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FERC, CFTC, and State Energy Law Developments

FERC has issued a final rule, Order No. 874, expanding the eligibility criteria for Qualifying Facilities (QFs) as defined under the Public Utility Regulatory Policies Act of 1978 (PURPA) to enable certain fuel cell–based electric generation to receive QF status. The final rule amends the definition of useful thermal energy output of a topping-cycle cogenerator in its regulations implementing PURPA by adding a new paragraph to specifically include thermal energy that is used by a fuel cell system with an integrated steam hydrocarbon reformation process for production of fuel for electricity generation. This new paragraph, along with the rest of Order No. 874, removes ambiguity as to whether such fuel cell technology may be included in the eligibility criteria for a cogeneration facility to be a QF.

Order No. 874 addressed a petition for rulemaking seeking revisions to the eligibility criteria in light of the development in recent years of fuel cell systems with integrated hydrocarbon reformation equipment. The Commission stated the amendment recognizes the technical evolution of cogeneration as well as the Commission’s discretion to revise rules as necessary to encourage cogeneration. The final rule provides opportunities for the expansion of fuel cell technology by leveraging the regulatory exemptions and rights that accompany QF status.

Cogeneration facilities have traditionally combined heat and power using more traditional electric generation that relies on combustion of fossil fuels to produce electric energy. However, the Commission recognized that fuel cells with integrated hydrocarbon reformation equipment is a viable option for efficient electric energy cogeneration that comports with PURPA’s goal of encouraging the innovation and development of cogeneration facilities. Fuel cell systems with integrated natural gas reformation equipment convert the chemical energy within natural gas into electricity using a steam-methane reformation process. These fuel cell systems essentially convert the methane in the natural gas input to hydrogen, which then reacts with oxygen in the fuel cell to produce electricity. Heat and steam are byproducts of the fuel cell’s production of electricity.

Under the Commission’s rules, as promulgated under Order No. 70, FERC established criteria for a cogeneration QF, a facility that, as required by the statute, “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.” This definition provides for steam or other forms of useful energy to be used for, among other things, industrial purpose. As the Commission notes in the final rule, the creation by a fuel cell system with an integrated natural gas reformation process of a commercially valuable fuel fits within the scope of this statutory definition. This is because such fuel cell systems produce both electricity and thermal energy (as heat/steam) used to create the hydrogen that fuels the fuel cell system.

The Commission revised its PURPA regulations implementing Sections 201 and 210 of PURPA. The PURPA regulations identify three categories of useful thermal output from a topping-cycle cogenerator: (1) thermal energy that is “made available to an industrial or commercial process . . . ; (2) thermal energy that is used in a heating application . . . ; or (3) thermal energy that is used in a space cooling application.” The Commission added a new paragraph to 18 CFR 292.202(h) of the PURPA regulations providing that useful thermal energy output as required by the regulations includes the thermal energy that is used by a fuel cell system with an integrated steam hydrocarbon reformation process for production of fuel for electricity generation.

The final rule notes that any new cogeneration facilities that use a fuel cell system with an integrated hydrocarbon reformation process must still satisfy the additional criteria of 18 CFR 292.205(d), which establishes additional criteria for, in particular, new cogeneration facilities seeking to sell electric energy. Specifically, for QF status, cogenerational facilities must meet the requirement that the “thermal energy output . . . is used in a productive and beneficial manner” and that “[t]he electrical, thermal, chemical and mechanical output of the cogeneration facility [is] issued fundamentally for industrial, commercial, residential or institutional purposes and is not intended fundamentally for sale to an electric utility.” Nevertheless, this provides eligible fuel cell generators with the ability to seek QF status—and the valuable regulatory exemptions that come with it.