FERC Approves Termination of Generator Interconnection Agreement for Wind Project Based on Strict Interpretation of Generator Interconnection Procedures

March 7, 2016

The Federal Energy Regulatory Commission (FERC) issued an order on March 4, 2016, accepting a notice filed by Midcontinent Independent System Operator, Inc. (MISO) which has the effect of terminating a Generator Interconnection Agreement (GIA) for a 150 MW wind-powered electric generating facility being developed in North Dakota.1  The order is based on a strict reading of a provision in the generator interconnection procedures set forth in MISO’s tariff that limits extensions of an interconnecting generator’s commercial operation date to no more than 3 years. Commissioner Cheryl LaFleur dissented from the order, stating that the order deviated from FERC’s prior policy of exercising discretion and considering certain equitable factors in cases addressing notices of termination of GIAs. The order, as approved by the majority of the Commissioners, sends a strong message to developers of electric generating projects that they cannot assume that interconnection providers will grant extensions of development milestones in GIAs unless language in the GIAs or applicable generator interconnection procedures provide for such extensions.

The GIA involved in the case, was entered into by a predecessor of the current developer, Merricourt Power Partners, LLC (Merricourt), Montana-Dakota Utilities Company (Montana-Dakota), and MISO. The GIA required Merricourt to achieve commercial operation of its project by December 1, 2012. Merricourt was concerned that MISO might terminate the GIA if the commercial operation milestone was missed by more than 3 years and, as the end of that 3-year period approached, Merricourt asked MISO to provide assurance that MISO would either (1) not seek termination if Merricourt failed to achieve commercial operation by December 1, 2015, or (2) amend the GIA to extend the date until December 1, 2016. MISO apparently refused to grant either request.2  Merricourt then filed a complaint with FERC seeking to force MISO to grant these requests, but FERC denied the complaint in an order issued October 2015, stating that the complaint was premature because MISO had not yet filed to terminate the GIA.3  On December 4, 2015, based on the fact that Merricourt had not yet achieved commercial operation, MISO filed a notice with FERC to terminate the GIA; FERC accepted MISO’s termination filing in the March 4, 2016 Order.

The key legal requirement that led to FERC’s decision in the case is a provision in MISO’s generator interconnection procedures that states that: (1) once a certain phase of the interconnection process is reached, MISO will not unreasonably withhold approval of a request to extend the commercial operation date in a GIA if certain conditions are met, with any such extension not to exceed 3 years; and (2) any change that extends the commercial operation date by more than 3 years beyond the date specified in the interconnecting generator’s initial interconnection request is a “Material Modification” to the interconnection request.4  The circumstances under which MISO may not unreasonably withhold approval of a request for extension were not present in this case, and FERC held in the March 4, 2016 Order that this provision in the MISO generator interconnection procedures precludes extension of the commercial operation date in the GIA by more than 3 years (even if the circumstances under which MISO may not unreasonably withhold approval had been present). (There was no indication in the case that Merricourt had sought to make a Material Modification to its interconnection request, which would have required a restudy by MISO of the interconnection request.)

Commissioner LaFleur states in her dissent that FERC precedent supports rejecting a notice of termination and allowing extension of milestones after consideration of certain factors, including (1) whether the extension would harm other generators with a lower priority in the interconnection queue, (2) whether the failure to meet the deadlines was within the interconnecting generator’s control, (3) whether the extension was expressly authorized or prohibited under applicable interconnection procedures, and (4) the progress made by the generator toward achieving commercial operation. However, the majority applied a strict interpretation of the applicable provision of the MISO generator interconnection procedures and distinguished this case from prior cases cited by Merricourt (without directly addressing the points made by Commissioner LaFleur).

This order will potentially have a severe effect on the development of Merricourt’s project, in which the developer states that it has already invested more than $20 million, including $17.8 million to pay for already completed upgrades to the Montana-Dakota electric transmission network, as required under the GIA.5  This order sends a strong message to developers of electric generation projects that the requirements in their GIAs may be strictly applied and, if there is a question about whether applicable milestones can be met, the developers may be required to strictly follow applicable procedures, including filing a Material Modification to their interconnection request if needed, to extend the milestones.

Merricourt has 30 days from the date of the order to seek rehearing by FERC, and any FERC decision on rehearing may be further appealed to the U.S. Court of Appeals.

1 Midcontinent Independent System Operator, Inc., 154 FERC ¶ 61,172 (2016) (“March 4, 2016 Order”).  A copy is available here.
2 See Merricourt Power Partners, LLC, 153 FERC ¶ 61,182 at PP 6-7 (2015).
3 Id. Merricourt represented that Montana-Dakota supported extension of the commercial operation deadline.
4 Section 4.4.4 of MISO’s Generator Interconnection Procedures, cited in March 4, 2016 Order at P 23 and note 28.
5 Other progress toward development that has apparently already been made includes securing the rights to purchase a power transformer, acquisition of 10 percent of the required wind turbines, entering into a definitive agreement for purchase of the remaining wind turbines, obtaining a letter of intent from a load-serving utility within MISO for sale of the full output of the facility, and obtaining a site permit for the facility from the North Dakota Public Service Commission.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Hugh Hilliard, an O'Melveny counsel licensed to practice law in the District of Columbia and Maryland, and Nidhi Geevarghese, an O'Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted. 

Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York's Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, Phone:+1-212-326-2000. © 2016 O'Melveny & Myers LLP. All Rights Reserved.