[Federal Register Volume 85, Number 171 (Wednesday, September 2, 2020)]
[Rules and Regulations]
[Pages 54638-54740]
[FR Doc No: 2020-15902]

Vol. 85

Wednesday,

No. 171

September 2, 2020

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Parts 292 and 375

Qualifying Facility Rates and Requirements Implementation Issues Under
the Public Utility Regulatory Policies Act of 1978; Final Rule

Federal Register / Vol. 85 , No. 171 / Wednesday, September 2, 2020 /
Rules and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 292 and 375

[Docket Nos. RM19-15-000 and AD16-16-000; Order No. 872]

Qualifying Facility Rates and Requirements Implementation Issues
Under the Public Utility Regulatory Policies Act of 1978

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: In this Order, the Federal Energy Regulatory Commission issues
its final rule approving certain revisions to its regulations
implementing sections 201 and 210 of the Public Utility Regulatory
Policies Act of 1978 (PURPA). These changes will enable the Commission
to continue to fulfill its statutory obligations under sections 201 and
210 of PURPA.

DATES: This rule is effective December 31, 2020.

FOR FURTHER INFORMATION CONTACT: Lawrence R. Greenfield (Legal
Information), Office of the General Counsel, Federal Energy Regulatory
Commission, 888 First Street NE, Washington, DC 20426,<PHONE_NUMBER>,
<EMAIL_ADDRESS>    Helen Shepherd (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>    Thomas Dautel (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Table of Contents

                                                               Paragraph
                                                                 Nos.

I. Introduction.............................................           1
II. Overview................................................           5
    A. The Commission's PURPA Regulations, as Revised by               6
     This Final Rule, Continue To Encourage the Development
     of QFs Within the Requirements of PURPA's Statutory
     Limitations............................................
        1. Avoided Cost Cap on QF Rates.....................          13
        2. Limitation on Small Power Production Facilities            17
         Located at the Same ``Site''.......................
        3. Termination of Purchase Obligation for QFs With            18
         Nondiscriminatory Access to Certain Competitive
         Markets............................................
        4. Final Rule's Updating of the PURPA Regulations...          20
    B. The Final Rule Ensures That the Commission's                   28
     Implementation of PURPA Continues To Benefit QFs,
     Purchasing Electric Utilities, and Electric Consumers..
    C. The Commission Is Not Eliminating Fixed Rate Pricing           35
     for QFs, But Rather Is Giving States the Flexibility To
     Require the Same Variable Energy Rate/Fixed Capacity
     Rate Construct That Applies Throughout the Electric
     Industry...............................................
    D. The Rate Changes Implemented by This Final Rule Put            39
     QF Rates on the Same Footing as Electric Utility Rates
     and Are Not Discriminatory.............................
    E. The PURPA Compliance Issues Raised by Some Commenters          42
     Are Outside the Scope of This Rulemaking Proceeding....
III. Background.............................................          47
    A. Passage of PURPA in 1978 and the Commission's                  47
     Promulgation of Its PURPA Regulations in 1980..........
    B. Circumstances Leading to the Commission's Re-                  51
     evaluation of the PURPA Regulations and the Issuance of
     the NOPR...............................................
    C. Summary of Changes to the PURPA Regulations                    56
     Implemented by This Final Rule.........................
IV. Discussion..............................................          67
    A. General Legal Standards Under PURPA..................          67
        1. Encouragement of QFs.............................          68
            a. Comments.....................................          68
            b. Commission Determination.....................          70
        2. Discrimination...................................          79
            a. Comments.....................................          79
            b. Commission Determination.....................          82
        3. Unlawful Delegation and the Role of Nonregulated           89
         Electric Utilities.................................
            a. Comments.....................................          89
            b. Commission Determination.....................          93
    B. QF Rates.............................................          96
        1. Overview.........................................          96
        2. Use of Competitive Market Prices To Set As-               103
         Available Avoided Cost Rates.......................
            a. NOPR Proposal................................         104
            b. Comments.....................................         107
            c. Commission Determination.....................         114
        3. LMP as a Permissible Rate for Certain As-                 124
         Available Avoided Cost Rates.......................
            a. NOPR Proposal................................         124
            b. Comments.....................................         129
                i. Comments in Opposition...................         129
                (a) Utilizing Western EIM To Establish               137
                 Avoided Costs..............................
                ii. Comments in Support.....................         138
                (a) Utilizing Western EIM To Establish               145
                 Avoided Costs..............................
                iii. Comments in Support With Requested              146
                 Modifications/Clarifications...............
            c. Commission Determination.....................         151
                i. Arguments Against the NOPR Proposal......         155
                ii. Requests for Modification or                     173
                 Clarification of the NOPR..................
                iii. Western EIM............................         177
        4. Use of Market Hub Prices as a Permissible Rate            180
         for Certain As-Available QF Energy Sales...........
            a. NOPR Proposal................................         180
            b. Comments.....................................         182
                i. Comments in Support......................         182
                ii. Comments in Opposition..................         184

                iii. Commission Determination...............         189
            c. Proposed Modifications.......................         195
                i. Comments.................................         195
                ii. Commission Determination................         200
        5. Use of Formulas Based on Natural Gas Prices To            203
         Establish a Permissible Rate for Certain As-
         Available QF Energy Sales..........................
            a. NOPR Proposal................................         203
            b. Comments.....................................         206
            c. Commission Determination.....................         211
        6. Permitting the Energy Rate Component of a                 217
         Contract To Be Fixed at the Time of the LEO Using
         Forecasted Values of the Estimated Stream of Market
         Revenues...........................................
            a. Comments.....................................         219
            b. Commission Determination.....................         227
        7. Providing for Variable Energy Rates in QF                 232
         Contracts..........................................
            a. Background...................................         232
            b. NOPR Proposal................................         234
            c. General Comments on the NOPR Proposal........         245
                i. Comments in Support of NOPR Proposal.....         245
                ii. Comments in Opposition to NOPR Proposal.         248
                iii. Commission Determination...............         253
            d. Whether the Current Approach Has Resulted in          265
             Payments to QFs in Excess of Avoided Costs.....
                i. Comments in Support of NOPR Proposal.....         265
                ii. Comments in Opposition to NOPR Proposal.         272
                iii. Commission Determination...............         283
            e. Whether the Proposed Change Would Violate the         294
             Statutory Requirement That the PURPA
             Regulations Encourage QFs......................
                i. Comments.................................         294
                i. Commission Determination.................         295
            f. Discrimination...............................         297
                i. Comments in Support of NOPR Proposal.....         297
                ii. Comments in Opposition to NOPR Proposal.         298
                iii. Commission Determination...............         302
            g. Effect of Variable Energy Rates on Financing.         304
                i. Comments in Support of the NOPR Proposal.         304
                ii. Comments in Opposition to the NOPR               312
                 Proposal...................................
                iii. Commission Determination...............         335
            h. Other Claimed Benefits of Fixed Avoided Cost          350
             Energy Rates...................................
                i. Comments.................................         350
                ii. Commission Determination................         351
            i. Potential Modifications to NOPR Proposal.....         354
                i. Comments.................................         354
                ii. Commission Determination................         357
        8. Consideration of Competitive Solicitations To             361
         Determine Avoided Costs............................
            a. NOPR Proposal................................         361
            b. Comments.....................................         368
                i. Comments in Opposition...................         368
                ii. Comments in Support.....................         375
                iii. Comments Requesting Modifications/              383
                 Clarifications.............................
                (a) Requests for Clarification and/or                383
                 Separate Proceedings.......................
                (b) Requests Regarding Proposed Criteria....         390
                (c) Other Requests..........................         400
            c. Commission Determination.....................         411
                i. Requests for Clarification and/or                 415
                 Separate Proceedings.......................
                ii. Proposed Criteria.......................         420
                iii. Other Requests.........................         439
    C. Relief from Purchase Obligation in Competitive Retail         442
     Markets................................................
        1. NOPR Proposal....................................         442
        2. Comments.........................................         444
        3. Commission Determination.........................         456
    D. Evaluation of Whether QFs Are at Separate Sites......         458
        1. Rebuttable Presumption of Separate Sites.........         458
            a. NOPR Proposal................................         458
            b. Commission Determination.....................         466
            c. Need for Reform..............................         470
                i. Comments.................................         470
                ii. Commission Determination................         472
            d. Site Definition..............................         473
                i. Comments.................................         473
                ii. Commission Determination................         476
            e. Distance Between Facilities..................         482
                i. Comments.................................         482
                ii. Commission Determination................         490
            f. Factors......................................         497

                i. Comments.................................         497
                ii. Commission Determination................         508
            g. Exemptions...................................         512
                i. Comments.................................         512
                ii. Commission Determination................         514
        2. Electrical Generating Equipment..................         515
            a. NOPR Proposal................................         515
            b. Comments.....................................         518
            c. Commission Determination.....................         521
    E. QF Certification Process.............................         525
        1. NOPR Proposal....................................         525
        2. Comments.........................................         530
        3. Commission Determination.........................         547
    F. Corresponding Changes to the FERC Form No. 556.......         570
        1. NOPR Proposal....................................         570
        2. Comments.........................................         577
        3. Commission Determination.........................         584
    G. PURPA Section 210(m) Rebuttable Presumption of                597
     Nondiscriminatory Access to Markets....................
        1. PURPA Section 210(m) Implementation..............         597
            a. NOPR Proposal................................         597
            b. Comments in Opposition.......................         602
                i. Insufficient Evidentiary Support.........         603
                ii. Administrative Burden and Complex Market         611
                 Rules......................................
            c. Comments in Support..........................         614
            d. Comments Requesting Modifications/                    617
             Clarifications.................................
            e. Commission Determination.....................         624
        2. Reliance on RFPs and Liquid Market Hubs To                648
         Terminate Purchase Obligation Under PURPA Section
         210(m).............................................
            a. NOPR Discussion..............................         648
            b. Comments.....................................         651
                i. Comments in Opposition...................         651
                ii. Comments in Support.....................         655
            c. Commission Determination.....................         659
    H. Legally Enforceable Obligation.......................         663
        1. NOPR Proposal....................................         663
        2. Comments.........................................         666
            a. Comments in Opposition.......................         666
            b. Comments in Support..........................         673
            c. Comments Requesting Modification.............         676
                i. Studies..................................         677
                ii. Commercial Viability....................         679
                iii. Financial Viability....................         681
                iv. Rejecting QF Purchases and Expanded              683
                 Curtailment Rights.........................
        3. Commission Determination.........................         684
V. Information Collection Statement.........................         697
VI. Environmental Analysis..................................         702
    A. Comments.............................................         703
    B. Commission Determination.............................         710
        1. No EIS or EA is Required.........................         712
            a. There Is No Project That Defines the Scope            712
             and Limits of QF Development...................
            b. A Categorical Exclusion Applies..............         720
                i. Changes That Are Clarifying in Nature....         721
                ii. Changes That Are Corrective in Nature...         722
                iii. Changes That Are Procedural in Nature..         727
        2. The NEPA Analysis for Promulgation of the                 728
         Original PURPA Regulations in 1980 Cannot Be
         Replicated Here....................................
        3. This Proceeding Does Not Trigger Any ESA                  737
         Consultation Requirement...........................
VII. Regulatory Flexibility Act Certification...............         743
VIII. Document Availability.................................         750
IX. Effective Dates and Congressional Notification..........         753

I. Introduction
    1. In this Order, the Federal Energy Regulatory Commission
(Commission) issues its final rule approving certain revisions to its
regulations (PURPA Regulations) \1\ implementing sections 201 and 210
of the Public Utility Regulatory Policies Act of 1978 (PURPA).\2\
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    \1\ 18 CFR part 292 (2019). In connection with the revisions to
the PURPA Regulations, the Commission also is revising its
delegation of authority to Commission staff in 18 CFR pt. 375.
    \2\ 16 U.S.C. 796(17)-(18), 824a-3.
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    2. On September 19, 2019, the Commission issued a notice of
proposed rulemaking (NOPR) proposing to modify its PURPA
Regulations.\3\ Those regulations were promulgated in 1980 and have
been modified in only specific respects since then. Approximately 130
separate comments were submitted in response to the NOPR,\4\ several of
which were submitted on behalf of multiple parties. In total, over
1,600 pages of comments were submitted, and in addition thousands of
pages of exhibits

were attached to the comments. The entities that filed comments are
listed in Appendix A. This final rule addresses comments received in
response to the NOPR.
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    \3\ Qualifying Facility Rates and Requirements Implementation
Issues Under the Public Utility Regulatory Policies Act of 1978, 168
FERC ] 61184 (2019) (NOPR).
    \4\ See Appendix for list of commenters.
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    3. We largely adopt the NOPR proposals. However, this final rule
makes certain modifications to the NOPR proposals, as further discussed
below.
    4. Given the Commission's expressed intent in the NOPR to propose
revisions to the PURPA Regulations that more closely adhere to the
goals and terms of PURPA,\5\ we considered comments regarding whether
these proposals are consistent with the requirements of PURPA. Based on
that review and further consideration, we adopt the following changes
to the proposals in the NOPR, among certain others described below:
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    \5\ NOPR, 168 FERC ] 61,184 at P 31.
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     We establish a rebuttable presumption, rather than a per
se rule, that locational marginal prices (LMPs) may reflect a
purchasing electric utility's avoided energy costs;
     We provide that any competitive solicitations used to
establish avoided capacity costs must adhere to the Commission's
Allegheny \6\ standard for evaluating competitive solicitations;
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    \6\ Allegheny Energy Supply Co., LLC, 108 FERC ] 61,082, at P 18
(2004) (Allegheny).
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     We do not adopt the proposed rule permitting states with
retail competition to allow relief from the purchase obligation but
instead clarify that the Commission's existing PURPA Regulations
already require that states, to the extent practicable, must account
for reduced loads in setting QF capacity rates;
     We clarify terminology we used in the NOPR relating to the
determination of whether small power production facilities are separate
facilities to focus not on whether they are separate facilities, but
rather to mirror the statutory language and thus focus on whether they
are at ``the same site'';
     We clarify in the regulations that protests may be made to
initial self-certifications and applications for Commission
certification, but only to self-recertifications and applications for
Commission recertification making substantive changes to the existing
certification;
     We identify additional factors that can be considered for
small power production qualifying facilities (QFs) located more than
one but less than 10 miles apart, such as evidence of shared control
systems, common permitting and land leasing, and shared step-up
transformers;
     We revise the regulations to lower the rebuttable
presumption of small power production QFs' nondiscriminatory access to
5 MW, rather than 1 MW as proposed in the NOPR, and include factors
that a small power production QF sized greater than 5 MW could rely on
to rebut the presumption that it has nondiscriminatory access to
markets defined in PURPA sections 210(m)(1); and
     We revise the proposed requirements to establish a legally
enforceable obligation (LEO) to provide that with regard to the issue
of obtaining permits, QFs need only have applied for all required
permits, instead of being required to have already obtained those
permits.

II. Overview

    5. Before discussing each of the individual changes to the PURPA
Regulations adopted herein, this final rule first addresses certain
overall themes raised in the comments on the NOPR, both those
supporting the NOPR and those opposing.

A. The Commission's PURPA Regulations, as Revised by This Final Rule,
Continue To Encourage the Development of QFs Within the Requirements of
PURPA's Statutory Limitations

    6. PURPA section 210(a) requires that the Commission prescribe
rules that it determines necessary to encourage the development of
qualifying small power production facilities and cogeneration
facilities.
    7. The bulk of the criticism of the Commission's proposed rule
changes is based on a widespread misunderstanding, as reflected in the
comments on the NOPR, that PURPA and the PURPA Regulations were
intended to encourage QF development without any limit, and that the
rule changes proposed in the NOPR improperly reduce or even eliminate
encouragement in contravention of the statute. Those commenters
opposing the NOPR proposals argue that the Commission has determined,
in contravention of the statute, that there no longer is a need to
encourage QFs, or eliminated any provision that provides such
encouragement.\7\ Many of the commenters supporting the changes
proposed in the NOPR applaud the Commission for eliminating what they
argue amounts to an improper subsidy of QFs.\8\
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    \7\ See, e.g., Biological Diversity Comments at 14; ConEd
Development Comments at 2; Harvard Electricity Law Comments at 4;
New England Small Hydro Comments at 4; NIPPC, CREIA, REC, and OSEIA
Comments at 3, 21, 28; Public Interest Organizations Comments at 9,
39; Solar Energy Industries Comments at 4; Southeast Public Interest
Organizations Comments at 17.
    \8\ See Competitive Enterprise Institute Comments at 3;
Progressive Policy Institute Comments at 1-2; SBE Council Comments
at 2; Mr. Moore Comments at 1-2.
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    8. Neither side is correct about either what PURPA and the current
PURPA Regulations require, or the basis for the changes to the PURPA
Regulations proposed in the NOPR.
    9. As an initial matter, PURPA was not a directive to the
Commission to encourage QF development without limitation. Indeed, as
explained below, Congress included several limitations in PURPA. By
reading the statute as a whole, and the PURPA Regulations as a whole as
revised by this final rule, it is clear that the PURPA Regulations
continue to encourage the development of QFs consistent with PURPA.\9\
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    \9\ 16 U.S.C. 824a-3(a).
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    10. We also emphasize that we do not by this final rule change
other elements to the Commission's existing PURPA Regulations that
continue to encourage QF development. These elements include, but are
not limited to, rules that: (1) Require electric utilities to provide
backup electric energy to QFs on a non-discriminatory basis and at just
and reasonable rates; (2) require electric utilities to interconnect
with QFs; and (3) provide exemptions to QFs from many provisions of the
Federal Power Act (FPA) and state laws governing utility rates and
financial organization.\10\ These provisions encourage the development
of QFs by relieving them of certain regulatory burdens otherwise
imposed on sellers of power and ensure they can operate their
facilities. Moreover, we stress that, besides the changes to the PURPA
Regulations regarding applications to terminate a purchasing electric
utility's mandatory purchase obligation under PURPA section 210(m) (see
infra section IV.G), nothing in this final rule eliminates QFs' rights
to sell electric energy or capacity as provided under PURPA.
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    \10\ See 18 CFR 292.303(c), 292.305, 292.601-02.
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    11. As discussed in greater detail below, while PURPA provided for
the encouragement of cogeneration and small power production, PURPA
also provided that the Commission could not prescribe a rule that
provided for ``a rate which exceeds the incremental cost to the
electric utility of alternative electric energy.'' \11\ Furthermore,
PURPA requires the Commission to ``insure'' that the resulting rates
``shall be just and reasonable to the electric consumers of

the electric utility and in the public interest[.]'' \12\ Likewise,
while PURPA provided for the encouragement of small power production,
PURPA also limited the facilities which could be encouraged to those
facilities with no more than 80 MW power production capacity at the
same site.\13\
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    \11\ Compare id. with 16 U.S.C. 824a-3(b).
    \12\ 16 U.S.C. 824a-3(b)(1).
    \13\ Compare 16 U.S.C. 824a-3(a) with 16 U.S.C. 796(17)(A)(ii).
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    12. Nothing in the text of PURPA requires the establishment of a
subsidy for QFs. This point was confirmed in the Conference Report
accompanying PURPA's passage: ``The provisions of this section are not
intended to require the rate payers of a utility to subsidize
cogenerators or small power producers.'' \14\ Congress thus structured
PURPA both specifically to give effect to its intent that QFs not be
subsidized and also to impose other mandatory limits on the
Commission's ability to encourage QFs that are relevant to this final
rule, as briefly summarized below.
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    \14\ H.R. Rep. No. 95-1750, at 98 (1978) (Conf. Rep.).
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1. Avoided Cost Cap on QF Rates
    13. PURPA section 210(b) sets out the standards governing the rates
purchasing utilities must pay to QFs.\15\ Sections 210(b)(1) and (b)(2)
provide that QF rates ``shall be just and reasonable to the electric
consumers of the electric utility and in the public interest'' and
``shall not discriminate against qualifying cogenerators or qualifying
small power producers.'' \16\ After establishing these standards,
Congress then placed, in the final sentence of section 210(b), a cap on
the level of the rates utilities could be required to pay QFs: ``No
such rule prescribed under subsection (a) shall provide for a rate
which exceeds the incremental cost to the electric utility of
alternative electric energy.'' \17\ As the Conference Report for PURPA
explains:
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    \15\ 16 U.S.C. 824a-3(b).
    \16\ Id.
    \17\ Id. (emphasis added). The statute defines an electric
utility's ``incremental costs'' as ``the cost to the electric
utility of the electric energy which, but for the purchase from such
cogenerator or small power producer, such utility would generate or
purchase from another source.'' 16 U.S.C. 824a-3(d); see also 18 CFR
292.101(b)(6) (implementing same and defining such ``incremental
costs'' as ``avoided costs'').

    [T]he utility would not be required to purchase electric energy
from a qualifying cogeneration or small power production facility at
a rate which exceeds the lower of the rate described above, namely a
rate which is just and reasonable to consumers of the utility, in
the public interest, and nondiscriminatory, or the incremental cost
of alternate electric energy. This limitation on the rates which may
be required in purchasing from a cogenerator or small power producer
is meant to act as an upper limit on the price at which utilities
can be required under this section to purchase electric energy.\18\
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    \18\ Conf. Rep. at 98 (emphasis added).

    14. This upper limit on QF rates established in section 210(b),
equal to a purchasing utility's incremental costs, commonly called
``avoided costs,'' implements Congress's intent that QFs not be
subsidized. It ensures that the purchasing utility cannot be required
to pay more for power purchased from a QF than it would otherwise pay
to generate the power itself or to purchase power from a third party.
    15. Consistent with the statutory standard, when the Commission
issued its PURPA Regulations in 1980, it set the rates for QFs at, but
not above, the statutorily defined incremental or avoided cost of
alternative electric energy.\19\ The PURPA Regulations applied this
limitation generally to QF rates, without distinguishing between as-
available energy \20\ and the fixed energy and capacity rate option
applicable to long-term contracts or other legally enforceable
obligations.\21\ In either case, though, the PURPA Regulations
essentially capped the rate paid to QFs at the purchasing electric
utility's avoided costs.\22\
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    \19\ Compare 16 U.S.C. 824a-3(b) & (d) with 18 CFR
292.101(b)(6), 292.304(a)(2) & (b)(2).
    \20\ 18 CFR 292.304(d)(1).
    \21\ 18 CFR 292.304(d)(2) (providing QFs the right to elect
avoided costs calculated at the time of delivery or avoided costs
calculated at the time the obligation is incurred). In this final
rule, we refer to the QF's option for avoided costs calculated at
the time the obligation is incurred as the fixed energy and capacity
rate option. 18 CFR 292.304(d)(2).
    \22\ The regulations, however, also allowed both for negotiated
rates that differed from the rates that would otherwise be
applicable, see 18 CFR 292.301(b), and for rates to be set based on
estimates of avoided costs even though such rates might differ from
avoided costs at the time of delivery. See 18 CFR 292.304(b)(5).
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    16. Order No. 69, in which the Commission promulgated the PURPA
Regulations,\23\ makes clear that the Commission also recognized that
allowing the option for a fixed energy and capacity rate option for
long-term contracts or other legally enforceable obligations could
result in a rate that, at times, exceeded incremental or avoided cost
of alternative electric energy. The Commission acknowledged in this
regard that some commenters had asserted that, ``if the avoided cost of
energy at the time it is supplied is less than the price provided in
the contract or obligation, the purchasing utility would be required to
pay a rate for purchases that would subsidize the qualifying facility
at the expense of the utility's other ratepayers.'' \24\ In response,
the Commission stated that it ``recognize[d] this possibility, but is
cognizant that in other cases, the required rate will turn out to be
lower than the avoided cost at the time of purchase.'' \25\ The
Commission concluded that any over- and under-recoveries compared to
avoided cost ``will balance out'' and, based on this conclusion, found
that the fixed energy and capacity rate option applicable to long-term
contracts or other legally enforceable obligations did not violate the
statutory cap.\26\ But, to be clear, the option the Commission
implemented in 1980 was not based on any determination by the
Commission that the rates in QF contracts may routinely exceed avoided
costs in the ordinary course of events in order to encourage QFs.
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    \23\ Small Power Production and Cogeneration Facilities;
Regulations Implementing Section 210 of the Public Utility
Regulatory Policies Act of 1978, Order No. 69, FERC Stats. & Regs. ]
30,128, at 30,880 (cross-referenced 10 FERC ] 61,150), order on
reh'g, Order No. 69-A, FERC Stats. & Regs. ] 30,160 (1980) (cross-
referenced at 11 FERC ] 61,166), aff'd in part & vacated in part sub
nom. Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 (D.C. Cir.
1982), rev'd in part sub nom. Am. Paper Inst., Inc. v. Am. Elec.
Power Serv. Corp., 461 U.S. 402 (1983) (API).
    \24\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880.
    \25\ Id.
    \26\ Id.
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2. Limitation on Small Power Production Facilities Located at the Same
``Site''
    17. Another way in which Congress set boundaries on the
Commission's ability to encourage development of QFs was to define
small power production facilities, one of the categories of generators
that under the statute is to be encouraged. The definition of small
power production facilities applies to almost all renewable resources
that wish to be QFs, requiring that those facilities have ``a power
production capacity which, together with any other facilities located
at the same site (as determined by the Commission), is not greater than
80 megawatts.'' \27\ In order to comply with this statutory requirement
that the capacity of all small power production facilities ``located at
the same site'' cannot exceed 80 MW, the Commission is required to
define what constitutes a ``site.'' The Commission determined in 1980
that, essentially, those facilities that are owned by the same or
affiliated entities and using the same energy resource should be deemed
to be at the same site ``if they are located within one mile of the
facility for which

qualification is sought.'' \28\ This definition, known as the ``one-
mile rule,'' interpreted Congress's limitation of 80 MW located at the
same site to apply to just those affiliated small power production
qualifying facilities located within one mile of each other.
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    \27\ 16 U.S.C. 796(17)(A)(ii).
    \28\ 18 CFR 292.204(a)(ii).
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3. Termination of Purchase Obligation for QFs With Nondiscriminatory
Access to Certain Competitive Markets
    18. Finally, Congress amended PURPA in 2005 to further limit the
statute. Congress amended PURPA section 210 to add section 210(m),
which provides for termination of the requirement that an electric
utility enter into a new obligation or contract to purchase from a QF
if the QF has nondiscriminatory access to certain defined types of
markets.\29\ This amendment reflected Congress's judgment that non-
discriminatory access to these markets provided adequate encouragement
for those QFs.
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    \29\ See 16 U.S.C. 824a-3(m).
---------------------------------------------------------------------------

    19. Congress directed the Commission to implement this requirement,
which it did in Order No. 688. In that order, the Commission identified
certain markets in which utilities would no longer be subject to the
PURPA mandatory purchase obligation under PURPA section 210(m) because
certain QFs have nondiscriminatory access to such markets.\30\ Although
not required in the new PURPA section 210(m), the Commission
established a rebuttable presumption that a QF with a net power
production capacity at or below 20 MW does not have nondiscriminatory
access to such markets.\31\ In creating this rebuttable presumption,
the Commission found persuasive arguments that some QFs may not have
nondiscriminatory access to markets in light of their small size.
---------------------------------------------------------------------------

    \30\ New PURPA Section 210(m) Regulations Applicable to Small
Power Production and Cogeneration Facilities, Order No. 688, 117
FERC ] 61,078, at PP 9-12 (2006), order on reh'g, Order No. 688-A,
119 FERC ] 61,305 (2007), aff'd sub nom. Am. Forest & Paper Ass'n v.
FERC, 550 F.3d 1179 (D.C. Cir. 2008).
    \31\ 18 CFR 292.309(d)(1).
---------------------------------------------------------------------------

4. Final Rule's Updating of the PURPA Regulations
    20. In this final rule, we are amending the PURPA Regulations,
principally with regard to the three statutory provisions described
above, i.e.: (1) The avoided cost cap on QF rates; (2) the 80 MW
limitation applicable to the combined capacity of affiliated small
power production QFs located at the same site; and (3) the termination
of the mandatory purchase obligation for QFs with nondiscriminatory
access to certain markets. Contrary to commenters' assertions that the
Commission has determined that it no longer is necessary to encourage
QFs and therefore that the Commission is making these changes in an
impermissible attempt to undo PURPA,\32\ we are modifying the PURPA
Regulations based on demonstrated changes in circumstances since the
current PURPA Regulations were first adopted to ensure that the
regulations continue to comply with PURPA's statutory requirements
established by Congress.
---------------------------------------------------------------------------

    \32\ Biomass Power Comments at 2; Biological Diversity at 12;
EPSA Comments at 6 (``[T]he NOPR changes `would effectively gut'
PURPA.''); NIPPC, CREA, REC, and OSEIA Comments at 28-29; Public
Interest Groups Comments at 25 (``[T]he changes proposed in the NOPR
will gut PURPA-mandated measures to encourage QF development.'');
Solar Energy Industries Comments at 8-14.
---------------------------------------------------------------------------

    21. For example, as explained in more detail below, the
Commission's expectation expressed in 1980 that over- and under-
recovery in rates compared to avoided cost ``will balance out'' \33\
was critical to the Commission's determination in 1980 that the fixed
energy and capacity rate option applicable to long-term contracts or
other legally enforceable obligations did not violate the statutory
avoided cost cap on QF rates. However, record evidence now demonstrates
that this expectation no longer is necessarily accurate. The
Commission's change to the PURPA Regulations adopted in this final
rule, giving states the ability to require variable energy rates in
long-term contracts or other legally enforceable obligations, allows
the states to better ensure that QF rates are at, but do not exceed,
the statutory maximum rate established by Congress.
---------------------------------------------------------------------------

    \33\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880.
---------------------------------------------------------------------------

    22. This change is important for purposes of compliance with
PURPA's statutory mandates. As explained below, setting QF rates at
avoided costs allows the Commission to comply with the statutory goals
of encouraging QFs and providing for nondiscriminatory rates while at
the same time ensuring that such rates are just and reasonable to
consumers and do not subsidize QFs. The record shows that on some
occasions long-term fixed QF rates were well above actual avoided
costs, thereby causing consumers to subsidize those QFs in
contravention of PURPA and the Commission's expectations.
    23. Similarly, the changes implemented by the Commission in this
final rule to the one-mile rule are intended to better ensure
compliance with the statutory requirement that small power production
facilities located at the same site cannot exceed 80 MW. And, 15 years
after Congress added PURPA section 210(m), because the Commission can
now make the determination, described below, that smaller QFs have non-
discriminatory access to RTO/ISO markets, an update to the rebuttable
presumption regarding non-discriminatory access to those markets is
appropriate to better ensure compliance with the statute.
    24. Some commenters incorrectly assert that the final rule
impermissibly revises the PURPA Regulations in a way that no longer
encourages QFs. PURPA section 210(a) provides not simply that the
Commission is to prescribe rules that encourage QFs, but rather that
the Commission is to ``prescribe, and from time to time thereafter
revise, such rules as it determines necessary to encourage'' QFs.
Carrying out Congress's directive to ``from time to time thereafter
revise'' the rules is at the heart of what the Commission is doing in
this final rule. Consistent with this directive, the Commission is
considering revisions to ``such rules as it determines necessary to''
encourage QFs in light of current industry circumstances.\34\
---------------------------------------------------------------------------

    \34\ We view the revisions to our rules implementing PURPA that
we adopt in this final rule as consistent with Congress's explicit
directive that the Commission ``from time to time thereafter [to]
revise'' the rules. We do not view Congress as intending that the
Commission only ever consider the circumstances that existed in the
late 1970s and not current circumstances, 40 years later.
---------------------------------------------------------------------------

    25. The changes adopted in this final rule result from the need for
the PURPA Regulations to continue to comply with the directives
Congress established when it enacted PURPA in 1978, and then again when
Congress amended PURPA in 2005. These changes are not based on any
determination by the Commission that the encouragement directed by
PURPA is no longer needed. The question of whether QFs should continue
to be encouraged or not remains a question for Congress.
    26. Moreover, PURPA also requires the Commission to insure that the
rates for QF purchases be ``just and reasonable to the electric
consumers of the electric utility and in the public interest[.]'' \35\
The obligation to encourage is also limited by the requirement that,
``No such rule prescribed under subsection (a) [the encouragement
provision] shall provide for a rate which exceeds the incremental cost
to the electric utility of alternative electric energy.'' \36\
---------------------------------------------------------------------------

    \35\ 16 U.S.C. 824a-3(b).
    \36\ 16 U.S.C. 824a-3(b).
---------------------------------------------------------------------------

    27. We recognize that some of the comments opposing the NOPR may

have been influenced by the Commission's recitation in the Background
section of the NOPR of the broad changes in circumstances since the
PURPA Regulations were first promulgated 40 years ago, including the
discovery of significant new natural gas reserves, the evolution of the
electric industry to include a significant independent power presence,
the establishment of organized competitive markets, and the advances in
renewable energy technologies.\37\ We clarify that the Commission
referenced this general background information in the NOPR primarily to
explain why it decided to re-evaluate its PURPA Regulations at all and
as Congress said we should, and not necessarily to support the
individual proposals included in the NOPR. The facts we rely on to
propose specific changes, which include some, but not all, of those
background facts, were cited in the specific sections of the NOPR
describing those proposed changes. And the facts on which we rely to
promulgate the specific changes in this final rule again are cited in
the specific sections describing those changes.
---------------------------------------------------------------------------

    \37\ NOPR, 168 FERC ] 61,184, at PP 15-27.
---------------------------------------------------------------------------

B. The Final Rule Ensures That the Commission's Implementation of PURPA
Continues To Benefit QFs, Purchasing Electric Utilities, and Electric
Consumers

    28. The final rule implements additional changes consistent with
PURPA that also are designed to benefit QFs, purchasing utilities, and
electric consumers. The changes to the PURPA Regulations adopted in
this final rule will enable the Commission to continue satisfying the
statutory requirement that the Commission promulgate rules to encourage
QF development consistent with PURPA's requirements. Claims to the
contrary by commenters to the effect that the ``proposals are uniformly
biased against QF development'' \38\ have no merit.
---------------------------------------------------------------------------

    \38\ Harvard Electricity Law Comments at 1.
---------------------------------------------------------------------------

    29. As an initial matter, we are not changing the determination in
the PURPA Regulations that QF rates must equal a purchasing electric
utility's full avoided costs.\39\ As the Supreme Court noted in API,
the full avoided cost rate requirement represents the maximum rate
permitted under PURPA, and thereby provides important encouragement to
QFs.\40\ The Court explained that the full avoided cost rate
requirement encourages QF development because QFs ``retain an incentive
to produce energy under the full-avoided-cost rule so long as their
marginal costs did not exceed the full avoided cost of the purchasing
utility.'' \41\
---------------------------------------------------------------------------

    \39\ See 18 CFR 292.304(b)(2); NOPR, 168 FERC ] 61,184 at P 34.
    \40\ API, 461 U.S. at 413. PURPA does not use the terms
``avoided cost'' or ``full avoided cost''; rather, PURPA uses the
term ``incremental cost of alternative electric energy.'' The
Commission's regulations and subsequent decisions have used the term
``avoided cost'' to explain the Commission's application of the
``incremental cost'' standard. The API decision and early Commission
precedents referred to ``full'' avoided costs to distinguish between
the Commission's decision to set QF rates at avoided costs and
proposals from certain parties that rates be set at something less
than avoided costs. We continue to use the terms avoided costs and
full avoided costs as being consistent with the statutory term
incremental cost.
    \41\ Id. at 416.
---------------------------------------------------------------------------

    30. In addition, several of the changes to the current PURPA
Regulations implemented by this final rule are based expressly on a
finding that they are beneficial to QFs as well as to purchasing
utilities and ratepayers. For example, the provisions of the final rule
allowing for energy rates to be based on transparent, competitive
market prices--in appropriate circumstances--are supported by comments
submitted at the Technical Conference, where representatives of QFs and
utilities both expressed a preference for transparent prices for
QFs.\42\ This conclusion is supported by the Fitch Report, cited by
NIPPC, CREA, REC, and OSEIA, explaining how Fitch evaluates the
financial strength of renewable energy projects. In this report, Fitch
states that it gives a ``stronger'' evaluation to projects with power
sales contract prices that are ``indexed using simple, broad-based
publicly available indexation formulas.'' \43\
---------------------------------------------------------------------------

    \42\ See American Forest & Paper Association, Comments, Docket
No. AD16-16-000, at 8 (filed June 8, 2016) (``To the extent
possible, these determinations [of avoided costs] should not be made
in a `black box', but rather, as part of an open and transparent
method and process.''); Edison Electric Institute (EEI) Comments,
Docket No. AD16-16-000, at 3 (filed June 30, 2016) (``Where
transparent competitive markets with day ahead prices exist, there
is no reason to adhere to second-best avoided cost pricing
mechanisms.'').
    \43\ NIPPC, CREA, REC, and OSEIA Comments at 37-38 (citing
FitchRatings, Global Infrastructure & Project Finance, Renewable
Energy Project Rating Criteria,'' at 3 (Feb. 26, 2019), https://www.fitchratings.com/site/re/10061770).
---------------------------------------------------------------------------

    31. Setting prices that are indexed using simple, broad-based
publicly available formulas is precisely what the Commission's changes
permitting reference to competitive market prices will achieve. Such
prices reflect avoided costs in a simpler, more transparent, and
predictable manner than through an administrative process, which should
encourage the development of QFs while at the same time providing
benefits to utilities and consumers. Using transparent market prices to
establish as-available avoided cost rates also allows QFs, utilities,
and the states to avoid the expenditure of the time and resources
involved in litigating administratively-set avoided cost rates, and
allows those rates to automatically adjust--up and down--as avoided
costs change.
    32. Similarly, the provisions regarding competitive solicitations
adopted herein were added at the suggestion of both NARUC and certain
developers of renewable resource QFs, such as Solar Energy Industries.
These competitive solicitations can provide a fair and transparent
method for QFs to establish full avoided cost rates. As Solar Energy
Industries stated in its comments, ``[c]ompetitive solicitations, with
adequate safeguards, can deliver substantial value.'' \44\ Competitive
solicitations may be an especially appropriate tool in those regions
outside of Regional Transmission Organizations (RTOs) and Independent
System Operators (ISOs) where there are no organized competitive
markets where QFs can make sales.
---------------------------------------------------------------------------

    \44\ Solar Energy Industries Comments at 38. Solar Energy
Industries agreed that the competitive solicitation provisions
proposed in the NOPR ``set forth many important safeguards,'' but
recommended that additional safeguards be implemented. Those
comments are discussed below, and we have specifically adopted Solar
Energy Industries request made earlier in this proceeding that all
competitive solicitations must be conducted pursuant to the
Commission's Allegheny standard. See Solar Energy Industries
Supplemental Comments, Docket No. AD16-16-000, at 32-34 (filed Aug.
28, 2019).
---------------------------------------------------------------------------

    33. Likewise, the LEO provisions adopted herein provide important
benefits to QFs. Under the current PURPA Regulations, a LEO gives QFs
the enforceable right to require utilities to purchase the QFs' power
at avoided cost rates.\45\ This is an important right that contributes
to a QF owner's ability to obtain financing, especially the development
financing needed to engage in the activities necessary to subsequently
obtain construction and permanent financing. However, the PURPA
Regulations are silent as to when and how a LEO is established, which
can leave QFs uncertain as to when this key right has been established.
By providing more specific guidance as to when a LEO is established,
the new rule creates greater certainty for QFs (and utilities) on this
important element of QF development.
---------------------------------------------------------------------------

    \45\ See 18 CFR 292.304(d)(2). Although the final rule gives
states the flexibility to require that energy rates vary over the
term of the LEO and be calculated at the time of delivery, the final
rule retains the QF's option to choose a fixed capacity rate
calculated at the time the LEO is established.

---------------------------------------------------------------------------

    34. Some commenters assert that the guidance provided by the
Commission may make it more difficult to obtain a LEO.\46\ Their
specific concerns are discussed in detail below. But what those
commenters ignore is that, by establishing objective and reasonable
state-determined criteria limited to demonstrating commercial viability
and financial commitment, we also are protecting QFs against onerous
requirements for a LEO that hinder financing, such as a requirement for
a utility's execution of an interconnection agreement \47\ or power
purchase agreement,\48\ or requiring that QFs file a formal complaint
with the state commission,\49\ or limiting LEOs to only those QFs
capable of supplying firm power,\50\ or requiring the QF to be able to
deliver power in 90 days.\51\ By making clear in the PURPA Regulations
that such conditions are not permitted, but describing which
prerequisites a state may impose to establish a LEO to determine which
QFs are commercially viable and financially committed, we are providing
objective criteria to clarify when a LEO commences, which we find will
encourage the development of QFs.
---------------------------------------------------------------------------

    \46\ See NIPPC, CREA, REC, and OSEIA Comments at 81 (``[A]ny
requirement to demonstrate financing to create a LEO violates the
fundamental rule that the utility's actions should not be allowed to
deny the QF a LEO because the utility could prevent creation of a
LEO simply by refusing to sign the PPA needed to secure such
financing.''); Public Interest Organizations Comments at 98 (``[T]he
Commission's proposal to require QFs to demonstrate commercial
viability in order to obtain a LEO will prevent many QFs from ever
attaining commercial viability at all. Creating a new administrative
obstacle to QF financing in this way flies in the face of PURPA's
mandate to reduce barriers to QF development.''); Solar Energy
Industries Comments at 41 (``Establishing higher barriers to a
determination of `commercial viability' will only lead QF developers
to invest additional development capital and will simply weed out
those smaller companies that choose not to, or are unable to, invest
heavily in early-stage development activity before an avoided cost
rate is known. It is unjust and unreasonable to cause QFs to invest
tens of millions of dollars in site control, permit acquisition,
interconnection, and other development costs simply to secure the
opportunity to negotiate with the purchasing utility for a
contractual commitment.''); Southeast Public Interest Organizations
Comments at 41 (describing proposal as ``discourag[ing] QF
development since achieving some of the indicia suggested by the
Commission often circularly requires that QF developers have already
obtained financing'').
    \47\ See, e.g., FLS Energy, Inc., 157 FERC ] 61,211, at P 26
(2016) (FLS) (stating that requiring signed interconnection
agreement as prerequisite to LEO is inconsistent with PURPA
Regulations).
    \48\ See, e.g., Murphy Flat Power, LLC, 141 FERC ] 61,145, at P
24 (2012) (finding that requiring a signed and executed contract
with an electric utility as a prerequisite to a LEO is inconsistent
with PURPA Regulations.
    \49\ See, e.g., Grouse Creek Wind Park, LLC, 142 FERC ] 61,187,
at P 40 (2013).
    \50\ Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d 380, 400 (5th
Cir. 2014).
    \51\ Power Resource Group, Inc. v. Public Utility Comm'n of
Texas, 422 F.3d 231, (5th Cir. 2005).
---------------------------------------------------------------------------

C. The Commission Is Not Eliminating Fixed Rate Pricing for QFs, But
Rather Is Giving States the Flexibility To Require the Same Variable
Energy Rate/Fixed Capacity Rate Construct That Applies Throughout the
Electric Industry

    35. Another misconception reflected in several comments is that the
Commission proposed in the NOPR to eliminate fixed rate pricing for
QFs. Commenters argue that QFs cannot obtain financing without fixed
rates, and from this they claim that the proposal to give states the
flexibility to require variable energy rates would have a devastating
effect on future QF development.\52\
---------------------------------------------------------------------------

    \52\ See, e.g., Public Interest Organizations Comments at 35-38
(allowing variable rates will further discourage wind and solar QF
development); Allco Comments at 9-11 (without the ability to obtain
a fixed long-term forecasted rate, QF solar energy development will
not exist).
---------------------------------------------------------------------------

    36. This assertion that the Commission has eliminated fixed rates
for QFs is not correct. The NOPR proposal (which we adopt in this final
rule) gave states the flexibility, should they choose to take advantage
of this flexibility, to require that the avoided cost energy rates in
QF contracts must vary depending on avoided costs at the time of
delivery (rather than being fixed at the time a LEO is incurred). The
NOPR thus made clear: ``Under the proposed revisions to Sec.
292.304(d), a QF would continue to be entitled to a contract with
avoided capacity costs calculated and fixed at the time the LEO is
incurred.'' \53\ We are retaining in this final rule the option granted
to QFs to fix their capacity rates for the term of their contracts at
the time the LEO is incurred.
---------------------------------------------------------------------------

    \53\ See NOPR, 168 FERC ] 61,184 at P 66.
---------------------------------------------------------------------------

    37. The fact that we are giving states the flexibility to either
require QF contracts to have fixed capacity and variable energy rates
or to continue as before to provide QFs the option of fixed capacity
and fixed energy rates--has important consequences for the ability of
QF owners to finance their projects. The energy rates of purchasing
electric utilities, upon which avoided cost energy rates would be
based, typically reflect mainly the variable costs of producing energy,
such as the cost of fuel and variable operations and maintenance (O&M),
especially for a fossil fuel generator. Meanwhile, a purchasing
electric utility's capacity rates, upon which avoided cost capacity
rates would be based, tend to reflect fixed costs, including the
financing costs of facilities (i.e., debt repayment and a return on the
equity invested in the facility).\54\ Consequently, a fixed capacity
rate in a QF contract based on a purchasing electric utility's capacity
rates should typically be sufficient to recover the QF's financing
costs and should therefore continue to facilitate QF financing. We
recognize that a QF's financing costs may be different from the
purchasing electric utility's avoided costs and, therefore, the full
avoided cost rate that the QF receives may not support the financing of
a QF. But this is a consequence of how Congress structured PURPA, which
sets rates based on the avoided costs of the purchasing utility rather
than on the actual costs the QF incurs producing the power being
sold.\55\
---------------------------------------------------------------------------

    \54\ See Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,865.
    \55\ See API, 461 U.S. at 414, 415 (stating that ``Congress did
not intend to impose traditional ratemaking concepts on sales by
qualifying facilities to utilities'' and that QFs ``would retain an
incentive to produce energy under the full-avoided-cost rule so long
as their marginal costs did not exceed the full avoided cost of the
purchasing utility'').
---------------------------------------------------------------------------

    38. Another important aspect of the variable energy rate/fixed
capacity rate construct is that this is the standard rate structure
used throughout the electric industry for power sales agreements that
include the sale of capacity.\56\ That states will be allowed to
require QF contracts to be structured similarly to the contract
structure used in the rest of the electric industry has important
implications. In particular, this provides flexibility to states to
ensure that the avoided cost rate will be closer to the actual rate the
purchasing electric utility and its customers would have paid if the
purchasing electric utility had generated this electric energy itself
or purchased such electric energy from another source. Furthermore, the
record evidence demonstrating significant amounts of non-QF generation
facilities in operation today shows that the owners of such facilities
are able to obtain financing based on this same variable energy rate/
fixed capacity rate

construct.\57\ This represents important evidence that QFs likewise
should be able to obtain financing under the same rate construct,
especially considering that QFs benefit from the statutory right to
sell pursuant to a mandatory purchase obligation while non-QFs do not
have that right.\58\
---------------------------------------------------------------------------

    \56\ Cf. Town of Norwood v. FERC, 962 F.2d 20, 21, 24 (D.C. Cir.
1992) (``The rate design before us, like most wholesale electric
rates, consists of separate monthly demand and energy charges. The
demand component is calculated to recover NEPCO's fixed (or
capacity-related) costs, such as construction and debt service,
which it incurs regardless of how much electricity it produces. The
energy charge is designed to recover the company's variable costs,
which it incurs only in the course of actually producing
electricity; fuel is a prime example. . . . With the cost outlook
constantly in flux due to changing economic conditions, some degree
of volatility is necessary if prices are to signal the market
accurately--as accurately, that is, as current prices can anticipate
future costs. Price volatility alone, therefore, cannot provide a
ground for overturning a marginal cost rate structure.'').
    \57\ EIA, Form EIA-860 detailed data with previous form data
Early Release (EIA-860A/860B) (June 2, 2020), https://www.eia.gov/electricity/data/eia860/ shows 77.6 GW of operational QF nameplate
capacity and 450.453.5 GW of operational non-QF independent power
producer nameplate capacity as of end 2019.
    \58\ Some commenters raise concerns with the Commission's
reliance on the financing of non-QF generation facilities to support
the conclusion that QFs could obtain financing with variable energy
rate contracts, pointing out that the Commission has not identified
any QFs that have obtained financing under this structure. The
reason for this, however, is that QFs typically do not employ this
structure because currently they are entitled to a fixed energy
rate/fixed capacity rate construct. Accordingly, evidence regarding
the financing of similar types of independently owned generation
projects by non-QFs using such a construct constitutes the best and
most relevant evidence of how it would affect QF financing.
---------------------------------------------------------------------------

D. The Rate Changes Implemented by This Final Rule Put QF Rates on the
Same Footing as Electric Utility Rates and Are Not Discriminatory

    39. The fact that variable energy rate/fixed capacity rate
contracts are standard in the electric industry also explains why,
contrary to assertions made by a number of commenters, allowing states
to require such contracts for QFs is not discriminatory.\59\ QFs
selling at wholesale pursuant to such contracts will be selling under
the same rate structure employed in the power sales contracts typically
used elsewhere in the electric industry, including by public utilities
when they make sales at wholesale to each other, and QFs will be doing
so at full avoided cost rates--the highest rates permitted under PURPA.
---------------------------------------------------------------------------

    \59\ See, e.g., EPSA Comments at 9 (``The NOPR avoided rate
proposal must therefore be rejected because it puts QFs at a
disadvantage to utility-owned generation, in violation of the non-
discrimination mandate under PURPA.''); Public Interest
Organizations Comments at 51 (``[L]imiting QFs to contracts
providing no price certainty for energy values, while non-QF
generation regularly obtains fixed price contracts and utility-owned
generation receives guaranteed cost recovery from captive
ratepayers, constitutes discrimination.'').
---------------------------------------------------------------------------

    40. It is true that electric utilities with franchised service
territories that make sales at retail are often effectively guaranteed
the recovery of their energy costs in their retail rates by their state
regulatory authorities--provided that such costs are prudently
incurred. But the electric utilities' retail rates are cost-based, such
that their rates are set based on costs they actually incur to produce
electricity for their customers. Importantly, moreover, the incremental
energy costs that an electric utility will recover from its retail
customers at an incremental level would be the same energy costs that
are used in determining the electric utilities' avoided costs that
will, in turn, set the as-available avoided cost rates to be charged by
QFs.
    41. Thus, QF variable energy rate/fixed capacity rate contracts not
only would be structured similarly to the standard wholesale power
sales agreements used in the electric industry, but application of
traditional cost-based ratemaking principles to sales by QFs is exactly
what would be required in order to provide QFs with the same guaranteed
cost recovery that applies to electric utilities. Guaranteeing QFs cost
recovery is fundamentally inconsistent with PURPA, which sets the rate
the QF is paid at the purchasing electric utility's avoided cost, not
at the QF's cost. Such a rate structure is not discriminatory.

E. The PURPA Compliance Issues Raised by Some Commenters Are Outside
the Scope of This Rulemaking Proceeding

    42. Finally, several commenters assert that certain states located
outside of RTO/ISO markets are dominated by large integrated public
utilities whose state commissions do not implement PURPA correctly.\60\
They argue that, as a consequence, there is little development of
independent generation--QFs or otherwise--in those states. They assert
that the proposals in the NOPR might be appropriate in states with RTO/
ISO markets that are subject to significant competition, but would only
make matters worse outside of the RTO/ISO markets.
---------------------------------------------------------------------------

    \60\ American Dams Comments at 5-6; Biological Diversity
Comments at 13; CA Cogeneration Comments at 6-7; Con Edison Comments
at 2; ELCON Comments at 7-8; EPSA Comments at 1-2; IdaHydro Comments
at 5; NIPPC, CREA, REC, and OSEIA Comments at 14-15; Solar Energy
Industries Comments at 15-20, 24; SC Solar Alliance Comments at 3-4;
Two Dot Wind Comments at 14-19.
---------------------------------------------------------------------------

    43. As explained above, several changes implemented by this final
rule ensure that the PURPA Regulations will continue to encourage QF
development. Other changes, such as allowing variable energy rates in
QF contracts, not only ensure the PURPA Regulations are consistent with
PURPA but also address some states' primary concern with the current
PURPA Regulations, i.e., the Commission's now allowing states the
flexibility to set variable energy rates could mitigate the states'
reluctance to implement PURPA in a way that better encourages
development of QFs. For example, the Idaho Commission has indicated
that its current policy of limiting QF contracts to two years is based
on its concern about fixed QF rates, and that the ability to require
variable energy rates could lead to longer contract terms.\61\ We
expect that these changes could facilitate QF development in states
where little QF capacity has been added to date.
---------------------------------------------------------------------------

    \61\ See Idaho Commission Comments at 4 (stating that an energy
rate established at the time of contract formation that provides for
``revisions to the energy rate at regular intervals, consistent
with, for example, a purchasing electric utility's [integrated
resource plan] to reflect updated avoided cost calculations'' would
allow states to consider longer term contracts without putting
ratepayers at risk).
---------------------------------------------------------------------------

    44. Further, commenters' claims about lack of QF development
outside of the RTO/ISO markets appear to be overstated. For example,
the most recent data from the U.S. Energy Information Administration
(EIA) on the total amount of wind and solar QF capacity in each state
shows that 9 of the 20 states with the greatest combined wind and solar
QF capacity are located outside of the RTO/ISO markets.\62\ Of these 9
states, three are located in the Southeast--the region asserted by
commenters to be the most hostile to PURPA--including North Carolina,
which has the highest total amount of wind and solar QF capacity in the
country.\63\ Other states in the top 20 include Idaho--with the fourth
most wind and solar QF capacity--and Oregon,\64\ two states that have
been criticized as being hostile to PURPA. EIA data also shows that
five of the top 10 states in terms of renewable QF capacity additions
from 2008-17 are located outside of the RTO/ISO markets, including
North Carolina (with the most renewable QF capacity additions), Idaho,
Georgia, and Oregon,\65\ each of

which commenters have identified as being hostile to PURPA.
---------------------------------------------------------------------------

    \62\ EIA, Form EIA-860 detailed data with previous form data
(EIA-860A/860B) Release date (June 2, 2020), https://www.eia.gov/electricity/data/eia860/. The top 20 states with combined QF solar
and wind nameplate capacity in 2018 were: (1) California, Texas,
Minnesota, Oklahoma, Massachusetts, New Mexico, Nebraska, New
Jersey, Michigan, New York, Illinois (all fully or partially inside
RTOs/ISOs); and (2) North Carolina, Idaho, Utah, South Carolina,
Georgia, Oregon, Colorado, Arizona, Wyoming(outside of RTOs/ISOs).
We note that some of these states are located in both RTO/ISO and
non-RTO/ISO regions.
    \63\ Id. We note that five of the 20 states with the most solar
capacity--perhaps a better measure of the Southeast Region's PURPA
compliance given the lack of wind resources in this region--are
located in the Southeast.
    \64\ Id.
    \65\ See EIA, PURPA-qualifying capacity increases, but it's
still a small portion of added renewables (Aug. 16, 2018), https://www.eia.gov/todayinenergy/detail.php?id=36912.
---------------------------------------------------------------------------

    45. But whether any individual state has or has not failed to
implement the PURPA Regulations properly is not an issue for this final
rule, which implements changes to the PURPA Regulations but does not
modify Commission's rules for addressing claims that states are not
complying with the Commission's existing PURPA Regulations. We
promulgate this final rule based on the expectation that the states
will fulfill their legal obligation to implement the Commission's PURPA
Regulations as revised.\66\
---------------------------------------------------------------------------

    \66\ 16 U.S.C. 824a-3(f)(1). The same obligation to implement
the Commission's PURPA Regulations as revised, we note, is imposed
on nonregulated electric utilities. 16 U.S.C. 824-3(f)(2).
---------------------------------------------------------------------------

    46. Further, although Congress required the Commission to establish
the general parameters for establishing QF rates, Congress delegated to
the states--not the Commission--the role to set QF rates.\67\ To the
extent that any entity believes a state is failing to implement the
Commission's PURPA Regulations, PURPA section 210(h) provides that
entity an avenue to seek relief.\68\
---------------------------------------------------------------------------

    \67\ See 16 U.S.C. 824a-3(f)(1) (``[E]ach State regulatory
authority shall, after notice and opportunity for public hearing,
implement such rule (or revised rule) for each electric utility for
which it has ratemaking authority.'').
    \68\ If the Commission, in response to a petition for
enforcement under PURPA section 210(h) against a state regulatory
authority, chooses not to initiate an enforcement action within 60
days of the filing of the petition, the statute authorizes the
petitioning electric utility or QF to itself initiate a suit
directly against the state in U.S. District Court. 16 U.S.C. 824a-
3(h)(2)(B). The same statutory provision similarly governs petitions
for enforcement against nonregulated electric utilities. Id. PURPA
section 210(g) also provides for review of state regulatory
authorities and nonregulated electric utilities in state fora. 16
U.S.C. 824a-3(g). The Commission's policies with respect to PURPA
enforcement are more fully set out in its Policy Statement Regarding
the Commission's Enforcement Role Under Section 210 of the Public
Utility Regulatory Policies Act of 1978, 23 FERC ] 61,304 (1983).
---------------------------------------------------------------------------

III. Background

A. Passage of PURPA in 1978 and the Commission's Promulgation of Its
PURPA Regulations in 1980

    47. PURPA was enacted in 1978 as part of a package of legislative
proposals intended to reduce the country's dependence on oil and
natural gas, which at the time were in short supply and subject to
dramatic price increases. PURPA sets forth a framework to encourage the
development of alternative generation resources that do not rely on
traditional fossil fuels (i.e., oil, natural gas and coal) and
cogeneration facilities that make more efficient use of the heat
produced from the fossil fuels that were then commonly used in the
production of electricity.
    48. To accomplish this goal, PURPA section 210(a) directs that the
Commission ``prescribe, and from time to time thereafter revise, such
rules as [the Commission] determines necessary to encourage
cogeneration and small power production,'' \69\ including rules
requiring electric utilities to offer to sell electricity to, and
purchase electricity from, QFs. PURPA section 210(f) required each
state regulatory authority and nonregulated electric utility (together,
states) to implement the Commission's rules.
---------------------------------------------------------------------------

    \69\ 16 U.S.C. 824a-3(a).
---------------------------------------------------------------------------

    49. In 1980, the Commission issued Order Nos. 69 and 70, which
promulgated the required rules that, with limited exceptions, remain in
effect today.\70\ The Commission explained that, at the time of the
passage of PURPA, cogenerators and small power producers faced three
major obstacles: (1) Electric utilities were not required to purchase
these generators' electric output or to make purchases at an
appropriate rate; (2) electric utilities sometimes charged
discriminatorily high rates for backup services; and (3) cogenerators
and small power producers ran the risk of being considered public
utilities themselves and thus being subject to state and federal
regulation as utilities.\71\ Further, at that time, there was no open
access transmission and little competition in electric wholesale
markets. Electric utilities were vertically-integrated and held
dominant market positions. As a result of their control over
transmission access, it was virtually impossible for third parties--
whether independent power producers or other electric utilities--to
compete with them to make sales of electricity.
---------------------------------------------------------------------------

    \70\ Order No. 69, FERC Stats. & Regs. ] 30,128; Small Power
Production and Cogeneration Facilities--Qualifying Status, Order No.
70, FERC Stats. & Regs. ] 30,134 (cross-referenced at 10 FERC ]
61,230), orders on reh'g, Order No. 70-A, FERC Stats. & Regs. ]
30,159 (cross-referenced at 11 FERC ] 61,119) and FERC Stats. &
Regs. ] 30,160 (cross-referenced at 11 FERC ] 61,166), order on
reh'g, Order No. 70-B, FERC Stats. & Regs. ] 30,176 (cross-
referenced at 12 FERC ] 61,128), order on reh'g, FERC Stats. & Regs.
] 30,192 (1980) (cross-referenced at 12 FERC ] 61,306), amending
regulations, Order No. 70-D, FERC Stats. & Regs. ] 30,234 (cross-
referenced at 14 FERC ] 61,076), amending regulations, Order No. 70-
E, FERC Stats. & Regs. ] 30,274 (1981) (cross-referenced at 15 FERC
] 61,281).
    \71\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,863. See
infra P 78 & note 112 (addressing how the PURPA Regulations as
revised continue to address these obstacles).
---------------------------------------------------------------------------

    50. Given the Congressional mandate described above, the Commission
determined in Order No. 69 to set rates for sales by QFs equal to the
purchasing electric utilities' avoided costs.\72\ The Commission also
directed that electric utilities provide backup electric energy to QFs
on a non-discriminatory basis and at just and reasonable rates,\73\ and
that electric utilities interconnect with QFs.\74\ Pursuant to section
210(e) of PURPA,\75\ the Commission further provided exemptions from
many provisions of the FPA and state laws governing utility rates and
financial organization.\76\
---------------------------------------------------------------------------

    \72\ 18 CFR 292.304(a)(2); see API, 461 U.S. at 412-18.
    \73\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,887-90;
see also 18 CFR 292.305.
    \74\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,874; see
also 18 CFR 292.303(c).
    \75\ 16 U.S.C. 824a-3(e).
    \76\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,864;
accord id. at 30,863, 30,894-96; see also 18 CFR 292.601-.602.
---------------------------------------------------------------------------

B. Circumstances Leading to the Commission's Re-Evaluation of the PURPA
Regulations and the Issuance of the NOPR

    51. In the NOPR, the Commission described three important changes
in the circumstances that had originally prompted Congress to pass
PURPA in 1978. First, as the Commission explained, the United States
has seen an unprecedented change in the dynamics of the natural gas
market and the relevant supply and demand.\77\ Led by advancements in
production technologies, primarily in accessing shale reserves, natural
gas supplies increased dramatically.\78\ Further, the EIA forecasted
continued supply growth over the next 25 years.\79\ In short, as the
Commission found in issuing the NOPR, there no longer are shortages of
natural gas supply.
---------------------------------------------------------------------------

    \77\ NOPR, 168 FERC ] 61,184 at P 19.
    \78\ Domestic natural gas production, which appeared to peak in
the early 1970s at 21.7 Tcf per year, increased from 18.1 Tcf in
2005 to 30.4 Tcf in 2018. EIA, Monthly Energy Review (Aug. 27, 2019)
(in table 4.1 see column labeled ``Natural Gas Production (Dry)'' on
the Annual tab of the xls version), https://www.eia.gov/totalenergy/data/monthly/.
    \79\ EIA's forecast showed supplies increasing to nearly 40 Tcf
by 2035 and 43 Tcf by 2050. EIA, Annual Energy Outlook 2018, at
tbl.13 (Jan. 24, 2019) (in table see row labeled ``Dry Gas
Production'' under the reference case) (Annual Energy Outlook 2019),
https://www.eia.gov/outlooks/aeo/data/browser/#/?id=13-AEO2019&cases=ref2018&sourcekey=0.
---------------------------------------------------------------------------

    52. Second, the Commission found that, since 1978, the outlook for
the development of alternatives to natural gas and oil-fired generation
resources, such as renewable resources, has changed equally
dramatically.\80\ The once-nascent renewables industry has grown and
matured over the past 40

years and has only accelerated subsequent to the Energy Policy Act of
2005's amendment of PURPA. The Commission noted that the cost of
building renewable facilities has decreased substantially to the point
that the cost of renewable resources is now or is shortly expected to
approach the cost of traditional electric generation.\81\ The
Commission also recognized that renewable resources (including hydro)
provide a significant share of the electricity currently generated in
the United States,\82\ that most renewable resources today are not
QFs,\83\ and that 65 percent of capacity additions in 2019 were
expected to come from renewable resources.\84\
---------------------------------------------------------------------------

    \80\ NOPR, 168 FERC ] 61,184 at P 20.
    \81\ Id. (citing EIA, Updated Capital Cost Estimates for Utility
Scale Electricity Generating Plants, https://www.eia.gov/analysis/studies/powerplants/capitalcost/; EIA, Levelized Cost and Levelized
Avoided Cost of New Generation Resources in the Annual Energy
Outlook 2019 (Feb. 2019), https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf; Lawrence Berkeley National Lab, Wind
Technologies Market Report, https://emp.lbl.gov/wind-technologies-market-report/). However, EIA has cautioned against directly
comparing the costs of dispatchable and nondispatchable generation:
    Because load must be continuously balanced, generating units
with the capability to vary output to follow demand (dispatchable
technologies) generally have more value to a system than less
flexible units (nondispatchable technologies) such as those using
intermittent resources to operate. The LCOE values for dispatchable
and non-dispatchable technologies are listed separately in the
tables because comparing them must be done carefully.
    EIA, Levelized Cost and Levelized Avoided Cost of New Generation
Resources in the Annual Energy Outlook 2019, at 2 (Feb. 2019),
https://www.eia.gov/outlooks/archive/aeo19/pdf/electricity_generation.pdf.
    \82\ NOPR, 168 FERC ] 61,184 at P 21 (citing EIA, August 2019
Monthly Energy Review at Figure 7.2a, https://www.eia.gov/totalenergy/data/monthly; Office of Energy Projects, Energy
Infrastructure Update For July 2019 at 4 (July 2019), https://www.ferc.gov/legal/staff-reports/2019/july-energy-infrastructure.pdf).
    \83\ NOPR, 168 FERC ] 61,184 at P 22.
    \84\ Id. (citing EIA, Today in Energy, New electric generating
capacity in 2019 will come from renewables and natural gas (Jan. 10,
2019), https://www.eia.gov/todayinenergy/detail.php?id=37952 (Form
EIA-860M, Preliminary Monthly Electric Generator Inventory).
---------------------------------------------------------------------------

    53. Third, the introduction of QFs as competing sources of
electricity to the incumbent electric utilities has led to the
development of significant non-QF independent power production.\85\ In
addition, RTOs and ISOs have developed competitive wholesale electric
markets that serve roughly two-thirds of electricity consumers in the
United States.\86\
---------------------------------------------------------------------------

    \85\ NOPR, 168 FERC ] 61,184 at P 25. The Commission cited to
data showing that that net generation of energy by non-utility owned
renewable resources in the United States escalated from 51.7 TWh in
2005 when EPAct 2005 was passed, to 340 TWh in 2018. This also
included significant growth in non-utility renewable resources in
states outside of RTOs. For example, net generation by non-utility
renewable resources in the region defined by EIA as the Mountain
State region increased from 3.6 TWh in 2005 to 19.5 TWh in 2012, and
to 42.5 TWh in 2018. Pacific Northwest (Oregon and Washington) net
non-utility generation from renewable resources increased from 1.5
TWh in 2005, to 8.7 TWh in 2012, and to 10.6 TWh in 2018. In the
Southeast region of the country, non-utility renewable resources saw
a lesser increase from 2.6 TWh in 2005 to 2.7 TWh in 2012, but
expanded to 6.5 TWh in 2018. NOPR, 168 FERC ] 61,184 at P 27 (citing
data taken from EIA's Electricity Data Browser, www.eia.gov/electricity/data/browser (select net generation, other renewables,
independent power producers)).
    \86\ ISO/RTO Council, The Role of ISOs and RTOs, https://isorto.org.
---------------------------------------------------------------------------

    54. In PURPA section 210(a), Congress directed not only that the
Commission prescribe regulations, but that the Commission revise those
regulations ``from time to time thereafter.'' \87\ The Commission
determined in the NOPR that, in light of these dramatic changes in
circumstances since the passage of PURPA, it was appropriate to review
the PURPA Regulations to determine whether changes to those regulations
were warranted consistent with our statutory mandate.\88\
---------------------------------------------------------------------------

    \87\ 16 U.S.C. 824a-3(a).
    \88\ 16 U.S.C. 824a-3(b).
---------------------------------------------------------------------------

    55. After identifying these three important changes in the industry
that have taken place since 1980, we further identified evidence
demonstrating that overestimations of avoided cost have not been
balanced by underestimations, and that this trend may persist with the
general decline in the cost of electricity.\89\
---------------------------------------------------------------------------

    \89\ See NOPR, 168 FERC ] 61,184 at P 30. Evidence submitted in
response to the NOPR shows that, as a result, customers may be
paying more than avoided costs. See infra PP 265 (``Duke Energy
claims that, among the factors contributing to this overpayment of
$2.26 billion for the remainder of these QF contracts, the primary
factor has been the requirement to offer fixed avoided cost energy
rates during a period of rapidly declining energy prices''), 268
(``Massachusetts DPU argues that a 10-year, fixed energy rate based
on current New England wholesale energy market prices is highly
likely to diverge from actual energy market prices over the ten-year
contract term and could significantly harm ratepayers'').
---------------------------------------------------------------------------

C. Summary of Changes to the PURPA Regulations Implemented by This
Final Rule

    56. We now are revising our PURPA Regulations based on the record
of this proceeding, including comments submitted in the technical
conference in Docket No. AD16-16-000 (Technical Conference),\90\ the
record evidence cited in the NOPR, and the comments submitted in
response to the NOPR. These changes, including modifications to the
proposals made in the NOPR, are summarized below.\91\
---------------------------------------------------------------------------

    \90\ Supplemental Notice of Technical Conference, Implementation
Issues Under the Public Utility Regulatory Policies Act of 1978,
Docket No. AD16-16-000 (May 9, 2016). The Technical Conference
covered such issues as: (1) Various methods for calculating avoided
cost; (2) the obligation to purchase pursuant to a LEO; (3)
application of the one-mile rule; and (4) the rebuttable presumption
the Commission has adopted under PURPA section 210(m) that QFs 20 MW
and below do not have nondiscriminatory access to competitive
organized wholesale markets.
    \91\ In its post-NOPR comments, Bloom Energy requested that the
Commission ``[u]pdate the definition of `useful thermal energy
output' of a topping-cycle cogeneration facility to reflect the
commercialization of solid oxide fuel cells that produce heat for
the industrial purpose of producing hydrogen, a fuel that the fuel
cells use to generate electricity.'' Bloom Energy Comments at 2. We
do not take action on this request in this proceeding because we do
not view this proposal as a logical outgrowth of the NOPR.
---------------------------------------------------------------------------

    57. First, we grant states the flexibility to require that energy
rates (but not capacity rates) in QF power sales contracts and other
LEOs \92\ vary in accordance with changes in the purchasing electric
utility's as-available avoided costs at the time the energy is
delivered. Under this change, if a state exercises this flexibility, a
QF no longer would have the ability to elect to have its energy rate be
fixed, but would continue to be entitled to a fixed capacity rate for
the term of the contract or LEO.\93\
---------------------------------------------------------------------------

    \92\ The Commission has held that a LEO can take effect before a
contract is executed and may not necessarily be incorporated into a
contract. JD Wind 1, LLC, 129 FERC ] 61,148, at P 25 (2009), reh'g
denied, 130 FERC ] 61,127 (2010) (``[A] QF, by committing itself to
sell to an electric utility, also commits the electric utility to
buy from the QF; these commitments result either in contracts or in
non-contractual, but binding, legally enforceable obligations.'').
For ease of reference, however, references herein to a contract also
are intended to refer to a LEO that is not incorporated into a
contract.
    \93\ Moreover, any state--whether located in regions where
energy prices are competitively based or whether located in regions
where they are not--would be permitted to require that the fixed
energy rate established at the time of the contract include
provisions, established at the time the contract is established,
providing for revisions to the energy rate at regular intervals,
consistent with, for example, a purchasing electric utility's
integrated resource plan, to reflect updated avoided cost
calculations.
---------------------------------------------------------------------------

    58. Second, we grant states additional flexibility to allow QFs to
have a fixed energy rate, but to provide that such state-authorized
fixed energy rate can be based on projected energy prices during the
term of a QF's contract based on the anticipated dates of delivery.
    59. Third, we grant states flexibility to set ``as-available'' QF
energy rates as follows: We are establishing a rebuttal presumption,
rather than a per se rule as proposed in the NOPR, that the LMP
established in the organized electric markets defined in 18 CFR
292.309(e), (f), or (g) represents the as-available avoided costs of
electric utilities located in these markets.\94\ So long as this

presumption is not rebutted, a state can at its option establish as-
available energy avoided cost rates for QFs selling to such electric
utilities at the LMP. With respect to QFs selling to electric utilities
located outside of the organized electric markets defined in 18 CFR
292.309(e), (f), or (g), states have the option to set as-available
energy avoided cost rates at competitive prices from liquid market hubs
or calculated from a formula based on natural gas price indices and
specified heat rates, provided that the states first determine that
such prices represent the purchasing electric utilities' avoided costs.
The states would have the flexibility to choose to adopt one or more of
these options or to continue setting QF rates under the standards long
established in the PURPA Regulations.
---------------------------------------------------------------------------

    \94\ These are the markets operated by Midcontinent Independent
System Operator, Inc. (MISO); PJM Interconnection, L.L.C. (PJM); ISO
New England Inc. (ISO-NE); New York Independent System Operator,
Inc. (NYISO); Electric Reliability Council of Texas (ERCOT);
California Independent System Operator, Inc. (CAISO); and Southwest
Power Pool, Inc. (SPP).
---------------------------------------------------------------------------

    60. Fourth, states would have the flexibility to set energy and
capacity rates pursuant to a competitive solicitation process conducted
pursuant to transparent and non-discriminatory procedures consistent
with the Commission's Allegheny standard, described in this final rule.
    61. Fifth, we do not adopt the proposed rule permitting states with
retail competition to allow relief from the purchase obligation. We
instead clarify in this final rule that the Commission's existing PURPA
Regulations already require that states, to the extent practicable,
must account for reduced loads in setting QF capacity rates.
    62. Sixth, we modify the Commission's ``one-mile rule'' for
determining whether generation facilities are considered to be at the
same site for purposes of determining qualification as a qualifying
small power production facility. Specifically, we allow electric
utilities, state regulatory authorities, and other interested parties
to show that affiliated small power production facilities that use the
same energy resource and are more than one mile apart and less than 10
miles apart actually are at the same site (with distances one mile or
less apart still irrebuttably at the same site, and distances 10 miles
or more apart irrebuttably at separate sites). We also allow a small
power production facility seeking QF status to provide further
information in its certification (whether a self-certification or an
application for Commission certification) or recertification (whether a
self-recertification or an application for Commission recertification)
to defend preemptively against subsequent challenges, by identifying
factors affirmatively demonstrating that its facility is indeed at a
separate site from other affiliated small power production qualifying
facilities. We further add a definition of the term ``electrical
generating equipment'' to the PURPA Regulations to clarify how the
distance between facilities is to be calculated.
    63. Seventh, we allow an entity to challenge an initial self-
certification or self-recertification without being required to file a
separate petition for declaratory order and to pay the associated
filing fee. However, we clarify in this final rule that such protests
may be made to new certifications (both self-certifications and
applications for Commission certification) but to only self-
recertifications and applications for Commission recertifications
making substantive changes to the existing certification.
    64. Eighth, we revise the Commission's regulations implementing
PURPA section 210(m), which provide for the termination of an electric
utility's obligation to purchase from a QF with nondiscriminatory
access to certain markets. Currently, there is a rebuttable presumption
that QFs with a net capacity at or below 20 MW do not have
nondiscriminatory access to such markets. We update the rebuttable
presumption for small power production facilities (but not cogeneration
facilities) from 20 MW to 5 MW and, in this final rule, revise the
regulations to include examples of factors, among others, that QFs may
argue show that they lack nondiscriminatory access to such markets.
    65. Finally, we clarify that a QF must demonstrate commercial
viability and a financial commitment to construct its facility pursuant
to objective and reasonable state-determined criteria before the QF is
entitled to a contract or LEO. States may not impose any requirements
for a LEO other than a showing of commercial viability and a financial
commitment to construct the facility. We also clarify in this final
rule that, to the extent that the permitting factor is relied upon, a
QF need only show that it has applied for all required permits and paid
all applicable fees, and not that it has obtained such permits.
    66. As explained in detail in the relevant sections below, these
changes will enable the Commission to continue to fulfill its statutory
obligations under sections 201 and 210 of PURPA. We emphasize that
these changes are effective prospectively for new contracts or LEOs and
for new facility certifications and recertifications filed on or after
the effective date of this final rule; we do not by this final rule
permit disturbance of existing contracts or LEOs or existing facility
certifications.

IV. Discussion

A. General Legal Standards Under PURPA

    67. Several comments were submitted regarding: (1) The requirement
in PURPA section 210(a) that ``the Commission shall prescribe, and from
time to time thereafter revise, such rules as it determines necessary
to encourage cogeneration and small power production''; and (2) the
requirement in PURPA section 210(b) that rates paid by purchasing
utilities to QFs ``shall not discriminate against qualifying
cogenerators or qualifying small power producers.'' \95\ In addition, a
claim was made that the Commission has unlawfully delegated its
authority to the states. These comments apply to several of the
revisions implemented by this final rule and therefore are discussed
prior to the discussion of specific revisions implemented herein.
---------------------------------------------------------------------------

    \95\ 16 U.S.C. 824a-3(a), (b).
---------------------------------------------------------------------------

1. Encouragement of QFs
a. Comments
    68. Commenters make two general arguments regarding the statutory
requirement that the Commission's PURPA Regulations should encourage
QFs. First, they note that the statutory requirement that the PURPA
Regulations encourage QFs is mandatory and that the Commission has no
discretion to determine that such encouragement no longer is necessary.
Harvard Electricity Law states that ``Congress'[s] mandate to encourage
QFs is not contingent on industry conditions and does not expire.''
\96\ Further, they assert, ``[t]he Commission may not overwrite
Congress's instruction to issue rules that it `determines necessary to
encourage cogeneration and small power production.' '' \97\ Public
Interest Organizations similarly object to the NOPR as violating the
encouragement requirement because, they assert, the NOPR ``reflect[s] a
belief that the current rules support too much QF development and a
desire to reduce the incentives in current rules for QF development.''
\98\ NIPPC, CREA, REC, and OSEIA assert that ``[t]he Commission cannot
take it

upon itself to change the underlying policy directives to encourage
QFs.'' \99\
---------------------------------------------------------------------------

    \96\ Harvard Electricity Law Comments at 1.
    \97\ Id. at 4 (quoting PURPA section 210(a)).
    \98\ Public Interest Organizations Comments at 10.
    \99\ NIPPC, CREA, REC, and OSEIA Comments at 29.
---------------------------------------------------------------------------

    69. Public Interest Organizations advance a second general argument
based on the encouragement requirement, arguing that ``[t]o amend the
rules, the Commission must first determine that the actual changes it
proposes increase development and utilization of QFs.'' \100\
Similarly, Allco attacks the NOPR on the grounds that ``the proposed
changes do not encourage QF generation.'' \101\
---------------------------------------------------------------------------

    \100\ Public Interest Organizations Comments at 11.
    \101\ Allco Comments at 8.
---------------------------------------------------------------------------

b. Commission Determination
    70. We agree with commenters that PURPA does not provide discretion
to the Commission to determine whether QFs should be encouraged. That
is a determination left to Congress, and we have not premised this
final rule on a belief that QFs should not be encouraged. However, the
requirement that the Commission promulgate regulations necessary to
encourage QFs is not unbounded. Instead, as noted briefly earlier,
there are statutory limitations on the extent that the PURPA
Regulations can encourage QFs.
    71. First, PURPA section 210(b) sets out standards with which the
Commission must comply in setting QF rates. The last sentence of PURPA
section 210(b) sets out an upper limit on such rates. ``No such rule
prescribed under subsection (a) shall provide for a rate which exceeds
the incremental cost to the electric utility of alternative electric
energy.'' \102\
---------------------------------------------------------------------------

    \102\ Furthermore, PURPA section 210(b)(1) requires that QF
rates be ``just and reasonable to the electric consumers of the
electric utility and in the public interest.'' 16 U.S.C. 824a-
3(b)(1). Although the exact scope of the ``just and reasonable to
the electric consumers'' criterion has never been addressed
explicitly, the Supreme Court held in API that the requirement in
the PURPA Regulations that QF rates be set at full avoided costs
does not violate this criterion. API, 461 U.S. at 415-16. This
``just and reasonable to the electric consumers'' criterion likely
would be violated if the Commission were to allow a rate above the
purchasing electric utility's avoided costs.
---------------------------------------------------------------------------

    72. If there were any doubt from the statutory language that
incremental costs (avoided costs) are intended to be a hard cap on QF
rates, such doubt is dispelled by the Conference Report to PURPA, which
provided: ``This limitation on the rates which may be required in
purchasing from a cogenerator or small power producer is meant to act
as an upper limit on the price at which utilities can be required under
this section to purchase electric energy.'' \103\ The Conference Report
also described the reason for the avoided cost cap on QF rates. ``The
provisions of this section are not intended to require the rate payers
of a utility to subsidize cogenerators or small power produc[er]s.''
\104\
---------------------------------------------------------------------------

    \103\ Conf. Rep. at 98 (emphasis added).
    \104\ Id. (emphasis added).
---------------------------------------------------------------------------

    73. Therefore, PURPA section 210(b) imposes an important limit on
the Commission's ability to encourage QFs by imposing an upper boundary
on the rates at which QFs may require electric utilities to purchase
their electric energy. The Commission cannot require QF rates that
exceed the avoided costs of the purchasing electric utility.\105\
---------------------------------------------------------------------------

    \105\ 16 U.S.C. 824a-3(b)(1).
---------------------------------------------------------------------------

    74. Second, another way in which Congress limited the Commission's
ability to encourage QFs was to define small power production
facilities, the PURPA category applicable to almost all renewable
resources that wish to be QFs, as having ``a power production capacity
which, together with any other facilities located at the same site (as
determined by the Commission), is not greater than 80 megawatts.''
\106\ The statutory 80 MW limitation, as well as any definition of
``the same site'' that may be established by the Commission, will of
necessity have an effect on the encouragement of QFs, because it will
limit the capacity of QFs both ab initio and also for those located at
the same site to 80 MW.
---------------------------------------------------------------------------

    \106\ 16 U.S.C. 796(17)(A)(ii).
---------------------------------------------------------------------------

    75. Third, Congress amended PURPA section 210 to add section
210(m), which provides for termination of the requirement that an
electric utility enter into a new obligation or contract to purchase
from a QF if the QF has nondiscriminatory access to certain defined
types of markets.\107\ We interpret this amendment as reflecting
Congress's judgment that these markets provide adequate encouragement
for those QFs having nondiscriminatory access to such markets. To the
extent that a party asserts that the termination of the purchase
obligation for QFs with nondiscriminatory access to these markets
discourages QFs, that party's argument is not with the Commission, but
rather with Congress. PURPA section 210(m) obligates the Commission to
grant any request to terminate a utility's obligation to purchase from
a QF with nondiscriminatory access to the specified markets.\108\
---------------------------------------------------------------------------

    \107\ See 16 U.S.C. 824a-3(m).
    \108\ Id. (``[N]o electric utility shall be required to enter
into a new contract or obligation to purchase electric energy from a
[QF] if the Commission finds that the [QF] has nondiscriminatory
access to [specified markets].'').
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    76. Finally, we disagree with any suggestion that a rule originally
adopted in 1980 cannot be changed once adopted, or that our revised
regulations cannot be different in how they encourage QFs than the
regulations the Commission issued in 1980.\109\ For one thing, as
explained above, PURPA itself includes certain limitations on the
Commission's ability to encourage QFs, and a provision in the final
rule intended to comply with these statutory limitations cannot be
found to violate PURPA even if such a provision individually does not
affirmatively encourage QFs to the same degree now as in 1980. As
explained herein, we do not seek, through this final rule, to cease
encouraging the development of QFs. Instead, this final rule is
intended to ensure that the Commission is compliant with the statute in
how it does encourage the development of QFs. In doing so, the
Commission may end up encouraging QF development differently from the
current PURPA Regulations, but the Commission's regulations continue to
encourage QF development, as contemplated by PURPA.
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    \109\ See 18 U.S.C. 824a-3(a).
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    77. Many of the commenters' assertions seem to be based on a
reading of the statute that requires that every individual change made
to the PURPA Regulations in isolation must individually encourage QFs
notwithstanding the statute's provisions. But, as discussed above,
Congress established boundaries in PURPA that must be considered, such
as the ``cap'' on incremental costs; just and reasonable rates for
electric customers; the 80 MW limit; and whether QFs have
nondiscriminatory access to markets. Furthermore, the statutory
requirement to encourage QF development applies to the PURPA
Regulations--``such rules as [the Commission] determines necessary''--
as a whole.\110\
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    \110\ See 16 U.S.C. 824a-3(a) (emphasis added).
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    78. In that regard, we find that the Commission's PURPA Regulations
as a whole when modified by this final rule continue to encourage the
development of QFs, consistent with PURPA. The PURPA Regulations in
particular, continue to require that QF rates be set at full avoided
costs, a provision the Supreme Court described as ``provid[ing] the
maximum incentive for the development of cogeneration and small power
production.'' \111\ In addition, this final rule retains provisions of
the PURPA Regulations adopted in 1980 that provide encouragement
through other means

recognized by the Supreme Court in FERC v. Miss.\112\ (e.g., certain
regulatory relief,\113\ interconnection provisions,\114\ and
requirements that utilities sell power to QFs that will enable QFs to
continue operations).\115\ Moreover, several of the changes implemented
by this final rule also provide additional encouragement for QFs as
described in more detail below.
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    \111\ API, 461 U.S. at 418.
    \112\ 456 U.S. 742, 750-51 (1982) (holding that Congress ``felt
that two problems impeded the development of nontraditional
generating facilities: (1) Traditional electricity utilities were
reluctant to purchase power from, and to sell power to, the
nontraditional facilities, and (2) the regulation of these
alternative energy sources by state and federal utility authorities
imposed financial burdens upon the nontraditional facilities and
thus discouraged their development'' (internal citations omitted)).
    \113\ 18 CFR 292.601-02.
    \114\ 18 CFR 292.303(c).
    \115\ 18 CFR 292.305.
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2. Discrimination
a. Comments
    79. Commenters opposing the proposals in the NOPR also cite to the
statutory requirement in PURPA section 210(b)(1) that QF rates ``shall
not discriminate against'' QFs. EPSA asserts that ``[n]otably, this
standard is more restrictive than the [FPA's] prohibition against
`unduly discriminatory' rates.'' \116\ Public Interest Organizations
state that ``[i]n other statutes, prohibiting price discrimination
without the modifiers `unreasonable' or `undue,' means any difference
in price for the same commodity.'' \117\
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    \116\ EPSA Comments at 8.
    \117\ Public Interest Organizations Comments at 47 (citing FTC
v. Anheuser-Busch, Inc., 363 U.S. 536, 549 (1960)).
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    80. In discussing the requirement that QF rates not be
discriminatory, some commenters compare the treatment afforded to QFs
under the NOPR with the rate treatment applicable to public utilities.
For example, NIPPC, CREA, REC, and OSEIA point out that ``[u]tilities
can rate-base long-term investments, thereby ensuring that they can
recover their capital investments plus an authorized return, and then
also recover their actual operating costs under traditional cost-of-
service ratemaking.'' \118\ By contrast, Harvard Electricity Law
asserts, ``QFs do not have the same ability that the electric utilities
have to `rate base' their facilities and, thereby, guarantee capital
recovery.'' \119\
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    \118\ NIPPC, CREA, REC, and OSEIA Comments at 36; see also
IdaHydro Comments at 11; Industrial Energy Consumers Comments at 12-
13; SC Solar Alliance Comments at 5-10; Solar Energy Industries
Comments at 33, 36-38.
    \119\ Harvard Electricity Law Comments at 28.
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    81. Based on this difference between utilities and QFs, commenters
allege that certain aspects of the NOPR are discriminatory, including
those provisions of the NOPR regarding the use of LMPs and other
competitive rates to set as-available energy rates,\120\ to allow for
variable energy rates in QF contracts,\121\ and to allow avoided costs
to be set through competitive solicitations (i.e., requests for
proposals (RFPs)).\122\
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    \120\ See, e.g., Public Interest Organizations Comments at 64
(stating that the use of competitive prices to set as-available
energy avoided cost rates is discriminatory because non-QF
generators are not limited to competitive prices and utilities can,
and regularly do, pay effective prices for energy that exceed the
price determined by competitive prices).
    \121\ See, e.g., EPSA Comments at 9 (``The NOPR avoided rate
proposal must therefore be rejected because it puts QFs at a
disadvantage to utility-owned generation, in violation of the non-
discrimination mandate under PURPA.''); Public Interest
Organizations Comments at 51 (``[L]imiting QFs to contracts
providing no price certainty for energy values, while non-QF
generation regularly obtains fixed price contracts and utility-owned
generation receives guaranteed cost recovery from captive
ratepayers, constitutes discrimination.'').
    \122\ See, e.g., Allco Comments at 12 (stating that allowing a
state commission to use a competitive solicitation price is simply
giving another tool to a state commission to kill QF projects).
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b. Commission Determination
    82. As an initial matter, we agree with EPSA that the statutory
requirement in PURPA section 210(b)(1) that QF rates ``shall not
discriminate against'' QFs is more restrictive than the FPA's
prohibition against 'unduly discriminatory' rates.\123\ However, the
avoided cost cap on QF rates that limits the Commission's ability to
encourage QFs, discussed above, also applies to the Commission's
ability to address these claims of discrimination under PURPA. PURPA
section 210(b) makes clear that ``[n]o such rule prescribed under
subsection (a) shall provide for a rate which exceeds the incremental
cost to the electric utility of alternative electric energy.'' \124\
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    \123\ EPSA Comments at 8.
    \124\ Furthermore, as noted above, PURPA section 210(b)(1)
requires that QF rates also be ``just and reasonable to the electric
consumers of the electric utility and in the public interest.'' See
supra note 102.
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    83. We are retaining in this final rule the requirement that QF
rates be set at a purchasing utility's full avoided costs. The Supreme
Court held in API that ``the full-avoided-cost rule plainly satisfies
the nondiscrimination requirement.'' \125\ Although the Court did not
provide a detailed explanation for this holding, the reasoning is
apparent. If the purchasing utility is paying the same rate to a QF for
power that it otherwise would have paid for incremental power, by
definition such a rate could not be discriminatory. But even if it were
possible to posit a situation where the payment of a full avoided cost
rate to a QF somehow were discriminatory, the Commission nevertheless
would be prohibited by PURPA section 210(b) from requiring a rate to be
paid to the QF that is above the full avoided costs of the purchasing
electric utility.
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    \125\ API, 461 U.S. at 413.
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    84. For the same reasons, Public Interest Organizations are
mistaken when they assert that, without the modifiers ``unreasonable''
or ``undue,'' any difference in price for the same commodity violates
PURPA.\126\ So long as a QF's rate is set at the purchasing utility's
full avoided cost, the QF's rate should be the same as the rate the
purchasing utility otherwise would be paying or the cost it would be
incurring, and such a rate would not be discriminatory. And, in any
event, as noted above, the Commission cannot require a rate that is any
higher.
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    \126\ Public Interest Organizations Comments at 47 (citing FTC
v. Anheuser-Busch, Inc., 363 U.S. at 549).
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    85. With respect to comparisons between QFs, with no guarantee of
cost recovery, and electric utilities, which if they have a franchised
service territory and sell at retail in that territory are effectively
guaranteed the opportunity to seek to recover prudently-incurred costs
in their retail rates, we observe that Congress acknowledged this
difference when enacting PURPA. As emphasized in the PURPA Conference
Report:

    The conferees recognize that cogenerators and small power
producers are different from electric utilities, not being
guaranteed a rate of return on their activities generally or on the
activities vis a vis the sale of power to the utility and whose risk
in proceeding forward in the cogeneration or small power production
enterprise is not guaranteed to be recoverable.\127\
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    \127\ Conf. Rep. at 97-98 (emphasis added).

    86. In recognizing this difference and yet not seeking to eliminate
it, Congress also made clear its intent not to treat QFs like electric
---------------------------------------------------------------------------
utilities in this regard:

    It is not the intention of the conferees that [QFs] become
subject . . . to the type of examination that is traditionally given
to electric utility rate applications to determine what is the just
and reasonable rate that they should receive for their electric
power.\128\
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    \128\ Id. at 97.

    87. Based on this legislative history, the Supreme Court concluded
in API that, ``Congress did not intend to impose traditional ratemaking
concepts on sales by qualifying facilities to utilities.'' \129\ But
application of traditional cost-based ratemaking principles to sales by
QFs is

exactly what would be required in order to provide QFs with the same
guaranteed cost recovery that applies to electric utilities. Also,
guaranteeing QFs cost recovery is fundamentally inconsistent with
PURPA, which sets the rate the QF is paid at the utility's avoided
cost, not at the QF's cost.
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    \129\ API, 461 U.S. at 414.
---------------------------------------------------------------------------

    88. It therefore is clear that Congress did not intend for the
PURPA nondiscrimination criterion to require that QF rates be set in a
way that guarantees recovery of a QF's own costs, even as Congress
recognized that franchised electric utilities selling at retail
typically do have such guarantees for their own costs. Congress thus
withheld from the Commission the authority to provide to QFs the same
opportunity to recover costs at retail that franchised electric
utilities have to recover their costs at retail; it was done by
Congress intentionally and cannot be impermissibly discriminatory.\130\
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    \130\ See 16 U.S.C. 824a-3(a) (rules Commission is directed to
prescribe ``may not authorize a [QF] to make any sale for purposes
other than resale'').
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3. Unlawful Delegation and the Role of Nonregulated Electric Utilities
a. Comments
    89. Allco argues that PURPA section 210(f) requires states to
``implement'' the Commission's rules, and that those rules cannot
redelegate the Commission's authority. Allco claims that the statutory
requirement to implement the Commission's rules cannot simply be a
fa[ccedil]ade for delegating broad authority to states to undercut
PURPA's directive that QF small power production must be encouraged.
Allco concludes that Congress intended for the Commission to adopt
actual rules rather than ``a menu of factors'' that essentially leaves
states with all the discretion as to what to implement in order to
encourage QF generation.\131\
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    \131\ Allco Comments at 39-40.
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    90. Allco also asserts that the NOPR's proposed delegation of
authority to nonregulated electric utilities is an unconstitutional
delegation. According to Allco, such a delegation would mean that
nonregulated electric utilities (some of which are among the largest
utilities in the United States) were regulating themselves. Allco
argues that a private entity such as a nonregulated electric utility
cannot constitutionally be delegated regulatory power.\132\
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    \132\ Id. at 40 (citing Ass'n of Am. R.R. v. DOT, 721 F.3d 666,
677 (D.C. Cir. 2013), vacated on other grounds, 135 S. Ct. 1225
(2015)).
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    91. Nebraska Board states that there is no state agency in Nebraska
that has ratemaking authority over retail electric suppliers and that
all retail electric suppliers are consumer-owned. Nebraska Board states
its understanding that each retail electric supplier in Nebraska would
have jurisdiction to exercise flexibilities provided to states in the
NOPR.
    92. Public Interest Organizations argue that the Commission failed
to comply with PURPA section 210's requirement to consult with federal
and state regulatory agencies with ratemaking authority.\133\
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    \133\ Public Interest Organizations Comments at 19 (citing 16
U.S.C. 824a-3(a)).
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b. Commission Determination
    93. Allco's unlawful delegation claims are misplaced. By enacting
PURPA section 210(f)(1), Congress delegated to the states the
obligation to implement the Commission's PURPA rules, and the
Commission is acting consistent with that delegation. Congress's
delegation to the states was upheld in FERC v. Miss.\134\ and we are
ensuring that the rules we have imposed abide by all the terms of the
statute. Further, the Commission's current PURPA Regulations,
promulgated in 1980, set forth a list of factors that the states are to
consider, ``to the extent practicable,'' in setting QF rates.\135\ In
so doing, the Commission emphasized that states have ``great latitude
in determining the manner of implementation of the Commission's rules,
provided that the manner chosen is reasonably designed to implement the
requirements of Subpart C [which includes the pricing rules of 18 CFR
292.304].'' \136\ This final rule adds factors that must be taken into
account to the extent practicable in setting rates, while retaining the
``great latitude'' the states always have had to implement the PURPA
Regulations and which have been an important feature of the
Commission's PURPA Regulations since their inception.
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    \134\ 456 U.S. at 760 (``FERC has declared that state
commissions may implement this by, among other things, `an
undertaking to resolve disputes between qualifying facilities and
electric utilities arising under [PURPA].' '').
    \135\ 18 CFR 292.304(e).
    \136\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,891-92.
The Commission explained that ``[s]uch latitude is necessary in
order for implementation to accommodate local conditions and
concerns, so long as the final plan is consistent with statutory
requirements.'' Policy Statement Regarding the Commission's
Enforcement Role Under Section 210 of the Public Utility Regulatory
Policies Act of 1978, 23 FERC ] 61,304,at 61,646.
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    94. With respect to Allco's claim that the NOPR proposed an
unconstitutional delegation to nonregulated electric utilities, we note
that PURPA section 210(f)(2) specifically provides that ``each
nonregulated electric utility shall, after notice and opportunity for
public hearing, implement'' the Commission's rules regarding the rates
to be paid to QFs. Consistent with this statutory provision, the PURPA
Regulations regarding the setting of QF rates have applied to
nonregulated electric utilities since those regulations were
promulgated in 1980.\137\ The final rule does nothing more than
continue to implement this statutory requirement in the same way it