other generating facilities in the same cluster,
withdrawals almost always impact other generating facilities in the
cluster, such that withdrawal penalties are likely unavoidable.\1433\
Pine Gate states that the proposed list of withdrawal penalty
exemptions is not reflective of an appropriate balance between
interconnection customer and transmission provider accountability
because it increases the burden on interconnection customers without
any increase to accountability for transmission providers.\1434\
Pattern Energy disagrees with a standard tied to a potential delay of a
lower-queued interconnection customer, given the Commission's proposed
transition to a cluster study approach.\1435\ Pattern Energy contends
that the only impact that should be relevant to granting an exemption
is a financial impact.
---------------------------------------------------------------------------

    \1433\ SEIA Initial Comments at 26.
    \1434\ Pine Gate Initial Comments at 34.
    \1435\ Pattern Energy Initial Comments at 33.
---------------------------------------------------------------------------

    743. NRECA supports including the 100% cost increase exemption in
the final rule, which would apply where there is a large late-stage
cost increase, making the interconnection request's success
economically challenging.\1436\ Pattern Energy, on the other hand,
claims that the Commission's proposal incentivizes transmission
providers to overestimate costs in cluster studies for fear that there
will be later, unexpected cost increases in the facilities study, which
Pattern Energy argues presents a barrier to entry.\1437\ Pine Gate also
claims that requiring a 100% increase in costs between the facilities
study phase and the previous cluster study phase in order to allow for
penalty-free withdrawal exposes interconnection customers to withdrawal
penalties in instances where costs increase dramatically due to no
fault of the interconnection customer.\1438\ Several commenters
recommend that the Commission ensure that any penalties for withdrawal
account for unanticipated cost increases.\1439\
---------------------------------------------------------------------------

    \1436\ NRECA Initial Comments at 30.
    \1437\ Pattern Energy Initial Comments at 34.
    \1438\ Pine Gate Initial Comments at 35.
    \1439\ Clean Energy Associations Initial Comments at 40 (arguing
that the Commission should allow interconnection customers to
withdraw without penalty if costs in a restudy increase by over 25%
relative to prior study results); CREA and NewSun Initial Comments
at 78 (suggesting that withdrawal penalties should not apply anytime
an interconnection customer withdraws after receipt of a system
impact study, facilities study, or restudy that contains a 25% cost
increase over the prior study or a 50% cumulative increase over the
initial study); ENGIE Initial Comments at 7; Invenergy Initial
Comments at 25 (arguing that the Commission should allow
interconnection customers to withdraw without penalty if affected
system study results cause an interconnection customer's costs to
increase by more than 25% compared to costs allocated to it by the
host transmission provider in a prior study); Longroad Energy
Initial Comments at 18 (recommending that the Commission reduce the
penalty exemption threshold to a cost-increase of only 20% from the
initial cluster study to the restudy and a cost increase of only 10%
from the final restudy to the individual cluster facilities study);
NextEra Initial Comments at 26 (suggesting that a more reasonable
withdrawal penalty exemption threshold for cost increases for late-
stage withdrawals would be in the range of 30%); [Oslash]rsted
Initial Comments at 15 (arguing that the Commission should allow
interconnection customers to withdraw without penalty if costs in a
restudy increase by over 25% relative to prior study results);
Pattern Energy Initial Comments at 33 (suggesting that, if costs
increase by 15% from the first to the second study report, but a
restudy results in an additional 20% increase compared to the second
study report, then the total increase from the first study report to
the restudy report would be 35%, and this total additive percentage
increase should be deemed sufficient to constitute an excusable
withdrawal event); Pine Gate Initial Comments at 35.
---------------------------------------------------------------------------

    744. Xcel recommends that the Commission allow an interconnection
request, submitted by a resource planning entity as agent for an
interconnection customer, that is withdrawn by the resource planning
entity because it was not picked in a resource solicitation process, to
be exempt from withdrawal penalties, as the withdrawal was due to no
fault of the interconnection customer.\1440\ Xcel states that, other
than this exemption, the Commission should not expand the exemptions
from withdrawal penalties beyond those proposed in the NOPR.
---------------------------------------------------------------------------

    \1440\ Xcel Initial Comments at 35.
---------------------------------------------------------------------------

    745. NextEra and Northwest and Intermountain argue that
interconnection customers should be exempt from withdrawal penalties if
the transmission provider's or affected system operator's studies or
posted information are untimely.\1441\
---------------------------------------------------------------------------

    \1441\ NextEra Initial Comments at 26; Northwest and
Intermountain Initial Comments at 13.
---------------------------------------------------------------------------

    746. NextEra contends that the NOPR does not explain why there are
different withdrawal penalty levels for interconnection customers
demonstrating commercial readiness via the proposed non-financial
demonstration options and those submitting a deposit in lieu of
demonstrating commercial readiness.\1442\
---------------------------------------------------------------------------

    \1442\ NextEra Initial Comments at 27.
---------------------------------------------------------------------------

    747. Several commenters argue that the proposed exemptions require

clarification.\1443\ For one, CAISO claims that the exemption criteria,
as written in the NOPR, are not workable.\1444\ CAISO argues that the
Commission's description of the exemptions is problematic due to the
use of ``or,'' which suggests meeting any criterion would relieve the
interconnection customer of withdrawal penalties. CAISO posits that,
under the Commission's criteria, a withdrawal could not affect the
timing of other generating facilities but still increase their costs;
however, the interconnection customer would meet the first exemption
and not be subject to withdrawal penalties. CAISO argues that
withdrawals would never delay the timing of generating facilities in
the same cluster. CAISO states that a cluster's upgrades are a package,
and the construction schedule would not change simply because one
interconnection customer that is sharing upgrades withdraws. CAISO
suggests that the Commission clarify that, to be exempt from withdrawal
penalties, each interconnection customer must meet (1) both criterion
one and two, and (2) criterion three or four.
---------------------------------------------------------------------------

    \1443\ CAISO Initial Comments at 21-22; Environmental Defense
Fund Initial Comments at 4-5; EEI Initial Comments at 8; EEI Reply
Comments at 6-7; Eversource Initial Comments at 19; Shell Reply
Comments at 27.
    \1444\ CAISO Initial Comments at 21-22.
---------------------------------------------------------------------------

    748. Invenergy proposes that the list of exemptions to withdrawal
penalties be revised to include: (1) the withdrawal does not directly
cause material delays in the timing of other interconnection requests
within the same cluster, as determined at the time of withdrawal by the
transmission provider; or (2) the withdrawal does not directly cause a
material increase in the costs assigned to other interconnection
requests within the same cluster, as determined at the time of
withdrawal by the transmission provider.
    749. Omaha Public Power contends that the exemption to withdrawal
penalties cannot be applied to the interconnection process as it
currently functions for those transmission providers that allow for
overlapping studies (e.g., when a cluster study is being studied prior
to the conclusion of the preceding cluster study).\1445\ Omaha Public
Power claims that overlapping studies lead to baseline costs in the
subsequent cluster studies that are inherently wrong and do not factor
in the previously existing unfinished cluster studies. Omaha Public
Power claims that this inaccurate starting point for costs is likely
higher than what is accurate, and any subsequent restudy will likely
lead to identification of network upgrades that fall below the
exemption threshold, subjecting interconnection customers to wrongful
withdrawal penalties. Omaha Public Power argues that, until an
interconnection process can be conducted without overlapping studies,
these exemptions will be woefully misapplied. Southern raises similar
concerns.\1446\
---------------------------------------------------------------------------

    \1445\ Omaha Public Power Initial Comments at 10.
    \1446\ Southern Initial Comments at 21-22.
---------------------------------------------------------------------------

    750. Yet other commenters believe that the NOPR proposal is too
lenient.\1447\ NRECA suggests that transmission providers should be
afforded flexibility whether to adopt exemptions to withdrawal
penalties related to: (1) not delaying the timing of other
interconnection requests in the same cluster; (2) not increasing the
cost of network upgrades for other interconnection requests in the same
cluster; and (3) withdrawing if the most recent cluster study report
shows a cost increase of at least 25% compared to the previous cluster
study report.\1448\ NRECA asserts that these exemptions may or may not
be needed for a particular transmission provider and potentially may
allow withdrawals that trigger time-consuming restudy processes. SDG&E
generally opposes exemptions to withdrawal penalties and claims that
material modification provisions in the pro forma LGIP already address
impacts to other interconnection customers.\1449\ SDG&E argues that,
regardless of the impact to other interconnection customers, there are
still costs and resources committed between all entities to study and
assess proposed generating facilities. SDG&E believes that withdrawal
penalties should apply for all generating facilities, and any
exemptions should be sparing.
---------------------------------------------------------------------------

    \1447\ NRECA Initial Comments at 30; SDG&E Initial Comments at
6-7.
    \1448\ NRECA Initial Comments at 30.
    \1449\ SDG&E Initial Comments at 6-7.
---------------------------------------------------------------------------

(3) How To Determine if a Withdrawal Has Delayed or Increased the Cost
of Network Upgrades for Other Generating Facilities in the Same Cluster
    751. Some commenters argue that it would be difficult to define the
circumstances under which a withdrawal is deemed to have delayed the
timing or increased the cost of network upgrades for other
interconnection requests in the same cluster.\1450\ APS and Bonneville
argue that attempting to do so would create an undue burden on
transmission providers, and that the withdrawal of an interconnection
request could have an impact on generating facilities in a subsequent
cluster.\1451\ NextEra suggests that one test to determine whether a
withdrawal delays other interconnection requests could be whether the
withdrawal delays the planned in-service date of other interconnection
requests in the same cluster.\1452\ However, NextEra acknowledges that
even this assessment could be difficult to calculate, as delays could
not manifest themselves for months or years, other factors could cause
delays, and interconnection customers could seek to delay their
generating facilities for commercial reasons. Pattern Energy asserts
that the Commission must clearly define the standard for timing delays
and increasing the cost of network upgrades for other interconnection
customers.\1453\
---------------------------------------------------------------------------

    \1450\ APS Initial Comments at 16-17; Bonneville Initial
Comments at 12; MISO Initial Comments at 67.
    \1451\ APS Initial Comments at 16-17; Bonneville Initial
Comments at 12.
    \1452\ NextEra Initial Comments at 26.
    \1453\ Pattern Energy Initial Comments at 33.
---------------------------------------------------------------------------

    752. Bonneville suggests that, similar to the method used to assess
a material modification under the pro forma LGIP and pro forma SGIP,
the Commission could provide a non-exhaustive list of examples that
would be deemed as delaying the timing or increasing the costs of
network upgrades.\1454\ Bonneville suggests that transmission providers
could be given discretion to determine whether other withdrawal
situations that are not listed should fall under this category by
considering whether the withdrawal has delayed the timing or increased
the cost of network upgrades for other interconnection requests in a
cluster.
---------------------------------------------------------------------------

    \1454\ Bonneville Initial Comments at 12.
---------------------------------------------------------------------------

    753. Invenergy argues that transmission providers should not be
permitted to simply assume that withdrawals cause some harm to other
interconnection requests and that there should be a requirement for
transmission providers to perform an analysis to determine whether a
withdrawal results in material harm to other interconnection requests,
which interconnection customers could review.\1455\ Invenergy states
that the analysis of whether a withdrawal causes a cost increase or
delays the timing for other interconnection requests should be
performed at each phase of the study process.
---------------------------------------------------------------------------

    \1455\ Invenergy Initial Comments at 26-27.
---------------------------------------------------------------------------

    754. Invenergy requests that the Commission clarify that a
withdrawal will not delay the timing of another interconnection request
or increase its network upgrade costs if the withdrawal simply requires
the transmission

provider to account for the withdrawal. Invenergy requests that the
Commission clarify that any delay or cost increase analysis must be
based on a reasonable analysis and show a direct relationship between
the withdrawal and the asserted impact on another interconnection
request.
    755. MISO encourages the Commission to impose the withdrawal
penalty whenever an interconnection request withdraws from the
interconnection queue.\1456\ MISO argues that even if after restudy it
turns out that the withdrawal of an interconnection request did not
actually increase network upgrade costs to other interconnection
customers in the cluster, the withdrawal still negatively impacts the
interconnection queue by increasing uncertainty for other
interconnection customers, prompting further withdrawals and adding
administrative cost and burden that impede efficient interconnection
queue processing. Pattern Energy likewise argues that the withdrawal of
any interconnection request from the interconnection queue results in
some form of delay, such as the time taken by a transmission provider
to perform a review of the potential impacts of the withdrawal, which
could be interpreted as causing a delay because the withdrawal impact
analysis could delay the receipt of final study results and
agreements.\1457\ PJM makes similar arguments.\1458\
---------------------------------------------------------------------------

    \1456\ MISO Initial Comments at 67-68.
    \1457\ Pattern Energy Initial Comments at 33.
    \1458\ PJM Initial Comments at 41.
---------------------------------------------------------------------------

    756. Xcel contends that, if a withdrawal results in a restudy of a
cluster or subsequent clusters, that restudy will delay the receipt of
study results, LGIA execution, and the construction of required network
upgrades.\1459\ Therefore, Xcel argues that any withdrawal that results
in a restudy should not be exempt from a withdrawal penalty unless the
commercial operation dates of other impacted interconnection requests
in the same or subsequent cluster are not impacted. Xcel asserts that
delaying LGIA execution may negatively impact off-take agreements and
should also be considered harm to equally or lower-queued
interconnection customers. Xcel notes that harm is not limited to the
reallocation of interconnection costs to equally or lower-queued
interconnection requests. Xcel contends that delays, resulting in
clogged interconnection queues, can impact resource decisions and thus
harm interconnection requests not yet in the interconnection queue.
Xcel argues that, if the withdrawal causes restudy, but the restudy
does not impact the timing discussed above, then the restudy results
should be used to determine the impact on costs allocated to equally or
lower-queued interconnection requests.
---------------------------------------------------------------------------

    \1459\ Xcel Initial Comments at 33-34.
---------------------------------------------------------------------------

    757. Xcel notes that it may be difficult to determine if a single
withdrawal would have caused harm when multiple interconnection
requests are withdrawn in the same time frame.\1460\ Xcel generally
supports penalizing withdrawals if they have a combined impact, as it
would be difficult, if not impossible and time consuming, to determine
each individual withdrawal's impact. According to Xcel, if the
withdrawal penalty was determined on an individual basis, some
interconnection customers may wait for others to withdraw, then argue
that their secondary withdrawals did not have an impact because all
delays and cost impacts were caused by the first withdrawal.
---------------------------------------------------------------------------

    \1460\ Id. at 34.
---------------------------------------------------------------------------

    758. Indicated PJM TOs state that a withdrawal can impose costs on
other interconnection customers even if it does not delay the timing of
other proposed generating facilities. Indicated PJM TOs argue that if
withdrawals impose more network upgrade costs on other interconnection
customers, it would be unfair to excuse withdrawing interconnection
customers just because the transmission provider can keep to its
original timelines.\1461\ Indicated PJM TOs further claim that,
particularly in a large RTO/ISO, it is not clear how the transmission
provider would determine that a particular withdrawal did or did not
delay the processing of other interconnection requests. Indicated PJM
TOs argue that this criterion for being excused from penalties or
forfeitures should be eliminated.
---------------------------------------------------------------------------

    \1461\ Indicated PJM TOs Reply Comments at 35-36.
---------------------------------------------------------------------------

(4) Withdrawal Penalty Collection and Distribution
    759. APS seeks clarification on the mechanism the Commission
proposes for transmission providers to collect withdrawal penalties
from interconnection customers.\1462\ APS and MISO express concerns
that, under the withdrawal penalty collection proposal, a transmission
provider would have to act as a collection agency, which is likely
unworkable.\1463\ EEI suggests that the Commission institute financial
assurance requirements for interconnection customers to reduce the
likelihood that penalized entities are unable to pay the penalties they
are assessed.\1464\ Eversource asserts that the Commission should set
clear rules that include policies governing how RTOs/ISOs will collect
penalties and address potential scenarios in which interconnection
customers refuse to pay or declare bankruptcy.\1465\ MISO claims that
interconnection customers can structure the businesses behind the
interconnection request in such a way so that the legal entity would be
very difficult to collect from.\1466\
---------------------------------------------------------------------------

    \1462\ APS Initial Comments at 16.
    \1463\ Id.; MISO Initial Comments at 69.
    \1464\ EEI Initial Comments at 8.
    \1465\ Eversource Initial Comments at 19.
    \1466\ MISO Initial Comments at 69.
---------------------------------------------------------------------------

    760. Some commenters do not support the Commission's proposal to
require withdrawal penalty revenues to be used to fund studies
conducted under the cluster study process.\1467\ CAISO states that
transmission providers already have provisions specifying where non-
refundable funds go, and using them for interconnection studies would
require careful accounting without relieving study burdens.\1468\
NextEra and PJM suggest that transmission providers should be allowed
to use forfeited funds to help pay for increased network upgrade costs
incurred by other interconnection customers due to a withdrawal.\1469\
Invenergy asserts that excess funds should be applied to offset network
upgrade costs assigned through that cluster study process in proportion
to any upgrade costs that were directly shifted from a withdrawn
interconnection customer.\1470\ RWE Renewables assert that withdrawal
penalties should be used to create meaningful decision points for
interconnection customers, to discern whether they are willing to
commit resources to each particular generating facility.\1471\ RWE
Renewables and Interwest contend that withdrawal penalties should be
allocated between and among different clusters for transmission
expansion, so that they benefit load and interconnection customers,
rather than restudies, which they believe will not be needed as
frequently in the proposed cluster study process.\1472\
---------------------------------------------------------------------------

    \1467\ CAISO Initial Comments at 22; Interwest Reply Comments at
14; NextEra Initial Comments at 27-28; PJM Initial Comments at 39;
RWE Renewables Initial Comments at 2.
    \1468\ CAISO Initial Comments at 22.
    \1469\ NextEra Initial Comments at 27-28; PJM Initial Comments
at 39.
    \1470\ Invenergy Initial Comments at 27-28.
    \1471\ RWE Renewables Initial Comments at 2.
    \1472\ Id.; Interwest Reply Comments at 14.
---------------------------------------------------------------------------

    761. CAISO opposes the NOPR proposal to cap withdrawal

penalties.\1473\ CAISO contends that larger projects create the most
churn in queue, and projects that cannot demonstrate commercial
readiness should be the most likely to withdraw. CAISO argues that
withdrawal penalty caps will disproportionately affect smaller and more
competitive interconnection requests more than larger and less
competitive interconnection requests and suggests that the Commission
remove the withdrawal penalty caps so the withdrawal penalties affect
interconnection customers equally.
---------------------------------------------------------------------------

    \1473\ CAISO Initial Comments at 24.
---------------------------------------------------------------------------

    762. Pattern Energy suggests that, in addition to the Commission's
proposed use of withdrawal penalties to defray future study costs, the
Commission should designate a portion of any withdrawal penalties to be
used for recruitment, retention, and performance bonuses for engineers,
administrators, and/or consultants, who can then be deployed to help
alleviate queue backlogs.\1474\
---------------------------------------------------------------------------

    \1474\ Pattern Energy Initial Comments at 34.
---------------------------------------------------------------------------

    763. Other commenters request clarification of the proposal for
distribution of withdrawal penalty funds. AES and EDF Renewables argue
that it is critical that the Commission clarify that transmission
providers do not receive any benefits from withdrawal fee and non-
refundable deposit proceeds; otherwise, they argue, transmission
providers would be financially incentivized to force interconnection
customers to withdraw.\1475\ Several commenters request clarification
of the Commission's intent for excess money that remains after funding
any appropriate restudies for the current cluster, and some of these
commenters have suggested uses for this excess.\1476\ AES asserts that
any withdrawal fees and non-refundable deposits collected should go
towards improving the interconnection process.\1477\ EDF Renewables
suggests that any remainder should be refunded to the interconnection
customer.\1478\ On the other hand, Southern opposes refunding excess
penalty amounts to the interconnection customer and proposes that any
remaining amounts be applied to network upgrades needed in the same
cluster or treated as a revenue credit against the revenue requirement
in the determination of transmission rates.\1479\ APS suggests that the
remainder act as a credit towards the transmission provider's
transmission rates, as this method would guarantee that all
transmission customers benefit from the penalties.\1480\
---------------------------------------------------------------------------

    \1475\ AES Initial Comments at 19-20; EDF Renewables Initial
Comments at 7.
    \1476\ AES Initial Comments at 19-20; APS Initial Comments at
16; EDF Renewables Initial Comments at 7; Invenergy Initial Comments
at 27-28; ISO-NE Initial Comments at 33; Southern Initial Comments
at 22.
    \1477\ AES Initial Comments at 19-20.
    \1478\ EDF Renewables Initial Comments at 7.
    \1479\ Southern Initial Comments at 22.
    \1480\ APS Initial Comments at 16.
---------------------------------------------------------------------------

    764. Shell claims that withdrawal penalties will accumulate faster
than they may be spent by the relevant transmission provider.\1481\
Therefore, Shell asserts that the Commission must address the
following: (1) the system of independent checks and balances that
transmission providers will employ to ensure that only specific
individuals have access to the withdrawal penalty account; (2) the
average cost of a cluster study from start to finish so that, if a
withdrawal penalty is forfeited, it can be determined how many future
cluster studies the transmission provider could expect to perform with
forfeited funds; (3) if funds from a withdrawal penalty are used to pay
for future study costs, whether future interconnection customers must
still post a study deposit; and (4) if a withdrawal penalty account
balance accumulates faster than funds can be spent, what independent
system of checks and balances transmission providers will use to ensure
that their staff and/or consultants do not overcharge for their
services related to studies.
---------------------------------------------------------------------------

    \1481\ Shell Initial Comments at 18-19.
---------------------------------------------------------------------------

(d) Requests for Flexibility, Clarification, or Technical Conference
    765. Some commenters would prefer that the Commission allow for
transmission providers to craft and use their own withdrawal penalty
structure instead of having a standardized approach for all
transmission providers.\1482\ AEP supports the adoption of withdrawal
penalties with reasonable penalty-free off ramps but asserts that this
is an area in which flexibility should be permitted, particularly where
alternative approaches already have been through robust stakeholder
processes.\1483\ NYTOs suggest that there should be flexibility
regarding the amount of the withdrawal penalties, which NYTOs argue
should be tied to each transmission provider's and associated
transmission owners' interconnection processes.\1484\ Pacific Northwest
Utilities argue that the Commission should allow flexibility as to the
timing of the penalties.\1485\ Pacific Northwest Utilities also request
flexibility to define their own requirements for withdrawal penalties
to limit interconnection queue overcrowding.\1486\ Interwest contends
that the Commission should not attempt to predetermine the amount of
withdrawal penalties in a rulemaking proceeding with limited evidence;
rather, the Commission should require that transmission providers
develop appropriate mechanisms and determine appropriate monetary
amounts to substantially reduce the risk that the efforts of
interconnection customers are not thwarted or delayed by others' overly
speculative interconnection requests.\1487\
---------------------------------------------------------------------------

    \1482\ AEP Initial Comments at 24; Avangrid Initial Comments at
9; Avangrid Reply Comments at 4; CREA and NewSun Initial Comments at
77-78; Dominion Initial Comments at 34; Indicated PJM TOs Initial
Comments at 33; NYISO Initial Comments at 24; NYTOs Initial Comments
at 21; Omaha Public Power Initial Comments at 11; OMS Initial
Comments at 13; Pacific Northwest Utilities Initial Comments at n.6;
PJM Initial Comments at 41; SDG&E Initial Comments at 6; SEIA
Initial Comments at 27; Southern Initial Comments at 20; Shell
Initial Comments at 24-25; SPP Initial Comments at 11.
    \1483\ AEP Initial Comments at 23-24.
    \1484\ NYTOs Initial Comments at 21.
    \1485\ Pacific Northwest Utilities Initial Comments at 2, 4-5, &
n.6.
    \1486\ Id. at 2.
    \1487\ Interwest Reply Comments at 13.
---------------------------------------------------------------------------

    766. Some commenters seek general clarification on several of the
withdrawal penalty proposals. For example, NV Energy requests
clarification on whether, if a withdrawal penalty is deemed appropriate
at the time an interconnection customer withdraws its interconnection
request, that the interconnection customer is charged both the actual
costs incurred to perform studies and the applicable withdrawal penalty
(i.e., two separate charges).\1488\
---------------------------------------------------------------------------

    \1488\ NV Energy Initial Comments at 6-7.
---------------------------------------------------------------------------

    767. NV Energy seeks clarification, if an interconnection
customer's generating facility does not achieve commercial operation,
whether the nine times the actual study cost deposit would be applied
toward its withdrawal penalties, and whether the interconnection
customer would be charged nine times the actual study costs.
    768. Southern suggests that, in the NOPR's proposed definition of
``withdrawal penalty'' and in the exemptions to that penalty, the
phrase ``the commercial operation date in the interconnection request''
should replace the phrase ``commercial operation,'' such that the
definition would read ``the penalty assessed by Transmission Provider
to an Interconnection Customer that chooses to withdraw from the queue
or does not otherwise reach the Commercial Operation Date in the

Interconnection Request.'' \1489\ Southern argues that to be consistent
and clear with pro forma LGIP section <IP_ADDRESS>, the definition of
withdrawal penalty must be revised to reflect that the withdrawal
penalty is applicable if the interconnection customer is deemed
withdrawn.
---------------------------------------------------------------------------

    \1489\ Southern Initial Comments at 21-22.
---------------------------------------------------------------------------

    769. Invenergy requests that the Commission clarify that, to the
extent withdrawal penalty amounts are used to fund some portion of an
interconnection study, that it does not reduce the transmission
provider's potential exposure for penalties in the event that study is
not timely completed.\1490\
---------------------------------------------------------------------------

    \1490\ Invenergy Initial Comments at 28.
---------------------------------------------------------------------------

    770. Invenergy requests that the Commission clarify that, to the
extent any post-LGIA withdrawal penalty is imposed, it is offset by the
deposit posted at LGIA execution and not additional to that deposit,
which would be unreasonable and unnecessarily punitive.\1491\
---------------------------------------------------------------------------

    \1491\ Id. at 24.
---------------------------------------------------------------------------

    771. MISO encourages the Commission to bolster the definitions of
``commercial readiness deposit,'' ``study deposit,'' and ``withdrawal
penalty'' to clearly enable the transmission provider to apply those
deposits toward the withdrawal penalty.\1492\
---------------------------------------------------------------------------

    \1492\ MISO Initial Comments at 68-69.
---------------------------------------------------------------------------

    772. CAISO seeks clarification that the NOPR's proposed withdrawal
penalties would not displace transmission providers' other existing
procedures and penalties that incentivize interconnection customers to
withdraw earlier rather than later and cites its own requirement that
interconnection customers post financial security based on their
allocated network upgrade costs.\1493\
---------------------------------------------------------------------------

    \1493\ CAISO Initial Comments at 22-23.
---------------------------------------------------------------------------

    773. NV Energy requests that the Commission clarify what happens if
only a portion of an interconnection request is brought to commercial
operation, as it relates to withdrawal penalties and the construction
of network upgrades.\1494\
---------------------------------------------------------------------------

    \1494\ NV Energy Initial Comments at 7.
---------------------------------------------------------------------------

    774. Tri-State requests clarification on the meaning of ``previous
withdrawal penalty revenue received'' in section <IP_ADDRESS> of the pro
forma LGIP \1495\ and requests clarification on whether section <IP_ADDRESS>
of the pro forma LGIP includes the paragraph after (c) regarding
commercial operation.
---------------------------------------------------------------------------

    \1495\ Tri-State Initial Comments at 28.
---------------------------------------------------------------------------

(e) Alternatives and Miscellaneous
    775. Some commenters provide comments in response to the
Commission's query on whether a correlation exists between the size of
a withdrawing proposed generating facility and the relative level of
harm, in terms of delays and increased cost, to other interconnection
customers as a result of the withdrawal.\1496\ Some commenters indicate
that there can be a correlation between the size of a withdrawing
proposed generating facility and the relative level of harm caused by
the withdrawal and encourage withdrawal penalties that increase with
the proposed generating facility size.\1497\ For example, Idaho Power
contends that large generating facilities typically trigger more
expensive network upgrades which, when withdrawn, are more likely to
trigger restudies.\1498\ Other commenters do not support withdrawal
penalties that increase based on the size of a generating
facility.\1499\ APS argues that the determinant of ``relative level of
harm'' is entirely subjective to the transmission provider and could
lead to litigation.\1500\ APS argues that the location of the
interconnection request is more closely correlated with the effect on
other interconnection customers than is the size of a proposed
generating facility. Xcel states that, although larger generating
facilities tend to have a larger impact, if the total impact to other
projects is calculated as a combined impact, then the size of the
project should not impact the withdrawal penalty calculation.\1501\
---------------------------------------------------------------------------

    \1496\ NOPR, 179 FERC ] 61,194 at P 148.
    \1497\ Avangrid Initial Comments at 20; Clean Energy States
Initial Comments at 10; Enel Initial Comments at 35; Idaho Power
Initial Comments at 8; PPL Initial Comments at 17.
    \1498\ Idaho Power Initial Comments at 8.
    \1499\ APS Initial Comments at 17; Xcel Initial Comments at 35.
    \1500\ APS Initial Comments at 17.
    \1501\ Xcel Initial Comments at 35.
---------------------------------------------------------------------------

    776. [Oslash]rsted expresses concern that relatively small
generating facilities (by MW) that fail to demonstrate commercial
readiness and are forced to withdraw from the interconnection queue
pose significant threats to the efficient management of the cluster
study process and recommends that withdrawal penalties be correlated to
an interconnection customer's commercial readiness.\1502\
---------------------------------------------------------------------------

    \1502\ [Oslash]rsted Initial Comments at 13.
---------------------------------------------------------------------------

    777. AEP supports the idea of off-ramp opportunities at specific
times in the cluster study process rather than having to analyze
individual withdrawal impacts throughout a cluster study process.\1503\
AEP contends that such an approach should limit restudies and minimize
delays to remaining interconnection customers. Similarly, PJM asserts
that only allowing withdrawals during certain decision points ensures
that studies start and finish at the same time and that the cluster
status is maintained during the duration of the study.\1504\ According
to PJM, allowing withdrawals at any point in the study process, as
proposed in the NOPR, even with relevant penalties assessed, will cause
cascading restudies and negative impacts on other interconnection
customers in a cluster.
---------------------------------------------------------------------------

    \1503\ AEP Initial Comments at 24.
    \1504\ PJM Initial Comments at 41.
---------------------------------------------------------------------------

    778. SPP states that, under its current LGIP, interconnection
customers provide progressively increasing financial security deposits
at each stage of the study process, and the amounts of the financial
security deposits required to enter into later stages of the study
process are based on the amount of network upgrade costs assigned in
the previous stage, which it asserts is better related to the risk and
harm of a withdrawal than the NOPR proposal.\1505\
---------------------------------------------------------------------------

    \1505\ SPP Initial Comments at 11.
---------------------------------------------------------------------------

    779. Rather than being assessed withdrawal penalties, CREA and
NewSun assert that interconnection customers should be refunded any
unused study deposits.\1506\ CREA and NewSun argue that penalties
should apply only to deter wrongful conduct that the interconnection
customer can avoid committing and should not be used as an arbitrary
barrier to market entry.\1507\
---------------------------------------------------------------------------

    \1506\ CREA and NewSun Initial Comments at 77.
    \1507\ Id. at 74-75.
---------------------------------------------------------------------------

iii. Commission Determination
    780. We adopt, with modifications, the NOPR proposal to impose
withdrawal penalties on interconnection customers for withdrawing their
interconnection requests from the interconnection queue, absent
qualification for one of the limited exemptions, as discussed below. We
add the defined term ``withdrawal penalty,'' as modified below, to the
pro forma LGIP; revise section 3.7 of the pro forma LGIP; and add
sections 3.7.1, <IP_ADDRESS>, and <IP_ADDRESS> to the pro forma LGIP, with the
modifications to the NOPR proposal discussed below. However, we decline
to adopt the withdrawal penalty caps proposed in the NOPR.
    781. We find that, along with the other reforms adopted in this
final rule, adopting a withdrawal penalty framework is needed to remedy
the issues regarding speculative interconnection requests, including

study delays from overcrowded interconnection queues and the harms to
the function of the interconnection queue that occur when
interconnection customers withdraw from the interconnection queue at
various stages of the study process. We believe that withdrawal
penalties--as adopted herein--will encourage interconnection customers
to ensure that their proposed generating facilities are likely
commercially viable when they submit their interconnection requests
because withdrawal, in most instances, will incur a penalty. We adopt
withdrawal penalties that increase in amount as interconnection
customers proceed through the interconnection process in order to
ensure that interconnection customers continue to evaluate whether
their proposed generating facilities are commercially viable, thereby
reducing the number of late-stage withdrawals and accompanying
restudies.\1508\ We additionally modify the proposal, as discussed
below, regarding how the withdrawal penalty funds are distributed.
Specifically, after withdrawal penalty funds are used to fund studies
conducted under the cluster study process in the same cluster, as
proposed in the NOPR, we modify the proposal to require any remaining
withdrawal penalty funds be used to offset net increases to network
upgrade cost assignments experienced by interconnection customers from
the same cluster that remain in the interconnection queue and are
directly affected by the withdrawal of an interconnection request
because they previously shared an obligation to fund a network upgrade
\1509\ with the withdrawn interconnection request in the same
cluster.\1510\ If the interconnection customer withdraws before it
executes its LGIA or requests to file its LGIA unexecuted and after the
interconnection customers in the same cluster that the withdrawn
interconnection customer participated in have executed LGIAs, requested
their LGIAs to be filed unexecuted, or withdrawn (or have been deemed
withdrawn), any remaining withdrawal penalty funds not applied to study
costs or net increases in network upgrade cost assignments must be
returned to the withdrawn interconnection customer.\1511\
---------------------------------------------------------------------------

    \1508\ See RWE Renewables Initial Comments at 2 (asserting that
withdrawal penalties should be used to create meaningful decision
points for interconnection customers to demonstrate project
commitment through the interconnection process).
    \1509\ Sharing an obligation means (1) interconnecting to the
same substation network upgrade, or (2) in the case of a system
network upgrade, where interconnection customers are identified
through the proportional impact method, as contributing to the need
for the same system network upgrade.
    \1510\ See Invenergy Initial Comments at 27-28; NextEra Initial
Comments at 27-28; PJM Initial Comments at 39; Southern Initial
Comments at 22 (suggesting that transmission providers should be
allowed to use forfeited funds to help pay for increased network
upgrade costs incurred by other interconnection customers in the
same cluster due to a withdrawal). We disagree with RWE Renewables
and Interwest that withdrawal penalties should be allocated between
and among different clusters because we find that withdrawal
penalties should only be allocated to interconnection customers that
are directly affected by a withdrawal because they share an
obligation to fund a network upgrade. See RWE Renewables Initial
Comments at 2; Interwest Reply Comments at 14.
    \1511\ See EDF Renewables Initial Comments at 7.
---------------------------------------------------------------------------

    782. As explained in section II of this final rule, we find that
Commission-jurisdictional rates have been rendered unjust and
unreasonable due to speculative interconnection requests that enter and
remain in the interconnection queue. By incentivizing interconnection
customers to submit interconnection requests only for proposed
generating facilities that they believe will be commercially viable and
to remain in the interconnection queue only as long as that continues
to be true, and by offsetting increases in network upgrade cost
responsibility experienced by interconnection customers directly
affected by a withdrawal because they share an obligation to fund a
network upgrade with the withdrawn interconnection request in the same
cluster, we believe that the withdrawal penalty requirements will work
in tandem with the other reforms adopted in this final rule to remedy
those unjust and unreasonable rates.
    783. Specifically, we adopt the NOPR proposal, with modification,
to revise the pro forma LGIP to require the transmission provider to
assess withdrawal penalties, unless an exemption applies at any point
in the interconnection process. The withdrawal penalties will be
applied to an interconnection customer if: (1) the interconnection
customer withdraws its interconnection request at any point in the
interconnection process; (2) the interconnection customer's
interconnection request has been deemed withdrawn by the transmission
provider at any point in the interconnection process; or (3) the
interconnection customer's generating facility does not reach
commercial operation (such as when an interconnection customer's LGIA
is terminated prior to reaching commercial operation). We note that a
withdrawal could trigger minor adjustments to the study results of the
remaining equally- or lower-queued interconnection requests that do not
represent a significant harm to those remaining in the queue.
Therefore, we are modifying the NOPR proposal to require the
transmission provider to assess a withdrawal penalty only if the
withdrawal has a material impact on the cost or timing of any
interconnection requests with an equal or lower queue position. If the
transmission provider determines that the impact of the withdrawal is
immaterial, the transmission provider must not assess a withdrawal
penalty.
    784. We adopt this provision in place of the NOPR proposal to
exempt interconnection customers from withdrawal penalties if: (1) the
withdrawal does not delay the timing of other proposed generating
facilities in the same cluster; or (2) the withdrawal does not increase
the cost of network upgrades for other proposed generating facilities.
We adopt the NOPR proposal that the interconnection customer will also
be exempt from paying a withdrawal penalty if (1) the interconnection
customer withdraws its interconnection request after receiving the most
recent cluster study report and the network upgrade costs assigned to
the interconnection customer's request have increased 25% compared to
the previous cluster study report, or (2) the interconnection customer
withdraws its interconnection request after receiving the individual
facilities study report and the network upgrade costs assigned to the
interconnection customer's request have increased by more than 100%
compared to costs identified in the cluster study report. Accordingly,
with these exemptions from the withdrawal penalty, the required
withdrawal penalty approach adopted herein does not allow for penalties
if the impact of the withdrawal is immaterial to other interconnection
customers or if the withdrawal follows significant, unanticipated
increases in network upgrade cost estimates.
    785. For the withdrawal penalty exemptions, we clarify that the
relevant cost increases are network upgrade cost estimate increases,
and we adopt revisions to the pro forma LGIP accordingly. This
clarification is consistent with the Commission's description of these
exemptions in the NOPR: ``Thus, under this proposal, interconnection
customers would be exempt from a withdrawal penalty . . . if the
withdrawal follows a significant unanticipated increase in network
upgrade cost estimates.'' \1512\
---------------------------------------------------------------------------

    \1512\ NOPR, 179 FERC ] 61,194 at P 141 (emphasis added).

---------------------------------------------------------------------------

    786. We disagree with commenters that the thresholds to trigger the
exemptions--a 25% increase in estimated network upgrade costs above the
cluster study report estimate or a 100% increase in estimated network
upgrade costs in the facilities study report--are too high. As an
initial matter, the potential interconnection customer will have access
to heatmap information, as required in this final rule, that will allow
it to evaluate project feasibility without a financial commitment and
thereby avoid potential withdrawal penalty risk. As stated by Omaha
Public Power and Southern, upon entering the interconnection queue and
receiving the estimates provided in the cluster study report, the
interconnection customer is aware that the estimates may change.
Additionally, we find that the trigger thresholds are set at an amount
that provides sufficient room for estimates to change as the cluster
evolves while limiting interconnection customer exposure to withdrawal
penalties when such estimates change by a significant amount. Moreover,
the increasing threshold triggers reflect the fact that estimates
should improve in accuracy as interconnection customers move through
the interconnection process and should increasingly disincentivize
commercially non-viable generating facilities from staying in the
interconnection queue. An interconnection customer will know to factor
in both the cost estimates and the potential withdrawal penalty but
also the exemption trigger thresholds as it proceeds through the
interconnection queue.
    787. We do not believe that interconnection customers will be
subject to ``wrongful withdrawal penalties'' as suggested by some
commenters. In addition, the withdrawal penalty exemptions are designed
to allow penalty-free withdrawal if the withdrawal does not materially
harm other interconnection customers or if the withdrawal follows a
significant unanticipated increase in network upgrade cost estimates.
The withdrawal penalty exemptions are not designed to mitigate all
business risk associated with interconnecting a new generating
facility. The withdrawal penalty structure adopted herein, where the
withdrawal penalty at the earlier stages of the interconnection process
is generally lower than the withdrawal penalty at later stages also
lessens the cost exposure for an interconnection customer that
withdraws at an earlier stage, when the impact of the withdrawal is
less disruptive to the administration of the interconnection queue and
other interconnection customers. We find that, by increasing the
withdrawal penalty amounts as the interconnection customer proceeds
through the interconnection queue, interconnection customers will be
incentivized to withdraw non-viable interconnection requests earlier in
the process, leading to fewer late-stage withdrawals.
    788. We also disagree with commenters that request additional
exemptions to the withdrawal penalty structure. We believe that the
withdrawal penalty exemptions and withdrawal penalty structure, as
modified by this final rule, will deter unwarranted assessments of
withdrawal penalties.
    789. Regarding commenters' requests for clarification concerning
how to determine whether a withdrawal impacts other interconnection
requests with the same or lower queue positions for purposes of
assessing qualification for an exemption to a withdrawal penalty, we
defer to the transmission provider's discretion because the
transmission provider is best suited to determine whether a withdrawal
has a material impact on the cost or timing of any interconnection
customer with the same or lower queue position.
    790. We do not adopt the NOPR proposal regarding withdrawal penalty
calculations for interconnection customers that provide demonstrations
of commercial readiness because we do not adopt the non-financial
commercial readiness demonstration options in this final rule, as
discussed above in section III.A.6.c.iii. Instead, we modify the
proposed penalty structure to base the withdrawal penalty calculation
on an increasing percentage of the cost of the identified network
upgrades assigned to the interconnection customer as the
interconnection customer moves through the interconnection queue.\1513\
We also decline to adopt the withdrawal penalty caps proposed in the
NOPR. We believe that this structure will provide better financial
incentives for interconnection customers to avoid late-stage
withdrawals that cause the greatest disruption to interconnection queue
processing via restudies and delays because interconnection customers
will be subject to higher withdrawal penalties late in the
interconnection process.
---------------------------------------------------------------------------

    \1513\ See Invenergy Initial Comments at 27-28; NextEra Initial
Comments at 27-28; PJM Initial Comments at 39; Southern Initial
Comments at 22 (suggesting that transmission providers should be
allowed to use forfeited funds to help pay for increased network
upgrade costs incurred by other interconnection customers in the
same cluster due to a withdrawal).
---------------------------------------------------------------------------

    791. With regard to the withdrawal penalty calculation structure
more specifically, we modify the NOPR proposal and require that, unless
an interconnection customer qualifies for one of the stated exemptions
discussed above, the transmission provider must assess a withdrawal
penalty on an interconnection customer with a proposed generating
facility that does not reach commercial operation based either on the
actual study costs or on a percentage of the interconnection customer's
assigned network upgrade costs, depending on what phase the
interconnection customer withdraws its interconnection request. Thus,
the withdrawal penalty for an interconnection customer will be
calculated as the greater of the study deposit or: (1) two times the
study cost if the interconnection customer withdraws during the cluster
study or after receipt of a cluster study report; (2) 5% of the
interconnection customer's identified network upgrade costs if the
interconnection customer withdraws during the cluster restudy or after
receipt of any applicable restudy reports; (3) 10% of the
interconnection customer's identified network upgrade costs if the
interconnection customer withdraws during the facilities study, after
receipt of the individual facilities study report, or after receipt of
the draft LGIA; or (4) 20% of the interconnection customer's identified
network upgrade costs if, after executing, or requesting to file
unexecuted, the LGIA, the interconnection customer's LGIA is terminated
before its generating facility achieves commercial operation. The table
below summarizes the withdrawal penalty structure adopted herein.

------------------------------------------------------------------------
                                              Total withdrawal  penalty
            Phase of withdrawal                (if greater than study
                                                      deposit)
------------------------------------------------------------------------
Initial Cluster Study.....................  2 times study costs.
Cluster Restudy...........................  5% of network upgrade costs.
Facilities Study..........................  10% of network upgrade
                                             costs.
After Execution of, or After the Request    20% of network upgrade
 to File Unexecuted, the LGIA.               costs.
------------------------------------------------------------------------

    792. We find that the withdrawal penalty structure adopted herein,
which requires larger withdrawal penalties as the interconnection
customer progresses through the interconnection process, combined with
the exemptions, strikes the proper balance between enabling
interconnection customers that possess

imperfect information when entering into and remaining in the
interconnection queue to make withdrawal decisions and deterring
speculative interconnection requests from entering into and remaining
in the queue when they are unlikely to be completed, to the detriment
of other interconnection customers, especially when these
interconnection requests are withdrawn at later stages of the
interconnection process.
    793. We decline to adopt the withdrawal penalty caps proposed in
the NOPR because such caps would mute the economic signals that
withdrawal penalties are intended to send to interconnection customers
in the interconnection queue. The withdrawal penalty structure is meant
to incentivize interconnection customers to withdraw from the
interconnection queue upon receipt of network upgrade cost assignments
that make the interconnection request commercially non-viable. However,
withdrawal penalty caps would shield interconnection customers that
withdraw due to higher-cost network upgrades from consequences
proportional to the impact of that withdrawal, which can drive
cascading withdrawals, creating the need for restudies and leading to
delays. We accordingly agree with CAISO that the withdrawal penalty
caps proposed in the NOPR would disproportionately benefit
interconnection requests for larger generating facilities.\1514\ We
find that, while withdrawal penalty caps protect interconnection
customers that are allocated relatively high network upgrade costs,
they offer no such commensurate protection for interconnection
customers with lower network upgrade cost assignments, reflecting an
imbalanced withdrawal penalty structure.
---------------------------------------------------------------------------

    \1514\ See CAISO Initial Comments at 23-24.
---------------------------------------------------------------------------

    794. We also adopt and modify the proposed definition of
``withdrawal penalty'' in section 1 of the pro forma LGIP to address
situations in which it may be unclear what it means to be withdrawn
from the interconnection queue. Specifically, we clarify that a
withdrawal penalty applies when an interconnection customer actively
chooses to withdraw its interconnection request but also when its
interconnection request is deemed to have been withdrawn from the
interconnection queue for one reason or another, or if it otherwise
does not reach commercial operation, per the terms of the pro forma
LGIP.
    795. Commenters observe that, under the NOPR proposal,
interconnection customers with large projects (in terms of MW) would be
subject to large withdrawal penalties.\1515\ While this is true for the
initial withdrawal penalty, which continues to be based on project size
because it is tied to study costs, the modification to the NOPR
proposal described above, where later withdrawal penalties are based on
percentages of identified network upgrade costs, reflects the potential
impact of a withdrawal on the remaining interconnection customers in a
cluster. Additionally, as some commenters point out, there is typically
a correlation between the size of the proposed generating facility and
the relative harm to other interconnection customers from the
withdrawal of the interconnection request, so we believe that basing
the initial withdrawal penalty on project size is appropriate.\1516\
---------------------------------------------------------------------------

    \1515\ See Hydropower Commenters Initial Comments at 26; rPlus
Initial Comments at 5.
    \1516\ Avangrid Initial Comments at 20; CAISO Initial Comments
at 24; Idaho Power Initial Comments at 8; National Grid Initial
Comments at 26-27; PPL Initial Comments at 17.
---------------------------------------------------------------------------

    796. Because we modify the process for distributing withdrawal
penalty funds in response to comments, as described below, transmission
providers will not accumulate large amounts of funds from withdrawal
penalties, and therefore Shell's concerns are moot.\1517\
---------------------------------------------------------------------------

    \1517\ Shell Initial Comments at 18-19.
---------------------------------------------------------------------------

    797. Furthermore, we believe the proposed pro forma LGIP section
<IP_ADDRESS> requirement that transmission providers post on their OASIS
site, and update quarterly, the balance of withdrawal penalty revenue
held by them but not yet dispersed, and the instructions of how to
distribute withdrawal penalty funds contained in this provision provide
sufficient transparency to help interested parties understand, monitor,
and review withdrawal penalty funds. Transmission providers have
substantial experience collecting and accounting for fees assessed to
customers, and we will not mandate here what accounting method they
should use for the collection and tracking of withdrawal penalties.
    798. With respect to the distribution of withdrawal penalty funds,
we adopt the NOPR proposal to require transmission providers to use
withdrawal penalty funds to fund studies and restudies conducted under
the cluster study process, with modification. Specifically, we adopt a
structure whereby, if interconnection customers withdraw and are
subject to withdrawal penalties, the transmission provider must use the
withdrawal penalty funds as follows: (1) to fund studies and restudies
in the same cluster; (2) if withdrawal penalty funds remain, to offset
net increases in costs borne by other remaining interconnection
customers from the same cluster for network upgrades shared by both the
withdrawing and non-withdrawing interconnection customers prior to the
withdrawal; and (3) if any withdrawal penalty funds remain, they will
be returned to the withdrawing interconnection customer.
    799. We believe that using withdrawal penalty funds to reduce
network upgrade cost shifts caused by withdrawals will reduce the risk
that the shifted costs are so large as to cause cascading withdrawals,
thus ensuring that interconnection customers are able to interconnect
in a reliable, efficient, transparent, and timely manner. We agree with
Invenergy that it is appropriate for there to be a relationship between
the impact caused by the withdrawal of an interconnection request and
how the withdrawal penalty funds are distributed. We also are persuaded
by Invenergy, PJM, NextEra, and Southern that there are benefits to
distributing withdrawal penalty funds to other interconnection
customers remaining in the cluster to offset increased network upgrade
costs resulting from the withdrawal.\1518\ We therefore modify the NOPR
proposal and revise section 3.7.1 of the pro forma LGIP consistent with
the discussion below.
---------------------------------------------------------------------------

    \1518\ Invenergy Initial Comments at 27-28; NextEra Initial
Comments at 27-28; PJM Initial Comments at 39; Southern Initial
Comments at 20-21.
---------------------------------------------------------------------------

    800. In the paragraphs that follow we summarize the steps a
transmission provider must follow in distributing withdrawal penalty
funds, as fully detailed in section <IP_ADDRESS> of the pro forma LGIP, and
we present an illustrative example.
    801. Section <IP_ADDRESS>.1 of the pro forma LGIP describes the
transmission provider's handling of withdrawal penalty funds and the
first step of distributing them to fund studies and restudies. For a
single cluster, the transmission provider shall hold all withdrawal
penalty funds until all interconnection customers in that cluster have:
(1) withdrawn or been deemed withdrawn; (2) executed an LGIA; or (3)
requested an LGIA to be filed unexecuted. Any withdrawal penalty funds
collected shall first be used to fund studies for interconnection
customers in the same cluster that have executed an LGIA or requested
an LGIA to be filed unexecuted. Distribution of the withdrawal penalty
funds for such

study costs shall not exceed the total actual study costs.
    802. Section <IP_ADDRESS>.2 of the pro forma LGIP provides that if,
after the first distribution step is complete, withdrawal penalty funds
remain, the transmission provider must proceed to the second step of
distributing them to offset net increases in network upgrade cost
assignments driven by the withdrawal. The transmission provider will
determine if the withdrawn interconnection customers, at any point in
the cluster study process, shared cost assignment for one or more
network upgrades with any remaining interconnection customers in the
same cluster based on the cluster study report, cluster restudy
report(s), interconnection facilities study report, and any subsequent
issued restudy report for the cluster.
    803. If the transmission provider determines that withdrawn
interconnection customers shared cost assignment for network upgrades
with remaining interconnection customers in the same cluster, the
transmission provider will calculate the remaining interconnection
customers' net increase in costs (i.e., financial impact) due to a
shared cost assignment for network upgrades with the withdrawn
interconnection customer. It will then distribute withdrawal penalty
funds as described in section <IP_ADDRESS>.3 of the pro forma LGIP,
depending on whether the withdrawal occurred before the withdrawing
interconnection customer executed an LGIA (i.e., during the cluster
study process) or after.
    804. If the transmission provider determines that more than one
interconnection customer in the same cluster was financially impacted
by the same withdrawn interconnection customer, the transmission
provider will apply the relevant withdrawn interconnection customer's
withdrawal penalty to reduce the financial impact to each impacted
interconnection customer based on each withdrawn interconnection
customer's proportional share of the financial impact. Each
interconnection customer's proportional share will be determined by
either the proportional impact method if the net cost increase is
related to a system network upgrade or on a per capita basis if the net
cost increase is related to a substation network upgrade.
    805. Section <IP_ADDRESS>.4 of the pro forma LGIP details the process by
which the transmission provider will provide amended LGIAs to any
interconnection customers in the cluster that qualify for distribution
of withdrawal penalty funds under this framework. To account for
withdrawals that occurred during the cluster study process, the
transmission provider must do the following: Within 30 calendar days of
all interconnection customers in the same cluster having: (1) withdrawn
or been deemed withdrawn; (2) executed an LGIA; or (3) requested an
LGIA to be filed unexecuted, determine if, and to what extent, any
interconnection customers qualify to have their increased network
upgrade costs offset by withdrawal penalty funds and provide such
interconnection customers with an amended LGIA that provides the
reduction in network upgrade cost assignment and associated reduction
to the interconnection customer's financial security requirements.
    806. To account for withdrawals that occurred in the same cluster
after the withdrawing interconnection customer executed an LGIA, or
requests the filing of an unexecuted LGIA, the transmission provider
must do the following: Within 30 calendar days of such withdrawal or
termination, determine if, and to what extent, any interconnection
customers qualify to have their increased network upgrade costs offset
by withdrawal penalty funds and provide such interconnection customers
with an amended LGIA that provides the reduction in network upgrade
cost assignment and associated reduction to the interconnection
customer's financial security requirements.
    807. For any given withdrawal, if the transmission provider
determines that there are no network upgrade cost assignments in the
withdrawn interconnection customer's cluster shared with the withdrawn
interconnection customer, or if the transmission provider determines
that the withdrawn interconnection customer's withdrawal did not cause
a net increase in the shared cost assignment for any remaining
interconnection customers in the cluster, the transmission provider
must return the remaining withdrawal penalty to the withdrawn
interconnection customer. Such remaining withdrawal penalties will be
returned to withdrawn interconnection customers based on the proportion
of each withdrawn interconnection customer's contribution to the total
amount of withdrawal penalty funds collected for the cluster. The
transmission provider must make such disbursement within 60 calendar
days of the date on which all interconnection customers in the same
cluster have either (1) withdrawn or been deemed withdrawn; (2)
executed an LGIA; or (3) requested an LGIA to be filed unexecuted.
    808. By way of example, assume that the transmission provider's
proportional impact method identifies that interconnection customers A,
B, and C in the same cluster all contribute to the need for system
network upgrade A, estimated at $40 million, in the proportions of 50%,
25% and 25%, respectively. Interconnection customer C withdraws from
the interconnection queue after the facilities study, but before
executing, or requesting the unexecuted filing of, the LGIA and pays a
withdrawal penalty of $1 million.\1519\ System network upgrade A is
still required for interconnection customers A and B, and when the
transmission provider conducts the proportional impact method in the
cluster restudy for the same cluster, it now determines that
interconnection customer A's revised network upgrade cost allocation
for system network upgrade A would increase to 67% and interconnection
customer B's revised network upgrade cost allocation for system network
upgrade A would increase to approximately 33%. The transmission
provider would base the distribution of this interconnection customer's
withdrawal penalty on the proportional impact analysis and credit 67%
of the $1 million to interconnection customer A and 33% to
interconnection customer B.
---------------------------------------------------------------------------

    \1519\ In this example, interconnection customer C paid a $1
million withdrawal penalty because it was allocated $10 million in
network upgrade cost (i.e., 25% of $40 million) and withdrew after
receiving the facilities study report, at which point the withdrawal
penalty is 10% of the amount of network upgrades allocated to the
interconnection customer.
---------------------------------------------------------------------------

    809. Finally, section <IP_ADDRESS>.5 of the pro forma LGIP provides that
if, after the first and second distribution steps are complete, some or
all of an interconnection customer's withdrawal penalty remains, the
transmission provider must return the balance of the withdrawn
interconnection customer's withdrawal penalty funds to the withdrawn
interconnection customer.
    810. In response to commenter's concerns regarding the ability of
transmission providers to collect withdrawal penalties from
interconnection customers,\1520\ we further clarify that, in addition
to study deposits, transmission providers must apply commercial
readiness deposits received from the interconnection customer that
exceed the costs that the transmission provider has incurred, including
interest calculated in accordance with Sec.  35.19a(a)(2) of the
Commission's regulations, toward any

withdrawal penalties assessed to the interconnection customer, in
accordance with pro forma LGIP section 3.7.
---------------------------------------------------------------------------

    \1520\ APS Initial Comments at 16; EEI Initial Comments at 8;
Eversource Initial Comments at 19; MISO Initial Comments at 69.
---------------------------------------------------------------------------

    811. In response to NV Energy and Invenergy, we clarify that an
interconnection customer that withdraws during any time in the
interconnection process is responsible for the applicable withdrawal
penalty as well as the costs incurred to perform studies up to that
point, and withdrawal penalty amounts will not be applied toward
incurred study costs. Additionally, in response to NV Energy, we
clarify that if any portion of a generating facility proposed in an
interconnection request achieves commercial operation, even if less
than the original requested MW amount, the interconnection customer
will not be subject to withdrawal penalties.
    812. In response to Tri-State, we clarify that the phrase
``regardless of any previous Withdrawal Penalty revenues received'' in
pro forma LGIP section <IP_ADDRESS> means that the withdrawal penalty will
be calculated based on actual study costs and will exclude any credits
to the study costs from penalties assessed to and received from other
interconnection customers.
    813. We disagree with commenters that assert that a technical
conference is needed to further develop the record on withdrawal
penalties before finalizing requirements in this final rule. For the
reasons explained above, we believe that the record supports the
reforms that we adopt herein and that their adoption is needed to
ensure that interconnection customers are able to interconnect in a
reliable, efficient, transparent, and timely manner.
7. Transition Process
a. NOPR Proposal
    814. In the NOPR, the Commission proposed to revise the pro forma
LGIP to require transmission providers to establish a transition
process for moving to a first-ready, first-served cluster study
process.\1521\ Specifically, the Commission proposed to require
transmission providers to offer existing, eligible interconnection
customers the options to either enter a transitional serial
interconnection facilities study or a transitional cluster study,\1522\
with commercial readiness requirements, or withdraw from the
interconnection queue without penalty.
---------------------------------------------------------------------------

    \1521\ NOPR, 179 FERC ] 61,194 at P 156.
    \1522\ In the NOPR, the Commission explained that the
transmission provider would consider all interconnection requests
accepted within a standard cluster study request period have equal
queue priority for purposes of the cluster study. See id. P 67. This
would be true for all interconnection requests accepted for the
transitional cluster study as well, per the NOPR.
---------------------------------------------------------------------------

    815. To proceed to the transitional serial study, the Commission
proposed that eligible interconnection customers (i.e., interconnection
customers that have executed a facilities study agreement before the
effective date of the transmission provider's compliance filing) would
execute a transitional serial interconnection facilities study
agreement to codify their choice.\1523\ The Commission proposed that at
the time of execution of such agreement, the interconnection customer
would be required to provide a deposit equal to 100% of the
interconnection facility and network upgrade costs allocated to the
interconnection customer in the system impact study report. The
Commission explained that if the interconnection customer's proposed
generating facility reaches commercial operation, this deposit would be
used toward construction costs of the same facilities.
---------------------------------------------------------------------------

    \1523\ Id. P 158.
---------------------------------------------------------------------------

    816. The Commission further explained that if the interconnection
customer withdraws, the deposit would be refunded after the final
invoice for study costs and the withdrawal penalty are settled. The
Commission proposed that the transitional serial study withdrawal
penalty would equal nine times the study cost. The Commission also
proposed that transitional serial generating facilities would be
required to provide evidence of exclusive site control for the entire
generating facility and any interconnection customer's interconnection
facilities, as well as demonstrate commercial readiness through one of
the following: (1) an executed term sheet (or comparable evidence)
related to a contract for the sale of the generating facility's output
or its energy/ancillary services; (2) reasonable evidence that the
generating facility is included in a resource planning entity's
resource plan, has received a contract via a resource solicitation
process, or is being developed for a large end-use customer; or (3) a
provisional LGIA that is not suspended and includes a commitment to
build the generating facility. The Commission proposed that the
deadline for the interconnection customer to meet all the provisions
above would be 60 calendar days after the effective date of a
transmission provider's compliance filing to the final rule. Finally,
the Commission proposed that the transmission provider complete
transitional serial studies within 90 calendar days after the deadline
for eligibility requirements to be satisfied.\1524\
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    \1524\ NOPR, 179 FERC ] 61,194 at P 158.
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    817. The Commission proposed that existing interconnection
customers that opt for the transitional cluster study would execute a
transitional cluster study agreement to codify their choice.\1525\ The
Commission proposed that interconnection customers may make a one-time
extension of their requested commercial operation date upon entry into
the transitional cluster study, where any such extension shall not
result in a commercial operation date later than December 31, 2027. The
Commission proposed that the costs of this study and the identified
facilities would be allocated as the costs are allocated for future
cluster studies, as set forth in this final rule. The Commission also
proposed that the transitional cluster would be subject to an expedited
combined system impact and interconnection facilities study. The
Commission explained that transitional cluster study generating
facilities would be required to select ERIS or NRIS. The Commission
proposed to require interconnection customers opting for a transitional
cluster study to make a $5 million deposit. The Commission proposed to
subject this deposit to the same conditions as the transitional serial
study deposit.
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    \1525\ Id. P 159.
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    818. The Commission also proposed to require interconnection
customers with interconnection requests in the transitional cluster to
produce evidence of exclusive site control for their entire generating
facilities and demonstrate commercial readiness through one of the same
three options described above for transitional serial studies.\1526\
The Commission proposed that the deadline to satisfy these requirements
would be 60 calendar days after the effective date of a transmission
provider's compliance filing to the final rule. Finally, the Commission
proposed that the transitional cluster study be completed by the
transmission provider within 300 calendar days after the deadline for
eligibility requirements to be satisfied.
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    \1526\ Id. P 159.
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    819. The Commission sought comment on: (1) whether certain
interconnection customers with pending interconnection requests
submitted prior to the issuance of a final rule should be allowed to
proceed to LGIA execution without entering the transition process; (2)
whether the Commission should require transmission providers to accept
any additional commercial readiness demonstrations for entry into the

transition process, and whether existing interconnection customers
should be permitted to enter their interconnection requests into the
transitional cluster study process by posting a deposit in lieu of
demonstrating commercial readiness; and (3) whether $5 million is a
reasonable estimate of the costs that would be allocated to the
interconnection customer via the transitional cluster study.\1527\
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    \1527\ Id. P 160.
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b. Comments
i. Comments in Support
    820. A few commenters fully support the proposed transition
process.\1528\ For example, NRECA states that it strongly supports the
proposed transition process because it fulfills the Commission's goal
of ensuring an efficient way to prioritize and process interconnection
requests, based on how far they have advanced through the
interconnection process and their commercial readiness.\1529\
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    \1528\ Affected Interconnection Customers Initial Comments at
13; Consumers Energy Initial Comments at 5; Idaho Power Initial
Comments at 9; Longroad Energy Reply Comments at 16; NRECA Initial
Comments at 9, 31.
    \1529\ NRECA Initial Comments at 31.
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    821. More commenters support the NOPR's core proposal to require
transmission providers to offer interconnection customers with existing
interconnection requests three options for moving forward (i.e.,
entering a transitional serial study, entering a transitional cluster
study, or withdrawing without penalty).\1530\ For example, Pine Gate
asserts that, given the current interconnection queue backlogs in
multiple regions, it is essential that the Commission craft a
transition process that permits late-stage interconnection requests to
finish the interconnection process under the existing rules, while
transitioning most interconnection requests to the new cluster study
process.\1531\
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    \1530\ Clean Energy Associations Initial Comments at 42-43;
ENGIE Initial Comments at 7; NARUC Initial Comments at 10; NextEra
Initial Comments at 28; [Oslash]rsted Initial Comments at 13; Pine
Gate Initial Comments at 35-36.
    \1531\ Pine Gate Initial Comments at 35-36; see also NextEra
Initial Comments at-+28.
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    822. With respect to the transitional serial study,\1532\ many
commenters, predominantly interconnection customers, support the
proposal to provide this option to interconnection customers that have
executed a facilities study agreement.\1533\ AEE and Pine Gate state
that this provision respects the investments made by interconnection
customers based on current interconnection procedures.\1534\ Similarly,
Pattern Energy argues that, at the facilities study stage, an
interconnection customer has relatively concrete economic expectations
about its potential network upgrade obligations and should not be
required to start the interconnection process over again.\1535\
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    \1532\ Note that most commenters refer to this as ``proceeding
to LGIA'' or ``proceeding to LGIA without going through the
transition process,'' while a few use the term ``transitional serial
study.'' These terms are taken to be synonymous because the NOPR
describes the transitional serial study process as permitting
interconnection customers to ``continue under the existing serial
study process, enter into an LGIA, and interconnect.'' See NOPR, 179
FERC ] 61,194 at P 158.
    \1533\ AEE Initial Comments at 27; AES Initial Comments at 20;
Affected Interconnection Customers Initial Comments at 9; Idaho
Power Initial Comments at 9; Longroad Energy Reply Comments at 16;
NARUC Initial Comments at 10; NextEra Initial Comments at 28;
Northwest and Intermountain Initial Comments at 5; [Oslash]rsted
Initial Comments at 14; Pattern Energy Initial Comments at 35; Pine
Gate Initial Comments at 37; SEIA Initial Comments at 28.
    \1534\ AEE Initial Comments at 27; Pine Gate Initial Comments at
37.
    \1535\ Pattern Energy Initial Comments at 35.
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    823. Other commenters express qualified support for the proposal.
Noting that significant investments have been made and that generating
facility contracting and financing patterns have been developed based
on existing tariffs, Interwest calls for a structured, well-noticed
transition period, to allow the market sufficient time to adjust to new
processes, especially if the new process dramatically alters
interconnection and cost allocation principles.\1536\ Similarly, the
Pennsylvania Commission agrees that a transition process is necessary
to integrate the Commission's proposed interconnection queue reforms to
allow individual interconnection customers the opportunity to decide,
based on the newly adopted minimum interconnection parameters, whether
to remain in the interconnection queue.\1537\
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    \1536\ Interwest Initial Comments at 6, 23-24.
    \1537\ Pennsylvania Commission Initial Comments at 15.
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ii. Comments in Opposition
    824. CREA and NewSun argue that the proposed transition process is
unnecessary, as a first-ready, first-served cluster study process
places the decision to enter a cluster in the hands of the
interconnection customer regardless of whether there are previously
queued interconnection requests.\1538\ In a similar vein, EEI contends
that it would be reasonable to require transmission providers to
establish their own transition processes or to allow existing
interconnection customers to proceed to LGIA execution without entering
the transition process.\1539\
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    \1538\ CREA and NewSun Initial Comments at 79.
    \1539\ EEI Initial Comments at 9.
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    825. CREA and NewSun also fault the proposal to treat all
interconnection requests in a transitional cluster as having a single
queue priority because it fails to protect the investment expectations
of interconnection customers with interconnection requests that have
entered the interconnection queue.\1540\ CREA and NewSun argue that the
Commission has previously recognized that queue positions should be
respected and either grandfathered or otherwise transitioned into a
cluster study process that avoids devaluing the existing queue
position. CREA and NewSun urge the Commission to modify its proposed