FERC Expands QF Eligibility to Include Certain Fuel Cells

Background

On December 17, 2020, the Federal Energy Regulatory Commission (“FERC”) issued a final rule (“Order No. 874”) amending the definition of “useful thermal energy” in its regulations under the Public Utility Regulatory Policies Act of 1978 (“PURPA”) concerning the eligibility criteria for a cogeneration facility to be a Qualifying Facility (“QF”).  The final rule addresses specifically a petition for rulemaking filed by Bloom Energy Corporation (“Bloom”).  Bloom sought revision to the eligibility criteria in order for its Bloom Box modules to qualify for QF treatment under FERC’s regulations.  
FERC’s regulations and precedent have been to require “useful thermal energy” to include thermal output that is delivered to a separate “host” industrial commercial heating or cooling purpose that is distinct from the integrated power generation process through which the thermal energy is created.  That is, FERC has construed the term “useful thermal energy” to exclude the thermal output of a combined heat and power facility when that output is supplied back into the power facility.  Under the postulated fuel cell process at issue in the proceeding, the fuel cell involves reforming natural gas into hydrogen, then converting the chemical energy in hydrogen to electric energy without combustion.  The electrochemical reaction of hydrogen produces electricity, plus heat and steam that can be used up front of the fuel cell to reform natural gas on-site to produce the hydrogen feedstock for the fuel cell.  Because the heat and steam was routed upstream in the same integrated process, fuel cells have been treated as ineligible for QF status as a cogeneration facility. 

Order No. 874

In Order No. 874, FERC treats the natural gas reformation process as a separate process from the generation of electricity from the chemical conversion of hydrogen into power.  While Bloom’s petition specifically focused on solid oxide fuel cells, FERC has expanded 18 C.F.R. § 292.202(h) to include all fuel cells that use waste heat in an integrated fuel reforming process as “useful energy” for purposes of eligibility criteria for cogeneration.  The Commission explains in the final rule that recognition of the fuel cell process and the inter-relationship between the natural gas reformation process that is upstream of the power generation process represents a natural evolution of its regulations to reflect progress and changes in electricity production technologies.  
Order No. 874 removes a substantial barrier to entry that Bloom Energy has been complaining about for years, chiefly with respect to distribution level interconnection rights.  It is expected that the final rule will open the door to more fuel cell development and, potentially, associated efforts to secure power purchase agreements under PURPA.  In addition, it signifies FERC’s openness to account for technological progress when interpreting its statutory mandates.