Public Service Commission Rejects Utility’s Request to Impose Additional Charges on Distributed Energy Developers at Any Time Before Commercial Operation

On July 23, 2024, the New York State Public Service Commission (PSC or Commission), issued an Order Denying Petition and Making Findings (July 23 Order), in which it rejected Niagara Mohawk Power Corporation d/b/a National Grid (National Grid) plan to impose significant additional costs on forty-five (45) distributed energy resource (DER) developers located in Western New York.¹

The impetus of National Grid’s petition was the utility’s adoption in 2023 of updated analytical software which, once deployed, was able to identify safety and fault issues not detected with previous analytic tools. After using these tools to re-evaluate advanced projects, the utility sought to implement additional system upgrades at the expense of project developers. National Grid argued that broader principles of cost allocation allowed the utility to impose all additional costs for these newly identified upgrades on all affected projects that had not yet been energized. A majority of commenters warned that such a rule would create significant financial uncertainty for DER developers throughout New York, ultimately jeopardizing the State’s aggressive renewable energy goals. 

National Grid’s argument was both theoretical and textual. According to the utility, because developers were responsible for the cost of distribution system upgrades required for interconnection, such costs could be imposed on the developer at any time prior to a project’s completion and final interconnection. National Grid also sought to support this contention by pointing to the cost reconciliation provisions of New York’s Standardized Interconnection Requirements (SIR), including certain revisions made to the SIR in April 2023, claiming that the language was sufficiently broad to allow the utility to continually re-evaluate and change the type of upgrades needed for safe interconnection, regardless of the change in magnitude or scope, and then pass on all interconnection costs “without exception” to the interconnecting developer.² This interpretation caused major concern to developers who had executed interconnection agreements with National Grid that were being relied upon for project projections and viability. DER developers throughout the State also recognized that National Grid’s interpretation, were it accepted by the Commission, would create significant cost uncertainty for all existing and future projects. 

Fortunately, the Commission agreed that DER developers were entitled to rely on their executed agreements and ultimately rejected National Grid’s interpretation  with respect to the 45 affected projects, stating unequivocally that the language of the SIR prior to the April 23 revisions (Effective SIRs) did not authorize the utility to “require an applicant to fund the costs associated with upgrades that were not identified through the original CESIR³ process.”⁴ The Commission further stated that “there was no language in the Effective SIRs” allowing the utility to pass on costs for upgrades it had not previously identified,⁵ and that to apply later SIR language revisions to the Effective SIRs would constitute “retroactive ratemaking."⁶ Therefore, to acknowledge the utility’s obligations and ameliorate the impacts of its ruling, the Commission authorized National Grid to proceed with the newly-identified upgrades and prioritize the interconnection of the 45 projects waiting for interconnection, while also confirming that future projects benefitting from the later-identified upgrades would have a continuing obligation to pay incremental costs in accordance with existing cost sharing mechanisms in the SIR. 

Unfortunately, the July 23 Order falls short of providing the cost certainty sought by most commentators because the Commission declined to interpret the broad cost language added to the SIR in April 2023, but instead directed staff to work with other stakeholders to “consider whether clarifications are necessary."⁷ Accordingly, distributed energy developers who executed Interconnection Agreements after April 2023 will continue to wrestle with this question. Regardless, and despite the Commission’s narrow focus on previously executed agreements, the discussion is significant for the Commission’s clear acknowledgement that developers may rely on the terms of their own executed SIR (and executed Interconnection Agreement) to establish the scope and specificity of the distribution upgrades they will be required to pay for.  “Thus, the SIRs base the applicant’s ultimate cost obligations on the expressed upgrade(s) identified in [the CESIR] report and the actual costs associated with those upgrade(s).”⁸ 

Hodgson Russ Perspective

Through the July 23 Order, the Commission has taken a significant step toward the creation of a business environment that provides financial certainty for renewable energy developers wishing to construct DER projects in New York State. Although the Commission refused to declare at this juncture that cost estimates were equivalent to a “cost-cap,” as requested by several commenters, the alternative acknowledgment that the utility is obligated to identify specific upgrades during the CESIR should now form a more solid basis for DER developers to move forward. Moreover, the Commission’s recognition that imposing later changes to the SIR on previously executed agreements would constitute retroactive ratemaking, is a strong signal that existing agreements will be enforced, as written. It should also be a strong signal to the State’s utilities that they must provide interconnection applicants with sufficient detail to enable sound business decisions.

In a larger context, the Commission’s July 23 Order represents a small but significant step towards addressing a growing frustration within the DER business community regarding unanticipated cost increases for distribution system upgrades, including unexpected administrative and overhead charges imposed after critical decision milestones.  As noted above, the July 23 Order does not speak directly to these less specific concerns but does articulate the Commission’s recognition of both the utility’s obligation to provide timely and complete estimates to DER developers and the DER developer’s need to rely on executed agreements.         

For more information, contact William McLaughlin (518.433.2449) or any member of the Hodgson Russ Renewable Energy Practice.

Disclaimer:

This client alert is a form of attorney advertising. Hodgson Russ LLP provides this information as a service to its clients and other readers for educational purposes only. Nothing in this client alert should be construed as, or relied upon, as legal advice or as creating a lawyer-client relationship.

¹ Case 23-E-0730, Petition of Niagara Mohawk Power Corporation d/b/a National Grid for a Declaratory Ruling and Certain Limited Relief Regarding Standardized Interconnection Requirements and Application Process for New Distributed Generators and/or Energy Storage Systems 5 MW or Less Connected in Parallel with Utility Distribution Systems, Order Denying Petition and Making Findings (July 23, 2024)(“July 23 Order”) .

² Id. at 4-5.

³ Id. at p.22. “The CESIR process (which means “Coordinate Electric System Interconnection Review”) is the mechanism for the utilities to determine what system modifications will be needed to safely interconnect a [Distributed Energy Resource] project.”

⁴ Id.

⁵ Id. at 25

⁶ Id. at 25.

⁷ Id. at 26.

⁸ Id. at 23.