Other empire states don't seem to confederate. In my two playthroughs of the empire since the latest dlc, neither Gelt's faction (controlled by AI) or the empire (AI faction) confederated with other empire states. I played up to turn 104 in my first playthrough and have made it to turn 74 on my second playthrough. This may be related to the other bug posted a few days ago regarding the lack of diplomacy options with other empire states.
In the new patch the player forms confederations via a series of dilemma choices, followed by an eventual offer of confederation with the AI faction. The AI can't confederate diplomatically and it doesn't appear to be subject to dilemmas or events that cause confederation for the player.