Ground Lease Option Expiration and FERC Order 2023 Queues: How to Avoid the Milestone Gap

The structural problem: option terms were not sized for post-reform queues

The math is simple and brutal. A developer that entered the interconnection queue in Q3 2022 likely assembled its land package with standard 3-year option-to-lease agreements. Those options expire in Q3 2025 — right now, or already past. LBNL's Queued Up 2025 report puts the average application-to-COD timeline at over 8 years for projects in interconnection queues today. FERC Order 2023 reformed those queues beginning in 2024 — but it did not shorten them. If anything, the transition to cluster-based processing with milestoned Decision Points has added administrative steps.

The result: a generation of options drafted before FERC Order 2023 used terms calibrated to pre-reform queue speeds. Those terms are structurally insufficient for the queues those projects are actually in.

A 3-year option signed at queue application gets you through the first study phase. It does not get you to an interconnection agreement. Under FERC Order 2023, the distance between those two events — measured in time, not milestones — is the problem.

This is most urgent for options signed in late 2022 and early 2023 with 3-year primary terms. Their "extend or lose" inflection point is Q3–Q4 2025, or in the next six months for Q1 2023 signings. Law firms and independent engineers doing site control reviews for these projects need to be running this audit now.

This post goes deeper on extension clause mechanics than our prior post on option expiration and milestone coverage math. That post covers how expired options affect the coverage calculation at each stage; this one covers how to draft the option so the expiration problem doesn't arise in the first place — and how to fix it when it already has.

Where expiration risk lives: RTO milestone sequences

Each RTO implements FERC Order 2023's site control requirements through its own milestone structure. The critical insight is that options may be eligible at application but are universally excluded at IA/GIA execution. The gap — how many years separate application from IA execution — is the risk window. See our full RTO threshold reference for per-stage coverage percentages and option weight rules.

The practical consequence: if your option expires between any two milestones in this sequence, you fail the next milestone's site control audit. PJM's Decision Point structure means there are three discrete moments where coverage is formally audited. An option that lapses between DP I and DP II creates a deficiency at DP II.

PJM Manual 14H, Section 7 defines eligible site control instruments for each Decision Point. An option-to-lease is eligible at DP I and DP II, but not at DP III. The instrument must also be in effect at the time of the audit. A lapsed option fails both prongs — it is neither eligible nor in effect. The CAISO GIDAP Business Practice Manual contains equivalent language on eligible instruments by cluster study phase, with the additional wrinkle that CAISO discounts options to 75% of their acreage weight at the Facilities Study stage.

FERC Order 2023's specific requirements for option instruments

FERC Order 2023 does not use the word "option" as a term of art. Instead, it defines site control in terms of instruments that give the developer the right to develop the site — and leaves RTOs to specify which instrument types qualify at each stage. What FERC does require is that the instrument be "exercisable" at the relevant milestone date. That word does significant legal work.

An option that is in-term (not expired) is exercisable in the general sense. But RTOs have interpreted "exercisable" to mean something more specific: the developer must have the contractual right to convert the option to a lease, or to exercise the purchase right, on or before the milestone date. An option with a 6-month notice requirement, where the milestone date is 4 months away, is arguably not exercisable in the sense that matters. CAISO's GIDAP BPM has addressed this directly by requiring that the option be exercisable within the milestone window, not merely that it be unexpired.

The term minimum: most RTOs require that the underlying instrument (once executed as a lease) run at least 1 year beyond the relevant milestone date. For IA execution, that means the lease must run at least 1 year beyond the IA execution date. An option exercisable into a 20-year lease satisfies this easily. An option exercisable into a 1-year lease does not.

At IA execution itself, all RTOs require a recorded lease (or fee simple, easement, or ROW agreement) — not an option. The conversion from option to executed, recorded lease must be complete before the IA execution site control deadline. For PJM, that deadline is set at DP III; for MISO, it is the GIA execution date; for CAISO, it is the IA execution date minus 30 days.

Six extension clause terms every option should include

If you are drafting a new option for a project entering any RTO queue today, these six provisions are not optional niceties — they are structural requirements given the mismatch between typical option terms and actual queue timelines.

1. Automatic extension tied to RTO milestone dates

Calendar-date terms are the root of the problem. Replace them with milestone-linked terms. The clause should read something like:

The Option Term shall automatically extend to the later of (a) the Primary Term Expiration Date or (b) the date that is six (6) months following the execution of the Interconnection Agreement (or equivalent final interconnection agreement) for the Project under the applicable Regional Transmission Organization's interconnection procedures, provided that Developer provides Landowner written notice of such Interconnection Agreement execution within thirty (30) days thereof.

This is the single most important clause. It directly severs the link between option expiration and queue progress. The option can no longer expire mid-queue unless the developer fails to reach IA execution at all.

2. Developer notice-triggered extension option

Even with a milestone-triggered automatic extension, include an explicit notice-triggered extension right as a backstop. Standard form:

Developer shall have the right to extend the Option Term for up to three (3) additional periods of one (1) year each (each an "Extension Term") upon written notice to Landowner delivered no later than sixty (60) days prior to the expiration of the then-current term. Additional consideration for each Extension Term shall be $[X] per acre of the Property per year of such Extension Term, payable within fifteen (15) days of the commencement of such Extension Term.

Three one-year extensions at 60-day notice gives the developer 5 years of total term from a 2-year primary term, with meaningful notice windows. The per-acre additional consideration should be negotiated up front and included in the original agreement — trying to agree on extension consideration in year 4 of a project, when the developer is under timeline pressure, is a poor negotiating position.

3. Milestone-triggered extension right

Separate from the IA execution automatic extension, include a right triggered by earlier milestones:

If Developer achieves completion of Phase I Interconnection Study (or equivalent first-stage system impact study) for the Project prior to expiration of the then-current Option Term, the Option Term shall automatically extend to the date that is twelve (12) months following the date on which Developer receives the applicable Phase I Study results.

Phase I study completion is an objective, verifiable milestone. This clause rewards forward queue progress with proportional term extension and gives the developer runway to negotiate a full lease without the artificial pressure of an expiring option.

4. Force majeure and regulatory delay carveout

FERC rulemakings, RTO process suspensions (PJM's queue moratorium being a recent example), and transmission planning delays are not within the developer's control. Standard force majeure language typically excludes market conditions and financing difficulties, but it should explicitly include regulatory process delays:

The Option Term shall be tolled, and shall not be deemed to be running, during any period in which the interconnection application process for the Project is suspended, stayed, or subject to a moratorium by the applicable RTO, FERC order, or court order, provided that Developer provides Landowner written notice of such suspension within thirty (30) days of its commencement and written notice of its termination within thirty (30) days of its conclusion.

Without this clause, PJM's 15-month queue moratorium (2022–2023) consumed option term for projects that had no ability to advance their queue position during that period.

5. Holdover provision during active extension cure period

If the primary term or an Extension Term expires while the developer is actively pursuing an extension (i.e., a notice of extension has been delivered but the extension period has not formally commenced), the option should remain in effect:

If Developer has delivered a timely notice of extension pursuant to Section [X] and the then-current term expires prior to the commencement date of such extension, this Option Agreement shall remain in full force and effect during the period between the expiration of the then-current term and the commencement of such extension (the "Holdover Period"), provided that such Holdover Period does not exceed sixty (60) days.

Without this provision, a developer whose extension notice was timely but whose option technically expired on a weekend before the extension period formally began could find itself with a lapsed option through a drafting gap.

6. Recordable memorandum of option

The full option agreement is almost always confidential. The consideration, development timeline projections, and internal pricing are not information the developer wants in the public record. But an unrecorded option is invisible to subsequent purchasers of the fee interest — a bona fide purchaser without notice takes free of the unrecorded interest in most states.

The solution is a memorandum of option: a short-form document that records the existence of the option, identifies the parties, describes the property, states the option term and extension rights (without dollar amounts), and is signed by both parties before a notary. The memorandum does not disclose economic terms. It does establish priority in the land records.

Contemporaneously with the execution of this Agreement, the parties shall execute and Landowner shall authorize Developer to record a Memorandum of Option Agreement in the form attached hereto as Exhibit [X] in the real property records of [County], [State]. Developer shall be responsible for all recording costs and fees.

The memorandum should also reference any extension rights so that a title searcher is on notice that the term may extend beyond what is stated as the primary term expiration date.

Recording requirements for extensions

This is where practitioners frequently make an expensive mistake. If the original memorandum of option was recorded, an extension agreement that is not recorded does not maintain priority against subsequent interests in most states.

The general rule: a recorded instrument establishes constructive notice from the date of recording. An amendment or extension that is not recorded is effective between the parties but may not be effective against a subsequent purchaser who acquires without actual notice of the extension. The original memorandum puts the world on notice that an option exists with a stated primary term. Once that primary term expires, a subsequent purchaser who searches title and finds only the expired memorandum is arguably a bona fide purchaser without notice of an extension.

California: California Government Code Section 27280 et seq. governs recording. Any instrument affecting real property, including an amendment to a previously recorded instrument, may be recorded. An unrecorded amendment is void against a subsequent purchaser or mortgagee in good faith and for valuable consideration who first records (Cal. Civ. Code § 1214). Practice standard in California: record a memorandum of the extension agreement in the same county as the original memorandum.

Texas: Texas Property Code Section 12.001 provides that any instrument concerning real property may be recorded. An unrecorded instrument is void as to a creditor or subsequent purchaser for valuable consideration without actual or constructive notice (Tex. Prop. Code § 13.001). The CAISO and Texas ERCOT overlap means a significant volume of Texas options were drafted for ERCOT projects that are now encountering the same expiration problem as FERC-jurisdictional queues. Record the extension in the county where the property is located.

Other states: Race-notice recording acts (the majority) protect subsequent purchasers who record first. Pure notice states protect subsequent purchasers who take without notice regardless of recording. In both cases, the developer's safest position is to record the extension agreement (or a memorandum of it) promptly upon execution. Do not rely on the landowner's constructive knowledge of the extension from ongoing dealings to substitute for recording.

For California projects subject to Williamson Act constraints, note that a recorded option extension may interact with the county's Williamson Act contract in ways that require separate analysis. Williamson Act contracts run with the land and restrict non-agricultural use; a solar project option is already in tension with a Williamson Act contract, and an extension may not be valid without county notice or approval depending on the contract terms.

The portfolio audit you should be running in Q3 2026

If you manage a portfolio of projects in interconnection queues, or if you are an independent engineer or law firm reviewing a site control package, the following five-step audit identifies options at risk before they become deficiency notices.

Step 1: Identify all options expiring in the next 18 months

Pull every option-to-lease and option-to-purchase instrument with an expiration date between today and December 31, 2027. Include both primary terms and the last available extension term (i.e., if the developer has already exercised two of three extension rights, the effective expiration is the end of that second extension — there is no further right to extend).

Step 2: Map expiration dates against next-milestone dates

For each project, identify the next RTO milestone at which a site control audit is conducted. For PJM, that is the next upcoming Decision Point. For CAISO, it is the next cluster study phase transition or facilities study filing. For MISO, it is the next DPP phase or GIA execution date.

The question is whether the option expires before the next milestone site control audit. If it does, the developer cannot use that option to satisfy coverage at that milestone.

Step 3: Calculate gap risk

Gap risk is the combination of (a) how much acreage the expiring option controls, (b) what coverage percentage that acreage represents relative to the project boundary, and (c) how close the resulting coverage percentage is to the applicable RTO threshold after the option is excluded.

A project at 92% coverage where expiring options control 10% of the project boundary drops to 82% — still above most first-study-stage thresholds. A project at 75% coverage (right at threshold) where expiring options control 15% drops to 60% — a deficiency at any stage. The latter project has critical gap risk; the former has manageable gap risk.

Step 4: Priority sort by gap magnitude and milestone proximity

Rank the at-risk options by urgency: gap magnitude (how far below threshold the project falls on expiration) multiplied by milestone proximity (how many months until the next site control audit). A project that drops 20 percentage points below threshold with a milestone 4 months out is a five-alarm priority. A project that drops 5 points below threshold with a milestone 18 months out can wait for the next quarterly review cycle.

Step 5: Assess the cure options

For each at-risk option, the developer has three cures: (a) extend the option — requires landowner consent unless the extension right is unilateral under the existing agreement; (b) convert the option to an executed lease before the milestone — requires landowner cooperation and typically 60–90 days; or (c) replace the option with coverage from other instruments elsewhere in the project boundary — requires that sufficient replacement acreage exists. If none of these cures are available in the time remaining, the developer needs to assess whether a partial withdrawal or project boundary amendment is necessary before the milestone.

PJM-specific: what Manual 14H actually says

PJM Manual 14H, Section 7 is the operative document for PJM site control requirements. It defines eligible instruments for each Decision Point and specifies the documentation requirements for demonstrating control. The key language on options is in Section 7.3: an option agreement is eligible at Decision Point I and Decision Point II provided it (a) grants the developer the right to execute a lease or purchase agreement covering the project site, (b) has not expired as of the Decision Point date, and (c) has a remaining term of not less than one year from the applicable Decision Point date.

That one-year minimum remaining term requirement is the provision that catches developers off-guard. An option that expires in 8 months is not eligible at DP I even if the DP I audit is tomorrow, because its remaining term is less than one year. Practitioners reviewing PJM site control packages should check this against every option instrument in the package.

At Decision Point III (IA execution), PJM Manual 14H requires executed and recorded leases (or equivalent instruments). Options are not eligible. The DP III site control submission must include recorded instrument copies for every parcel in the project boundary above de minimis acreage. See our full guide to PJM Decision Points I, II, and III for the complete checklist.

CAISO-specific: the Facilities Study discount and the GIDAP BPM

CAISO's treatment of options is unique among major RTOs: options are discounted to 75% weight at the Facilities Study stage, rather than excluded outright. This creates a coverage floor problem that shows up a full study phase before IA execution.

A project at 95% coverage at Cluster Phase 2 (where options count at full weight) drops to approximately 82% at Facilities Study if 17% of the project boundary is controlled only by options. CAISO's Facilities Study threshold is typically 75%. That project barely clears. But if any of those options have also expired by the Facilities Study date, the remaining coverage drops further.

The CAISO GIDAP Business Practice Manual (available at the CAISO rules page) contains the definitive instrument eligibility matrix for each cluster study phase. Law firms drafting for CAISO projects should use this document as the compliance checklist, not FERC Order 2023 directly — CAISO's tariff and BPM are the operative instruments in that market.

For California-sited projects, the interaction between option extensions and Williamson Act contracts requires separate legal analysis at the county level. An option extension on Williamson Act-contracted land may require county approval or notice, and failure to obtain it could render the extension invalid under state law even if valid between the parties.

MISO-specific: the DPP phase transition and GIA execution cliff

MISO's Definitive Planning Period (DPP) study process has a well-documented site control cliff at GIA execution: options are excluded entirely, and the developer must have executed, recorded leases for 100% of the project boundary. This is a harder standard than PJM (which allows exceptions for de minimis areas) and CAISO (which allows conversion up to the IA execution date minus 30 days).

MISO's DPP timeline has been running 18–36 months for Phase I, with Phase II adding another 12–18 months in complex cases. For a project that entered DPP in Q1 2022, GIA execution may be arriving in 2025–2026. Options signed in 2022 with 3-year terms are expiring exactly as GIA execution approaches.

The MISO-specific fix: the extension clause should include an explicit carveout for the MISO DSA (Definitive Study Agreement) date. The DSA is the formal MISO milestone at which Phase I study is completed and Phase II is authorized. Tying an automatic extension to the DSA date gives the developer runway through Phase II completion without relying on a calendar date.

Sources

• FERC Order 2023 — Interconnection Final Rule
• PJM Manual 14H — Generator Interconnection Procedures (Section 7: Site Control)
• CAISO GIDAP Business Practice Manual — Generator Interconnection Deadlines and Application Process
• LBNL Queued Up 2025 — Characteristics of Power Plants Seeking Transmission Interconnection
• California Government Code § 27280 et seq. — recording requirements for real property instruments
• Texas Property Code §§ 12.001, 13.001 — recording and constructive notice

Related articles

• Option-to-Lease Expiration and Interconnection Milestones — Coverage math when an option expires mid-queue, worked examples by RTO stage, and milestone-aware alert cadences. This post goes deeper on extension clause mechanics.
• FERC Order 2023 Site Control Coverage Thresholds by RTO and Stage — The full per-stage, per-RTO reference table including option weights and eligible instrument types.
• PJM Decision Points I, II, and III: Site Control Requirements at Each Stage — The DP-by-DP checklist for PJM site control submissions, including Manual 14H documentation requirements.
• Williamson Act Land and CAISO Interconnection Queue — How California's agricultural land contracts interact with CAISO site control requirements and option extension mechanics.
• FERC Order 2023 Compliance in 2026: Why This Is the Year — The broader compliance urgency context, with deposit escalation data and RTO risk rankings.