Document ID: FERC-2005-0244-0001
Agency: ferc
Document Type: Proposed Rule
Title: Revised Regulations Governing Small Power Production and Cogeneration Facilities
Posted Date: 2005-10-18T04:00Z

[Federal Register: October 18, 2005 (Volume 70, Number 200)]
[Proposed Rules]               
[Page 60456-60463]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc05-15]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 131 and 292

[Docket No. RM05-36-000]

 
Revised Regulations Governing Small Power Production and 
Cogeneration Facilities

October 11, 2005.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing to amend its regulations governing small power production and 
cogeneration 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). Specifically, the Commission is proposing to (1) 
issue a rule ensuring 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 the new 
qualifying cogeneration facilities is used fundamentally for 
industrial, commercial or institutional purposes; and that there is 
continuing progress in the development of efficient electric energy 
generating technology; (2) amend Form 556 to reflect the criteria for 
new qualifying cogeneration facilities, (3) issue a rule eliminating 
ownership limitations for qualifying cogeneration and small power 
production facilities; and (4) amend the exemptions available to 
qualifying facilities from the requirements of the Federal Power Act 
and the Public Utility Holding Company Act of 1935.

DATES: Comments are due November 8, 2005. Reply Comments are due 
November 15, 2005.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at http://www.ferc.gov. Commenters unable to 

file comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street, NE., Washington, DC 20426. Refer to the 
Comment Procedures section of the preamble for additional information 
on how to file comments.

FOR FURTHER INFORMATION CONTACT:
Daniel Hedberg (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6243.
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:

[[Page 60457]]

Introduction

    1. Pursuant to section 1253 of the Energy Policy Act of 2005 (EPAct 
2005),\1\ the Commission is proposing to amend its regulations 
governing qualifying cogeneration and small power production 
facilities. Specifically, the Commission is proposing to (1) issue a 
rule ensuring 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 or institutional purposes; and that there is continuing 
progress in the development of efficient electric energy generating 
technology; (2) amend Form 556 \2\ to reflect the criteria for new 
qualifying cogeneration facilities, (3) issue a rule eliminating 
ownership limitations for qualifying cogeneration and small power 
production facilities; and (4) amend the exemptions available to 
qualifying facilities (QFs) from the requirements of the Federal Power 
Act (FPA) \3\ and the Public Utility Holding Company Act of 1935 
(PUHCA).\4\ Consistent with the requirements of section 1253(a) of 
EPAct 2005, the Commission intends to issue a final rule by February 4, 
2006, which is 180 days after enactment of EPAct 2005.
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    \1\ Pub. L. No. 109-58, Sec.  1253, 119 Stat. 594 (2005).
    \2\ Form 556 is set forth in 18 CFR 131.80.
    \3\ 16 U.S.C. 824 et seq.
    \4\ 15 U.S.C. 79a et seq.
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Background

    2. Section 1253(a) of EPAct 2005 amends section 210 of PURPA \5\ by 
adding subsection (n). New section 210(n) of PURPA requires the 
Commission to revise 18 CFR 292.205 to add criteria for new qualifying 
cogeneration facilities in order to ensure (1) that the thermal energy 
output of any new qualifying cogeneration facility is used in a 
productive and beneficial manner; (2) the electrical, thermal, and 
chemical output of any new qualifying 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; and 
(3) continuing progress is made in the development of efficient 
electric energy generating technology. We propose regulations 
implementing section 210(n) of PURPA below.
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    \5\ 16 U.S.C. 824a-3.
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    3. Section 1253(b) of EPAct 2005 amends the FPA to eliminate 
ownership limitations for qualifying cogeneration and small power 
production facilities. PURPA, as originally enacted in 1978, limited 
ownership of qualifying cogeneration and small power production 
facilities to individuals not primarily engaged in the generation or 
sale of electric power, other than electric power solely from 
cogeneration or small power production facilities. Section 1253(b) of 
EPAct 2005 eliminates that limitation on ownership. We propose to 
revise our regulations to implement this provision of EPAct 2005 below.

Proposed Revisions to Regulations

I. Section 292.205 Criteria For Qualifying Cogeneration Facilities

    4. Section 1253(a) of EPAct 2005 adds section 210(n) to PURPA. 
Section 210(n) of PURPA directs the Commission to revise the criteria 
in 18 CFR 292.205 for new qualifying cogeneration facilities.\6\ 
Specifically, new section 210(n)(1)(A) of PURPA requires that section 
292.205 of the Commission's regulations be revised to ensure:
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    \6\ EPAct 2005 provides that the Commission's pre-existing 
criteria for qualifying cogeneration facilities shall remain in 
effect for any cogeneration facility that: (A) was a qualifying 
cogeneration facility on the date of enactment of section 210(m) of 
PURPA, i.e., on 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 in this 
proceeding.
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    (i) That the thermal energy output of a new qualifying cogeneration 
facility is used in a productive and beneficial manner;
    (ii) The electrical, thermal, and chemical output of the 
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; and
    (iii) Continuing progress in the development of efficient electric 
energy generating technology.
    5. The Commission proposes to revise section 292.205 of its 
regulations by adding section 292.205(d), which will incorporate the 
language of sections 210(n)(1)(A)(i), 210(n)(1)(A)(ii) and 
210(n)(1)(A)(iii) of PURPA as sections 292.205(d)(i), (ii) and (iii). 
We propose to apply this language on a case-by-case basis to determine 
whether a new cogeneration facility can be considered a qualifying 
cogeneration facility. As guidance to applicants, we will discuss below 
what we believe the language of section 210(n), and the language of the 
regulations proposed here, require a new cogeneration facility to show 
for certification.
    6. We solicit comments on whether further or different language 
than that proposed here should be incorporated in our regulations.
A. Section 210(n)(1)(A)(i) of PURPA
    7. Section 210(n)(1)(A)(i) of PURPA requires that the thermal 
output of a new qualifying cogeneration facility be used in a 
``productive and beneficial manner.'' The Commission proposes to 
incorporate this standard into new section 292.205(d)(i) of its 
regulations. Prior to EPAct 2005's enactment, the Commission, in 
deciding whether to grant certification, traditionally relied on an 
essentially irrebuttable ``presumptively useful'' standard in 
determining whether a cogeneration facility's thermal output is useful. 
Explaining that standard, in Brooklyn Navy Yard Cogeneration Partners, 
L.P., the Commission stated, ``[i]f the use of a cogeneration 
facility's thermal output constitutes a common industrial or commercial 
application, it is presumptively useful and the Commission performs no 
further analysis of thermal use.'' \7\ However, there has long been 
concern that an irrebuttable ``presumptively useful'' standard has led 
to situations where cogeneration facilities have qualified even where 
there was no real need for the thermal output, and the sole reason for 
the thermal use was to satisfy the Commission's requirement for QF 
status and nothing more. An example of such a thermal use was the 
production of distilled water where there is no market for the 
distilled water.\8\
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    \7\ 74 FERC ] 61, 015 (1996).
    \8\ Brazos Electric Power Cooperative v. Tenaska IV Texas 
Partners, Ltd., 83 FERC ] 61,176 at 61,727, reh'g denied, 85 FERC ] 
61,097 (1998), aff'd, Brazos Electric Power Cooperative, Inc. v. 
FERC, 205 F.3d 235 (5th Cir. 2000), reh'g denied en banc, 214 F.3d 
214 (5th Cir. 2000), cert. denied, 531 U.S. 957 (2000 (Brazos). 
Accord Wilbur Power LLC, 103 FERC ] 61,183, clarified, 104 FERC ] 
61,055 at 61,201 (2003); Brooklyn Navy Yard Cogeneration Partners, 
L.P., 74 FERC ] 61,015 at 61,046 (1996); EcoEl[eacute]ctrica, L.P., 
108 FERC ] 61,249 at P 25 (2004).
    In the Brazos case, the cogeneration facility produced distilled 
water that was, for a time, used to wash a city's sewers. The 
purchaser of the electric power from the facility asked the 
Commission to decertify the facility. The Commission, using the 
``presumptively useful'' standard, found that the use that an 
unaffiliated party makes of the distilled water purchased at arms' 
length was irrelevant to whether the facility qualified under the 
standard.
    The Commission, earlier this year, however, determined that an 
unaffiliated purchaser of steam from a cogeneration facility could 
not distill water with that steam and then sell the distilled water 
to the cogeneration facility to be used in the power production 
process. The Commission labeled the proposed transaction a ``sham,'' 
in that the distilled water was being produced not to serve a 
legitimate industrial, commercial, heating, or cooling purpose but 
rather to help the applicant gain qualifying status under PURPA. 
Calpine King City Cogen, LLC, 111 FERC ] 61,174 (2005), reh'g 
denied, 112 FERC ] 61,088 (2005).

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[[Page 60458]]

    8. The Commission, in applying its new section 292.205(d)(i), will 
now consider whether a new cogeneration facility's proposed use of its 
thermal output is for a genuine and legitimate industrial, commercial, 
or institutional purpose or whether, in reality, the use serves merely 
to allow the applicant to achieve qualifying status under PURPA. We 
believe that this approach will allow us to determine whether the 
thermal output is being used in a ``productive and beneficial manner,'' 
as the statute requires.
    9. In the future, therefore, we will not consider any presumption 
of usefulness to be irrebuttable, as we have in the past, but we will 
consider the presumption to be rebuttable and we will scrutinize the 
use a cogeneration facility makes of its 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 this regard, in determining 
whether the thermal output of a cogeneration facility is ``useful'' for 
purposes of certification as a qualifying facility, we will also 
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 the case of distilled water, in some 
geographic areas water distilled with cogenerated thermal output can be 
and is used in a productive and beneficial manner, while in other 
geographic areas it is not.
B. Section 210(n)(1)(A)(ii) of PURPA
    10. Section 210(n)(1)(A)(ii) of PURPA requires that the Commission 
must ensure that 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. We propose to implement section 210(n)(1)(A)(ii) 
of PURPA by adopting the language of the statute. In addition, the 
Commission will add 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.
    11. There was long concern over what were known as ``PURPA 
machines.'' PURPA machines were facilities that were intended 
fundamentally to produce electric power for sale to an electric 
utility. PURPA machines differed from cogeneration facilities intended 
fundamentally to serve the thermal, electrical or other needs of the 
cogeneration facility's host.
    12. Facilities that are intended primarily to meet the needs of the 
cogeneration facility's host are sized for that purpose. The useful 
energy output of such a cogeneration facility is used fundamentally for 
industrial, commercial, or institutional purposes and only the 
remaining energy is available for sale to electric utilities. We will 
require that applications for certification under new section 210(n) of 
PURPA, and new section 292.205(d)(ii) of our regulations, provide a 
detailed explanation of how the cogeneration facility meets the 
requirement that the electrical, thermal, chemical and mechanical 
output of the 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. We seek comment 
on whether we should adopt this general case-by-case approach for 
determining the ``fundamental'' use of a facility, 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.
    13. It has been our experience in reviewing applications for 
certification that cogeneration facilities designed to minimally meet 
the pre-existing operating standard, i.e., those whose thermal output 
constitutes only 5 percent of the total energy output of the facility, 
are the facilities most likely to be designed fundamentally to sell 
electric output to electric utilities rather than being designed 
fundamentally to provide electrical, thermal, and other output for 
industrial, commercial, or institutional purposes. On the other hand, 
our experience has been that facilities with higher operating standards 
are much more likely to be designed fundamentally to provide 
electrical, thermal, and other output for industrial, commercial, or 
institutional purposes. To help assure that new qualifying cogeneration 
facilities are intended fundamentally to provide electrical, thermal, 
chemical and mechanical output for industrial, commercial or 
institutional purposes, we will pay particular attention to those 
facilities that only minimally satisfy the Commission's operating 
standard.
C. Section 210(n)(1)(A)(iii) of PURPA
    14. New section 210(n)(1)(A)(iii) of PURPA requires the Commission 
to issue rules to ensure ``the continuing progress in the development 
of efficient electrical energy generating technology.'' The 
Commission's proposed implementation of this requirement will be by a 
verbatim recitation of the statute. In an application for certification 
of new cogeneration facilities, the Commission will require a 
description of how the technology used by an applicant for 
certification satisfies this requirement. In general, we believe new 
section 210(n)(1)(A)(iii) of PURPA requires that all new cogeneration 
applicants demonstrate their employment of efficient, modern 
technologies, but all such applicants that request the Commission to 
exercise any of the limited discretion given under section 
210(n)(1)(A)(ii) to ``[take] into account technological, efficiency, 
economic and variable thermal energy requirements * * *'' should be 
particularly prepared to make such a demonstration.
    15. In addition, to ensure continuing progress in the development 
of efficient electric energy technology, the Commission proposes to 
apply an efficiency standard to new coal-burning cogeneration 
facilities similar to that applied to natural gas and oil-burning 
cogeneration facilities. Currently, section 292.205(a)(2) of the 
Commission's regulations establishes an efficiency standard for 
topping-cycle cogeneration facilities for which any of the energy input 
is natural gas or oil. Under this efficiency standard, the useful power 
output of the facility plus one-half the useful thermal energy output 
during the applicable period must be no less than 42.5 percent of the 
total energy input of natural gas or oil. If the useful thermal energy 
output is less than 15 percent of the total energy output of the 
facility, the useful power output of the facility plus one-half of the 
useful energy output must be no less

[[Page 60459]]

than 45 percent, rather than 42.5 percent. The Commission's current 
efficiency standard ensures that the facility operates at or above a 
certain level of performance when it uses natural gas or oil.
    16. Given advances in electric generating technology, it now 
appears appropriate to implement an efficiency standard for coal-fired 
cogeneration facilities. For example, there is the potential for 
efficiency improvements at pulverized coal-fired plants using existing 
technology through operational changes and equipment upgrades. There is 
also the potential for improved thermal efficiencies through the use of 
pulverized coal-fired plants built with newer technologies and by the 
utilization of supercritical steam. Under Department of Energy research 
and development programs, two new technologies--Pressurized Fluid Bed 
Combustion and Integrated Gasification Combined Cycle--have created 
combined cycle operations within coal-fired facilities. These two types 
of facilities have improved thermal efficiencies as compared to 
conventional pulverized coal-fired facilities and are currently in 
commercial use. The Commission would like to know what methods of 
quantifying efficiency the Commission should consider. The Commission 
requests comments on what the minimum efficiency for such new coal-
fired cogeneration facilities should be.
    17. The Commission invites comments on this as well as on other 
ways by which it can ``ensure continuing progress in the development of 
efficient electrical energy generating technology.''
D. Section 292.207 Procedures for Obtaining Qualifying Status
    18. In light of the criteria for new cogeneration facilities, we 
invite comments on whether the self-certification procedures contained 
in section 292.207 should be available to new cogeneration facilities.

II. Section 292.601 Exemption of Qualifying Facilities From the Federal 
Power Act.

    19. Section 210(e)(1) of PURPA states that the Commission shall 
prescribe rules under which qualifying facilities are exempt, in whole 
or in part, from the FPA, from PUHCA, 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 megawatt capacity from these 
laws, except for geothermal small power production facilities. Such 
facilities between 30 and 80 megawatts may be exempted from PUHCA and 
from state laws and regulations, but may not be exempted from the FPA.
    20. In Order No. 69,\9\ the Commission first implemented section 
210(e) of PURPA. The Commission at that time stated that a broad 
exemption was then appropriate to remove the disincentive of utility-
type regulation from QFs, including sections 203, 205, 206, 208, 301 
and 304 of the FPA. In section 292.601 of its regulations, the 
Commission exempted QFs (other than non-geothermal small power 
production facilities between 30 and 80 megawatts) from sections 203, 
205, 206, 208, 301 and 304 of the FPA.
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    \9\ Small Power Production and Cogeneration Facilities; 
Regulations Implementing Section 210 of the Public Utility 
Regulatory Policies Act of 1978, Order No. 69, 45 FR 12,214 (Feb. 
25, 1980), FERC Stats. & Regs. ] 30,128 (1980).
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    21. The Commission has traditionally interpreted this exemption 
broadly. For instance, in Pine Bluff Energy, LLC \10\ and Carville 
Energy LLC,\11\ the Commission dismissed filings proposing rates for 
reactive power filed by two QFs on the ground that, as QFs, the 
facilities were exempt from section 205 of the FPA, and their rates 
were thus not subject to Commission review under section 205 of the 
FPA. Similarly, in SP Newsprint Co.,\12\ the Commission dismissed an 
application for market-based rate authority filed by a QF, saying that 
because a QF is exempt from section 205 of the FPA, it does not need 
Commission authority to make market-based rate sales.
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    \10\ 104 FERC ] 61,227, reh'g denied, 105 FERC ] 61,152 (2003).
    \11\ 104 FERC ] 61,832, reh'g denied, 105 FERC ] 61,152 (2003).
    \12\ 103 FERC ] 61,186 (2003).
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    22. In the context of this rulemaking, the Commission finds that it 
is appropriate to reexamine the broad exemptions from the FPA granted 
to QFs. First, roughly 25 years after the enactment of PURPA, we do not 
believe that all of the exemptions from the FPA are still necessary to 
encourage the development of cogeneration facilities and small power 
production facilities. Second, we are concerned that the broad nature 
of the exemptions currently set forth in section 292.601 remove a large 
number of generation sales from any regulatory oversight.
    23. For purposes of evaluating exemptions, it is important to 
distinguish between different types of sales made by QFs. Those sales 
made pursuant to the must purchase obligation contained in section 210 
of PURPA have typically been referred to as ``PURPA sales''. Those 
sales are subject to state regulatory commission oversight and the 
avoided cost rates for those sales are set by the states pursuant to 
our regulations. However, a large number of QFs make market-based 
sales, which are often referred to as ``non-PURPA sales''. Many QFs are 
large units and their non-PURPA sales could potentially have a 
significant market effect. Nevertheless, under our current regulations, 
these QFs are not required to file for market-based rate authority 
under section 205 of the FPA. Moreover, if there were allegations of 
any type of market misconduct by these QFs, the Commission might not be 
able to effectively investigate and remedy the misconduct because our 
current regulations exempt these QFs from section 206 of the FPA.
    24. Our concern is heightened by the fact that, in section 1253(b) 
of EPAct 2005, Congress has eliminated the ownership requirements for 
QF status, and, consistent with the new provision, we are proposing to 
eliminate the ownership requirements currently contained in sections 
292.203(a)(3), 292.203(b)(2) and 292.206 of our regulations. Therefore, 
traditional utilities will now be able to own up to 100 percent of a 
QF. We believe that QFs, which now may be largely or wholly-owned by 
traditional utilities, generally should not be exempt from regulation 
under the FPA.
    25. The elimination of the ownership requirements for QF status 
also will permit QFs to sell electric energy ``other than electric 
power solely from cogeneration facilities or small power production 
facilities.'' The Commission previously has interpreted this language 
to prohibit a QF from selling more than its net output.\13\ The 
elimination of the ownership requirements will now permit a qualifying 
facility to sell electric energy other than electric energy produced by 
itself or another qualifying facility and still retain QF status. 
However, such sales should not be entitled to exemptions from the FPA; 
nor should qualifying facilities that

[[Page 60460]]

make such sales be entitled to exemptions from the FPA.\14\
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    \13\ Connecticut Valley Electric Company, Inc. v. Wheelabrator 
Claremont Company, Inc., 82 FERC ] 61,116 (1998), reh'g denied, 83 
FERC ] 61,136 (1998).
    \14\ Ownership information provided in Form 556, discussed 
further below, would help the Commission to better monitor those 
circumstances where such sales may be more likely, i.e., where the 
qualifying facility is affiliated with other market participants and 
where there may be an incentive for electric energy to be purchased 
by a QF and then resold to an affiliated traditional utility as QF-
generated electric energy.
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    26. We propose to eliminate, among other things, the exemptions 
from sections 205 and 206 of the FPA that the Commission previously 
granted in section 292.601 of our regulations, except the exemption 
from sections 205 and 206 of the FPA for sales that are governed by 
state regulatory authorities pursuant to section 210(f) of PURPA. These 
latter sales are at rates pursuant to contracts or obligations approved 
by state regulatory authorities. Since such sales are pursuant to the 
regulatory oversight set forth in section 210(f) of PURPA, an exemption 
from sections 205 and 206 of the FPA remains appropriate for those 
sales.
    27. A QF which sells electric energy pursuant to a state regulatory 
authority avoided-cost ratemaking regime would remain exempt from 
section 205, however, and therefore would not make a section 205 filing 
with the Commission (unless it also makes sales of electric energy that 
are not pursuant to a state regulatory authority avoided-cost 
ratemaking regime). But a QF that, on the other hand, plans to make 
market-based rate sales, i.e., sales that are not pursuant to the state 
regulatory authority's avoided-cost ratemaking regime, must have a 
Commission-accepted market-based rate tariff for such sales.\15\
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    \15\ See, e.g., AEP Power Marketing, Inc., 107 FERC ] 61,018, 
order on reh'g, 108 FERC ] 61,026 (2004).
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    28. We recognize that the removal of exemptions might create a 
hardship for smaller QFs, particularly those owned by individuals or 
small businesses. We would consider suggestions that at least some of 
the exemptions previously granted in section 292.601 should remain in 
effect for smaller QFs, such as those under 5 MW. Another key element 
to consider in the granting of exemptions, as suggested above, is 
whether the QF is independent of traditional utilities, transmission 
providers and other power producers; we invite comments on whether 
exemptions previously granted under section 292.601 (and continued 
here) should remain in effect only for those QFs that are independent 
of traditional utilities, transmission providers and other power 
producers.
    29. In addition, EPAct 2005, in sections 1281 (Electric Market 
Transparency), 1282 (False Statements) and 1283 (Market Manipulation), 
has added new provisions, sections 220, 221 and 222, to the FPA. We 
propose that QFs will not be exempt from those provisions of the FPA.
    30. We invite comments on whether the Commission should eliminate 
or retain exemptions from other sections of the FPA that are granted by 
our current regulations. Currently, most QFs (except for non-geothermal 
small power production facilities that exceed 30 megawatts) are exempt 
from all provisions of the FPA except sections 1-18, and 21-30; 
sections 202(c), 210, 211, 212, 213 and 214; section 305(c); and any 
necessary enforcement provisions with regard to the listed provisions.
    31. We also propose to eliminate the exemptions from PUHCA 
contained in section 292.602 of our regulations. PUHCA has been 
repealed and the new Public Utility Holding Company Act of 2005 (PUHCA 
2005) provides specific authority under which the Commission is to 
grant exemptions from PUHCA 2005 for entities that are holding 
companies by virtue of owning QFs. We will retain the exemptions from 
certain state laws and regulations contained in section 292.602 of our 
regulations; section 292.602(c)(3), which provides that the Commission 
will consider the requests of state regulatory authorities or 
nonregulated utilities to limit the exemptions from state law or 
regulation, will be retained as section 292.602(b)(3). We invite 
comments on these proposals.

III. Section 292.203 General Requirements for Qualification and Section 
292.206 Ownership Criteria

    32. Section 1253(b) of EPAct 2005 amends sections 3(17)(C) and 
3(17)(B) of the Federal Power Act by eliminating the ownership 
limitations for QFs currently contained in those sections. Section 
292.206 of the Commission's regulations was designed to implement the 
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). The Commission proposes to implement section 1253(b) of 
EPAct 2005 by eliminating section 292.206 from its regulations, and 
thus eliminating the ownership limitations for all QFs--both existing 
and new.
    33. 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 specified in 
Sec.  292.206.'' Section 292.203(b)(2) requires that a cogeneration 
facility must ``[m]eet[] the ownership criteria specified in Sec.  
292.206.'' In light of the elimination of the ownership limitations for 
all QFs and the Commission's proposal to delete section 292.206, the 
Commission proposes to delete from section 292.203 these references to 
the ownership limitation from the requirements for qualifying small 
power production facilities and qualifying cogeneration facilities. 
Therefore, the Commission proposes to delete sections 292.203(a)(3) and 
292.203(b)(2) from its regulations.

IV. Section 131.80, Form 556

    34. The new criteria proposed herein for new qualifying 
cogeneration facilities require changes in Form 556, found at 18 CFR 
131.80, which is used by those seeking qualifying facility status, 
whether by Commission application or by self-certification. We propose 
to amend 18 CFR 131.80 to incorporate the new criteria for new 
cogeneration facilities.
    35. In addition, section 292.206 is being removed to implement 
section 1253(b) of EPAct 2005, which eliminates the ownership 
limitations for QFs currently contained in sections 3(17)(A) and 
3(17)(B) of the FPA. The removal of section 292.206 requires amendment 
of Form 556 to reflect the new criteria for QF status. We thus propose 
to eliminate references in Form 556 to the necessity of showing that a 
QF is not owned more than 50 percent by certain entities and we propose 
to eliminate the requirements designed to help the Commission enforce 
that 50 percent ownership limitation. Nevertheless, the Commission 
proposes 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 are no longer part of the 
criteria for QF status, the Commission nevertheless believes that an 
applicant for QF status should inform the Commission of the identity of 
its owners, and their percentage interests. The Commission believes 
that this information will help the Commission determine whether in the 
future, as it gains experience subsequent to the enactment of EPAct 
2005, 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 will 
also allow the Commission to better monitor for undue discrimination or 
preference both in the provision of

[[Page 60461]]

transmission service and sales for resale in interstate commerce. We 
ask commenters to provide comments addressing this matter.

Information Collection Statement

    36. The Office of Management and Budget (OMB) regulations require 
approval of certain information collection requirements imposed by 
agency rules.\16\ 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. The 
Commission proposes amending its regulations to implement section 1253 
of the EPAct 2005; specifically, its regulations governing qualifying 
small power production and cogeneration facilities and the exemptions 
available to qualifying facilities from the requirements of the FPA and 
PUHCA. 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 the Commission under Parts 131 and 292 is identified as Form 
556.
---------------------------------------------------------------------------

    \16\ 5 CFR 1320.13.
---------------------------------------------------------------------------

    37. The Commission is submitting these reporting requirements to 
OMB for its review and approval under section 3507(d) of the Paperwork 
Reduction Act.\17\ Comments are 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.
---------------------------------------------------------------------------

    \17\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    Burden Estimate: The Public Reporting burden for the requirements 
proposed here are as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
                 Data Collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC Form 556:
    FERC Certification..........................              27               1               4             108
    Public Utilities............................             270               1              38          10,260
                                                 -----------------
        Totals..................................             297               1              38          10,388
----------------------------------------------------------------------------------------------------------------

    Total Annual hours for Collection: (Reporting + recordkeeping, (if 
appropriate)) = 10,388 hours.
    Information Collection Costs: The Commission seeks comments on the 
costs to comply with these requirements. It has projected the costs to 
be: $3,488,800 (2080 total work hours in a year times $350) + $478,880 
(Commission certification) = $3,967,680. Cost per respondent for self-
certification is $12,921. (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 proposed rule, if adopted, would 
implement the Congressional mandate of the EPAct 2005 to implement the 
following: establishment of criteria for new qualifying cogeneration 
facilities; elimination of ownership limitations; and amending the 
exemptions available to QFs from the FPA and from PUHCA. By amending 
its regulations, the Commission is satisfying the statutory mandate and 
satisfying its continuing obligation to review its policies encouraging 
cogeneration and small power production, energy conservation, efficient 
use of facilities and resources by electric utilities and equitable 
rates for energy customers. The information collected under 18 CFR 
Parts 131 and 292 is used by the Commission to determine whether an 
application for certification (Commission certification or self-
certification) meets the criteria for a qualifying small power 
production facility or a qualifying cogeneration facility under its 
regulations and eligible to receive the benefits available to it under 
PURPA.
    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 the EP Act 2005.
    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 Executive Director, Phone: (202) 502-8415, fax: (202) 
273-0873, e-mail: michael.miller@ferc.gov. Comments on the requirements 
of the proposed rule may also be sent to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Washington, DC 
20503 [Attention: Desk Officer for the Federal Energy Regulatory 
Commission].

Environmental Analysis

    38. 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.\18\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. As explained above, this proposed rule is clarifying in 
nature. It interprets several amendments made to PURPA and to the FPA 
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.\19\
---------------------------------------------------------------------------

    \18\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
] 30,783 (1987).
    \19\ 18 CFR 380.4(a)(2)(ii).

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[[Page 60462]]

Regulatory Flexibility Act Analysis

    39. The Regulatory Flexibility Act of 1980 (RFA) \20\ generally 
requires a description and analysis of rules that will have a 
significant economic impact on a substantial number of small entities. 
Many, if not most, QFs to which this rule would apply do not fall 
within the definition of small entities.\21\ 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. Therefore, the Commission certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, no regulatory flexibility analysis is required.
---------------------------------------------------------------------------

    \20\ 5 U.S.C. 601-12.
    \21\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. 15 
U.S.C. 632.
---------------------------------------------------------------------------

Comment Procedures

    40. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due November 8, 2005. Reply comments are due 
November 15, 2005. Comments and reply comments must refer to Docket No. 
RM05-36-000, and must include the commenter's name, the organization 
they represent, if applicable, and their address in their comments. 
Comments and reply comments may be filed either in electronic or paper 
format.
    41. Comments and reply comments may be filed electronically via the 
eFiling link on the Commission's Web site at http://www.ferc.gov. The 

Commission accepts most standard word processing formats and commenters 
may attach additional files with supporting information in certain 
other file formats. Commenters filing electronically do not need to 
make a paper filing. Commenters that are not able to file comments and 
reply comments electronically must send an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Office of the 
Secretary, 888 First Street, NE., Washington, DC 20426.
    42. All comments and reply comments will be placed in the 
Commission's public files and may be viewed, printed, or downloaded 
remotely as described in the Document Availability section below. 
Commenters on this proposal are not required to serve copies of their 
comments and reply comments on other commenters.

Document Availability

    43. 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.
    44. From the Commission's Home Page on the Internet, this 
information is available in the 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.
    45. 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 at 
public.referenceroom@ferc.gov).

List of Subjects in 18 CFR Parts 131 and 292

    Electric power, Electric power plants, Electric utilities, Natural 
gas, Reporting and recordkeeping requirements.

    By direction of the Commission.
Magalie R. Salas,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
Parts 131 and 292, Chapter I, Title 18, Code of Federal Regulations, as 
follows.

Subchapter K--Regulations Under the Public Utility Regulatory Policies 
Act of 1978

* * * * *

PART 292--REGULATIONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC 
UTILITY REGULATORY POLICIES ACT OF 1978 WITH REGARD TO SMALL POWER 
PRODUCTION AND COGENERATION

    1. 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.

    2. In Sec.  292.205, paragraph (d) is added to read as follows:

Sec.  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 self-
certification, self-recertification or an application for Commission 
certification as a qualifying cogeneration facility under Sec.  292.207 
of this chapter prior to [the date the Commission issues a final rule], 
must also show:
    (1) The thermal energy output of the cogeneration facility is used 
in a productive and beneficial manner;
    (2) The electrical, thermal, chemical and mechanical output of the 
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; and
    (3) Continuing progress in the development of efficient electric 
energy generating technology.
    3. In Sec.  292.601, paragraph (c) is revised to read as follows:

Sec.  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 
pursuant to a state regulatory authority avoided-cost regime shall be 
exempt from scrutiny under sections 205 and 206;
    (2) Section 1-18, and 21-30 and sections 202(c), 210, 211, 212, 
213, 214, 220, 221 and 222;
    (3) Sections 305(c); and
    (4) 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.
    4. In Sec.  292.602, paragraph (b) is removed and paragraph (c) is

[[Page 60463]]

redesignated as newly revised paragraph (b) to read as follows:

Sec.  292.602  Exemption of qualifying facilities from certain State 
law and regulation.

* * * * *
    (b) 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.
    5. In Sec.  292.203, paragraphs (a) and (b) are revised to read as 
follows:

Sec.  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 Sec.  292.204(a); 
and
    (2) Meets the fuel use criteria specified in Sec.  292.204(b).
    (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 Sec.  292.205(a) and (b).
    (2) [Reserved]
* * * * *

Sec.  292.206  [Removed]

    6. Section 292.206 is removed.

Subchapter D--Approved Forms, Federal Power Act and Public Utility 
Regulatory Policies Act of 1978

PART 131--FORMS

    1. The authority citation for part 131 continues to read:

    Authority: 16 U.S.C. 791a-825r. 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

    2. Section 131.80 is amended by revising paragraphs 1a, 1b, and 1c 
of Part A and by adding a new heading and paragraph 15 of Part C to 
read as follows:

Sec.  131.80  FERC Form No. 556, Certification of qualifying facility 
status for an existing or a proposed small power production or 
cogeneration facility.

    (See Sec.  292.207 of this chapter.)

FERC Form 556, OMB No. 1902-0075

    Expires----------

Certification of Qualifying Facility Status for an Existing or a 
Proposed Small Power Production or Cogeneration Facility

(To be completed for the purpose of demonstrating up-to-date 
conformance with the qualification criteria of Section 292.203(a)(1) 
or Section 292.203(b), based on actual or planned operating 
experience)

    General instructions: Part A of the form should be completed by 
all small power producers or cogenerators. Part B applies to small 
power production facilities. Part C applies to cogeneration 
facilities. All references to sections are with regard to Part 292 
of Title 18 of the Code of Federal Regulations, unless otherwise 
indicated.

Part A--General Information To Be Submitted by All Applicants

1a. Full name:

Docket Number assigned to the immediately preceding submittal filed 
with the Commission in connection with the instant facility, if any: 
QF --------------

Purpose of instant filing (self-certification or self-
recertification [Section 292.207(a)(1)], or application for 
Commission certification or recertification [Sections 292.207(b) and 
(d)(2)]):

1b. Full address of applicant:

1c. Indicate the owner(s) of the facility (including the percentage 
of ownership held by any electric utility or electric utility 
holding company, or by any persons owned by either) and the operator 
of the facility. Additionally, state whether or not any of the non-
electric utility owners or their upstream owners are engaged in the 
generation or sale of electric power, or have any ownership or 
operating interest in any electric facilities other than qualifying 
facilities. In order to facilitate review of the application, the 
applicant may also provide an ownership chart identifying the 
upstream ownership of the facility. Such chart should indicate 
ownership percentages where appropriate.
* * * * *

Part C--Description of the Cogeneration Facility

* * * * *

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, self-
recertification or an application for Commission certification under 
section 292.207 prior to [the date the Commission issues a final 
rule], also show:
    (i) The thermal energy output of the cogeneration facility is 
used in a productive and beneficial manner;
    (ii) The electrical, thermal, chemical and mechanical output of 
the 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; and
    (iii) Continuing progress in the development of efficient 
electric energy generating technology.

[FR Doc. 05-20695 Filed 10-17-05; 8:45 am]

BILLING CODE 6717-01-P