

[Federal Register: May 24, 2007 (Volume 72, Number 100)]
[Rules and Regulations]               
[Page 29056-29063]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24my07-4]                         

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

[Docket No. RM07-11-000]

 
Applicability of Federal Power Act Section 215 to Qualifying 
Small Power Production and Cogeneration Facilities

Issued May 18, 2007.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
revising its regulations governing qualifying small power production 
and cogeneration facilities (QFs), to eliminate the exemption of QFs 
from the requirements of section 215 of the Federal Power Act. From a 
reliability perspective, there is not a meaningful distinction between 
QF and non-QF generators that warrants a generic exemption of QFs from 
reliability standards.

DATES: Effective Date: The rule will become effective June 25, 2007.

FOR FURTHER INFORMATION CONTACT: 

Paul Singh (Technical Information), Office of Markets, Tariffs and 
Rates, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426; (202) 502-8576; paul.singh@ferc.gov.
Samuel Higginbottom (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE.,Washington, 
DC 20426; (202) 502-8561; samuel.higginbottom@ferc.gov.

SUPPLEMENTARY INFORMATION:

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, 
Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

Order No. 696

I. Introduction

    1. The Federal Energy Regulatory Commission (Commission) revises 
its regulations governing qualifying small power production and 
cogeneration facilities, to eliminate the exemption of QFs from the 
requirements of section 215 of the Federal Power Act.\1\ From a 
reliability perspective, there is not a meaningful distinction between 
QF and non-QF generators that warrants a

[[Page 29057]]

generic exemption of QFs from reliability standards.
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    \1\ 16 U.S.C. 824o.
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    2. A number of commenters in this proceeding also submitted 
comments in the rulemaking in Docket No. RM06-16-000 concerning 
mandatory reliability standards for the bulk-power system; they 
submitted comments in both proceedings concerning the appropriate 
compliance registry criteria for QFs to be subject to reliability 
standards.\2\ In this proceeding we find that QFs should not, as a 
general matter, be exempt from reliability standards; we are changing 
our regulations accordingly. Issues concerning the treatment of 
individual QFs are best addressed in the North American Electric 
Reliability Corporation (NERC) registry process where the unique 
circumstances of individual QFs can be individually considered.
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    \2\ The Commission has since issued Order No. 693, discussed 
below, adopting mandatory reliability standards.
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II. Background

    3. On August 8, 2005, the Electricity Modernization Act of 2005, 
which is Title XII, Subtitle A, of the Energy Policy Act of 2005 (EPAct 
2005), was enacted into law.\3\ EPAct 2005 added a new section 215 to 
the Federal Power Act (FPA),\4\ which requires a Commission-certified 
Electric Reliability Organization (ERO) to develop reliability 
standards, which are subject to Commission review and approval. Once 
approved, the reliability standards become mandatory and may be 
enforced by the ERO, subject to Commission oversight.
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    \3\ Energy Policy Act of 2005, Pub. L. No. 109-58, Title XII, 
Subtitle A, 119 Stat. 594, 941 (2005).
    \4\ 16 U.S.C. 824o.
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    4. On February 3, 2006, the Commission issued Order No. 672, which 
implements newly-added section 215 and provides specific processes for 
the certification of an entity as the ERO, the development and approval 
of mandatory reliability standards, and the compliance with and 
enforcement of approved reliability standards.\5\ On April 4, 2006, 
NERC made two filings: (1) An application for certification of NERC as 
the ERO; and (2) a petition for Commission approval of mandatory 
reliability standards, with eight regional differences and a glossary 
of terms. On July 20, 2006, the Commission issued an order certifying 
NERC as the ERO.\6\ On October 20, 2006, the Commission issued a Notice 
of Proposed Rulemaking proposing to approve 83 of 107 proposed 
reliability standards.\7\
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    \5\ Rules Concerning Certification of the Electric Reliability 
Organization; Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards, Order No. 672, 71 FR 
8662 (Feb. 17, 2006), FERC Stats. & Regs. ] 31,204 (2006), order on 
reh'g, Order No. 672-A, 71 FR 19814 (Apr. 18, 2006), FERC Stats. & 
Regs. ] 31,212 (2006).
    \6\ North American Electric Reliability Corporation, 116 FERC ] 
61,062 (2006).
    \7\ Mandatory Reliability Standards for the Bulk-Power Market, 
72 FR 64770 (Oct. 20, 2006), FERC Stats. & Regs. ] 32,608 (2006) 
(Reliability NOPR). The Commission subsequently approved 83 of 107 
proposed reliability standards, six of the eight proposed regional 
differences, and the glossary of terms. The Commission found that 
those reliability standards met the requirements of section 215 of 
the FPA (and Part 39 of the Commission's regulations, 18 CFR part 
39), but that many of those reliability standards require 
significant improvement to address, among other things, the 
recommendations of the Blackout Report and therefore required NERC 
to submit improvements to 56 of those 83 Reliability Standards. 
Mandatory Reliability Standards for the Bulk Power System, Order No. 
693, 72 FR 16416 (April 4, 2007), FERC Stats. & Regs. ] 31,242 
(2006). (Reliability Final Rule).
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    5. In response to the Reliability NOPR, Cogeneration Association of 
California and the Energy Producers and Users Coalition (CAC/EPUC) 
filed comments pointing out that QFs are exempt from section 215 by 
virtue of Sec.  292.601(c) of the Commission's regulations.\8\ CAC/EPUC 
suggested that the Commission intentionally exempted QFs from section 
215. CAC/EPUC explained that, in Order No. 671, issued on February 2, 
2006,\9\ the Commission stated that it saw no reason to exempt QFs from 
the newly added FPA sections 220, 221 and 222,\10\ and explicitly 
excluded those sections of the FPA from the QF exemptions contained in 
Sec.  292.601 of its regulations, while making no similar mention of 
section 215.
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    \8\ 18 CFR 292.601(c).
    \9\ Revised Regulations Governing Small Power Production and 
Cogeneration Facilities, Order No. 671, 71 FR 7852 (Feb. 2, 2006), 
FERC Stats. & Regs. ] 31,203 (2006), order on rehearing, Order No. 
671-A, 71 FR 30583 (May 22, 2006), FERC Stats. & Regs. ] 31.219 
(2006).
    \10\ 16 U.S.C. 824t-v.
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    6. In response to those comments, the Commission issued a notice of 
proposed rulemaking (NOPR) seeking comments on whether QFs should be 
exempt from section 215 of the FPA.\11\ In the NOPR, the Commission 
pointed out that section 215(b) grants the Commission jurisdiction over 
``all users, owners, and operators of the bulk-power system'' for 
``purposes of approving reliability standards * * * and enforcing 
compliance with [section 215]'', and further provides that ``[a]ll 
users, owners and operators of the bulk-power system shall comply with 
reliability standards that take effect under this section.'' \12\ The 
Commission reasoned that, given the statutory directive that all users, 
owners and operators of the bulk-power system must comply with 
mandatory reliability standards under section 215, it may not be 
appropriate to allow QFs a continued exemption from compliance with the 
newly-adopted mandatory and enforceable reliability standards that 
apply to generator owners and operators. The Commission also stated 
that, from a reliability perspective, there would seem to be no 
meaningful distinction between QF and non-QF generators that would 
warrant exemption of QFs from mandatory reliability standards. The 
Commission continued that QF generators would seem to affect the 
reliability of the bulk-power system as much as non-QF generators, and 
so QF generators should be subject to the newly-adopted mandatory 
reliability standards. The Commission noted that while many QFs are 
small facilities, others are quite large. The Commission suggested that 
it saw no justification for large QFs to be exempt from mandatory 
reliability standards. The Commission therefore proposed to amend Sec.  
292.601(c)(3) to add section 215 to the list of FPA sections from which 
QFs are not exempt. The Commission also pointed out that the NERC 
registry criteria for inclusion of generators in the compliance 
registry of entities that would be subject to mandatory reliability 
standards are written to exclude most smaller entities, and that there 
are procedures to challenge a generator's inclusion in the compliance 
registry before NERC, and if not satisfied with NERC's decision, 
procedures to lodge an appeal with the Commission.
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    \11\ Applicability of Federal Power Act Section 215 to 
Qualifying Small Power Production and Cogeneration Facilities, 72 FR 
14254 (March 16, 2007), FERC Stats. & Regs. ] 32,613 (2007).
    \12\ 16 U.S.C. 824o(b). Section 215(b) also states that entities 
described in section 201(f), 16 U.S.C. 824(f), entities that are 
otherwise exempt from Part II of the FPA unless a provision is 
otherwise specifically applicable to those entities, are subject to 
section 215. 16 U.S.C. 824o(b).
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III. Comments

    7. On March 16, 2007, the NOPR was published in the Federal 
Register with comments due on or before April 16, 2007.
    8. Comments supporting the proposed rule were filed by: NERC, the 
National Association of Regulatory Utility Commissioners (NARUC), the 
Edison Electric Institute (EEI), Entergy Services, Inc. (Entergy 
Services), Xcel Energy Services Inc, on behalf of the Xcel Energy 
Operating Companies (collectively, Xcel Energy),\13\ American

[[Page 29058]]

Transmission Company LLC, FirstEnergy Companies (FirstEnergy), Southern 
California Edison Company (SoCal Edison), Allegheny Power and Allegheny 
Energy Supply Company (collectively, Allegheny Energy Companies), and 
Imperial Irrigation District (IID).
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    \13\ The four Xcel Energy Operating Companies are: Northern 
States Power Company, a Minnesota corporation, Northern States Power 
Company, a Wisconisn corporation, Southwestern Public Service 
Company, and Public Service Company of Colorado.
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    9. Those who support the proposed rule generally argue that 
including section 215 of the FPA among the FPA provisions that QFs are 
not exempted from is appropriate both from a statutory perspective and 
in terms of the impact on reliability of the bulk-power system. NERC 
states that, with the exemption removed, in determining whether QFs are 
subject to mandatory reliability standards NERC will treat QFs as it 
does all other owners, operators and users of the bulk-power system, 
i.e., the decision as to whether to place an entity on the NERC 
compliance registry will be based on the specific circumstances of each 
QF. NARUC points out that there is no meaningful distinction from a 
reliability perspective between QF and non-QF generators that could 
warrant continuing to exempt QFs. EEI states that section 215 is clear 
on its face that all users, owners and operators of the electric 
production and delivery network should be subject to section 215. EEI 
believes that many QFs recognize their section 215 responsibilities; 
EEI states that it understands that many QFs have already registered 
with Regional Entities, which EEI states suggests that QFs understand 
the need to register notwithstanding the current exemption provided 
under section 292.601(c) of the Commission's regulations.
    10. Entergy states that it fully supports the Commission's 
determination that QFs should not be exempt from mandatory reliability 
standards but states that it is concerned that NERC's registration 
criteria, which apply to an individual generating units that are larger 
than 20 MVA and that are directly connected to the bulk-power system 
might exempt generation facilities that are arguably not directly 
connected to the bulk-power system but are nevertheless material to the 
reliability of the bulk-power system. Similarly, Xcel Energy agrees 
with the Commission's reasoning that from a reliability perspective 
there is no meaningful distinction between QFs and other generating 
facilities that warrants continuation of a QF exemption from section 
215. Xcel Energy is concerned, however, that NERC's registration 
criteria, particularly the reference to being ``directly connected to 
the bulk-power system'' can be read to not apply to generating 
facilities that are interconnected at distribution voltage level. 
American Transmission Company supports the proposed rule and states 
that ``the appropriate place to consider whether a generating facility 
should be exempted from compliance with the mandatory reliability 
standards is at NERC.'' IID supports the proposed rule but argues that 
the Commission should recognize that the ERO or the Regional Entity 
should be permitted to include an otherwise exempt facility on a 
facility-by-facility basis if it determines that the facility is needed 
for bulk-power system reliability. IID asks the Commission to determine 
that all QFs in its particular footprint are collectively material to 
reliability in its particular control area.
    11. Comments opposing the proposed rule were filed by: CAC/EPUC, 
the Florida Renewable Energy Producing QFs (Florida Renewable QFs), 
Deere & Company (Deere), Indeck Energy Services, Inc. (Indeck), Sunray 
Energy Inc. (Sunray), ARIPPA,\14\ Hillsborough County, Florida,\15\ and 
Pasco County, Florida.\16\
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    \14\ ARIPPA is a regional non-profit trade association 
consisting of thirteen QFs and associated manufacturers, engineers, 
chemists and tradesmen who repair and service the units. The units 
are in historical coal mining regions, combust waste coal and 
generate under fixed price power agreements with the local utility.
    \15\ Hillsborough County owns a 30 MW solid waste QF and has 
plans to add an additional 17 MW of electrical generation capacity.
    \16\ Pasco County owns a 30 MW solid waste QF.
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    12. CAC/EPUC suggests that the Commission has an ongoing obligation 
to encourage cogeneration and that this must be balanced with its 
obligation to protect the grid. CAC/EPUC urges the Commission not to 
act on the proposed rule until it has acted on rehearing of Order No. 
693 in order to make sure that the registry standards applicable to QFs 
are not overly broad. Florida Renewable QFs ask the Commission to 
modify the proposed rule in four respects: First, to allow QFs to 
qualify for a size exemption based on their output capability rather 
than on their nameplate capacity; second, the Commission should clarify 
that QFs may appeal registry designations directly to the Regional 
Entity in lieu of the ERO; third, the Commission should provide that 
QFs that by contract sell only energy and not capacity be allowed to 
seek a case-by-case waiver of the reliability standards even if they do 
not otherwise qualify for a size exemption; and fourth, the Commission 
should require the ERO to consider whether full compliance with 
mandatory reliability standards would raise QFs' costs above the 
avoided costs set in the QFs' contracts with purchasing utilities. 
Deere suggests that the Commission provide an exemption for small power 
production QFs 80 MW and smaller.
    13. Indeck argues that the proposed rule is fundamentally flawed. 
Indeck states that the proposed rule fails to recognize that QFs are 
often not connected to the grid, operate to support important 
commercial or industrial operations, are subject to fuel use 
limitations and operating and efficiency requirements, and in most 
cases have little or no impact on the reliability of the bulk-power 
system. To remedy these supposed flaws, Indeck suggests that the 
Commission should continue to exempt all QFs smaller than 100 MW from 
section 215 of the FPA, should ignore ``behind the meter'' capacity of 
QFs, and should exempt all QFs that utilize a renewable energy source 
from section 215 of the FPA. Sunray states that it owns and operates 
two Solar Electric Generating Systems (SEGS) located in California. One 
of Sunray's SEGs is 14 MW and the other 30 MW. Sunray argues that 
requiring it to comply with mandatory reliability standards will be 
economically burdensome and will provide little or no increase in the 
reliability of the bulk-power system. Both Indeck and Sunray also 
question the Commission's regulatory flexibility analysis.
    14. ARIPPA argues that all of its members have been required by 
contract with purchasing utilities to meet reliability requirements to 
obtain access to the grid. ARIPPA argues that additional requirements 
are not necessary for its QFs. Hillsborough County and Pasco County 
each state that the investor-owned utilities that their respective QFs 
are interconnected with have control over system reliability and that 
the QFs have no responsibility for bulk-power system reliability. 
Hillsborough County and Pasco County also suggest that the Commission 
provide that all qualifying small power production facilities continue 
to be exempt from section 215 of the FPA.
    15. The Commission received comments from the following entities 
that do not oppose the proposed rule, but ask the Commission to clarify 
how NERC's registration criteria will apply to QFs: The Electricity 
Consumers Resource Council (ELCON) and the American Iron and Steel 
Institute (AISI), the Council of Industrial Boiler Owners (CIBO), 
Kimberly Clark Corporation, PPG Industries, Inc. and Valero Energy 
Corporation (collectively, Joint Cogeneration Owners), American Forest

[[Page 29059]]

& Paper Association (American Forest & Paper), Lee County, Florida, Dow 
Chemical Company (Dow), California Cogeneration Council (CCC), and 
Midland Cogeneration Venture Limited Partnership (Midland Cogen).\17\
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    \17\ Edison Mission Energy and Pacific Gas and Electric Company 
each also filed comments stating that they will be affected by the 
proposed rule and expressing an interest in the rulemaking; neither, 
however, takes a position on the substance of the proposed rule.
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    16. ELCON and AISI state that they do not oppose the registration 
of QFs if particular facilities are found to materially affect the 
reliability of the bulk-power system. ELCON and AISI state that in fact 
they have cooperated with NERC staff to draft registration criteria 
that would address the unique operational characteristics of 
cogenerators. ELCON and AISI state that, unfortunately, the NOPR 
proposes an automatic per se rule that would force the registration of 
all QFs above 20 MVA/MW regardless of whether a QF's operations have 
any effect on reliability. ELCON and AISI also ask the Commission to 
recognize that NERC has applied a ``netting'' concept that recognizes 
that often QF generation never reaches the grid, or does so on a 
limited basis. Finally ELCON and AISI recommend that the Commission 
encourage the establishment of an ad hoc NERC task force that would 
review the criteria for determining if and when a QF has a material 
impact on the reliability of the bulk power system.
    17. CIBO states that it supports the comments filed by ELCON. 
Additionally, CIBO argues that the Commission does not encourage QFs 
when it fails to recognize any meaningful distinction between QF and 
non-QF generators on matters of reliability. CIBO states that NERC's 
registration criteria for generators do, and should continue to, 
recognize that QFs are different from other generators. CIBO asks the 
Commission to encourage NERC in this recognition. Joint Cogeneration 
Owners also state that they do not oppose the registration of QFs whose 
operators do in fact materially affect the reliability of the bulk 
power system. Joint Cogeneration Owners, however, oppose what they 
characterize as a per se rule that would require the registration of 
all QFs above 20 MVA regardless of whether the QFs' operations have any 
effect on reliability and would fail to consider a QF's net impact on 
the grid.
    18. American Forest & Paper states that it does not object to 
making those portions of reliability standards under section 215 which 
are appropriately applicable to QFs mandatory, but requests that the 
Commission clarify that the application of any reliability standards to 
QFs must nonetheless recognize and appropriately accommodate the 
distinctions betweens QFs and merchant or utility-owned generation. 
American Forest & Paper notes that almost all QFs greater that 20 MW 
interconnected to and operating synchronously with the grid are already 
subject to specific reliability and operating requirements. American 
Forest & Paper states that those requirements range from limitations on 
power factor and the maintenance of facilities, to emergency operating 
procedures. American Forest & Paper states that it does not object to 
the conversion of such requirements into mandatory standards. American 
Forest & Paper, however, states that it is concerned that the rush to 
codify reliability standards will be used as a pretext for renewed 
discrimination and utility interference with integrated manufacturing 
operations. American Forest & Paper concludes by asking the Commission 
to clarify that mandatory reliability standards applicable to QFs must 
reflect the operational and other distinctions between QFs and merchant 
or utility-owned generation.
    19. Lee County argues that the Commission should require NERC to 
design a cost-benefit analysis to be applied by NERC and Regional 
Entities when registering smaller qualifying small power production 
facilities. Lee County is concerned that small power production 
facilities smaller than 20 MVA will be required to register on the 
grounds that they ``materially'' impact the reliability of the bulk-
power system. Lee County suggests that the Commission require NERC to 
establish a rebuttable presumption that a small power production 
facility smaller than the existing NERC size thresholds does not 
``materially'' impact the reliability of the bulk-power system. Lee 
County also asks the Commission to require NERC to justify registering 
such small power production facilities using a meaningful case-by-case 
analysis based on a cost benefit analysis.
    20. Dow Chemical does not oppose making section 215 of the FPA 
applicable to QFs, but wants the Commission to clarify that NERC must 
retain its existing provision that measures whether a facility meets 
the 20/75 MVA size threshold based on the portion of a cogeneration 
unit's /plant's capacity made available to serve the bulk-power system. 
Dow would also like the Commission to state that directives from 
Reliability Coordinators, Transmission Operators, Balancing 
Authorities, and/or Transmission Providers need not be complied with if 
doing so would impair a cogeneration facility's service obligations to 
its thermal host. CCC asks that the Commission require that NERC 
reliability criteria be applicable to QFs based upon a demonstration 
that the facilities are needed for reliability as defined in Order No. 
693, and not based on the size of the facility. CCC also asks that the 
Commission clarify that NERC reliability rules must take into account 
regulatory requirements, operating characteristics and contractual 
commitments of cogeneration facilities. Midland Cogen asks the 
Commission to clarify that NERC reliability criteria must accommodate 
the unique operating characteristics, regulatory requirements and 
contractual commitments of QFs. Midland Cogen also asks the Commission 
to provide assurances that QFs will be permitted to recover the cost of 
compliance with mandatory reliability standards through a grid charge 
to be assessed to the control area that benefits from the reliability 
that the facilities provide.
    21. Georgia Pacific, LLC (Georgia Pacific) filed reply comments. 
Georgia Pacific states that it has mill and plant facilities throughout 
the United States and owns and operates eleven facilities that are 
certified as QFs, and that range in size from 7.5 MW to 140 MW. Georgia 
Pacific states that the majority of its QFs are cogeneration facilities 
that provide electric power and steam to host processes. Georgia 
Pacific states that because its QFs primarily produce steam and 
electric energy for its own use, its QFs have little or no impact on 
the bulk-power system. Georgia Pacific asks that the Commission in this 
proceeding recognize the existing 20/75 MVA NERC exclusion for smaller 
facilities and that such exclusion for a cogeneration facility serving 
behind the meter load be based on that portion of the generating 
unit's/plant's capacity actually made available to the bulk power 
system. In addition, Georgia Power would like the Commission to create 
an exemption from any reliability standards to the extent that 
complying with such standards would impair service to a QF's industrial 
host.
    22. Xcel Energy filed reply comments arguing that this rulemaking 
is not the appropriate forum for evaluating technical justification for 
any specific QF exemption level. Xcel Energy argues that generators 
seeking an exemption should do so on a case-by-case basis.
    23. On May 14, 2007, Florida Renewable QFs filed supplemental 
comments. Florida Renewable QFs states that it seeks clarification of 
two issues left unresolved in the NOPR.

[[Page 29060]]

First, Florida Renewable QFs ask the Commission to state that the Final 
Rule will not take effect for one year from issuance. The one-year 
period, Florida Renewable QFs argues, will give QFs that do not have 
experience with reliability standards time to develop programs for 
compliance with the reliability standards and will prevent undue 
hardship. Second, Florida Renewable asks the Commission to state that 
an appeal to the Commission from a NERC determination that a small 
generator (smaller than the usual registry criteria of 20 MVA) should 
be on the compliance registry would stay the effectiveness of the NERC 
ruling during the pendency of the appeal to the Commission.

IV. Discussion

    24. As proposed in the NOPR, the Commission will amend Sec.  
292.601(c)(3) of its regulations to add section 215 to the list of FPA 
sections from which QFs are not exempt. Making QFs subject to 
reliability standards is consistent with the intent of section 215. 
When Congress enacted section 215, it used broad language to ensure 
that all those entities that could affect the reliability of the bulk 
power system would be subject to mandatory reliability standards. 
Specifically, section 215(b)(1) states that, ``The Commission shall 
have jurisdiction, within the United States, over * * * all users, 
owners and operators of the bulk-power system (including the entities 
described in section 201(f)), for purposes of approving reliability 
standards established under this section and enforcing compliance with 
this section.'' \18\ Further, section 215(b)(2) provides that ``All 
users, owners and operators of the bulk-power system shall comply with 
reliability standards that take effect under this section.'' \19\ In 
using such broad language, Congress gave no indication that it intended 
to exempt any entity that could affect the reliability of the bulk-
power system from the reach of mandatory reliability standards.
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    \18\ 16 U.S.C. 824o(b) (emphasis added).
    \19\ Id. (emphasis added).
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    25. Indeed, Congress included within the scope of section 215 ``the 
United States, a State or political subdivision of a State, an electric 
cooperative that receives financing under the Rural Electrification Act 
of 1936 (7 U.S.C. 901 et seq.) or that sells less than 4,000,000 
megawatt hours of electricity per year.'' \20\ Thus Congress included 
within the scope of section 215 entities that are normally excluded 
from the Commission's jurisdiction under Part II of the FPA. The 
provision providing that these otherwise jurisdictionally exempt 
utilities will be subject to section 215 supports our determination 
that Congress intended that all utilities, regardless of whether those 
utilities are otherwise exempt from the FPA, be subject to section to 
section 215.
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    \20\ 16 U.S.C. 824(f).
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    26. While it is true that section 210(e) of PURPA grants the 
Commission broad authority to exempt most QFs from various provisions 
of the FPA, we cannot find that Congress intended that all entities 
that affect the reliability of the bulk-power system not be subject to 
mandatory and enforceable reliability standards. Comments submitted in 
response to the NOPR do not convince us otherwise. Indeed, the majority 
of the comments filed either fully support the Commission's proposal to 
make QFs subject to section 215, or recognize that QFs should be 
subject to section 215 while expressing concerns as to the specifics of 
NERC's registry criteria for QFs.
    27. We accordingly conclude that the addition of section 215 of the 
FPA to the list, contained in Sec.  292.601(c)(3), of FPA sections from 
which QFs are not exempt is consistent with the Congressional directive 
contained in section 215 of the FPA that all users, owners, and 
operators of the bulk-power system be subject section 215 and thus 
subject to the mandatory and enforceable reliability standards.
    28. In addition, we find that for reliability purposes there is no 
meaningful distinction between QF and non-QF generators that would 
warrant generic exemption of QFs from mandatory reliability standards.
    29. Comments submitted in this rulemaking argue that the Commission 
should consider in this rulemaking a number of factors in determining 
whether individual QFs or classes of QFs do not materially affect the 
reliability of the bulk-power system and thus should be exempted from 
section 215 of the FPA; these factors include the small size of some 
QFs and the fact that, while a QF may individually be large, it may 
deliver most of its output behind the meter load and thus would have 
little effect on the bulk-power system. We do not believe that any of 
the factors mentioned by commenters, including small size or primarily 
serving behind the meter load, justifies a generic exemption from 
section 215 of the FPA for all facilities below a certain size, or for 
all facilities serving behind the meter load. While these factors may 
be appropriate in determining whether an individual QF should be placed 
on the NERC reliability registry, they are not factors that justify 
exempting QFs, as a class, from section 215 of the FPA and from 
reliability standards. Nor are they factors that justify exempting any 
particular subset of QFs.
    30. Whether a generation facility should be subject to reliability 
standards should depend on whether a generation facility is needed to 
maintain the reliability of the bulk-power system. The reliability 
criteria adopted by NERC and approved by the Commission, as well as the 
compliance registry process adopted by NERC and approved by the 
Commission, are designed to ensure that only those facilities needed to 
maintain the reliability of the bulk-power system are subject to the 
reliability standards. The ultimate decision with respect to individual 
generation units and/or plants is, and must be, made on a case-by-case 
basis. Thus, whether a particular QF or type of QF should be exempt 
from reliability standards is an issue that is more appropriately made 
in the context of NERC's establishment of registry criteria for owners 
and operators of generators, and in the context of NERC's compliance 
registry process. The reliability of the bulk-power system will be 
better protected by utilizing the NERC compliance registry process, 
which will ensure that no generator that is needed to maintain the 
reliability of the bulk-power system will be exempt from reliability 
standards, while excusing those generators that are not needed to 
maintain reliability.
    31. NERC's compliance registry criteria for generator owner/
operators encompasses:

    a. Individual generating unit > 20 MVA (gross nameplate rating) 
and is directly connected to the bulk power system, or
    b. Generating plant/facility > 75 MVA (gross aggregate nameplate 
rating) or when the entity has responsibility for any facility 
consisting of one or more units that are connected to the bulk power 
system at a common bus with total generation above 75 MVA (gross 
nameplate rating), or
    c. Any generator, regardless of size, that is a blackstart unit 
material to and designated as part of a transmission operator 
entity's restoration plan, or;
    d. Any generator, regardless of size, that is material to the 
reliability of the bulk power system.[\21\]
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    \21\ NERC Statement of Compliance Registry Criteria (Revision 
3), February 6, 2007.

    32. In addition, NERC's compliance registry criteria for generation 
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facilities contain the following exclusions:

    a. A generator owner/operator will not be registered based on 
these criteria if responsibilities for compliance with approved NERC 
reliability standards or associated requirements including reporting 
have been transferred by written agreement

[[Page 29061]]

to another entity that has registered for the appropriate function 
for the transferred responsibilities, such as a load-serving entity, 
G&T cooperative or joint action agency, or
    b. As a general matter, a customer-owned or -operated generator/
generation that serves all or part of retail load with electric 
energy on the customer's side of the retail meter may be excluded as 
a candidate for registration based on these criteria if (i) the net 
capacity provided to the bulk power system does not exceed the 
criteria above or the Regional Entity otherwise determines the 
generator is not material to the bulk power system and (ii) standby, 
back-up and maintenance power services are provided to the generator 
or to the retail load pursuant to a binding obligation with another 
generator owner/operator or under terms approved by the local 
regulatory authority or the Federal Energy Regulatory Commission, as 
applicable.[\22\]
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    \22\ Id.

    33. Finally, the registration criteria contains a provision that an 
organization that otherwise meets the criteria for registration need 
not be registered if it can be demonstrated to NERC that the bulk power 
system, owner, operator, or user does not have a material impact on the 
bulk power system.
    34. In the Reliability Final Rule, moreover, the Commission found 
that NERC had set reasonable criteria for registration, and approved 
the compliance registry process.\23\
---------------------------------------------------------------------------

    \23\ Reliability Final Rule, FERC Stats. & Regs. ] 31,242, at P 
92-101.
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    35. Many of the comments filed in this proceeding appear to be 
based on a misunderstanding of what the Commission was proposing to do 
in this proceeding. Many of the comments submitted in response to the 
NOPR suggest that commenters thought that the Commission was proposing 
to mandate that NERC adopt registry criteria that would require all QFs 
over a certain size to register with the ERO or Regional Entity. All 
the Commission proposed to do in the NOPR, and all the Commission is 
doing here in the Final Rule, is to eliminate the generic exemption of 
QFs from section 215 of the FPA and thus from mandatory reliability 
standards, thus treating them like other, non-QF generators for 
reliability purposes. The Commission was not proposing to, and does 
not, require that all QFs be subject to reliability standards no matter 
their circumstances. Rather QFs and non-QFs alike would have an equal 
opportunity to not be subject to reliability standards. But that would 
be a case-by-case determination based on the circumstances of each 
case.
    36. In this regard, in the Reliability Final Rule the Commission 
found that NERC had set reasonable criteria for registration and 
approved the compliance registry process; \24\ the compliance registry 
process provides procedures for individual generators to contest 
determinations by Regional Entities and the ERO. Additionally, an 
entity that disagrees with NERC's determination to place it in the 
compliance registry may submit a challenge in writing to NERC and, if 
still not satisfied, may lodge an appeal with the Commission.\25\ Thus, 
an individual QF may appeal to the Commission if it believes it should 
not be required to comply with reliability standards. Florida Renewable 
QFs asks the Commission to rule that the filing of such an appeal by a 
QF smaller than 20 MVA will stay the effect of the NERC determination 
to place an entity on the compliance registry during the pendency of 
the appeal to the Commission. Whether a stay should be granted depends 
on a number of factors that are fact specific; such a decision is more 
appropriately made on a case-by-case basis. It is thus premature to 
decide now whether an appeal to the Commission should stay a NERC 
decision that a particular QF be placed on the compliance registry. We 
will deny Florida Renewable QF's request that we state that the filing 
of an appeal by a small generator will stay the effect of the NERC 
determination; however, this is without prejudice to any entity seeking 
a stay at the time it files an appeal of a NERC determination with 
which it disagrees.
---------------------------------------------------------------------------

    \24\ Id.
    \25\ Id. at P 101.
---------------------------------------------------------------------------

    37. The Commission notes that because of the operation of the size 
sections of the NERC registry criteria applicable to generators (i.e., 
greater than 20 MVA), only 23 percent of all QFs would meet this 
generally applicable threshold of 20 MVA (although some other QFs may 
be specified as either blackstart units material to and designated as 
part of a transmission entity's restoration plan or as generators 
material to the reliability of the bulk power system) and so would be 
subject to reliability standards.\26\ While some QFs may be classified 
as blackstart or as ``material'' to the reliability of the bulk-power 
system, and so made subject to reliability standards, other QFs may 
qualify for exemptions because, despite their size, either as a QF that 
is a cogeneration facility that primarily serves behind the meter load 
such that the net capacity supplied to the bulk power system is less 
than the size threshold for compliance, or as a QF that has contractual 
arrangements to transfer responsibility for compliance with reliability 
standards or associated requirements including reporting to another 
entity that has registered with NERC. The net effect is that the 
universe of QFs that will be affected by this Final Rule, by virtue of 
operation of the NERC registry criteria, is likely to be relatively 
small.
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    \26\ See NOPR at P 6. Energy Information Administration (EIA) 
data identify 3,625 QFs, of which 2,423 QFs are below 20 MW (which 
roughly corresponds to 20 MVA), leaving only 842 QFs that could be 
affected by this Final Rule. And, of these 842, only 745--23 
percent--are interconnected to the grid.
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V. Information Collection Statement

    38. The Paperwork Reduction Act (PRA) \27\ requires each Federal 
agency to seek and obtain OMB approval before undertaking a collection 
of information directed to ten or more persons, or continuing a 
collection for which the Office of Management and Budget (OMB) approval 
and validity of the control number are about to expire.\28\ The PRA 
defines the phrase ``collection of information'' to be the ``obtaining, 
causing to be obtained, soliciting, or requiring the disclosure to 
third parties or the public, of facts or opinions by or for an agency, 
regardless of form or format, calling for either--
---------------------------------------------------------------------------

    \27\ 44 U.S.C. 3501-3520.
    \28\ 44 U.S.C. 3502(3)(A)(i); 44 U.S.C. 3507(a)(3).
---------------------------------------------------------------------------

    (i) Answers to identical questions posed to, or identical reporting 
or recordkeeping requirements imposed on ten or more persons, other 
than agencies, instrumentalities, or employees of the United States; or 
(ii) answers to questions posed to agencies, instrumentalities, or 
employees of the United States which are to be used for general 
statistical purposes.'' \29\ OMB regulations require approval of 
certain information collection requirements imposed by agency 
rules.\30\
---------------------------------------------------------------------------

    \29\ 44 U.S.C. 3502(3)(A).
    \30\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    39. As noted above, the Commission is amending its regulations to 
eliminate the exemption available to QFs from the requirements of 
section 215 of the FPA. Because the Commission is not adopting 
information collections in this Final Rule, it is not subject to OMB 
review under the PRA. However, the Commission will submit for 
informational purposes only a copy of this Final Rule to OMB.

VI. Environmental Analysis

    40. 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

[[Page 29062]]

environment.\31\ 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 carries out 
the intent of legislation, specifically section 215 of the FPA. It 
lifts an exemption and thus makes section 215 of the FPA applicable to 
QFs; it does not substantially change the effect of the legislation. 
Accordingly, no environmental consideration is necessary.\32\
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    \31\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
] 30,783 (1987).
    \32\ 18 CFR 380.4(a)(2)(ii).
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VII. Regulatory Flexibility Act Analysis

    41. The Regulatory Flexibility Act of 1980 (RFA) \33\ generally 
requires a description and analysis of rules that will have significant 
economic impact on a substantial number of small entities. The total 
universe of qualifying facilities is 3,265 entities.\34\ Of these, 
2,423 entities are below 20 MW (the threshold for applicability of the 
Reliability Standards is 20 MVA for an individual generating unit, or 
75 MVA in aggregate for a generating plant),\35\ which leaves 842 
entities that could potentially be impacted by reliability standards. 
Of these 842 entities, only 745 are listed as being interconnected to 
the grid. Accordingly, out of a total of 3265 QFs, only 745, or 23 
percent would likely be affected by the change in regulations proposed 
here. Most, if not all, of the QFs that would be affected by this Final 
Rule do not fall within the definition of small entities,\36\ nor do 
they meet the threshold criteria for applicability of the RFA to 
electric utilities established by the Small Business Administration, 
which is based on a size standard of 4 million MWh.\37\
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    \33\ 5 U.S.C. 601-12.
    \34\ NOPR at P 10.
    \35\ The 20 MVA threshold corresponds to 20 MW, if a unit is 
operating at a unity power factor.
    \36\ 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. See 
15 U.S.C. 632.
    \37\ The Small Business Size Standard component of the North 
American Industry Classification System (NAICS) defines a small 
utility as one that, including its affiliates, is primarily engaged 
in generation, transmission, and/or distribution of electric energy 
for sale and whose total electric output for the preceeding fiscal 
years did not exceed 4 million MWh. See 13 CFR 121.201.
---------------------------------------------------------------------------

    42. Comments filed by Indeck and Sunray argue that the Commission's 
analysis is deficient. They argue that, contrary to the Commission's 
findings, most QFs are independently owned and operated and thus do 
meet the definition of ``small entity.'' They also argue that there are 
many QFs whose total electric output for the preceding fiscal years 
does not exceed 4 million MWh. They state that is particularly true 
because many QFs operate only on an intermittent basis and thus ``it is 
entirely possible that many wind, solar, run of the river 
hydroelectric, and cogeneration facilities with nameplate capacities 
well in excess of 20 MW are still protected by the RFA and that many of 
the 745 QFs identified as being subject to the rule are, indeed, small 
entities.'' \38\
---------------------------------------------------------------------------

    \38\ Sunray at 11; Indeck at 9.
---------------------------------------------------------------------------

    43. We continue to believe that, given the NERC size threshold for 
registering generators, few if any of the QFs that will be required to 
comply with reliability standards as a result of this Final Rule will 
be small entities. Sunray and Indeck recognize that a 20 MVA or 20 MW 
facility would not normally be considered small for purposes of the 
RFA. They argue, however, that some QFs generate so intermittently that 
they would be considered small. Given that the Small Business 
Administration's standard (4 million MWh annually) is the equivalent of 
a 4 MW facility, we would not expect that many 20 MW facilities would 
generate so intermittently that they fall within the SBA definition of 
a small facility. Moreover, the NERC registry criteria provide for 
exclusion of an entity that otherwise would meet the registry criteria, 
if the entity can reasonably demonstrate that it does not have a 
material impact on the reliability of the bulk-power system. Generators 
that meet the nameplate size threshold for registration, but generate 
so intermittently that they would be considered small entities under 
SBA criteria, are likely to be able to show that they do not have a 
material impact on the reliability of the bulk-power system and thus 
need not be registered. Further, we note, in the Reliability Final 
Rule, the Commission took steps to lessen the effect of the reliability 
standards on small entities in general.\39\ While few generators 
affected by the reliability standards will fall within the definition 
of small entities, the Commission has thus taken steps to further 
minimize the effects on small entities while at the same time assuring 
the reliability of the bulk-power system.
---------------------------------------------------------------------------

    \39\ See Reliability Final Rule, FERC Stats. & Regs. ] 31,242 at 
P 1926.
---------------------------------------------------------------------------

    44. Even if a very small number of QFs that fall within the 
definition of small are affected by this Final Rule, we believe that 
assuring the reliability of the bulk-power system justifies our action 
here.

VIII. Document Availability

    45. 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.
    46. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    47. 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).


IX. Effective Date

    48. We will deny Florida Renewable QFs' request that QFs be given a 
grace period of one year to comply with this rule. Florida Renewable 
QFs argues that it will be more burdensome on QFs than for other 
generators to comply with mandatory reliability standards because QFs 
were not previously subject to non-mandatory NERC reliability 
guidelines. We do not agree; we see no reason to delay the 
effectiveness of reliability standards for an entity that is needed to 
maintain the reliability of the bulk-power system. Moreover, all users 
of the bulk-power system that meet compliance registry criteria are 
becoming subject to mandatory reliability requirements for the first 
time. It is not just QFs that face compliance with mandatory 
reliability standards for the first time. In this regard, as several 
commenters point out, many QFs have been subject to some type of 
reliability standards, by contract or otherwise, for a long time. We 
therefore do not believe that QFs are in a markedly different position 
than other generators in terms of being prepared to comply with the 
reliability standards. Moreover, as we have discussed

[[Page 29063]]

earlier,\40\ the reliability standards, because of the operation of the 
registry criteria, will generally affect larger generation facilities, 
so that concern that an earlier effective date will constitute a 
particular burden for small facilities is misplaced. These regulations 
are effective June 25, 2007.
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    \40\ P 37, 41-43.
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    The Commission has determined, with the concurrence of the 
Administrator of the Office of Information and Regulatory Affairs of 
OMB, that this rule is not a ``major rule'' as defined in Section 351 
of the Small Business Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 18 CFR Part 292

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

    By the Commission.
Kimberly D. Bose,
Secretary.

0
In consideration of the foregoing, the Commission amends part 292, 
Chapter I, Title 18, Code of Federal Regulations, as follows:

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

0
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.

0
2. In Sec.  292.601, paragraph (c)(3) is revised to read:

Sec.  292.601  Exemption to qualifying facilities from the Federal 
Power Act.

* * * * *
    (c) * * *
    (3) Sections 202(c), 210, 211, 212, 213, 214, 215, 220, 221 and 
222;
* * * * *
[FR Doc. E7-10007 Filed 5-23-07; 8:45 am]

BILLING CODE 6717-01-P
