IREC Memo on FERC Small-Generator Exemption
By Chris Cook, Of Counsel for Keyes and Fox–A firm focused on Distributed Generation Law Summary of IREC’s positions and outcome in the FERC ruling On March 19, 2010 the Federal Energy Regulatory Commission (FERC) issued its final rule in Order 732, under Docket No. RM09-23. This rule revises the procedures for certifying that a small power…
By Chris Cook, Of Counsel for Keyes and Fox–A firm focused on Distributed Generation Law
Summary of IREC’s positions and outcome in the FERC ruling
On March 19, 2010 the Federal Energy Regulatory Commission (FERC) issued its final rule in Order 732, under Docket No. RM09-23. This rule revises the procedures for certifying that a small power production facility (solar and other renewables) or a cogeneration facility meets the criteria for qualifying facility (QF) status under PURPA and EPAct 2005 laws. IREC intervened in this matter primarily to support the proposition that certain of the smaller classes of renewable generators be fully exempted from filing requirements but more importantly to seek an increase in the proposed exemption level from 1 to 2 MW. IREC’s basis for raising the exemption level was that by increasing the exemption to cover systems 2MW and smaller, FERC would be aligning its filing exemption with the “fast-track” process for interconnection in its Order 2006.
FERC denied IREC’s request but also denied the request of a number of utility intervenors to lower the exemption to as low a capacity as 50kW. FERC also declined to adopt IREC’s suggestion that a notice provision, applicable to generators 500kW and larger, be raised to 1 MW to align with the filing exemption threshold. Unfortunately, the final rule now incorporates a notice provision for certain generators greater than 500kW, with a filing exemption for generators less than 1MW.
When this new final rule is juxtaposed with the FERC’s interconnection procedures and other PURPA requirements, there are now the following capacity breakpoints that are significant to small generators:
- 10kW (interconnection Order 2006– residential size)
- 500kW (QF notice requirements must be filed with state regulator and local utility)
- 1 MW (exemption from filing Form 556 for QF status)
- 2 MW (interconnection Order 2006– fast track)
- 20MW (interconnection – expedited & exemption from certain Federal Power Act review requirements)
- 30MW (size limit on small power production facility PUHCA and Stat law exemptions)
- 80MW (size limit on certain small power production facilities — “non-eligible” under FPA)
For small generators, this leads to a more complex interaction with FERC than is probably necessary. Nonetheless, these categories and the change in treatment based on size are important for small generators to understand.
Under the final rule, any small power production facility less than 1MW may be considered a QF without needing to file any documentation at FERC (see section below on the importance of QF status). As FERC notes in its discussion, for this size class of generators, the QF certification rules are essentially what they were prior to EPAct 2005. Despite being raised as issues by IREC in its filing, FERC did not address treatment for the class of generators that were installed under a PPA arrangement during the post-EPAct 2005 period. In essence, the question remains as to how FERC would treat generators up to one MW that were required to file for certification during the period of Jan 2006 (order 671 created the requirement to file) to March 2010 (Order 732 provided an exemption to the filing requirement) but which failed to do so. It would appear reasonable under the firm language FERC uses in the final rule that no generators under 1MW need to file any documentation at FERC irrespective of whether they either did in the past or had an obligation to.
QF generators below the exemption may still request FERC certification of QF status or voluntarily file if such filing is necessary for another project requirement such as financing.
Discussion
On October 15, 2010, FERC issued a Notice of Proposed Rulemaking (NOPR) proposing, inter alia, to provide a QF filing exemption for generators less than 1MW in size and to modify the form used for filing (Form 556) and replace it with an electronic version. IREC filed comments on the NOPR focused primarily on raising the proposed filing exemption to 2MW to align with the “fast track” interconnection limit of 2MW in FERC Order 2006.
In addition to IREC, six other parties filed comments on the NOPR, three of whom were utilities or utility consortia. Each of the utilities agreed with the idea of an exemption for small renewable generators but all suggested a lower limit than 1MW. The National Rural Electric Cooperative Association (NRECA) supported the 1MW exemption for wind, solar and hydro generators only and sought a 50kW exemption limit on other generators. The Edison Electric Institute (EEI) and Southern Company suggested the exemption threshold should be 100kW. In a classic case of “split the difference”, FERC held the exemption limit at the NOPR proposed 1MW. FERC had noted in the NOPR that there was no substantive basis for selecting the 1MW breakpoint but seems to have relied on the upper and lower bounds proposed in parties’ comments to affirm its original guess on the exemption limit.
In retaining the 1MW filing-exemption limit FERC stated, “In this regard we note that from 2006 to date there were 2,142 [QF] filings made by facilities 1 MW and smaller. Of those, only three percent were made by cogeneration facilities, with the rest being small power production facilities, and 90 percent were made by solar-powered and wind-powered small power production facilities (the rest were made by other small power production facilities).” Despite IREC noting that the size of solar installations will increase in the future, FERC apparently believes a substantial volume of QF filings can be eliminated with the 1MW limit.
The other major change proposed to self-certification filing requirements was to alter Form 556 and the mechanism used to make that filing. Presently those seeking QF status must file Form 556, following the directions for completing that form as published by FERC in their regulations. Under the final rule, Form 556 will become an electronic form completed on-line at the FERC website. FERC believes that using an electronic form will expedite the filing process for all QFs; will provide a more complete database of QF information; and will limit the number of errors made by QF filers. Theorizing that QF filers will find the form easy to complete, FERC will now require that when substantive information about the QF project changes – including ownership percentage above 10 percent—the QF owner will be required to file a completely new Form 556. Any QF that needs to file for recertification will also be required to file a new and complete Form 556. As FERC notes in responding to a concern on the burden to fill out a complete Form 556, “… requiring the provision of full data in a recertification would be a small, one-time burden for applicants, because applicants may, after their first recertification subsequent to a Final Rule implementing this proposal, simply download their previous electronically-filed Form No. 556 from eLibrary and update the relevant responses to generate their new Form No. 556.”
For generators larger than 500kW, FERC retained a requirement that those generators seeking QF status file a notice with the local utility and the state. The order states, “Currently applicants for self-certification are required to serve a copy of their QF self-certification filings on each electric utility with which they expect to interconnect, transmit or sell electric energy to, or purchase supplementary, standby, back-up and maintenance power from, and the State regulatory authority of each state where the facilities and each affected electric utility is located. No such requirement currently exists for applications for Commission certification.” FERC proposed to add to this requirement for any filing for self-recertification or certification via a Commission order and suggested the notice be fulfilled by providing a copy of the Form 556.
As IREC noted in its comments on this proposal, FERC’s approach leaves certain generators in the size range of 500kW to 1MW in a bit of limbo since they would, in most cases, not be filing a Form 556 because of the available exemption. While FERC declined to accept IREC’s proposal, which was to exempt any generator from filing a Form 556 from this provision, FERC did modify the proposed rule to suggest a simple notice in any format could be transmitted to the local utility and state regulator (i.e. it does not have to be notice by way of a Form 556). The penalty for failing to provide notice is a limitation on the purchase of QF energy; because the language of the rule uses the word “interconnect,” this requirement could become problematic for small renewable generators that only wish to interconnect with the local utility but fail to provide the required notice.
Of benefit to QF filers, the final rule removes the requirement that a QF filing for self certification must also provide a notice suitable for publication in the Federal Register. Finally, FERC addressed a number of technical corrections to the existing filing requirements and adjusted several requirements related to the fuel mix and technical data for cogeneration QFs. None of these requirements apply to renewable QFs.
Upon publication of the final rule in 60 days, all generators less than 1MW in size will be exempted from any filing requirement at FERC to claim QF status although those that have a need to document their QF status may voluntarily file for self certification. Generators larger than 1MW will be required to complete the new electronic Form 556 to claim self-certification status as a QF and will be required to file a new Form 556 any time there is a material change in the generation facility (including changes in ownership). For generators that require a FERC order on their status as a QF, they may still initiate a proceeding before FERC for Commission certification as a QF.
While FERC did not address IREC’s request for clarification on generators 1MW or less that were previously required to file a Form 556 but failed to do so, it appears from the final rule that the new filing exemption will be strong in its application. This likely means exempt generators will not be required to file any certification with FERC irrespective of whether in the past they were required to do so. Also unaddressed is the issue of whether a generator exempt from filing that nonetheless chooses to do so, must then always re-file the Form 556 anytime there is a material change in the generator status. IREC has sought clarification on whether an election to initially file, binds an exempt generator to make subsequent QF filings. FERC did not provide clarification.
Important considerations for small renewable generators
Importance of QF status for renewable projects making “sales of electricity”
FERC’s implementation of EPAct 2005 expanded the filing requirements on small renewable generators who meet the criteria for Qualified Facility (QF) under PURPA. Prior to FERC Order 671– issued in early 2006 — a QF did not need to file an application with FERC to meet the legal definition contained in PURPA and was thereby exempt from PUHCA regulation. Any generator that met the legal definition of a QF was so considered and did not need to make a filing with FERC.
Subsequent to Order 671, every QF was required to file either a self-certification (Form 556) or seek actual certification from the Commission for every installation making “sales” of electricity. Failure to file meant that a renewable project would not receive the QF exemption and could be required under PUHCA to provide access to books and records and be subject to certain federal reporting requirements (for which fines apply for the failure to so report). Since any 3rd party ownership PPA structure is arguably a “sale of electricity” the PUHCA rules could apply absent the QF exemption in the Code of Federal Regulations (see 18 C.F.R. § 292.601).
FERC Order No. 732 (the subject of this memorandum), retains the filing requirement for QFs but provides an exemption from those requirements for a generator 1MW or less in capacity (presumably AC capacity). Generators larger than 1MW will still be required to file for self certification as a QF on electronic Form 556 or seek actual certification from the FERC (a somewhat costly undertaking).
It is important to note that these requirements apply even though the “sales” are taking place under a state net metering program (see Declaratory Order 129 FERC ¶ 61,146).
Generators larger than 500kW – notice requirements
Generators larger than 500kW who seek QF status, while exempt from the Form 556 filing, must provide notice to the local utility and state regulatory authority of the existence of their generator if they anticipate making avoided cost or other QF sales to the utility. FERC ‘s ruling in Order No. 732 suggests that a generator above 500kW who fails to provide notice will still be considered a QF under the 1 MW exemption provision, but will simply be unable to sell avoided-cost energy to the local utility until 90 days after the notice has been provided. This could affect generators in states where excess net-metering energy is paid at avoided cost. Because interconnection is referenced, failure to provide notice may also affect a final interconnection approval. Solar and renewable generators greater than 500kW making “sales of electricity” should, to be safe, provide simple notice to the utility and state regulator.
Change in ownership of renewable project
Generators larger that 1MW making “sales of electricity” will be required (in addition to the original filing) to file a new Form 556 any time there is a change in ownership of the generation project where any owner increases ownership by at least 10% from their previously reported interest. Because FERC is implementing the new electronic form, each self-recertification required by an ownership change (or other material fact) must be submitted as part of an entirely new form (FERC notes the data can be downloaded from the original filing on their website).
Voluntary filing
Even though generators below 1MW are exempt from filing a Form 556 to obtain QF status, if a generator so chooses to file (to met bank requirements for example) it may file the new electronic Form 556 with FERC. FERC did not address whether the requirements to keep the data on Form 556 up to date once filed would apply to exempt generators who opted to voluntarily file an original Form 556.
