On November 19, 2015, the Federal Energy Regulatory Commission (FERC) reaffirmed and clarified the exemption for certain Qualifying Facilities (QFs) from Section 203 of the Federal Power Act (FPA) set forth in Section 292.601(c) of FERC’s regulations. Specifically, FERC held that any QF that qualifies for that exemption—including those with “otherwise jurisdictional assets” such as market-based rate tariffs and generator interconnection facilities—is exempt from the requirement of Section 203(a)(1) of the FPA to obtain prior FERC authorization for certain changes in ownership or control.
Longstanding FERC regulations have exempted most QFs, including all small power production QFs smaller than 30 MW and cogeneration QFs of any size, from most sections of the FPA, including Section 203. However, because FERC’s acceptance of a market-based rate tariff for an entity typically results in the regulation of such entity as a “public utility” under the FPA, some uncertainty developed in the U.S. electric power sector regarding whether QFs with market-based rate authorization are, in fact, exempt from Section 203. This uncertainty generated several “abundance of caution” applications to FERC for Section 203 authorization for transactions involving changes in ownership or control over QFs with market-based rate authorization that otherwise met the criteria for the exemption from Section 203. Ultimately, FERC Staff addressed those applications in letter orders issued under delegated authority from FERC without making any determination regarding FERC’s Section 203 jurisdiction over the relevant QFs, leaving open the question raised by the precautionary applications.
In its order, which FERC issued in response to an April 2015 petition for declaratory order filed by Chevron U.S.A. Inc. regarding certain of its and its affiliates’ cogeneration QFs with market-based rate authorization, FERC held that the language of the exemption in Section 292.601(c) of its regulations is “straight-forward, and on its face exempts the vast majority of QFs from FPA section 203(a)(1).” FERC emphasized, however, that if a public utility would otherwise be jurisdictional because of ownership or operation of facilities other than those considered part of a QF, that public utility would be subject to Section 203 of the FPA. FERC also provided a reminder that after any transfer of QF facilities the new owner or operator of the QF is required to file an updated self-certification of the QF status of the relevant facilities on FERC Form 556 to reflect the change in ownership.