[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Notices]
[Pages 8173-8181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4014]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket Nos. EL94-10-000 and QF86-177-001; Docket Nos. EL94-62-000 and
QF85-102-005; Docket Nos. EL96-1-000 and QF86-722-003]
Order Granting Requests for Declaratory Order in Part and Denying
Requests for Declaratory Order in Part, Denying Requests for Revocation
of QF Status, and Announcing Policy Concerning the Regulatory
Consequences and Remedies for Sales in Excess of Net Output
Issued February 11, 1998.
Connecticut Valley Electric Company, Inc. v. Wheelabrator
Claremont Company, L.P., Wheelabrator Environmental Systems Inc.,
Signal Environmental Systems, Inc., SES Claremont Company L.P., NH/
VT Energy Corp., and Wheelabrator New Hampshire Inc., Carolina Power
& Light Company v. Stone Container Corporation; Niagara Mohawk Power
Corporation v. Penntech Papers, Inc.
I. Introduction
This order addresses three cases currently before the Commission:
Connecticut Valley Electric Company, Inc. v. Wheelabrator Claremont
Company, L.P., et al., Docket Nos. EL94-10-000 and QF86-177-001;
Carolina Power & Light Company v. Stone Container Corp., Docket Nos.
EL94-62-000 and QF85-102-005; and Niagara Mohawk Power Corporation v.
Penntech Papers, Inc., Docket Nos. EL96-1-000 and QF86-722-003. The
three cases raise the following issues: (1) Whether a qualifying
facility (QF), under the Public Utility Regulatory Policies Act of 1979
(PURPA) and the Commission's PURPA regulations, may sell its gross
output, as opposed to its net output (gross output less station power
needs and line loses to the point of interconnection), to the utility-
purchaser; and (2) if not, what are the regulatory consequences and
remedies if a facility sells more output than is permissible?
In this order the Commission:
(1) Reiterates its 1991 determination that a QF may not sell in
excess of its net output;
(2) Announces a Commission policy regarding the regulatory
consequences of past and future sales by QFs in excess of net output;
and
(3) Finds that revocation of QF status is not warranted in the
three cases addressed in this order.
II. Summary
The three cases arise because of a seeming conflict between a
Commission regulation implementing PURPA and Commission precedent under
PURPA. The Commission has a regulation called the ``simultaneous buy-
sell'' rule (18 C.F.R. Sec. 292.303(a)-(b) (1997)), which, the QFs
argue, entities QF facilities to sell their gross output, and
simultaneously buy station power needs from the utility-purchasers of
QF power. A number of State regulatory authorities have drafted
standard QF power sales contracts based on the apparent belief that the
simultaneous buy-sell rule permits QFs to sell gross output to
utilities and purchase back station power needs (often at a lower
rate).
The utility-purchasers of QF power point to Commission precedent in
stating that QFs may only sell net output. They argue that under the
Commission precedent, a QF may only sell its net output; a facility
that sells more than its net output cannot satisfy the ownership
requirements for QF status under sections 3(17) and (18) of the Federal
Power Act (FPA) and section 292.206 of the Commission's regulations
unless the incremental capacity is solely from cogeneration or small
power production facilities. See Turners Falls Limited Partnership,, 55
FERC para. 61,487 at 62,668 & n. 24 (1991) (Turners Falls).
The initial issue raised by the three cases is whether the QFs and
the State regulatory authorities correctly have interpreted the
simultaneous buy-sell rule in light of Commission precedent. In
addressing this initial issue one of the questions that arises is the
period of time over which a facility's output should be calculated.
This question arises because a generation facility's actual output
varies over time due to a number of external factors including
temperature, humidity, and fuel quality. The QFs have argued that the
Commission should not measure actual net output on a continuous basis
but should allow QF facilities to sell up to their net capacity at any
time.\1\ This is because, if a QF buys back its station power needs, it
is possible for the QF at times to sell more than its actual net output
but still sell less than its certified net capacity. As a result, the
period over which net output is measured will affect how much energy a
QF may sell.
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\1\ A QF's certified net capacity is the maximum net output of
the facility which can be achieved safely and reliably under the
most favorable conditions likely to occur over a period of several
years.
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The second issue raised is what are the regulatory consequences and
remedies if the Commission finds that a facility has sold more output
than is permissible. This issue involves whether such a facility should
be decertified as a PURPA QF. In addition, it presents how the
Commission should calculate the rate under the FPA during any period of
non-compliance and whether such rates should be applicable to all of
the facility's sales during the period of non-compliance or just the
incremental amount of the sale above the permissible level. Finally, we
must consider whether, and if so under what circumstances, to revoke or
permit the continuing applicability of PURPA regulatory exemptions (see
18 CFR Secs. 292.601, .692 (1997)) during the period of noncompliance.
A related question is whether to reform QF contracts with utilities for
the sale of output above permissible levels.
Finally, there is an issue as to the effective date of any
decision, first with respect to the three case-specific disputes before
the Commission, and then with respect to any other QFs that may be
selling in excess of permissible levels.
In this order, we announce that, as a legal matter, a QF may not
sell in excess
[[Page 8174]]
of its net output. However, because of a lack of clarity in the
Commission's simultaneous buy-sell rule, the Commission will not revoke
the QF status of any facility which made sales in excess of net output
pursuant to a contract entered into on or before the date of issuance
of Turner Falls. We pick this date because that decision removed any
ambiguity concerning the effect of such sales on a facility's QF
status. We also find that a facility's net output should be measured on
an hour-by-hour basis. We announce a policy regarding the regulatory
consequences of past and future sales in excess of net output. Finally,
in applying the legal and policy determinations announced in this order
to the three cases pending before the Commission, we find that QF
revocation is not warranted in any of the pending cases.
III. Background of Pending Cases
The three cases now before the Commission all involve allegations
by a purchasing electric utility that a Commission-certified QF has
made sales in excess of its net output and that, therefore, the QF no
longer meets the ownership requirements for QF status contained in FPA
section 3(17) (C) (ii) (for a qualifying small power production
facility) and FPA section 3(18) (B) (ii) (for a qualifying cogeneration
facility). Those sections of the FPA were added by PURPA. They provide
that QFs 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).''
\2\
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\2\ These sections are the basis of the Commission's QF
ownership criteria codified in section 292.206 of the Commission's
regulations. Section 292.206(a) specifies the Commission's general
QF ownership rule:
A cogeneration facility or small power production facility may
not be owned by a person primarily engaged in the generation or sale
of electric power (other than electric power solely from
cogeneration facilities or small power production facilities).
18 CFR Sec. 292.206(a) (1997).
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The three QFs with cases now before us claim, notwithstanding
Commission precedent on the subject discussed below, that the
Commission's rules permit the sale of gross output. They cite to the
``simultaneous buy-sell'' rule. Subsections 292.303(a) and (b) of our
regulations provide as follows:
Electric utility obligations under this subpart.
(a) Obligation to purchase from qualifying facilities. Each
electric utility shall purchase, in accordance with Sec. 292.304
[\3\], any energy and capacity which is made available from a
qualifying facility:
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\3\ 18 CFR Sec. 292.304 (1997) provides for rates for QF sales
to utilities.
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(1) Directly to the electric utility; or
(2) Indirectly to the electric utility in accordance with
paragraph (d) of this section.
(b) Obligation to sell to qualifying facilities. Each electric
utility shall sell to any qualifying facility, in accordance with
Sec. 292.305 [\4\], any energy and capacity requested by the
qualifying facility.
\4\ 18 CFR Sec. 292.305 (1997) provides for rates for utility
sales to QFs.
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Below we discuss the particular facts and arguments raised in each
of the cases.
A. Connecticut Valley Electric Company, Inc. v. Wheelabrator Claremont
Company, L.P., et al. (Docket Nos. EL94-10-000 and QF86-177-001)
Connecticut Valley Electric Company, Inc. (Connecticut Valley)
filed a complaint against Wheelabrator Claremont Company, L.P.
(Claremont).\5\ Claremont owns and operates a biomass-fueled small
power production facility in Claremont, New Hampshire. The order
granting certification of the facility as a QF noted that it had an
electric power production capacity of 4.5 MW. See Signal Environmental
Systems, Inc.--Claremont, 34 FERC para. 62,212 (1986). Claremont's
partners are all wholly-owned subsidiaries of Wheelabrator
Environmental Systems, Inc., the successor in interest to Signal
Environmental Systems, Inc.
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\5\ The complaint was also filed against affiliates of
Claremont, as well as against Signal Environmental Systems, Inc.
(the original applicant for QF status for the facility) and its
affiliates.
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The Claremont facility produces power for sale to Connecticut
Valley using solid waste as an energy source. The facility began
commercial operation in March 1987 and, pursuant to a Power Purchase
Agreement approved by the New Hampshire Public Utilities Commission
(New Hampshire Commission), has sold its entire output to Connecticut
Valley. In addition, the Claremont facility has purchased sufficient
electric energy from Connecticut Valley to serve its station power
needs.
In its complaint, Connecticut Valley alleges that Claremont has
been selling its entire gross output to Connecticut Valley, while
purchasing back station power needs. Connecticut Valley claims that
Claremont cannot operate as a QF in the manner specified in the Power
Purchase Agreement. Connecticut Valley claims that it became aware in
May 1993, that Claremont's sale of the facility's gross output of 4.5
MW to Connecticut Valley, rather than its net output of 3.9 MW,
violated Commission precedent. For this reason, Connecticut Valley
seeks revocation of the qualifying status of the Claremont facility,
recision or reformation of the Power Purchase Agreement, a
determination of the just and reasonable rates for what it claims is a
wholesale power sale subject to this Commission's jurisdiction under
the FPA, and refunds with interest. In the alternative, Connecticut
Valley asks the Commission to reform the power sales contract to allow
Claremont to sell only the net electrical output of the facility, and
asks that Claremont be ordered to refund with interest all revenues it
received for the sale of the incremental output between its net and
gross output.\6\
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\6\ Specifically, Connecticut Valley states that for the sale of
the incremental output, Claremont should refund the difference
between the avoided cost rate at which Claremont makes sales to
Connecticut Valley, and the retail rate at which Claremont purchases
station power.
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Notice of Connecticut Valley's complaint was published in the
Federal Register, 58 Fed. Reg. 64,301 (1993), with comments, protests,
or motions to intervene due on or before January 5, 1994. Timely
motions to intervene and notices of intervention were filed by Granite
State Hydropower Association, Sullivan County Regional Refuse Disposal
District and the Southern Windsor/Windham Counties Solid Waste
Management District (collectively, the Districts), the New Hampshire
Commission, National Independent Energy Producers, Southern California
Edison Company, the Public Utilities Commission of the State of
California, and the Center for Energy Efficiency and Renewable
Technologies. An untimely motion to intervene was filed by the City of
Vernon, California.
In its answer, Claremont admits that it sells its entire (gross)
output to Connecticut Valley. It states that this arrangement is
required by the terms of the Power Purchase Agreement and was approved
by the New Hampshire Commission in settlement of litigation.\7\
Claremont states that the simultaneous purchase and sale arrangement is
fully consistent with this Commission's ``simultaneous buy-sell'' rule.
Claremont points to the preamble to the Commission's rules implementing
PURPA for the proposition that the
[[Page 8175]]
Commission intended to allow the sale of a QF's gross output when it
promulgated the simultaneous buy-sell rule. Claremont claims that it is
entitled to rely on the simultaneous buy-sell rule until it is amended
or rescinded by the Commission. Claremont further claims that
amendments to Commission regulations may not be retroactive.
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\7\ On February 23, 1983, Claremont's predecessor in interest,
Connecticut Valley and the staff of the New Hampshire Commission
entered into a settlement agreement which in part provided that
Connecticut Valley would ``purchase for twenty (20) years all energy
and capacity of the [Facility] at a price of 9 cents per kilowatt
hour. * * *'' (emphasis added). The settlement agreement (attached
as Appendix 3 to the complaint) was approved by the New Hampshire
Commission on March 2, 1983. The Power Purchase Agreement (attached
as Appendix 4 to the complaint) subsequently was executed by the
parties on December 12, 1984.
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Claremont also claims that the arrangement is fully consistent with
the New Hampshire Limited Electrical Energy Producers Act (LEEPA),
which implements PURPA in New Hampshire, as well as the New Hampshire
Commission's orders implementing PURPA and LEEPA.
Claremont claims that it, as well as many other developers, relied
on the Commission's simultaneous buy-sell rule in developing QF
projects. Claremont states that substantial inequities would result if
the Commission were to require Claremont to operate in a manner
different from what had been planned when it contracted with
Connecticut Valley. It notes that revocation of its QF status would
harm the sanitary districts which supply fuel (solid waste) to the
facility. It also notes that Connecticut Valley's petition, if granted,
would have the effect of jeopardizing the QF status of other facilities
in New Hampshire that, pursuant to other power sales contracts approved
by the New Hampshire Commission, sell their gross output pursuant to
simultaneous buy/sell provisions.
B. Carolina Power & Light Company v. Stone Container Corporation
(Docket Nos. EL94-62-000 and OF85-102-005)
Carolina Power & Light Company (CP&L) filed a complaint and motion
for revocation of QF status against Stone Container Corporation (Stone
Container). Stone Container owns and operates a topping-cycle
cogeneration facility located at Stone Container's linerboard mill and
manufacturing plant in Florence, South Carolina. The facility contains
one steam generator and one extraction/condensing steam turbine-
generator. The extracted steam is used in the linerboard manufacturing
process. The primary fuel for the facility is pulverized coal,
supplemented with wood waste.
In its initial application for certification, Stone Container
identified its net power capacity as 64.5 MW. Stone Container stated
that the gross power production capacity of the facility was 68 MW and
the auxiliary power requirements would be 3.5 MW. The Commission
granted Stone Container's application for QF status. See Stone
Container Corporation, 31 FERC para. 62,036 (1985). Subsequently, Stone
Container sought recertification for a QF with an amended capacity
(74.8 MW net capacity, 79 MW gross capacity, 4.2 MW auxiliary load).
The Commission granted recertification. See Stone Container
Corporation, 55 FERC
para. 62,205 (1991).
The electricity generated by the Stone Container facility is sold
to CP&L pursuant to a 20-year ``Electric Power Purchase Agreement''
that was executed on December 17, 1984, and was subsequently amended on
March 9, 1989, and on October 14, 1992. (The Power Purchase Agreement
and the amendments are attached to the complaint as Attachment 1.)
Paragraph 10(b) of the original agreement gave Stone Container the
option to switch to a ``buy-all/sell-all'' mode of operation. In the
second amendment to the agreement, Stone Container exercised its option
to switch to the buy-all/sell-all mode of operation.\8\
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\8\ Regardless of the mode of operation, paragraph 33(e)
provides that the maximum amount which can be sold to CP&L is 68 MW.
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CP&L claims that the switch to the buy-all/sell-all mode of
operation, ``[b]ecause of the configuration of the interconnection
between CP&L and the Stone Container facility'' (Complaint at 4), has
resulted in Stone Container's selling CP&L its gross output from the
facility. CP&L states that the switch to the buy-all/sell-all operation
has resulted in Stone Container's losing its QF status and becoming a
public utility subject to this Commission's rate regulation under the
FPA.
Notice of CP&L's complaint and motion for revocation was published
in the Federal Register, 59 Fed. Reg. 24,491 (1994), with comments,
protests or motions to intervene due on or before June 2, 1994. Timely
motions to intervene were filed by Westinghouse Electric Corporation,
Gelco Corporation, Granite State Hydropower Association, and Claremont.
Additionally, a number of late-filed letters containing additional
comments were filed. Motions to strike some of the motions to intervene
were filed, and answers to those motions were filed. Finally, motions
to hold the matter in abeyance, as well as a motion to expedite, were
filed.
In its answer to CP&L's complaint and motion for revocation, Stone
Container states that it never has sold power to CP&L in excess of the
certified qualifying capacity of the facility. Stone Container states
that it has thus always been in compliance with the requirements for QF
status, as interpreted by the Commission in Turners Falls and related
PURPA cases. Stone Container states that the essence of CP&L's
complaint is that Stone Container has sold in excess of what Stone
Container refers to as its ``actual net output.'' Stone Container urges
that CP&L's interpretation of Turners Falls is illogical because it
would attribute no meaning to the certified qualifying capacity of a
facility.
Stone Container further urges that its mode of operation since 1991
has been consistent with this Commission's ``simultaneous buy-sell''
rule. It also states that CP&L's reference to the configuration of the
interconnection is misguided, because CP&L is contractually entitled to
control the configuration of the interconnection.
Finally, Stone Container argues that if it has not complied with
the Commission's QF regulations in any respect, the Commission should
exercise its equitable powers to grant waiver of any such violation. In
this regard, Stone Container points out that any waiver would be for a
limited time (beginning with the date of commencement of the buy-all/
sell-all mode of operation). Stone Container alleges that CP&L should
be equitably estopped from asserting that the facility has lost its QF
status because CP&L proposed the simultaneously ``buy-all/sell-all''
provision in the contract (which Stone Container exercised) and
understood what the mode of operation entailed. Stone Container further
argues that any non-compliance with the Commission's regulations is the
result of the Commission's departure from its PURPA regulations and
precedents on which Stone Container reasonably relied.
C. Niagara Mohawk Power Corporation versus Penntech Papers, Inc.
(Docket Nos. EL96-1-000 and OF86-722-003)
Niagara Mohawk Power Corporation (Niagara Mohawk) filed a petition
for declaratory order revoking the QF status of the cogeneration
facility operated by Penntech Papers, Inc. (Penntech Papers).\9\ The
Penntech Papers' facility is located in Johnsonburg, Pennsylvania.
Extraction steam from the facility is used to supply the pulp and paper
mill process requirements of Penntech Papers. The facility originally
was certified as having 33.433 MW (net) capacity. See Penntech Papers,
Inc., 36
[[Page 8176]]
FERC para. 62,073 (1986). Subsequently, Penntech Papers sought
recertification to reflect, among other things, an increase in
generating capacity. The Commission granted recertification to reflect
the increase in capacity, except to the extent that Penntech Papers
proposed to sell its entire capacity (52 MW) to Niagara Mohawk and
purchase its entire auxiliary load (5.1 MW) from West Penn Power
Company. See Penntech Papers, Inc., 48 FERC para. 61,120 (1989).\10\
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\9\ The Penntech Papers facility is now owned by Williamette
Industries, Inc. (Willamette), which purchased the Penntech Papers
plant and assumed the rights and obligations under the Power
Purchase Agreement with Niagara Mohawk. While Penntech Papers is now
an operating division of Williamette, we will refer to Penntech
Papers as the facility owner in this order.
\10\ On February 8, 1993, Penntech Papers filed a notice of
self-recertification to reflect its ``as built'' description of the
facility. In its notice of self-recertification, Penntech Papers
stated that the maximum rated output of the facility would be 57,800
kW/hr. and that average power generation, net of station power needs
was expected to be 45,000 kW/hr. (or 394,200 MWH per year).
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Power from the Penntech Papers facility is transmitted over a 7-
mile 115 kV line to the Ridgeway substation of Pennsylvania Electric
Company (Penelec). The power is then wheeled by Penelec to Niagara
Mohawk. Because Niagara Mohawk informed Penntech Papers that it would
not ``dynamically'' schedule deliveries from Penntech Paper's
facility,\11\ but would require that actual deliveries from the
facility equal Penntech Papers' previously scheduled deliveries with
Niagara Mohawk on an hour-by-hour basis, the transmission agreement
provides that Penelec will purchase from Penntech Papers inadvertent
excess generation produced by the facility. The transmission agreement
also provides that Penelec will sell Penntech Papers ``make-up'' power
for delivery to Niagara Mohawk at times of inadvertent shortfalls or
reductions in facility output.
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\11\ Dynamic scheduling provides the metering, telemetering,
computer software, hardware, communications, engineering and
administration required to allow remote generators to follow closely
the moment-to-moment variations of a local load. In effect, dynamic
scheduling electronically moves load out of the control area in
which it is physically located and into another control area. See
Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 Fed. Reg. 21,540 (1996), FERC Stats. & Regs. para.
31,036 at 31,709-10 (1996), order on reh'g, Order No. 888-A, 62 Fed.
Reg. 12,274 (1997), FERC Stats. & Regs. para. 31,048 at 30,235-36
(1997), order on reh'g, Order No. 888-B, 81 FERC para. 61,248 (1997)
(Open Access Rule).
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According to Niagara Mohawk, this provision for the purchase and
resale of make-up power by Penntech Papers means that Penntech Papers
is selling Niagara Mohawk power from sources other than cogeneration or
small power production facilities, and thus cannot satisfy the
ownership requirements for QF status under the holding of Turners
Falls.
Notice of Niagara Mohawk's petition for declaratory order revoking
QF status was published in the Federal Register, 60 Fed. Reg. 53,917
(1995), with comments, protests or motions to intervene due on or
before November 17, 1995.
A notice of intervention was filed by the New York Public Service
Commission. Timely motions to intervene were filed by Penelec and by
Willamette, on behalf of Penntech Papers.
In its answer to Niagara Mohawk's petition,\12\ Penntech Papers
states that Niagara Mohawk's petition rests on significant mistakes of
fact. Penntech Papers argues that Niagara Mohawk's petition represents
an effort to abrogate its contract with Penntech Papers as part of its
ongoing effort to renegotiate contracts with the many QFs from which it
purchases.
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\12\ The answer was filed by Willamette on behalf of Penntech
Papers.
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Penntech Papers states that it has adhered to the Commission's
directive in its recertification order (48 FERC at 61,424) that it may
not sell the gross output of its facility. Penntech Papers states that
the cogeneration facility is an integral part of its paper mill, and
not a ``PURPA machine.'' Penntech Papers states that it uses a portion
of the output from its generating turbine to serve auxiliary loads
(station power), uses another portion to serve loads associated with
its paper mill, and sells the remainder to Niagara Mohawk at a rate of
6 cents per kilowatt hour. Penntech Papers states (at 8) that ``[f] or
[Niagara Mohawk's] convenience, the portion of the net cogeneration
output that is sold to [Niagara Mohawk] is `scheduled' through Penelec,
the transmitting utility.'' In addition, under the terms of the
transmission and scheduling agreement with Penelec, Penntech Papers is
required to pay Penelec, as line losses, three percent of the power it
delivers to Penelec.
Penntech Papers states that although its net output undeniably
exceeds the amount of power sold to Niagara Mohawk, the de minimis
amount of ``inadvertent'' power advanced by Penelec to Penntech Papers
(amounting to less than 1.96 percent of the scheduled sales to Niagara
Mohawk in 1993 and 0.69 percent of the scheduled sales to Niagara
Mohawk in 1994) is done to balance the power output schedule with the
amount of power wheeled and is advanced at the insistence, and for the
benefit, of Niagara Mohawk. Penntech Papers argues that the inadvertent
power sales to Niagara Mohawk should not be a basis to decertify
Penntech Papers' QF status. Penntech Papers states that this Commission
has approved the transmission agreement under which Penelec advances
power to Penntech Papers for inadvertent energy differentials. Penntech
Papers further states that there would be no inadvertent energy
differentials had Niagara Mohawk accepted dynamic scheduling.\13\
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\13\ There is no requirement in our PURPA or open access
regulations that an electric utility purchasing a QF's power do so
under a dynamic scheduling arrangement.
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Penntech Papers further states that the power purchase agreement
between Penntech Papers and Niagara Mohawk specifically recognizes that
Penntech Papers' deliveries to Penelec would not exactly match the
scheduled deliveries, and that Penelec would provide make-up power.
Penntech Papers argues that it receives no benefit, and indeed loses
money, from the make-up arrangement. Penntech Papers further argues
that the provision for the sale of inadvertent excess generation and
purchase of make-up power tends to even out over time, so that there is
no continuing sale of power produced by a facility other than a QF.
IV. Discussion
A. Procedural Matters
Pursuant to Rule 214 of the Commission's Rules of Practice and
Procedure, 18 CFR Sec. 385.214 (1997), the notices of intervention and
the timely, unopposed motions to intervene serve to make the entities
which filed them parties to the proceedings in which they intervened.
Further, we find good cause to grant all of the untimely or opposed
motions to intervene, and will consider all supplemental pleadings, in
light of the interests they raise and in order to complete all of the
arguments of the parties.
B. Statutory and Regulatory Framework
1. Statute and Regulations
As noted above, in FPA sections 3(17)(C)(ii) and 3(18)(b)(ii)
Congress provided that QFs must be:
[O]wned 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) * * *.
16 U.S.C. Secs. 796(17)(C)(ii) and (18)(B)(ii) (1994). Section
292.206(a) of the Commission's regulations, 18 CFR Sec. 292.206(a)
(1997), tracks the statutory language almost verbatim. The current
cases present the question of whether the sale of more than net output
violates
[[Page 8177]]
the statutory and regulatory criteria for QF status.
2. Commission Precedent Concerning OF Output
In 1981, the year after the Commission promulgated its QF
regulations, the Commission, in Occidental Geothermal, Inc., 17 FERC
para. 61,231 (1981) (Occidental), first addressed an issue relevant to
the one now before us when it was required to address the ``power
production capacity'' of a facility. The Commission determined that the
power production capacity of a facility is:
[T]he maximum net output of the facility which can be safely and
reliably achieved under the most favorable operating conditions
likely to occur over a period of years. The net output of the
facility is its send out after subtraction of power used to operate
auxiliary equipment in the facility necessary for power generation
(such as pumps, blowers, fuel preparation machinery, and exciters)
and for other essential electricity uses in the facility from the
gross generator output.
17 FERC at 61,445.\14\
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\14\ In Malacha Power Project, Inc., 41 FERC para. 61,350
(1987), the Commission clarified that line losses to the point of
interconnection with the grid also are subtracted from gross
generator output to determine the power production capacity.
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While, in hindsight, it seems clear that the Commission in
Occidental did not intend to permit a QF to sell in excess of its net
output (i.e. its power production capacity), the issue in that case was
more limited; whether the proposed facility would exceed the 80 MW
limit for qualifying small power production facilities set forth in
section 292.204(a).\15\
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\15\ The current version of the regulation was amended to
reflect the Solar, Wind, Waste, and Geothermal Power Production
Incentives Act of 1990. Those changes are not relevant to the issues
before us in these proceedings.
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Four years later, in 1985, the Commission again had occasion to
address qualifying facility output issues. In Power Developers, Inc.,
32 FERC para. 61,101 at 61,276 (1985), reh'g denied, 34 FERC para.
61,136 (1986) (Power Developers),\16\ the application raised the issue
of whether ``the qualifying capacity of the facility [is] gross or net
electric power production capability?'' 32 FERC at 61,275.
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\16\ See also Penntech Papers, Inc., 48 FERC para. 61,120
(1989).
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The Commission answered net. The Commission stated that were a QF
to sell its gross output to a utility at the utility's avoided cost and
purchase power for internal use from the utility, it would, in essence,
be selling more power than the facility, standing alone, is capable of
delivering. In other words, the QF would be receiving avoided cost
prices for an amount of power that it does not enable the purchasing
utility to avoid generating. 32 FERC at 61,276. The Commission stated
that such a result would be inconsistent with the requirement of PURPA
and the Commission's implementing regulations that utilities (and their
ratepayers) be in the same financial position as if they had not
purchased QF power. Id. (citing Order No. 69, FERC Stats. & Regs.,
Regulations Preambles 1977-1981 para. 30,128 at 30,871). However, even
though the Commission in Power Developers found implicit in its
Occidental discussion that QF sales are limited to net output, the
Commission still did not reach the specific question of whether a QF
that sold in excess of net output would be found to violate the
``primarily engaged'' ownership limitation in the statute and our
regulations.
Finally, in 1991, the Commission addressed this issue in its order
in Turners Falls. In that order, the Commission stated, for the first
time, that the prohibition against a QF's selling in excess of its net
output was based not only on policy considerations, but also on the
statutory requirement that a QF be ``owned by a person not a primarily
engaged in the sale of electric power (other that electric power solely
from cogeneration facilities or small power production facilities).''
16 U.S.C. Secs. 796(17)(C)(ii)-(18)(B)(ii) (1994). In Turners Falls,
the Commission found, based on its review of the language and
legislative history of PURPA and the policies underlying enactment of
PURPA and issuance of the Commission's implementing regulations, that a
QF which sought to sell the incremental power in excess of its net
output as non-qualifying power, would cease to be a QF, because it no
longer would meet the statutory and regulatory restriction regarding
utility ownership of QFs. 55 FERC at 62,667.
Before addressing the merits of the individual petitions filed with
the Commission in the above-referenced proceedings, we will address the
general legal and policy issues raised by these ``net/gross'' cases.
C. QF Output Issues
1. Can a QF Sell in Excess of Net Output?
We agree with the parties that it is not clear, on the face of the
``simultaneous buy-sell'' rule, that a QF is limited to selling its net
output. Section 292.303(a) provides that ``[e]ach electric utility
shall purchase * * * any energy and capacity which is made available
from a qualifying facility.'' (emphasis added). Similarly, section
292.303(b) provides that ``[e]ach electric utility shall sell to any
qualifying facility * * * any energy and capacity requested by the
qualifying facility.'' (emphasis added). In addition, the Commission's
statements leading up to its promulgation of the ``simultaneous buy-
sell rule also were not absolutely clear as to whether the Commission
intended that a QF be able to sell gross output at avoided cost while
purchasing station power at the purchasing utility's retail
The Commission first addressed the ``simultaneous buy-sell'' rule
in its PURPA notice of proposed rulemaking. In the NOPR, the Commission
discussed the situation ``in which a cogenerator or small power
producer desires to sell all of its output to a utility and purchase
all of its needs from the utility simultaneously.'' Small Power
Production and Cogeneration Rates and Exemptions, FERC Stats. & Regs.,
Proposed Regulations 1977-81 para. 32,039 at 32,466 (1979). The
Commission stated that this rule was necessary to encourage QFs only to
the extent it applies to ``new'' Capacity. However, because the
discussion applied to both small power production facilities (which
normally have no ongoing need to purchase from a utility other than
station power) and to cogenerators (which often have a need to purchase
power for industrial purposes other than generation), the discussion
was ambiguous about the permissibility of selling all output and
simultaneously buying back station power. See also Staff Paper
Discussing Responsibilities to Establish Rules Regarding Rates, and
Exemptions for Qualifying Cogeneration and Small Power Production
Facilities Pursuant to Section 210 of the Public Utility Regulatory
Policies Act of 1978, 44 Fed. Reg. 38863, 38870 (July 3, 1979).
In Order No. 69, adopting regulations for the implementation of
PURPA, the Commission indicated that the ``simultaneous buy-sell'' rule
would be applicable to both qualifying small power production
facilities and qualifying cogenerators, and again noted that avoided
cost rates would normally only be available for new capacity. FERC
Stats. & Regs., Regulations Preambles 1977-1981 para. 30,128 at 30,877.
As with its NOPR statements, the Commission's discussion was not clear
about the permissibility of selling ``all'' output and buying back
station power needs.
Moreover, it appears that several State regulatory authorities
implemented PURPA based on a plausible interpretation that the
``simultaneous buy-sell'' rule permitted the sale of a
[[Page 8178]]
QF's gross output. For example, the New Hampshire Commission's standard
QF sales contract contains a provision that allows for the sale of
gross output and the buy back of auxiliary (station) power. From the QF
filings we have received, it is apparent that there are other QF sales
contracts, approved by other State regulatory authorities, that contain
similar provisions.
However, as discussed above, this ambiguity was clarified to a
significant degree in 1985 in Power Developers. There, the Commission
made clear that a QF may not sell more than its net output at avoided
cost rates. Finally, in 1991, in Turner Falls, the Commission removed
any remaining ambiguity about whether the ``simultaneous buy-sell''
rule permitted a sale in excess of net output. The Commission clearly
stated that a sale in excess of net output would deprive a facility of
its QF status, unless the incremental sale was of power solely from
cogeneration or small power production facilities.\17\ See supra 13-14
(discussing orders). Accordingly, in these cases, the Commission
removed any ambiguity and all industry participants were put on notice
that the ``simultaneous buy-sell'' rule was not intended to permit a QF
to sell its gross output to a utility at avoided cost rates, while
buying back station power at a lower retail rate.
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\17\ The Commission in Turners Falls was not faced with a
factual situation where a QF sought to sell more than its net output
and the additional power was ``solely from cogeneration or small
power production facilities.'' Neither is the Commission faced with
that situation in the instant cases.
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As a result, we disagree with the QFs' reading of the
``simultaneous buy-sell'' rule. It is clear to us that a QF facility
can only sell energy and capacity from its facility which is actually
available, and that, given our interpretation of what a QF is able to
sell from its facility, this capacity is limited to the net output of
the QF. Thus, the requirement of section 292.303(a), that an electric
utility purchase any energy and capacity made available from a QF, is
limited to the energy and capacity a QF actually has available, which
is its net energy and capacity.
The Commission, in promulgating the simultaneous buy-sell rule, did
not indicate otherwise. Indeed, the rationale behind the rule, as
indicated in the preamble to Order No. 69, was as follows:
The effect of this proposed rule was to separate the production
aspect of a qualifying facility from its consumption function. Under
this approach, the electrical output of a facility is viewed
independently of its electrical needs. Thus, if a cogeneration
facility produces five megawatts, and consumes three megawatts, it
is treated the same as another qualifying facility that produces
five megawatts, and that is located next to a factory that uses
three megawatts.\18\
\18\ Order No. 69, Small Power Production and Cogeneration
Facilities, Regulations Implementing Section 210 of the Public
Utility Regulatory Policies Act of 1978, FERC Stats. & Regs.,
Regulations Preambles, 1977-1981, para. 30,128 at 30,877 (1980)
(emphasis added).
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In this example, the Commission clearly was considering the case of
a cogeneration facility where the factory associated with the
cogeneration facility consumed power generated by the facility for
industrial purposes. That the example was a cogeneration facility is
meaningful because a cogeneration facility, unlike a small power
producer, can have electric power needs other than for station power.
When a cogeneration QF supplies its industrial host's electrical needs
itself, it displaces power on the system that otherwise would have been
supplied by the purchasing utility. This is not true when a cogenerator
or small power producer supplies its own station power; the supplying
of station power by a QF does not displace power which would have
otherwise been supplied by the purchasing utility.\19\ While a
qualifying cogeneration facility may sell its entire net output and buy
back power from its purchasing utility for non-electric generation uses
(for example, manufacturing uses) by the thermal host,\20\ a QF,
whether a cogeneration facility or small power production facility, may
not sell its gross output to its purchasing utility and buy back
auxiliary (internal station) power.
---------------------------------------------------------------------------
\19\ The Commission, in its brief to the United States Court of
Appeals for the District of Columbia Circuit defending Order No. 69,
also illustrated the validity of its simultaneous buy-sell rule with
reference to a cogeneration example. American Electric Power Service
Corporation, et al. v. FERC, Docket No. 80-1789, May 15, 1981 brief
at 52. The Commission, in its brief, also recognized the
significance of displacement. Brief at 58. The court, in upholding
the simultaneous buy-sell rule, likewise pointed to the cogeneration
example as justifying the simultaneous buy-sell rule. See American
Electric Power Service Corporation v. FERC, 675 F. 2d. 1226, 1237
(D.C. Cir. 1982), rev'd on other grounds sub nom. American Paper
Institute v. American Electric Power Service Corporation, 461 U.S.
402 (1983).
\20\ See Union Carbide Corporation, 48 FERC para. 61,130, reh'g
denied, 49 FERC para. 61,209 (1989).
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Indeed, while the Commission did not address whether a QF would
lose its qualifying status if it sold in excess of net output in Power
Developers, the Commission in 1985 did address the meaning of section
292.303(a) (part of the simultaneous buy-sell rule). The Commission
stated:
Our regulations do not contemplate a qualifying facility selling
its gross output to a utility.
Although section 292.303(a) states that electric utilities are
required to purchase ``any'' energy and capacity which is made
available from a qualifying facility, the Commission has interpreted
the capacity of a qualifying facility for purposes of obtaining
qualifying status to be its net power production output, rather than
its gross output.
32 FERC at 61,276.
Accordingly, we reiterate our earlier findings that a QF can only
sell its net output, and that the sale of any other power will result
in the loss of QF status, unless that power is ``solely from
cogeneration or small power production facilities.''
2. What Date is Appropriate for Applying the Net Output Rule for
Purposes of QF Status?
As noted above, we understand that many QFs and purchasing
utilities have entered into contracts which require, or permit, the
simultaneous sale of gross output and the purchase back of auxiliary
(internal station) power. While there may have been some ambiguity when
our PURPA regulations became effective, with the issuance of Turners
Falls, the Commission clearly enunciated that a sale of a QF's output
in excess of net output would result in the loss of a facility's QF
status.\21\ Our interpretation of the statutory ownership requirements
in Turners Falls represented ``an issue of first impression.'' \22\
Moreover, the decision in Turners Falls rested not on the plain meaning
of the statutory language involved,\23\ but on an interpretation of the
statute based on policy grounds. For these reasons, we believe that it
would be unfair to revoke the QF certification of any facility which is
selling its gross output to a utility-purchaser, and buying back
auxiliary power and/or line losses to the point of interconnection,
based on a QF contract entered into on or before the date of issuance
of Turners Falls, that is on or before June 25, 1991.
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\21\ As noted, the exception is if the incremental output sold,
i.e., above net output, is solely from cogeneration or small power
production facilities.
\22\ 55 FERC at 62,667; see also id. at 62,672.
\23\ The Commission stated in Turners Falls that ``because both
the statute and the legislative history are unclear, we find it
appropriate to consider the policy reasons of interpreting the
statute as requested by Turners Falls.'' Id. at 62,669.
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We believe that this policy is consistent with our policy against
invalidating contracts for which a PURPA-based challenge was not timely
raised--that is, before the contracts were executed.\24\ In our
judgment, it would
[[Page 8179]]
not be consistent with Congress' directive to encourage cogeneration
and small power production to upset the settled expectations of parties
to, and to invalidate any of their obligations and responsibilities
under, such executed PURPA sales contracts.
---------------------------------------------------------------------------
\24\ See New York State Electric & Gas Corporation, 71 FERC
para. 61,027 at 61,117, order denying reconsideration, 72 FERC para.
61,067 (1995), appeal dismissed, New York State Electric & Gas
Corporation v. FERC, 117 F.3d 1473 (D.C. Cir. 1997); Connecticut
Light & Power Company, 70 FERC para. 61,012, order denying
reconsideration, 71 FERC para. 61,035 at 61,153-54 (1995) (confusion
regarding meaning of Commission's regulations made application of
new policy to preexisting QF contracts inappropriate), appeal
dismissed sub nom. Niagara Mohawk Power Corporation v. FERC, 117
F.3d 1485 (D.C. Cir. 1997); Southern California Edison Company and
San Diego Gas & Electric Company, 70 FERC para. 61,215 at 61,178,
reconsideration denied, 71 FERC para. 61,269 at 62,079 (1995).
---------------------------------------------------------------------------
However, we see no legitimate basis to excuse a facility that,
subsequent to the date of issuance of Turners Falls, either entered
into a contract to sell more than its net output, or executed an
amendment to a pre-Turners Falls contract that increased output, unless
that amendment was pursuant to a provision in the pre-Turners Falls
contract that specifically authorized such amendment. We will,
therefore, revoke the QF status of any facility which sells in excess
of its net output pursuant to a contract entered into after the date of
issuance of Turners Falls, unless the additional amount sold is solely
from cogeneration or small power production facilities.
3. How Is Net Output To Be Calculated?
In order to determine if a facility has sold in excess of its net
output, it is necessary to define how to measure net output. The
utility-purchasers in the instant proceedings urge that net output be
calculated as actual net production on an hour-by-basis. On the other
hand, the QFs urge that net capacity be the measure of the limitation
on a QF's sale. They argue that while QFs may not sell in excess of
their certified net capacity, they should be able to sell in excess of
actual net production at any moment in time. The QFs state that this is
what theTurners Falls decision requires.
The QFs are only partially correct. Turners Falls does stand for
the proposition that the Commission will not certify a QF to sell in
excess of its net capacity and that the sale above net capacity would
result in the loss of QF status. Turners Falls, however, also contains
additional language concerning ``the sale of incremental output.'' 55
FERC at 62,672. While Turners Falls clearly states that QFs are limited
to selling net capacity, the order does not directly address the sale
of what has been referred to in the instant proceedings as ``actual net
production.'' We understand that purchasing utilities could reasonably
read Turners Falls and its reference to ``the sale of incremental
output'' to limit the sales by QFs to actual net production.
We find that the utilities' interpretation of the calculations more
closely comports with Commission precedent and policy. In Turners
Falls, the Commission interpreted PURPA to limit the certification of a
QF to its net capacity. In interpreting PURPA, the Commission found
that the plain language of the statute was not clear, and that the
statutory history on the language involved was not clear, but that the
policy underlying PURPA was dispositive. The policy which the
Commission looked to was that PURPA was intended to be a ``program
providing for increased efficiency in the use of facilities and
resources.'' (55 FERC at 62,670, quoting section 2 of PURPA). The
Commission found that the economic distortion inherent in the sale of
the incremental output, i.e., the difference between a facility's net
and gross output, would be inconsistent with the intent of PURPA. The
Commission further found that if it were to permit Turners Falls to
sell the incremental output, Turners Falls would derive an undue
benefit from its qualifying status. Id. As a result, while the
Commission in Turners Falls was directly addressing how much capacity
it would certify (net capacity), it based the certification decision on
its finding that PURPA does not permit a sale in excess of net output.
The utilities' proposal that compliance with the net/gross rule be
measured by monitoring actual net output on an hour-by-hour basis more
accurately measures compliance with this PURPA limitation than the QFs'
proposal that compliance be measured on an annual basis.
Moreover, measuring compliance with the net/gross rule on an hour-
by-hour basis is consistent with Commission precedent on measurement of
a facility's net capacity. In American Ref-Fuel of Bergen County, 54
FERC para. 61,287 (1991) (Ref-Fuel), the Commission used a ``rolling
one-hour period'' for measuring the size limitation (80 MW) applicable
to qualifying small power production facilities. In that case, Ref-Fuel
argued that because of the substantial variation in the heat content of
solid waste, the net output of the facility would often exceed 80 MW,
but that it would be able to compensate for the substantial variation
in the heat content of the fuel source with an automatic control system
to restore net generation to 80 MW when it exceeded 80 MW. Ref-Fuel
stated it could maintain the 80 MW net output level on average over a
60 minute time span measured at any point in time--the ``rolling one-
hour period.'' The Commission agreed to the rolling one-hour period,
stating that:
Generation output fluctuates instantaneously and accordingly
must be adjusted many times each hour to follow system load changes.
System load or consumer demand typically is determined by averaging
energy use over a period of time of 15 to 60 minutes.
54 FERC at 61,817. The Commission noted that Form No. 1 requires
utilities to compute the net peak demand (output) on generating units
by using a 60-minute measurement period and that customer demand meters
typically employ measurement periods of 15, 30, or 60 minutes. Id. at
61,817 n.5. The Commission further noted that a 60-minute time interval
for measuring power output or peak load is common in the industry. 54
FERC at 61,817. The Commission recognized that a facility's generation
output varies constantly and that net output in excess of 80 MW does
not automatically violate the size limitation requirement of the
statute (citing Occidental Geothermal, Inc., 17 FERC para. 61,231 at
61,445 (1981)).
Finally the Commission recognized that use of a rolling one-hour
period does not offer any potential for manipulation of the maximum
size limitation. This is because the facility, if it exceeds the 80 MW
net production limitation at one moment, would have to adjust net
production below 80 MW during part of the hour to account for the
excess generation.
We believe that the rationale for using a rolling one-hour period
for measuring the net production of a facility for size limitation
purposes is equally applicable to measuring net production for
compliance with the net/gross output rule. Contrary to the QFs'
arguments, use of a one-hour period does not make the certified
capacity of a facility meaningless,\25\ and indeed is consistent with
this Commission's measurement of certified capacity. We conclude that a
facility's net output should be measured on a rolling-one hour period
for purposes of determining whether the facility makes sales in excess
of its net output. In other words, a facility cannot sell each hour
more than its net output for the hour.
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\25\ The certified capacity of a QF, i.e., its net capacity, is
the maximum net output that the facility can safely and reliably
achieve at the point of interconnection under the most favorable
operating conditions likely to occur over a period of several years.
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[[Page 8180]]
4. How Does Transmission of QF Power by a Third Party Utility Affect
Net Output?
The Penntech Papers case raises an issue concerning the measurement
of net output in situations where QF power is transmitted by a third
party to the purchasing utility. We have addressed this matter in our
Open Access Rule. In Order No. 888-A, the Commission explained that:
A QF arrangement for the receipt of Real Power Loss Service or
ancillary services from the transmission provider or a third party
for the purpose of completing a transmission transaction is not a
sale-for-resale of power by a QF transmission customer that would
violate our QF rules.\26\
\26\ FERC Stats. & Regs. para. 31,048 at 30,237.
---------------------------------------------------------------------------
In Order No. 888-B, the Commission recently clarified the matter as
follows:
[W]hile a QF can never sell more power than its net output at
its point of interconnection with the grid, its location in relation
to its purchaser (and thus its losses) may be relevant in the
calculation of the avoided cost which it is entitled for the power
it does deliver to its electric utility purchaser. However * * * the
receipt of Real Power Loss Service or ancillary services is not a
sale-for-resale of power. Rather, they are part of the costs of
transmission which the QF must bear, in the absence of an agreement
to share such costs with the transmitting utility.\27\
\27\ Order 888-B, slip op. at 43-44.
---------------------------------------------------------------------------
In conclusion, the purchase of line loss service for losses beyond
the point of interconnection or an ancillary service by a QF from a
third party does not result in the QF's engaging in a sale-for-resale
of power produced by a facility other than a QF, which would result in
loss of QF status.
D. Regulatory Consequences and Remedies for Sales in Excess of Net
Output
Any facility which has sold in excess of its net output, pursuant
to a contract entered into after the date of issuance of Turners Falls,
unless the incremental output is solely from cogeneration or small
power production facilities, must file rates pursuant to section 205 of
the FPA within 60 days of the date of publication of this order in the
Federal Register. In that filing, the facility must indicate whether it
intends to continue to make sales in excess of net output.\28\ For
facilities which state that they will discontinue the sale of output in
excess of net output as of the date of their filing, the rate for the
prior sale of any output above net output will be determined using the
methodology announced in LG&E-Westmoreland Southhampton, 76 FERC para.
61,116 (1996) (LG&E), reh'g pending.\29\ The rate for all amounts sold
up to the facility's net output should be the contract rate reflected
in the parties' agreement, assuming such rate is no higher than the
applicable avoided cost rate established by the State regulatory
authority or nonregulated electric utility. Facilities making section
205 filings that reflect the cessation of power sales in excess of net
output may ask for all other exemptions granted QFs, and we will grant
such exemptions pursuant to the policy announced in LG&E.
---------------------------------------------------------------------------
\28\ If the facility decides to sell only its net output, it
could regain QF status on a prospective basis from the date it
begins to sell only net output. However, whether its temporary loss
of QF status would jeopardize its power sales arrangement is a
matter of contract that may vary depending on the particulars of the
power sales agreement.
\29\ In LG&E, the Commission ordered a QF which failed to
satisfy the Commission's technical requirements for QF status during
a past period of non-compliance to file rates pursuant to section
205 of the FPA at a rate no higher than what the utility-purchaser
would have paid for energy had it made an economic decision to
purchase from the non-complying QF. In the case of a first-time
failure to maintain QF status, the Commission explained that it
would grant all other exemptions from regulation otherwise available
to QFs.
---------------------------------------------------------------------------
For any facility that indicates in its section 205 filing that it
will continue to sell power in excess of its net output, pursuant to
its current contract, we will not differentiate between past and future
sales, or allow different rates for sales up to or in excess of net
output. Rather, the former QF will be required to cost justify its
rates for past and future periods.\30\
---------------------------------------------------------------------------
\30\ Of course, the former QF could seek market-based rate
authority for sales pursuant to new, non-QF contracts.
---------------------------------------------------------------------------
E. Application of Policy to Pending Cases
1. Connecticut Valley Electric Company, Inc. v. Wheelabrator Claremont
Company, L.P., et al.
Claremont, a small power production facility, is selling its gross
capacity to Connecticut Valley and buying back auxiliary power, This
sale clearly violates the prohibition on the QF sale of amounts in
excess of net output enunciated in Turner Falls and earlier cases, and
would result in the loss of QF status were it taking place pursuant to
a sales contract entered into after the date (June 25, 1991) of
issuance of Turner Falls. Here, however, the sale takes place pursuant
to a contract, executed on December 12, 1984.
Pursuant to the policy articulated above in this order, we will not
enforce the net/gross policy against Claremont during the term of its
power purchase agreement with Connecticut Valley, assuming the contract
has not been amended to increase output after the date (June 25, 1991)
of issuance of Turners Falls, unless that amendment was pursuant to a
provision in the pre-Turners Falls contract that specifically
authorized such amendment. Based upon this assumption, we will,
therefore, not revoke the QF status of the Claremont facility or take
other remedial action.
2. Carolina Power & Light Company v. Stone Container Corporation
The sale of QF power by Stone Container is not as clear. Stone
Container represents that it has at all times limited its sale to no
more than its ``actual net output.'' The allegation by CP&L is that
Stone Container, pursuant to a contract option contained in a contract
entered into prior to the date of issuance of Turners Falls, but
exercised after the date of issuance of Turners Falls, is at times
selling in excess of actual net output.
Because Stone Container is operating pursuant to a contract
executed prior to the date of issuance of Turners Falls, its sales will
not result in the loss of QF status, even if it at times has sold in
excess of its net output. While its contract was amended, after the
date of issuance of Turners Falls, to take advantage of the option to
switch to the ``buy-all/sell-all'' mode of operation, the exercise of
the option took place pursuant to the original contract. The right to
the ``buy-all/sell-all'' mode of operation was contained in the
original, pre-Turners Falls contract. Depriving Stone Container of QF
status in these circumstances would not be consistent with maintaining
the parties' expectations when the contract was signed. Moreover, CP&L,
to the extent it encouraged the switch (as represented by Stone
Container), should not now be heard to claim that the mode of operation
which it encouraged deprives the facility of its QF status. The time
for CP&L to have objected to the ``buy-all/sell-all'' contractual
provision was prior to its execution, and not long after its
implementation.\31\
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\31\ See supra note 24 and cases cited therein.
---------------------------------------------------------------------------
We therefore conclude that under the policy announced in this
order, this sale does not result in the loss of Stone Container's QF
status, and we will not revoke the QF status of the Stone Container
facility or take other remedial action, assuming that the contract has
not been further amended to increase output after the date (June 25,
1991) of issuance of Turners Falls, unless that amendment was pursuant
to a provision in the pre-Turners Falls contract that specifically
authorized such amendment.
[[Page 8181]]
3. Niagara Mohawk Power Corporation v. Penntech Papers, Inc.
Niagara Mohawk argues that the Penntech Papers' purchase of power
from Penelec, both of ``make-up'' power under a provision of Penntech
Papers' transmission contract which Penelec, and line losses during
transmission pursuant to the same contract, causes Penntech Papers to
sell to Niagara Mohawk power from a facility other than a QF.
In Order No. 888, the Commission determined that ``energy imbalance
service'' is one of six ancillary services which with must be provided
under an open access transmission tariff.\32\ The description of
``energy imbalance service'' and the service provided by Penelec to
Penntech Papers to correct inadvertent imbalances indicate that they
are the same service. As this is an ancillary service as defined in
Order Nos. 888 and 888-A, it does not constitute a sale-for-resale and
does not affect Penntech Papers' QF status. Likewise, the purchase of
line loss service by Penntech Papers for transmission service provided
past the point of interconnection with Penelec does not affect its QF
status. We will, therefore, not revoke Penntech Papers' QF status or
take other remedial action.
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\32\ FERC Stats. & Regs. para.31,036 at 31, 703-04; see also
Order No. 888-A, FERC Stats. & Regs para.31,048 at 30,229-34.
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The Commission orders:
(A) The petitions for declaratory order are hereby granted in part
and denied in part, as discussed in the body of this order.
(B) The motion of Connecticut Valley filed in Docket Nos. EL94-10-
000 and QF86-177-001 to revoke the QF status of Claremont is hereby
denied.
(C) The motion of CP&L filed in Docket Nos. EL94-62-000 and QF85-
102-005 to revoke the QF status of Stone Container is hereby denied.
(D) The motion of Niagara Mohawk filed in Docket Nos. EL96-1-000
and QF86-722-003 to revoke the QF status of Penntech Papers is hereby
denied.
(E) Any facility which by virtue of this order is required to file
rates pursuant to section 205 of the FPA shall make such a filing
within 60 days of the date of publication of this order in the Federal
Register, as discussed in the body of this order.
(F) The Secretary is hereby directed to arrange for publication of
this order in the Federal Register as soon as possible.
By the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
[FR Doc. 98-4014 Filed 2-17-98; 8:45 am]
BILLING CODE 6717-01-M
