from financing for fossil fuel generators because much of the cost of
installation is incurred up-front, with virtually no variable costs.
Solar Energy Industries states that, because of this difference,
financiers ``examine the QF's projected revenue stream to ensure that
the revenue stream is sufficient to recover the installed costs plus a
competitive return.'' \523\ Solar Energy Industries reasons that QFs
must therefore know in advance their facility's energy and capacity
values and obtain a legally enforceable contract that fits into common
underwriting models.\524\
---------------------------------------------------------------------------

    \523\ Id.
    \524\ Id.
---------------------------------------------------------------------------

    324. North Carolina DOJ asserts that allowing avoided cost energy
prices to fluctuate could eliminate fixed-price power sales contracts,
thereby making compensation to QFs more volatile and discouraging
renewable energy financing.\525\
---------------------------------------------------------------------------

    \525\ North Carolina DOJ Comments at 3.
---------------------------------------------------------------------------

    325. Distributed Sun agrees with Commissioner Glick's dissent on
the NOPR that revoking the fixed energy price requirement would halt
the construction of most distributed energy resources.\526\ Solar
Energy Industries states that it is not aware of a meaningful number of
QFs that have been constructed using capacity rates alone or capacity
rates with variable energy rates.\527\
---------------------------------------------------------------------------

    \526\ Distributed Sun Comments at 3.
    \527\ Solar Energy Industries Comments at 28.
---------------------------------------------------------------------------

    326. Mr. Mattson argues that a variable rate or a rate based on a
projected stream of revenues during the contract are not long-term
contracts. Mr. Mattson argues that this violates legislative intent and
precedent and is not viable, suggesting that PURPA requires avoided
cost data to be kept by a utility for public inspection.\528\
---------------------------------------------------------------------------

    \528\ Mr. Mattson Comments at 26.
---------------------------------------------------------------------------

    327. Western Resource Councils represents that PURPA, in the rural

Northern Plains and Rocky Mountain West, is the only vehicle for small
businesses to obtain project financing and that variable rates
undermine the certainty of QFs obtaining financing.\529\
---------------------------------------------------------------------------

    \529\ Western Resource Councils Comments at 2.
---------------------------------------------------------------------------

    328. Public Interest Organizations assert that the NOPR has no
basis to speculate that the Idaho Commission shortened contract lengths
to two years because of the fixed rate requirement or that it would
provide longer contracts if it could require variable energy
rates.\530\ According to Public Interest Organizations, the fact that
no solar and wind QFs have been developed since the Idaho Commission
set a two year contract length, even while they are currently entitled
to fixed rates, shows that allowing variable rates will further
discourage wind and solar QF development.\531\
---------------------------------------------------------------------------

    \530\ Public Interest Organizations Comments at 36.
    \531\ Id. at 35-38.
---------------------------------------------------------------------------

    329. sPower argues that, even with long-term contracts, QFs will
not be viable without fixed energy rates and explains that, if the
Commission seeks to encourage states to offer longer contract terms, it
should just require longer terms.\532\
---------------------------------------------------------------------------

    \532\ sPower Comments at 11.
---------------------------------------------------------------------------

    330. The DC Commission states that, in the jurisdictions where the
contract length has been adjusted to ``short-term,'' such as Idaho's
two-year contract,\533\ further elimination of the QF fixed price
contract option would discourage or eliminate new small renewable
energy facilities entering the markets, which is not consistent with
PURPA's objective of encouraging the construction of renewable
generation.\534\
---------------------------------------------------------------------------

    \533\ DC Commission Comments at 8 (citing NOPR, 168 FERC ]
61,184 at P 77).
    \534\ Id.
---------------------------------------------------------------------------

    331. NIPPC, CREA, REC, OSEIA, and Public Interest Organizations
argue that the fact that states have shortened the length of QF
contracts in response to fixed energy prices means that the Commission
should require a minimum contract length.\535\ Green Power supports the
creation of longer-term standard contract lengths for both cogeneration
and small power production facilities.\536\ Green Power recommends that
cogeneration developers are offered 5, 8, or 10-year contracts and that
small power producers developers are offered 10, 15, or 20-year
contracts.\537\ Mr. Mattson proposes that long-term contracts, defined
as 20 years or longer, be available to QFs at their discretion.\538\
---------------------------------------------------------------------------

    \535\ NIPPC, CREA, REC, and OSEIA Comments at 47-48; Public
Interest Organizations Comments at 6-7.
    \536\ Green Power Comments at 2, 10.
    \537\ Id. at 10.
    \538\ Mr. Mattson Comments at 7-9.
---------------------------------------------------------------------------

    332. CARE notes that a purchasing utility's fixed capacity value
may be zero if the state determines that the electric utility has no
need for additional capacity resources. In that circumstance, there
would be no fixed element in an avoided cost contract, which CARE
believes would be inconsistent with the Commission's rationale
justifying variable energy rate contracts.\539\ EPSA similarly argues
that, as noted in the NOPR, an electric utility is not required to pay
for QF capacity that the state has determined is not needed. EPSA
claims that the variable rate proposal therefore would create
substantial uncertainty for QF developers and investors in non-ISO/RTO
regions.\540\
---------------------------------------------------------------------------

    \539\ CARE Comments at 4 n.7.
    \540\ EPSA Comments at 12.
---------------------------------------------------------------------------

    333. American Biogas argues that LMP prices are not sufficient to
sustain existing biogas projects or to increase their number.\541\
Several commenters state that LMP cannot sustain QFs in general.\542\
---------------------------------------------------------------------------

    \541\ Biogas Comments at 2.
    \542\ BluEarth Renewables Comments at 2; Biological Diversity at
8; Covanta Comments at 9; Public Interest Organization Comments at
43-44.
---------------------------------------------------------------------------

    334. NIPPC, CREA, REC, and OSEIA argue that the NOPR proposal to
base QF pricing on LMP or Western EIM will limit competition, because
QFs will be stuck with no long-term assurance of investment recovery,
and thus with no means to finance their projects, while regulated
incumbent utilities will be able to rate-base their generation assets,
thus guaranteeing long-term recovery of their investments.\543\ NIPPC,
CREA, REC, and OSEIA maintain that prices for long-term QF contracts
should be set by reference to long-term price indices or other
indicators that, unlike highly-variable LMP and Western EIM prices,
genuinely reflect the long-term costs of generation avoided by the
purchasing utility.\544\
---------------------------------------------------------------------------

    \543\ NIPPC, CREA, REC, and OSEIA Comments at 55-56.
    \544\ Id. at 53.
---------------------------------------------------------------------------

iii. Commission Determination
    335. As an initial matter, the Commission agrees with commenters
that PURPA does not guarantee QFs a rate that guarantees financing.
PURPA only requires the Commission to adopt rules that encourage the
development of QFs; it does not provide a guarantee that any particular
QF will be developed or profitable. This is evident from the structure
of PURPA, which caps QF rates at the purchasing utility's avoided costs
rather than providing for rates that guarantee the recovery of a QF's
costs. The legislative history confirms that Congress did not intend to
guarantee QF financing. As stated in the PURPA Conference Report, ``the
Conferees recognize that [QFs] 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 [QF] enterprise is not guaranteed to
be recoverable.'' \545\
---------------------------------------------------------------------------

    \545\ Conf. Rep. at 97-98 (emphasis added).
---------------------------------------------------------------------------

    336. Notwithstanding that PURPA does not guarantee QF
financeability, the Commission believes that the variable avoided cost
energy rate option implemented by this final rule will still allow QFs
to obtain financing.
    337. Before addressing specific comments on this issue, however, we
reiterate that we are not eliminating fixed rate pricing for QFs. Under
this final rule, QFs will continue to be able to require fixed avoided
cost capacity rates in their contracts and LEOs. Capacity costs, as
relevant here, include the cost of constructing the capacity being
avoided by purchasing utilities as a consequence of their purchases
from QFs. As will be discussed below, a combination of fixed avoided
cost capacity rates and variable energy rates can provide important
revenue streams that can support the financing of QFs.
    338. Furthermore, merely because QFs have had access to fixed
avoided cost energy rates does not mean that QFs must have access to
such rates to obtain future financing. Up to now, QFs have had the
right under the PURPA Regulations to both fixed capacity and fixed
energy rates, and we understand that most QFs executing long-term
contracts have exercised this right. Commenters insisting that the
Commission cannot allow states the option to impose variable avoided
cost energy rates without evidence that QFs have obtained financing
under such contract structures \546\ are attempting to impose a
standard that could never be satisfied.
---------------------------------------------------------------------------

    \546\ See Solar Energy Industries Comments at 28; NIPPC, CREA,
REC, and OSEIA Comments at 29, 46; Harvard Electricity Law Comments
at 22, 25-27; Public Interest Organizations Comments at 6-7, 33-35.
---------------------------------------------------------------------------

    339. In any event, there is ample evidence outside of the PURPA
context demonstrating that generation projects with fixed capacity
rate-variable energy contracts are financeable. As the Commission
explained in detail in the NOPR, since the time of the passage of PURPA
a large new independent power production industry has developed in

the United States. Like QFs, independent power producers sell power at
wholesale, and have no ability to rate-base their facilities or to
otherwise recover their costs through regulated rates to retail
customers, unlike traditional utilities with franchised service
territories and retail customers. Unlike QFs, however, independent
power producers have had no right to require utilities to purchase
their power or to impose fixed energy cost pricing in their power sales
contracts.\547\
---------------------------------------------------------------------------

    \547\ See NOPR, 168 FERC ] 61,184 at P 76.
---------------------------------------------------------------------------

    340. The record shows that, even without the right to require long-
term fixed energy rates, non-QF independent power producers
nevertheless have been able to obtain financing for large amounts of
generation capacity, including from renewables. EIA data shows that, in
2019, approximately 44% of all energy produced by natural gas-fired
generation in the United States was generated by independently owned
capacity.\548\ Furthermore, EIA data demonstrates that net generation
of energy by non-utility owned renewable resources in the United States
grew by almost 700% between 2005 and 2018, which speaks to the reality
that renewable resources are able to acquire financing even without the
right to require long-term fixed energy rates.\549\ Based on this data,
we find that the right to require counterparties to pay fixed energy
rates is not essential for the financing of independent power
generation capacity.
---------------------------------------------------------------------------

    \548\ EIA, Electric Power Monthly with Data for December 2018,
at tbl. 1.7.B (February 2020), https://www.eia.gov/electricity/monthly/archive/february2020.pdf).
    \549\ Id. P 74 (explaining 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) (citing EIA, Electricity Data Browser, www.eia.gov/electricity/data/browser).
---------------------------------------------------------------------------

    341. We acknowledge that a number of different financing mechanisms
were used for this independent power generation capacity, not all of
which will be available to QFs. Nevertheless, we understand that a
standard rate structure employed in the electric industry is a fixed
capacity rate-variable energy rate structure, and that many independent
power production facilities have been financed based on this
structure.\550\ Accordingly, record evidence and historical data
regarding the financing and construction of significant amounts of
independent power production facilities supports the Commission's
conclusion that a fixed capacity rate-variable energy rate structure--
which will apply in those states choosing the variable avoided cost
energy rate option--also will support financing of QFs.
---------------------------------------------------------------------------

    \550\ American Public Power Association, How New Generation is
Funded (Aug. 29, 2018), https://www.publicpower.org/blog/how-new-generation-funded (``Beginning in 2015, merchant generation [in
RTOs/ISOs markets] began to increase dramatically from prior years,
amounting to 19.3 percent of new capacity in 2015, 7.2 percent in
2016, and 29.1 percent in 2017.''). In RTOs and ISOs with capacity
markets, merchant generators are compensated through variable energy
rates and fixed capacity rates, along with whatever ancillary
service revenues they can earn.
---------------------------------------------------------------------------

    342. For the reasons described below, we do not find compelling the
concerns expressed by some commenters that a fixed capacity rate-
variable energy rate construct may not work for solar and wind
resources, which have high fixed capacity costs and minimal variable
energy costs.\551\ Similarly, we are not persuaded by comments that
point out that energy rates in typical independent power production
contracts are designed to recover the cost of a facility's fuel,
whereas variable energy rates would provide no such guarantee.\552\
---------------------------------------------------------------------------

    \551\ See Harvard Electricity Law Comments at 26; Public
Interest Organizations Comments at 33-34; Solar Energy Industries
Comments at 30.
    \552\ NIPPC, CREA, REC, and OSEIA Comments at 42-43.
---------------------------------------------------------------------------

    343. As an initial matter, as we have noted, the record
demonstrates that the amount of renewable resources being developed
outside of PURPA greatly exceeds the amount of renewable resources
developed as QFs.\553\ Renewable resources developed outside of PURPA
may not have a legal right to long-term contracts with fixed energy
rates, yet nevertheless have been able to obtain financing.
---------------------------------------------------------------------------

    \553\ See supra P 240.
---------------------------------------------------------------------------

    344. The Commission also disagrees with those commenters who assert
that, as a consequence of the above factors, the Commission should
``require[] the variable energy component to be structured in a way
that removes market risk from the QF.'' \554\ This argument runs
directly counter to one of the fundamental premises of PURPA, which is
that QFs must accept the market risk associated with their projects by
being paid no more than the purchasing utility's avoided cost, thereby
preventing utility retail customers from subsidizing QFs.\555\ PURPA
does not allow the Commission to require QFs to be paid rates above
avoided costs in order to make certain types of QF technologies
financeable. If a state determines that it is necessary to require
variable avoided cost energy rates in order to avoid paying QFs an
above-avoided cost rate, which is a bedrock requirement of PURPA, then
the impact this may have on facilities not financeable with a fixed
capacity rate-variable energy rate contract structure is a direct
result of the requirements of PURPA itself.\556\ Concerns regarding the
alleged mismatch between avoided costs and the costs of renewable
technologies therefore are collateral attacks on the requirements of
PURPA itself, not our proposed implementation of it.
---------------------------------------------------------------------------

    \554\ NIPPC, CREA, REC, and OSEIA Comments at 43.
    \555\ See Conf. Rep. at 97-98 (stating that the ``risk in
proceeding forward in the [QF] enterprise is not guaranteed to be
recoverable''); accord API, 461 U.S. at 416 (holding 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'').
    \556\ See Connecticut Authority Comments at 14 (``[C]ontracted
QF rates that take into account New England market conditions would
not deter lenders and investors. Many QFs have no fuel costs and low
variable costs of production; therefore, it is reasonable to find
that these QFs would earn substantial inframarginal rents on energy
sales. Further, QFs may be able to sell RECs and/or participate in
other Connecticut programs.'').
---------------------------------------------------------------------------

    345. In the NOPR, the Commission noted the availability of various
hedging devices that would allow QFs to fix or limit the variability of
a variable avoided cost energy rate.\557\ We acknowledge those comments
explaining that hedging tools increase project expense and may not be
available to all QFs.\558\ However, the Commission never intended to
suggest that hedging is cost-free or that it would be appropriate for
all QFs. The commenters all agree that hedging is available for at
least some QFs.\559\ For such QFs, hedging can help provide energy rate
certainty if such certainty is required for financing. To the extent
that certainty is required, then the cost of hedging is a part of the
cost of financing the project that PURPA requires QFs to bear.
---------------------------------------------------------------------------

    \557\ NOPR, 168 FERC ] 61,184 at P 72.
    \558\ NIPPC, CREA, REC, and OSEIA Comments at 45-46; Resources
for the Future Comments at 6-7; Solar Energy Industries Comments at
30.
    \559\ Id.
---------------------------------------------------------------------------

    346. Public Interest Organizations cite testimony from the
Technical Conference stating that Southern Company has negotiated non-
QF renewable contracts with fixed energy rates rather than variable
energy rates.\560\ However, that testimony does not support the
contention that the Commission must provide for fixed avoided cost
energy rates for QF contracts and other LEOs. As the cited testimony
notes, Southern agreed to contracts with longer terms and with fixed
energy rates only because the

renewable energy developers agreed to a rate that was 50 to 60 percent
of the projected long-term avoided cost.\561\
---------------------------------------------------------------------------

    \560\ Public Interest Organizations Comments at 33-34 (citing
NOPR, 168 FERC ] 61,184 at P 70 n.114 (citing Tech. Conference,
Docket No. AD16-16-000, Tr. 200 (filed June 30))).
    \561\ Tech. Conference, Docket No. AD16-16-000, Tr. at 200
(filed June 30). The Commission notes that the PURPA Regulations
specifically permit QFs and utilities to agree to rates that differ
from what the PURPA Regulations require. 18 CFR 292.301(b). As the
testimony cited by the Public Interest Organizations suggests, QFs
that believe fixed energy avoided cost rates are required to obtain
financing are free to offer rate and/or other contractual
concessions in exchange for a fixed rate.
---------------------------------------------------------------------------

    347. Certain commenters expressed concern that, when a purchasing
electric utility is not avoiding the construction or purchase of
capacity as a consequence of entering into a contract with a QF, under
the NOPR's proposed rules a state could limit the QF's contract rate to
variable energy payments.\562\ However, in that event, the only costs
being avoided by the purchasing electric utility would be the
incremental costs of purchasing or producing energy at the time the
energy is delivered.\563\ Nothing in PURPA or the legislative history
of PURPA suggests that the Commission should set QF rates so as to
facilitate the financing of new QF capacity in locations where no new
capacity is needed.
---------------------------------------------------------------------------

    \562\ CARE Comments at 4 n.7; EPSA Comments at 12.
    \563\ See, e.g., City of Ketchikan, 94 FERC ] 61,293, at 62,061
(2001) (``[A]voided cost rates need not include the cost for
capacity in the event that the utility's demand (or need) for
capacity is zero. That is, when the demand for capacity is zero, the
cost for capacity may also be zero.'').
---------------------------------------------------------------------------

    348. In the NOPR, the Commission also observed that the variable
avoided cost energy rate proposal might cause states to make other
changes to their administration of PURPA in ways that would improve the
financeability of QF projects. Most notably, states that had limited
the length of contract terms because of concerns about overpayments for
energy might be willing to allow longer term contracts if the contracts
have variable avoided cost energy rates. Longer term contracts with
fixed avoided cost capacity rates, in turn, would provide greater
revenue assurance to QFs.\564\ The comments submitted in response to
the NOPR support our analysis.
---------------------------------------------------------------------------

    \564\ NOPR, 168 FERC ] 61,184 at P 65. Contrary to assertions by
some commenters, the Commission's conclusion in the NOPR about the
possible positive effects of the variable avoided cost energy rate
proposal was not based on speculation. See Public Interest
Organizations Comments at 36. Rather, the Commission relied on
testimony presented at the Technical Conference. See Technical
Conference Tr. at 142-43 (Idaho Commission) (``No matter the
starting point, allowing QFs to fix their avoided cost rates for
long terms results in rates which will eventually exceed and
overestimate avoided cost rates into the future. The longer the
term, the greater the disparity. . . . [The Idaho Commission]
recently reduced PURPA contract lengths to two years in order to
correct the disparity. We didn't reduce contract lengths to kill
PURPA. We did it to allow periodic adjustment of avoided cost
rates.'').
---------------------------------------------------------------------------

    349. Further, there is some evidence that variable avoided cost
energy rates in contracts and LEOs could result in longer-term
contracts.\565\ To be clear, we are not finding that the variable
avoided cost energy rate provision in this final rule will necessarily
lead to longer term contracts and LEOs in every state, nor does our
decision to adopt this provision rely on such a finding.\566\ However,
the record supports the conclusion that the variable avoided cost
energy rate provision could lead to longer term contracts in at least
some states, and that likelihood provides support for the conclusion
that QFs will be able to obtain financing for their projects under this
provision if their costs are indeed below the purchasing utility's
avoided costs.
---------------------------------------------------------------------------

    \565\ Idaho Commission Comments at 4 (allowing states to set
variable QF energy avoided costs ``would allow states to consider
longer term contracts without putting ratepayers at risk'') (citing
NOPR, 168 FERC ] 61,184 at 5 n.5).
    \566\ We are not finding that variable avoided cost energy rates
would be appropriate only if they cause states to require longer
term contracts, and we are not adopting the suggestion made by
certain commenters that the Commission order states to require
longer contract terms. See NIPPC, CREA, REC, and OSEIA Comments at
47-48; Public Interest Organizations Comments at 6-7; sPower
Comments at 11.
---------------------------------------------------------------------------

h. Other Claimed Benefits of Fixed Avoided Cost Energy Rates
i. Comments
    350. Public Interest Organizations assert that maintaining the
requirement to pay QFs fixed rates serves as a hedge for consumers
because QFs, unlike utilities, bear their own risks and have provided
``billions of dollars'' in benefits to consumers. Public Interest
Organizations assert that eliminating QFs' rights to fixed rate
contracts ignores these benefits to consumers and puts them at
risk.\567\ Likewise, Solar Energy Industries portrays a fixed energy
rate as providing a hedge to a utility that the purchasing electric
utility may use as a revenue stream in connected markets. Solar Energy
Industries nevertheless argues that, in order to encourage QF
development, the Commission must ensure that QFs know the energy price
at the time of contracting and that utilities publish rates stating the
energy, capacity, and environmental attributes of the QF rate.\568\
---------------------------------------------------------------------------

    \567\ Public Interest Organizations Comments at 45-46 (citing S.
Rep. No. 95-442, at 9, 22-23, 33 (1977), as reprinted in 1978
U.S.C.C.A.N. 7903, 7906, 7919-21, 7930; Public Interest
Organizations, Comments, Docket No. AD16-16-000, at 5, 19-21 (Oct.
17, 2018)). In earlier comments in Docket No. AD16-16-000, cited by
Public Interest Organizations in response to the NOPR, Public
Interest Organizations asserted that long-term fixed QF contracts
often act as a hedge that lowers QF financing expenses, which
benefits ratepayers, and insulates ratepayers from fuel price
fluctuations. Public Interest Organizations, Comments, Docket No.
AD16-16-000, at 20-21 (Oct. 17, 2018).
    \568\ Solar Energy Industries Comments at 31-32.
---------------------------------------------------------------------------

ii. Commission Determination
    351. Fixed and variable energy rates each can provide benefits to
electric utility customers. These benefits are the converse of each
other: Variable avoided cost energy rates provide protection to
customers when energy costs decline, and fixed avoided cost energy
rates provide protection to customers when energy costs increase. By
giving the states the flexibility to choose either variable or fixed
avoided cost energy rates in QF contracts and LEOs, the Commission is
giving each state the ability to choose the protection that is best
suited for electric customers in their state, based on each state's
view of what the future may hold and the likelihood that variable
energy avoided costs will exceed fixed energy avoided costs during the
life of a QF contract or LEO.
    352. We acknowledge that fixed avoided energy cost rates can serve
as a hedge against future fuel price increases in a way that protects
ratepayers, assuming such price increases actually occur. Given that
PURPA both places an avoided cost cap on QF rates, and requires that
such rates must be just and reasonable to the electric consumers of the
electric utility, we find it is appropriate to provide flexibility to
states to decide how to apportion such risks to their ratepayers in a
way that ensures QF avoided energy cost rates are consistent with
PURPA's requirements (i.e., by using either fixed or variable avoided
cost energy rates to best meet those requirements).
    353. We caution, though, that having made that choice, a state is
not free to toggle a QF's contractual rate structure back and forth
unilaterally from one to the other as circumstances change; QFs are
entitled to the certainty that once a state has made its choice with
respect to a particular QF's contract or LEO, that QF's contract or LEO
is not subject to change during the term of that contract or LEO except
by mutual consent.
i. Potential Modifications to NOPR Proposal
i. Comments
    354. The California Commission, Connecticut Authority, and
Massachusetts DPU support the variable energy rate proposal and suggest
that, in addition, states be given the discretion

to require the avoided capacity rate to vary.\569\
---------------------------------------------------------------------------

    \569\ California Commission Comments at 27-28; Connecticut
Authority Comments at 14-15; Massachusetts DPU Comments at 8-10.
---------------------------------------------------------------------------

    355. In contrast, NIPPC, CREA, REC, and OSEIA urge the Commission,
if it allows variable energy rates, to adopt strict parameters for
setting capacity rates in order to provide some predictability to QFs
to allow them to obtain financing. NIPPC, CREA, REC, and OSEIA
recommend that the Commission require forecasted capacity rates be
``offered in a long-term contract of at least 20 years after
commencement of sales under the agreement'' for ``[a]ll years during
the term of the QF's long-term contract after which the utility
forecasted to be capacity deficit in its load and resource balance, as
forecasted in its resource plan in effect at the time of the legally
enforceable obligation'' and ``[a]ny time the utility is planning or
undertaking actions to acquire a major generation resource or a major
capital investment at an aging facility at the time of creation of the
legally enforceable obligation.'' \570\
---------------------------------------------------------------------------

    \570\ NIPPC, CREA, REC, and OSEIA Comments at 51.
---------------------------------------------------------------------------

    356. Commissioner O'Donnell urges the Commission to provide
additional guidance to states on the minimum required contract duration
that would enable a QF to obtain financing from investors while
providing sufficient ratepayer protections.\571\
---------------------------------------------------------------------------

    \571\ Commissioner O'Donnell Comments at 3.
---------------------------------------------------------------------------

ii. Commission Determination
    357. We decline to adopt the California Commission's, Connecticut
Authority's, and Massachusetts DPU's requests to permit a state to
require variable avoided cost capacity rates in addition to variable
avoided cost energy rates. There is a fundamental difference between
avoided energy costs and avoided capacity costs. Unlike avoided energy
costs, which fluctuate with changes in the variable cost of the
purchasing utility's marginal energy resource, a purchasing utility's
avoided capacity cost is determined at the time the utility incurs the
obligation to purchase capacity from a QF rather than self-build a
capacity resource or enter into a power purchase agreement with a third
party. Although a purchasing utility's avoided capacity cost may later
change as additional capacity acquisitions are avoided, the cost of the
capacity avoided by the purchasing utility as a consequence of
purchasing capacity from a particular QF at a particular moment in time
does not change.
    358. As a simple illustrative example, if a utility is able to
avoid constructing a new generation facility with a capacity cost of
$10/MW-month as a result of purchasing power from a QF, its avoided
capacity cost is the $10/MW-month capacity cost that it would have been
incurred to construct the new facility. Once the utility commences its
purchases from the QF, it may not need additional capacity, and its
avoided capacity cost for the next QF would drop to $0/MW-month. It
would not be appropriate to then reduce the original QF's avoided
capacity charge to $0/MW-month, however, because the only reason that
the utility does not need additional capacity is because it already
purchased capacity from the original QF in order to avoid the $10/MW-
month capacity cost. That is, without the purchase from the original
QF, the utility would have incurred a capacity cost of $10/MW-month,
and that is the utility's avoided capacity cost for the term of its
contract with the original QF. It would be inappropriate, in other
words, for avoided cost capacity rates to change after they are first
set at the time a LEO (such as a contract) is established.
    359. We also decline to adopt the suggestion of NIPPC, CREA, REC,
and OSEIA to adopt additional criteria for establishing avoided
capacity costs, including minimum contract lengths. We believe that the
existing rate-setting provisions adequately set out the criteria that
should be considered by a state in determining avoided capacity
costs.\572\ To the extent that any party believes a state has not
appropriately applied these criteria, that party has recourse to the
enforcement provisions of PURPA sections 210(g) and (h).\573\
---------------------------------------------------------------------------

    \572\ See 18 CFR 292.304(e).
    \573\ See also Policy Statement Regarding the Commission's
Enforcement Role Under Section 210 of the Public Utility Regulatory
Policies Act of 1978, 23 FERC ] 61,304.
---------------------------------------------------------------------------

    360. We decline to specify a minimum required contract length given
that it is up to states to decide appropriate contract lengths in a way
that accurately calculates avoided costs so as to meet all statutory
requirements.
8. Consideration of Competitive Solicitations To Determine Avoided
Costs
a. NOPR Proposal
    361. The Commission in the NOPR proposed to revise the PURPA
Regulations in 18 CFR 292.304 to add subsection (b)(8). In combination
with new subsection (e)(1), this subsection would permit a state the
flexibility to set avoided cost energy and/or capacity rates using
competitive solicitations (i.e., requests for proposals or RFPs),
conducted pursuant to appropriate procedures.
    362. The Commission recognized that one way to enable the industry
to move toward more competitive QF pricing is to allow states to
establish QF avoided cost rates through a competitive solicitation
process. The Commission previously has explored this issue. In 1988,
the Commission issued a notice of proposed rulemaking proposing to
adopt regulations that would allow bidding procedures to be used in
establishing rates for purchases from QFs.\574\ That rulemaking
proceeding, along with several related proceedings, ultimately was
withdrawn as overtaken by events in the industry.\575\
---------------------------------------------------------------------------

    \574\ Regulations Governing Bidding Programs, FERC Stats. &
Regs. ] 32,455 (1988) (cross-referenced at 42 FERC ] 61,323)
(Bidding NOPR); see also Administrative Determination of Full
Avoided Costs, Sales of Power to Qualifying Facilities, and
Interconnection Facilities, FERC Stats. & Regs. ] 32,457 (1988)
(cross-referenced at 42 FERC ] 61,324) (ADFAC NOPR).
    \575\ See Regulations Governing Bidding Programs, 64 FERC ]
61,364 at 63,491-92 (1993) (terminating Bidding NOPR proceeding);
see also Administrative Determination of Full Avoided Costs, Sales
of Power to Qualifying Facilities, and Interconnection Facilities,
84 FERC ] 61,265 (1998) (terminating ADFAC NOPR proceeding).
---------------------------------------------------------------------------

    363. Since then, the Commission held in a 2014 order addressing the
specific facts of the particular competitive solicitation at issue that
an electric utility's obligation to purchase power from a QF under a
LEO could not be curtailed based on a failure of the QF to win an only
occasionally-held competitive solicitation.\576\ In a separate
proceeding involving a different competitive solicitation, the
Commission declined to initiate an enforcement action where the state
competitive solicitation was an alternative to a PURPA program.\577\
---------------------------------------------------------------------------

    \576\ See, e.g., Hydrodynamics, Inc., 146 FERC ] 61,193, at PP
31-35 (2014) (Hydrodynamics).
    Competitive solicitation processes have been used more recently
in a number of states, including Georgia, North Carolina, and
Colorado. Georgia's competitive solicitation process is described at
Ga. Comp. R. & Regs. 515-3-4.04(3) (2018). North Carolina's
competitive solicitation process is described at 4 N.C. Admin. Code
11.R8-71 (2018). Colorado's competitive solicitation process is
described at sPower Development Co., LLC v. Colorado Pub. Utils.
Comm'n, 2018 WL 1014142 (D. Colo. Feb. 22, 2018).
    \577\ Winding Creek Solar LLC, 151 FERC ] 61,103,
reconsideration denied, 153 FERC ] 61,027 (2015). But see Winding
Creek Solar LLC v. Peterman, 932 F.3d 861 (9th Cir. 2019).
---------------------------------------------------------------------------

    364. Given this precedent, the Commission proposed to amend its
regulations to clarify that a state could establish QF avoided cost
rates through an appropriate competitive solicitation process.
Consistent with its general approach of giving states flexibility in
the manner in which they determine

avoided costs, the Commission did not propose in the NOPR to prescribe
detailed criteria governing the use of competitive solicitations as
tools to determine rates to be paid to QFs, as well as to determine
other contract terms. The Commission stated that states arguably may be
in the best position to consider their particular local circumstances,
including questions of need, resulting economic impacts, amounts to be
purchased through auctions, and related issues.
    365. Nevertheless, in considering what constitutes proper design
and administration of a competitive solicitation, the Commission found
it was appropriate to establish certain minimum criteria governing the
process by which competitive solicitations are to be conducted in order
for a competitive solicitation to be used to set QF rates. In that
regard, the Commission noted that it has addressed competitive
solicitations in prior orders in a number of contexts that provide
potential guidance to states and others. For example, the Commission's
policy for the establishment of negotiated rates for merchant
transmission projects,\578\ the Bidding NOPR, and the Hydrodynamics
case \579\ all suggest factors that could be considered in establishing
an appropriate competitive solicitation that is conducted in a
transparent and non-discriminatory manner.
---------------------------------------------------------------------------

    \578\ Allocation of Capacity on New Merchant Transmission
Projects and New Cost-Based, Participant-Funded Transmission
Projects, 142 FERC ] 61,038 (2013).
    \579\ See Hydrodynamics, 146 FERC ] 61,193 at P 32 n.70 (citing
Bidding NOPR, FERC Stats. & Regs. ] 32,455 at 32,030-42). The
Commission notes that, while QFs not awarded a contract pursuant to
an competitive solicitation would retain their existing PURPA right
to sell energy as available to the electric utility, if the state
has concluded that such QF capacity puts tendered after an
competitive solicitation was held are ``not needed,'' the capacity
rate may be zero because an electric utility is not required to pay
a capacity rate for such puts if they are not needed. See
Hydrodynamics, 146 FERC ] 61,193 at P 35 (referencing City of
Ketchikan, 94 FERC ] 61,293 at 62,061 (``[A]voided cost rates need
not include the cost for capacity in the event that the utility's
demand (or need) for capacity is zero. That is, when the demand for
capacity is zero, the cost for capacity may also be zero.'')).
---------------------------------------------------------------------------

    366. These factors, as proposed in the NOPR, include, among others:
(a) An open and transparent process; (b) solicitations should be open
to all sources to satisfy the purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity; \580\ (c) solicitations conducted at regular
intervals; (d) oversight by an independent administrator; and (e)
certification as fulfilling the above criteria by the state regulatory
authority or nonregulated electric utility. The Commission proposed
that a state may use a competitive solicitation to set avoided cost
energy and capacity rates, provided that such competitive solicitation
process is conducted pursuant to procedures ensuring the solicitation
is transparent and non-discriminatory. The Commission proposed that
such a competitive solicitation must be conducted in a process that
includes, but is not limited to, the factors identified above which
would be set forth in proposed subsection (b)(8).
---------------------------------------------------------------------------

    \580\ See 18 CFR 292.304(e); Windham Solar, 157 FERC ] 61,134 at
PP 5-6.
---------------------------------------------------------------------------

    367. In addition, the Commission sought comment on whether it
should provide further guidance on whether, and under what
circumstances, a competitive solicitation can be used as a utility's
exclusive vehicle for acquiring QF capacity.\581\
---------------------------------------------------------------------------

    \581\ The Commission proposed that, even if a competitive
solicitation were used as an exclusive vehicle for an electric
utility to obtain QF capacity, QFs that do not receive an award in
the competitive solicitation would be entitled to sell energy to the
electric utility at an as-available avoided cost energy rate.
---------------------------------------------------------------------------

b. Comments
i. Comments in Opposition
    368. Several commenters oppose the NOPR proposal to allow states
the ability to set avoided cost energy and capacity rates through a
competitive solicitation such as an RFP.\582\
---------------------------------------------------------------------------

    \582\ Allco Comments at 12; Blue Earth Comments at 1-2; Boulder
Comments at 6; CA Cogeneration Comments at 10-11; Green Power
Comments at 1-3; Industrial Energy Consumers Comments at 13.
---------------------------------------------------------------------------

    369. Allco states that allowing a state commission to use a
competitive solicitation price is simply giving another tool to a state
commission to eliminate QF projects.\583\ Allco also contends that this
proposal creates an apples and oranges scenario where a competitive
solicitation could be won by solar projects of 80 MWs at a low, steeply
discounted price that may never get built, resulting in a state
commission publishing that as an avoided cost for a 1 MW solar project
connected to the distribution system.\584\ Allco points to California's
Renewable Marketing Adjustment Tariff program as an example of a
competitive solicitation price failure.\585\
---------------------------------------------------------------------------

    \583\ Allco Comments at 12.
    \584\ Id.
    \585\ Id.
---------------------------------------------------------------------------

    370. CA Cogeneration states that relying on a competitive
solicitation violates PURPA's mandatory purchase obligation, and the
regulations must always preserve the right of a QF to negotiate a
contract for the purchase of its output at an avoided cost rate.\586\
CA Cogeneration states that reliance on a competitive solicitation also
fails to provide the necessary financial and operational encouragement
for combined heat and power.\587\
---------------------------------------------------------------------------

    \586\ CA Cogeneration Comments at 10.
    \587\ Id. at 11.
---------------------------------------------------------------------------

    371. Covanta asserts that the Commission's proposed competitive
solicitation process would disadvantage technologies like Waste to
Energy that are not growing, or are closing facilities.\588\
---------------------------------------------------------------------------

    \588\ Covanta Comments at 9.
---------------------------------------------------------------------------

    372. Southeast Public Interest Organizations argue that, in the
states that currently require some form of competitive solicitation,
many utilities do not regularly hold competitive solicitations, do not
make competitive solicitations open to all QFs, or do not provide QFs
the ability to sell to the utility outside of a competitive
solicitation process.\589\ Southeast Public Interest Organizations
maintain that the competitive solicitation process can be overly
burdensome and costly for smaller facilities. Southeast Public Interest
Organizations assert that no state requires, and no utility conducts, a
competitive solicitation to determine how best to meet the ongoing
energy needs that it currently meets through the operation of its
existing generation fleet and market purchases.\590\ In particular,
Southeast Public Interest Organizations represent that: (1) Florida
does not require an independent evaluator as part of its competitive
solicitation process; (2) Colorado and Oklahoma allow utilities to
apply for waivers of the competitive solicitation requirement; and (3)
North Carolina allows the incumbent utility to participate in the
competitive bidding process and to receive preferential treatment in
the form of waiving post bid security required for any independently
owned projects.\591\ Southeast Public Interest Organizations conclude
that, while a well-designed and well-implemented competitive
solicitation process could be an appropriate procurement and rate-
setting tool in some cases, competitive solicitations should never be
the only way to set rates or for QFs to sell their output, and close
consideration should be given to determinations of utility capacity
needs that could be manipulated to limit renewable energy
procurements.\592\
---------------------------------------------------------------------------

    \589\ Southeast Public Interest Organizations Comments at 26.
    \590\ Id. at 26-27.
    \591\ Id. at 27.
    \592\ Id. at 25-26.

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

    373. Mr. Mattson states that precedent and legislative intent
remove competitive solicitations from being a PPA option.\593\ Both Mr.
Mattson and Two Dot Wind point to the Commission's ruling in
Hydrodynamics that ``requiring a QF to win a competitive solicitation
as a condition to obtaining a long-term contract imposes an
unreasonable obstacle to obtaining a legally enforceable obligation.''
\594\ Two Dot Wind also states that competitive solicitations have not
worked in Montana, and that the NOPR's suggestion that competitive
bidding can replace PURPA is not supported by the factual record in
Montana.\595\
---------------------------------------------------------------------------

    \593\ Mr. Mattson Comments at 23.
    \594\ Id.; Two Dot Wind Comments at 10 (citing Hydrodynamics,
146 FERC ] 61,193).
    \595\ Two Dot Wind Comments at 9-10.
---------------------------------------------------------------------------

    374. Industrial Energy Consumers expresses concern that the
parameters for competitive solicitations are not sufficiently developed
to ensure a well-structured, fairly administered, transparent, and non-
discriminatory process for procurement, and therefore opposes allowing
a competitive solicitation process to determine avoided costs at this
time.\596\
---------------------------------------------------------------------------

    \596\ Industrial Energy Consumers Comments at 13.
---------------------------------------------------------------------------

ii. Comments in Support
    375. Several commenters support the NOPR proposal to allow states
the ability to set energy and capacity rates through a competitive
solicitation such as an RFP.\597\
---------------------------------------------------------------------------

    \597\ Alaska Power Comments at 1; Distributed Sun Comments at 2;
EEI Comments at 32-33; El Paso Electric Comments at 4; NARUC
Comments at 3; NRECA Comments at 11; South Dakota Commission
Comments at 2-3.
---------------------------------------------------------------------------

    376. Multiple commenters, including EEI, NRECA, and the Oregon
Commission, support the notion that the states are in the best position
to tailor the competitive solicitation process to their needs, and that
the Commission should not provide detailed criteria governing the use
of competitive solicitations.\598\ EEI states that the fact that
competitive solicitations may be used to set avoided costs is an idea
nearly as old as PURPA.\599\ EEI also supports the Commission's
proposal for a state to allow a competitive solicitation to be used as
the exclusive vehicle for acquiring QF capacity.\600\ NRECA notes that
numerous NRECA members have already had success using competitive
solicitations to establish both energy and capacity rates in states
where competitive solicitations are permitted.\601\
---------------------------------------------------------------------------

    \598\ EEI Comments at 32-33; NRECA Comments at 11; Oregon
Commission Comments at 3-4.
    \599\ EEI Comments at 32.
    \600\ Id. at 33.
    \601\ NRECA Comments at 11.
---------------------------------------------------------------------------

    377. Growth and Opportunity Center states that competitive
solicitation processes, in place of avoided cost calculations, provide
better signals to investors of where their electricity is most valuable
because competitive solicitations reflect more informed estimates of
the real-time needs of electricity consumers. Growth and Opportunity
Center contends that the proposed rule changes, by giving states more
latitude to use competitive solicitations in complying with PURPA,
should result in prices for consumers that more accurately reflect
market costs for electricity.\602\ Growth and Opportunity Center also
asserts that in states using competitive solicitation processes,
nondiscrimination rules should be enforced to ensure that solicitations
are competitive and that no providers receive preferential
treatment.\603\
---------------------------------------------------------------------------

    \602\ Growth and Opportunity Center Comments at 9.
    \603\ Id. at 10.
---------------------------------------------------------------------------

    378. The Michigan Commission states that it recently approved using
competitive solicitations to determine avoided capacity costs for a
large electric utility in Michigan.\604\ The Michigan Commission states
that it believes that that recently approved structure aligns with the
Commission's proposal in the NOPR.\605\
---------------------------------------------------------------------------

    \604\ Michigan Commission Comments at 4.
    \605\ Id. at 5.
---------------------------------------------------------------------------

    379. Portland General asserts that, because the output of an
competitive solicitation represents a resource's true market costs, a
competitive solicitation is the correct method to determine avoided
cost.\606\ Portland General states that, given the competitive nature
of competitive solicitations, bidders are highly motivated, which
results in the procurement of resources with high benefit-to-cost
ratios. Portland General cites as an example its recent competitive
solicitation, which resulted in a $40.70-levelized price and reflects a
combination of technologies (wind, solar, and battery), whereas QFs,
which Portland General asserts provide lower capacity, are currently
offered at a $45.19 levelized price for solar energy.\607\
---------------------------------------------------------------------------

    \606\ Portland General Comments at 11.
    \607\ Id.
---------------------------------------------------------------------------

    380. Xcel urges the Commission's to give the states the option of
procuring all needed capacity through competitive bidding
processes.\608\ Xcel strongly believes that states must have the
ability to control capacity additions to ensure that customer needs and
state policy goals are met.\609\ Xcel explains that in many states,
including some in which the Xcel operating companies operate, resource
procurement is accomplished largely through state-administered IRP
processes, which are utilized to ensure a resource mix that meets the
overall public interest in affordable and clean energy. Xcel states
that these carefully calibrated processes can be upset when QFs bring
capacity on to a utility's system that does not align with the state's
vision of its optimal resource mix and when those QFs also attempt to
collect above-market payments from utilities and therefore customers.
Xcel states that Colorado's procurement efforts have been so successful
that in 2016 more than 400 bids for 238 distinct projects were
submitted for Public Service Company of Colorado alone, and that this
process resulted in some of the lowest prices for renewables seen as of
that date, with a median wind price of $19.30/MWh and a median solar
price of $30.96/MWh. Xcel argues that unsolicited puts by QFs, in
contrast, can impede the ability of states to meet their resource
planning goals and can undermine the competitive markets that states
like Colorado have already created or are striving to create.\610\
---------------------------------------------------------------------------

    \608\ Xcel Comments at 10.
    \609\ Id. at 8.
    \610\ Id. at 9.
---------------------------------------------------------------------------

    381. North Carolina Commission Staff states that North Carolina has
implemented a competitive solicitation process for solar energy that
complements the PURPA reforms adopted by the state, with the first
solicitation concluding in April 2019.\611\ North Carolina Commission
Staff states that an independent administrator estimated the initial
nominal savings for the competitive solicitation with a 20-year
contract versus traditional avoided cost pricing to exceed $370 million
for the utilities involved.\612\
---------------------------------------------------------------------------

    \611\ North Carolina Commission Staff Comments at 3-4.
    \612\ Id. at 4.
---------------------------------------------------------------------------

    382. Duke Energy shares its state-specific experience with North
Carolina's competitive solicitation for renewable energy as a positive
example.\613\ Duke Energy states that Duke Energy Carolinas, LLC and
Duke Energy Progress, LLC recently completed their Tranche 1
Competitive Procurement of Renewable Energy RFP and procured
approximately 550 MW of new solar capacity for 20-year fixed price
contract terms at a projected savings of approximately $261 million
relative to administratively determined

forecasts of avoided costs over this same period.\614\
---------------------------------------------------------------------------

    \613\ Duke Energy Comments at 10-12.
    \614\ Id. at 12.
---------------------------------------------------------------------------

iii. Comments Requesting Modifications/Clarifications
(a) Requests for Clarification and/or Separate Proceedings
    383. NIPPC, CREA, REC, and OSEIA argue that the NOPR fails to
explain (1) whether the Commission is proposing to merely clarify that
a state could use the lowest offer prices submitted in a competitive
solicitation to set the avoided costs of energy and capacity on a
prospective basis for any QF seeking a contract until the next
competitive solicitation, or (2) whether the Commission is proposing a
radical change in its precedent by revising its rules to provide that a
QF may only sell under a long-term contract if that QF wins a
competitive solicitation, which NIPPC, CREA, REC, and OSEIA assert
would be contrary to the Hydrodynamics \615\ and Winding Creek \616\
cases.\617\
---------------------------------------------------------------------------

    \615\ Hydrodynamics, 146 FERC ] 61,193.
    \616\ Winding Creek Solar LLC v. Peterman, 932 F.3d 861.
    \617\ NIPPC, CREA, REC, and OSEIA Comments at 62-63.
---------------------------------------------------------------------------

    384. NIPPC, CREA, REC, and OSEIA request that any requirement to
win a competitive solicitation to obtain a long-term PURPA contract
should exempt small facilities.\618\ NIPPC, CREA, REC, and OSEIA
further state that the Commission should: (1) Require that the
competitive solicitation include no utility-ownership options; or (2)
if utility-owned generation may result, the competitive solicitation
must be: (i) Administered and scored (not just overseen) by a qualified
independent party, not the utility; (ii) any utility or utility-
affiliate ownership bid must be capped at its bid price and not allowed
traditional cost-plus ratemaking treatment; and (iii) the product
sought, minimum bidding criteria, and detailed scoring criteria must be
made known to all parties at the same time.\619\ Additionally, NIPPC,
CREA, REC, and OSEIA contend that an option for long-term contracts
should remain available for both small QFs and existing QFs outside of
a competitive solicitation.\620\
---------------------------------------------------------------------------

    \618\ Id. at 67.
    \619\ Id.
    \620\ Id. at 67-68.
---------------------------------------------------------------------------

    385. The Michigan Commission states that it would welcome guidance
on whether, and under what circumstances, a competitive solicitation
can be used as a utility's exclusive vehicle for acquiring QF
capacity.\621\ Similarly, the Montana Commission recommends that the
Commission provide as much guidance to states as possible regarding the
requirements for transparency and non-discrimination.\622\
---------------------------------------------------------------------------

    \621\ Michigan Commission Comments at 5.
    \622\ Montana Commission Comments at 3.
---------------------------------------------------------------------------

    386. The California Commission states that the NOPR does not
provide states any more flexibility than they already have, and the
Commission's final order adopting revised regulations should clearly
state this.\623\
---------------------------------------------------------------------------

    \623\ California Commission Comments at 23.
---------------------------------------------------------------------------

    387. Several commenters suggest that the Commission should conduct
focused additional processes on this topic.\624\ Advanced Energy
Economy suggests that the Commission conduct one or more workshops or
technical conferences, to explore in detail the specific factors that
would make a utility competitive solicitation process a truly
competitive process of a ``comparative quality'' to competitive
wholesale energy and capacity markets.\625\ Advanced Energy Economy
contends that such workshops or technical conferences could ultimately
be the basis for developing proposed regulations better guiding the
states and electric utilities in implementing open and competitive
solicitation processes to obtain relief from the mandatory purchase
obligation under PURPA section 210(m)(1)(C).\626\ Industrial Energy
Consumers argues that, if the Commission seeks to allow states to rely
on competitive solicitation processes, the Commission should undertake
a separate inquiry, with necessary technical conferences, to develop
specific parameters to govern such processes.\627\ If the Commission
relies directly on competitive solicitation processes in the final
rule, Industrial Energy Consumers states that if, after undertaking the
competitive solicitation, the utility rejects all offers and decides to
self-build, then the all-inclusive price of the self-build option
should at least establish the avoided cost rate for QFs seeking to
develop in that area.\628\ EPSA argues that the Commission should
require further proceedings, including another technical conference, to
discuss the protections that would be necessary in order to have a
genuinely level playing field for competitive solicitations.\629\
---------------------------------------------------------------------------

    \624\ Advanced Energy Economy Comments at 13; EPSA Comments at
15-16; Industrial Energy Consumers Comments at 13-14.
    \625\ Advanced Energy Economy Comments at 13.
    \626\ Id.
    \627\ Industrial Energy Consumers Comments at 13-14.
    \628\ Id. at 14.
    \629\ EPSA Comments at 16.
---------------------------------------------------------------------------

    388. Commissioner Slaughter states that PURPA sits at the
intersection of competition and regulatory policy in an area of vital
and urgent interest, and that the Commission should establish fair,
non-discriminatory guidelines for competitive solicitations that would
help states and other stakeholders maximize the benefits of competition
from low-cost energy sources, particularly utility-scale renewable
energy facilities.\630\ Commissioner Slaughter states that such
guidelines could form the basis for transitioning many local markets
from administratively determined prices to environments of dynamic
price discovery in which the rapidly decreasing cost of utility-scale
renewable energy can put maximum pressure on both new and pre-existing
fossil fuel-based sources of electricity.\631\
---------------------------------------------------------------------------

    \630\ Commissioner Slaughter Comments at 1-2.
    \631\ Id. at 3.
---------------------------------------------------------------------------

    389. EPSA states that the Commission should ensure that competitive
solicitations are properly designed to ensure that QFs have meaningful
opportunities to compete against resources owned by incumbent utilities
on a level playing field.\632\ EPSA states that the Commission should
use this opportunity to do a full assessment of how competitive
solicitations are working and could be enhanced, while providing
continued protections to prevent discrimination against QFs.\633\ EPSA
also emphasizes that, regardless of whatever competitive solicitation
rules the Commission ultimately adopts, the Commission must continue to
exercise its ``backstop'' oversight and enforcement authority to ensure
that any requirements are implemented in a consistent and appropriate
manner by individual states.\634\
---------------------------------------------------------------------------

    \632\ EPSA Comments at 3.
    \633\ Id. at 14.
    \634\ Id. at 16-17.
---------------------------------------------------------------------------

(b) Requests Regarding Proposed Criteria
    390. Several commenters requested that the Commission clarify the
criteria that solicitations be conducted at regular intervals.\635\
Several commenters request that the Commission reconsider or remove
that criteria.\636\ sPower argues that the Commission should require
that such competitive solicitations be conducted at a minimum every two
years.\637\ Colorado Independent Energy

asserts that competitive solicitations should be held at regular
intervals to test the market, and that the Commission should consider
the entire market, not just projects 80 MW and under, in evaluating
whether there are full and competitive opportunities.\638\
---------------------------------------------------------------------------

    \635\ APPA Comments at 17-18; Basin Comments at 9; Montana
Commission Comments at 3; sPower Comments at 9-10.
    \636\ NorthWestern Comments at 7-8.
    \637\ sPower Comments at 9-10.
    \638\ Colorado Independent Energy Comments at 9-12.
---------------------------------------------------------------------------

    391. Several commenters oppose the requirement for an independent
administrator.\639\ APPA argues that the entire PURPA administrative
construct is designed to entrust to state regulatory authorities the
responsibility to carry out the duties they are assigned under the
Commission's regulations.\640\ NRECA believes that states are in the
best position to determine the need for ``oversight by an independent
administrator'' and recommends this criterion be deleted.\641\ NRECA
requests that, if the Commission retains the requirement that
competitive solicitation processes include some type of oversight,
instead of requiring oversight by an independent administrator, the
Commission should allow states the flexibility to allow electric
utilities to retain a third-party consultant for this purpose.\642\
NRECA contends that many cooperatives have long-standing relationships
with third-party consultants that assist the cooperatives in evaluating
power supply options, and requiring those cooperatives to now use some
other entity (i.e., the independent administrator) would be disruptive
and costly.\643\ Colorado Independent Energy notes that, while
independent evaluators are helpful, they are often employed by
utilities and thus sometimes reluctant to offer third party criticism
of the bid evaluation process.\644\
---------------------------------------------------------------------------

    \639\ APPA Comments at 18; NRECA Comments at 11.
    \640\ APPA Comments at 18 (citing 16 U.S.C. 824a-3(f) (expressly
calling for state regulatory authorities and nonregulated electric
utilities to implement Commission-issued PURPA regulations)).
    \641\ NRECA Comments at 11.
    \642\ Id. at 12.
    \643\ Id.
    \644\ Colorado Independent Energy Comments at 8.
---------------------------------------------------------------------------

    392. The Montana Commission requests clarification of the term
``independent administrator'' and ``certified'' as those terms are used
in the proposed revisions to Sec.  292.304(b).\645\
---------------------------------------------------------------------------

    \645\ Montana Commission Comments at 3.
---------------------------------------------------------------------------

    393. sPower disagrees that a competitive solicitation should ``take
into account the required operating characteristics of the needed
capacity'' in order to produce accurate avoided cost rates and
recommends that a final rule remove that language from condition (ii)
in the Commission's list of conditions that a competitive solicitation
must meet.\646\
---------------------------------------------------------------------------

    \646\ sPower Comments at 8.
---------------------------------------------------------------------------

    394. Colorado Independent Energy states that, in addition to the
guidelines provided in the NOPR, the Commission should include
additional guidelines, including that fairness of an ``all-source''
competitive solicitation must also be determined based on bid
evaluation and not just on a competitive solicitation. Colorado
Independent Energy asserts that competitive solicitation submissions
can be technology-specific, but not the evaluation or the analysis of
the need to be met by a competitive solicitation. Colorado Independent
Energy asserts that a true all-source selection process must allow
resource planning models to optimize among all bids received without
bias toward QF-eligible technologies such as renewable generation or
cogeneration.\647\
---------------------------------------------------------------------------

    \647\ Colorado Independent Energy at 2.
---------------------------------------------------------------------------

    395. Several commenters stated that competitive solicitations must
be assessed using the criteria set forth in Allegheny.\648\ EPSA
further states that, while the Allegheny principles provide a good
starting point, additional protections will be required to level the
playing field between independent generators and utilities.\649\ R
Street asserts that, if an auction can meet the Allegheny standard,
then generators in that state would not be eligible for QF
designations. R Street suggests that QFs should not be able to force
their power on utilities if they lose such fairly administered
auctions.\650\
---------------------------------------------------------------------------

    \648\ EPSA Comments at 14-15 (citing Allegheny, 108 FERC ]
61,082); R Street Comments at 3-4; Solar Energy Industries
Supplemental Comments, Docket No. AD16-16-000, at 32-37 (filed Aug.
28, 2019).
    \649\ EPSA Comments at 15.
    \650\ R Street Comments at 3-4.
---------------------------------------------------------------------------

    396. Solar Energy Industries asserts that the Commission should
require a purchasing electric utility to provide the state commission,
and make available for public inspection, a post-solicitation report
that: (1) Identifies the winning bidders; (2) includes a copy of any
reports issued by the independent evaluator; and (3) demonstrates that
the solicitation program was implemented without undue preference for
the interests of the purchasing utility or its affiliates. Solar Energy
Industries further assert that the solicitation program should include
clear details regarding the manner in which the bids will be scored and
clearly specify price and non-price criteria under which bids are
evaluated including: (1) Acceptable delivery points and any scoring
deductions for delivery to other points; (2) credit evaluation criteria
and development securing requirements; and (3) performance
requirements.\651\
---------------------------------------------------------------------------

    \651\ Solar Energy Industries Supplemental Comments, Docket No.
AD16-16-000, at 21 (filed August 28, 2019).
---------------------------------------------------------------------------

    397. Public Interest Organizations argue that the Commission's
proposal does not require that state competitive solicitation
procedures meet the statutory floor established through PURPA that
rates both (1) encourage small power producers and (2) not discriminate
relative to the utility's own generation and other non-QF
generators.\652\ To ensure competitive solicitations actually meet the
statutory criteria, the Commission must ensure that competitive
solicitations meet four minimum standards.\653\ First, Public Interest
Organizations state that solicitations must account for utility-owned
and non-QF generation and cannot be a limited competition between QFs
without the ability to displace non-QF generation.\654\ As an example
of an incorrectly-conducted, and unlawfully-discriminatory, bidding
process, Public Interest Organizations cite the Nevada competitive
solicitation process that is limited to QFs to meet a small, segregated
portion of the utility's energy and unmet capacity requirements.\655\
Second, to ensure that QFs receive the same price that other generation
receives, Public Interest Organizations state that all sources of
supply must compete in the competitive solicitation-- including the
utility's own generation.\656\ Third, Public Interest Organizations
state that the solicitation process cannot be used in any way to
curtail or delay a utility's obligation to purchase from QFs.\657\
Fourth, the ``required operating characteristics of the needed
capacity'' factor suggested in the NOPR cannot be used as a surrogate
to define characteristics of only non-QF generation or to allow a
utility to pick among favored generators.\658\
---------------------------------------------------------------------------

    \652\ Public Interest Organizations Comments at 69-70.
    \653\ Id. at 70.
    \654\ Id.
    \655\ Id. at 71-72.
    \656\ Id. at 72.
    \657\ Id. at 72-73.
    \658\ Id. at 73.
---------------------------------------------------------------------------

    398. Biogas states that, if QFs are to enter into competitive
solicitations as a vehicle for PURPA, then there must be some
correcting for the inequitable tax and regulatory provisions afforded
to incumbent utilities and select renewable

technologies, in order to ensure a fair market opportunity.\659\
---------------------------------------------------------------------------

    \659\ Biogas Comments at 2.
---------------------------------------------------------------------------

    399. American Dams requests that QFs competing against a utility
that can rate base the cost of new generation should be entitled to
similar valuation provided that QF costs are at or less than those of
the utility.\660\
---------------------------------------------------------------------------

    \660\ American Dams Comments at 3.
---------------------------------------------------------------------------

(c) Other Requests
    400. In their comments to the NOPR, Solar Energy Industries
reference their August 28, 2019 comments in Docket No. AD16-16-
000,\661\ in which they describe the ``SEIA Counterproposal.'' That
document proposes that, where a utility seeks to meet identified
capacity needs through an open, fairly designed, and independently
administered competitive solicitation: (i) The purchasing electric
utility would only have to pay QFs for capacity to the extent that the
purchasing electric utility failed to meet identified need through the
competitive solicitation; and (ii) the QF would be paid for its output
(energy and capacity) at the market rate established through the
competitive solicitation process.\662\
---------------------------------------------------------------------------

    \661\ Solar Energy Industries Supplemental Comments, Docket No.
AD16-16-000, at 17-40 (filed Aug. 28, 2019).
    \662\ Solar Energy Industries Comments at 38.
---------------------------------------------------------------------------

    401. Solar Energy Industries request that the Commission supplement
proposed 18 CFR 292.304(b)(5) to require that: (1) Participants are
provided with complete and transparent information regarding
transmission constraints, levels of congestion, and interconnections;
and (2) the solicitation is linked with the purchasing utility's IRP
and is conducted for the entirety of a utility's anticipated capacity
needs.\663\
---------------------------------------------------------------------------

    \663\ Id. at 39.
---------------------------------------------------------------------------

    402. Solar Energy Industries request that the Commission expressly
implement safeguards to prevent utility self-dealing and affiliate
abuse, with regard to both price and non-price terms.\664\ Solar Energy
Industries reference their previous comments in this proceeding, which
they state describe practices of PacifiCorp,\665\ NorthWestern,\666\
Duke,\667\ and Xcel \668\ purportedly showing that these utilities have
attempted to reduce QFs' ability to sell while simultaneously seeking
to build and rate base their own substantial renewable resources.\669\
---------------------------------------------------------------------------

    \664\ Id.
    \665\ Solar Energy Industries Supplemental Comments, Docket No.
AD16-16-000, at 25-28 (filed August 28, 2019).
    \666\ Id. at 28-29.
    \667\ Id. at 29-31.
    \668\ Id. at 21.
    \669\ Solar Energy Industries Comments at 40.
---------------------------------------------------------------------------

    403. ELCON states that it continues to see shortcomings in
competitive procurement practices across regions.\670\ A current
example ELCON provides is Dominion Energy Virginia's 2019 RFP which,
ELCON argues, limited competition in a manner that all but guarantees
that a Dominion self-build option will prevail because it restricts
participation to new resources only and does not permit an independent
third party to evaluate bids.\671\ Another example ELCON provides is a
recent Entergy Louisiana solicitation through which a natural gas
generating facility was approved despite opposition from Louisiana
industrial consumers who argued that the competitive solicitation was
improperly designed to limit resource options to new construction
comparable to a self-build.\672\
---------------------------------------------------------------------------

    \670\ ELCON Comments at 27.
    \671\ Id.
    \672\ Id. at 28.
---------------------------------------------------------------------------

    404. ELCON asserts that, to be competitive, a competitive
solicitation must be transparent, face independent oversight, have
safeguards against affiliate abuse involving transactions between
franchised utilities and their market-based affiliates, and have well-
defined technical parameters.\673\ ELCON states that experiences with
competitive solicitations thus far expose the challenges of achieving a
workably competitive process. ELCON urges the Commission to set a high
bar, with enforcement to verify that a process is sufficiently
competitive.\674\
---------------------------------------------------------------------------

    \673\ Id. at 28-29.
    \674\ Id.
---------------------------------------------------------------------------

    405. NorthWestern states that it supports the Commission's proposal
to use competitive solicitations or RFPs to establish avoided capacity
costs, but not avoided energy costs, because NorthWestern believes that
an energy-only competitive solicitation has no relation to the market
whereas a capacity competitive solicitation does.\675\ NorthWestern
believes that use of a competitive solicitation should be the preferred
vehicle for setting avoided capacity rates for QFs because this will
ensure that the capacity is acquired at the least cost thereby
benefiting customers.\676\
---------------------------------------------------------------------------

    \675\ NorthWestern Comments at 7.
    \676\ Id.
---------------------------------------------------------------------------

    406. Institute for Energy Research states that it would go even
further than the NOPR proposal and require that competitive
solicitations be the default whenever possible, with states having to
justify case-by-case why a non-competitive solicitation is needed,
because solicitation is the best expression of the Congressional
mandate to encourage competition.\677\
---------------------------------------------------------------------------

    \677\ Institute for Energy Research Comments at 1.
---------------------------------------------------------------------------

    407. Harvard Electricity Law states that the NOPR's proposed 18 CFR
292.304(b)(8)(ii), requiring solicitations must be open to ``all
sources''--could be read as inconsistent with the Commission's CPUC
orders \678\ and the 2019 CARE v. CPUC decision.\679\ Harvard
Electricity Law argues that, if the Commission amends its avoided cost
rules to allow states to set avoided cost rates based on competitive
solicitations, it should clarify that states may set tiered rates, as
the Commission and the U.S. Court of Appeals for the Ninth Circuit has
allowed in the above cases.\680\
---------------------------------------------------------------------------

    \678\ Cal. Pub. Utils. Comm'n, 133 FERC ] 61,059, clarification
and reh'g denied, 133 FERC ] 61,059 (2010), reh'g denied, 134 FERC ]
61,044 (2011) (CPUC) .
    \679\ Californians for Renewable Energy v. Cal. Pub. Utils.
Comm'n, 922 F.3d 929, 937 (9th Cir. 2019) (CARE v. CPUC) (holding
that ``where a state has [a renewable portfolio standard (RPS)] and
the utility is using a QF's energy to meet the RPS, the utility
cannot calculate avoided costs based on energy sources that would
not also meet the RPS[,]'' which ``comports with PURPA's goal to put
QFs on an equal footing with other energy providers'').
    \680\ Harvard Electricity Law Comments at 31.
---------------------------------------------------------------------------

    408. The Oregon Commission recommends that the Commission emphasize
the need for states to have adequate safeguards to protect bidders'
confidential and commercially sensitive proprietary information when
using competitive solicitations to determine or inform avoided cost
rates.\681\
---------------------------------------------------------------------------

    \681\ Oregon Commission Comments at 4.
---------------------------------------------------------------------------

    409. sPower states that the issue of using a competitive
solicitation process to establish avoided cost rates has sometimes been
conflated with using a competitive solicitation process to establish a
LEO, and sPower encourages the Commission to continue to analyze these
distinct issues separately.\682\
---------------------------------------------------------------------------

    \682\ sPower Comments at 3.
---------------------------------------------------------------------------

    410. Resources for the Future stresses that competitive
solicitations alone would minimize QF costs but would not establish
avoided cost rates, which depend on much more than the cost of QF
generation.\683\ However, used in concert with forward curves,
Resources for the Future states that competitive solicitations could
provide an effective complementary method.\684\
---------------------------------------------------------------------------

    \683\ Resources for the Future Comments at 8-9.
    \684\ Id. at 9.
---------------------------------------------------------------------------

c. Commission Determination
    411. In this final rule, we affirm the NOPR proposal to revise the
PURPA Regulations to explicitly permit a state the flexibility to set
avoided energy and/or capacity rates using competitive solicitations
(i.e., RFPs), conducted

pursuant to appropriate procedures in a transparent and non-
discriminatory manner. A primary feature of a transparent and non-
discriminatory competitive solicitation is that a utility's capacity
needs are open for bidding to all capacity providers, including QF and
non-QF resources, on a level playing field. This level playing field
ensures that any QF's capacity rates that result from the competitive
solicitation are just and reasonable and non-discriminatory avoided
cost rates.
    412. Consistent with our general approach of giving states
flexibility in the manner in which they determine avoided costs, we do
not prescribe detailed criteria governing the use of competitive
solicitations as tools to determine rates to be paid to QFs, as well as
to determine other contract terms. States arguably are in the best
position to consider their particular local circumstances, including
questions of need, resulting economic impacts, amounts to be purchased
through auctions, and related issues.
    413. In considering what constitutes proper design and
administration of a competitive solicitation, however, we find it
appropriate to establish certain minimum criteria governing the process
by which competitive solicitations are to be conducted in order for an
competitive solicitation to be used to set QF rates. These factors,
which we proposed in the NOPR and adopt here, include, among others:
(a) An open and transparent process; (b) solicitations should be open
to all sources to satisfy that purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity; (c) solicitations conducted at regular intervals;
(d) oversight by an independent administrator; and (e) certification as
fulfilling the above criteria by the state regulatory authority or
nonregulated electric utility.
    414. We affirm that such competitive solicitations must be
conducted in a process that includes, but is not limited to, the
factors identified above that will be set forth in 18 CFR
292.304(b)(8). This rule does not undo any competitive solicitations
conducted prior to the effective date of this final rule that may not
have met these criteria. This rule applies only to competitive
solicitations conducted after the effective date of the final rule. We
also provide modifications and clarifications to the NOPR proposal, as
described below.
i. Requests for Clarification and/or Separate Proceedings
    415. As an initial matter, in the NOPR, the Commission addressed
competitive solicitations in two related but distinct contexts. The
first, to be discussed in this section, relates to the proposal to
explicitly permit a state the flexibility to set avoided cost energy
and/or capacity rates using competitive solicitations (i.e., RFPs),
conducted pursuant to appropriate procedures. The second, to be
discussed below, in section IV.G.2 of this final rule, concerns the
NARUC proposal that urged the Commission to give meaning to PURPA
section 210m(1)(C) by establishing a ``yardstick'' by which a
vertically integrated utility outside of an RTO or ISO could apply to
terminate the mandatory purchase obligation if it conducts sufficiently
competitive RFPs for energy or capacity.
    416. More generally, we support the use of competitive
solicitations as a means to foster competition in the procurement of
generation and to encourage the development of QFs in a way that most
accurately reflects a purchasing utility's avoided costs. We believe
that allowing QFs to compete to provide capacity and energy needs,
through a properly administered competitive solicitation, may help
ensure an accurate determination of the purchasing electric utility's
avoided cost, and therefore result in prices meeting the PURPA's
statutory requirements. We also believe that it is reasonable for
states to choose to require QFs to be responsive to price signals as to
where and when capacity is needed.
    We believe that a properly administered competitive solicitation
can help provide such price signals.
    417. Furthermore, we believe that competitive solicitations may be
an especially appropriate tool for developing competition in the
markets outside of RTOs and ISOs, where there are no organized
competitive markets in place where QFs can make sales.
    418. We emphasize, however, that neither the Commission's current
regulations, nor those adopted in this final rule, require a state or a
purchasing electric utility to use a competitive solicitation to
determine avoided cost rates for QFs. Consistent with other changes in
our regulations discussed above, we give states the flexibility to use
a properly structured competitive solicitation for this purpose, but we
do not mandate that they do so.
    419. Furthermore, in light of the substantial experience the
industry has with competitive solicitations within and outside of the
PURPA context, and the voluminous comments the Commission has received
regarding competitive solicitations, we find that there is not
currently a need for a separate proceeding or additional procedures to
address competitive solicitation issues, such as holding workshops or
technical conferences. Should further procedures appear beneficial in
light of actual competitive solicitation experience under PURPA and the
regulations adopted today, such a proceeding may be appropriate in the
future.
ii. Proposed Criteria
    420. We continue to find that competitive solicitations as
discussed in this final rule may accurately reflect a purchasing
electric utility's avoided costs and ensure that the resulting rates
for winners of such competitive solicitations are consistent with
PURPA. A competitive solicitation may more accurately value QF capacity
over time by subjecting it to competition with other sources. Such
competitive solicitations may provide more certainty both to QFs
regarding when and how often they will be eligible to compete and to
purchasing utilities regarding how they may expect to fulfill their
capacity needs.
    421. The Commission clarifies that, if a utility acquires all of
its capacity through properly conducted competitive solicitations
(using the factors described above), and does not add capacity through
self-building and purchasing power from other sources outside of such
solicitations, the competitive solicitations could be the exclusive
vehicle for the purchasing electric utility to pay avoided capacity
costs from a QF. In this situation, using properly conducted
competitive solicitations as the exclusive vehicle to determine the
purchasing electric utility's avoided cost capacity rates would allow
QFs a chance to compete to provide the utility's capacity needs on a
level playing field with the utility. We clarify that it is up to the
states to determine whether to require that a utility's total planned
self-build and power purchase options must compete in the competitive
solicitations, and we will not direct such a requirement here.
    422. If a state decides to require utility self-build and power
purchase options to participate in competitive solicitations, then a QF
that does not obtain an award in a competitive solicitation would have
no right to an avoided cost capacity rate more than zero because the
utility's full capacity needs would have been met by the competitive
solicitation.\685\ However,

QFs would continue to have the right to put energy to the utility at
the as-available avoided cost energy rate because the purchasing
utility will still be able to avoid incurring the cost of generating
energy even when it does not need new capacity.
---------------------------------------------------------------------------

    \685\ This would be consistent with City of Ketchikan, 94 FERC
at 62,061 (``[A]voided cost rates need not include the cost for
capacity in the event that the utility's demand (or need) for
capacity is zero. That is, when the demand for capacity is zero, the
cost for capacity may also be zero.'').
---------------------------------------------------------------------------

    423. If the state does not require utility self-build and purchase
options to participate in competitive solicitations, then QFs that lose
in a competitive solicitation still may have the right to avoided cost
capacity rates more than zero if the state determines that the utility
still has capacity needs after the competitive solicitation that
otherwise could be met through the utility's self-build or purchase
options.
    424. The Commission has held and we reaffirm here that, when
capacity is not needed, the avoided capacity cost rate can be
zero.\686\ Competitive solicitations conducted pursuant to the rules
adopted in this final rule that are held whenever capacity is needed
provide QFs a level playing field on which to compete to sell capacity.
This approach further shields purchasing electric utilities from
situations like those explained by Xcel, where QFs could simply sit out
the competitive solicitation process (or participate but not have their
bids accepted), but then seek to sell capacity to the purchasing
electric utility and to receive a separate higher administratively-
determined avoided cost rate including an avoided cost capacity rate,
and even potentially displace non-QF competitive solicitation
winners.\687\ This approach benefits ratepayers because allowing QFs to
compete in properly conducted, competitive solicitations that are held
whenever capacity is needed allows the purchasing utility to obtain
needed capacity efficiently. To be clear, the competitive solicitation
is not to be a means to determine a QF's right to put as-available
energy to the utility. But the competitive solicitation can be the
means to determine what, if any, rate the QF will be paid for capacity.
---------------------------------------------------------------------------

    \686\ Id. at 62,061 (``[A]voided cost rates need not include the
cost for capacity in the event that the utility's demand (or need)
for capacity is zero. That is, when the demand for capacity is zero,
the cost for capacity may also be zero.'').
    \687\ See Xcel Comments at 2-3, 9-10.
---------------------------------------------------------------------------

    425. Multiple commenters point out that using competitive
solicitations could be a beneficial way to carry out the Congressional
intent behind PURPA. However, many of these same commenters claim that
the competitive solicitations carried out to date do not live up to
this standard. In other words, commenters assert that the competitive
solicitations conducted to date have often not been properly conducted
and instead have been unfair. As described above, assertions about
specific states' competitive solicitation processes include that:

--The competitive solicitations conducted in Florida are unfair because
they do not require an Independent Evaluator as part of the competitive
solicitation process; \688\
---------------------------------------------------------------------------

    \688\ Southeast Public Interest Organizations Comments at 27.
---------------------------------------------------------------------------

--the competitive solicitations conducted in Colorado and Oklahoma are
unfair because purchasing electric utilities are allowed to apply for
waivers of the competitive solicitation requirement; \689\
---------------------------------------------------------------------------

    \689\ Id.
---------------------------------------------------------------------------

--The competitive solicitations conducted in North Carolina are unfair
because the incumbent purchasing electric utility can receive
preferential treatment in the form of waivers of the post bid security
otherwise required for any independently owned projects; \690\ and
---------------------------------------------------------------------------

    \690\ Id.
---------------------------------------------------------------------------

--The competitive solicitations conducted in Nevada are unfair because
the process is limited to QFs to meet a small, segregated portion of
the utility's energy and unmet capacity requirements.\691\
---------------------------------------------------------------------------

    \691\ Public Interest Organizations Comments at 71-72.
---------------------------------------------------------------------------

    426. Commenters also make assertions about unfair practices of
purchasing electric utilities, including that the purchasing electric
utilities have attempted to reduce QFs' ability to sell while the
purchasing electric utilities are simultaneously seeking to build and
rate base their own substantial renewable resources.
    427. The criteria proposed in the NOPR were aimed at ensuring that
competitive solicitations are conducted fairly. In this final rule, the
Commission finds that, in order to use the results of a competitive
solicitation to set avoided cost rates, the competitive solicitation
must be conducted in a transparent and non-discriminatory manner. Such
a competitive solicitation must be conducted in a process that
includes, but is not limited to, the following factors: (i) The
solicitation process is an open and transparent process that includes,
but is not limited to, providing equally to all potential bidders
substantial and meaningful information regarding transmission
constraints, levels of congestion, and interconnections, subject to
appropriate confidentiality safeguards; (ii) solicitations must be open
to all sources, to satisfy that purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity; (iii) solicitations are conducted at regular
intervals; (iv) solicitations are subject to oversight by an
independent administrator; and (v) solicitations are certified as
fulfilling the above criteria by the relevant state regulatory
authority or nonregulated electric utility through a post-solicitation
report.
    428. Without judging the competitive solicitations conducted to
date, we find that henceforth any competitive solicitation that does
not comply with these factors will be viewed as not transparent and
discriminatory, and not a basis for either setting the avoided cost
capacity rate that a QF may charge the purchasing electric utility or
limiting which generators can receive a capacity rate. Phrased
differently, we will presume that any future competitive solicitation
that does not comply with the factors adopted in this final rule does
not comply with the Commission's regulations implementing PURPA.
    429. In addition, to further promote fairness, the Commission makes
several clarifications, as described below.
    430. We clarify that competitive solicitations must also be
conducted in accordance with the Allegheny principles under which the
Commission evaluates a competitive solicitation: (1) Transparency, a
requirement that the solicitation process be open and fair; (2)
definition, a requirement that the product, or products, sought through
the competitive solicitation be precisely defined; (3) evaluation, a
requirement that the evaluation criteria be standardized and applied
equally to all bids and bidders; and (4) oversight, a requirement that
an independent third party design the solicitation, administer bidding,
and evaluate bids prior to selection.\692\ While the NOPR's proposed
guidelines for competitive solicitations were generally inclusive of
the Allegheny principles, in order to more precisely define what is and
what is not a properly conducted competitive solicitation that can be
used to determine what generators will be entitled to an avoided cost
capacity rate, and what that rate will be, we specifically clarify here
that the Allegheny principles apply as well.
---------------------------------------------------------------------------

    \692\ Allegheny, 108 FERC ] 61,082 at P 18.
---------------------------------------------------------------------------

    431. We also revise the proposed language in 18 CFR
292.304(d)(8)(i) to clarify that participants must be provided with
substantial and meaningful information regarding transmission
constraints, levels of congestion, and interconnections, subject to
appropriate confidentiality

safeguards. We believe that it is important that all participants in
the competitive solicitation have access to these data as a necessary
predicate for a nondiscriminatory competitive solicitation process, and
we find that requiring that this information be provided will help
ensure that a competitive solicitation is open and transparent. We
acknowledge the risk that competitive solicitation participants could
use this information to gain a competitive advantage that could be used
outside of the competitive solicitation, but find that this risk can be
minimized through the use of non-disclosure agreements and placing
reasonable limits on those persons permitted to review the information,
just as is done in other Commission proceedings where this issue
arises.
    432. We also clarify that the requirement that the competitive
solicitation process be open and transparent includes that the electric
utility provide the state commission, and make available for public
inspection, a post-solicitation report that: (1) Identifies the winning
bidders; (2) includes a copy of any reports issued by the independent
evaluator; and (3) demonstrates that the solicitation program was
implemented without undue preference for the interests of the
purchasing utility or its affiliates. We find this consistent with the
requirement that competitive solicitations be open and transparent, to
not only ensure that utilities are not discriminating against QFs, but
also to help all stakeholders and the public at large better understand
the utility's competitive solicitation processes and thus to be
confident in the fairness of the process and of the results.
    433. Regarding the requirement that solicitations must be open to
all sources to satisfy the purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity, we decline to remove the phrase ``taking into
account the operating characteristics of the needed capacity.'' There
may be times when a utility needs capacity with specific attributes,
such as specific ramping capability, that cannot be filled by certain
types of generators. However, we agree with Public Interest
Organizations that this phrase may not be used to define
characteristics of only non-QF generation or to allow a utility to
select favored generators.\693\
---------------------------------------------------------------------------

    \693\ Public Interest Organizations Comments at 73.
---------------------------------------------------------------------------

    434. We decline to be overly prescriptive as to what constitutes
``regular intervals.'' In general, utilities should be reviewing their
capacity needs frequently, and the state or nonregulated electric
utility is in the best position to determine the frequency of that
review. However, there may be times when a utility's review of capacity
needs reveals that no capacity is needed, and it would not make sense
for a competitive solicitation to be mandated at such a time.
    435. We similarly decline to be overly prescriptive as to what
constitutes an ``independent administrator.'' Commenters argue on both
sides whether the NOPR proposal goes too far or not far enough. On the
one hand, NRECA argues that states are in the best position to
determine the need for oversight by an independent administrator and
recommends this criterion be deleted.\694\ On the other hand, Colorado
Independent Energy notes that independent administrators are often
employed by utilities and thus sometimes reluctant to offer third party
criticism of the bid evaluation process.\695\ We clarify that the
independent administrator, who is responsible for administering the
competitive solicitation, must be an entity independent from the
purchasing electric utility in order to help ensure fairness. Whether
the entity is called an independent administrator or a third-party
consultant, the substantive requirement of this factor is that the
competitive solicitation not be administered by the purchasing electric
utility itself or its affiliates, but rather by a separate, unbiased,
and unaffiliated entity not subject to being influenced by the
purchasing utility. We recognize, however, that such an independent
administrator will need to be selected and paid. Though we are not
directing a process, we note that the selection and payment could be
done under the auspices of a state regulatory authority or by mutual
agreement between the utility and the competitive solicitation
participants.
---------------------------------------------------------------------------

    \694\ NRECA Comments at 11. In this final rule, we note, for
ease of readability we have used the word ``state'' to refer to both
state regulatory authorities and to nonregulated electric utilities.
Thus, in the context of nonregulated electric utilities in
particular, to say that the ``state'' can fairly administer the
competitive solicitation is to say that the nonregulated electric
utility can, essentially, be both the purchasing electric utility
and potentially the independent administrator of its own competitive
solicitation. That is a result we cannot countenance.
    \695\ Colorado Independent Energy Comments at 8.
---------------------------------------------------------------------------

    436. In response to the Montana Commission's request for
clarification as to what ``certified'' means within the guideline that
requires certification of the competitive solicitation by the state
regulatory authority or nonregulated electric utility as fulfilling the
above criteria, we clarify that, after a thorough review of the
competitive solicitation procedures used and the competitive
solicitation results, certification of the competitive solicitation
requires a written, formally-issued finding by the state that the
competitive solicitation and its results comply with PURPA and this
Commission's PURPA regulations--and must include the independent
administrator's report to the same effect.
    437. We decline at this time to add any additional requirements for
competitive solicitations. We continue to believe that states may be in
the best position to consider their particular local circumstances. We
think that the guidelines adopted here, in conjunction with the
Allegheny principles and other clarifications made here, provide an
adequate framework for competitive solicitations to be conducted
efficiently, transparently and in a nondiscriminatory manner.
    438. We also clarify that, if a competitive solicitation is not
conducted fairly and in accordance with the guidelines here, then an
aggrieved entity may challenge the state's competitive solicitation in
the appropriate forum, which could include any one or more of the
following: (1) Initiating or participating in proceedings before the
relevant state commission or governing body; (2) filing for judicial
review of any state regulatory proceeding in state court (under PURPA
section 210(g)); or, alternatively (3) filing a petition for
enforcement against the state at the Commission and, if the Commission
declines to act, later filing a petition against the state in U.S.
district court (under PURPA section 210(h)(2)(B)).
iii. Other Requests
    439. We decline to grant Solar Energy Industries request to require
that solicitations be linked with the purchasing electric utility's
IRP. Where a state has an IRP,\696\ it may make sense to link the
competitive solicitation processes with the IRP so that the competitive
solicitation is conducted for the entirety of a utility's anticipated
capacity needs. On the other hand, IRPs may come in a variety of forms.
For example, an IRP may merely be a general projection of short- and
long-term load growth and potential resources to meet such growth, and
each generation project may be subject to specific approval based on
actual specific need. In order to provide states flexibility in
conducting these

processes, we will not require such links between competitive
solicitations and IRPs, although such links certainly are permitted if
a state deems it to be appropriate.
---------------------------------------------------------------------------

    \696\ 16 U.S.C. 2621(a), (d)(7) (requiring states to consider
whether to employ integrated resource planning).
---------------------------------------------------------------------------

    440. Regarding facilities not designed primarily to sell
electricity to the purchasing electric utility, such as waste to power
small power production facilities and cogeneration facilities, we find
that an exemption from competitive solicitation processes is
unnecessary. We do not exempt small power production facilities from
the competitive solicitation process; we are not persuaded that such an
exemption is appropriate given that exempting large classes of small
power producers could frustrate the price discovery function of the
competitive solicitation. A large number of exempted small facilities
could disrupt the competitive solicitation process. We clarify,
however, that QFs whose capacity is 100 kW or less already are entitled
to standard rates regardless of whether they compete in a competitive
solicitation and we do not change that regulation in this final
rule.\697\ Given that we view competitive solicitations as an important
price discovery tool and that states already are required to establish
standard rates for such entities, there is no need to determine prices
for QFs at 100 kW or less through a competitive solicitation.
---------------------------------------------------------------------------

    \697\ See 18 CFR 292.304(c).
---------------------------------------------------------------------------

    441. The Commission clarifies that any competitive solicitation
conducted may not force alteration of existing QF contracts. A QF
receiving a capacity payment is entitled to that payment for the
duration of the term of its contract, and a competitive solicitation is
necessarily forward looking based on the results of that auction.

C. Relief From Purchase Obligation in Competitive Retail Markets

1. NOPR Proposal
    442. The Commission in the NOPR proposed to add regulatory text at
the end of Sec.  292.303(a) of the PURPA Regulations to provide that a
utility's purchase obligation may be reduced to the extent the
purchasing electric utility's supply obligation has been reduced by a
state retail choice program. The Commission stated that it was
reasonable for electric utilities' PURPA capacity purchase obligations
to be reduced to the extent retail choice reduces their supply
obligations. To the extent Provider of Last Resort (POLR) supplies are
obtained through solicitations having a particular contract term such
as one year, the Commission proposed that the length of the utility's
PURPA purchase contract should match the term of the POLR supply
solicitation contracts in order to more accurately reflect the
utility's avoided costs.
    443. The Commission proposed, through this change, to provide that
state regulatory authorities and nonregulated electric utilities have
flexibility to respond to the possibility that, over time, a utility's
POLR supply obligation may decrease (or increase). The Commission
intended that this proposal would apply prospectively from the
effective date of a final rule and would not disturb contracts in
effect at the time the utility's supply obligation is reduced.
2. Comments
    444. APPA, DTE Electric, EEI, Institute for Energy Research,
NorthWestern, NRECA, Pennsylvania Commission, Portland General, and We
Stand for Energy filed comments in support of the Commission's proposal
to provide that the purchase obligation may be reduced to the extent
the purchasing electric utility's supply obligation has been reduced by
a state retail choice program.\698\
---------------------------------------------------------------------------

    \698\ APPA Comments at 20; DTE Electric Comments at 4-5; EEI
Comments at 41-42; Institute for Energy Research Comments at 1-2;
NorthWestern Comments at 8; NRECA Comments at 13-14; Pennsylvania
Commission Comments at 6-7; Portland General Comments at 12-13; and
We Stand Comments at 1.
---------------------------------------------------------------------------

    445. New England Small Hydro, NIPPC, CREA, REC, and OSEIA, and
Public Interest Organizations filed opposing comments arguing that the
Commission lacks the statutory authority to implement this proposal
because the Commission lacks discretion to reduce an electric utility's
mandatory purchase obligation except through PURPA section 210(m).\699\
New England Small Hydro claims that PURPA section 210(a) clearly states
that electric utilities must purchase the electric energy from QFs, and
that the Commission does not have the authority to deviate from the
statute.\700\ NIPPC, CREA, REC, and OSEIA argues that the Commission's
existing regulations adequately address the concern at issue because
any reduction in the long-term capacity needs of the utility due to
retail access should be reflected in avoided capacity rates offered to
QFs.\701\ Public Interest Organizations claim that the Commission
proposes to remove state authority by requiring QF contracts with a
POLR to match the term of the POLR's other supply contracts.\702\
Public Interest Organizations also state that even if the Commission
had such authority, there is no evidence in the record to support
matching QF contract lengths with a POLR's other supply contracts.
Public Interest Organizations also assert that the Commission's
proposal unlawfully discriminates against QFs to the extent that it
fails to treat QF contracts in parity with any of a POLR's other supply
contracts.\703\
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    \699\ New England Small Hydro Comments at 15-16; NIPPC, CREA,
REC, and OSEIA Comments at 68-69; and Public Interest Organizations
Comments at 74-75.
    \700\ New England Small Hydro at 16 (citing Chevron U.S.A., Inc.
v. Nat. Res. Def. Council, 467 U.S. 837 (1984)).
    \701\ NIPPC, CREA, REC, and OSEIA Comments at 69.
    \702\ Public Interest Organizations Comments at 74.
    \703\ Id. at 75.
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    446. Biogas and Covanta argue that the rationale for this proposal
is unclear and that the NOPR fails to justify the reduction of a
utility's obligation to purchase QF power based on the amount of any
non-utility generator's supply into the utility's service
territory.\704\ Covanta states that the NOPR incorrectly concludes that
all public power is renewable power.\705\ Biogas and Covanta assert
that the existence of a competitive retail market does not mean there
is a competitive retail market for biogas or waste-to-energy QFs.\706\
Biogas and Covanta also argue that the NOPR would reduce that already
limited market by providing greater leverage to the purchasing electric
utility, and urge the Commission to remove barriers to local government
options for energy purchase rates.
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    \704\ Biogas Comments at 2; Covanta Comments at 9.
    \705\ Covanta Comments at 9.
    \706\ Biogas Comments at 2; Covanta Comments at 9-10.
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    447. Ohio Commission Energy Advocate states that under Ohio law, an
electric distribution utility is required to provide consumers within
its certified territory a standard service offer of all competitive
retail electric services necessary to maintain essential electric
services to customers, including a firm supply of electric generation
services.\707\ Ohio Commission Energy Advocate claims that all PUCO-
regulated electric distribution utilities satisfy this obligation
through competitive solicitation for default service within the context
of an electric security plan.\708\ Ohio Commission Energy Advocate
believes that the electric distribution utility should retain the full
purchase obligation because the regulated utility maintains the
obligation to serve as the POLR for all

``wires-connected'' customers.\709\ Ohio Commission Energy Advocate
also states that it is concerned by the lack of alternatives to the
mandatory purchase obligation and would question any interpretation of
PURPA that contemplates a scenario where no entity has a purchase
obligation for a QF.\710\
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    \707\ Ohio Commission Energy Advocate Comments at 5.
    \708\ Id. at 6.
    \709\ Id. at 6-7.
    \710\ Id.
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    448. ELCON, California Utilities, Chamber of Commerce, Connecticut
Authority, and Michigan Commission request further clarification on how
the Commission's proposal will be implemented. ELCON states that
industrial customers conditionally support the reduction in obligation
to purchase based on a state retail choice program, subject to the
development of clear and enforceable criteria that exclude mandatory
purchase obligation relief for default supply obligations that
utilities meet with their own generation.\711\
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    \711\ ELCON Comments at 19.
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    Similarly, California Utilities state that because of the various
ways states have developed restructured retail markets, the Commission
should provide additional guidance as to the various ways that state
commissions can address load reductions due to retail choice while
protecting legacy utilities.\712\ California Utilities explain that
they need Commission guidance to ensure that cost recovery for past and
future mandated QF purchases is equitable to the remaining retail
customers in the legacy utilities' distribution service areas and that
future PURPA mandates or costs are fairly allocated consistent with
cost-causation principles.\713\ Chamber of Commerce states that the
Commission should clarify that the reduction in a utility's QF purchase
obligation is measured against the amount of a utility's load that has
elected an alternative supplier, as opposed to eligible load.\714\
Chamber of Commerce claims that in certain states, only a portion of an
electric utility's load is eligible to select an alternative
electricity supplier and that such percentage would serve as the limit
for any corresponding reduction in a utility's QF purchase obligation.
Michigan Commission states that its retail choice program caps retail
choice at 10 percent of an electric utility's retail customer demand,
and seeks clarification on (1) whether the reduction in a utility's
purchase obligation would equal the reduction in its supply obligation,
be based on the percentage of its customer demand participating in the
state's retail choice program, or some other metric; and (2) how
fluctuations in the state's retail choice program and resulting
purchase obligation should be addressed.\715\
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    \712\ California Utilities Comments at 5.
    \713\ Id. at 7.
    \714\ Chamber of Commerce Comments at 5.
    \715\ Michigan Commission Comments at 5-6.
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    449. Connecticut Authority supports the proposal to modify
distribution utilities' must-purchase obligations.\716\ Connecticut
Authority states that since Connecticut's electric industry
restructuring, distribution utilities' purchases of QF output have not
been used to serve retail customers, rather the distribution utility
acts as an intermediary selling output into the New England markets.
Connecticut Authority asserts that the Commission should clarify that
the state regulatory authority is responsible for determining the
appropriate adjustment to the distribution utility's must-purchase
obligation and providing notice of such determination to the
Commission.\717\
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    \716\ Connecticut Authority Comments at 16.
    \717\ Id. at 17.
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    450. Connecticut Authority claims that QF output is different from,
and cannot be substituted in for, distribution utility-provided default
standard or last resort services. Connecticut Authority explains that
standard service is procured in six-month tranches, last resort service
is procured in three-month tranches, and that distribution utilities do
not self-manage their default service supply portfolios.\718\
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    \718\ Id.
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    451. Connecticut Authority states that while it agrees that
matching the contract terms for default service supply and QF supply
could potentially reduce the burden of over-estimated avoided costs and
give states flexibility to respond quickly to changes to a distribution
utility's default supply obligation, the Commission should not mandate
any term length for the mandatory purchase obligation.\719\ Instead,
Connecticut Authority asserts that the Commission should allow the
state to establish the term based on state-specific circumstances.
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    \719\ Id. at 18.
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    452. California Utilities request that the Commission reaffirm that
all alternative retail suppliers, including Electric Service Providers
(ESP) and Community Choice Aggregators (CCA), are electric utilities
subject to the PURPA purchase obligation.\720\ California Utilities
explain that ESPs and CCAs are the two types of entities that
California allows to sell power to retail customers in the distribution
service territories of CPUC-regulated utilities, and argues that such
entities meet the definition of electric utility used in PURPA.\721\
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    \720\ California Utilities at 9.
    \721\ Id. at 9-10.
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    453. California Utilities state that the Commission should clarify
that a state has no authority to exempt any traditional or alternative
retail supplier from the PURPA mandatory purchase obligation in order
to ensure QFs that there is a robust market to sell their energy and
capacity to entities that actually serve load in the event a legacy
utility is relieved of all or part of its PURPA obligations.\722\
California Utilities also state that the Commission should clarify that
alternative retail suppliers must make avoided cost information
publicly available to allow QFs to locate and identify potential buyers
that may have higher avoided costs than legacy utilities that have lost
load and may no longer have capacity needs.
---------------------------------------------------------------------------

    \722\ Id. at 11.
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    454. California Utilities argue that for states such as California
that allow alternative retail suppliers to opt out of procuring
capacity and require legacy utilities to provide capacity on their
behalf, it would be unfair for legacy utilities to pay a QF any amount
for energy greater than the LMP unless the price differential for which
the legacy utility can sell the energy in the market is paid for by the
alternative retail supplier that was short on capacity.\723\ California
Utilities explain that this would prevent cost shifts to customers who
remain with the legacy utility such that all costs associated with the
mandatory PURPA purchases made by the legacy utility on behalf of the
alternative retail supplier would be borne by customers of the
alternative retail supplier.\724\ California Utilities also argue that
the Commission should clarify that if legacy utilities are required to
procure capacity from QFs on behalf of alternative retail suppliers,
states must require alternative retail suppliers to pay for such QF
purchases at the avoided cost rate set by the state for the legacy
utility for capacity.
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    \723\ Id. at 12.
    \724\ Id. at 13.
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    455. California Utilities urge the Commission to adopt a stranded
cost regulation addressing PURPA obligations incurred by legacy
utilities that lose load to retail competition consistent with the cost
recovery guarantee in PURPA section 210(m)(7)(A).\725\ California
Utilities argue that such regulation should be clear that prudently
incurred costs include any costs associated with a

purchase under a state-mandated contract. California Utilities propose
new language to Sec.  292.304(g) regarding implementation of the cost
recovery mandate in section 210(m)(7)(A) of PURPA stating, in part,
that ``[a] state commission may not find any costs associated with any
legally enforceable obligation that it has imposed on an electric
utility imprudent.'' \726\
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    \725\ Id. at 14.
    \726\ Id. at 15.
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3. Commission Determination
    456. In this final rule, we decline to adopt the proposed
regulation permitting states with retail competition to allow relief
from the purchase obligation. We 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 rates.
    457. Specifically, 18 CFR 292.304(e)(3) already does and will
continue to allow states, when setting avoided cost rates, to take into
account ``the ability of the electric utility to avoid costs, including
the deferral of capacity additions.'' We regard this existing
regulation as allowing a state to consider reductions in a purchasing
electric utility's supply obligations given retail competition and the
purchasing electric utility's POLR obligations under state law. We