UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 131 and 292 

(Docket No. RM05-36-001; Order No. 671-A) 

Revised Regulations Governing Small Power Production and Cogeneration Facilities 

(Issued May 22, 2006) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Final Order; Order on Rehearing. 

SUMMARY: In this order on rehearing, the Federal Energy Regulatory Commission 

(Commission) reaffirms its determinations and grants clarification in part of Order No. 

671, which amended the Commission’s regulations governing small power production 

and cogeneration facilities. 

EFFECTIVE DATE: The final rule and order on rehearing will become effective [insert 

date 30 days after publication in the FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: 

Paul Singh (Technical Information) 

Office of Energy Markets and Rates 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8576 

Samuel Higginbottom (Legal Information) 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8561 
 

Eric D. Winterbauer (Legal Information) 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8329 

SUPLEMENTARY INFORMATION: 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Joseph T. Kelliher, Chairman; 

 Nora Mead Brownell, and Suedeen G. Kelly. 

Revised Regulations Governing Small Docket No. RM05-36-001 

Power Production and Cogeneration 

Facilities 

ORDER NO. 671-A 

ORDER ON REHEARING 

(Issued May 22, 2006) 

1. On February 2, 2006, the Federal Energy Regulatory Commission (Commission) 

issued Order No. 671,1

 in which the Commission revised its regulations governing 

qualifying small power production and cogeneration facilities. Specifically, the 

Commission, among other things, eliminated certain exemptions from rate regulation that 

were previously available to qualifying facilities (QFs). Several parties have requested 

rehearing or clarification. For the reasons discussed below, we deny the requests for 

rehearing and grant clarification in part. 

 1

 Revised Regulations Governing Small Power Production and Cogeneration 

Facilities, Order No. 671, 71 FR 7852 (Feb. 15, 2006), FERC Stats. & Regs. ¶ 31,203 

(2006). 
Docket No. RM05-36-001 - 2 -

Introduction

2. Order No. 671 was issued in response to the Energy Policy Act of 2005 (EPAct 

2005),2

 which modified in relevant part section 210 of the Public Utility Regulatory 

Policies Act of 1978 (PURPA). Specifically, Order No. 671 sought to: (1) ensure that 

new qualifying cogeneration facilities are using their thermal output in a productive and 

beneficial manner; that the electrical, thermal, chemical and mechanical output of new 

qualifying cogeneration facilities is used fundamentally for industrial, commercial, 

residential or institutional purposes; and that there is continuing progress in the 

development of efficient electric energy generating technology; (2) amend Form 5563

 to 

reflect the criteria for new qualifying cogeneration facilities; (3) eliminate ownership 

limitations for qualifying cogeneration and small power production facilities; and 

(4) amend the exemptions available to QFs from the requirements of the Federal Power 

Act (FPA)4

 and the Public Utility Holding Company Act of 1935 (PUHCA 1935).5

 2

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

3

 18 C.F.R. 131.80. 

4

 16 U.S.C. 824 et seq. 

5

 15 U.S.C. 79; See Pub. L. No. 109-58, 1261-77, 119 Stat. 594, 972-78 (2005). 
Docket No. RM05-36-001 - 3 -

ARIPPA,6

 the National Rural Electric Cooperative Association (NRECA) and the NonUtility QF Group have requested rehearing. 

Exemption of QFs from FPA Section 205/206 Authority

 Background

3. In Order No. 671, the Commission stated that in light of significant changes that 

have occurred in the industry since the first QF facilities were introduced and in light of 

changing electric markets and resulting market power issues that have arisen in recent 

years, it was no longer necessary or appropriate to completely exempt QFs from sections 

205 and 206 of the FPA.7

 However, the Commission clarified that QFs would continue 

to have an exemption from sections 205 and 206 of the FPA when a sale is made 

pursuant to a state regulatory authority’s implementation of PURPA. In addition, to 

avoid creating the hardship that removal of exemptions might cause for smaller QFs, the 

Commission provided that facilities 20 MW or smaller would remain exempt from 

sections 205 and 206 of the FPA. 

Requests for Rehearing

4. ARIPPA argues against the imposition of rate regulation on QFs that are not 

owned by electric utilities. It argues that the rule change is a “bait-and-switch,” in that it 

 6

 ARIPPA, formerly known as the Anthracite Region Independent Power 

Producers Association, states that it is a not-for-profit association comprising fourteen 

independent power producers in Pennsylvania that generate approximately 1,346 MW of 

electrical power buring coal mining refuse. 

7

 16 U.S.C. 824d, 824e. 
Docket No. RM05-36-001 - 4 -

would impose rate regulation on QF owners who had been induced to invest in and 

develop QFs by the exemption from the state and federal rate regulation. 

5. ARIPPA points to the Commission’s statement that “a complete exemption is not 

necessary to encourage the development” of cogeneration.8 It emphasizes the word 

“development,” noting that this might be a reasonable basis for a rule that newly-built 

QFs would not enjoy exemptions from rate regulation, but argues that the statement does 

not address the issue of the Commission’s treatment of those who invested in such 

facilities in the past in reliance on the exemption from rate regulation. It argues that the 

Commission’s statement that QF’s had no reasonable expectation that the rules would not 

be amended is wrong. It argues that that was the inducement for developers to invest. 

6. ARIPPA argues that the Commission cites to no record for its assertion that nonQF sales by QFs could potentially have a significant market effect. It argues that the 

Commission did not cite to a single indication that one or more non-utility QFs under 

common ownership and control have achieved or could achieve market power. It argues 

that Commission’s assertion is mere speculation. 

7. ARIPPA argues that the exception for QFs selling pursuant to a state avoided-cost 

regime is inconsistent with other parts of the existing rule. It argues that it is vague and 

that the uncertainty it will create will stymie future development, despite Congress’ 

continuing charge to the Commission to continue to encourage development. It contends 

that it is unclear how much variance from a state avoided-cost regime is tolerable and 

 8

 Id. at 6 (citing Order No. 671 at P 96). 
Docket No. RM05-36-001 - 5 -

how much crosses the line and would cause the QF to lose its exemption from federal rate 

regulation. It questions whether investors will be willing to initiate development 

knowing that the process may be affected by such uncertainties. It also questions 

whether it is in the public interest for the Commission to set up what is sees as barriers 

and disincentives to settlement of disputes arising during contract negotiations between 

utilities and QFs. 

8. NRECA, on the other side, argues that all power sales by QFs owned by 

Commission-regulated public utilities should be subject to sections 205 and 206 even if 

the sales were made pursuant to a state’s implementation of PURPA.9

 It states that Order 

No. 671 continues to exempt from sections 205 and 206 any sales made pursuant to a 

state PURPA implementation plan, even if the QF is owned by a public utility.10 It 

argues that there is no policy reason why such wholesale sales of power from QFs owned 

by public utilities should be exempt from Commission review under sections 205 and 

206, while all other wholesale sales by such public utilities (i.e., from resources other 

than QFs) are subject to such review. 

9. NRECA argues that all sales by QFs owned by public utilities should be subject to 

the Commission’s rate authority, whether such sales are pursuant to an avoided cost rate 

or not. NRECA also states that the filing of avoided cost contracts with the Commission 

 9

 NRECA Request for Rehearing at 5. 

10 Id. (citing Order No. 671 at P 99). 
Docket No. RM05-36-001 - 6 -

will enhance oversight and transparency, while not requiring filing creates a risk of 

market power abuse. 

10. NRECA further argues that all QFs that make non-PURPA sales should be subject 

to sections 205 and 206, no matter how small. It states that it is sensitive to the needs of 

smaller QFs, but that a QF as small as 5 MW could have a substantial impact upon a 

small distribution cooperative. NRECA states that small QFs that believe they are too 

small to handle public utility regulation may continue to make sales pursuant to a state 

PURPA implementation plan, and continue to be exempt from section 205 and 206 

(unless they are owned by a public utility). NRECA adds that, on the other hand, if small 

QFs want the flexibility available to utilities with market-based rates and feel that they 

are large enough and sophisticated enough to sell at market-based rates, they should be 

subject to sections 205 and 206, like any other public utility that sells power at marketbased rates. 

11. NRECA argues that, under Order No. 671, if a large public utility owned a 20 MW 

QF, it could make power sales from that QF without any Commission review. It further 

argues that, if the facility were not a QF, the public utility would not be able to make such 

a sale without the Commission’s express approval. It argues that this underscores the 

potential for market power abuse and affiliate transaction abuse that could occur if Order 

No. 671 is not changed. 

12. The Non-Utility QF Group argues that the Commission should increase the 

threshold for exemption from sections 205 and 206 of the FPA from 20 MW to 30 MW. 
Docket No. RM05-36-001 - 7 -

First, it argues that the change would simplify Commission regulation by maintaining a 

consistent 30 MW threshold for all FPA exemptions as they apply to qualifying small 

power production facilities. Second, it argues that, in PURPA, Congress determined that 

30 MW was a critical threshold for small power production facilities, and notes that 

Congress did not disturb that threshold in EPAct 2005. Thus, it argues, the Commission 

already has a ready statutory reference for a 30 MW threshold, while the 20 MW 

threshold is more arbitrary. Third, it argues that the total installed generation capacity for 

all qualifying cogeneration plants under 30 MW, combined with the total installed 

generation capacity of all qualifying small power production facilities under 30 MW, 

totals a mere 7,095.5 MW.11 It argues that this represents less than 0.7 percent of the 

total installed generation capacity in the U.S. in 2004. It argues that, accordingly, 

exemptions for QFs less than 30 MW would not detract from the purposes of sections 

205 and 206 of the FPA, and would serve both administrative efficiency and 

Congressional mandates to avoid utility-type regulation of entities having de minimis

market presence. 

Commission Determination

13. We disagree that any original “bargain” has been reneged on, or that the 

Commission has engaged in what ARIPPA refers to as a "bait and switch." The 

Commission granted very broad exemptions from the FPA (and state laws) in order to 

remove the disincentive of utility-type regulation from QFs. Exemptions from FPA 

 11 Non-Utility QF Group Request for Rehearing at 4-5 (citing U.S. Department of 

Energy Annual Electric Generator Report (2004)). 
Docket No. RM05-36-001 - 8 -

sections 205 and 206 rate regulation were necessary to encourage the development of 

QFs. However, at that time the Commission had no way to predict how markets would 

develop in the decades to follow. When the Commission first granted the exemptions 

from sections 205 and 206 of the FPA in 1980, there was no market for electric energy 

produced by non-traditional generators and thus such generators were rare. However, 

prompted originally by PURPA, markets for electric energy produced by non-traditional 

generators have developed. Now that these markets are in existence and provide a forum 

for sales of electric energy produced by non-traditional generators, the same level of 

encouragement for QFs is no longer necessary; access to these markets provides 

encouragement. Accordingly, it is no longer necessary to completely exempt QFs from 

sections 205 and 206 of the FPA in order to encourage development of QFs. 

14. Moreover, given these changes to energy markets, there will be times when 

Commission oversight of QF sales is appropriate and necessary under section 205 and 

206 of the FPA. The passage and implementation of EPAct 2005 has provided us an 

opportunity to now provide for such oversight. 

15. We remain unpersuaded that eliminating exemptions will upset the legitimate 

expectations of QF owners, lenders and investors. As we stated in Order No. 671, the 

exemptions previously granted were always subject to revision and QFs had no justifiable 

expectations that, no matter the changes in circumstances, changes in the regulatory 

regime would not occur. In addition, the Commission has already taken significant steps 

to ease any adverse impact. Specifically, the Commission recognized that expectations 
Docket No. RM05-36-001 - 9 -

reflected in current contracts should be protected, and did so by grandfathering the 

exemption from sections 205 and 206 of the FPA for existing contracts.12 However, on a 

prospective basis, the need for oversight of QF sales is a compelling reason to subject 

new contracts to rate regulation under section 205 and 206 of the FPA. 

16. ARIPPA's argument that Order No. 671’s changes to the exemptions from sections 

205 and 206 of the FPA will discourage future development of non-traditional generation 

is misplaced. The large number of non-QF independent generators that have developed 

in recent years, addressed in the many orders granting them market-based rate authority 

under section 205 of the FPA, indicate that the exemptions from sections 205 and 206 are 

not necessary to promote non-traditional generation. 

17. We find unpersuasive the arguments made by NRECA that even sales made by 

utility-owned QFs that are subject to a state’s PURPA implementation plan should 

nevertheless be subject to section 205 and 206 regulation. Our goal in part was and is to 

close the gap that had developed in the regulatory regime that allowed some QF sales to 

avoid any rate regulation.13 We believe that having QF sales regulated at the state level is 

sufficient, and will allow us to close the regulatory gap while not dramatically or 

inappropriately increasing the regulatory burden on QFs. 

18. Likewise, we find unpersuasive the arguments of the Non-Utility QF Group and 

NRECA to change the threshold for section 205/206 exemptions. The Non-Utility QF 

 12 Order No. 671 at P 97. 

13 Id. at P 95-96. 
Docket No. RM05-36-001 - 10 -

Group argues that the threshold should be increased to 30 MW; NRECA argues that all 

non-PURPA sales should be regulated no matter how small the QF. In Order No. 671, 

we attempted to strike a balance by ensuring that QF sales are regulated by either the 

states or the Commission while at the same time easing the burden on the smallest 

facilities.14 In the NOPR, the Commission originally suggested that the exemptions 

should remain in effect for QFs under 5 MW. Most commenters supported the 

exemption for QFs under 5 MW, while some suggested a higher figure.15 In response to 

those comments, the Commission raised the threshold to 20 MW.16 The 20 MW 

threshold strikes a reasonable balance by protecting the smallest facilities while ensuring 

that sales by larger QFs are subject to Commission oversight.17 The arguments presented 

by the Non-Utility QF Group are simply not compelling enough to persuade us to raise 

the threshold further. In addition, we reject arguments by NRECA to make all nonPURPA sales subject to rate regulation, no matter how small the QF. We believe that an 

exemption from regulation is still appropriate to ease the regulatory burden for the 

smallest QFs. 

 14 Id. at P 98. 

15 Id. at P 87. 

16 Id. at P 98. 

17 The 20 MW threshold adopted in Order No. 671 is also consistent with the 20 

MW size limit for small generating facilities found in Order No. 2006. Standardization 

of Small Generator Interconnection Agreements and Procedures, Order No. 2006, 70 FR 

34100 (June 13, 2005), FERC Stats. & Regs. ¶ 31,180 at P 75 (2005), order on reh’g, 

Order No. 2006-A, 70 FR 71760 (Nov. 30, 2005), FERC Stats. & Regs. ¶ 31,196 (2005). 
Docket No. RM05-36-001 - 11 -

Self-Certification

 Background

19. In Opinion No. 671, the Commission retained the option to self-certify for new 

cogeneration facilities. The Commission also stated that self-certifications and selfrecertifications of new cogeneration facilities would now be noticed in the Federal 

Register, in order to enhance the visibility of self-certifications for interested parties. The 

Commission further stated that a facility should not be able to claim QF status without 

having made any filing with the Commission. Accordingly, the Commission amended its 

regulations to expressly require that a facility claiming QF status must file either a notice 

of self-certification or an application for Commission certification.18 

Requests for Rehearing

20. NRECA argues that the Commission should not permit new cogeneration facilities 

to self-certify. It states that the “fundamental use” and “presumptively useful” standards 

are subjective and that there are no guidelines established yet on how the standard will be 

applied. It contends that, although the Commission has stated that these factors will 

require a case-by-case review, self-certification will be meaningless if the Commission 

accepts a new cogeneration facility’s unsupported representation in a self-certification 

that it satisfies subjective standards. It argues that, consequently, new cogeneration 

 18 Id. at P 78-83. 
Docket No. RM05-36-001 - 12 -

facilities should at the present time be required to submit an application and obtain a 

Commission determination as to its QF status.19

21. NRECA further argues that the Commission’s proposal in Order No. 671 to notice 

self-certifications and self-recertifications in the Federal Register is insufficient to ensure 

that new cogeneration facilities satisfy the new standards for QF status, given the 

inherently subjective and case-by-case nature of the application of such new standards. It 

contends that, because QFs frequently file self-certifications before they have approached 

an electric utility for interconnection or power sales, electric utilities would be compelled 

to monitor every self-certification filing in order to determine whether the QF is planning 

to locate in the electric utility’s service territory. It further argues that, until the new 

standards are better developed, it will be unclear on what basis an electric utility could 

challenge a QF’s qualifying status. It contends that only electric utilities with significant 

litigation resources will be in position to protect themselves from inappropriate selfcertifications, and that small cooperatives will be at a disadvantage. 

Commission Determination

22. We deny rehearing. We find the processes and safeguards included in Order No. 

671 to be sufficient. As we noted in Order No. 671, the Commission has the authority to 

review a self-certification.20 With this authority, the Commission is able to review the 

self-certifications of new cogeneration facilities to ensure their compliance with the new 

 19 NRECA Request for Rehearing at 8. 

20 Order No. 671 at P 78. 
Docket No. RM05-36-001 - 13 -

standards. NRECA argues that, for the first self-certifications, there will be no prior 

cases that provide guidelines on how to satisfy the standards. We think EPAct 2005’s 

statutory language and the newly-adopted regulations provide a sufficient starting point, 

and we also expect such case law to develop quickly so that QFs and electric utilities will 

have further guidance on what is necessary to meet the new standards. 

23. In addition, we disagree with NRECA’s argument that publication of notice in the 

Federal Register will not help to ensure that prospective QFs comply with the new 

standards. Publication of such notices will enhance the visibility of self-certifications and 

self-recertifications for interested parties. We expect that such visibility will allow 

attempted self-certifications and self-recertifications of new cogeneration facilities that 

fail to meet the new standards set forth in Order No. 671 to be spotted quickly, and so 

help to ensure that such facilities satisfy the new standards in Order No. 671. 

PUHCA Clarification

 Background

24. In Order No. 671, the Commission stated that it interprets PURPA to permit it to 

exempt QFs from the Public Utility Holding Company Act of 2005 (PUHCA 2005)21 in 

18 CFR 292.602. The Commission stated that, accordingly, revised 18 CFR 292.602 

would now provide that a QF shall not be considered an “electric utility company” as 

defined by PUHCA 2005. We also stated in Order No. 671 that, consistent with recent 

 21 Pub. L. No. 109-58, 1261-77, 119 Stat. 594, 972-78 (2005). 
Docket No. RM05-36-001 - 14 -

actions on FPA section 203,22 QFs would be considered “electric utility companies” for 

purposes of section 203(a)(2) of the FPA.23 

 Requests for Rehearing

25. The Non-Utility QF Group argues that there is a tension between Order No. 671 

and Order No. 66924 in how the two orders relate to transactions involving entities that 

only own QFs and exempt wholesale generators (EWGs) for purposes of section 

203(a)(2) of the FPA. It states that, in Order No. 669, the Commission explained that, 

regardless of their status under PUHCA 2005, QFs (and EWGs) will be regarded as 

“electric utility companies” for purposes of section 203(a)(2), which addresses the 

acquisition of securities by “holding companies” as defined in PUHCA 2005.25 It notes 

that the Commission also stated that, while most QFs themselves remain exempt from 

section 203, holding companies will require Commission approval pursuant to section 

203 in order to acquire an interest in a QF or an EWG.26 Finally, it notes that the 

Commission in Order No. 669 stated that this would hold true even if the holding 

 22 16 U.S.C. 824b. 

23 Order No. 671 at P 102. 

24 Transactions Subject to FPA Section 203, Order No. 669, 70 FR 58636 (Oct. 7, 

2005), FERC Stats. & Regs. ¶ 31,200 (2005), order on reh’g, Order No. 669-A, 71 FR 

28,422 (May 16, 2006), FERC Stats. & Regs. ¶ 31,214 (2006). 

25 See Non-Utility QF Group Request for Rehearing at 5. 

26 Id. (citing Order No. 669 at P 59-60 and 70). 
Docket No. RM05-36-001 - 15 -

company were a holding company solely by reason of its ownership interest in QFs, 

EWGs and foreign utility companies (FUCOs). 

26. The Non-Utility QF Group states that, while it understands why the Commission 

would want some review of acquisitions of large QFs by holding companies having real 

generation or transmission market power, it disagrees with the Commission’s suggestion 

in Order No. 669 that holding companies otherwise exempted by Congress from PUHCA 

2005, i.e., owners only of QFs, EWGs and FUCOs, should be subject to section 203 

requirements. It argues that this assertion represents a potential dramatic increase in 

regulatory oversight over independent companies that own precisely the types of smaller, 

non-traditional generating plants that Congress has long sought to encourage. It argues 

that it is “silly” to require every 500 KW landfill gas or hydroelectric plant to be subject 

to section 203 just because it is being acquired by the owner of another small QF. 

27. The Non-Utility QF Group argues that a better balance is provided by Order No. 

671. It argues that, by exempting QFs from PUHCA 2005’s definition of “electric utility 

company,” a QF would not be an “electric utility company” under PUHCA 2005, and 

therefore its upstream 10 percent owners would not be “holding companies” under 

PUHCA 2005 – and therefore would not be “holding companies” for purposes of section 

203(a)(2) of the FPA.27 

 27 Id. at 6 (citing Order No. 671 at P 92-94). 
Docket No. RM05-36-001 - 16 -

Commission Determination

28. The Non-Utility QF Group is correct that there was an inconsistency in the 

treatment of QFs with regards to their status under PUHCA 2005. However, the 

Commission has corrected this inconsistency in its order on rehearing of Order No. 667,28

the final rule which amended the Commission’s regulations to implement the repeal of 

PUHCA 1935 and the enactment of PUHCA 2005. In that order on rehearing, the 

Commission clarified that QFs will not be excluded from the definition of “electric utility 

company” but added that the Commission intends nevertheless to exempt QFs from 

PUHCA 2005 and most FPA requirements pursuant to the Commission’s PURPA 

authority to grant such exemptions.29 Accordingly, we will on rehearing here revise 18 

CFR 292.602 to remove the statement that a QF is not an “electric utility company” 

within the meaning of PUHCA 2005, and to provide an exemption from PUHCA 2005. 

As to FPA section 203, the definition of “electric utility company” in that context was 

addressed in Order No. 669-A.30

 28 Repeal of the Public Utility Holding Company Act of 1935 and Enactment of 

the Public Utility Holding Company Act of 2005, Order No. 667, 70 FR 75,592 (Dec. 20, 

2005), FERC Stats. & Regs. ¶ 31,197 (2005), order on reh’g, Order No. 667-A, 71 FR 

28,446 (May 16, 2006), FERC Stats. & Regs. ¶ 31,213 (2006). 

29 See Order No. 667 at P 14 n.31. 

30 Order No. 669-A at P 41-54. 
Docket No. RM05-36-001 - 17 -

The Commission orders:

Rehearing is hereby denied and clarification is hereby granted in part, as discussed 

in the body of this order. 

List of Subjects

18 CFR Part 292

Electric Power Plants 

Electric utilities 

Natural gas 

Reporting and record Keeping requirements 

By the Commission. 

( S E A L ) 

 Magalie R. Salas, 

 Secretary. 

 
Docket No. RM05-36-001 - 18 -

In consideration of the foregoing, under the authority of EPAct 2005, the 

Commission is amending Part 292 in Chapter I of Title 18 of the Code of Federal 

Regulations, as set forth below: 

 1. In § 292.602, paragraph (b) is revised to read as follows. 

§ 292.602 Exemption of qualifying facilities from the Public Utility Holding 

Company Act of 2005 and 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 be exempt from the Public Utility Holding Company Act 

of 2005, 42 U.S.C. 16,451-63. 

* * * * *