[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Rules and Regulations]
[Pages 86656-86754]
[FR Doc No: 2020-26106]

Vol. 85

Wednesday,

No. 250

December 30, 2020

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 292

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

Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 /
Rules and Regulations

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

[Docket Nos. RM19-15-001 and AD16-16-001; Order No. 872-A]

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

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; Order addressing arguments raised on rehearing and
clarifying prior order in part.

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SUMMARY: In this Order, the Federal Energy Regulatory Commission
addresses arguments raised on rehearing and clarifies, in part, its
final rule adopting revisions to its regulations implementing sections
201 and 210 of the Public Utility Regulatory Policies Act of 1978
(PURPA). These changes will enable the Commission to continue to
fulfill its statutory obligations under sections 201 and 210 of PURPA.

DATES: This rule is effective February 16, 2021.

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

                            Table of Contents

                                                               Paragraph

I. Background...............................................           4
    A. Statutory Background.................................           4
    B. Final Rule's Updating of the PURPA Regulations.......          10
    C. Summary of Changes to the PURPA Regulations                    11
     Implemented by the Final Rule..........................
II. Discussion..............................................          23
    A. Threshold Issues.....................................          24
        1. Whether the Commission Appropriately Consulted             24
         With Representatives of Relevant State and Federal
         Agencies...........................................
            a. Requests for Rehearing.......................          24
            b. Commission Determination.....................          25
        2. Whether the PURPA Regulations Continue To                  27
         Encourage QFs......................................
            a. Requests for Rehearing.......................          27
            b. Commission Determination.....................          39
    B. QF Rates.............................................          46
        1. Overview.........................................          46
        2. LMP as a Permissible Rate for Certain As-                  53
         Available Avoided Cost Rates.......................
            a. Requests for Rehearing.......................          60
            b. Commission Determination.....................          63
        3. Tiered Avoided Cost Rates........................          66
            a. Request for Clarification....................          66
            b. Commission Determination.....................          72
        4. Providing for Variable Energy Rates in QF                  74
         Contracts Is Consistent With PURPA.................
            a. Whether the Current Approach Has Resulted in           84
             Payments to QFs in Excess of Avoided Costs.....
                i. Requests for Rehearing...................          95
                ii. Commission Determination................         104
            b. Whether the Proposed Change Would Violate the         114
             Statutory Requirement That the PURPA
             Regulations Encourage QFs and Do Not
             Discriminate Against QFs.......................
                i. Requests for Rehearing...................         118
                ii. Commission Determination................         134
            c. Effect of Variable Energy Rates on Financing.         145
                i. Requests for Rehearing...................         159
                ii. Commission Determination................         172
            d. Requested Clarification of the Final Rule....         178
                i. Commission Determination.................         179
        5. Consideration of Competitive Solicitations To             181
         Determine Avoided Costs............................
                i. Requests for Rehearing...................         203
                ii. Commission Determination................         214
    C. Rebuttable Presumption of Separate Sites.............         232
        1. Need for Reform..................................         235
            a. Requests for Rehearing.......................         236
            b. Commission Determination.....................         238
        2. Distance Between Facilities......................         246
            a. Requests for Rehearing.......................         250
            b. Commission Determination.....................         255
        3. Factors..........................................         261
            a. Requests for Rehearing.......................         265
            b. Commission Determination.....................         273
    D. QF Certification Process.............................         280
        1. Requests for Rehearing...........................         290
        2. Commission Determination.........................         306
    E. Corresponding Changes to the FERC Form No. 556.......         327
        1. Requests for Rehearing...........................         330
        2. Commission Determination.........................         331
    F. PURPA Section 210(m) Rebuttable Presumption of                334
     Nondiscriminatory Access to Markets....................
        1. Requests for Rehearing and Clarification.........         354
        2. Commission Determination.........................         360
    G. Legally Enforceable Obligation.......................         374
        1. Requests for Rehearing...........................         381
        2. Commission Determination.........................         384
III. Information Collection Statement.......................         389
    A. Request for Rehearing................................         392
    B. Commission Determination.............................         393
        1. QFs Submitting Self-Certifications...............         403
            a. Small Power Production Facility Greater Than          404
             1 MW, and Less Than One Mile From an Affiliated
             Small Power Production QF......................
            b. Small Power Production Facility Greater Than          405
             1 MW, and More Than One Mile but Less Than 10
             Miles From an Affiliated Small Power Production
             QF.............................................
            c. Small Power Production Facility Greater Than          406
             1 MW and 10 Miles or More From an Affiliated
             Small Power Production QF......................
        2. QFs Submitting Applications for Commission                407
         Certification......................................
            a. Small Power Production Facility Greater Than          408
             1 MW, and Less Than One Mile From an Affiliated
             Small Power Production QF......................
            b. Small Power Production Facility Greater Than          409
             1 MW, and More Than One Mile but Less Than 10
             Miles From an Affiliated Small Power Production
             QF.............................................

            c. Small Power Production Facility Greater Than          410
             1 MW and 10 Miles or More From an Affiliated
             Small Power Production QF......................
        3. Calculations for Additional Burden and Cost......         411
IV. Environmental Analysis..................................         412
    A. No EIS or EA Is Required.............................         412
        1. NEPA Analysis Is Not Required Where Environmental         414
         Impacts Are Not Reasonably Foreseeable.............
            a. Requests for Rehearing.......................         420
            b. Commission Determination.....................         425
        2. A Categorical Exclusion Applies..................         436
            a. Exception to Categorical Exclusion...........         443
                i. Requests for Rehearing...................         443
                ii. Commission Determination................         444
            b. Applying a Categorical Exclusion for                  445
             Clarifying and Corrective Actions Is
             Appropriate....................................
                i. Requests for Rehearing...................         445
                ii. Commission Determination................         449
        3. That the Commission Prepared NEPA Analyses for            455
         the Promulgation of the Original PURPA Rule and
         Other Prior Rulemakings Does Not Mean That Such
         Analysis Was Possible or Required Here.............
            a. Requests for Rehearing.......................         462
            b. Commission Determination.....................         465
V. Regulatory Flexibility Act Certification.................         469
VI. Document Availability...................................         471
VII. Effective Dates and Congressional Notification.........         474

    1. On July 16, 2020, the Federal Energy Regulatory Commission
(Commission) issued its final rule (final rule or Order No. 872) \1\
adopting revisions to its regulations (PURPA Regulations) \2\
implementing sections 201 and 210 of the Public Utility Regulatory
Policies Act of 1978 (PURPA).\3\ Those regulations were promulgated in
1980 and have been modified in only specific respects since then. On
August 17, 2020, the Commission received requests for rehearing and/or
clarification of the final rule from the following entities and
individuals: (1) California Utilities; \4\ (2) Electric Power Supply
Association (EPSA); (3) Northwest Coalition; \5\ (4) One Energy
Enterprises; (5) Public Interest Organizations; \6\ (6) Solar Energy
Industries Association (Solar Energy Industries); and (7) Thomas
Mattson. On September 1, 2020, California Public Utilities Commission
(California Commission) filed a response to California Utilities'
request for clarification.
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    \1\ Qualifying Facility Rates and Requirements Implementation
Issues Under the Public Utility Regulatory Policies Act of 1978,
Order No. 872, 85 FR 54638 (Sep. 2, 2020), 172 FERC ] 61,041 (2020).
    \2\ 18 CFR part 292. In connection with the revisions to the
PURPA Regulations, the Commission also revised its delegation of
authority to Commission staff in 18 CFR part 375.
    \3\ 16 U.S.C. 796(17)-(18), 824a-3.
    \4\ California Utilities consist of Pacific Gas & Electric
Company; San Diego Gas & Electric Company; and Southern California
Edison Company.
    \5\ Northwest Coalition consists of Northwest and Intermountain
Independent Power Producers Association; the Community Renewable
Energy Association; the Renewable Energy Coalition; IdaHydro; Oregon
Solar Energy Industries Association; and NewSun Energy LLC.
Excluding IdaHydro and NewSun Energy LLC, the entities comprising
Northwest Coalition filed comments referred to in Order No. 872 as
``NIPPC, CREA, REC, and OSEIA.'' For ease of reference, in some
instances below, we refer to Northwest Coalition below
interchangeably with ``NIPPC, CREA, REC, and OSEIA.''
    \6\ Public Interest Organizations consist of Alabama Interfaith
Power and Light; Appalachian Voices; Center for Biological
Diversity; Environmental Law and Policy Center; Gasp; Georgia
Interfaith Power and Light; Montana Environmental Information
Center; Natural Resources Defense Council; North Carolina
Sustainable Energy Association; Sierra Club; South Carolina Coastal
Conservation League; Southern Alliance for Clean Energy; Southern
Environmental Law Center; Southface Institute; Sustainable FERC
Project; Tennessee Interfaith Power and Light; Upstate Forever; and
Vote Solar. Some of these entities filed comments as ``Southeast
Public Interest Organizations'' and some of these entities filed
comments as ``Public Interest Organizations.'' For ease of
reference, we refer below to these organizations on rehearing as
``Public Interest Organizations,'' however, but when referring to
the separate groups' comments in this rulemaking proceeding, we
refer to their separate comments.
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    2. Pursuant to Allegheny Defense Project v. FERC,\7\ the rehearing
requests filed in this proceeding may be deemed denied by operation of
law. As permitted by section 313(a) of the Federal Power Act (FPA),\8\
however, we modify the discussion in the final rule and continue to
reach the same result in this proceeding, as discussed below.\9\
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    \7\ 964 F.3d 1 (D.C. Cir. 2020) (en banc).
    \8\ 16 U.S.C. 825l(a) (``Until the record in a proceeding shall
have been filed in a court of appeals, as provided in subsection
(b), the Commission may at any time, upon reasonable notice and in
such manner as it shall deem proper, modify or set aside, in whole
or in part, any finding or order made or issued by it under the
provisions of this chapter.'').
    \9\ Allegheny Def. Project, 964 F.3d at 16-17. The Commission is
not changing the outcome of the final rule. See Smith Lake
Improvement & Stakeholders Ass'n v. FERC, 809 F.3d 55, 56-57 (D.C.
Cir. 2015).
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    3. Specifically, we either dismiss or disagree with most arguments
raised on rehearing. We also provide further clarification on (1)
states' use of tiered avoided cost pricing; (2) states' use of variable
energy rates in QF contracts and availability of utility avoided cost
data; (3) the role of independent entities overseeing competitive
solicitations; (4) the circumstances under which a small power
production qualifying facility (QF) needs to recertify; (5) application
of the rebuttable presumption of separate sites for the purpose of
determining the power production capacity of small power production
facilities; and (6) the PURPA section 210(m) rebuttable presumption of
nondiscriminatory access to markets and accompanying regulatory text,
as further discussed below.

I. Background

A. Statutory Background

    4. PURPA section 210(a) requires that the Commission prescribe
rules that it determines necessary to encourage the development of
qualifying small power production facilities and cogeneration
facilities (together, QFs).\10\ PURPA section 210(b) sets out the
standards governing the rates purchasing utilities must pay to QFs.\11\
Sections 210(b)(1) and (b)(2) provide that QF rates ``shall

be just and reasonable to the electric consumers of the electric
utility and in the public interest'' and ``shall not discriminate
against qualifying cogenerators or qualifying small power producers.''
\12\
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    \10\ 16 U.S.C. 824a-3(a).
    \11\ 16 U.S.C. 824a-3(b).
    \12\ Id.
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    5. After establishing these standards, Congress then imposed
statutory limits on the extent to which the PURPA Regulations may
encourage the development of QFs pursuant to PURPA section 210(a), and
also placed bounds on how the PURPA Regulations may implement the
statutory provisions in PURPA section 210(b) governing QF rates.
    6. The first such statutory limit appears in the final sentence of
PURPA section 210(b). There, Congress established a cap on the level of
the rates utilities could be required to pay QFs: ``No such rule
prescribed under subsection (a) shall provide for a rate which exceeds
the incremental cost to the electric utility of alternative electric
energy.'' \13\ As the Conference Report for PURPA (PURPA Conference
Report) explains:
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    \13\ Id. (emphasis added). The statute defines an electric
utility's ``incremental costs'' as ``the cost to the electric
utility of the electric energy which, but for the purchase from such
cogenerator or small power producer, such utility would generate or
purchase from another source.'' 16 U.S.C. 824a-3(d); see also 18 CFR
292.101(b)(6) (implementing same and defining such ``incremental
costs'' as ``avoided costs'').

    [T]he utility would not be required to purchase electric energy
from a qualifying cogeneration or small power production facility at
a rate which exceeds the lower of the rate described above, namely a
rate which is just and reasonable to consumers of the utility, in
the public interest, and nondiscriminatory, or the incremental cost
of alternate electric energy. This limitation on the rates which may
be required in purchasing from a cogenerator or small power producer
is meant to act as an upper limit on the price at which utilities
can be required under this section to purchase electric energy.\14\
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    \14\ H.R. Rep. No. 95-1750, at 98 (1978) (Conf. Rep.) (emphasis
added).

    7. Another way in which Congress set boundaries on the Commission's
ability to encourage development of QFs was to define small power
production facilities, one of the categories of generators that is to
be encouraged under the statute. This statutory definition of small
power production facilities applies to almost all renewable resources
that wish to be QFs, requiring that those facilities have ``a power
production capacity which, together with any other facilities located
at the same site (as determined by the Commission), is not greater than
80 megawatts.'' \15\ In order to comply with this statutory requirement
that the capacity of all small power production facilities ``located at
the same site'' not exceed 80 MW, the Commission is required to define
what constitutes a ``site.'' In 1980, the Commission determined that,
essentially, those facilities that are owned by the same or affiliated
entities and using the same energy resource should be deemed to be at
the same site ``if they are located within one mile of the facility for
which qualification is sought.'' \16\ This approach, known as the
``one-mile rule,'' interpreted Congress's limitation of 80 MW located
at the same site to apply to those affiliated small power production
qualifying facilities located within one mile of each other that use
the same energy resource.
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    \15\ 16 U.S.C. 796(17)(A)(ii).
    \16\ 18 CFR 292.204(a)(ii).
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    8. Finally, Congress amended PURPA in 2005 to place further limits
on the extent to which the PURPA Regulations may encourage QFs.
Congress amended PURPA section 210 to, among other things, add section
210(m), which provides for termination of the requirement that an
electric utility enter into a new obligation or contract to purchase
from a QF (frequently described as the ``mandatory purchase
obligation'') if the QF has nondiscriminatory access to certain defined
types of markets.\17\ This amendment reflected Congress's judgment that
non-discriminatory access to these markets provided adequate
encouragement for those QFs, such that the mandatory purchase
obligation could be lifted.
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    \17\ See 16 U.S.C. 824a-3(m).
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    9. Congress directed the Commission to amend the PURPA Regulations
to implement this new requirement, which the Commission did in Order
No. 688. In that order, pursuant to PURPA section 210(m), the
Commission identified markets in which utilities would no longer be
subject to the PURPA mandatory purchase obligation because QFs have
nondiscriminatory access to such markets.\18\ Although not required by
PURPA section 210(m), the Commission also established a rebuttable
presumption for small QFs, which the Commission determined at that time
were QFs at or below 20 MW, because they may not have nondiscriminatory
access to such markets.\19\ In creating this rebuttable presumption,
the Commission made clear that ``we are not making a finding that all
QFs smaller than a certain size lack nondiscriminatory access to
markets.'' \20\
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    \18\ New PURPA Section 210(m) Regulations Applicable to Small
Power Production and Cogeneration Facilities, Order No. 688, 117
FERC ] 61,078, at PP 9-12 (2006), order on reh'g, Order No. 688-A,
119 FERC ] 61,305 (2007), aff'd sub nom. Am. Forest & Paper Ass'n v.
FERC, 550 F.3d 1179 (D.C. Cir. 2008) (AFPA v. FERC).
    \19\ 18 CFR 292.309(d)(1).
    \20\ Order No. 688, 117 FERC ] 61,078 at P 74.
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B. Final Rule's Updating of the PURPA Regulations

    10. In the final rule, the Commission amended the PURPA
Regulations, principally with regard to the three statutory provisions
described above: (1) The avoided cost cap on QF rates; (2) the 80 MW
limitation applicable to the combined capacity of affiliated small
power production QFs that use the same energy resource located at the
same site; and (3) the termination of the mandatory purchase obligation
for QFs with nondiscriminatory access to markets. The Commission stated
that it was modifying the PURPA Regulations, based on demonstrated
changes in circumstances that took place after the PURPA Regulations
were first adopted, to ensure that the regulations continue to comply
with PURPA's statutory requirements established by Congress.\21\
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    \21\ Order No. 872, 172 FERC ] 61,041 at P 20.
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C. Summary of Changes to the PURPA Regulations Implemented by the Final
Rule

    11. In the final rule, the Commission revised the PURPA Regulations
based on the record of this proceeding, including comments submitted in
the technical conference in Docket No. AD16-16-000 (Technical
Conference),\22\ the record evidence cited in the Notice of Proposed
Rulemaking (NOPR),\23\ and the comments submitted in response to the
NOPR.\24\ These changes, including modifications to the proposals made
in the NOPR, are summarized below.
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    \22\ Supplemental Notice of Technical Conference, Implementation
Issues Under the Public Utility Regulatory Policies Act of 1978,
Docket No. AD16-16-000 (May 9, 2016). The Technical Conference
covered such issues as: (1) Various methods for calculating avoided
cost; (2) the obligation to purchase pursuant to a legally
enforceable obligation (LEO); (3) application of the one-mile rule;
and (4) the rebuttable presumption the Commission has adopted under
PURPA section 210(m) that QFs 20 MW and below do not have
nondiscriminatory access to competitive organized wholesale markets.
    \23\ Qualifying Facility Rates and Requirements, 84 FR 53246
(Oct. 4, 2019), 168 FERC ] 61,184 (2019) (NOPR).
    \24\ Order No. 872, 172 FERC ] 61,041 at P 56.
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    12. First, the Commission granted states \25\ the flexibility to
require that

energy rates (but not capacity rates) in QF power sales contracts and
other LEOs \26\ vary in accordance with changes in the purchasing
electric utility's as-available avoided costs at the time the energy is
delivered. If a state exercises this flexibility, a QF no longer would
have the ability to elect to have its energy rate be fixed but would
continue to be entitled to a fixed capacity rate for the term of the
contract or LEO.\27\
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    \25\ Nonregulated electric utilities implement the requirements
of PURPA with respect to themselves. An electric utility that is
``nonregulated'' is any electric utility other than a ``state
regulated electric utility.'' 16 U.S.C. 2602(9). The term ``state
regulated electric utility,'' in contrast, means any electric
utility with respect to which a state regulatory authority has
ratemaking authority. 16 U.S.C. 2602(18). The term ``state
regulatory authority,'' as relevant here, means a state agency which
has ratemaking authority with respect to the sale of electric energy
by an electric utility. 16 U.S.C. 2602(17).
    \26\ The Commission has held that a LEO can take effect before a
contract is executed and may not necessarily be incorporated into a
contract. JD Wind 1, LLC, 129 FERC ] 61,148, at P 25 (2009), reh'g
denied, 130 FERC ] 61,127 (2010) (``[A] QF, by committing itself to
sell to an electric utility, also commits the electric utility to
buy from the QF; these commitments result either in contracts or in
non-contractual, but binding, legally enforceable obligations.'').
For ease of reference, however, references herein to a contract also
are intended to refer to a LEO that is not incorporated into a
contract.
    \27\ Order No. 872, 172 FERC ] 61,041 at P 57.
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    13. Second, the Commission granted states additional flexibility to
allow QFs to have a fixed energy rate and provided that such state-
authorized fixed energy rate can be based on projected energy prices
during the term of a QF's contract based on the anticipated dates of
delivery.\28\
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    \28\ Id. P 58.
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    14. Third, the Commission implemented a number of revisions
intended to grant states flexibility to set ``as-available'' QF energy
rates based on market forces. The Commission established a rebuttable
presumption that the locational marginal price (LMP) established in the
organized electric markets defined in 18 CFR 292.309(e), (f), or (g)
represents the as-available avoided costs of energy for electric
utilities located in these markets.\29\ With respect to QFs selling to
electric utilities located outside of the organized electric markets
defined in 18 CFR 292.309(e), (f), or (g), the Commission permitted
states to set as-available energy avoided cost rates at competitive
prices from liquid market hubs or calculated from a formula based on
natural gas price indices and specified heat rates, provided that the
states first determine that such prices represent the purchasing
electric utilities' energy avoided costs.\30\
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    \29\ These are the markets operated by Midcontinent Independent
System Operator, Inc. (MISO); PJM Interconnection, L.L.C. (PJM); ISO
New England Inc. (ISO-NE); New York Independent System Operator,
Inc. (NYISO); Electric Reliability Council of Texas (ERCOT);
California Independent System Operator, Inc. (CAISO); and Southwest
Power Pool, Inc. (SPP).
    \30\ Order No. 872, 172 FERC ] 61,041 at P 59.
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    15. The Commission granted states the flexibility to choose to
adopt one or more of these options or to continue setting QF rates
under the standards long established in the PURPA Regulations.\31\
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    \31\ Id.
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    16. Fourth, the Commission provided states the flexibility to set
energy and capacity rates pursuant to a competitive solicitation
process conducted under transparent and non-discriminatory procedures
consistent with the Commission's Allegheny standard.\32\
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    \32\ Id. P 60 (referencing Allegheny Energy Supply Co., LLC, 108
FERC ] 61,082, at P 18 (2004) (Allegheny Energy)).
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    17. Fifth, the Commission modified its ``one-mile rule'' for
determining whether generation facilities are considered to be at the
same site for purposes of determining qualification as a qualifying
small power production facility. Specifically, the Commission allowed
electric utilities, state regulatory authorities, and other interested
parties to show that affiliated small power production facilities that
use the same energy resource and are more than one mile apart and less
than 10 miles apart actually are at the same site (with distances one
mile or less apart still irrebuttably at the same site and distances 10
miles or more apart irrebuttably at separate sites). The Commission
also allowed a small power production facility seeking QF status to
provide further information in its certification (whether a self-
certification or an application for Commission certification) or
recertification (whether a self-recertification or an application for
Commission recertification) to defend preemptively against subsequent
challenges, by identifying factors affirmatively demonstrating that its
facility is indeed at a separate site from other affiliated small power
production qualifying facilities. The Commission added a definition of
the term ``electrical generating equipment'' to the PURPA Regulations
to clarify how the distance between facilities is to be calculated.\33\
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    \33\ Id. P 62.
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    18. Sixth, the Commission allowed an entity to challenge an initial
self-certification or self-recertification without being required to
file a separate petition for declaratory order and to pay the
associated filing fee. However, the Commission clarified that such
protests may be made to new certifications (both self-certifications
and applications for Commission certification) but only to self-
recertifications and applications for Commission recertifications
making substantive changes to the existing certification.\34\
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    \34\ Id. P 63.
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    19. Seventh, the Commission revised its regulations implementing
PURPA section 210(m), which provide for the termination of an electric
utility's obligation to purchase from a QF with nondiscriminatory
access to certain markets. Under the PURPA Regulations before the final
rule becomes effective, there is a rebuttable presumption that certain
small QFs (i.e., those below 20 MW) may not have nondiscriminatory
access to such markets. The Commission updated the rebuttable
presumption threshold for small power production facilities (but not
cogeneration facilities) from 20 MW to 5 MW and revised the PURPA
Regulations to provide a nonexclusive list of examples of factors that
QFs may cite to support an argument that they lack nondiscriminatory
access to such markets.\35\
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    \35\ Id. P 64.
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    20. Finally, the Commission clarified that a QF must demonstrate
commercial viability and a financial commitment to construct its
facility pursuant to objective and reasonable state-determined criteria
before the QF is entitled to a contract or LEO. The Commission
prohibited states from imposing any requirements for a LEO other than a
showing of commercial viability and a financial commitment to construct
the facility.\36\
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    \36\ Id. P 65.
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    21. The Commission explained that these changes will enable the
Commission to continue to fulfill its statutory obligations under PURPA
sections 201 and 210. The Commission emphasized that these changes are
effective prospectively for new contracts or LEOs and for new facility
certifications and recertifications filed on or after the effective
date of the final rule; the Commission stated that it does not by the
final rule permit disturbance of existing contracts or LEOs or existing
facility certifications.\37\
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    \37\ Id. P 66.
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    22. On August 17, 2020, (1) EPSA, California Utilities, Northwest
Coalition, One Energy Enterprises, and Thomas Mattson filed timely
requests for rehearing of the final rule; (2) One Energy Enterprises,
Public Interest Organizations, and Solar Energy Industries filed timely
requests for rehearing and clarification of the final rule; and (3)
California Utilities filed a timely request for clarification of the

Final Rule. On September 1, 2020, California Public Utilities
Commission (California Commission) filed an answer to California
Utilities' request for clarification of the final rule.\38\
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    \38\ Because California Utilities requested clarification, and
not rehearing, of the final rule, we accept California Commission's
answer to California Utilities' request for clarification of the
final rule. See 18 CFR 385.213(a)(3).
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II. Discussion

    23. In this order, we sustain the final rule. Specifically, we
either dismiss or disagree with most arguments raised on rehearing. We
also provide further clarification on (1) states' use of tiered avoided
cost pricing; (2) states' use of variable energy rates in QF contracts
and availability of utility avoided cost data; (3) the role of
independent entities overseeing competitive solicitations; (4) the
circumstances under which a small power production QF needs to
recertify; (5) application of the rebuttable presumption of separate
sites in PURPA 210(m) proceedings; and (6) the PURPA section 210(m)
rebuttable presumption of nondiscriminatory access to markets and
accompanying regulatory text, as further discussed below.

A. Threshold Issues

1. Whether the Commission Appropriately Consulted With Representatives
of Relevant State and Federal Agencies
a. Requests for Rehearing
    24. Public Interest Organizations state that the final rule is
flawed because the Commission failed to consult with state and federal
officials as required by PURPA section 210(a).\39\ Public Interest
Organizations argue that the Commission's actions to hold a technical
conference and invite public comments, both of which involved
participation from state and federal entities, are insufficient to meet
this statutory requirement.\40\ Public Interest Organizations aver that
these actions satisfy the statutory requirement to provide ``notice and
reasonable opportunity for interested persons (including State and
Federal agencies) to submit oral as well as written data, views, and
arguments'' but that the Commission failed to satisfy what Public
Interest Organizations claim is a separate and distinct requirement: To
``consult[ ]'' with representatives of state and federal officials.\41\
Public Interest Organizations argue that Congress included the word
``consultation'' in the statute to connote deliberations more formal
and focused than the general notice and comment process and further
assert that statutes and regulations routinely distinguish between the
two.\42\ Public Interest Organizations contend that this lack of
consultation has hamstrung the Commission and prevents the Commission
from crafting informed policy.\43\
---------------------------------------------------------------------------

    \39\ Public Interest Organizations Request for Rehearing at 6,
12-14.
    \40\ Id. at 13.
    \41\ Id. (citing 16 U.S.C. 824a-3(a)(2)).
    \42\ Id. at 13-14 (citing 50 CFR 402.14; Cooling Water Intake
Structure Coal. v.  U.S. Envtl. Prot. Agency, 905 F.3d 49, 78 (2d
Cir. 2018)).
    \43\ Id. at 14.
---------------------------------------------------------------------------

b. Commission Determination
    25. Public Interest Organizations' argument that the Commission
failed to fulfill the consultation provision has no merit. First, we
reemphasize the participation by state entities at the Commission's
2016 Technical Conference. Upon the Commission's open invitation,\44\
several state entities participated in that conference and filed post-
conference comments, including members of state regulatory authorities
and the president of the national association representing state
commissions (NARUC).\45\ Second, several federal and state entities
availed themselves of the opportunity to be heard via the NOPR's notice
and comment process. More than 20 state entities, including state
commissions, state consumer advocates, state attorneys general,
governors, and others, submitted comments in response to the NOPR.\46\
In addition, NARUC submitted several filings throughout this process,
and a group calling themselves State Entities--a diverse group
including eight attorneys general and two state commissions--filed a
combined comment on the PURPA NOPR; the NOPR was published in the
Federal Register.\47\ Third, no state or federal entity has sought
rehearing on this (or any other) basis.
---------------------------------------------------------------------------

    \44\ See Notice Inviting Post-Technical Conference Comments,
Implementation Issues Under the Public Utility Regulatory Policies
Act of 1978, Docket No. AD16-16-000 (Sept. 6, 2016); Supplemental
Notice of Technical Conference, Implementation Issues Under the
Public Utility Regulatory Policies Act of 1978, Docket No. AD16-16-
000 (Mar. 4, 2016) (announcing preliminary agenda and inviting
interested speakers).
    \45\ Connecticut Public Utilities Regulatory Authority
(Connecticut Authority) and Massachusetts Department of Public
Utilities (Massachusetts DPU) Comments, Docket No. AD16-16-000 (Nov.
7, 2016); Idaho Public Utilities Commission (Idaho Commission)
Comments, Docket No. AD16-16-000 (Nov. 7, 2016); Commissioner Paul
Kjellander, Idaho Commission Comments, Docket No. AD16-16-000 (June
29, 2016); Commissioner Christine Raper, Idaho Commission Comments,
Docket No. AD16-16-000 (June 29, 2016); Commissioner Travis Kavulla,
Montana Public Service Commission (Montana Commission) and on behalf
of NARUC Comments, Docket No. AD16-16-000 (June 29, 2016).
    \46\ Commissioner Anthony O'Donnell, Montana Commission
Comments, Docket No. RM19-15-000 (Dec. 3, 2019); Arizona Commission
Comments, Docket No. RM19-15-000 (Dec. 3, 2019); California Public
Utilities Commission (California Commission) Comments, Docket No.
RM19-15-000 (Dec. 3, 2019); District of Columbia Public Service
Commission (DC Commission) Comments, Docket No. RM19-15-000 (Dec. 3,
2019); Governor Brad Little (Idaho) Comments, Docket No. RM19-15-000
(Dec. 2, 2019); Idaho Commission Comments, Docket No. RM19-15-000
(Dec. 3, 2019); Kentucky Public Service Commission Comments, Docket
No. RM19-15-000 (Dec. 3, 2019); Massachusetts Attorney General Maura
Healey Comments, Docket No. RM19-15-000 (Dec. 3, 2019);
Massachusetts DPU Comments, Docket No. RM19-15-000 (Dec. 3, 2019);
Michigan Public Service Commission Comments, Docket No. RM19-15-000
(Dec. 3, 2019); Montana Commission Comments, Docket No. RM19-15-000
(Dec. 3, 2019); North Carolina Attorney General Comments, Docket No.
RM19-15-000 (Dec. 3, 2019); North Carolina Public Service Commission
Public Staff Comments, Docket No. RM19-15-000 (Dec. 3, 2019);
Nebraska Power Review Board Comments, Docket No. RM19-15-000 (Nov.
22, 2019); Ohio Consumers Counsel Comments, Docket No. RM19-15-000
(Dec. 3, 2019); Oregon Public Utility Commission Comments, Docket
No. RM19-15-000 (Dec. 3, 2019); Pennsylvania Public Utility
Commission Comments, Docket No. RM19-15-000 (Dec. 3, 2019); Public
Utility Commission of Ohio Federal Energy Advocate Comments, Docket
No. RM19-15-000 (Dec. 3, 2019); South Dakota Public Utilities
Commission Comments, Docket No. RM19-15-000 (Dec. 3, 2019).
    \47\ State Entities Comments, Docket No. RM19-15-000 (Dec. 3,
2019) (filed on behalf of Massachusetts Attorney General, Delaware
Attorney General, District of Columbia Attorney General, Maryland
Attorney General, Michigan Attorney General, New Jersey Attorney
General, North Carolina Attorney General, Oregon Attorney General,
New Jersey Board of Public Utilities, Rhode Island Division of
Public Utilities and Carriers); NARUC Comments, Docket No. RM19-15-
000 (Dec. 3, 2019); NARUC Supplemental Comments, Docket No. AD16-16-
000 (Oct. 17, 2018); see also NOPR, 168 FERC ] 61,184, (NOPR
published in Federal Register).
---------------------------------------------------------------------------

    26. In sum, throughout this process, the Commission repeatedly
sought information and input from state and federal entities. As
explained above, numerous state entities submitted comments or
otherwise participated in the process and other state and federal
entities had the opportunity to participate in the process. The
Commission fully satisfied its consultation obligations.
2. Whether the PURPA Regulations Continue To Encourage QFs
a. Requests for Rehearing
    27. Solar Energy Industries and Public Interest Organizations state
that the Commission is required under PURPA section 210 to apply its
regulations in a manner that encourages QFs and that it has failed to
do so.\48\
---------------------------------------------------------------------------

    \48\ Public Interest Organizations Request for Rehearing at 8,
43-60; Solar Energy Industries Request for Rehearing and/or
Clarification at 2-4, 4-6, 8-9, 42-45.
---------------------------------------------------------------------------

    28. Solar Energy Industries argue that, in the final rule, the
Commission failed

---------------------------------------------------------------------------
to meet this statutory requirement in the following ways:

    (1) Terminating a Qualifying Facility's right to elect a long-
term energy rate when delivering energy under a long-term contract;
(2) revising the long-standing regulations providing that a
Qualifying Facility is not ``at the same site'' so long as the
facilities are located more than one mile apart; and (3) allowing
utilities within the boundaries of [Regional Transmission
Organization or an Independent System Operator (RTO/ISO)] to seek a
waiver of the [obligation] to purchase from small power production
Qualifying Facilities larger than 5 MW despite the fact that few, if
any, of such facilities have meaningful access to organized
wholesale markets.\49\
---------------------------------------------------------------------------

    \49\ Solar Energy Industries Rehearing Request at 4, 8-9.

    29. Solar Energy Industries claim that the Commission's assertion
that the final rule ``continue[s] to encourage the development of QFs
consistent with PURPA'' is unsupported by the record and erroneous.\50\
Solar Energy Industries argue that requiring utilities to interconnect
with QFs and allowing QFs to purchase station power services is not new
and is part and parcel of a utility's obligation to provide open access
service today.\51\ Solar Energy Industries add that maintaining
existing exemptions from the FPA and similar state and federal
regulations is not helpful because other rule changes serve as severe
obstructions to QF development in the first place.
---------------------------------------------------------------------------

    \50\ Id. at 6 (citing Order No. 872, 172 FERC ] 61,041 at P 78).
    \51\ Id.
---------------------------------------------------------------------------

    30. Public Interest Organizations assert that the Commission
incorrectly framed this issue as a set of false choices between
encouraging QFs or violating statutory limits and encouraging QFs or
never modifying its 1980 regulations.\52\ Public Interest Organizations
argue that the Commission has inappropriately focused on whether the
final rule eliminates all encouragement, rather than whether the final
rule advances the goal of encouraging QFs in comparison to a suite of
alternatives that could be more favorable to QFs. Public Interest
Organizations add that the Commission must give effect to every
relevant clause and use the significant space between encouraging and
exceeding other statutory mandates, rather than following the
conclusion in the final rule that PURPA itself limits the extent to
which PURPA Regulations can encourage QFs, which would create a false
dichotomy between meeting the mandate that QFs be encouraged and
violating Congressionally defined limits.\53\
---------------------------------------------------------------------------

    \52\ Public Interest Organizations Request for Rehearing at 43-
45.
    \53\ Id. at 44-46 (citing Order No. 872, 172 FERC ] 61,041 at P
72).
---------------------------------------------------------------------------

    31. Public Interest Organizations contend that the Commission is
acting arbitrarily and capriciously because the record fails to support
the Commission's claim that the changes in the final rule encourage
QFs.\54\ Public Interest Organizations point to the Commission's
statements in the final rule that these revisions will ``lower payments
from certain electric utilities to certain QFs,'' will result in
additional filing burdens, and may result in more protests being filed
in opposition to QF filings.\55\ Public Interest Organizations argue
that the Commission implicitly admitted that the majority of the
changes do not encourage QF development when the Commission stated that
``several of the changes'' in the final rule provide encouragement.\56\
---------------------------------------------------------------------------

    \54\ Id. at 46-60.
    \55\ Id. at 46 (citing Order No. 872, 172 FERC ] 61,041 at PP
553, 584, 587, 746).
    \56\ Id. at 46-47 (citing Order No. 872, 172 FERC ] 61,041 at P
78).
---------------------------------------------------------------------------

    32. Public Interest Organizations argue that the final rule is not
the product of reasoned decision-making because the Commission's
assertions that these revisions encourage QFs are insufficient, even if
true.\57\ Public Interest Organizations state that in Order No. 69 the
Commission identified three major obstacles and crafted its rules to
address these barriers. Public Interest Organizations aver that, in
contrast, the Commission conducted no such inquiry here to identify
whether those barriers persist or new ones exist.\58\
---------------------------------------------------------------------------

    \57\ Id. at 48-49 (citing Small Power Production and
Cogeneration Facilities; Regulations Implementing Section 210 of the
Public Utility Regulatory Policies Act of 1978, Order No. 69, 45 FR
12214 (Feb. 25,1980), FERC Stats. & Regs. ] 30,128, at 30,863
(cross-referenced 10 FERC ] 61,150), order on reh'g, Order No. 69-A,
45 FR 33958 (May 21, 1980), FERC Stats. & Regs. ] 30,160 (1980)
(cross-referenced at 11 FERC ] 61,166), aff'd in part & vacated in
part sub nom. Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226
(D.C. Cir. 1982), rev'd in part sub nom. Am. Paper Inst., Inc. v.
Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983) (API)).
    \58\ Id.
---------------------------------------------------------------------------

    33. Public Interest Organizations claim that the Commission ignored
evidence in the record.\59\ Public Interest Organizations state that
the Commission dismissed as beyond the scope of the rulemaking evidence
that the PURPA Regulations in place since 1980 fail to encourage QFs,
yet at the same time rely on the strength of those rules to support its
claim that the PURPA Regulations continue to encourage QFs.\60\ Public
Interest Organizations argue that the Commission avoided consideration
of this evidence by making the following three claims: (1) Relaxing
some standards may actually induce some states to more robustly
implement the rules; (2) evidence claiming that existing rules fail to
encourage QF development should be dismissed as overstated; and (3) any
lack of implementation of PURPA speaks to states' failures to
implement, rather than gaps in the PURPA Regulations themselves.\61\
---------------------------------------------------------------------------

    \59\ Id. at 49-57.
    \60\ Id. at 49.
    \61\ Id. at 49-50 (citing Order No. 872, 172 FERC ] 61,041 at PP
43-46).
---------------------------------------------------------------------------

    34. Public Interest Organizations argue that examples of the
Commission's failure to fully consider the record were that one of the
commenters described the amendments to the Public Utility Holding
Company Act of 1935 (PUHCA) in 2005 that effectively repealed that
statute and that interconnection procedures stymie QF development.
Public Interest Organizations argue that the Commission did not
sufficiently consider this information in the record and, if it had, it
would not have mistakenly asserted that related regulatory exemptions
provided in the 1980 rules are sufficient to encourage QF
development.\62\
---------------------------------------------------------------------------

    \62\ Id. at 51-52 (citing Harvard Electricity Law Initiative
(Harvard Electricity Law) Comments, Docket No. RM19-15-000, at 19-21
(Dec. 3, 2019); Solar Energy Industries Supplemental Comments,
Docket No. AD16-16-000, at 16 (Aug. 28, 2019)).
---------------------------------------------------------------------------

    35. Public Interest Organizations contend that, because the
Commission explicitly considered broad changes from Order No. 69 and
addressed a broad range of topics in the final rule, the Commission
improperly excluded consideration of evidence of barriers faced by QFs
when it found that such evidence is outside the scope of this
proceeding.\63\
---------------------------------------------------------------------------

    \63\ Id. at 52-53.
---------------------------------------------------------------------------

    36. Public Interest Organizations argue that the Commission was
misguided in its reliance on U.S. Energy Information Administration
(EIA) data showing that some states with the highest rates of QF
penetration are located in non-RTO regions to support the claim that
evidence of barriers to QFs in such regions are overblown.\64\ Public
Interest Organizations aver that three states (North Carolina, Idaho,
and Utah) skew the data with successful outcomes for QFs, while PURPA
remains largely irrelevant in the 47 other states. Public Interest
Organizations add that reliance even on these three states is in error
because these states saw significant QF penetration due to long-term
fixed energy rates, which the Commission is

now no longer requiring, claiming that, even in Idaho, barriers have
since been erected with a subsequent cessation in QF development.\65\
---------------------------------------------------------------------------

    \64\ Id. at 53.
    \65\ Id. at 54.
---------------------------------------------------------------------------

    37. Public Interest Organizations assert that the Commission
inappropriately dismissed barriers to QF development as matters only
relevant to state implementation or PURPA enforcement dockets.\66\
Public Interest Organizations add that the Commission's claim that more
relaxed standards will lead to more robust state implementation is
speculative, internally contradictory, and ignores relevant
evidence.\67\
---------------------------------------------------------------------------

    \66\ Id. at 55.
    \67\ Id. at 56.
---------------------------------------------------------------------------

    38. Public Interest Organizations argue that, even if the
Commission properly considered the full record, the Commission's
finding that the revised rules encourage QFs is arbitrary and
capricious.\68\ Public Interest Organizations restate their concern
that providing more flexibility will not lead to more robust PURPA
implementation by states. Public Interest Organizations contend that
the changes adopted in the final rule overwhelmingly cut in favor of
utilities and against encouraging QFs and that none of the revisions
require regulators to strengthen incentives or eliminate burdens on QF
development.\69\ Public Interest Organizations aver that these changes
amount to lowering the federal floor, therefore reducing QF bargaining
power, even if state regulators implement the rules in good faith.
Public Interest Organizations add that, contrary to the Commission's
assertions in the final rule, leaving intact the requirement for full
avoided costs is insufficient to continue to encourage QFs, especially
in the face of new barriers erected by the final rule.\70\
---------------------------------------------------------------------------

    \68\ Id. at 57.
    \69\ Id. at 58-59.
    \70\ Id. at 59-60.
---------------------------------------------------------------------------

b. Commission Determination
    39. Contrary to claims that the PURPA Regulations as revised do not
encourage QFs, the PURPA Regulations as revised in the final rule
continue as a whole to encourage the development of QFs consistent with
the statutory limits on such encouragement, as explained below.\71\
---------------------------------------------------------------------------

    \71\ In subsequent sections of this order, we address Solar
Energy Industries' concerns that the PURPA Regulations, as revised,
fail to encourage QFs due to the specific revisions (1) allowing
states to set avoided energy costs using variable energy rates; (2)
expanding the one-mile rule; and (3) lowering the threshold for
presumptive nondiscriminatory access for facilities in competitive
wholesale markets from 20 MW to 5 MW. See infra sections III.B.4,
III.C, and III.F.
---------------------------------------------------------------------------

    40. Public Interest Organizations improperly frame the
encouragement analysis. In Public Interest Organizations' view, the
encouragement standard should be analyzed on the basis that a revision
is inadequate in encouraging QFs if there exist alternative revisions
that are more favorable to QFs.\72\ We reject this premise. PURPA
requires the Commission's regulations to encourage QFs, but that is not
all that PURPA says. PURPA also requires that the Commission prescribe
no rule requiring that states set payments to QFs that exceed avoided
costs and PURPA requires that qualifying small power production
facilities do not exceed 80 MW. Furthermore, in the final rule, the
Commission strikes a balance among the interests of all relevant
stakeholders, including not just the selling QFs, but also the
purchasing electric utilities and, moreover, consumers, consistent with
PURPA.
---------------------------------------------------------------------------

    \72\ See Public Interest Organizations Request for Rehearing at
46 (footnote omitted) (``There is significant space provided within
the confines of the limitations Congress established to encourage
QFs. FERC's reasoning that because it cannot encourage QFs by
exceeding the bounds set by Congress it need not fully encourage QFs
within the bounds of the statute fails to give effect to Congress'
command to encourage QFs. The Commission can, and must, issue rules
that support QF development while complying with the other statutory
requirements and limits on the form of that support.'').
---------------------------------------------------------------------------

    41. Regarding QF rates, the final rule provides states further
flexibility to better enable states to implement PURPA's statutory
obligation that QF rates not exceed the purchasing electric utility's
avoided costs. We acknowledge that different states have implemented
PURPA differently, but such differences are not prohibited by the
statute. If parties believe that a state has failed to implement the
PURPA Regulations consistent with their terms, then these parties may
bring an enforcement petition before the Commission or other fora.\73\
But just because parties are unsatisfied with some states'
implementation of PURPA to date \74\ does not preclude the Commission
from making the revisions to its PURPA Regulations adopted in the final
rule.
---------------------------------------------------------------------------

    \73\ Order No. 872, 172 FERC ] 61,041 at P 359 (citing Policy
Statement Regarding the Commission's Enforcement Role Under Section
210 of the Public Utility Regulatory Policies Act of 1978, 23 FERC ]
61,304 (1983)).
    \74\ See Public Interest Organizations Request for Rehearing at
37-39.
---------------------------------------------------------------------------

    42. In the final rule, the Commission complied with PURPA's
requirement that rates not exceed avoided costs by, for example,
allowing states to implement variable avoided cost energy rates if they
so choose.\75\ The Commission also continued to fulfill its obligation
under PURPA to encourage the development of QFs. Specifically, with the
additions from the final rule, the PURPA Regulations continue to
encourage QFs by combining elements that include, among other things:
(1) Providing the potential for increased transparency of avoided cost
determinations under competitive solicitations or competitive market
prices; (2) continuing to provide the ability for QFs to be exempt from
most of the provisions of the FPA and PUHCA and certain state laws and
regulations; (3) continuing to grant QFs special rights to
supplementary and backup power; (4) providing extra benefits and rights
for QFs 5 MW or smaller and especially those smaller than 100 kW; and
(5) clarifying that states may only impose objective and reasonable
criteria, limited to demonstrating commercial viability and financial
commitment, as prerequisites to QF LEO formation that states may
impose, which ensures that the purchasing utility does not unilaterally
and unreasonably decide when its obligation arises.\76\ These elements
of the PURPA Regulations, among others, will continue to provide rules
that, as a whole, encourage QF development.
---------------------------------------------------------------------------

    \75\ Order No. 872, 172 FERC ] 61,041 at PP 232-360.
    \76\ In addition, the Commission in Order No. 872 kept intact
the regulations issued to overcome the barriers to QFs identified in
Order No. 69. Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,863;
see also Order No. 872, 172 FERC ] 61,041 at PP 10, 28-41, 78.
---------------------------------------------------------------------------

    43. We disagree with Public Interest Organizations' assertion that
there is insufficient evidence to support the Commission's conclusion
that providing more flexibility to states may better enable states to
encourage QF development. As one example, Idaho State Commissioner,
Kristine Raper, stated during the 2016 Technical Conference that
``[s]tate Commissions do not have enough tools in the toolbox'' and
that this lack of flexibility caused Idaho to amend its regulations to
award only two-year standard contracts for QFs, rather than twenty-year
standard contracts with periodic updates to the avoided cost rate.\77\
Therefore, it was reasonable for the Commission to conclude that the
new flexibility granted by the final rule may lead states to lengthen
the contract period, which could encourage QF development.
Additionally, the new competitive market price options should be less
burdensome for all involved,

compared to the administrative determination of avoided cost rates,
because the new options rely on transparent, publicly available
competitive prices or transparent and non-discriminatory competitive
solicitations.\78\ QFs may spend less time and money pursuing their
interests in a competitive market price environment than they
previously did in the administrative determination process. Finally, to
the extent energy prices rise at some point in the future, QFs with
variable rates would necessarily benefit.
---------------------------------------------------------------------------

    \77\ Technical Conference Tr. at 143-44 (Commissioner Kristine
Raper, Idaho Commission).
    \78\ See Order No. 872, 172 FERC ] 61,041 at PP 30-32.
---------------------------------------------------------------------------

    44. We disagree with Public Interest Organizations' claim that the
Commission has failed to adequately consider the evidence that states
have achieved various levels of PURPA implementation. Public Interest
Organizations have overly relied on the examples of North Carolina,
Idaho, and Utah, which they contend have unusually high levels of QF
development. We are committed to promoting PURPA's central feature of
cooperative federalism.\79\ In the final rule, the Commission provided
states further flexibility to implement this statutory obligation as
most appropriate and consistent with the terms of the statute.
---------------------------------------------------------------------------

    \79\ See FERC v. Miss., 456 U.S. 742, 767 (1982) (internal
quotations omitted) (stating that PURPA is a ``program of
cooperative federalism that allows the States, within limits
established by federal minimum standards, to enact and administer
their own regulatory programs, structured to meet their own
particular needs'').
---------------------------------------------------------------------------

    45. We disagree with Public Interest Organizations that retaining
the exemption from PUHCA is unimportant or that PUHCA has been
repealed. While now more focused on record-keeping obligations,\80\
PUHCA remains a regulatory obligation for entities, including entities
that seek QF status retroactively. By granting QFs retroactive status
when they had not yet certified but should have done so previously, the
Commission has relieved those entities of PUHCA's record-keeping
obligations (similar to other federal and state exemptions), thereby
further encouraging the development of QFs.\81\ Similarly, contrary to
Public Interest Organizations' request for rehearing, alleged
deficiencies in state-administered QF interconnection procedures are
not within the scope of this rulemaking.
---------------------------------------------------------------------------

    \80\ See 18 CFR 366.3(a)(1).
    \81\ See, e.g., GRE 314 East Lyme LLC, 171 FERC ] 61,199 (2020);
Branch Street Solar Partners, LLC, 169 FERC ] 61,269 (2019); Zeeland
Farm Servs., Inc., 163 FERC ] 61,115 (2018); Minwind I, 149 FERC ]
61,109 (2014); Beaver Falls Mun. Auth., 149 FERC ] 61,108 (2014).
---------------------------------------------------------------------------

B. QF Rates

1. Overview
    46. PURPA requires the Commission to promulgate rules to be
implemented by the states that ``shall insure'' that the rates electric
utilities pay for purchases of electric energy from QFs meet the
statutory criteria, including that ``[n]o such rule . . . shall provide
for a rate which exceeds'' the purchasing utility's ``incremental cost
. . . of alternative electric energy.'' \82\ Under PURPA, such rates
must (1) be just and reasonable to the electric consumers of the
electric utility and in the public interest; (2) not discriminate
against qualifying cogenerators or qualifying small power producers;
\83\ and, as noted above, (3) not exceed ``the incremental cost to the
electric utility of alternative electric energy,'' \84\ which is ``the
cost to the electric utility of the electric energy which, but for the
purchase from such cogenerator or small power producer, such utility
would generate or purchase from another source.'' \85\ The
``incremental cost to the electric utility of alternative electric
energy'' referred to in prong (3) above, which sets out a statutory
upper bound on a QF rate, has been consistently referred to by the
Commission and industry by the short-hand phrase ``avoided cost,'' \86\
although the term ``avoided cost'' itself does not appear in PURPA.
---------------------------------------------------------------------------

    \82\ 16 U.S.C. 824a-3(b).
    \83\ 16 U.S.C. 824a-3(b)(1)-(2).
    \84\ 16 U.S.C. 824a-3(b).
    \85\ 16 U.S.C. 824a-3(d) (emphasis added).
    \86\ See 18 CFR 292.101(b)(6) (defining avoided costs in
relation to the statutory terms); see also Order No. 69, FERC Stats.
& Regs. ] 30,128 at 30,865 (``This definition is derived from the
concept of `the incremental cost to the electric utility of
alternative electric energy' set forth in section 210(d) of PURPA.
It includes both the fixed and the running costs on an electric
utility system which can be avoided by obtaining energy or capacity
from qualifying facilities.'').
---------------------------------------------------------------------------

    47. In addition, the PURPA Regulations in effect before the final
rule provide a QF two options for how to sell its power to an electric
utility. The QF could choose to sell as much of its energy as it
chooses when the energy becomes available, with the rate for the sale
calculated at the time of delivery (frequently referred to as a so-
called ``as-available'' sale).\87\ Alternatively, the QF could choose
to sell pursuant to a LEO (such as a contract) over a specified
term.\88\
---------------------------------------------------------------------------

    \87\ 18 CFR 292.304(d)(1).
    \88\ 18 CFR 292.304(d)(2)(i)-(ii); see also FLS Energy, Inc.,
157 FERC ] 61,211, at P 21 (2016) (FLS) (citing 18 CFR 292.304(d)).
The LEO or contract is frequently referred to as a long-term
transaction, when contrasted with an ``as available'' sale and rate.
---------------------------------------------------------------------------

    48. If the QF chooses to sell under the second option, the PURPA
Regulations in effect before the final rule provide the QF the further
option of receiving, in terms of pricing, either: (1) The purchasing
electric utility's avoided cost calculated at the time of delivery;
\89\ or (2) the purchasing electric utility's avoided cost calculated
and fixed at the time the LEO is incurred.\90\
---------------------------------------------------------------------------

    \89\ 18 CFR 292.304(d)(2)(i).
    \90\ 18 CFR 292.304(d)(2)(ii). Rates calculated at the time of a
LEO (for example, a contract) do not violate the requirement that
the rates not exceed avoided costs if they differ from avoided costs
at the time of delivery. 18 CFR 292.304(b)(5).
---------------------------------------------------------------------------

    49. In implementing the PURPA Regulations, the Commission
recognized that a contract with avoided costs calculated at the time a
LEO is incurred could exceed the electric utility's avoided costs at
the time of delivery in the future, thereby seemingly violating PURPA's
requirement that QFs not be paid more than an electric utility's
avoided costs. The Commission reasoned, however, that the fixed avoided
cost rate might also turn out to be lower than the electric utility's
avoided costs over the course of the contract and that, ``in the long
run, `overestimations' and `underestimations' of avoided costs will
balance out.'' \91\ The Commission's justification for allowing QFs to
fix their rate at the time of the LEO for the entire life of the
contract was that fixing the rate provides ``certainty with regard to
return on investment in new technologies.'' \92\
---------------------------------------------------------------------------

    \91\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880; see
also 18 CFR 292.304(b)(5) (``In the case in which the rates for
purchases are based upon estimates of avoided costs over the
specific term of the contract or other legally enforceable
obligation, the rates for such purchases do not violate this subpart
if the rates for such purchases differ from avoided costs at the
time of delivery.''); Entergy Servs., Inc., 137 FERC ] 61,199, at P
56 (2011) (``Many avoided cost rates are calculated on an average or
composite basis, and already reflect the variations in the value of
the purchase in the lower overall rate. In such circumstances, the
utility is already compensated, through the lower rate it generally
pays for unscheduled QF energy, for any periods during which it
purchases unscheduled QF energy even though that energy's value is
lower than the true avoided cost.'').
    \92\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880.
---------------------------------------------------------------------------

    50. In the NOPR, the Commission proposed to revise its PURPA
Regulations to permit states to incorporate competitive market forces
in setting QF rates. Specifically, the Commission proposed to revise
its PURPA Regulations with regard to QF rates to provide states with
the flexibility to:
     Require that ``as-available'' QF energy rates paid by
electric utilities

located in RTO/ISO markets be based on the market's LMP, or similar
energy price derived by the market, in effect at the time the energy is
delivered.
     Require that ``as-available'' QF energy rates paid by
electric utilities located outside of RTO/ISO markets be based on
competitive prices determined by (1) liquid market hub energy prices,
or (2) formula rates based on observed natural gas prices and a
specified heat rate.
     Require that energy rates under QF contracts and LEOs be
based on as-available energy rates determined at the time of delivery
rather than being fixed for the term of the contract or LEO.
     Implement an alternative approach of requiring that the
fixed energy rate be calculated based on estimates of the present value
of the stream of revenue flows of future LMPs or other acceptable as-
available energy rates at the time of delivery.
     Require that energy and/or capacity rates be determined
through a competitive solicitation process, such as a request for
proposals (RFP), with processes designed to ensure that the competitive
solicitation is performed in a transparent, non-discriminatory
fashion.\93\
---------------------------------------------------------------------------

    \93\ NOPR, 168 FERC ] 61,184 at PP 32-33.
---------------------------------------------------------------------------

    51. Although the Commission proposed to modify how the states are
permitted to calculate avoided costs, it did not propose to terminate
the requirement that the states continue to calculate, and to set QF
rates at, such avoided costs.\94\
---------------------------------------------------------------------------

    \94\ Order No. 872, 172 FERC ] 61,041 at P 101.
---------------------------------------------------------------------------

    52. In the final rule, the Commission adopted these proposals, with
certain modifications.
2. LMP as a Permissible Rate for Certain As-Available Avoided Cost
Rates
    53. In the final rule, the Commission revised 18 CFR 292.304 to add
subsections (b)(6) and (e)(1). In combination, these subsections permit
a state the flexibility to set the as-available energy rate paid to a
QF by an electric utility located in an RTO/ISO at LMPs calculated at
the time of delivery.\95\
---------------------------------------------------------------------------

    \95\ Id. P 124.
---------------------------------------------------------------------------

    54. The Commission adopted with one modification the NOPR proposal
to allow LMP to be used as a measure of as-available energy avoided
costs for electric utilities located in RTO/ISO markets.\96\
---------------------------------------------------------------------------

    \96\ Id. P 151.
---------------------------------------------------------------------------

    55. The Commission found that (1) LMPs reflect the true marginal
cost of production of energy, taking into account all physical system
constraints; (2) these prices would fully compensate all resources for
their variable cost of providing service; (3) LMP prices are designed
to reflect the least-cost of meeting an incremental megawatt-hour of
demand at each location on the grid, and thus prices vary based on
location and time; and (4) unlike average system-wide cost measures of
the avoided energy cost used by many states, LMP should provide a more
accurate measure of the varying actual avoided energy costs, hour by
hour, for each receipt point on an electric utility's system where the
utility receives power from QFs.\97\
---------------------------------------------------------------------------

    \97\ See id. P 153 (citing NOPR, 168 FERC ] 61,184 at PP 44-45
(citing SMUD, 616 F.3d at 524; FERC v. Elec. Power Supply Ass'n, 136
S. Ct. at 768-69 (describing how LMP is typically calculated); Offer
Caps in Markets Operated by Regional Transmission Organizations and
Independent System Operators, Order No. 831, 81 FR 87770 (Dec. 5
2016), 157 FERC ] 61,115, at P 7 (2016), order on reh'g and
clarification, Order No. 831-A, 82 FR 53403 (Nov. 16, 2017), 161
FERC ] 61,156 (2017))).
---------------------------------------------------------------------------

    56. The Commission recognized that an LMP selected by a state to
set a purchasing utility's avoided energy cost component might not
always reflect a purchasing utility's actual avoided energy costs.
Accordingly, the Commission found that it is appropriate to modify the
option for a state to set avoided energy costs using LMP from a per se
appropriate measure of avoided cost to a rebuttable presumption that
LMP is an appropriate means to determine avoided cost.\98\
---------------------------------------------------------------------------

    \98\ Id. P 152.
---------------------------------------------------------------------------

    57. The Commission disagreed with the arguments made by Union of
Concerned Scientists,\99\ NIPPC, CREA, REC, and OSEIA,\100\ and Public
Interest Organizations \101\ that LMP should not be used as a measure
of avoided energy costs because LMP prices are depressed in many
markets where self-scheduling rights and state cost-recovery mechanisms
for fuel and operating costs create the opportunity for market
participation at a loss. The Commission recognized that, all other
things being equal, self-scheduling of resources may impact market
clearing prices. The Commission found that this potential price effect,
however, does not mean that the LMP is not an accurate measure of
avoided energy costs. The Commission stated that, while self-scheduling
or other factors may impact LMPs, in any case, an electric utility's
purchases during periods when these price impacts are occurring would
be made at the resulting LMPs, whatever those LMPs may be. Therefore,
the Commission found that LMPs meet the Commission's long-standing
definition of avoided costs for a purchasing electric utility, even if
they happen to reflect price impacts from self-scheduling or other
factors.\102\
---------------------------------------------------------------------------

    \99\ Union of Concerned Scientists Comments, Docket No. RM19-15-
000, at 3-8 (Nov. 15, 2019).
    \100\ NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19-15-
000, at 52 (Dec. 3, 2019).
    \101\ Public Interest Organizations Comments, Docket No. RM19-
15-000, at 52-64 (Dec. 3, 2019).
    \102\ Order No. 872, 172 FERC ] 61,041 at PP 155-56.
---------------------------------------------------------------------------

    58. The Commission rejected the related request for clarification
made by Solar Energy Industries,\103\ i.e., that the flexibility to set
QF payments for as-available energy at the applicable LMP should
require an on-the-record determination that the purchasing utility
procures incremental energy from the identified LMP market at those
prices. The Commission found that, unless an aggrieved entity seeks to
rebut this presumption in a state avoided cost adjudication,
rulemaking, legislative determination, or other proceeding, that state
would not need to make such an on-the-record determination before it
decides to use LMP.\104\
---------------------------------------------------------------------------

    \103\ Solar Energy Industries Comments, Docket No. RM19-15-000,
at 27-28 (Dec. 3, 2019).
    \104\ Order No. 872, 172 FERC ] 61,041 at P 158.
---------------------------------------------------------------------------

    59. The Commission rejected the arguments made by NIPPC, CREA, REC,
and OSEIA that, more generally, prices for long-term QF contracts
should be set by reference to long-term price indices or other
indicators that genuinely reflect the long-term costs of generation
avoided by the purchasing utility.\105\ The Commission stated that it
only addressed as-available energy and as-available energy prices by
definition are short term.\106\
---------------------------------------------------------------------------

    \105\ NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19-15-
000, at 53 (Dec. 3, 2019).
    \106\ Order No. 872, 172 FERC ] 61,041 at P 160.
---------------------------------------------------------------------------

a. Requests for Rehearing
    60. Public Interest Organizations argue that it was erroneous for
the Commission to make a ``rebuttable presumption'' that the state or
nonregulated utility can use the LMP as ``a rate for as-available
qualifying facility energy sales to electric utilities located in a
market defined in [18 CFR] 292.309(e), (f), or (g).'' \107\ Public
Interest Organizations claim that the Commission acted contrary to
precedent that limits an administrative agency's authority to establish
presumptions by creating a rebuttable presumption that LMP is the
avoided cost price ``for as-available qualifying facility energy sales
to electric utilities located in'' an organized market.\108\ Public
Interest Organizations claim that the

presumption unlawfully shifts the burden under the statute and is not
based on record evidence showing that avoided cost energy prices are
necessarily the same as the LMP, adding that there are no alternative
explanations for a utility ever to incur energy prices that exceed the
LMP.\109\
---------------------------------------------------------------------------

    \107\ Public Interest Organizations Request for Rehearing at 60-
72 (citing 18 CFR 292.304(b)(6)).
    \108\ Id. at 62.
    \109\ Id.
---------------------------------------------------------------------------

    61. Public Interest Organizations argue that, because the final
rule stated that ``an LMP selected by a state to set a purchasing
utility's avoided energy cost component might not always reflect a
purchasing utility's actual avoided energy costs,'' the Commission
cannot make the necessary finding under the statute that the LMP is,
per se, the full avoided energy cost.\110\ Public Interest
Organizations contend that, to create the LMP presumption lawfully, the
Commission must have substantial record evidence showing that ``a sound
and rational connection between'' the LMP and the full avoided cost of
each utility (as necessary to ensure full encouragement and
nondiscrimination) is ``so probable that it is sensible and timesaving
to assume'' it unless disproven, arguing that there are no alternative
explanations for a conclusion contrary to the presumption.\111\ Public
Interest Organizations maintain that the record contains numerous
examples of instances in which a utility in an organized market incurs
costs greater than the LMP.\112\
---------------------------------------------------------------------------

    \110\ Id. at 64 (citing Order No. 872, 172 FERC ] 61,041 at P
52).
    \111\ Id. at 66 (citing Cablevision Sys. Corp. v. FCC, 649 F.3d
695, 716 (D.C. Cir. 2011) (Cablevision); Nat'l Mining Ass'n v. Dep't
of Interior, 177 F.3d 1, 6 (D.C. Cir. 1999)); Sec'y of Labor v.
Keystone Coal Min. Corp., 151 F.3d 1096, 1100-01 (D.C. Cir. 1998)).
    \112\ Id. at 68 & n.200 (citing Public Interest Organizations
Comments, Docket No. RM19-15-000, at 47-54 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    62. Public Interest Organizations claim that the Commission relies
on an implicit and absolute connection between price and cost by
repeatedly conflating the cost to buy in the day ahead market with the
cost of energy to the utility.\113\ Public Interest Organizations
maintain that, even when a utility is simultaneously selling into and
buying energy from the day ahead market, the utility's costs for energy
are the higher of the market price or the cost to produce or procure
the power it sells into the market. Public Interest Organizations refer
for example to a utility that dispatches its own generation at $35/MWh,
sells into the market at $20/MWh, and then buys back at $20/MWh to meet
load; the LMP price is $20, but the cost to the utility for energy is
$35.\114\
---------------------------------------------------------------------------

    \113\ Id. at 69.
    \114\ Id. at 69-72.
---------------------------------------------------------------------------

b. Commission Determination
    63. We reject the arguments against establishing the rebuttable
presumption that LMP reflects avoided costs for as-available energy. We
disagree with Public Interest Organizations that the relevant precedent
prohibits establishing a rebuttable presumption. Indeed, the courts
have made clear that ``[u]nder the APA, agencies may adopt evidentiary
presumptions provided that the presumptions (1) shift the burden of
production and not the burden of persuasion . . . and (2) are
rational.'' \115\ The final rule did not shift the burden of
persuasion, only the burden of production. We emphasize that LMP
typically reflects a purchasing utility's actual avoided energy
costs.\116\
---------------------------------------------------------------------------

    \115\ See Cablevision, 649 F.3d at 716 (citing 5 U.S.C. 556(d)).
    \116\ See Order No. 872, 172 FERC ] 61,041 at PP 153, 156.
---------------------------------------------------------------------------

    64. However, we also acknowledged in the final rule that there may
be instances when LMP does not reflect a purchasing utility's avoided
cost and that is why the Commission allowed the presumption to be
challenged. Requiring an entity challenging the state's use of the
presumption in the first instance to show why the state was wrong does
not negate the legal requirement that, unless the parties agree to
another rate, the rates for purchases in a QF contract must equal a
purchasing utility's avoided costs. If so challenged, a state would
need to address the challenging entity's arguments in order to
demonstrate that LMP represents the purchasing utility's avoided costs.
Therefore, the Commission did not change the burden of persuasion.\117\
Moreover, in the final rule, the Commission appropriately established a
rebuttable presumption to frame how it (and, potentially, reviewing
courts) would evaluate challenges to states setting avoided costs at
LMP.\118\
---------------------------------------------------------------------------

    \117\ See id. P 152.
    \118\ See AFPA v. FERC, 550 F.3d at 1183 (permitting Commission
to establish rebuttable presumption via rulemaking rather than case-
by-case adjudication in PURPA section 210(m) context).
---------------------------------------------------------------------------

    65. We also disagree with Public Interest Organizations' assertion
that the Commission failed to provide adequate support for why the
presumption is rational in organized markets. As explained in the final
rule, the Commission relied on a variety of supporting facts, including
the fact that LMP definitionally reflects the true marginal cost of
production of energy, taking into account physical system constraints,
and other listed benefits of LMP.\119\ Because LMP is likely to reflect
the true marginal cost of energy in the vast majority of cases for the
reasons discussed in the final rule, it is ``so probable that it is
sensible and timesaving to assume'' \120\ that LMP for a particular
utility is an appropriate measure of the utility's avoided costs for
as-available energy, unless disproven in a particular case. We leave
open for specific cases to determine the appropriateness of using a
particular LMP such that a QF could rebut the presumption that LMP is
appropriate.\121\ Regarding Public Interest Organizations' claims that
numerous examples in the record support their argument that utilities
often incur costs greater than the LMP, we disagree. Public Interest
Organizations' assertion is based on the evidence of self-scheduling
they supplied in NOPR comments, and their assertion that this self-
scheduling behavior is enabled by out-of-market subsidization through
retail rate cost recovery.\122\ However, Public Interest Organizations
have provided no proof that such out-of-market subsidization takes
place and there are legitimate reasons for self-scheduling that are
consistent with rational market participant behavior. For example,

generation units with start-up and shut-down sequences longer than a
single market commitment period may decide to self-schedule at a loss
in one period in order to earn profits in other periods that they
expect to exceed the temporary loss. Absent proof that retail rate
subsidization is the dominant driver for self-scheduling behavior,
there is little evidence in the record that purchasing utilities often
incur costs greater than the LMP. Nevertheless, entities may seek to
rebut the presumption if, for example, the RTO/ISO market is affected
by persistent price distortions that are not the result of legitimate
market participant behavior (such as persistent self-scheduling at a
loss that is proven to be the result of out-of-market subsidization,
and thus demonstrates that the utility regularly incurs costs that
exceed LMP).
---------------------------------------------------------------------------

    \119\ Order No. 872, 172 FERC ] 61,041 at P 153 (finding that
``(1) LMPs reflect the true marginal cost of production of energy,
taking into account all physical system constraints; (2) these
prices would fully compensate all resources for their variable cost
of providing service; (3) LMP prices are designed to reflect the
least-cost of meeting an incremental megawatt-hour of demand at each
location on the grid, and thus prices vary based on location and
time; and (4) unlike average system-wide cost measures of the
avoided energy cost used by many states, LMP should provide a more
accurate measure of the varying actual avoided energy costs, hour by
hour, for each receipt point on an electric utility's system where
the utility receives power from QFs'') (citing NOPR, 168 FERC ]
61,184 at PP 44-45 (citing FERC v. Elec. Power Supply Ass'n, 136 S.
Ct. 760, 768-69 (2016) (describing how LMP is typically calculated);
Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520, 524 (D.C. Cir.
2010); Order No. 831, 157 FERC ] 61,115 at P 7).
    \120\ Nat'l Mining Ass'n v. U.S. Dep't of Interior, 177 F.3d at
6.
    \121\ See Order No. 872, 172 FERC ] 61,041 at PP 155-71
(discussing why LMP is presumptively an appropriate measure of
avoided energy costs even if in particular circumstances it is not
appropriate).
    \122\ See Public Interest Organizations Request for Rehearing at
71 (footnote omitted) (citing Public Interest Organizations
Comments, Docket No. RM19-15-000, at 46-55 (Dec. 3, 2019)) (``[E]ven
utilities that operate in organized markets acquire energy outside
of the day ahead market or produce energy at variable costs that
exceed the market price and sell at a loss to the day ahead market.
Price suppression is thus one indicator of the larger problem that
the day ahead market is not reflecting the actual cost of energy
supply to utilities, which belies FERC's assumption that the LMP
reflects all utilities' actual cost for all marginal energy.'').
---------------------------------------------------------------------------

3. Tiered Avoided Cost Rates
a. Request for Clarification
    66. California Utilities request that the Commission clarify that
it is no longer the Commission's policy or intent to permit states to
subsidize QFs by the use of ``tiered'' avoided costs.\123\ California
Utilities request that the Commission find that avoided cost rates may
not be based only on the costs of a subset of facilities from which a
state has mandated purchases or only on facilities that meet state-
determined characteristics such as the facilities' use of a renewable
fuel. As such, California Utilities further request that the Commission
find that the United States Court of Appeals for the Ninth Circuit
decision in CARE v. CPUC \124\ as well as certain aspects of the
Commission's orders \125\ are no longer valid precedent.
---------------------------------------------------------------------------

    \123\ California Utilities Motion for Clarification at 1-2.
    \124\ Californians for Renewable Energy v. Cal. Pub. Utils.
Comm'n, 922 F.3d 929 (9th Cir. 2019) (CARE v. CPUC).
    \125\ Cal. Pub. Utils. Comm'n, 133 FERC ] 61,059 (2010) (CPUC
2010), clarification and reh'g denied, 134 FERC ] 61,044 (2011)
(CPUC 2011).
---------------------------------------------------------------------------

    67. According to California Utilities, Commission precedent on
avoided costs for tiered resources is as follows for the following
periods:\126\
---------------------------------------------------------------------------

    \126\ California Utilities Motion for Clarification at 3-8.

    1978-2010: All resources must be used to set avoided costs.\127\
---------------------------------------------------------------------------

    \127\ Id. at 3 (citing S. Cal. Edison Co., 70 FERC ] 61,215
(CPUC 1995 I), reconsideration denied, 71 FERC ] 61,269 (1995) (CPUC
1995 II)).
---------------------------------------------------------------------------

    2010-2019: States were permitted to adopt tiered avoided costs
based on the costs of specific types of QFs, if the state had an
unmet purchase mandate.\128\
---------------------------------------------------------------------------

    \128\ Id. at 4 (citing CPUC 2010, 133 FERC ] 61,059 at P 30).
---------------------------------------------------------------------------

    April 2019-2020: Tiered avoided costs mandated within the Ninth
Circuit if state procurement mandates are unmet.\129\
---------------------------------------------------------------------------

    \129\ Id. at 5 (citing CARE v. CPUC, 922 F.3d 929).
---------------------------------------------------------------------------

    2020: The Commission returns to an all-resource approach and
rejects using PURPA to subsidize QFs that are not otherwise
financeable.\130\
---------------------------------------------------------------------------

    \130\ Id. (citing Order No. 872, 172 FERC ] 61,041 at P 123).
---------------------------------------------------------------------------

    68. California Utilities request clarification for the following
reasons: (1) The Commission's failure to state in the final rule that
it is overruling the CPUC cases or CARE v. CPUC; (2) the need for the
Commission to defend a change in policy before an appellate court that
will ask why the Commission no longer supports the policy it espoused
in CPUC 2010; (3) the regulation that lists the factors a state may
consider in determining avoided cost (18 CFR 292.304, which have been
moved to 18 CFR 292.304(e)(2)) have not changed, which leaves them open
to misinterpretation; and (4) the words ``taking into account the
operating characteristics of the needed capacity'' \131\ regarding
competitive solicitations, although clarified by Paragraph 433 of the
final rule, could be misread as allowing avoided costs for QFs with
``operating characteristics'' such as renewable fuel, cogeneration
technology, under a certain size, or at specific locations (i.e.,
located on the distribution system).\132\
---------------------------------------------------------------------------

    \131\ See new 18 CFR 292.304(d)(8)(i)(B).
    \132\ California Utilities Motion for Clarification at 9-10.
---------------------------------------------------------------------------

    69. California Utilities maintain that adding the following
language after 18 CFR 292.304(b)(5) will ensure that states will not
use tiered avoided cost rates under PURPA as a vehicle to subsidize
certain state-favored resources: ``(6) Rates for purchases may not be
based on an avoided cost set by determining the cost of procuring
energy and/or capacity to fulfill a State regulatory authority or non-
regulated electric utility mandate to procure energy and/or capacity
from resources using a specific fuel type, using a specific technology,
of a particular size, and/or located only on local distribution
systems.'' \133\
---------------------------------------------------------------------------

    \133\ Id. at 13-14.
---------------------------------------------------------------------------

    70. California Commission disagrees that the final rule overrules
CPUC 2011 and the Commission's earlier precedent. California Commission
contends that the Commission's 1995 precedent prohibits assuming that
``the utility can provide the capacity and generate the energy itself
(i.e., through the establishment of the utility benchmark price), only
to exclude the utility, cogenerators, and other resources from
ultimately being able to supply the capacity and energy, by segmenting
the portfolio and permitting only certain QFs to bid in certain
segments against the benchmark and ultimately produce a higher-than-
avoided-cost rate.'' \134\ California Commission interprets Commission
precedent as permitting a state to determine what capacity a utility
would be avoiding, to decide from which generators a utility could
purchase to satisfy state programs, and to set tiered avoided cost
rates based on those qualifying resources.\135\
---------------------------------------------------------------------------

    \134\ California Commission Answer at 4-5.
    \135\ Id. at 5-6.
---------------------------------------------------------------------------

    71. California Commission asserts that the final rule's requirement
that competitive solicitations be open to all sources was intended to
prevent discrimination against QFs and did not preclude states from
using tiered avoided cost rates.\136\ California Commission argues
that, contrary to California Utilities' assertion, the final rule does
not treat tiered rates as impermissible subsidies to QFs. California
Commission contends, instead, that the final rule permits states to
continue recognizing non-energy benefits outside the context of PURPA
payments.\137\ California Commission requests that, with respect to
CARE v. CPUC's holding that a state that uses QFs to meet a renewable
portfolio standard (RPS) must set avoided cost only on resources that
could satisfy that RPS, the Commission clarify that ``operating
characteristics that qualify a QF to meet a state's [RPS] are energy-
related benefits that can be the basis for determining avoided costs
and multi-tier pricing, as opposed to benefits unrelated to their
production of energy--akin to renewable energy credits--that may not be
compensated by rates under PURPA.'' \138\
---------------------------------------------------------------------------

    \136\ Id. at 7-9.
    \137\ Id. at 9-11.
    \138\ Id. at 11-12.
---------------------------------------------------------------------------

b. Commission Determination
    72. We deny California Utilities' request for clarification.
Although Commission precedent does not allow the use of non-operational
externalities, such as environmental benefits, in setting avoided cost
rates, PURPA neither requires nor prohibits states from establishing
tiered procurement (and thus tiered pricing), such as California does.
California's tiered supply procurement requirements reflect decisions
regarding utility generation procurement (e.g., by specific fuel type
or technology) that are within the boundaries of a state's traditional
authority. Once such tiered generation procurement requirements have
been

established by a state, if a QF qualifies for a particular generation
procurement tier, it is reasonable to assume that the mandatory QF
purchase will displace resources otherwise in that tier; therefore, the
rates for that tier are in fact the cost avoided by the purchasing
utility when it instead purchases from that QF.
    73. We cannot overrule a Court of Appeals decision, as California
Utilities suggest. In addition, California Utilities have not
adequately supported that there is any conflict between the final rule
and the precedent they cite.\139\ Therefore, we decline to add
additional regulatory language to address the issues they raise.
---------------------------------------------------------------------------

    \139\ The Commission in the final rule addressed arguments that
QFs provide non-energy benefits. The Commission stated that such
benefits may be addressed by states outside of PURPA. Because tiered
QF rates result from tiered procurement not limited to QFs, and are
therefore established outside of PURPA, nothing in PURPA prohibits
such tiered rates. See Order No. 872, 172 FERC ] 61,041 at P 123;
see also CPUC 2010, 133 FERC ] 61,059 at P 31 (``[A]lthough a state
may not include a bonus or an adder in the avoided cost rate unless
it reflects actual costs avoided, a state may separately provide
additional compensation for environmental externalities, outside the
confines of, and, in addition to the PURPA avoided cost rate,
through the creation of renewable energy credits. . . .'').
---------------------------------------------------------------------------

4. Providing for Variable Energy Rates in QF Contracts Is Consistent
With PURPA
    74. As explained above, if a QF chooses to sell energy and/or
capacity pursuant to a contract, the PURPA Regulations in effect before
the final rule provide the QF the option of receiving the purchasing
electric utility's avoided cost calculated and fixed at the time the
LEO is incurred.\140\ The Commission's justification in Order No. 69
for allowing QFs to fix their rate at the time of the LEO for the
entire term of a contract was that fixing the rate provides certainty
``with regard to return on investment in new technologies necessary for
the QF to obtain financing'' \141\ The Commission stated that its
regulations pertaining to LEOs ``are intended to reconcile the
requirement that the rates for purchases equal the utilities' avoided
costs with the need for qualifying facilities to be able to enter
contractual commitments based, by necessity, on estimates of future
avoided costs.'' \142\ Further, the Commission agreed with the ``need
for certainty with regard to return on investment in new
technologies,'' and stated its belief that any overestimations or
underestimations ``will balance out.'' \143\
---------------------------------------------------------------------------

    \140\ 18 CFR 292.304(d)(2)(ii).
    \141\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880
(justifying the rule on the basis of ``the need for certainty with
regard to return on investment in new technologies'').
    \142\ Id.
    \143\ Id.
---------------------------------------------------------------------------

    75. In the NOPR, the Commission proposed to revise 18 CFR
292.304(d) to permit a state to limit a QF's option to elect to fix at
the outset of a LEO the energy rate for the entire length of its
contract or LEO, and instead allow the state the flexibility to require
QF energy rates to vary during the term of the contract. However, under
the proposed revisions to 18 CFR 292.304(d), a QF would continue to be
entitled to a contract with avoided capacity cost rates (assuming there
are avoided capacity costs) calculated and fixed at the time the
contract or LEO is incurred. Only the energy rate in the contract or
LEO could be required by a state to vary. Further, the NOPR did not
propose to obligate states to require variable avoided cost energy
rates; they would retain the ability to allow the QF's energy rate be
fixed at the time the LEO is incurred.\144\
---------------------------------------------------------------------------

    \144\ NOPR, 168 FERC ] 61,184 at P 67.
---------------------------------------------------------------------------

    76. In the final rule, the Commission adopted without modification
the NOPR variable rate proposal. The Commission found that setting QF
avoided energy cost contract and LEO rates at the level of the
purchasing utility's avoided energy costs at the time the energy is
delivered is consistent with PURPA, which limits QF rates to the
purchasing utility's avoided costs. The Commission explained that a
variable avoided cost energy rate approach is a superior way to ensure
that payments to QFs equal, but do not exceed, avoided costs.\145\ The
Commission stated that it is inevitable that, over the life of a QF
contract or other LEO, a fixed avoided cost energy rate, such as that
used in past years, will deviate from actual avoided costs.\146\
---------------------------------------------------------------------------

    \145\ 16 U.S.C. 824a-3(b)(1).
    \146\ Order No. 872, 172 FERC ] 61,041 at P 253.
---------------------------------------------------------------------------

    77. The Commission found that the record justifies its conclusions
that long-term forecasts of avoided energy costs are inherently
imperfect and that states should be given the flexibility to rely on a
more reliable variable avoided cost energy rate approach. Further, the
Commission pointed to instances where overestimates and underestimates
have not balanced out.\147\ The Commission found that, when that has
occurred, consumers have borne the brunt of the overpayments, which
subsidized QFs, in contravention of Congressional intent and the
Commission's expectations. Given that PURPA section 210(b) prohibits
the Commission from requiring QF rates in excess of avoided costs, the
Commission explained that record evidence supports its decision to give
the states the flexibility to require variable avoided cost energy
rates in QF contracts and other LEOs to prevent QF rates from exceeding
avoided costs.\148\
---------------------------------------------------------------------------

    \147\ See id. (citing Duke Energy Comments, Docket No. RM19-15-
000, at 6 (Dec. 3, 2019) (Duke's QF contracts cost $4.66 billion but
its ``actual current avoided costs'' are $2.4 billion); Idaho Power
Comments, Docket No. RM19-15-000, at 10-11 (Dec. 3, 2019) (``The
cost of PURPA generation contained in Idaho Power's base rates, on a
dollars per MWh basis, is not just greater than Mid-C market prices,
it is greater than all the net power supply cost components
currently recovered in base rates. Idaho Power's average cost of
PURPA generation included in base rates is $62.49/MWh. At $62.49/
MWh, the average cost of PURPA purchases is greater than the average
cost of FERC Account 501, Coal at $22.79/MWh; greater than FERC
Account 547, Natural Gas at $33.57/MWh; greater than FERC Account
555, Non-PURPA Purchases at $50.64/MWh; and significantly greater
than what is being sold back to the market as FERC Account 447,
Surplus Sales at $22.41/MWh.''); Portland General Comments, Docket
No. RM19-15-000, at 5 (Dec. 3, 2019) (``for a typical 3 MW Solar QF
project that incurred a LEO in 2016 and reaches commercial
operations three years later, [Portland General's] customers would
pay 67% more for the project's energy than if the 2019 avoided cost
rate had been used. As a result of this lag, [Portland General's]
customers would pay an additional $1.6 million more for the energy
from the QF facility over the 15-year contract term.'')); see also
NOPR, 168 FERC ] 61,184 at P 64 n.101 (citing Alliant Energy
Comments, Docket No. AD16-16-000, at 5 (Nov. 7, 2016) (``Current
market-based wind prices in the Iowa region of MISO are
approximately 25% lower than the PURPA contract obligation prices
[Interstate Power and Light Company] is forced to pay for the same
wind power for long-term contracts entered into as of June 2016. As
a result, PURPA-mandated wind power purchases associated with just
one project could cost Alliant Energy's Iowa customers an
incremental $17.54 million above market wind prices over the next 10
years.'') (emphasis in original); Edison Electric Institute (EEI)
Supplemental Comments, Docket No. AD16-16-000, attach. A at 3-4
(June 25, 2018) (``On August 1, 2014, a 10-year fixed price contract
at the Mid-Columbia wholesale power market trading hub was priced at
$45.87/MWh. On June 30, 2016, the same contract was priced as
$30.22/MWh, a decline of 34% in less than two years. However, over
the next 10 years, PacifiCorp has a legal obligation to purchase
51.9 million MWhs under its PURPA contract obligations at an average
price of $59.87/MWh. The average forward price curve for the Mid-
Columbia trading hub during the same period is $30.22/MWh, or 50%
below the average PURPA contract price that PacifiCorp will pay. The
additional price required under long-term fixed contracts will cost
PacifiCorp's customers $1.5 billion above current forward market
prices over the next 10 years.''); Comm'r Kristine Raper, Idaho
Commission Comments, Docket No. AD16-16-000, at 3-4 (June 30, 2016)
(``Idaho Power demonstrated that the average cost for PURPA power
since 2001 has exceed the Mid-Columbia (Mid-C) Index Price and is
projected to continue to exceed the Mid-C price through 2032.
Likewise, PacifiCorp's levelized avoided cost rates for 15-year
contract terms in Wyoming shows a decrease of approximately 50% from
2011 through 2015 (from approximately $60 per megawatt-hour to less
than $30 per megawatt-hour).'')).
    \148\ Order No. 872, 172 FERC ] 61,041 at PP 254-55.
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    78. The Commission found that the variable avoided cost energy rate
provision is not based on any determination that the Commission's

rules no longer should encourage QF development. The Commission found,
instead, that it was revising the PURPA Regulations by giving states
the flexibility to require variable avoided cost energy rates in QF
contracts and other LEOs in order to better comply with Congress's
clear requirement in PURPA that the Commission may not require QF rates
in excess of a purchasing utility's avoided costs.\149\
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    \149\ Id. P 256.
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    79. Opponents of variable avoided cost energy rates urged the
Commission to continue placing this risk on the customers of electric
utilities, as in the past, by retaining the option for QFs to fix their
avoided cost energy rates in their contracts or LEOs notwithstanding
record evidence that fixed energy rates compared to actual avoided
costs have not balanced out over time. But, after consideration of the
record, the Commission decided instead to allow states the flexibility
to require variable avoided cost energy rates in QF contracts and LEOs
and thereby reduce the risk to customers. The Commission found that its
determination ensures that the PURPA Regulations continue to be
consistent with the statutory avoided cost rate cap in PURPA section
210(b), coupled with the directive in the PURPA Conference Report that
customers of utilities not be required to subsidize QFs.\150\
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    \150\ Id. P 258 (citing Conf. Rep. at 98 (emphasis added) (``The
provisions of this section are not intended to require the rate
payers of a utility to subsidize cogenerators or small power
produc[er]s.'')).
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    80. The Commission found that there is no merit to the contention
that the PURPA Conference Report expresses Congressional intent that
QFs are entitled to long-term fixed energy rates. The Commission found
that, while Congress recognized that the better measure of avoided cost
in certain scenarios might be the cost of the alternative fossil fuel
unit that would not be run at that later date,\151\ nothing in the
section of the PURPA Conference Report quoted by opponents of the
variable energy rate proposal suggests that Congress intended the
Commission to require that all avoided cost energy rates be fixed at
the outset for the life of a QF contract or other LEO. The Commission
further found that nothing in the revision being implemented in the
final rule would prohibit a state from calculating a QF's avoided cost
energy rate for a QF contract or LEO in the manner suggested in the
PURPA Conference Report or, indeed, in the manner the Commission has
long allowed, if a state determined that such an approach best reflects
the purchasing electric utility's avoided costs.\152\
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    \151\ Under the approach adopted in the final rule, with the
flexibility granted to states to adopt--but not a mandate directing
states to adopt--variable avoided cost energy rates for QF contracts
and other LEOs, the Commission permitted states to adopt a pricing
approach that best fits their circumstances, including adopting the
pricing approach described by the PURPA Conference Report to address
the circumstances described by the PURPA Conference Report. Id. P
260 n.409.
    \152\ Id. P 260.
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    81. The Commission described the variable avoided cost energy rate
provision as not running afoul of the Freehold Cogeneration and Smith
Cogeneration cases cited by Harvard Electricity Law.\153\ The
Commission described those decisions, which overturned state avoided
cost determinations allowing for changes in QF rates, as based on the
provision in the original PURPA Regulations giving QFs the option to
select contracts with long-term fixed avoided cost rates.\154\ The
Commission explained that neither decision suggests that PURPA would
prevent the Commission from revising its regulations to allow states
the flexibility to require variable avoided cost energy rates.
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    \153\ Id. P 261 (citing Harvard Electricity Law Comments, Docket
No. RM19-15-000, at 29 (Dec. 3, 2019) (citing Freehold Cogeneration
Ass'n v. Bd. of Regulatory Comm'rs of State of N.J., 44 F.3d 1178,
1193 (3d Cir. 1995) (Freehold Cogeneration); Smith Cogeneration
Mgmt. v. Corp. Comm'n, 863 P.2d 1227, 1227 (Okla. 1993) (Smith
Cogeneration))).
    \154\ Id. (citing Smith Cogeneration, 863 P.2d at 1241 (emphasis
added) (holding that allowing reconsideration of established avoided
costs ``makes it impossible to comply with PURPA and FERC
regulations requiring established rate certainty for the duration of
long term contracts for qualifying facilities that have incurred an
obligation to deliver power''); Freehold Cogeneration, 44 F.3d at
1193 (emphasis added) (relying on Smith Cogeneration analysis that
``that PURPA and FERC regulations preempted the State Commission
rule'')).
---------------------------------------------------------------------------

    82. The Commission found that it was not subjecting QFs to the same
type of examination that is traditionally given to electric utility
rate applications (e.g., cost-of-service rate regulation).\155\ Indeed,
the Commission found that the regulation it adopted does not subject QF
rates to any examination whatsoever of the costs incurred by QFs in
producing and selling power. Rather, the Commission stated that the
variable avoided cost energy rate provision applicable to QF contracts
and other LEOs that the Commission adopted in the final rule sets QF
rates based on the avoided costs of the purchasing utility. The
Commission stated that this variable avoided cost energy rate provision
cannot be characterized as imposing utility-style regulation on the QFs
themselves.\156\
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    \155\ Id. P 262.
    \156\ Id. P 263.
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    83. Finally, the Commission determined that state regulators may
not change rates in existing QF contracts or other existing LEOs.\157\
The Commission explained that, by its terms, the variable avoided cost
energy rate provision applies only prospectively to new contracts and
new LEOs entered into after the effective date of the final rule. The
Commission emphasized that nothing in the final rule should be read as
sanctioning the modification of existing fixed-rate QF contracts and
LEOs.\158\
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    \157\ Id. P 264 (citing Harvard Electricity Law Comments, Docket
No. RM19-15-000, at 23 (Dec. 3, 2019) (citing API, 461 U.S. at
414)).
    \158\ Id.
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a. Whether the Current Approach Has Resulted in Payments to QFs in
Excess of Avoided Costs
    84. In the final rule, the Commission gave states the flexibility
to require variable energy pricing in QF contracts and other LEOs,
instead of providing QFs the right to elect fixed energy prices, based
on the Commission's concern that, at least in some circumstances, long-
term fixed avoided cost energy rates have been well above the
purchasing utility's avoided costs for energy and that this was a
result prohibited by PURPA section 210(b). The Commission found that
the record evidence demonstrates that QF contract and LEO prices for
energy can exceed and have exceeded avoided costs for energy without
any subsequent balancing out. In addition to the examples presented in
the record of the Technical Conference that were cited in the NOPR, the
Commission noted that commenters have provided additional examples of
such overpayments.\159\ The Commission explained that such evidence
persuaded it that it is necessary to give states the flexibility to
address QF contract and LEO rates for energy that exceed avoided costs
for energy, while at the same time still allowing states the
flexibility to continue requiring long-term fixed avoided cost energy
rates in QF contracts and other LEOs when such treatment is
appropriate.\160\
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    \159\ Id. P 283 (citing Duke Comments, Docket No. RM19-15-000,
at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19-15-000,
at 10-11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19-
15-000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ] 61,184 at P 64 n.101).
    \160\ Id.
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    85. In the final rule, the Commission found, as acknowledged in
Harvard Electricity Law's NOPR comments, that the examples of QF
contract rates that exceed avoided costs that are in the record
illustrate the general proposition that ``energy forecasts have a
manifest

record of failure.'' \161\ The Commission explained that it was this
``manifest record of failure'' including evidence in the record that
the failure has been at the expense of consumers that motivated the
Commission to make the change adopted in the final rule.\162\
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    \161\ Id. P 284 (citing Harvard Electricity Law Comments, Docket
No. RM19-15-000, at 24 (Dec. 3, 2019) (citing Vaclav Smil, Energy at
the Crossroads: Global Perspectives and Uncertainties, Mass. Inst.
Tech., 2003, at 121, 145-49)).
    \162\ Id.
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    86. The Commission also found that challenges to the idea that
fixed avoided cost energy rates in QF contracts and other LEOs have
exceeded actual avoided costs largely either conceded that
overestimations have occurred while arguing that such overestimations
impacted purchasing electric utilities just as much as QFs or attempted
to argue that such overestimations were temporary or unusual.\163\
---------------------------------------------------------------------------

    \163\ Id. P 285.
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    87. First, the Commission determined that the record evidence
demonstrates that, contrary to the Commission's finding in 1980,
overestimations and underestimations of future avoided costs may not
even out.\164\ Consequently, the Commission found that its
determination in 1980, based on the record at that time, does not
preclude the Commission from relying on new record evidence showing a
change in circumstances since 1980 to revise the 1980 rule.
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    \164\ Id. P 286 (citing Duke Comments, Docket No. RM19-15-000,
at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19-15-000,
at 10-11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19-
15-000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ] 61,184 at 64 n.101).
---------------------------------------------------------------------------

    88. The Commission agreed with Public Interest Organizations that
the recent electricity price overestimations were not unique to QFs and
can be explained by general declines in natural gas prices since the
adoption of hydraulic fracturing and the 2007-2009 recession.\165\ But
the Commission explained that these overestimations are precisely why
the estimates of avoided costs reflected in the QF contracts and LEOs
were incorrect and why the resulting fixed avoided cost energy rates
reflected in such QF contracts and other LEOs resulted in QF rates well
above utility avoided costs in violation of PURPA section 210(b); the
precipitous decline in natural gas prices caused a corresponding
reduction in utilities' energy costs, and thus in their avoided energy
costs but this decline was not reflected in the QFs' fixed contract
rates that remained at their previous levels.\166\
---------------------------------------------------------------------------

    \165\ Id. P 287 (citing Public Interest Organizations Comments,
Docket No. RM19-15-000, at 47-50 (Dec. 3, 2019)).
    \166\ Id.
---------------------------------------------------------------------------

    89. Similarly, the Commission found that arguments that electric
utilities also based resource acquisitions on incorrect forecasts of
natural gas prices \167\ ignore a key distinction between utility rates
and fixed QF rates. As the Commission explained, electric utilities may
have relied on incorrect natural gas price forecasts to justify the
timing and type of their resource acquisitions, as commenters assert.
However, the Commission found that, once an electric utility resource
decision was made, electric utilities' cost-based rate regimes
typically obligated them eventually to pass through to customers any
energy cost savings realized as a result of declining natural gas and
other fuel prices, as well as any energy cost savings due to lower
purchased power rates resulting from the decline in natural gas prices.
The Commission found that, by contrast, once QF avoided cost energy
rates were fixed based on now-incorrect (and now-high) natural gas
price forecasts, those energy rates remained fixed for the term of the
QFs' contracts and LEOs. Therefore, unlike fixed avoided cost energy
rates in QF contracts and LEOs, the Commission determined that cost-
based electric utility energy rates declined as the cost of natural gas
and other fuels and purchased power declined.\168\
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    \167\ Id. P 288 (citing Electricity Consumers Resource Council,
American Chemistry Council, and American Forest and Paper
Association (ELCON) Comments, Docket No. RM19-15-000, at 22 (Dec. 3,
2019); North Carolina Commission Staff Comments, Docket No. RM19-15-
000, at 2-3 (Dec. 3, 2019); NIPPC, CREA, REC, and OSEIA Comments,
Docket No. RM19-15-000, at 31 (Dec. 3, 2019); Public Interest
Organizations Comments, Docket No. RM19-15-000, at 40, 43 (Dec. 3,
2019); Solar Energy Industries Comments, Docket No. RM19-15-000, at
36-38 (Dec. 3, 2019)).
    \168\ Id.
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    90. The Commission also disagreed with Public Interest
Organizations' assertions that it was improper to have used competitive
market hub prices to determine whether fixed QF contract and LEO prices
resulted in overpayments as compared to electric utilities' actual
avoided costs.\169\ The Commission recognized that the competitive
market hub prices used in the comparisons may not have precisely
reflected the avoided energy costs of all electric utilities located in
the same region as the competitive market hub. However, the Commission
found that competitive market prices in general should reflect the
marginal avoided energy costs of utilities with access to such markets
and that those markets generally reflect the marginal cost of energy in
the region.\170\ The Commission further found that the magnitude of the
differences between the market hub prices and the QF contract and LEO
prices provides solid evidence that the QF contract and LEO prices used
in the comparison were well above actual avoided energy costs at the
time the energy was delivered by the QFs, even if the exact magnitude
is unclear.\171\
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    \169\ Id. P 289 (citing Public Interest Organizations Comments,
Docket No. RM19-15-000, at 40-41 (Dec. 3, 2019)).
    \170\ Id. The Commission stated that a review of recent Mid-C
Hub daily spot prices (from Intercontinental Exchange (ICE) https://www.eia.gov/electricity/wholesale/, indicates that they reflect the
marginal cost of energy in that area since they are usually the
result of a significant number of trades (averaging 54 per day),
counterparties (averaging 16 per day), and trading volume (averaging
26,714 MWh/day), which usually exceed those of the NP-15 trading
hub, an active Western trading hub in Northern California in the
CAISO footprint (averaging 6 trades per day, 4 counterparties per
day, and 2,756/MWh per day). The Commission described prices for
Mid-C as ranging between an average of approximately $16/MWh high
price and $13/MWh low price during the recent spring (Mar 19-Jun 20,
2020). During this period the index was reported for 65 trading days
for Mid-C and 9 trading days for NP-15. Id.
    \171\ Id.
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    91. The Commission acknowledged that energy prices may increase in
the future but explained that giving states the flexibility to require
variable avoided cost energy rates in QF contracts and in other LEOs
will allow states to better ensure that avoided cost energy payments
made to QFs will more accurately reflect the purchasing utility's
avoided costs regardless of whether energy prices are increasing or
declining. The Commission also noted that, if energy prices do in fact
increase, variable avoided cost energy pricing would protect and even
benefit the QF itself because it would not be locked into a fixed
energy rate contract or LEO that would be below the purchasing electric
utility's avoided energy cost.\172\
---------------------------------------------------------------------------

    \172\ Id. PP 290-91.
---------------------------------------------------------------------------

    92. The Commission noted that, although many commenters agreed that
fixed QF energy rates were higher than actual avoided energy costs in