Federal Register / Vol. 71, No. 31 / Wednesday, February 15, 2006 / Rules and Regulations

7852

Federal Register / Vol. 71, No. 31 / Wednesday, February 15, 2006 / Rules and Regulations

DEPARTMENT OF ENERGY

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, DOE.

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.

DATES: Effective Date: The rule will

become effective March 17, 2006.

FOR FURTHER INFORMATION CONTACT:

Paul Singh (Technical Information),

Office of Markets, Tariffs and Rates,

Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington, DC 20426, (202) 502–

8576.

Samuel Higginbottom (Legal

Information), Office of the General

Counsel, Federal Energy Regulatory

Commission, 888 First Street, NE.,

Washington, DC 20426, (202) 502–

8561.

Eric D. Winterbauer (Legal Information),

Office of the General Counsel, Federal

Energy Regulatory Commission, 888

First Street, NE., Washington, DC

20426, (202) 502–8329.

SUPPLEMENTARY INFORMATION:

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Before Commissioners: Joseph T. Kelliher,

Chairman; Nora Mead Brownell, and

Suedeen G. Kelly.

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

1 Energy Policy Act of 2005, Pub. L. 109–58, 119

Stat. 594 (2005).

2 Pub. L. 109–58, § 1253, 119 Stat. 594, 967–70

(2005).

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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 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;

(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

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. 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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recertification reflecting either a change

in ownership or a change in operation.

4. This Final Rule will be effective on

March 17, 2006.

II. Notice of Proposed Rulemaking

5. On October 18, 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.

III. Discussion

A. Productive and Beneficial

1. Background

6. 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. Comments

7. 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 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

7 Id.

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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 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

well-recognized 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

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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 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

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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.

13. 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

case-by-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 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

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the costs and risks of the regulatory

process.

3. Commission Determination

17. 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

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 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

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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 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 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

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

9 QF applicants may provide studies or testimony

to support compliance with this new standard.

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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 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 postcertification 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.

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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 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.

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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

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whether a new cogeneration facility can

be 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. Comments

29. Many commenters favor a case-bycase 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-bycase evaluation, (3) that any ‘‘brightline’’ 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

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

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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

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

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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 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.

35. 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

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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 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

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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 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

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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

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 selfcertification. 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 facility.’’ 10 They argue that

Congress did not specifically limit the

Commission’s discretion beyond its

statutory terms and such a selflimitation 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

10 See NOPR at P 14.

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‘‘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. Commission Determination

47. 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

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

11 Id. at P 11.

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7857

fundamentally for industrial,

commercial, residential or institutional

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-bycase 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).

51. 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

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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 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 12month 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,

12 See Pub. L. 109–58, § 1253(a), 119 Stat. 595,

970 (2005) (adopting new section 210(n)(1)(B)).

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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 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 cost-effective 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

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

13 18 CFR 131.80 (2005).

14 18 CFR 131.80, part A (2005).

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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.

55. 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

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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

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, bottoming-cycle 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

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

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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

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. Background

62. Section 210(a)(1)(A)(iii) of PURPA

requires that all new cogeneration

facilities seeking QF status demonstrate

‘‘continuing progress in the

15 18 CFR 388.112 (2005).

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7859

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 coalburning cogeneration facilities.

2. Comments

63. 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 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

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the requirement of greater efficiency is

a technological, not an environmental

standard. USCHPA states that requiring

QFs to implement a ‘‘best available

technology’’ standard 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 wellestablished 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 coal-burning 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 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. Commission Determination

68. 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

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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 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

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

self-certification, 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].’’

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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 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 that the

Commission ensure continuing progress

in the development of efficient electric

energy generating technology.

D. Self Certification

1. Background

73. In the NOPR, the Commission

invited comments on whether the

Commission’s self-certification

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 coal-fired 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 coalfired cogeneration facilities at this time.

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procedures 18 should be available to

new cogeneration facilities in light of

the criteria proposed for certification of

new cogeneration facilities as QFs.

2. Comments

74. 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 selfcertification 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 selfcertification should remain available to

new 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. Commission Determination

78. 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 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 selfcertifications 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 selfrecertification 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 amend § 292.205(d) of the

Commission’s regulations to provide for

publication of notice of selfcertifications 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 selfcertifying 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 selfcertification 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 selfcertification process are still valid.

Among the reasons for the

Commission’s adoption of the selfcertification 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 selfcertification, 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

19 18 CFR 292.207(d)(1)(iii) (2005).

18 18 CFR 292.207 (2005).

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13:14 Feb 14, 2006

20 18 CFR 292.207(a)(1)(iv) (2005).

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21 18 CFR 292.207(a)(1)(ii) (2005).

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facility, in particular, will obtain and

retain QF status.

E. Exemptions

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1. Background

84. 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 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. Comments

85. 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

investors who were encouraged to build

and operate renewable small power

production facilities and cogeneration

22 Pub. L. 109–58, §§ 1281–83, 119 Stat. 594, 978–

80 (2005).

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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 EPAct

2005. Commenters note that a blanket

elimination of exemptions will remove

the incentive to cogenerate for nonutility 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

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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 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. Commission Determination

92. 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

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regulatory authority’s implementation of

PURPA. The Final Rule will also

essentially retain the 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 utilitytype 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 (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

23 See Pub. L. 109–58, §§ 1261–77, 119 Stat. 594

972–78 (2005).

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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,

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

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7863

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 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.

100. 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.,

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.

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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 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 energy 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’’ 25 which the

Commission interprets to mean electric

energy produced by the QF and not nonQF 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

25 16 U.S.C. 824a–1(a)(2).

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Jkt 208001

sections 205 and 206 of the FPA.

Similarly, purchase and re-sale of nonQF 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 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. Background

104. 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 ownership criteria

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Fmt 4700

Sfmt 4700

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. Comments

106. 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. Commission Determination

107. 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. Background

108. 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, whether by

Commission application or by selfcertification. 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

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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. Comments

109. 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 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. Commission Determination

110. 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)

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1. Background

111. 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

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13:14 Feb 14, 2006

Jkt 208001

added section 210(n) of PURPA when it

files for recertification.

2. Comments

112. ELCON and many other

commenters maintain that change in

ownership or other modifications

should not convert an ‘‘existing facility’’

to ‘‘new facility’’ on 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. Commission Determination

115. 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

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.

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7865

IV. Information Collection Statement

116. The Office of Management and

Budget (OMB) regulations require

approval of certain information

collection requirements imposed by

agency rules.26 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 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.27 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

26 5 CFR 1320.13 (2005).

27 44 U.S.C. 3507(d) (2000).

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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:

Data collection

Number of

respondents

Number of

responses

Hours per

response

Total annual

hours

FERC Form 556 ..............................................................................................

FERC Certification ...........................................................................................

Self-Certification ...............................................................................................

........................

27

270

........................

1

1

........................

4

38

........................

108

10,260

Subtotals ...................................................................................................

FERC–516 .......................................................................................................

205 filings .........................................................................................................

Electric quarterly reports ..................................................................................

Change of status .............................................................................................

297

........................

100

1 100

2 100

100

........................

........................

1

1

3

1

........................

........................

183

230

6

3

* 10,368

........................

18,300

23,000

1,800

300

Subtotals ...................................................................................................

100

........................

........................

43,400

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

1 Initial.

2 Later.

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.

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 selfcertification) 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

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13:14 Feb 14, 2006

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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 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, NE., Washington, DC 20426

[Attention: Michael Miller, Office of the

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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.28 The Commission has

categorically excluded certain actions

from this requirement as not having a

significant effect on the human

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.29

VI. Regulatory Flexibility Act Analysis

119. The Regulatory Flexibility Act of

1980 (RFA) 30 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.’’ 31 The Non-Utility QF

Group, however, argues that the

Commission’s proposals will impact

small entities. It argues that it is likely

28 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).

29 18 CFR 380.4(a)(2)(ii) (2005).

30 5 U.S.C. 601–12 (2000).

31 15 U.S.C. 632 (2000).

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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

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 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

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13:14 Feb 14, 2006

Jkt 208001

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.

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 p.m.

eastern time) at 888 First Street, NE.,

Room 2A, Washington, DC 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, 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 Web site

during normal business hours. For

assistance, please contact FERC Online

Support at 1–866–208–3676 (toll free) or

(202) 502–8222 (e-mail 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

March 17, 2006.

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.

Frm 00025

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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.

Magalie R. Salas,

Secretary.

■ 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. 791a–825r, 2601–

2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.

VII. Document Availability

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■ 2. In § 131.80, part A1a. through 1c. is

revised part C.15, and a new

undesignated center heading For New

Congeneration Facilities immediately

before part C.15 are 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.

*

*

*

*

*

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 l–

l–l

Purpose of instant filing (selfcertification 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 nonelectric 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.

*

*

*

*

*

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Part C—Description of the Cogeneration

Facility

*

*

*

*

*

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 self-certification, selfrecertification 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.S.C. 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:

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§ 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:

(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 dual-fuel cogeneration

facility, is a qualifying facility if it:

(1) Meets any applicable operating

and efficiency standards specified in

§ 292.205(a) and (b); and

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13:14 Feb 14, 2006

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(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

section 210 of the Public Utility

Regulatory Policies Act of 1978, 16

U.S.C. 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.

(4) For purposes of paragraphs (d)(1)

and (d)(2) of this section, a new

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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 selfrecertification, other than for new

cogeneration facilities, will not be

published in the Federal Register.

Notices of self-certification or selfrecertification 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) * * *

(iii) The Commission may, on its own

motion or on the motion of any person,

revoke the qualifying status of a selfcertified 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.

*

*

*

*

*

■ 8. 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 March 17, 2006 or made

pursuant to a state regulatory authority’s

implementation of section 210 the

Public Utility Regulatory Policies Act of

1978, 16 U.S.C. 824a–1, shall be exempt

from scrutiny under sections 205 and

206;

(2) Section 1–18, and 21–30;

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Federal Register / Vol. 71, No. 31 / Wednesday, February 15, 2006 / Rules and Regulations

(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.

■ 9. 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

U.S.C. 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.

Note: The following Appendix will not be

published in the Code of Federal Regulations.

cprice-sewell on PROD1PC66 with RULES

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

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13:14 Feb 14, 2006

Jkt 208001

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)

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)

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7869

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)

[FR Doc. 06–1194 Filed 2–14–06; 8:45 am]

BILLING CODE 6717–01–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR 870

[Docket No. 2005N–0506]

Medical Devices; Cardiovascular

Devices; Classification of Implantable

Intra-Aneurysm Pressure Measurement

System

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is classifying the

implantable intra-aneurysm pressure

measurement system into class II

(special controls). The special control

that will apply to the device is the

guidance document entitled ‘‘Class II

Special Controls Guidance Document:

Implantable Intra-Aneurysm Pressure

Measurement System.’’ The agency is

classifying the device into class II

(special controls) in order to provide a

reasonable assurance of safety and

effectiveness of the device. Elsewhere in

this issue of the Federal Register, FDA

is announcing the availability of a

guidance document that will serve as

the special control for the device.

DATES: This rule is effective March 17,

2006.

FOR FURTHER INFORMATION CONTACT:

Nelson Anderson, Center for Devices

and Radiological Health (HFZ–450),

Food and Drug Administration, 9200

Corporate Blvd., Rockville, MD 20850,

301–443–8282, ext. 171.

SUPPLEMENTARY INFORMATION:

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