On March 18 and 19, 2010, the Federal Energy Regulatory Commission (the "Commission") issued a pair of orders that impact generation developers. In Order No. 697-D, the Commission clarified when sellers with market-based rate authority must notify the Commission that they have acquired sites for new generation capacity development. The Commission also issued Order No. 732, in which it exempted generating facilities 1 MW and smaller from having to file a Form 556 self-certification or application for certification with the Commission to be considered a Qualifying Facility ("QF"). The exemption alleviates a burden that particularly affected developers of distributed generation systems.

Change in Requirements for Reporting Generation Site Control

To obtain market-based rate authority, an applicant must verify that it (including its affiliates) has not erected barriers that will keep other participants from entering the applicant's market. The Commission has included "inputs to electric power production" in its barriers to entry analysis, and such inputs have been interpreted to include ownership or control of land that could potentially be used for generation development.

In Order No. 697-C, the Commission previously clarified that market-based rate sellers must notify the Commission on a quarterly basis of a seller's acquisition or control of sites for generation development. In addition, market-based rate sellers were also required to report any land they had acquired, took a leasehold interest in, obtained an option to acquire, or entered into an exclusivity relationship to acquire for purposes of development, but for which site control in the applicable interconnection process had not yet been demonstrated during the prior three years, if such land was reasonably suitable for 100 MW of capacity development. Sellers were to report these lands for which site control had not yet been demonstrated in a yearly January 1 report to the Commission.

In the recently-issued Order No. 697-D, the Commission eliminated the requirement that market-based rate sellers make a yearly January 1 report describing the lands for which a seller has not demonstrated site control in the prior three years but that are reasonably suitable for 100 MW of generation capacity development. In removing this filing requirement, the Commission explained that it may gain the needed information regarding barriers to entry from the filings still required each quarter that describe lands for which site control has been demonstrated in the applicable interconnection process. The Commission did, however, reserve the right to require a seller to provide information in addition to that required in the quarterly filings if the Commission is concerned that a seller is acquiring land for the purpose of preventing new generation capacity from being developed on that land.

In addition to eliminating the yearly January 1 report, the Commission also clarified that a seller need not file a quarterly report if the seller did not obtain site control for any new lands in that quarter. Similar to other change in status filings, the Commission only desires a seller to submit quarterly reports when new lands are put under a seller's control, i.e., when the seller's status changes. The Commission also clarified that a seller's quarterly reports are not cumulative. Only sites not previously reported must be included in a quarterly report.

Exemption from Qualifying Facility Filing Requirements for Facilities 1 MW or Smaller

Among a number of mechanical revisions to the QF filing procedures, the Commission added an exemption for facilities with a net power production capacity of 1 MW or less from the requirement to make a filing with the Commission in order to claim QF status. Thus, facilities 1 MW or less need only meet the technical requirements for QF status, and that status will not be dependent upon the applicant's having made a filing with the Commission. The Commission did not, however, clarify how the proximity of small QF facilities may affect eligibility for the filing exemption. That is, the Commission's rules state that affiliated QF facilities within one mile of one another are deemed to be one facility for purposes of calculating a QF's net capacity. If, for example, a distributed generation developer installs multiple facilities within a mile of one another, it remains unclear whether those facilities will be eligible for the filing exemption established in Order No. 732.

The Commission noted that the filing exemption for facilities 1 MW or less will not weaken its role in overseeing QF program participation. Although facilities 1 MW or less account for approximately 48 percent of all QF filings, these facilities only represent about one-half of 1 percent of the QF capacity certified. Nevertheless, a purchasing utility may file a petition of revocation if it believes a QF claiming the exemption from filing does not meet the requirements for QF status. A purchasing utility may also ask a QF that has not filed with the Commission for an attestation that the QF meets the requirements for QF status.