Order 671

UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
18 CFR Parts 131 and 292
(Docket No. RM05-36-000; Order No. 671)
Revised Regulations Governing Small Power Production and Cogeneration Facilities
(Issued February 2, 2006)
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final Rule.
SUMMARY: Pursuant to section 1253 of the Energy Policy Act of 2005 (EPAct 2005)
and section 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA), the
Federal Energy Regulatory Commission (Commission) revises 18 CFR parts 131 and 292
to implement amended regulations governing qualifying cogeneration and small power
production facilities.
EFFECTIVE DATE: The rule will become effective [insert date 30 days after
publication in the FEDERAL REGISTER].
FOR FURTHER INFORMATION CONTACT:
Paul Singh (Technical Information)
Office of Markets, Tariffs and Rates
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8576

Samuel Higginbottom (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8561
Eric D. Winterbauer (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C. 20426
(202) 502-8329
SUPLEMENTARY INFORMATION:

UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Joseph T. Kelliher, Chairman;
Nora Mead Brownell, and Suedeen G. Kelly.
Revised Regulations Governing Small Power
Production and Cogeneration Facilities

Docket No. RM05-36-000

ORDER NO. 671
FINAL RULE
(Issued February 2, 2006)
I.

Introduction

1.

On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005) 1 was signed into

law. Pursuant to section 210 of the Public Utility Regulatory Policies Act of 1978
(PURPA), as modified by section 1253 of EPAct 2005, 2 the Federal Energy Regulatory
Commission (Commission) hereby issues a rule that (1) ensures that new qualifying
cogeneration facilities are using their thermal output in a productive and beneficial
manner; that the electrical, thermal, chemical and mechanical output of new qualifying
cogeneration facilities is used fundamentally for industrial, commercial, residential or
institutional purposes; and that there is continuing progress in the development of

1

Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).

2

Pub. L. No. 109-58, § 1253, 119 Stat. 594, 967-70 (2005).

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efficient electric energy generating technology; (2) amends Form 556 3 to reflect the
criteria for new qualifying cogeneration facilities; (3) eliminates ownership limitations
for qualifying cogeneration and small power production facilities; and (4) amends the
exemptions available to qualifying facilities (QFs) from the requirements of the Federal
Power Act (FPA) 4 and the Public Utility Holding Company Act of 1935 (PUHCA). 5
2.

As discussed below, on October 11, 2005, the Commission issued a notice of

proposed rulemaking (NOPR)6 in which it proposed certain modifications and revisions
to its regulations governing small power production and cogeneration facilities.
Numerous comments were filed by a variety of entities.
3.

In this Final Rule, the Commission adopts some of the proposals in the NOPR as

well as many of the commenters’ recommendations. Specifically, the Final Rule:
(A) Adopts the NOPR’s proposal to require applicants to demonstrate that the
thermal output of a new cogeneration facility is used in a productive and beneficial
manner;
(B) Adopts a case-by-case approach for determining the “fundamental” use of a
facility’s electrical, thermal, chemical and mechanical output;

3

Form 556 is set forth in 18 CFR 131.80 (2005).

4

16 U.S.C. 824 et seq (2000).

5

15 U.S.C. 79 (2000); Pub. L. No. 109-58, §§ 1261-77, 119 Stat. 594, 972-78

(2005).
6

Revised Regulations Governing Small Power Production and Cogeneration
Facilities, 70 FR 60456 (Oct. 18, 2005), FERC Stats. & Regs. ¶ 32,590 (2005).

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(C) Retains the existing operating and efficiency standard for new oil and gas
cogeneration facilities;
(D) Retains the option for new cogeneration facilities to self-certify as QFs;
(E) Eliminates certain exemptions from regulation that were previously granted to
QFs;
(F) Eliminates the ownership limitations for all QFs;
(G) Retains the ownership disclosure requirement in the Commission’s Form 556;
and
(H) Clarifies that there is a rebuttable presumption that an existing QF does not
become a “new cogeneration facility” when it files an application for
recertification reflecting either a change in ownership or a change in operation.
4.

This Final Rule will be effective on [insert date 30 days after publication in the

FEDERAL REGISTER].
II.

Notice of Proposed Rulemaking

5.

On October 11, 2005, the NOPR was published in the Federal Register. 7 As

discussed in more detail below, the Commission proposed to revise its regulations
governing small power production and cogeneration pursuant to section 1253 of EPAct
and section 210 of PURPA.

7

Id.

Docket No. RM05-36-000
III.

Discussion
A.

“Productive and Beneficial”
1.

6.

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Background

Section 210(n) of PURPA requires the Commission to issue a rule revising the

criteria for new cogeneration facilities to ensure that those facilities meet the
requirements of section 210(n)(1)(A) of PURPA, including that the thermal output of a
new qualifying cogeneration facility be used in a “productive and beneficial manner.”
We explained in the NOPR that the Commission has traditionally relied on a
presumptively useful standard that was irrebuttable in determining whether a
cogeneration’s facility’s thermal output is useful. To implement PURPA’s new
“productive and beneficial” requirement for a new qualifying cogeneration facility’s
thermal output, the Commission proposed to consider the presumption of usefulness to be
rebuttable rather than irrebuttable. The Commission also proposed to consider the uses to
which the product produced by the thermal output is put, including such factors as
whether the product is needed and whether there is a market, in determining whether a
new qualifying cogeneration facility’s thermal output is “productive and beneficial.”
2.
7.

Comments

Most commenters support the Commission’s proposal to eliminate the

“presumption of usefulness” standard in determining whether the thermal energy output
of a new cogeneration facility is used in a “productive and beneficial” manner. The
California Electricity Oversight Board (CEOB) notes that the irrebuttable presumption
has resulted in default granting of qualifying status to applicants even where there was no

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real need for the thermal output. Delta Power Company, et al., support the elimination of
the irrebuttable presumption of usefulness. They suggest, moreover, that the Commission
apply a rebuttable presumption that both a thermal use is “genuine and legitimate” and
“productive and beneficial” if a facility demonstrates that its thermal output would be
supplied to the host from other means; a challenger would have the opportunity to prove
otherwise. Primary Energy Ventures LLC (Primary Energy) and U.S. Combined Heat
and Power Association (USCHPA) support a case-by-case review of the “productive and
beneficial” standard. Both commenters believe a QF applicant should support the
application with adequate reference to the business and economic circumstances of the
individual facility. North Carolina Eastern Municipal Power Agency (NCEMPA)
advocates that the Commission continue to apply the “presumptively useful” standard to
small QFs because the alleged abuses have occurred in the context of large “PURPA
machines.”
8.

Several Commenters argued that the irrebuttable presumption of usefulness should

remain in effect in some situations. American Forest & Paper Association (American
Forest & Paper) recommends the Commission not abandon an irrebuttable presumption
of usefulness for many industrial applications, such as papermaking. American Forest &
Paper argues that a rebuttable presumption of usefulness could open up applicants who
are engaged in traditional manufacturing processes to the threat of litigation over the
usefulness of their enterprise by cogeneration opponents. American Forest & Paper
believes that the presumptively useful standard served a legitimate purpose in
encouraging the development of qualifying facilities by creating certainty, limiting

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wasteful litigation and expediting the review process. A properly revised standard, which
provided assurance to developers and the utility industry that certain, well-recognized
industrial applications would not be mired in litigation and controversy, could continue to
play an important role in encouraging the development of cogeneration. Certain wellrecognized industrial processes, such as papermaking, chemical production, petroleum
refining and others, should continue to enjoy a very strong, if not irrebuttable,
presumption of usefulness.
9.

Cinergy Solutions, Inc. (Cinergy) argues that the presumption of usefulness for

common industrial or commercial applications of thermal energy should be rebuttable
only when a new thermal host is being developed in conjunction with the development of
the cogeneration facility and the presumption should remain irrebuttable when an
economically self-sustaining thermal host already exists at the site. Cinergy states that
the presumption of usefulness, whether rebuttable or irrebuttable, should depend on the
circumstances of the thermal host. Cinergy advocates that the presumption of usefulness
should be irrebuttable where a thermal host is in existence prior to the development of a
cogeneration facility. Finally, Cinergy notes that a change to a rebuttable presumption
creates unnecessary uncertainty and could substantially reduce usage and the
effectiveness of the self-certification process.
10.

Cogeneration Coalition of Washington and the Nevada Independent Energy

Coalition (collectively, QF Parties) support identifying current uses of thermal output that
are “productive and beneficial” as that would provide certainty to the cogeneration owner
and developer. QF Parties propose specific uses to be identified in the regulation that

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could include, but not be limited to, paper making, the drying of products such as
wallboard, steam used in enhanced oil recovery, and refining and chemical production.
11.

Several commenters contend that the thermal use standard needs to be clear and

unambiguous which would provide QFs regulatory certainty. The Public Service Electric
and Gas Company jointly with the Texas-New Mexico Power Company (PSNM and
TNMP) believe the Commission should not rely on “rebuttable” or “irrebuttable
presumptions, but should set out unambiguous standards that QF applicants are required
to satisfy as a part of their application so that resort to a presumption is unnecessary.
Clear, objective qualification standards are necessary in order for QF applicants, their
investors, utilities, and the Commission itself to be able to intelligently evaluate whether
the statutory “productive and beneficial” requirement has been met.
12.

Cogentrix Energy, Inc. and Goldman Sachs Group, Inc. (collectively, Independent

Sellers), state that the Commission has not proposed any ascertainable standards to assist
cogenerators in determining whether they will meet the new requirements that will be set
forth in 18 CFR 292.205(d). They point out that the Commission’s existing standard is
an ascertainable one in that if the use of the thermal output constitutes a common
industrial or commercial application then it is presumptively useful and no further
analysis is required. The presumptively useful standard provides regulatory certainty that
is critical to entities that invest in cogeneration facilities. Cogentrix argues that a
rebuttable presumption of usefulness creates uncertainty that would harm investment in
cogeneration.

Docket No. RM05-36-000
13.

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Indeck Energy Services, Inc. (Indeck) supports a rebuttable presumption of

usefulness, but cautions that the proposed new regulations would make it difficult, if not
infeasible, to obtain financing or build new cogeneration facilities. Indeck claims a caseby-case approach injects uncertainty at both the construction phase and when the QF
attempts to make facility changes. Indeck advocates for a bright line test or at least clear
standards that remove all ambiguity concerning what constitutes acceptable uses of
thermal output.
14.

Some commenters believe that the Commission’s rebuttable presumption of

usefulness proposal is not enough. Edison Electric Institute (EEI) states that making the
previous presumption that any common use of thermal energy is useful rebuttable rather
than irrebuttable does not satisfy the new “productive and beneficial” test. EEI argues
that the Commission should instead require QF applicants to provide evidence, including
economic studies, financial projections, contracts, and other data to indicate that the
thermal use of a facility will be used in a “productive and beneficial” manner. Many
commenters endorsed EEI’s comments.
15.

In reply comments, EEI opposes those comments that suggest the Commission

should retain its “presumptively useful” policy without change as the means of
demonstrating that the thermal energy output will be used in a “productive and
beneficial” manner. EEI argues that just because the thermal output is used in a
“common” or “useful” way does not ensure that the thermal energy use is “productive
and beneficial,” which EEI equates with “economic.” EEI reiterates its belief that the
only way for the Commission to ensure that the “productive and beneficial” requirement

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is met is for the Commission to promulgate in its regulations a list of the financial data
and studies that will be required to satisfy the determination mandated by the statute.
16.

Several commenters disagree with EEI’s proposal. Delta Power, et al., contend

that EEI’s proposal to require economic analyses distorts the purpose of section 210 of
PURPA by requiring economic analyses. Process Gas Consumers Group Electricity
Committee argues that EEI’s proposal would discourage cogeneration by increasing the
costs and risks of the regulatory process.
3.
17.

Commission Determination

To implement section 210(n)(1)(A)(i) of PURPA, which requires “that the thermal

output of the cogeneration facility is used in a productive and beneficial manner,” the
Commission will incorporate the statutory standard into its regulations. The Final Rule
accordingly will require an applicant to demonstrate that a new cogeneration facility’s
thermal output is used in a productive and beneficial manner. As we said in the NOPR,
the Commission prior to the enactment of EPAct 2005, in deciding whether to grant
certification, traditionally relied on a “presumptively useful” standard that was essentially
irrebuttable in determining whether a QF’s thermal output is “useful.” The
Commission’s finds that “productive and beneficial” is nearly synonymous with “useful,”
but was intended to require the Commission to take a closer look at the use of the thermal
output of a new cogeneration facility; the Commission’s examination of the use of
thermal output of a new cogeneration facility is intended to weed out those uses that are
“shams.” Thus, the Commission, as a starting point in its analysis of the use of a new
cogeneration facility’s thermal output, will look to see if the new cogeneration’s thermal

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output is “presumptively useful.” As we stated in the NOPR, however, the Commission
will no longer consider this presumption to be “irrebuttable.” The Commission will
examine the use of a cogeneration facility’s thermal output to assure that the use is not a
“sham,” and that the thermal output is used in a “productive and beneficial manner.” In
determining whether the thermal output is used in a “productive and beneficial manner,”
the Commission will consider factors such as whether the product produced by the
thermal energy is needed and whether there is a market for the product. Consistent with
the arguments of Cinergy, we find that where a thermal host existed prior to the
development of a cogeneration facility whose thermal output will supplant the thermal
source currently in use by that thermal host, it is appropriate to presume that the thermal
output of such facility is productive and beneficial and to apply a very high hurdle to
overcome the presumption. We foresee only rare circumstances in which the output of a
facility would not be productive and useful if it is replacing a previously used thermal
source.
18.

Form 556 is being amended to include a new section in which a new cogeneration

QF applicant must show “the thermal energy output of the cogeneration facility is used in
a productive and beneficial manner.” 8 The initial burden of demonstrating compliance
with this new standard is on the new cogeneration QF applicant.
19.

We decline to institute a bright line test or specific standards concerning what

constitutes acceptable uses of thermal output. The type of information that a new
8

See 18 CFR 131.80, Part C, 15(i) (2005).

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cogeneration QF applicant must provide will vary depending on the thermal output of the
cogeneration facility and on the circumstances of the thermal host. The level of support
needed may vary depending on the product produced by the thermal energy, the intended
use of that product in the market and the level of need for the particular product. As we
stated in the NOPR, in some geographic areas, thermal energy used to produce distilled
water can be used in a productive and beneficial manner, but in other geographic areas it
may not. Therefore, any application for QF status for new cogeneration facilities must
provide enough detailed information, as prescribed in the updated Form 556, 9 for the
Commission to determine compliance with the new “productive and beneficial” standard.
20.

EEI’s proposal to require economic or financial studies to show compliance with

the “productive and beneficial” standard is misplaced. Our interpretation of the meaning
of “productive and beneficial” in the context of cogeneration is that there is a real,
genuine need for the thermal output of the facility. Relying solely on an economic
analysis of the type suggested by EEI, however, may be too narrow and may deny
certification to cogeneration facilities which produce thermal output that “is used in a
productive and beneficial manner.” Adopting a case-by-case approach that permits an
applicant the opportunity to demonstrate, whether through narrative description or
economic analysis, that its QF will have a “productive and beneficial” thermal output will
provide a sufficient means to detect situations where the thermal output's application is
not productive and beneficial. An applicant may receive a determination that its thermal
9

QF applicants may provide studies or testimony to support compliance with this
new standard.

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output is being used in a productive and beneficial manner if it can show through a
narrative description of the facility’s operations that the use of the facility’s thermal
output is for a common industrial or commercial application, and that the proposed use is
genuine, and not merely to allow the applicant to achieve QF status, i.e., a “sham”; a
detailed economic analysis will not be necessary in most cases. However, the
Commission reserves the right to require additional support when appropriate.
21.

Many commenters request the Commission to identify current uses of thermal

energy that would satisfy the new “productive and beneficial” standard. We decline to do
so because a thermal use may be “productive and beneficial” in some circumstances and
not “productive and beneficial” in others (e.g., the production of distilled water).
22.

Several commenters call for the Commission to institute a clear and unambiguous

standard which they claim would provide needed regulatory certainty. While the
Commission recognizes the value of regulatory certainty, we believe that the case-bycase process proposed in the NOPR and adopted here will provide a better means to
determine what satisfies the “productive and beneficial” standard of section 210(n) of
PURPA.
23.

We note that the Commission does not intend to change current standards related

to the thermal output for existing cogeneration facilities; as discussed later in the Final
Rule, the standards for new cogeneration facilities adopted herein will apply to new
cogeneration facilities and not existing cogeneration facilities.
24.

In the NOPR, we stated that we would consider the previously irrebuttable

presumption of usefulness to be a rebuttable presumption. Some of the comments

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suggest a misunderstanding of the meaning of the term “rebuttable presumption.” Many
in the QF industry fear, in particular, that new cogeneration facilities, once they have
been certified as QFs, will be subject to post-certification challenges to their QF status
alleging that the thermal output of a facility has become no longer “productive and
beneficial.”
25.

We address here two circumstances: certification of new cogeneration facilities;

and post-certification challenges after the new cogeneration facilities have been certified.
We clarify that, in proceedings for Commission certification of new cogeneration
facilities, if certain uses of thermal output were previously considered “presumptively
useful” under the prior regulations and case precedent, they will be considered
“productive and beneficial” uses, but those who oppose certification will have the
opportunity to demonstrate that the thermal output is not, in fact, being used in a
productive and beneficial manner. However, once the Commission has granted a new
cogeneration facility certification based on the new standard adopted herein, the issue of
that particular QF’s use of its thermal output is determined, even if the economics of a
particular use may change over time. Unless there are changes in the way the QF
operates, such that it does not operate as described in the application for certification, and
thus no longer meets the statutory criteria, a QF may continue to rely on the
Commission’s certification of its facility even if the economics of the particular use have
changed over time. Thus, after a QF has been certified by the Commission, absent a
change in the operations of the facility, a purchaser of the electrical output of a new

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cogeneration facility may not return to the Commission to allege that the thermal output
of a facility is not “productive and beneficial.”
26.

Finally, in applying our new regulation implementing section 210(n)(1)(A)(i) of

PURPA, § 292.203(d)(1) of our regulations, we will apply a rebuttable presumption that
new cogeneration facilities that are 5 MW or smaller satisfy the requirement that the
thermal energy output of the new cogeneration facility is used in a productive and
beneficial manner. We will apply this presumption because it is our experience that such
small cogeneration facilities are not generally designed with a “sham” use of thermal
output whose only purpose is to achieve QF status. Rather, such smaller cogeneration
facilities are designed to meet the thermal needs of the facility’s steam host and any
electrical output available for sale is a byproduct of the thermal process.
B.

“Fundamentally” Requirement
1. Background

27.

Section 210(n)(1)(A)(ii) of PURPA requires the Commission to revise § 292.205

of its regulations to ensure the electrical, thermal, and chemical output of a new
cogeneration facility is used fundamentally for industrial, commercial, or institutional
purposes and is not intended fundamentally for sale to an electric utility, taking into
account technological, efficiency, economic, and variable thermal energy requirements,
as well as state laws applicable to sales of electric energy from a qualifying facility to its
host facility. The NOPR proposed to incorporate the language of section 210(n)(1)(A)(ii)
of PURPA as § 292.205(d)(ii) of the Commission’s regulations, and to apply this
language on a case-by-case basis to determine whether a new cogeneration facility can be

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considered a qualifying cogeneration facility. In addition, the Commission proposed
adding the term “mechanical” output to the statutory criteria, because this has
traditionally been a part of the Commission’s analysis of cogeneration output, and is
consistent with the statutory language.
28.

As described in the NOPR, applications for certification under new section 210(n)

of PURPA, and under new § 292.205(d)(ii) of our regulations, would be required to
provide a detailed explanation of how the cogeneration facility meets the requirements of
those sections. The NOPR requested comments on whether we should adopt this general
case-by-case approach for determining the “fundamental” use of a facility’s output, or
whether we should adopt a specific standard, e.g., requiring some specified percentage of
the total energy output to be used for industrial, commercial, or institutional purposes,
rather than for sale to electric utilities.
2.
29.

Comments

Many commenters favor a case-by-case evaluation of compliance to the new

“fundamentally” requirement, and argue (1) that the different operating characteristics of
QFs and cogenerators render the use of a specific standard unworkable, (2) that the
Congressional language in the new section 210(n)(1)(A)(ii) of PURPA to “[take] into
account technological, efficiency, economic, and variable thermal energy requirements,
as well as State laws applicable to sales of electric energy from a qualifying facility to its
host facility” clearly contemplates a case-by-case evaluation, (3) that any “bright-line”
test will, by its nature, be prone to becoming outdated, (4) that the Commission does not
currently have sufficient experience with the new “fundamentally” requirement to

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develop specific standards (although it may in the future), and (5) that the standards
proposed by the utilities generally seem to be designed to discourage cogeneration. Some
of these commenters also argue that that the Final Rule should provide additional detail
on how the case-specific determination will be made, or that the Final Rule should
include specific “safe harbors” that will decrease the risk and uncertainty associated with
planning and constructing a cogeneration facility.
30.

Many other commenters favor a specific, numerical standard, arguing (1) that a

case-by-case evaluation will necessarily lead to large amounts of uncertainty and
litigation, both for new cogeneration applicants and for utilities, (2) that Congress
required the Commission to act through rulemaking to adopt new qualification standards
in order to provide transparent criteria by which both new cogeneration QF applicants
and utilities can know in advance the requirements of the statute and be assured that these
requirements are being consistently interpreted and applied, and (3) that Congress
specifically required revision to 18 CFR § 292.205, which contains very specific
mathematical formulae and numerical standards, implying their desire for some sort of
objective standard.
31.

Many of the same commenters who advocate a specific, numerical standard for the

total energy output also argue that the operating standard should be significantly
increased from the current five percent to ensure that any proposed new cogenerator is
fully integrated with its host and that the output of the facility complies with the new
“fundamentally” requirement. In particular, EEI and other utilities advocate increasing
the operating standard to 20 percent, and Southern California Edison Company (SoCal

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Edison) advocates an increase to 60 percent. Some of these commenters cite claims
made in public by cogeneration advocates as evidence that such significant increases in
operating standards are achievable and appropriate. Others argue that an increase in the
operating standard is not necessary to implement the “fundamentally” requirements.
Some argue that the cogeneration advocates’ public claims are not a sound basis for
establishing a standard, and that, in any case, the utilities are misapplying these public
claims. They point out that, since the Commission considers only half the thermal energy
output in its calculations, that such comparisons between operating standards are not
appropriate. Others argue that Congress could have required such an increase of the
operating standard in the text of EPAct 2005, but specifically chose not to do so.
32.

EEI and others point out that some commenters advocate taking essentially no

action whatsoever in response to new section 210(n)(1)(A)(ii) of PURPA, and argue that
this cannot be the intent of Congress. Instead, they argue, the structure of the language in
the statute suggests that the entire output of a cogeneration facility is to be aggregated,
and that by calculating the percentage of the facility’s output used for industrial,
commercial or institutional purposes, the Commission can determine whether the new
“fundamentally for” test has been met. In particular, EEI recommends a two-part test:
First, a minimum threshold of 67 percent of the cogenerator’s total energy output, over
the course of 12 months; and second, if the facility will generate electricity on a
continuous basis, the cogenerator should also demonstrate that the facility has not been
“oversized.” Others argue that it has not been shown how a 67 percent “total energy
output operating standard” follows from the “fundamental” use requirement, and that

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such a restrictive standard may eliminate certain applications that could otherwise meet
the fundamental use criteria through other means. EEI responds by stating that the
Commission could establish a case-by-case waiver process for unique technologies and
industrial processes, where the applicant would have the opportunity to demonstrate that
such a waiver is warranted. EEI also states that the notion of safe harbors is compatible
with its recommendations, so long as such safe harbors are not absolute.
33.

Other types of numeric tests are also advocated by various commenters. FICA

recommends that any cogeneration facility, regardless of fuel use, owned or operated by
and appurtenant to an industrial mining or manufacturing operation, where at least 25
percent of the electric energy or 25 percent of the thermal energy is consumed in such
industrial operation, is in compliance with the “fundamentally” requirement. Cinergy
proposes that, if the Commission decides to establish a numerical standard as urged by
EEI and others, the standard be set at 25 percent.
34.

Entergy argues that, in addition to demonstrating compliance with its proposed

67 percent standard, the Commission should require that cogeneration applicants, at a
minimum, submit the following technical data as part of the certification process:
(1) average annual hourly useful electrical output in Btu/hr; (2) average annual hourly
useful thermal output in Btu/hr; (3) average annual hourly useful mechanical output in
Btu/hr; and (4) utilization of thermal, electrical and mechanical output along with the
steam, electrical and mechanical usage diagrams for the facility. This data, Entergy
argues, should be accompanied by an affidavit of a senior officer, attesting to the
accuracy of the data.

Docket No. RM05-36-000
35.

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As discussed in more detail below, some commenters urge the Commission to

consider that it may often be legitimate for a cogeneration plant to have considerably
more electric generation capacity than is needed for consumption by the thermal host, and
the existence of such excess generation capacity does not indicate that such output is
“intended” fundamentally for sale to an electric utility. Some commenters argue that
EPAct 2005 and PURPA clearly recognize that QF facilities will often produce a steady
stream of electricity for sale to third parties, as evidenced by the must-take and
competitive market opportunities that Congress has required be available to QF’s.
36.

Entergy suggests that, as an alternative to the traditional certification of QF

facilities on an “all or nothing” basis, the Commission should consider certifying as a QF
only the portion of a new cogeneration facility that the applicant is able to demonstrate
will meet the revised criteria for new qualifying facilities. Entergy suggests that only this
portion of a QF’s total capacity should be eligible for the benefits provided by PURPA,
including the put rights traditionally afforded to QFs. Under Entergy’s proposal, a
generator selling any excess capacity above that capacity which meets the proposed
“fundamentally” criteria for new qualifying facilities would have to be sold in the market
like any other generator. Entergy believes this would encourage the sizing of QFs
appropriately to the needs of the host, in the manner that PURPA intended.
37.

Several commenters indicate that they agree with the Commission’s statement in

the NOPR that Congress intended in EPAct 2005 to discourage so-called PURPA
machines, but go on to argue that PURPA machines came to exist as a direct result of
specific avoided cost policies by certain states, and by the inability of independent power

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producers to interconnect to the grid without obtaining QF status. This Commission and
state regulatory authorities have enacted policies such that conditions are now different,
they argue, and thus significant changes to the Commission’s regulations are not
necessary. Others agree with the Commission’s statement in the NOPR, but argue that
the Commission must be precise in crafting its regulatory language so that QFs which
bear absolutely no resemblance to PURPA machines are not inadvertently captured by
the new rules.
38.

Cinergy argues that no quantitative requirements for the total energy output that

must be supplied to a thermal host should be established for cogeneration facilities where
power from a facility will be sold at avoided costs rates that reflect market forces.
39.

Delta Power, et al., argue that the application of the new requirements should

focus on whether a facility is built to supply a thermal product that would be generated or
procured from another fuel-consuming source in the absence of cogeneration, and that
facilities that meet this standard should be presumed to have satisfied the new
requirements unless a challenger demonstrates otherwise.
40.

USCHPA argues that no detailed analysis or explanation of the proposed outputs

of the facility should be required unless utility sales on an ongoing basis are proposed. It
argues that where the electricity output from a facility is less than the electricity required
at the site of the facility, and there may be few or no occasions when power is exported
onto the grid from that site, certification as a QF should be virtually automatic.
41.

USCHPA also points out that facilities are increasingly being built to serve multi-

family housing complexes, apartment buildings, public housing projects and other

Docket No. RM05-36-000

- 21 -

residential applications. They argue that, in the same manner as the Commission has
appropriately added “mechanical” energy to the listed types of useful energy output
Congress listed in EPAct, the Commission should add “residential” to the valid purposes
for which a QF can intend its energy outputs other than sales of electricity to a utility.
42.

Several commenters request clarification that thermal hosts are not necessarily

required to use each of the enumerated electrical, thermal, chemical and mechanical
outputs. Several other commenters request clarification that cogeneration facilities that
utilize waste heat as their primary fuel (i.e., bottoming cycle cogeneration facilities) are
presumed to be in compliance with the new “fundamentally” requirements. The
Independent Sellers request clarification that the technical requirements for new
cogeneration facilities will apply only to those facilities that sell their electrical output at
avoided cost pursuant to the mandatory purchase requirement.
43.

Some utility commenters argue that Congress intended in EPAct 2005 to

implement requirements that fundamentally change the nature of what kind of
cogeneration plants can qualify for QF status, and that make such qualification much
more difficult. Several other commenters point out that Congress has not eliminated the
requirement for the Commission to issue rules which encourage the use of cogeneration,
and argue that implementing the “fundamentally” requirement in a way that significantly
increases the difficulty of obtaining QF status for a cogeneration plant frustrates the
encouragement of cogeneration, and so cannot have been the intent of Congress.
44.

Several commenters argue that the comments of the utilities on the procedures for

demonstrating compliance with the “fundamentally” rule demonstrate the need for

Docket No. RM05-36-000

- 22 -

procedures to protect QFs’ confidential and commercially sensitive information, and that
Entergy’s proposal in particular is a thinly-veiled attempt to gain access to QFs’ most
commercially sensitive information, and goes far beyond what is needed to prevent sham
transactions or curb PURPA abuses. These commenters argue that QFs cannot be
required to hand over sensitive cost data to a utility and then be expected to engage in
bilateral power purchase negotiations on a level playing field, and that the new § 292.205
should thus specify that the new cogeneration facilities will be able to obtain confidential
treatment for commercially sensitive information submitted in support of their
applications for certification and notices of self-certification. SoCal Edison states that it
understands the QFs’ desire to protect their business information and is willing to agree
to an appropriate protective order or other procedure for protecting confidential QF
information. However, SoCal Edison and others argue that potential challengers to a QF
application need access to all information relevant to the application in order to evaluate
whether the potential QF meets the criteria for QF status and to challenge the QF
application, if appropriate.
45.

The Council of Industrial Boiler Owners (CIBO) objects to the Commission’s use

of the word “limited” in the NOPR to describe its discretion to “[take] into account
technological, efficiency, economic, and variable thermal energy requirements, as well as
State laws applicable to sales of electric energy from a qualifying facility to its host

Docket No. RM05-36-000

- 23 -

facility.” 10 They argue that Congress did not specifically limit the Commission’s
discretion beyond its statutory terms and such a self-limitation should not be used by the
Commission to avoid undertaking the searching inquiry necessary to meet Congress’s
goal of encouraging energy efficiency. Other commenters also argue that the
Commission should be sure to take into account all of the criteria specified in section
210(n)(1)(A)(ii).
46.

NCEMPA and APPA argue that small QF’s (e.g., those of five or fewer megawatts

(MW)) should be categorically exempt from regulations aimed at implementing the
“fundamental” use requirement. They argue that there is little valid or widespread
concern that small QFs are constructed primarily for any purpose other than for
commercial, industrial, or institutional use, and that the output of small QFs is not likely
to cause price distortion in the energy markets.
3.
47.

Commission Determination

As an initial matter, we address certain requests for clarification. First, we agree

that many residential uses of thermal output have long been considered legitimate for the
purposes of cogeneration certification, and that “residential purposes” is subsumed within
“institutional purposes.” We therefore find that residential purposes should be
maintained as acceptable for the purpose of satisfying the requirements of section
210(n)(1)(a)(ii), and we will revise the regulatory text in § 292.205(d)(ii) to specifically
reference residential purposes. We also clarify that new cogeneration facilities will not
10

See NOPR at P 14.

Docket No. RM05-36-000

- 24 -

need to have each of the enumerated individual outputs (electrical, thermal, chemical and
mechanical) used for industrial, commercial, residential or institutional purposes, so long
as the cumulative safe harbor standard, as discussed below, is met, or other sufficient
support for certification is provided.
48.

We also agree with commenters who point out that the Commission’s obligation to

encourage cogeneration has not been eliminated. This obligation was established in
section 210(a) of PURPA, which has not been repealed by EPAct 2005. As such, in
implementing EPAct 2005, the Commission’s goal is to interpret the requirements of new
section 210(n)(1)(A)(ii) in light of the requirement to encourage cogeneration as reflected
in the existing section 210(a).
49.

Turning to the central issues regarding the “fundamentally” requirement, we find

no statutory basis for the suggestions by some commenters that the Commission focus
solely on the goal of eliminating so-called PURPA machines instead of implementing the
specific requirements of section 210(n)(1)(A)(ii) for all new cogeneration facilities. The
discussion of PURPA machines in the NOPR 11 was intended to provide context, and not
to establish a policy objective that could replace the implementation of the specific
requirements of section 210(n)(1)(A)(ii). We find that section 210(n)(1)(A)(ii) requires
new cogeneration facilities seeking certification to make a showing that their energy
output is used fundamentally for industrial, commercial, residential or institutional

11

Id. at P 11.

Docket No. RM05-36-000

- 25 -

purposes and is not intended fundamentally for sale to an electric utility. In short, we will
implement the requirements of section 210(n)(1)(A)(ii) as written.
50.

Despite comments to the contrary, we continue to believe that a case-by-case

approach to the implementation of section 210(n)(1)(A)(ii) best provides the flexibility
required to appropriately address various facilities and circumstances. However, we
agree that the adoption of a safe harbor will provide greater certainty to the industry,
make the evaluation of applications by the Commission more manageable, and make the
certification process more objective. Thus, we will establish a safe harbor, within which
a facility will be presumed to comply with the requirements of section 210(n)(1)(A)(ii).
Because, as discussed below, we will design the safe harbor to reflect the requirements of
section 210(n)(1)(A)(ii), the presumption that facilities falling within the safe harbor
comply with section 210(n)(1)(A)(ii) will be irrebuttable; the safe harbor will define
those facilities which will automatically be deemed to comply with the requirements of
section 210(n)(1)(A)(ii). However, as also discussed below, the Commission, in
determining whether a new cogeneration facility’s energy output is used fundamentally
for industrial, commercial, residential or institutional purposes and is not intended
fundamentally for sale to an electric utility, must also take “into account technological,
efficiency, economic, and variable thermal energy requirements, as well as State laws
applicable to sales of electric energy from a qualifying facility to its host facility;” a
finding that one of those factors exists may warrant a finding that facilities that do not fall
within the safe harbor nevertheless comply with section 210(n)(1)(A)(ii).

Docket No. RM05-36-000
51.

- 26 -

We agree with commenters who argue that the structure of the language in section

210(n)(1)(A)(ii) suggests that compliance of new cogeneration facilities with that section
will generally depend on the percentage of the total, aggregated energy output that is used
for industrial, commercial, residential or institutional purposes, and not sold to an electric
utility. We, therefore, believe that a safe harbor should be similarly structured to capture
the intent of the overall requirement. After careful consideration of various
recommendations of commenters, we believe a standard of at least 50 percent is a
reasonable interpretation of section 210(n)(1)(A)(ii) in light of the Commission’s
continuing obligation under section 210(a) to encourage cogeneration. Thus, new
cogeneration facilities seeking QF status, where the electrical output of the facility is
intended to be sold pursuant to section 210, 12 will be required to include a demonstration
that at least 50 percent of the aggregated annual energy output of the facility is to be used
for industrial, commercial, residential or institutional purposes, and not sold to an electric
utility, in order to qualify under the safe harbor provisions. New cogeneration facilities
complying with the safe harbor provision will be required to comply with the safe harbor
provision both for the 12-month period beginning with the date the facility first produces
electric energy, and for any calendar year subsequent to the year in which the facility first
produces electric energy. New cogeneration facilities that do not fall within the safe
harbor provision should demonstrate in their applications the percentage of aggregated
annual energy output that is used for industrial, commercial, residential or institutional
12

See Pub. L. No. 109-58, § 1253(a), 119 Stat. 595, 970 (2005) (adopting new
section 210(n)(1)(B)).

Docket No. RM05-36-000

- 27 -

purposes, along with discussion of and support for why the Commission should conclude
that section 210(n)(1)(A)(ii) is nevertheless met “taking into account technological,
efficiency, economic, and variable thermal energy requirements, as well as State laws
applicable to sales of electric energy from a qualifying facility to its host facility.”
Unless a new cogeneration facility qualifies under the safe harbor provision, the
information submitted by the applicant concerning the percentage of total energy that is
to be used for industrial, commercial, residential or institutional purposes will establish
the standard that that facility must comply with, both for the 12-month period beginning
with the date the facility first produces electric energy, and for any calendar year
subsequent to the year in which the facility first produces electric energy.
52.

Entergy has argued that, as part of the process of demonstrating compliance with

the “fundamentally” standard, the Commission should require that new cogeneration
facilities, at a minimum, submit (1) average annual hourly useful electrical output in
Btu/hr; (2) average annual hourly useful thermal output in Btu/hr; (3) average annual
hourly useful mechanical output in Btu/hr; and (4) utilization of thermal, electrical and
mechanical output along with the steam, electrical and mechanical usage diagrams for the
facility. This data, Entergy argues, should be accompanied by an affidavit of a senior
officer, attesting to the accuracy of the data. We note that the first four items are already
required by Items 10 and 13 of Form 556. 13 With respect to the request to require
applicants to submit an affidavit, we note that Form 556 already requires the applicant to
13

18 CFR 131.80 (2005).

Docket No. RM05-36-000

- 28 -

submit with the filing the signature of an authorized individual evidencing accuracy and
authenticity of information. 14 This system seems to be working, and in the absence of
any demonstration that it has not worked or is not working, we find that Entergy’s
proposal is unnecessary.
53.

Many parties commented on the legitimacy of a new cogeneration facility having

“excess capacity” beyond that needed to provide for the electricity needs of the host
facility. These parties present various situations and circumstances, which, they argue,
justify ongoing sales of electricity from a new cogeneration facility to a utility, without
violation of the requirements of section 210(n)(1)(A)(ii). In particular, commenters point
out (1) that some thermal hosts may require redundant generation capacity and/or
redundant thermal capacity to ensure the reliability of their process; (2) that long lead
times and high costs associated with siting approvals and equipment orders often make it
significantly more economic to construct a large increment of capacity at one time, rather
than several smaller increments as needed over time; (3) that it is generally more costeffective for an applicant to keep a cogeneration unit operating during periods of host
shutdown or curtailment; (4) that the thermal energy requirements of some thermal hosts
are so large relative to their electricity requirements that optimizing electricity production
from that facility generates a continuous surplus of power that can only be exported;
(5) that a new cogeneration facility may require its higher capital cost to be offset in the
long term with an income stream based on electric sales to the grid; (6) that it may be

14

18 CFR 131.80, Part A (2005).

Docket No. RM05-36-000

- 29 -

advantageous or necessary to all concerned for a manufacturing company to export some
of its power to a utility for a short time during periods of peak demand, generally during
the summer cooling season and occasionally during the winter heating season; (7) that
power plants are extremely capital intensive and the maximum economies of scale are
found at the largest end of an original equipment manufacturer’s product line, which also
typically have the best combined cycle heat rates and lowest emission rates; and (8) that
cogenerators must size their plants to be able to provide for the largest expected steam
demand of the customer, but also must size the steam turbine to be able to take the excess
steam created when the steam host reduces its steam needs. Some commenters also point
out that certain states require that a cogeneration facility provide all of its output to the
local utility, and that the local utility provide electricity to the industrial host, and that
such requirements should not disqualify a new cogeneration facility from eligibility for
QF status.
54.

The above-listed circumstances represent circumstances where the Commission

may possibly want to exercise its discretion and find that a new cogeneration facility
complies with section 210(n)(1)(A)(ii), even when such facility does not fall within the
safe harbor. There may, of course, be other circumstances that would also justify such
treatment. In each particular case, the determination of whether a new cogeneration
facility meets section 210(n)(1)(A)(ii) will depend upon the extent to which the applicant
has sufficiently demonstrated that the facts and circumstances warrant certification under
the new standard.

Docket No. RM05-36-000
55.

- 30 -

In response to the comments of CIBO, who objected to the Commission’s use of

the word “limited” in the NOPR to describe its discretion under section 210(n)(1)(A)(ii),
we clarify that we did not intend to imply an aversion to the exercise of our discretion,
where warranted, to certify certain facilities that do not comply with the safe harbor
standard. Rather, we intended to indicate that such exercise of discretion will depend on
the applicants making a sufficient showing to justify certification, and that the
Commission will limit its exercise of discretion to consideration of the criteria
enumerated by Congress in section 210(n)(1)(A)(ii). We also take this opportunity to
clarify that we interpret our discretion to take into account technological and efficiency
requirements as relating closely to our obligation under section 210(a) to encourage
cogeneration and to the new provisions under section 210(n)(1)(A)(iii) requiring the
Commission to ensure continuing progress in the development of efficient electric energy
generating technology. Also, applicants that do not fall within the section
210(n)(1)(A)(ii) safe harbor may request the Commission to exercise its discretion to
grant their application, “taking into account technological, efficiency, economic and
variable thermal energy requirements.” The Commission will be more inclined to make
an affirmative section 210(n)(1)(A)(ii) finding for facilities employing modern, efficient
technologies, both in order to encourage cogeneration under section 210(a) and to
specifically encourage continuing progress in the development of efficient electric energy
generating technology under section 210(n)(1)(A)(iii).
56.

Several commenters have requested that the Commission limit the applicability of

the “fundamentally” requirement to topping-cycle cogeneration facilities. While section

Docket No. RM05-36-000

- 31 -

210(n)(1)(A)(ii), as a matter of law, applies to both new topping-cycle and new
bottoming-cycle cogeneration facilities, we believe that many, if not most, bottomingcycle cogeneration facilities will readily satisfy the requirements of section
210(n)(1)(A)(ii). The very nature of bottoming-cycle facilities is that they utilize waste
heat from a thermal process to produce electric energy, as opposed to the consumption of
a scarce fuel source. If the fuel utilized in a bottoming-cycle facility is merely enough to
run the thermal process and has not been augmented for the purposes of power
production, the facility clearly should satisfy the requirements of section 210(n)(1)(A)(ii)
that the electrical, thermal, chemical and mechanical output of the facility is used
fundamentally for industrial, commercial, residential or institutional purposes; in any
event, such facilities may satisfy the requirements of section 210(n)(1)(A)(ii) by virtue of
our discretion to make an affirmative finding after taking into account technological,
efficiency, economic, and variable thermal requirements.
57.

However, some bottoming-cycle facilities supplement the heat provided to the

initial thermal process, with the intention of producing additional power from the
resulting additional steam energy. We find that, as additional supplemental firing is
added to bottoming cycles, the basis for giving them deference under section
210(n)(1)(A)(ii) is weakened. Therefore, in order for bottoming-cycle facilities to
comply with section 210(n)(1)(A)(ii), applicants should demonstrate that the heat input is
sized only for the thermal process, or explain to what extent supplemental firing is
utilized. If there is supplemental firing, applicants should either comply with the safe
harbor provision of the regulations, or explain the situation and justify why the

Docket No. RM05-36-000

- 32 -

Commission should exercise its discretion to make an affirmative section 210(n)(1)(A)(ii)
finding.
58.

We disagree with commenters who advocate a change to the Commission’s

existing operating standard. The language of section 210(n)(1)(A)(ii) does not in our
view direct a change to the operating standard, and we do not believe that an increase in
the operating standard is necessary at this time.
59.

In response to Entergy’s suggestion that the Commission consider certifying as a

QF only that portion of a new cogeneration facility that the applicant is able to
demonstrate will meet the revised criteria under section 210(n)(1)(A)(ii), the statute does
not require this approach and it would be unduly cumbersome to administer.
60.

Finally, in applying our new regulation implementing section 210(n)(1)(A)(ii) of

PURPA, § 292.203(d)(2) of our regulations, we will apply a rebuttable presumption that
new cogeneration facilities that are 5 MW or smaller satisfy the requirement that the
electrical, thermal, chemical, and mechanical output of the cogeneration facility is used
fundamentally for industrial, commercial, residential or institutional purposes. We will
apply this presumption because it is our experience that such small cogeneration facilities
are generally designed to meet their thermal host’s needs.
61.

Lastly, we note that some commenters have stated that there is a need for special

procedures to protect QFs’ confidential and commercially sensitive information.
However, under § 388.112 of the Commission’s regulations, 15 any person submitting a

15

18 CFR 388.112 (2005).

Docket No. RM05-36-000

- 33 -

document to the Commission may request privileged treatment for some or all of its
document. While the party requesting privileged treatment must support that claim, none
of the material for which confidential treatment is requested will be disclosed unless
pursuant to a confidentiality agreement, a protective order, or a finding that material does
not warrant confidential treatment. Given these procedures that the Commission already
has in place, we see no need to promulgate new procedures specifically for QF
applications.
C.

Continuing Progress in the Development of Efficient Electrical Energy

Generating Technology and the Efficiency Standard for Coal-Fired Generation
1.
62.

Background

Section 210(a)(1)(A)(iii) of PURPA requires that all new cogeneration facilities

seeking QF status demonstrate “continuing progress in the development of efficient
electric energy generating technology.” The NOPR proposed that the Commission’s
regulations repeat the statutory language. In addition, the NOPR proposed to (1) retain
the existing operating standard for all cogeneration facilities; (2) retain the existing
efficiency standards for oil cogeneration facilities for which any of the energy input is
natural gas or oil, but (3) apply an efficiency standard to new coal-burning cogeneration
facilities.
2.
63.

Comments

EEI states that the Commission must update the efficiency standards in its

regulations for new cogeneration facilities, and agrees with the addition of an efficiency
standard for coal-fired generation. EEI argues that the efficiency standard should apply

Docket No. RM05-36-000

- 34 -

to all cogeneration fuel inputs. EEI recommends that the Commission revise the
definitions in § 292.202(m) to use higher heating values instead of lower heating values.
EEI also recommends that the Commission revise the definition in § 292.202(m) to take
into account the total energy input of all fuels, including coal and waste fuels, not just oil
and natural gas. EEI argues that facilities that utilize a renewable energy resource or
waste fuel should be qualified as a small power producer and not as cogenerators. EEI
states that the efficiency standards for cogeneration QFs, which have existed for 25 years,
should be increased for new facilities to reflect modern, more efficient technology.
64.

As an interim measure, EEI believes the 60 percent efficiency standard for new

cogeneration facilities primarily fueled by natural gas is appropriate. Several comments
offered support for EEI’s comments, while others argued that a 60 percent efficiency
standard is not achievable or that 60 percent is an arbitrary value that has no rational basis
other than to reduce the number of QFs that are entitled to sell their power under PURPA.
Commenters state that fixed, objective standards as advocated by EEI are too simplistic
to be applied to the full range of facilities that could be designed and developed.
65.

Although Indeck does not object to increased efficiency standards for new

cogeneration QF plants, they must be reasonable, and based on clear and definite
standards. NARUC states that the Commission should take care to encourage the use of
better technology and not prevent the use of any improved technologies by setting the
standards unreasonably high. Any standard the Commission adopts must recognize that
the requirement of greater efficiency is a technological, not an environmental standard.
USCHPA states that requiring QFs to implement a “best available technology” standard

Docket No. RM05-36-000

- 35 -

would result in fearsome costs and constraints. Primary Energy states the rule should
embrace the philosophy that deployment of existing technology in innovative and
creative ways defines continuing progress in achieving greater overall resource
efficiency. The Cogeneration Association California states that requiring each applicant
to demonstrate that it would contribute to this “continuing progress” standard might
discourage the continued use of well-established technologies proven to produce
efficiencies, but which may no longer be considered “progressive.”
66.

The EPA believes there is little, if any, need to alter existing PURPA criteria or

processes. The EPA also believes that because combined heat and power (CHP) systems
are inherently more efficient than the alternative (separate heat and power generation),
they always improve total efficiency, reduce fossil fuel consumption, and therefore
advance the objectives of EPAct 2005.
67.

Other commenters concur with the Commission that an efficiency standard be

applied to new coal-burning cogeneration facilities in a manner similar to that applied to
natural gas and oil-burning cogeneration facilities. In light of the advances in generating
technology, they argue that there is no policy basis to exempt new coal-burning
cogeneration facilities from efficiency standards. Indeed, requiring compliance with
efficiency standards will help speed the adoption of the latest and most efficient coalburning technology. Yet other commenters argue that there is no reason to impose an
efficiency standard on coal-burning QFs. Given the abundance of coal, market forces
should regulate the efficiency of coal-fired QFs. Commenters state the imposition of a
minimum efficiency standard on new coal- fired cogeneration facilities is inconsistent

Docket No. RM05-36-000

- 36 -

with the intent of PURPA, as amended. Commenters state that the Commission lacks
record support for such a decision on an efficiency standard for coal-fired units, which is
technical and would require significant analysis and each case must be evaluated
individually.
3.
68.

Commission Determination

Section 210(n)(1)(A)(iii) of PURPA requires the Commission to issue rules to

ensure “continuing progress in the development of efficient electric energy generating
technology.” As an initial matter, upon review of the comments on this issue, the
Commission now believes that the regulations it is issuing implementing sections
210(n)(1)(A)(i) and 210(n)(1)(A)(ii) of PURPA are sufficient by themselves to ensure
“continuing progress in the development of efficient energy generating technology”
through, for example, the application of efficiency standards and appropriate exemptions
from certain regulatory requirements discussed herein. Accordingly, the Commission
will not require that applicants for certification of new cogeneration facilities, provide a
description of how a particular technology used by a particular applicant contributes to
the continuing progress in the development of efficient energy generating technology.
We will delete the requirement contained in the NOPR that applicants do so.
69.

While some commenters support increasing the existing efficiency standards, and

some commenters support the Commission’s applying an efficiency standard to coal-fired
cogeneration facilities for the first time, the Commission will retain the existing operating

Docket No. RM05-36-000

- 37 -

and efficiency standards for new oil and gas cogeneration facilities, and, will not impose
new efficiency standards for new coal-burning cogeneration facilities at this time. 16
70.

We find persuasive the EPA comments that there is little, if any, need to alter

existing PURPA criteria or processes. The EPA states that CHP (combined heat and
power) remains one of the most significant opportunities to improve the efficiency and
reduce the environmental impact of United States energy production and it is critical that
this rulemaking advance, not constrain, these opportunities. The EPA further states that
since CHP systems are inherently more efficient than the alternative (separate heat and
power generation) they always improve total efficiency, reduce fossil fuel consumption,
and therefore advance the objectives of EPAct 2005. We find the comments of Solar
Turbines compelling as well. Solar Turbines, a manufacturer of generation equipment,
states that, while its products have standard efficiencies greater than 60 percent, their
PURPA efficiency is less than 50 percent. They are still much more efficient than
16

To the extent that commenters suggest that the Commission change its
regulations containing criteria applicable to existing cogeneration facilities, those
suggestions are inconsistent with section 210(n)(2) of PURPA, which states that the
Commission does not have the authority to change the criteria for existing QFs:
“Notwithstanding rule revisions under paragraph (1), the Commission’s
criteria for qualifying cogeneration facilities in effect prior to the date on
which the Commission issues the final rule required by paragraph (1) shall
continue to apply to any cogeneration facility that – (A) was a qualifying
cogeneration facility on the date of enactment of subsection (m) [i.e.,
August 8, 2005], or (B) had filed with the Commission a notice of selfcertification, self-recertification or an application for Commission
certification under 18 CFR 292.207 prior to the date on which the
Commission issues the final rule required by paragraph (1) [i.e., the date of
issuance of this Final Rule].”

Docket No. RM05-36-000

- 38 -

conventional separate electric and thermal generation (49 percent conventional/34
percent PURPA efficiency), however. Solar Turbines states that the existing PURPA
standard of 42.5 percent LHV/38.6 percent HHV is sufficient to ensure efficient CHP
systems and still accommodate the wide range of technologies and applications.
Therefore, the Commission will retain the existing operating and efficiency standards for
new cogeneration facilities. 17
71.

Developers of cogeneration facilities, moreover, have an economic incentive to

employ the efficient, modern technology giving due consideration to the costs of that
technology. We see no reason at this time to impose higher efficiency standards on
cogeneration facilities. As the EPA and others point out, CHP processes are inherently
more efficient than producing electric energy and heat separately.
72.

In sum, the increased efficiency that will result from our implementation of

sections 210(n)(1)(A)(i) and 210(n)(1)(A)(ii) of PURPA satisfy the statutory requirement

17

Recently built cogeneration facilities have been dominated by natural gas fired
technologies. Their construction has been driven by lower capital costs in comparison to
coal facilities and the anticipation of moderately priced natural gas. A coal-fired facility,
in contrast, typically will recover its more substantial investment over a longer period of
time. While newer coal-fired generation technologies could offer greater fuel efficiency
and better environmental performance than older designs, they also require greater capital
investment. It is not the intent of the Commission to discourage more economic coalfired generation technologies. Commenters also feel that applying an efficiency standard
to coal-fired facilities is likely to impose additional barriers for cogeneration at coal-fired
facilities, undercutting the underlying statutory directive to encourage cogeneration by
hampering the flexibility of coal-fired cogeneration units to shutdown their facilities for
repairs, or engage in other maintenance. Therefore, the Commission will impose no new
efficiency standards for new coal-fired cogeneration facilities at this time.

Docket No. RM05-36-000

- 39 -

that the Commission ensure continuing progress in the development of efficient electric
energy generating technology.
D.

Self Certification
1.

73.

Background

In the NOPR, the Commission invited comments on whether the Commission’s

self-certification procedures 18 should be available to new cogeneration facilities in light
of the criteria proposed for certification of new cogeneration facilities as QFs.
2.
74.

Comments

Several commenters argue that self-certification can remain an option as long as

clear standards are established, but that it is difficult to understand exactly how selfcertification would work without such standards.
75.

Some commenters argue that self-certification should remain an option for certain

new cogeneration facilities. American Forest & Paper asserts that self-certification
should remain available to new cogeneration facilities where there is (1) a traditional
manufacturing use, (2) the facility fits into safe harbor provisions, and (3) employs a
proven or innovative cogeneration technology. NCEMPA believes the self-certification
procedures should remain available for small QFs (e.g., 5 MWs or smaller) because the
substantial burden associated with complying with new certification procedures may
greatly discourage development of small QFs. The York County Solid Waste and Refuse
Authority (York County) asserts self-certification should remain available to new

18

18 CFR 292.207 (2005).

Docket No. RM05-36-000

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cogeneration facilities except for those facilities owned largely or wholly by traditional
utilities.
76.

A few commenters contend that new cogeneration facilities should not be allowed

to self-certify. Calpine Corporation (Calpine) believes that the case-by-case approach
proposed by the Commission seems inconsistent with a self-certification option.
NARUC speculates that self-certification will inevitably lead to the qualification of
questionable facilities which undermines Congress’s intent to foster responsible QF
development.
77.

Several commenters maintain that self-certification should remain an option

despite the subjective nature of the new standards. The PGC Electricity Committee,
Indeck, and Ridgewood state that the self-certification procedures are efficient, selfimplementing, less time-consuming, and relatively inexpensive. Delta Power, et al.,
assert that QFs have always been responsible for ensuring that they meet the
requirements for QF status, regardless of how they achieve certification. They further
state that owners of new cogeneration facilities should have the option to either selfcertify or to apply for Commission certification, depending on their comfort level with
the characteristics of their facilities.
3.
78.

Commission Determination

The Commission will retain the option to self-certify for new cogeneration

facilities. NARUC and others fear that questionable cogeneration facilities will attain QF
status through the self-certification process due to the subjective nature of the new
standards unless the Commission establishes clear and objective standards. As Indeck

Docket No. RM05-36-000

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and Ridgeway correctly note in their comments, however, the Commission has the
authority to review and question a self-certification.
79.

Nevertheless, we note that the Commission’s currently effective regulations do not

make explicit the Commission’s authority to revoke the QF status of self-certified QFs
absent the filing of a petition for declaratory order that the self-certified QF does not meet
the applicable requirements for QF status. 19 Given that EPAct 2005 calls for greater
Commission scrutiny of QF status, we will modify § 292.207(d)(1)(iii) of the
Commission’s regulations to provide that the Commission may on its own motion revoke
the QF status of self-certified and self-recertified QFs.
80.

In light of the new standards directed by Congress for new cogeneration facilities,

we find it appropriate to now publish in the Federal Register notices of self-certifications
and self-recertifications of new cogeneration facilities; currently, the Commission does
not notice any self-certifications or self-recertifications in the Federal Register. 20
Publication of notices of self-certification and self-recertification of new cogeneration
facilities will enhance the visibility of self-certifications for interested parties other than
the host electric utility. Thus, we will require self-certifications and self-recertifications
of new cogeneration facilities to include a form of notice of the self certification or selfrecertification suitable for publication in the Federal Register. Accordingly, we will

19

18 CFR 292.207(d)(1)(iii) (2005).

20

18 CFR 292.207(a)(1)(iv) (2005).

Docket No. RM05-36-000

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amend § 292.205(d) of the Commission’s regulations to provide for publication of notice
of self-certifications and self-recertifications of new cogeneration facilities.
81.

Pursuant to § 292.207(a) of the Commission’s regulations, “[a] small power

production facility or cogeneration facility that meets the applicable criteria established in
§ 292.203 is a qualifying facility.” There is no express requirement in § 292.203 that a
facility make a filing to satisfy the requirements for QF status. While the current
Commission’s regulations do state that an owner or operator of a self-certifying facility
“must” file a “notice of self-certification which contains a completed Form 556,” 21 the
Commission has interpreted this requirement as being for record keeping purposes, and
not necessary for QF status.
82.

The Commission, particularly in light of the criteria for new cogeneration

facilities, does not believe that a facility should be able to claim QF status without having
made any filing with this Commission. Accordingly, the Commission is amending
section 292.203 to expressly require that a facility claiming QF status must file either a
notice of self-certification or an application for Commission certification. Any existing
QF that has never filed either a notice of self-certification or an application for
Commission certification, must do so within sixty (60) days of the date this order is
published in the Federal Register, to continue claiming QF status.
83.

The original reasons that the Commission instituted the self-certification process

are still valid. Among the reasons for the Commission’s adoption of the self-certification

21

18 CFR 292.207(a)(1)(ii) (2005).

Docket No. RM05-36-000

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process were that the complexity, delays, and uncertainties created by a case-by-case
qualification procedure would act as an economic disincentive to owners of smaller
facilities. The Commission also envisioned that the initiation of purchase and sale
arrangements would require the flow of substantial information between the proposed QF
and the purchasing utility so that the filing of substantial information with the
Commission would be unnecessary. While many new cogeneration facilities may want
the assurance that Commission certification, as opposed to self-certification, provides, we
believe that the self-certification option should still be available to new cogeneration
facilities. Moreover, the new requirement that a facility claiming certification file at least
a notice of self-certification, the publication of notice of self-certifications and selfrecertifications for new cogeneration facilities, and the modification of the Commission’s
regulations to make explicit that the Commission, on its own motion, can revoke the QF
status of a self-certified QF, remove the danger that a questionable new cogeneration
facility, in particular, will obtain and retain QF status.
E.

Exemptions
1.

84.

Background

In the NOPR, the Commission noted that, in implementing section 210(e)(1) of

PURPA, which provides that the Commission shall prescribe rules under which QFs are
exempt in whole or in part, from the FPA, from PUHCA, from state laws respecting
rates or respecting the financial or organization regulation of electric utilities, or from any
combination of the foregoing, the Commission granted very broad exemptions from the
FPA, PUHCA and state laws in order to remove the disincentive of utility-type regulation

Docket No. RM05-36-000

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from QFs. The Commission stated that in the context of this rulemaking proceeding it
found it appropriate to reexamine the broad exemptions from the FPA granted to QFs,
partly because those broad exemptions may no longer be needed, and partly because the
Commission through experience realized that the broad exemptions it granted QFs
removed a large number of generation sales from any regulatory oversight. The
Commission therefore proposed to eliminate the exemptions from sections 205 and 206
of the FPA that the Commission previously granted, except for the exemptions from
sections 205 and 206 that are for sales that are governed by state regulatory authorities.
In addition, the Commission proposed that QFs would not be exempt from new sections
220, 221 and 222 of the FPA that were added to the FPA by sections 1281 (Electric
Market Transparency), 1282 (False Statements) and 1283 (Market Manipulation) of
EPAct 2005. 22

2.
85.

Comments

As a general matter, the QFs were opposed to lifting of the total exemption from

sections 205 and 206 of the FPA in the current regulations. First, those opposed argue
that in deciding to build the generating facility, the owners relied on the existence of the
exemption. For example, the Electric Power Supply Association argues that FPA rate
regulation of existing contracts will upset long-standing expectations and create
unnecessary disruptive uncertainty regarding the financial integrity of numerous QFs.
ARIPPA argues that the Commission’s proposal amounts to a “bait-and-switch” on

22

Pub. L. No. 109-58, §§ 1281-83, 119 Stat. 594, 978-80 (2005).

Docket No. RM05-36-000

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investors who were encouraged to build and operate renewable small power production
facilities and cogeneration facilities. Occidental Chemical Corporation (Occidental) adds
that the Commission’s proposal creates incentives for utilities to challenge all existing QF
contracts, which will result in litigation. They also argue that subjecting all non-PURPA
sales to regulation under the FPA is unnecessary and would discourage the development
of cogeneration.
86.

Several QFs suggest that, in addition to exemptions being given to sales pursuant

to a state PURPA program, QFs selling into an organized market under applicable market
rules and tariff requirements should remain exempt from the FPA.
87.

Most QFs supported the Commission’s proposal to continue to exempt QFs

smaller than five MW from the provisions of the FPA. Others suggested that the
Commission raise the size of the QFs that would retain all exemptions to 20 or 30 MW.
For example, PGC Electricity, ENEL North America and the Illinois Landfill Gas
Coalition propose exemptions for projects having capacities of 20 MW or less. Cinergy
and the American Wind Energy Association argue that facilities under 30 MW do not
have a significant market effect and should remain exempt.
88.

A number of QFs suggest that, rather than removing the exemptions for all non-

PURPA sales, the Commission remove the exemptions only for those QFs with majority
utility ownership. Other QFs, such as USCHPA and York County, suggest that QFs that
are independent of traditional utilities be permitted to retain all of the existing exemptions
from the FPA. Other commenters note that removing exemptions is not required by

Docket No. RM05-36-000

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EPAct 2005. Commenters note that a blanket elimination of exemptions will remove the
incentive to cogenerate for non-utility owned QFs.
89.

Other commenters request that QFs remain exempt from definition of “electric

utility company” under PUHCA 2005. For example, the American Chemistry Council
states that this would provide an important incentive for the development of QFs by
entities that otherwise are primarily engaged in business other than the generation and
sale of electricity.
90.

Utilities, on the other hand, generally support limiting the exemptions from the

FPA. AEP, for example, argues that no QF should be exempt from the FPA, noting that
QFs have the ability to participate in the economic dispatch process within an RTO. The
California Electricity Oversight Board comments that the Commission should not exempt
any QF electrical sales from its regulatory oversight unless it finds that either: (1) the
energy sales from the QF are governed by a state regulatory authority, or (2) the QF is
less than 5 MW and owned by individuals or small businesses that are unconnected to
any electric utility, electric utility holding company, power marketer, transmission
provider, transmission owner, or others in the electricity business. Entergy argues that
QFs should be required to obtain market-based rate authority for all non-PURPA sales.
NRECA comments that the Commission should no longer exempt QFs from the non-rate
provisions of the FPA and should require QFs owned by public utilities to make rate
filings under section 205 of the FPA for avoided cost sales and all QFs should make rate
filings under section 205 of the FPA for non-PURPA sales. The Transmission Access
Policy Study Group supports the elimination of sections 205 and 206 exemptions, except

Docket No. RM05-36-000

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for sales governed by state regulatory authorities. Some of the utilities suggested that the
Commission’s current proposal which states that a QF that sells electric energy “pursuant
to a state regulatory authority avoided-cost ratemaking regime would remain exempt
from section 205” (unless it also makes sales of electric energy that are not pursuant to a
state regulatory authority avoided-cost ratemaking regime) is not sufficiently clear. One
commenter suggests the exemption be applied to “sales … made pursuant to a state
regulatory authority’s implementation of PURPA.” This, the commenter states, would
more accurately limit the exemptions to “PURPA sales.” Others point out that bilateral
contracts between a QF and a utility often satisfy the requirements of being pursuant to a
state regulatory authority’s implementation of PURPA.
91.

Commenters also propose that the Commission should add section 203 to the list

of sections with which QFs must comply. The Transmission Access Policy Study Group
argues that the Commission should eliminate entirely the section 203 exemption. It states
that the consumer protection concerns that led Congress to expand the Commission’s
section 203 authority over generation acquisitions are relevant to QF transfers as well.
3.
92.

Commission Determination

We will eliminate certain exemptions that were previously granted to QFs as

proposed in the NOPR. However, we will clarify that QFs will retain the exemption from
sections 205 and 206 of the FPA when a sale is made pursuant to a state regulatory
authority’s implementation of PURPA. The Final Rule will also essentially retain the

Docket No. RM05-36-000

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pre-existing exemption from PUHCA so that a QF will not be considered “an electric
utility company” under the new Public Utility Holding Company Act of 2005. 23
93.

Section 210(e)(1) of PURPA states that the Commission “shall . . . prescribe rules

under which [certain qualifying facilities] are exempted, in whole or in part, from the
Federal Power Act, from the Public Utility Holding Company Act, from State laws and
regulations respecting the rates, or respecting the financial or organization regulation, of
electric utilities, or from any combination of the foregoing, if the Commission determines
such exemption is necessary to encourage cogeneration and small power production.”
Section 210(e)(2) of PURPA provides that the Commission is not authorized to exempt
small power production facilities of 30 to 80 MW capacity from these laws, except for
geothermal power production facilities. Such facilities between 30 and 80 MW may be
exempted from PUHCA and from state laws and regulations, but may not be exempted
from the FPA. Thus section 210(e) requires the Commission’s regulations to grant
regulatory exemptions for certain QFs, in whole, or in part, and if necessary to encourage
cogeneration and small power production.
94.

In Order No. 69, the Commission first implemented section 210(e) of PURPA.

The Commission stated that a broad exemption was then appropriate to remove the
disincentive of utility-type regulation from QFs, including sections 203, 205, 206, 208,
301 and 304 of the FPA. In § 292.601 of its regulations, the Commission exempted QFs

23

See Pub. L. No. 109-58, §§ 1261-77, 119 Stat. 594 972-78 (2005).

Docket No. RM05-36-000

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(other than non-geothermal small power production facilities between 30 and 80 MW)
from sections 203, 205, 206, 208, 301 and 304 of the FPA.
95.

When the Commission first granted the exemptions from sections 205 and 206 of

the FPA in Order No. 69, there was no market for electric energy produced by non-utility
generators. Indeed this was a primary reason that PURPA was enacted. The
Commission wrote its regulations, including the provisions for exemptions from sections
205 and 206, with the expectation that all sales of electric energy from QFs would take
place as a result of the section 210 of PURPA purchase obligation, and that they would
take place pursuant to state regulatory authority implementation of the Commission’s
avoided-cost rules under PURPA. Thus, there was no expectation that QFs would make
sales that, by virtue of the Commission’s granting a broad exemption from sections 205
and 206 of the FPA, would be subject to neither this Commission’s nor a state regulatory
authority’s oversight. However, largely as a result of PURPA, markets for electric
energy produced by non-traditional power producers developed. And QFs participated in
those markets and began to make sales that were not subject to either Commission or
state regulatory authority oversight.
96.

Therefore, in light of the significant changes that have occurred in the industry

since the first QF facilities were introduced and in light of the changing electric markets
and resulting market power issues that have arisen in recent years, we no longer believe
that it continues to be necessary or appropriate to completely exempt QFs from sections
205 and 206 of the FPA. We conclude that such a complete exemption is not necessary
to encourage the development of cogeneration and small power production facilities and,

Docket No. RM05-36-000

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moreover, the broad nature of the exemptions currently set forth in § 292.601 removes a
large number of electric energy sales from any regulatory oversight. Further we note that
many QFs are large and their non-PURPA sales could potentially have a significant
market effect.
97.

We are not convinced by the comments that eliminating exemptions will cause

undue uncertainty or upset the legitimate expectations of QF owners and lenders. The
exemptions from regulation previously granted were always subject to revision and QFs
had no justifiable expectation that, no matter the change in circumstances, changes in the
regulatory regime would not occur. Further, our partial removal of the exemption from
sections 205 and 206 of the FPA does not affect a facility’s QF status under PURPA or
the obligation of an electric utility to purchase power from the QF. However, we take
note of the comments requesting that existing contracts not be subject to this change in
our regulations and we will provide that sales that occur pursuant to existing contracts
will continue to be exempt from sections 205 and 206 of the FPA.
98.

As we also stated in the NOPR, we are aware that partial removal of exemptions

might create a hardship for smaller QFs, particularly those owned by individuals or small
businesses. The Commission stated that we would consider that at least some of the
exemptions previously granted in § 292.601 should remain in effect for smaller QFs, such
as those under five MW. Numerous commenters suggested that the Commission should
consider larger facilities, such as 20 MW or 30 MW facilities, to be small facilities for
purposes of retaining the exemptions from section 205 and 206 of the FPA. We agree,
and modify our proposal so that the Final Rule provides that facilities 20 MW or smaller

Docket No. RM05-36-000

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shall remain exempt from sections 205 and 206 of the FPA. However, when an existing
contract for sales from a facility expires, sales from the facility, whether pursuant to a
renewal of the existing contract or pursuant to a new contract, will be subject to sections
205 and 206, unless otherwise exempt. 24
99.

In the NOPR we also stated that a QF which sells electric energy pursuant to a

state regulatory authority avoided-cost ratemaking regime would remain exempt from
sections 205 and 206 of the FPA. In response to comments, we clarify the regulatory
language to make clear that a QF will retain exemption from sections 205 and 206 of the
FPA when its sales are pursuant to a state regulatory authority’s implementation of
PURPA (as opposed to the proposed regulations “pursuant to a state regulatory authority
avoided cost regime”). We believe that this is appropriate because “avoided cost regime”
is not defined and could be interpreted to include state programs that are not grounded in
PURPA. Moreover, many sales made pursuant to bilateral contracts between QFs and
electric utilities (including contracts at market-based rates) are made pursuant to a state
regulatory authority’s implementation of PURPA. The change in language, providing
exemptions for QF sales made pursuant to a state regulatory authority’s implementation
of PURPA, will ensure that such sales from QFs, even where they happen to be pursuant
to a bilateral contract and at market-based rates, will continue to be exempt from sections
205 and 206 of the FPA.

24

As we discuss below, such sales may be otherwise exempt because they are
from facilities 20 MW or smaller or because they are made pursuant to a state regulatory
authority’s implementation of PURPA.

Docket No. RM05-36-000
100.

- 52 -

EEI states that the elimination of the ownership requirements should not permit a

qualifying facility to sell electric energy other than electric energy produced by itself or
another qualifying facility and still retain QF status. EEI comments that paragraph 25 of
the NOPR should be deleted and the Commission should maintain the “net output rule.”
According to EEI, the net output rule requires a utility to purchase only a QF’s net output
production, i.e., the QF’s total capacity minus the power the QF requires to operate its
generating facility (often called station use or auxiliary load). EEI argues that if a QF’s
sales to a utility are not limited to its net output, then the QF in essence would be getting
credit for more capacity than it is displacing on the utility’s system. EEI states that QFs,
whether or not they are majority-owned by utilities, should not be able to take advantage
of PURPA to buy power from a utility at one price and sell it back to the utility at a
higher price. EEI’s comments are supported by NYSEG, Rochester, Progress Energy,
SoCal Edison, PSNM, TNP, PG&E and Entergy Services, Inc.
101.

We disagree with EEI that the elimination of the ownership requirement should be

interpreted to preclude a QF from selling electric energy other than electric energy
produced by itself or another QF without losing QF status. The loss of QF status in the
past by a facility that sold non-QF power, such as power in excess of the net capacity of a
facility, rested on the statutory and regulatory ownership requirements for QF status.
Removal of the ownership prohibition removes the bar to a QF selling non-QF electric
energy while retaining QF status. However, as we explained in the NOPR, any non-QF
electric energy sold by a QF must be sold pursuant to the FPA. Before making sales of
non-QF power, the QF must obtain authority pursuant to section 205 of the FPA to make

Docket No. RM05-36-000

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such sales, if a QF has not already obtained such section 205 authority. To the extent that
EEI and others are concerned that a QF will attempt to substitute lower-cost non-QF
electric energy for the electric energy25 that utilities are purchasing pursuant to the
purchase obligation of section 210 of PURPA, the Commission does not believe that such
purchases are required by PURPA. What electric utilities are required to purchase is the
“electric energy from such facilities” 26 which the Commission interprets to mean electric
energy produced by the QF and not non-QF electric energy which the QF has purchased
or has produced itself through a process that does not satisfy the technical requirements
for QF status. Thus, for example, if a cogeneration QF decides to produce electric energy
through non-sequential supplemental firing or a small power production QF decides to
produce electric energy by burning a non-small power fuel, the electric energy would not
be subject to the PURPA purchase obligation and the sales of such electric energy should
not be exempt from sections 205 and 206 of the FPA. Similarly, purchase and re-sale of
non-QF power produced by others would not be exempt from sections 205 and 206 of the
FPA. Whether such purchases are otherwise required by an agreement between a utility
and a QF is a separate matter of contract law, however.
102.

In addition, we reject proposals to eliminate the QF exemption from the FPA

section 203(a)(i) filing requirements. We are not persuaded such a change to our existing
practice is called for. With respect to the NOPR proposal to eliminate the QF exemption
from PUHCA, we have rethought this proposal in light of the Public Utility Holding

26

16 U.S.C. 824a-1(a)(2).

Docket No. RM05-36-000

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Company Act of 2005. We interpret PURPA to permit us to exempt QFs from the Public
Utility Holding Company Act of 2005 in § 292.602 of our regulations. Section 292.602
will thus provide that a QF shall not be considered an “electric utility company” as
defined by the Public Utility Holding Company Act of 2005. However, consistent with
our recent actions on FPA section 203, QFs will be considered an “electric utility
company” for purposes of 203(a)(2) of the FPA.
103.

Lastly, we see no reason to exempt QFs from the newly added FPA sections 220,

221 and 222, added by EPAct 2005 sections 1281 (Electric Market Transparency), 1282
(False Statements) and 1283 (Market Manipulation).
F.

General Requirements for Qualification and Ownership Criteria
1.

104.

Background

Section 1253(b) of EPAct 2005 amended sections 3(17)(C) and 3(18)(B) of the

FPA by eliminating the ownership limitations for QFs previously contained in those
sections. Section 292.206 of the Commission’s regulations was designed to implement
the prior statutory requirement that a qualifying cogeneration or small power production
facility must be owned by a person not primarily engaged in the generation or sale of
electric power (other than electric power solely from cogeneration facilities or small
power production facilities). In the NOPR, the Commission proposed to implement
section 1253(b) of EPAct 2005 by eliminating § 292.206 from its regulations, and thus
eliminating the ownership limitations for all QFs – both existing and new.
105.

Section 292.203 lists the general requirements for qualification status. Section

292.203(a)(3) requires that a small power production facility must “[m]eet[] the

Docket No. RM05-36-000

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ownership criteria specified in § 292.206.” Section 292.203(b)(2) requires that a
cogeneration facility must “[m]eet[] the ownership criteria specified in § 292.206.” In
light of the elimination of the ownership limitations for all QFs and the Commission’s
proposal to delete § 292.206, in the NOPR the Commission also proposed to delete from
§ 292.203 these references to the ownership limitation from the requirements for
qualifying small power production facilities and qualifying cogeneration facilities.
Therefore, the Commission proposed to delete §§ 292.206, 292.203(a)(3) and
292.203(b)(2) from its regulations.
2.
106.

Comments

No commenter has opposed the ownership limitation from QFs and deletion of

section 292.206 and revision of definitions of cogeneration and small power production
facility in section 292.203 of the Commission’s regulations.
3.
107.

Commission Determination

There is no opposition to the Commission’s proposal in the NOPR. We will,

therefore, implement section 1253(b) of EPAct 2005 by eliminating § 292.206 from our
regulations, and thus eliminate the ownership limitations for all QFs – both existing and
new. We will simultaneously delete §§ 292.203(a)(3) and 292.203(b)(2) from our
regulations describing the general requirements for qualifying status.
G.

Form 556
1.

108.

Background

In the NOPR, the Commission proposed changes in Form 556 for new qualifying

cogeneration facilities. Form 556 is used by Applicants seeking qualifying facility status,

Docket No. RM05-36-000

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whether by Commission application or by self-certification. The Commission’s removal
of § 292.206 prompted the amendment of Form 556 to reflect the new criteria for QF
status. Specifically, the Commission proposed to eliminate references in Form 556 to the
requirement that a QF may not be owned more than 50 percent by certain entities and
also proposed to eliminate the requirements designed to help the Commission enforce
that 50 percent ownership limitation. Nevertheless, the Commission also proposed to
retain a requirement that a QF provide in Form 556 ownership information, including the
percentage of ownership held by any electric utility or electric utility holding company,
or by any person owned by either. While ownership limitations were no longer part of
the criteria for QF status, the Commission nevertheless believed that an applicant for QF
status should inform the Commission of the identity of its owners, and their percentage
interests. The Commission believed that this information would help the Commission
determine in the future, as it gained experience subsequent to the enactment of EPAct
2005, whether the exemptions from the FPA and state laws should continue to be
available to all QFs, especially those affiliated with traditional utilities, transmission
providers and other power producers. It would also allow the Commission to better
monitor for undue discrimination or preference both in the provision of transmission
service and sales for resale in interstate commerce.
2.
109.

Comments

Several commenters supported the Commission’s proposal to retain the facility

ownership disclosure requirement in the Commission’s Form No. 556. These
commenters believe that such information will allow the Commission to better monitor

Docket No. RM05-36-000

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potential discrimination in the provision of service to customers and would assist the
Commission in reviewing the extent to which various QFs should continue to be exempt
from state laws and various provisions of the FPA. However, Independent Sellers
disagreed with the NOPR but maintained that the ownership disclosure should be limited
to those owners that hold 10 percent or more of the equity interests in the QF.
3.
110.

Commission Determination

Upon consideration of comments, we conclude that we should still include an

ownership disclosure requirement in the Commission’s Form No. 556, as proposed in the
NOPR. Contrary to Independent Sellers request to limit the ownership enquiry to 10%,
the Commission would like to know all utility owners. This information will assist us in
monitoring potential discrimination in the provision of service to customers and will
assist the Commission in reviewing the extent to which various QFs should continue to
be exempt from various provisions of the FPA and state laws.
H.

Other Issues with Respect to Section 210(n)
1.

111.

Background

A number of commenters have asked the Commission to define what a “new

cogeneration facility” is for purposes of EPAct 2005. Specifically, they want the
Commission to clarify that an existing QF does not become subject to the requirements of
newly added section 210(n) of PURPA when it files for recertification.
2.
112.

Comments

ELCON and many other commenters maintain that change in ownership or other

modifications should not convert an “existing facility” to “new facility” on

Docket No. RM05-36-000

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recertification. They request that the regulations clarify that the new standards apply only
to “new facilities,” those being built and first certified after the EPAct 2005 effective
date. They argue that the requirements of section 210(n) of PURPA should not apply to
facilities that are requesting recertification.
113.

SoCal Edison opposes ELCON’s suggestion arguing that the Commission’s

revised regulation for ‘new’ qualifying cogeneration facility should apply to a
cogeneration facility that seeks recertification as a QF. It argues that an existing
qualifying cogeneration facility substantially modified or altered in a way not covered by
18 CFR 292.207(a)(2)(i) and completing an extensive re-powering of the facility or
converting from one technology to another should be subjected to the revised regulation
for “new” qualifying cogeneration facilities.
114.

Cinergy Solutions and EPSA seek clarification from the Commission that a QF

facility designated as an old facility under the Commission's rules should not
subsequently become a new facility because of non-compliance for a certain period or
withdrawal of an application. EPSA requests that the Commission confirm that,
notwithstanding future changes in the allocation of QF benefits, as a result of elimination
of QF ownership criteria or otherwise, such future changes will have no retroactive effect
on the QF status for periods prior to the effective date of the new rules.
3.
115.

Commission Determination

Initially, we note that the regulatory text adopted in § 292.207(d) defines what

cogeneration facilities will be considered new cogeneration facilities. In addition, we
clarify that there is a rebuttable presumption that an existing QF does not become a “new

Docket No. RM05-36-000

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cogeneration facility” for purposes of the requirements of newly added section 210(n) of
PURPA merely because it files for recertification. However, we caution that changes to
an existing cogeneration facility could be so great (such as an increase in capacity from
50 MW to 350 MW) that what an applicant is claiming to be an existing facility should,
in fact, be considered a “new” cogeneration facility at the same site.
IV.

Information Collection Statement

116.

The Office of Management and Budget (OMB) regulations require approval of

certain information collection requirements imposed by agency rules. 27 Upon approval
of a collection of information, OMB will assign an OMB control number and an
expiration date. Respondents subject to the filing requirements of this rule will not be
penalized for failing to respond to these collections of information unless the collections
of information display a valid OMB control number.
117.

The Commission is amending its regulations to implement section 1253(a) of the

EPAct 2005; specifically, its regulations governing qualifying small power production
and cogeneration facilities.. The Commission’s regulations, in 18 CFR Parts 131 and
292, specify the certification procedures that must be followed by small power
production and cogeneration facilities seeking QF status; specify the criteria that must be
met; specify the information which must be submitted to the Commission in order to
obtain QF status; specify the benefits which are available to QFs; and specify the
transaction obligations of electric utilities with respect to QFs. The information provided
27

5 CFR 1320.13 (2005).

Docket No. RM05-36-000

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to the Commission under Parts 131 and 292 is identified as Form 556. In addition, the
Commission is amending its regulations providing exemptions to qualifying facilities;
among other things, certain entities will be subject to the provisions of section 205 of the
FPA and Part 35 of the Commission’s regulations. The information provided to the
Commission under Part 35 is identified as FERC-516.
The Commission is submitting these reporting requirements to OMB for its review and
approval under section 3507(d) of the Paperwork Reduction Act. 28 Comments were
solicited on the Commission’s need for this information, whether the information will
have practical utility, the accuracy of provided burden estimates, ways to enhance the
quality, utility, and clarity of the information to be collected, and any suggested methods
for minimizing the respondent’s burden, including the use of automated information
techniques. Comments were received noting that the NOPR only mentioned costs
associated with filing a revised Form 556, and does not address the new applications and
reports that will be required due to the elimination of certain exemptions from the FPA
for QFs. Below we have revised the estimates provided in the NOPR to account for the
elimination of exemptions.
Burden Estimate: The Public Reporting burden for the requirements proposed here are as
follows:

28

44 U.S.C. 3507(d) (2000).

Docket No. RM05-36-000
Data Collection

- 61 Number of

No. of

Hours Per

Total Annual

Respondents

Responses

Response

Hours

FERC Certification

27

1

4

108

Self-Certification

270

1

38

10,260

Sub Totals

297

FERC Form 556

10,368*

FERC-516
205 filings

100

1

183

18,300

1

230

23,000

100 (later)

3

6

1,800

Change of status

100

1

3

300

Sub-totals

100

Electric quarterly reports 100 (initial)

43,400

*Off-setting changes to FERC-556; no change to current burden.

Total Annual Hours for Collection: (Reporting + recordkeeping (if appropriate) = 43,400
hours (excludes the 10,368 hours for FERC-556).
Information Collection Costs: Costs for FERC-516 = $15,190,000 (43,400 hours @ $350
an hour). Costs for FERC-556 = $3,591,000 (10,260 hours at $350 an hour) + $37,800
(108 hours @ $350 an hour = $3,628,800. (The hourly rate includes attorney fees,
engineering consultation fees and administrative support.)
Title: FERC Form 556 “Cogeneration and Small Power Production”
Action: Proposed Collections
OMB Control No: 1902-0075

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Respondents: Business or other for profit
Frequency of Responses: On occasion
Necessity of the Information: This Final Rule adopts the Congressional mandate found
in section 1253(a) of EPAct 2005 to implement the establishment of criteria for new
qualifying cogeneration facilities; and the elimination of ownership limitations. By
amending its regulations, the Commission is satisfying the statutory mandate and also
satisfying its continuing obligation to review its policies encouraging cogeneration and
small power production, energy conservation, efficient use of facilities and resources by
electric utilities and equitable rates for energy customers. The information collected
under 18 CFR Parts 131 and 292 is used by the Commission to determine whether an
application for certification (Commission certification or self-certification) meets the
criteria for a qualifying small power production facility or a qualifying cogeneration
facility under its regulations and eligible to receive the benefits available to it under
PURPA. The information collected under 18 CFR Part 35 is used by the Commission to
carry out its statutory responsibility to assure that electric rates are just and reasonable.
Sufficient detail must be obtained for the Commission to make informed decisions
concerning appropriate cost and rate levels and to aid customers and other parties who
may wish to challenge costs and rates. A public utility must obtain Commission
authorization for all rates and charges for wholesale sales and transmission of electric
energy in interstate commerce. The Commission is authorized to investigate the rates
charged by public utilities for such sales and transmission. If, after investigation, the
Commission determines that the rates are unjust and unreasonable or unduly

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discriminatory or preferential, the Commission is authorized to determine and prescribe
the just and reasonable rates.
Internal review: The Commission has reviewed the requirements pertaining to qualifying
small power production and cogeneration facilities and determined the proposed
requirements are necessary to meet the statutory provisions of EPAct 2005, PURPA and
the FPA.
These requirements conform to the Commission’s plan for efficient information
collection, communication and management within the energy industry. The
Commission has assured itself, by means of internal review, that there is specific,
objective support for the burden estimates associated with the information requirements.
Interested persons may obtain information on the reporting requirements by
contacting: Federal Energy Regulatory Commission, 888 First Street, N.E., Washington,
D.C., 20426 [Attention: Michael Miller, Office of the Executive Director, Phone: (202)
502-8415, fax: (202) 273-0873, e-mail: michael.miller@ferc.gov.
V.

Environmental Analysis

118.

The Commission is required to prepare an Environmental Assessment or an

Environmental Impact Statement for any action that may have a significant adverse effect
on the human environment. 29 The Commission has categorically excluded certain
actions from this requirement as not having a significant effect on the human
29

Regulations Implementing the National Environmental Policy Act, Order No.
486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Preambles 1986-1990 ¶ 30,783
(1987).

Docket No. RM05-36-000

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environment. As explained above, this Final Rule interprets amendments made to
PURPA by EPAct 2005, and clarifies the applicability of these amendments to QFs; it
does not substantially change the effect of the legislation. Accordingly, no environmental
consideration is necessary. 30
VI.

Regulatory Flexibility Act Analysis

119.

The Regulatory Flexibility Act of 1980 (RFA) 31 generally requires a description

and analysis of final rules that will have significant economic impact on a substantial
number of small entities. In the NOPR, we stated that many, if not most, QFs to which
this rule would apply do not fall within the definition of small entities, citing the RFA’s
definition that a small entity is “a business that is independently owned and not dominant
in its field of operation.” 32 The Non-Utility QF Group, however, argues that the
Commission’s proposals will impact small entities. It argues that it is likely that a
majority of QFs are owned in whole, or at least up to 50 percent, by small entities. It
argues that under Small Business Administration (SBA) standards, an electric production
firm is considered “small” if its output does not exceed 4 million MWh per year. It also
argues that the forms and applications that will be required due to the modification of
exemptions, including section 203 applications, section 205 tariffs, electronic quarterly

30

18 CFR 380.4(a)(2)(ii) (2005).

31

5 U.S.C. 601-12 (2000).

32

15 U.S.C 632 (2000).

Docket No. RM05-36-000

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reports and triennial market power reports, will cause a significant impact on a substantial
number of small entities.
120.

First, we note that certain rules are exempt from the RFA’s requirements; exempt

rules include interpretive rules, general statements of policy, or rules of agency
organization procedure and practice. Interpretive rules “generally interpret the intent
expressed by Congress, where an agency does not insert its own judgments or
interpretations in interpreting a rule and simply regurgitates statutory language.” This
Final Rule to a large extent is an interpretive rule; Congress directed the Commission in
section 1253 of EPAct to revise our regulations governing new cogeneration facilities,
and we have responded by following our statutory mandate.
121.

Moreover, many QFs, although certainly not all, would not be considered “small,”

even under the SBA’s standards. Also, while there will be QFs that are small and that
will be affected by the Final Rule, we also have included numerous provisions in the
Final Rule designed to reduce the Final Rule’s impact on such small entities. First, in
response to commenters, the Final Rule provides that facilities 20 MW or smaller shall
remain exempt from sections 205 and 206 of the Federal Power Act (this is an increase
from five MW or smaller as proposed in the NOPR). The Final Rule further provides
that sales that occur pursuant to existing contracts will continue to be exempt from
section 205 of the FPA. In addition, the Final Rule also provides a rebuttable
presumption that new cogeneration facilities that are 5 MW or smaller satisfy both the
requirement that the thermal output of a new cogeneration facility is used in a productive
and beneficial manner and the requirement that the electrical, thermal, chemical, and

Docket No. RM05-36-000

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mechanical output of a new cogeneration facility is used fundamentally for industrial,
commercial, residential or institutional purposes. The Final Rule also provides that a
qualifying facility shall retain its exemption from sections 205 and 206 of the Federal
Power Act when its power sales are made pursuant to a state regulatory authority’s
implementation of PURPA. This will mean that many QF power sales will continue to be
exempt from sections 205 and 206 of the Federal Power Act.
122.

The Final Rule also interprets PURPA to permit the Commission to exempt QFs

from the newly enacted Public Utility Holding Company Act of 2005, and, accordingly,
exempts QFs from that statute. In addition, to the extent the proposed regulations remove
now-unnecessary regulations such as ownership limitations for qualifying cogeneration
and small power production facilities, the proposed regulations will be beneficial to QFs.
VII.

Document Availability

123.

In addition to publishing the full text of this document in the Federal Register, the

Commission provides all interested persons an opportunity to view and/or print the
contents of this document via the Internet through the Commission’s Home Page
(http://www.ferc.gov) and in the Commission's Public Reference Room during normal
business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A,
Washington, D.C. 20426
124.

From the Commission's Home Page on the Internet, this information is available in

the Commission’s document management system, eLibrary. The full text of this
document is available on eLibrary in PDF and Microsoft Word format for viewing,

Docket No. RM05-36-000

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printing, and/or downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket number field.
125.

User assistance is available for eLibrary and the Commission's website during

normal business hours. For assistance, please contact FERC Online Support at 1-866208-3676 (toll free) or (202) 502-8222 (email at FERCOnlinesupport@ferc.gov), or the
Public Reference Room at (202) 502-8371, TTY (202) 502-8659 (E-Mail the Public
Reference Room at public.referenceroom@ferc.gov).
VIII. Effective Date
126.

These regulations are effective [insert date 30 days after publication in the

FEDERAL REGISTER].
The Commission has determined, with the concurrence of the Administrator of the Office
of Information and Regulatory Affairs of OMB, that this rule is not a "major rule" as
defined in Section 351 of the Small Business Regulatory Enforcement Fairness Act of
1996.
List of subjects in 18 CFR Part 131 and 292
Electric power, Electric power plants, Electric utilities, Natural gas, Reporting and
recordkeeping requirements.
By the Commission.
(SEAL)

Magalie R. Salas,
Secretary.

Docket No. RM05-36-000

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In consideration of the foregoing, the Commission amends Parts 131 and 292,
Chapter I, Title 18, Code of Federal Regulations, as follows:
PART 131 -- FORMS
1. The authority citation for part 131 continues to read as follows:
Authority: 16 U.S.C. 791(a)-825(r), 2601-2645; 31 U.S.C. 9701; 42 U.S.C. 71017352.
2. In § 131.80, part A1a. through 1c. is revised and part C.15 is added to read as follows:
§ 131.80 FERC Form No. 556, Certification of qualifying facility status for an existing or
a proposed small power production or cogeneration facility.
* * * * *
FERC FORM 556, OMB No. 1902-0075
Expires -----------Certification of Qualifying Facility Status for an Existing or a Proposed Small Power
Production or Cogeneration Facility
(To be completed for the purpose of demonstrating up-to-date conformance with the
qualification criteria of Section 292.203(a)(1) or Section 292.203(b), based on actual or
planned operating experience)
General instructions: Part A of the form should be completed by all small power
producers or cogenerators. Part B applies to small power production facilities. Part C
applies to cogeneration facilities. All references to sections are with regard to Part 292 of
Title 18 of the Code of Federal Regulations, unless otherwise indicated.

Docket No. RM05-36-000

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Part A--General Information to be Submitted by All Applicants
1a. Full name:
Docket Number assigned to the immediately preceding submittal filed with the
Commission in connection with the instant facility, if any: QF ________-_______________
Purpose of instant filing (self-certification or self-recertification [Section
292.207(a)(1)], or application for Commission certification or recertification [Sections
292.207(b) and (d)(2)]):
1b. Full address of applicant:
1c. Indicate the owner(s) of the facility (including the percentage of ownership
held by any electric utility or electric utility holding company, or by any persons owned
by either) and the operator of the facility. Additionally, state whether or not any of the
non-electric utility owners or their upstream owners are engaged in the generation or sale
of electric power, or have any ownership or operating interest in any electric facilities
other than qualifying facilities. In order to facilitate review of the application, the
applicant may also provide an ownership chart identifying the upstream ownership of the
facility. Such chart should indicate ownership percentages where appropriate.
* * * * *
Part C--Description of the Cogeneration Facility
* * * * *

Docket No. RM05-36-000

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For New Cogeneration Facilities
15. For any cogeneration facility that was either not certified as a qualifying
cogeneration facility on or before August 8, 2005, or that had not filed a notice of selfcertification, self-recertification or an application for Commission certification under
§ 292.207 of this chapter prior to February 2, 2006, also show:
(i) The thermal energy output of the cogeneration facility is used in a productive
and beneficial manner; and
(ii) The electrical, thermal, chemical and mechanical output of the cogeneration
facility is used fundamentally for industrial, commercial, residential or institutional
purposes and is not intended fundamentally for sale to an electric utility, taking into
account technological, efficiency, economic, and variable thermal energy requirements,
as well as state laws applicable to sales of electric energy from a qualifying facility to its
host facility.
PART 292 – REGULATIONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC
UTILTY REGULATORY POLICIES ACT OF 1978 WITH REGARD TO SMALL
POWER PRODUCTION AND COGENERATION
3. The authority citation for part 292 continues to read as follows:
Authority 16 U.SC. 791a-825r; 2601-2645, 31 U.S.C. 9701; 42 U.S.C. 7101-7352.
4. In § 292.203, paragraphs (a) and (b) are revised to read as follows:
§ 292.203 General requirements for qualification.
(a) Small power production facilities. Except as provided in paragraph (c) of this
section, a small power production facility is a qualifying facility if it:

Docket No. RM05-36-000

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(1) Meets the maximum size criteria specified in § 292.204(a);
(2) Meets the fuel use criteria specified in § 292.204(b); and
(3) Has filed with the Commission a notice of self-certification, pursuant to
§ 292.207(a); or has filed with the Commission an application for Commission
certification, pursuant to § 292.207(b)(1), that has been granted.
(b) Cogeneration facilities. A cogeneration facility, including any diesel and dualfuel cogeneration facility, is a qualifying facility if it:
(1) Meets any applicable operating and efficiency standards specified in
§ 292.205(a) and (b); and
(2) Has filed with the Commission a notice of self-certification, pursuant to
§ 292.207(a); or has filed with the Commission an application for Commission
certification, pursuant to § 292.207(b)(1), that has been granted.
5. In § 292.205, paragraph (d) is added to read as follows:
§ 292.205 Criteria for qualifying cogeneration facilities.
* * * * *
(d) Criteria for new cogeneration facilities. Notwithstanding paragraphs (a) and
(b) of this section, any cogeneration facility that was either not certified as a qualifying
cogeneration facility on or before August 8, 2005, or that had not filed a notice of selfcertification, self-recertification or an application for Commission certification or
Commission recertification as a qualifying cogeneration facility under § 292.207 of this
chapter prior to February 2, 2006, and which is seeking to sell electric energy pursuant to

Docket No. RM05-36-000

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section 210 of the Public Utility Regulatory Policies Act of 1978, 16 USC 824a-1, must
also show:
(1) The thermal energy output of the cogeneration facility is used in a productive
and beneficial manner; and
(2) The electrical, thermal, chemical and mechanical output of the cogeneration
facility is used fundamentally for industrial, commercial, residential or institutional
purposes and is not intended fundamentally for sale to an electric utility, taking into
account technological, efficiency, economic, and variable thermal energy requirements,
as well as state laws applicable to sales of electric energy from a qualifying facility to its
host facility.
(3) Fundamental use test. For the purposes of satisfying paragraph (d)(2) of this
section, the electrical, thermal, chemical and mechanical output of the cogeneration
facility will be considered used fundamentally for industrial, commercial, or institutional
purposes and not intended fundamentally for sale to an electric utility if at least 50
percent of the aggregate of such output, on an annual basis, is used for industrial,
commercial, residential or institutional purposes. In addition, applicants for facilities that
do not meet this safe harbor standard may present evidence to the Commission that the
facilities should nevertheless be certified given state laws applicable to sales of electric
energy or unique technological, efficiency, economic, and variable thermal energy
requirements.

Docket No. RM05-36-000

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(4) For purposes of paragraphs (d)(1) and (d)(2) of this section, a new
cogeneration facility of 5 MW or smaller will be presumed to satisfy the requirements of
those paragraphs.
(5) For purposes of paragraph (d)(1) of this section, where a thermal host existed
prior to the development of a new cogeneration facility whose thermal output will
supplant the thermal source previously in use by the thermal host, the thermal output of
such new cogeneration facility will be presumed to satisfy the requirements of paragraph
(d)(1).
6. Section 292.206 is removed.
7. In § 292.207, paragraphs (a)(1)(iv), and (d)(1)(iii) are revised to read as follows:
§ 292.207 Procedures for obtaining qualifying status.
* * * * *
(a) * * *
(1) * * *
(iv) Notices of self-certification or self-recertification, other than for new
cogeneration facilities, will not be published in the Federal Register. Notices of selfcertification or self-recertification of new cogeneration facilities will be published in the
Federal Register; such self-certifications and self-recertifications should include a form of
notice suitable for publication in the Federal Register.
* * * * *
(d) * * *
(1) * * *

Docket No. RM05-36-000

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(iii) The Commission may, on its own motion or on the motion of any person,
revoke the qualifying status of a self-certified or self-recertified qualifying facility if it
finds that the self-certified or self-recertified qualifying facility does not meet the
applicable requirements for qualifying facilities.
* * * * *
6. In § 292.601, paragraph (c) is revised to read as follows:
§ 292.601 Exemption of qualifying facilities from the Federal Power Act.
*****
(c) General rule. Any qualifying facility described in paragraph (a) of this section
shall be exempt from all sections of the Federal Power Act, except:
(1) Sections 205 and 206; however, sales of energy or capacity made by qualifying
facilities 20 MW or smaller, or made pursuant to a contract executed on or before [insert
date 30 days after publication in the federal register] or made pursuant to a state
regulatory authority’s implementation of section 210 the Public Utility Regulatory
Policies Act of 1978, 16 USC 824a-1, shall be exempt from scrutiny under sections 205
and 206;
(2) Section 1-18, and 21-30;
(3) Sections 202(c), 210, 211, 212, 213, 214, 220, 221 and 222;
(4) Sections 305(c); and
(5) Any necessary enforcement provision of Part III of the Federal Power Act
(including but not limited to sections 306, 307, 308, 309, 314, 315, 316 and 316A) with
regard to the sections listed in paragraphs (c)(1), (2), (3) and (4) of this section.

Docket No. RM05-36-000

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8. In § 292.602, paragraphs (b) and (c) are revised to read as follows:
§ 292.602 Exemption of qualifying facilities from certain State law and regulation.
* * * * *
(b) Exemption from the Public Utility Holding Company Act of 2005. A
qualifying facility described in paragraph (a) of this section or a utility geothermal small
power production facility shall not be considered to be an “electric utility company” as
defined in section 1262(5) of the Public Utility Holding Company Act of 2005, 42 USC
16451(5).
(c) Exemption from certain State laws and regulations.
(1) Any qualifying facility shall be exempted (except as provided in paragraph
(b)(2)) of this section from State laws or regulations respecting:
(i) The rates of electric utilities; and
(ii) The financial and organizational regulation of electric utilities.
(2) A qualifying facility may not be exempted from State laws and regulations
implementing subpart C.
(3) Upon request of a state regulatory authority or nonregulated electric utility, the
Commission may consider a limitation on the exemptions specified in paragraph (b)(1) of
this section.
(4) Upon request of any person, the Commission may determine whether a
qualifying facility is exempt from a particular State law or regulation.

Docket No. RM05-36-000

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NOTE: THE FOLLOWING APPENDIX WILL NOT BE PUBLISHED IN THE CODE
OF FEDERAL REGULATIONS.
Appendix: List of Petitioners Requesting Clarification or Submitting Comments
American Chemistry Council
American Electric Power Service Corporation jointly with AEP Texas North Company,
AEP Texas Central Company, Appalachian Power Company, Columbus Southern Power
Company, Indiana Michigan Power Company, Kentucky Power Company, Kingsport
Power Company, Ohio Power Company, Public Service Company of Oklahoma,
Southwestern Electric Power Company, and Wheeling Power Company (collectively,
AEP)
American Forest & Paper Association (American Forest & Paper)
American Public Power Association (APPA)
American Wind Energy Association (AWEA)
ARIPPA
California Electricity Oversight Board (CEOB)
Calpine Corporation (Calpine)
CE Generation, LLC (CE Generation)
Cinergy Solutions, Inc. (Cinergy)
Cogeneration Association California jointly with Energy Producers and Users Coalition,
Cogeneration Coalition of Washington, and Nevada Independent Energy Coalition
(collectively, QF Parties)
Cogentrix Energy, inc. (Cogentrix) jointly with Goldman Sachs Group, Inc. (Goldman
Sachs) (collectively, Independent Sellers)
Constellation Energy Group, Inc. (Constellation)
Council of Industrial Boiler Owners (CIBO)
Delta Power Company, LLC (Delta Power) jointly with Juniper Generation, LLC
(Juniper), and California Cogeneration Council (California Cogen)
Department of Housing and Urban Development
Dow Chemical Company (Dow)
Edison Electric Institute (EEI)
Edison Mission Energy jointly with Edison Mission Marketing & Trading, Inc., Midwest
Generation EME, LLC (collectively, Edison Mission Energy) (intervention only)
Electric Power Supply Association (EPSA)
Electricity Consumers Resource Council (ELCON) jointly with American Iron and Steel
Institute (AISI) (collectively, Industrial Consumers)
Enel North America, Inc. (Enel)
Entergy Services, Inc. jointly with Entergy Arkansas, Inc.; Entergy Gulf States, Inc.;
Entergy Louisiana, Inc.; Entergy Mississippi, Inc.; and Entergy New Orleans, Inc.
(collectively, Entergy)
Environmental Protection Agency
The Fertilizer Institute (Fertilizer Institute)

Docket No. RM05-36-000

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Florida Industrial Cogeneration Association (Florida Industrial Cogeneration)
GE Energy Financial Services (GE)
Granite State Hydropower Association, Inc. (Granite State Hydropower)
Illinois Landfill Gas Coalition (Illinois Landfill Gas)
Indeck Energy Services, Inc. (Indeck)
Kentucky Public Service Commission (Kentucky Commission)
Marina Energy, LLC (Marina Energy)
National Association of Regulatory Utility Commissioners (NARUC)
National Rural Electric Cooperative Association (NRECA)
New York State Electric & Gas Corporation (NYSEG) jointly with Rochester Gas and
Electric Corporation (Rochester G&E)
Non-Utility QF Group
North Carolina Eastern Municipal Power Agency (NCEMPA)
Occidental Chemical Corporation (Occidental)
Oklahoma Corporation Commission (Oklahoma Commission)
Oklahoma Gas and Electric Company (OG&E)
Pacific Gas and Electric Company (PG&E)
Primary Energy Ventures LLC (Primary Energy)
Process Gas Consumers Group Electricity Committee (Electricity Committee)
Progress Energy, Inc. (Progress Energy)
Public Service Company of New Mexico (PSNM) jointly with Texas-New Mexico Power
Company (TNP)
Public Service Electric and Gas Company jointly with PSEG Power LLC, PSEG Energy
Resources & Trade LLC, and PSEG Global L.L.C. (collectively, PSEG)
Public Utility Commission of Ohio (Ohio Commission)
Ridgewood Renewable Power, LLC (Ridgewood)
Solar Turbines Incorporated (Solar Turbines)
Southern California Edison Company (SoCal Edison)
Transmission Access Policy Study Group (TAPS)
U.S. Combined Heat and Power Association (USCHPA)
U.S. Environmental Protection Agency (EPA)
Xcel Energy Services Inc. (Xcel)
York County Solid Waste and Refuse Authority (York County)