On March 19, 2021, a divided Federal Energy Regulatory Commission (FERC or the “Commission”) reverted to its long-standing “send out” analysis for determining the “power production capacity” of a small power production qualifying facility (QF) under the Public Utility Regulatory Policies Act of 1978 (PURPA) and FERC’s implementing regulations.¹ Commissioners James Danly and Mark Christie voted against the result, with Commissioner Danly writing separately in dissent.

In September 2020, FERC had abruptly changed course from evaluating the size of a small power production facility based on the maximum energy output that the facility could inject through its interconnection point, holding that the “power production capacity” of a facility was its “maximum net power production capacity” as calculated in Section 7 of FERC’s Form No. 556 (Certification of Qualifying Facility (QF) Status for a Small Power Production or Cogeneration Facility), adjusted “only [for] parasitic loads and losses that occur independent of the output limiting function of inverters or other output limiting devices.”²

On rehearing, FERC set aside the September 2020 Order, finding that it had “erred by departing from and overturning its longstanding precedent,” concluded that Broadview Solar, LLC’s facility is eligible for small power production QF status and reinstated the “power production capacity” approach it had employed for nearly 40 years, which focuses on the useful output of the facility as a whole at its interconnection point, rather than the capacity or rating of any individual component of a facility, such as its collection of solar photovoltaic modules.³

The Rehearing Order is welcome news for developers, owners and operators of small power production facilities who, for the seven-month pivot away from the “send out” analysis, have been grappling with a variety of adverse consequences of the September 2020 Order, ranging from having to file Form No. 556 for facilities that would previously have been deemed smaller than 1 MW—and thus exempt from the Form No. 556 filing requirement—to worrying more about the aggregate power production capacity of facilities within a mile of each other exceeding 20 MW, which would require them to obtain market-based rate authority under Section 205 of the Federal Power Act (FPA).

Without diving into the weeds of FERC’s extensive textual analysis and reasoning, the upshot of the Rehearing Order is that the “size” of a small power production facility for purposes of eligibility for QF status is now back to where it stood for nearly 40 years before the September 2020 Order—i.e., “power production capacity” equals “the maximum output that the facility can produce . . . after accounting for all the constituent parts that make up the facility,” including its inverters,⁴ or “what the facility can actually produce for sale to the interconnected electric utility” (or other consumer).⁵ In other words, “the best interpretation of [PURPA’s] 80-MW limit on a facility’s power production capacity is as a limit on the facility’s net output to the electric utility (i.e., at the point of interconnection), taking into account all components necessary to produce electric energy in a form useful to an interconnected entity,” including its inverters and their rating or settings.⁶

Commissioner Danly, writing separately in dissent, decries what he describes as a “new for-delivery-to-the-utility standard”—rather than a “power production capacity” standard—arguing that the majority’s approach in the Rehearing Order is inconsistent with PURPA and the instructions for calculating power production capacity in Form No. 556 and unsupported by FERC’s regulations or precedent.⁷ Commissioner Christie, as noted above, voted against the result, but did not write separately to explain his vote.

Among its positive implications, the Rehearing Order will make it easier for applicants to prepare and file Form No. 556 in a way that reflects the practical realities of their facilities. It also will enable developers to design and build facilities that can maximize their capacity factor and better take advantage of energy storage technologies, given that such facilities can now (again) demonstrate their eligibility for QF status by virtue of output limitation through inverters or other equipment even if their aggregate gross generating capacity (measured in DC) exceeds 80 MW.

Also highly beneficial to developers, owners and operators of QFs going forward will be FERC’s discussion of the intention and flexibility of Form No. 556, which is now a component of every self-certification or request for FERC certification of QF status. Specifically, FERC stated:

Form No. 556 was always intended to be a flexible tool for a facility owner or operator to submit information relevant to whether a facility meets the requirements to be considered a QF. The form does not supplant Commission precedent regarding the requirements that a facility must satisfy to secure QF status. For that reason, we conclude that the Commission erred in the September 2020 Order by relying on particular lines of Form No. 556 to support its decision to overturn the “send out” line of precedent.⁸

Explaining that it “never intended to turn this data collection tool,” which includes an automatic calculation of “maximum net power production capacity” on Lines 7a through 7g, “into a mechanical rule that dictated whether a facility constituted a QF,” FERC stated that its intention is to make determinations of eligibility for QF status based on “all of the facts of the matter and not merely on the contents of the form,” and that “an owner or operator may use Form No. 556’s flexibility to account for all effects of its conversion equipment.”⁹ In practice, this can mean using Line 7h or the recently-renumbered Page 24 “miscellaneous” space to explain, as needed, why the arithmetic result on Line 7g is not the end of the story for a particular facility with respect to its “power production capacity.” Thus, a result on Line 7g of the Form No. 556 that is greater than 80 MW (or 30 MW, 20 MW or 1 MW, depending on which regulatory exemption threshold is at issue) is not necessarily determinative of the “power production capacity” of the relevant facility.

Like the September 2020 Order, the Rehearing Order does not directly address whether FERC will use the “send out” approach it applies to the 80-MWac maximum “power production capacity” determination for other “power production capacity” determinations under FERC’s PURPA regulations, such as the 30 MW limit for exemption from most provisions of the FPA, the Public Utility Holding Company Act of 2005 and certain state laws and regulations concerning the rates of electric utilities and the financial and organizational regulation of electric utilities; the 20 MW limit for exemption from the need for market-based rate authority for wholesale sales of power under Section 205 of the FPA; and the 1 MW limit for exemption from the need to file a Form No. 556 to obtain QF status.¹⁰ However, it stands to reason that FERC will apply the same analysis across the board, as it has explained in other contexts.

Any request for rehearing of the Rehearing Order must be filed by April 19, 2021. Thereafter, FERC will have 30 days to act on any timely request for rehearing. Absent FERC action on a timely request for rehearing within 30 days from filing, such request (and any timely request for rehearing filed subsequently) may be deemed denied, and an aggrieved party could petition for appellate review within 60 days thereafter. The reasoning in Commissioner Danly’s dissent—like now-Chairman Richard Glick’s dissent to the September 2020 Order—likely will provide fuel for requests for rehearing and/or appeal of the Rehearing Order. Based on the result in the Rehearing Order, FERC as currently composed is unlikely to change course again, but it remains to be seen whether the majority’s analysis and conclusion will withstand judicial review.

¹ Broadview Solar, LLC, 174 FERC ¶ 61,199 (2021) (“Rehearing Order”).

² Broadview Solar, LLC, 172 FERC ¶ 61,194 (2020) (“September 2020 Order”).

³ See, e.g., Rehearing Order at PP 20, 23-24, 26; Press Release, FERC, FERC Clarifies Determination of 80-MW Capacity Cap for QFs (Mar. 19, 2021), https://www.ferc.gov/news-events/news/ferc-clarifies-determination-80-mw-capacity-cap-qfs.

⁴ Rehearing Order at P 23.

⁵ Id. P 24.

⁶ Id. P 26.

⁷ Id., Danly Dissent at PP 1, 11.

⁸ Id. P 36.

⁹ Id. P 39.

¹⁰ 18 C.F.R. Part 292, Subpart F (2020).