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FERC Staff Sees 'Greater Vigilance' by Industry to Meet QF Ownership Rules

The power industry appears to be responding "with greater vigilance" to ensure compliance with FERC's qualifying facility (QF) ownership requirements under the Public Utility Regulatory Policies Act (PURPA) of 1978, a FERC staff member told commissioners last Tuesday.

"This may be the main reason for the significant increase in the number of QF filings made with the Commission, requests for pre-filing meetings with staff and informal inquiries to staff on QF matters," FERC staff member Dan Hedberg said.

"I think on a broad picture it's good to let the industry know what we're doing in the way of enforcement of the different aspects of our statutes," FERC Chairman Pat Wood said.

"This one has its origin, actually, in a lot of -- I would say -- heated inquiry in the 2002 session of the Congress, when in the fall of Enron, there was a lot of news that came out about the use that that company was making potentially of the QF exception and some of the benefits that accrued that may not have been allowed to be accrued," Wood said.

At that point, FERC took on not only the Enron cases, but Wood also committed to U.S. Sen. Carl Levin (D-MI) that FERC would undertake an audit program. "I think it's always useful to deliver on your promise, but more importantly let the staff indicate what their finding is..." and also find out "things that can be used to the benefit of the people who are trying to comply with this law, but may not be as adept at doing so as they need to be."

The QF compliance reviews "should continue and will continue," the FERC chairman said.

At the Commission's latest open meeting, FERC staff provided an update on the status of its oversight of the QF program to ensure compliance with the Commission's regulations and statutes. "The QF compliance review initiative has resulted in substantial progress towards ensuring that QFs fully comply with the Commission's rules, regulations and statutes and that information submitted in applications can be relied upon," Hedberg noted.

FERC's oversight initiative, which started in calendar year 2003 and is ongoing today, consists of random compliance reviews of approximately 50 QFs each year to ensure that the facilities claiming eligibility for QF status do in fact meet the relevant requirements of the Federal Power Act (FPA) related to ownership.

Along with conducting random surveys, FERC has also issued non random QF compliance reviews in instances where staff has identified circumstances requiring further review. For example, Commission staff has recently issued compliance reviews where unreported changes in upstream ownership of a QF has come to staff's attention. In another example, FERC staff issued compliance review letters upon discovering inconsistencies between ownership information presented on Internet web pages of the QF's owner, ownership information presented in Commission QF filings and information from news sources.

In calendar years 2003-2004, staff issued 50 compliance review letters each year to randomly selected QFs. Staff completed its evaluation of all 50 of the 2003 compliance reviews and 41 of the 2004 compliance reviews. No instances have been identified to date where the QF ownership was inconsistent with the relevant statutes and regulations.

However, staff review identified numerous instances where either the status of the QF project or the ownership of the QF has changed from what was last reported to FERC. In those cases, staff has ensured that the QFs' ownership status was formally clarified.

At least nine QFs selected for review have ultimately proposed to withdraw their QF self-certification during or after the compliance review. In certain instances staff discovered, among other things, that the QF project was not constructed as planned, a FERC staff member noted.

Other changes in ownership were discovered ranging from the undisclosed sale of the QF to new owners to changes in the upstream ownership due to a variety of reasons, such as corporate restructuring. As a result of such changes, several entities have refiled their QF status.

Along with compliance review letters, FERC staff said it has been exercising greater vigilance in reviewing QF self-certifications filed at the Commission. During 2003, staff received and examined over 270 QF self-certifications or self-recertification applications for compliance with Commission regulations, including the QF ownership requirement. In 2004, 414 self-certification or self-recertification applications were received and reviewed.

Concerns and discrepancies discovered regarding the self-certification process have largely been resolved through data requests or a deficiency letter sent to a QF. However, in three instances, the Commission and FERC staff have issued a ruling that a QF could no longer rely upon its notice of self-certification due to its filing of an incomplete application and a QF's failure to respond to the staff's request for additional information.

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