Insights / Energy & Environmental Law Blog
FERC Revokes Qualifying Status of Hybrid Small Power Production/Cogeneration Facility
By James K. Mitchell and Tahiya Sultan
06.19.19
In Golden Valley Electric Association, Inc ., the Federal Energy Regulatory Commission (FERC) revoked the Qualifying Facility (QF) status of a “hybrid” power project proposed by Eco Green Generation, LLC (Eco Green). The project consists of a 37.8 MW wind farm that has its power “firmed” by the integration of 100 MW of capacity provided by 20 separate 5 MW fossil-fueled reciprocating engines. The FERC ruled that Eco Green had failed to show that its facility as a whole was either a qualifying small power production facility or a qualifying cogeneration facility under the Public Utility Regulatory Policies Act of 1978 (PURPA).
In February 2019, Eco Green filed a Form No. 556 with the FERC to self-certify its project as a hybrid QF. Under PURPA, the QF status claimed by Eco Green meant that Golden Valley Electric Association (“Golden Valley”), a consumer-owned electric utility in Fairbanks, Alaska, would be required to purchase the electrical output of that project at Golden Valley’s avoided cost of producing electricity.
By describing its project as a “hybrid” QF, Eco Green presumably sought to supply electricity from what was otherwise an intermittent wind-powered generating facility at firm power rates. Based on Eco Green’s description of its project, the FERC explained that the facility as a whole must meet the requirements for both a qualifying small power production facility and a qualifying cogeneration facility. Because the project failed to meet the criteria of either type of qualifying facility, the FERC revoked the QF status of the project, without prejudice to the filing of new Form No. 556s by Eco Green to address the deficiencies in its filing.
Many regulated electric utilities have been concerned that their obligation to purchase the electrical output of QFs at avoided cost rates in accordance with PURPA has imposed an undue burden on them and their ratepayers. This order suggests that the FERC may be tightening up on QF status prerequisites for creative projects that were not envisioned at the time of PURPA’s enactment.
Eco Green asserted that it is a qualifying cogeneration facility because the 20 separate reciprocating engines would produce 50% electricity and 50% heat, which could be used to produce hot water for district heating and similar purposes. However, the FERC noted that to be a qualifying cogeneration facility, a project developer must provide detailed information showing how the thermal energy from its project is used in a productive and beneficial manner. Although Eco Green claimed to have been asked to make heat available to schools and government buildings in the region, there was no indication that Eco Green had actually secured customers for the thermal energy available from its project. For that reason, the FERC ruled that Eco Green failed to demonstrate its compliance with the requirement that thermal energy supplied from its project be used in a productive and beneficial manner.
Finally, the FERC explained that in order for a project to be a cogeneration QF, the electrical and thermal output of its facility may not be intended fundamentally for sale to an electric utility. Eco Green acknowledged that the principal purpose of its reciprocating engines (100 MW of the total 137.8 MW hybrid facility) was to firm up the wind generation so that it could sell the electrical output of the hybrid facility to an electric utility. Moreover, Eco Green planned to dispatch the project to provide 100 MW of firm power without regard to whether the wind was blowing. In the FERC’s view, this dispatch plan confirmed that the fundamental purpose of the project was to supply electricity to an electric utility rather than to meet thermal energy needs. Finally, the FERC noted that because Eco Green had not secured any thermal hosts with clearly identified needs, its claims that the thermal energy would be used fundamentally for industrial, commercial, residential, or institutional purposes were speculative.
In February 2019, Eco Green filed a Form No. 556 with the FERC to self-certify its project as a hybrid QF. Under PURPA, the QF status claimed by Eco Green meant that Golden Valley Electric Association (“Golden Valley”), a consumer-owned electric utility in Fairbanks, Alaska, would be required to purchase the electrical output of that project at Golden Valley’s avoided cost of producing electricity.
By describing its project as a “hybrid” QF, Eco Green presumably sought to supply electricity from what was otherwise an intermittent wind-powered generating facility at firm power rates. Based on Eco Green’s description of its project, the FERC explained that the facility as a whole must meet the requirements for both a qualifying small power production facility and a qualifying cogeneration facility. Because the project failed to meet the criteria of either type of qualifying facility, the FERC revoked the QF status of the project, without prejudice to the filing of new Form No. 556s by Eco Green to address the deficiencies in its filing.
Many regulated electric utilities have been concerned that their obligation to purchase the electrical output of QFs at avoided cost rates in accordance with PURPA has imposed an undue burden on them and their ratepayers. This order suggests that the FERC may be tightening up on QF status prerequisites for creative projects that were not envisioned at the time of PURPA’s enactment.
Status as Qualifying Small Power Production Facility
FERC regulations specify that the capacity of a qualifying small power production facility may not exceed 80 MW and that at least 75% of the energy input of a qualifying small power production facility must come from biomass, waste, renewable resources, geothermal resources, or any combination thereof. In Golden Valley, the total capacity of the hybrid facility exceeds the 80 MW threshold, and the reciprocating engines rely primarily on propane, which is a fossil fuel, rather than on one of the required energy inputs. For those reasons, the FERC concluded that the hybrid facility is not a qualifying small power production facility.Status as Qualifying Cogeneration Facility
One of the characteristics of a qualifying cogeneration facility is that it produces sequentially both electric energy and commercially useful thermal energy (such as heat or steam). The FERC found that the wind farm component of the Eco Green project did not meet this requirement because the wind turbines produce only electric energy and do not produce useful thermal energy.Eco Green asserted that it is a qualifying cogeneration facility because the 20 separate reciprocating engines would produce 50% electricity and 50% heat, which could be used to produce hot water for district heating and similar purposes. However, the FERC noted that to be a qualifying cogeneration facility, a project developer must provide detailed information showing how the thermal energy from its project is used in a productive and beneficial manner. Although Eco Green claimed to have been asked to make heat available to schools and government buildings in the region, there was no indication that Eco Green had actually secured customers for the thermal energy available from its project. For that reason, the FERC ruled that Eco Green failed to demonstrate its compliance with the requirement that thermal energy supplied from its project be used in a productive and beneficial manner.
Finally, the FERC explained that in order for a project to be a cogeneration QF, the electrical and thermal output of its facility may not be intended fundamentally for sale to an electric utility. Eco Green acknowledged that the principal purpose of its reciprocating engines (100 MW of the total 137.8 MW hybrid facility) was to firm up the wind generation so that it could sell the electrical output of the hybrid facility to an electric utility. Moreover, Eco Green planned to dispatch the project to provide 100 MW of firm power without regard to whether the wind was blowing. In the FERC’s view, this dispatch plan confirmed that the fundamental purpose of the project was to supply electricity to an electric utility rather than to meet thermal energy needs. Finally, the FERC noted that because Eco Green had not secured any thermal hosts with clearly identified needs, its claims that the thermal energy would be used fundamentally for industrial, commercial, residential, or institutional purposes were speculative.