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FERC Adopts Expanded Definition of Cogeneration QFs to Include Certain Fuel Cell Systems

On December 17, 2020, the Federal Energy Regulatory Commission (“FERC”) adopted a final rule (“Final Rule”)[1] regarding the potential for certain fuel cell systems to attain qualifying facility (“QF”) status pursuant to Sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978, as amended (“PURPA”)[2].  The Final Rule slightly amends the underlying proposed rule, issued on October 15, 2020 and discussed in greater detail here, in response to comments that the proposed rule would have applied to an overly-narrow subset of fuel cell technologies.  In the Final Rule, the Commission approved a broad definition of fuel cell systems that may satisfy QF standards: “all fuel cells that use waste heat in an integrated fuel reforming process” may attain QF status as cogeneration QFs, as long as they satisfy other relevant QF requirements.[3]

PURPA provides for two categories of QFs: small power production facilities that rely on renewable energy input and are subject to size limitations and cogeneration facilities.  PURPA directed the Commission to establish the criteria that would determine whether a particular facility qualifies as “cogeneration.”  The statute and FERC’s earlier implementation of the statute defined a cogeneration QF as a facility that “produces (i) electric energy, and (ii) steam or forms of useful energy (such as heat) which are used for industrial, commercial, heating or cooling purposes.”[4]  The Final Rule establishes that the hydrogen produced by fuel cell systems with an integrated hydrocarbon reformation process that produces electricity and hydrogen will be considered to be “useful thermal energy” for purposes of considering whether a facility produces useful energy used for industrial, commercial, heating or cooling purposes.  Cogeneration facilities are subject to operating and efficiency standards and the owners of cogeneration QFs provide FERC with calculations demonstrating that the facility satisfies the standards.  Subject to meeting other QF requirements, such as satisfying operating and efficiency standards, facilities using such fuel cell systems to produce hydrogen and electricity used for industrial, commercial, heating or cooling purposes[5] may be eligible for QF status.

The Final Rule will allow the owners of certain fuel cell facilities to access a variety of benefits afforded to facilities with QF status.  First, a QF’s energy output may be “put” to the interconnected utility at the utility’s avoided cost (unless the utility has been relieved of its PURPA purchase obligation).[6]  Second, the owners of QFs are subject to very light-handed regulation by FERC and are exempt from most FERC regulation even if they sell electricity at wholesale.  Third, states lightly regulate the owners of QFs so QF status can relieve its owner of regulation at the state level.  As an aside, FERC’s rules implementing PURPA also apply to Electric Reliability Council of Texas (ERCOT), unlike many other FERC requirements. 

The Final Rule also makes note of the efficiency gains derived from the use of fuel cells: the ability of fuel cells to convert chemical energy in hydrogen to electricity without combustion can be seen “as a significant improvement in the efficiency of electric generation.”[7]  The Final Rule also promotes the use of onsite natural gas reformation equipment to produce hydrogen: that way the waste heat produced when fuel cells produce electricity can be fed back into the natural gas reformation process to create more hydrogen.  Such onsite facilities, in the Commission’s estimation, will lead to less burning of natural gas in the production of hydrogen.[8]

 


[1] Fuel Cell Thermal Energy Output, Order No. 874, 173 FERC ¶ 61,226 (2020) (“Final Rule”).

[2] 16 U.S.C. §§ 796, 824a-3.

[3] Final Rule at P 29.

[4] 16 U.S.C. § 796(18); 18 C.F.R. § 292.202(c). 

[5] Specifically, the Final Rule referenced adherence to the requirements of PURPA Section 210: that the thermal energy output of the facility is used in a productive and beneficial manner, and that “the electrical, thermal, chemical and mechanical output of the cogeneration facility is used fundamentally for industrial, commercial, residential or institutional purposes and is not intended fundamentally for sale to an electric utility.”  Final Rule at P 36; 18 C.F.R. § 292.205(d)(1) – (d)(2).

[6] With certain limited exceptions, utilities have not been relieved of that obligation for small QFs. 

[7] Final Rule at P 8. 

[8] Final Rule at P 9. 

© 2022 Bracewell LLPNational Law Review, Volume X, Number 357
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About this Author

Michael Brooks, Energy, Commodities, attorney, Bracewell, law firm
Partner

Michael focuses his practice in the areas of energy, commodities and derivatives law. He represents energy companies and commodity trading companies in a wide variety of regulatory, compliance and enforcement matters and routinely advises clients regarding compliance with federal rules and regulations governing the trading, ownership and transportation of energy commodities.

In addition to actively representing clients in investigations and regulatory matters involving the Federal Energy Regulatory Commission (FERC) and the Commodity Futures...

202-828-5879
Stephen Hug, Environmental Attorney, Bracewell Law Firm
Associate

Stephen Hug represents clients in matters related to federal regulatory policies, regulations and rules applicable to the electric industry. His experience includes assisting clients with compliance with the rules and regulations of the Federal Energy Regulatory Commission (FERC) and the Federal Power Act (FPA).  Stephen also represents clients in litigated proceedings before FERC.

202-828-5866
Catherine McCarthy, Energy Regulation Attorney, Bracewell law firm
Partner

Catherine McCarthy has represented clients on energy regulation and policy matters for over two decades. She has experience with obtaining Federal Energy Regulatory Commission (FERC) and state authorizations for major projects and transactions; FERC compliance and enforcement matters; FERC transmission and centralized markets issues; and rate, tariff and refund matters. She also represents energy clients before the Department of Energy, the Federal Communications Commission and the Nuclear Regulatory Commission. Cathy joined the firm from Dewey & LeBoeuf where she...

202-828-5839
Boris Shkuta Environmental Energy utilities Attorney Bracewell law Firm
Associate

Boris Shkuta’s practice focuses on electric power and transmission regulatory work and energy storage technologies. He also advises clients on matters related to lending, project finance, mergers and acquisitions, and infrastructure and development, primarily in the energy industry.

202.845.5164
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