at least some instances, challenges were raised against both Duke
Energy's estimate that its fixed QF contract rates were $2.6 billion
above market costs and the Concentric Report's comparison of QF fixed
rates for wind and solar facilities with the cost of wind and solar
projects with competitive, non-PURPA contracts.\173\
---------------------------------------------------------------------------

    \173\ Id. P 291.
---------------------------------------------------------------------------

    93. The Commission found that the expert testimony cited by the SC
Solar Alliance, that the witness ``wouldn't put a whole lot of weight
in [Duke's

estimate],'' \174\ does not address Duke's calculation of past
overpayments. Rather, the Commission described the witness as answering
a question regarding the potential for overpayments ``[f]or going
forward solar,'' i.e., future overpayments as a result of the new fixed
avoided cost rates being considered by the South Carolina Commission
that were the subject of the expert witness' testimony.\175\ The
Commission noted that the same witness acknowledged the past
overpayments made by Duke Energy, which he attributed to ``drops in
natural gas prices that no one could've foreseen.'' \176\ The
Commission explained that it was these overpayments due to unforeseen
declines in natural gas prices that formed an important basis for the
Commission's determination in the final rule to now give states the
flexibility to require variable avoided cost energy rates in QF
contracts and LEOs.\177\
---------------------------------------------------------------------------

    \174\ Id. P 292 (citing SC Solar Alliance Comments, Docket No.
RM19-15-000, at 7 (Dec. 3, 2019)).
    \175\ Id. (citing Public Service Commission of South Carolina,
Docket No. 2019-185 & 186-E, Hearing Transcript Vol. 2, Tr. 596: 3-4
(Horii Test.) (attached as Appendix 1 to SC Solar Alliance Comments,
Docket No. RM19-15-000 (Dec. 3, 2019))).
    \176\ Id. (citing Horii Test. 593:21-22).
    \177\ Id.
---------------------------------------------------------------------------

    94. The Commission also emphasized that it did not rely on the
Concentric Report to support the variable energy avoided cost provision
adopted in the final rule. The Commission determined that it is not
clear that the difference in costs identified by Concentric can be
ascribed to the fixed rates in the QF contracts or rather to the fact
that the avoided cost rates in the QF contracts were based on more
expensive non-renewable capacity that was avoided by the purchasing
utilities.\178\
---------------------------------------------------------------------------

    \178\ Id. P 293.
---------------------------------------------------------------------------

i. Requests for Rehearing
    95. EPSA argues that the Commission erred in relying on the idea
that overestimates and underestimates have not balanced out because the
Commission has neither validated these allegations, nor assessed
whether the overestimations of avoided cost have, in fact, balanced
out.\179\ Public Interest Organizations argue that the Commission's
determination to permit variable energy rates to mitigate the risk of
alleged overpayments to QFs is arbitrary and capricious and unsupported
by substantial evidence.\180\ Likewise, Solar Energy Industries assert
that there is a lack of evidence to conclude that protecting electric
consumers warrants terminating the QF's right to elect long-term fixed
energy rates.\181\ EPSA argues that over- and under-estimations over
time is irrelevant absent evidence that avoided cost forecasts are
inherently less accurate than the cost estimates used to set the
purchasing utilities' own rates.\182\
---------------------------------------------------------------------------

    \179\ EPSA Request for Rehearing at 10.
    \180\ Public Interest Organizations Request for Rehearing at 9,
84.
    \181\ Solar Energy Industries Request for Rehearing and/or
Clarification at 19.
    \182\ EPSA Request for Rehearing at 10.
---------------------------------------------------------------------------

    96. Public Interest Organizations contend that the Commission
incorrectly defined avoided costs and incorrectly defined avoided costs
with short run prices.\183\ Public Interest Organizations assert that
the Commission did not respond to arguments that historic avoided cost
rates ``have likely underestimated utilities' actual `but for' avoided
costs, resulting in underpayment rather than overpayment to QFs.''
\184\ They also assert that ``there is no evidence in the record
showing that utilities would have--as the Commission assumed--relied on
short term energy markets rather than entering into long-term contracts
based on similarly speculative avoided cost estimates or building new
generating resources,'' and that ``utilities often build and operate
generating resources at costs well above their purported avoided cost
rate.'' \185\ Public Interest Organizations argue that the Commission
incorrectly assumed that the cost for energy that a utility would incur
``but for'' a QF is the short run cost and that utilities never lock in
energy costs by constructing their own energy resources, executing long
term fuel contracts or executing long term energy supply contracts.
Public Interest Organizations claim that, if a utility ever locks in
energy costs instead of relying on the short run energy or fuel markets
for supply, a QF can displace those long-run costs rather than the
short run cost, adding that, contrary to the Commission's assertions,
avoided energy rates paid to QFs are significantly lower than
utilities' true generation costs.\186\
---------------------------------------------------------------------------

    \183\ Public Interest Organizations Request for Rehearing at 84.
    \184\ Id. at 85.
    \185\ Id.
    \186\ Id. at 86.
---------------------------------------------------------------------------

    97. Public Interest Organizations argue that the overestimations
upon which the Commission relied ``were incorrectly calculated based on
long-run contract prices and short-run costs, rather than the long-term
QF price and the cost of the resource that the utility would have
acquired but for the QFs.'' \187\ Public Interest Organizations contend
that the Commission assumed without any evidence that those utilities
would have built their own energy resources, executed long term fuel
contracts, or executed non-QF power purchase agreements without the QF
purchases. Public Interest Organizations assert that, while QF
contracts entered into before 2007-2009 might not have accounted for
declining natural gas prices, which caused these contracts to be higher
than short term market prices, alternative long-term commitments those
utility might have made without QF purchases might also not have
accounted for those natural gas price declines. Public Interest
Organizations reason that avoided costs therefore should be based on
those alternative sources that a utility would have purchased but for
QF purchases rather than short run market prices and the Commission
lacked evidence to assert that ``utilities' actual incremental cost of
generating energy `but for' QF generation exceeds rates QFs have
received through long-term fixed energy rate contracts.'' \188\
---------------------------------------------------------------------------

    \187\ Id. at 86-87.
    \188\ Id. at 87.
---------------------------------------------------------------------------

    98. Public Interest Organizations maintain that the Commission
lacked evidence to assert that natural gas price declines would have
decreased the prices of utility power purchase agreements, energy
supply investments, fuel contracts and other long-term energy supply
commitments. Public Interest Organizations contend that the failure to
predict natural gas price declines did not entail any energy cost
savings, yielded energy price increases passed along to customers, and
rendered uneconomic utilities' long-term coal plant investments, coal
contracts, and power supply contracts to ensure long term energy
supply. Public Interest Organizations assert that the Commission's
conflating short-run market prices with utility supply costs excludes
supply beyond the day-ahead market and costs above market price. Public
Interest Organizations claim that the Commission did not address
concerns that vertically integrated utilities' monopoly status ensures
that utilities operate their own plants at above-market prices and
would have added their own new generation but for QF purchases. Public
Interest Organizations assert that, even though QF prices may have been
higher than market prices, that simply reflects foregone utility
windfall profits and not

costs that customers would otherwise have paid.\189\
---------------------------------------------------------------------------

    \189\ Id. at 87-90.
---------------------------------------------------------------------------

    99. Public Interest Organizations argue that the Commission was
internally inconsistent in defending its decision to presumptively
consider competitive market prices like LMP equal to full avoided cost
in conjunction with its determination to allow states to eliminate
fixed energy rate contracts.\190\ Public Interest Organizations contend
that, in permitting competitive market prices like LMP to set avoided
costs, the Commission also inconsistently acknowledged that utilities
incur long term energy costs that exceed those prices and that the
competitive market prices are only being used to set the as-available
short term avoided cost rates instead of long-run energy costs that can
be avoided with long-term QF contracts.\191\ Public Interest
Organizations claim that the Commission permitted a price determined at
the time of delivery to set the price for long-term contracts, even
though the Commission acknowledged that long term QF energy supply
avoids alternative long term energy supply commitments and costs that
are not reflected in the short run LMP or market hub price.\192\
---------------------------------------------------------------------------

    \190\ Id. at 9, 90.
    \191\ Id. at 90.
    \192\ Id. at 91-92.
---------------------------------------------------------------------------

    100. EPSA argues that the Commission's regulations and precedent
contradict reliance on the idea that overestimates and underestimates
have not balanced out.\193\ EPSA points out that 18 CFR 292.304(b)(5)
expressly provides that, ``[i]n 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.'' \194\
---------------------------------------------------------------------------

    \193\ EPSA Request for Rehearing at 14.
    \194\ Id. at 15 (citing 18 CFR 292.305(b)).
---------------------------------------------------------------------------

    101. EPSA asserts that, because the final rule did not modify, much
less eliminate, 18 CFR 292.304(b)(5), which allows states to retain the
fixed energy rate contract option, it is impossible to claim that the
fixed energy rate contract option conflicts with the avoided cost cap
and that the Commission cannot take a position that is at odds with the
terms of its own regulations.\195\
---------------------------------------------------------------------------

    \195\ Id. at 14-15.
---------------------------------------------------------------------------

    102. According to Solar Energy Industries, there is no indication
in the record that any retail rates paid by electric consumers
fluctuate based on the purchasing utility's obligation to purchase from
QFs. Solar Energy Industries also argue that, for utilities with stated
retail rates, there is no evidence to suggest that these rates will be
reduced in any manner in the event the state utilizes the
``flexibility'' provided by revised Section 292.304(d), unless the
Commission mandates otherwise.\196\ Solar Energy Industries add that
the evidence in the record of alleged overpayments was both flawed and
not adequately supported and thus does not support the contention that
overpayments and underpayments did not balance out for an extended
period of time.\197\
---------------------------------------------------------------------------

    \196\ Solar Energy Industries Request for Rehearing and/or
Clarification at 20.
    \197\ Id. at 21-23.
---------------------------------------------------------------------------

    103. Solar Energy Industries argue that, to the extent that
existing methodologies in some states have produced inaccurate
forecasts of long-run avoided costs, the solution is better
methodologies--not an abandonment of long-run marginal costs.\198\
---------------------------------------------------------------------------

    \198\ Id. at 23.
---------------------------------------------------------------------------

ii. Commission Determination
    104. As an initial matter, it is beyond any reasonable question
that the Commission's determination to give the states the flexibility
to require variable energy rates in QF contracts is within the
Commission's authority under PURPA. By definition, such a rate
compensates the QF at a rate reflecting the energy costs avoided by the
purchasing utility as a result of its purchase of energy from the QF.
Moreover, a utility's avoided purchased energy costs constantly change
over the term of a contract as the utility's marginal resource changes
due to changes in load, changes in the availability of alternative
resources, and changes in the availability of the marginal resource.
The avoided energy cost also changes with fluctuations in fuel use at
different loading levels and with changes in fuel costs. Consequently,
a variable energy contract rate by definition would more accurately
reflect the utility's avoided energy costs than a fixed contract that
does not vary over the length of a multi-year contract.
    105. As a result, there is no question but that the Commission
could have imposed a variable energy contract requirement when it
promulgated the PURPA Regulations in 1980 instead of requiring fixed
energy contract rates. The only question in this proceeding is whether
the Commission has adequately supported its holding in the final rule
to change the determination made in 1980 and instead give the states
the flexibility to require variable energy contract rates.\199\ In
addition, because the Commission's revision to the fixed energy rate
requirement is based on changed circumstances since the issuance of the
PURPA Regulations in 1980, we must provide ``a reasoned explanation . .
. for disregarding facts and circumstances that underlay or were
engendered by the prior policy.'' \200\ As we explain below, we
disagree with assertions that we have not provided such an explanation.
---------------------------------------------------------------------------

    \199\ See, e.g., Motor Vehicle Mfrs. Assn. of United States,
Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 42 (1983)
(``An agency changing its course by rescinding a rule is obligated
to supply a reasoned analysis for the change'').
    \200\ FCC v. Fox Television Stations, Inc., 556 U.S. 502, 516
(2009).
---------------------------------------------------------------------------

    106. We disagree with the arguments raised on rehearing that there
was insufficient evidence of overestimations. The Commission explained
in the final rule why overestimations and underestimations of avoided
costs had not balanced out.\201\ Broad price declines over time
throughout the energy industry show that long-term fixed price QF
contracts likely exceeded the avoided energy costs at the time of
delivery for extended periods of time; thus, it is not necessary to
confirm every allegation of a lack of balance in the past or every
estimation of prices and costs.\202\ But even had there been less
evidence of lack of balance over time,\203\ there was sufficient
evidence for the Commission to conclude that the Commission's
assumption in 1980 may not be the best way to ensure compliance with
PURPA. Allowing a state to set a variable avoided cost energy rate
could better avoid that outcome. In the context of long-term fixed QF
rates, given evidence of overestimations, the statutory avoided cost
cap may be better met if the rates may be varied over time to ensure
they stay within the requirements of PURPA. Moreover, as stated in the
final rule, to

the extent energy prices increase over time, QFs could benefit from
that variability.\204\ Therefore, it was well within the Commission's
authority under PURPA, and the Commission had sufficient evidence, to
provide a tool states can use to ensure that the avoided cost rates
stay within the requirements of the statute and not be based on an
assumption that over-recoveries balance out with under-recoveries.
---------------------------------------------------------------------------

    \201\ See Order No. 872, 172 FERC ] 61,041 at PP 285-92.
    \202\ See id. P 287 (footnote omitted) (``We agree 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. But that is
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 energy avoided costs but this
decline was not reflected in the QFs' fixed contract rates that
remained at their previous levels'').
    \203\ See, e.g., Public Interest Organizations Request for
Rehearing at 85.
    \204\ See Order No. 872, 172 FERC ] 61,041 at P 290.
---------------------------------------------------------------------------

    107. States previously had little ability to address the potential
for overestimations over the term of a QF contract, which caused some
states to respond by adopting shorter contract terms. In the final
rule, the Commission did not determine that any particular QF contracts
violated the avoided cost cap and did not change its prior
determination that PURPA does not ``require a minute-by-minute
evaluation of costs which would be checked against rates established in
long term contracts between qualifying facilities and electric
utilities.'' \205\ Instead, the Commission acted reasonably to better
ensure that, over the term of a contract, QF rates do not exceed a
utility's avoided costs. The Commission achieved this goal by providing
the states with a tool that allows them to address the potential that,
over the term of a contract, contract rates may exceed a purchasing
utility's avoided costs determined at the time of delivery. Providing
this tool to the states ensures that they are not required to set rates
that exceed avoided costs. Moreover, this tool gives effect to PURPA's
requirement that rates paid to QFs be just and reasonable to the
consumers of the electric utility and in the public interest.\206\
---------------------------------------------------------------------------

    \205\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880.
    \206\ 16 U.S.C. 824a-3; see also Indep. Energy Producers Ass'n,
Inc. v. Cal. Pub. Utils. Comm'n, 36 F.3d 848, 850 (9th Cir. 1994)
(``Section 210(b) requires that Commission to promulgate regulations
that ensure that the rates for these purchases `shall be just and
reasonable to the electric consumers of the electric utility and in
the public interest.' However, these rates may not exceed the
incremental cost to the utility of purchasing alternative
energy.''); Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d 380, 384 (5th
Cir. 2014) (``While Congress sought to promote energy generation by
Qualifying Facilities, it did not intend to do so at the expensive
of the American consumer. PURPA thus strikes a balance between these
two interests . . . PURPA requires utilities to purchase power
generated by Qualifying Facilities, but also mandates that the rates
that utilities pay for such power `shall be just and reasonable to
the electric consumers of the electric utility and in the public
interest.' ''); Conn. Valley Elec. Co. v. FERC, 208 F.3d 1037, 1045
(D.C. Cir. 2000) (``PURPA expressly requires the Commission to
balance the interests of consumers against those of producers. . . .
''); see also Swecker v. Midland Power Co-op, 807 F.3d 883, 884 (8th
Cir. 2015) (citing legislative history that PURPA is ``not intended
to require the rate payers of a utility to subsidize cogenerators or
small power producers'').
---------------------------------------------------------------------------

    108. The Commission emphasized that the final rule is prospective,
thereby protecting existing contracts. We find no merit in EPSA's
argument that the grant of flexibility to states in the final rule to
set variable avoided cost energy rates is inconsistent with 18 CFR
292.304(b)(5), which provides: ``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.'' \207\
---------------------------------------------------------------------------

    \207\ EPSA Request for Rehearing at 15.
---------------------------------------------------------------------------

    109. Nothing in the final rule is inconsistent with this regulatory
provision. The final rule gives states the flexibility to continue to
require fixed energy rates for the term of a QF's contract, and this
regulatory provision continues to be necessary to make clear that such
rates are permitted. The provision does not apply to QF contracts where
the energy rate is not fixed based on estimates of avoided costs but
instead varies with estimates of avoided costs at the time of delivery.
    110. We also disagree with Public Interest Organizations that, in
permitting states to set a variable avoided cost energy rate, the
Commission ignored utilities' long-run avoided costs.\208\ The
Commission has not assumed that utilities procure energy only through
short-term contracts or never lock in their costs by constructing their
own energy resources, executing long term fuel contracts, or executing
long term energy supply contracts. In Order No. 69, the Commission
defined ``energy'' costs as ``the variable costs associated with the
production of electric energy (kilowatt-hours)'' and ``represent[ing]
the cost of fuel, and some operating and maintenance expenses.'' \209\
By contrast, in Order No. 69, the Commission defined ``capacity'' costs
as ``the costs associated with providing the capability to deliver
energy; they consist primarily of the capital costs of facilities.''
\210\ The Commission has not changed these definitions; they still
apply to both ``short-run'' (energy or non-firm power) and long-run
(capacity or firm power) avoided costs.
---------------------------------------------------------------------------

    \208\ See Public Interest Organizations Request for Rehearing at
87 (``FERC conflates short-run market prices with utilities' energy
supply costs. . . . [T]he latter includes costs of supply other than
the day ahead market and that impose costs above the market
price'').
    \209\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,865; see
also id. at 30,881-82 (also defining energy as ``non-firm power''
that entails ``the cost of operating [the seller's] generating units
and administration'').
    \210\ Id. at 30,865; see also id. at 30,881-82 (also defining
capacity as ``firm'' power that entails ``payments for the cost of
fuel and operating expenses, and also for the fixed costs associated
with the construction of generating units needed to provide power at
the purchaser's discretion.'').
---------------------------------------------------------------------------

    111. While the final rule changed how states may calculate avoided
energy costs (both pursuant to competitive market prices and variable
rates), the Commission did not change the factors states must take into
account, to the extent practicable, for setting fixed, avoided capacity
costs; among these factors states must take into account, to the extent
practicable, are the utility's own avoided cost data and the utility's
deferral of capacity additions.\211\ Under this existing and unchanged
framework, states already should take into account the long-run
(capacity) and short-run (energy) incremental costs that utilities
would incur but for their purchase from QFs.
---------------------------------------------------------------------------

    \211\ See 18 CFR 292.304(e); see also Order No. 69, FERC Stats.
& Regs. ] 30,128 at 30,865 (``If a qualifying facility offers energy
of sufficient reliability and with sufficient legally enforceable
guarantees of deliverability to permit the purchasing electric
utility to avoid the need to construct a generating unit, to build a
smaller, less expensive plant, or to reduce firm power purchases
from another utility, then the rates for such a purchase will be
based on the avoided capacity and energy costs.'').
---------------------------------------------------------------------------

    112. As stated in the final rule, the difficulty in predicting
prices necessarily also applies to predicting which costs a utility
would incur from generating power itself or purchasing such power from
another source over the term of a QF contract. Therefore, while there
may be open questions over which costs a utility would incur from
generating power itself or purchasing such power from another source in
lieu of QF purchases, continuing to prohibit a state from allowing an
energy rate to fluctuate would prevent states from choosing not to use
unreliable price forecasts in setting avoided cost energy rates in QF
contracts.
    113. Public Interest Organizations' characterization of
overestimated energy costs as ``foregone windfall profits'' due to
utilities' monopoly status not only is inapt,\212\ but it ignores that
utility customers ultimately bore the cost of avoided cost estimates
that ultimately exceeded avoided costs in a way that is inconsistent
with PURPA's avoided cost cap. Likewise, Solar Energy Industries'

assertion that there is no evidence that states will lower retail rates
if states require variable energy rates in QF contracts is irrelevant
to whether the Commission may provide that flexibility under PURPA. The
requirement found in PURPA is that the Commission cannot require that a
rate paid to the QF exceed a certain amount.
---------------------------------------------------------------------------

    \212\ As explained in the final rule, electric utilities almost
always are required to pass decreases in energy costs through to
their retail customers, whereas QFs with fixed energy contract rates
are not obligated to reduce their rates as avoided energy costs
decline. Order No. 872, 172 FERC ] 61,041 at P 122.
---------------------------------------------------------------------------

b. Whether the Proposed Change Would Violate the Statutory Requirement
That the PURPA Regulations Encourage QFs and Do Not Discriminate
Against QFs
    114. In the final rule, the Commission determined, based on the
record evidence, that it is not necessarily the case that
overestimations and underestimations of avoided energy costs will
balance out over time. The Commission concluded that a fixed energy
rate in a QF contract or LEO potentially could violate the statutory
avoided cost cap on QF rates.\213\
---------------------------------------------------------------------------

    \213\ Order No. 872, 172 FERC ] 61,041 at P 295.
---------------------------------------------------------------------------

    115. The Commission found that the PURPA Regulations continue to
encourage the development of QFs by, among other things, allowing a
state to vary the rate paid to the QF over time but in a way that
satisfies the rate cap established in PURPA section 210(b). In this
way, over time, the QF can obtain a higher rate when the utility's
avoided costs increase, and ratepayers are not paying more than the
utility's avoided costs when prices decrease. Furthermore, the
Commission explained that allowing the use of variable energy rates may
promote longer contract terms, which would help encourage and support
QFs.\214\ The Commission concluded that it is consistent with PURPA
section 210(b), as well as the obligation imposed by PURPA section
210(a), to revise the PURPA Regulations ``from time to time,'' to
provide the states the flexibility to require that QF contracts and
other LEOs implement variable avoided cost energy rates in order to
prevent payments to QFs in excess of the purchasing electric utility's
avoided energy costs. The Commission noted that PURPA section 210(b)
prohibits the Commission from requiring QF rates above avoided costs
even if, according to some commenters, a fixed avoided cost energy rate
above avoided costs would provide greater encouragement to QFs than a
variable avoided cost energy rate.\215\
---------------------------------------------------------------------------

    \214\ Id. P 296.
    \215\ Id.
---------------------------------------------------------------------------

    116. The Commission described the discrimination claims as based on
the incorrect assumption that electric utilities have not been required
to lower their energy rates as prices have declined. The Commission
found, to the contrary, that utilities typically charge their customers
cost-based rates, and, as their fuel and purchased power costs have
declined, they typically have been required to provide corresponding
reductions in the energy portion of their rates to their customers. The
Commission explained that requiring QF avoided cost energy rates to
likewise change as purchasing electric utilities' avoided energy costs
change does not create a discriminatory difference, but rather puts QF
rates on par with utility rates.\216\
---------------------------------------------------------------------------

    \216\ Id. P 302.
---------------------------------------------------------------------------

    117. The Commission explained that it was not changing the
requirement that QF avoided cost energy rates be set at the purchasing
utility's full avoided energy costs. Rather, the Commission allowed the
states the option to now choose to require QF avoided cost energy rates
that vary with the purchasing utility's avoided costs of energy, rather
than QF avoided cost energy rates that are fixed for the life of the
QF's contract or LEO, to ensure the rates comply with PURPA.\217\
---------------------------------------------------------------------------

    \217\ Id. P 303.
---------------------------------------------------------------------------

i. Requests for Rehearing
    118. Solar Energy Industries argue that, by revoking the long-
standing regulations that provide a QF with the right to elect to be
paid a long-term energy rate in a contract for long-term energy
delivery, the Commission is actively discouraging the development of
QFs in contravention of the statutory direction to encourage the
development of such facilities.\218\ Solar Energy Industries describe
as inaccurate the Commission's claim that this revocation is necessary
to protect the consumers of electric utilities because inaccurate
administratively-determined avoided costs can be fully mitigated when a
state adopts the Commission's new competitive bidding framework.\219\
---------------------------------------------------------------------------

    \218\ Solar Energy Industries Request for Rehearing and/or
Clarification at 10.
    \219\ Id. at 10-11.
---------------------------------------------------------------------------

    119. Solar Energy Industries request that the Commission clarify
several portions of the final rule. First, Solar Energy Industries
request that the Commission clarify that the circumstances that do not
allow QFs to have nondiscriminatory access to buyers other than the
host utility are largely the same today as in 1980 when the Commission
first implemented its PURPA Regulations.\220\ Second, Solar Energy
Industries request that the Commission clarify that states must ensure
that QFs receive comparable avoided cost calculations and rates, terms,
and conditions.\221\ Solar Energy Industries contend, for example, that
utilizing a 20-year depreciation schedule for an avoided unit to
calculate the long-run marginal cost rate and then offering a QF a two-
year contract fails to ensure compatibility. Third, Solar Energy
Industries request that the Commission clarify that it supports and
renews its commitment to pursue enforcement actions when states
discriminate against QFs.\222\
---------------------------------------------------------------------------

    \220\ Id. at 42.
    \221\ Id. at 43.
    \222\ Id. at 43-44.
---------------------------------------------------------------------------

    120. Northwest Coalition asserts that the final rule's change of
the requirement that QFs be offered fixed prices for energy is
arbitrary, capricious, and not in accordance with law. Northwest
Coalition argues that, in a ``reversal'' of 40 years of precedent since
enactment of PURPA, the final rule unlawfully ``guts'' the bedrock
requirement that QFs be offered fixed energy rates, which have long
been recognized as necessary for the development of QFs.\223\ Northwest
Coalition adds that the right to secure fixed energy prices supports
the continued operation of existing QFs upon the expiration of their
existing contracts when substantial interconnection and other capital
upgrades must typically be undertaken and that elimination of fixed
prices is likely to result in loss of substantial existing QF
capacity.\224\
---------------------------------------------------------------------------

    \223\ Northwest Coalition Request for Rehearing at 8 (citing
Order No. 872, 172 FERC ] 61,041 at P 232).
    \224\ Id.
---------------------------------------------------------------------------

    121. Northwest Coalition claims that, despite the final rule's
assertion that nothing in PURPA requires the Commission to ensure
financeability of individual QFs, PURPA ``does require the Commission
to encourage their development, which we have previously equated with
financeability.'' \225\ Northwest Coalition argues that, under the
final rule, QFs could face a world in which there is no minimum
contract term, a payment of zero for their capacity, and an avoided
cost energy price based on highly volatile and unpredictable short-term
markets. Northwest Coalition contends that rendering many QFs not
financeable or financeable only at extreme interest rates discourages
QFs, which is contrary to what PURPA requires.\226\
---------------------------------------------------------------------------

    \225\ Id. at 9-10 (citing Order No. 872, 172 FERC ] 61,041
(Glick, Comm'r, dissenting in part, at P 13)).
    \226\ Id. at 11.
---------------------------------------------------------------------------

    122. EPSA argues that, although the Commission cannot, in the name
of remedying discrimination, require QF

rates that exceed avoided cost, allowing states to eliminate the fixed
rate energy contract option does not result in QF rates that are non-
discriminatory to the maximum extent permitted by the avoided cost
cap.\227\ EPSA reiterates that the statutory requirement in PURPA
section 210(b)(1) that QF rates ``shall not discriminate against'' QFs
is more restrictive than the FPA's prohibition against ``unduly
discriminatory'' rates.\228\ EPSA asserts that this more restrictive
requirement does not leave room for avoided cost rates that
discriminate against QFs relative to purchasing electric utilities,
even if the Commission finds the discrimination to be justified (i.e.,
not undue).\229\ EPSA argues that, subject to compliance with the
avoided cost cap, the Commission cannot allow states to set
discriminatory QF rates, even if the Commission determines those
discriminatory rates are justified by differences between QFs and
utilities or other policy goals, such as minimizing the burden of
forecasting error on consumers.\230\
---------------------------------------------------------------------------

    \227\ EPSA Request for Rehearing at 5.
    \228\ Id. at 6.
    \229\ Id.
    \230\ Id.
---------------------------------------------------------------------------

    123. EPSA claims that, in the final rule, the Commission does not
adequately address these arguments, which it had raised in its NOPR
comments.\231\ EPSA contends that the Commission erred in relying on
the idea that variable energy rate/fixed capacity rate contracts are
standard in the electric industry because PURPA requires that avoided
cost rates not discriminate against QFs relative to purchasing electric
utilities, not that such rates conform to standard industry
practices.\232\ EPSA describes the Commission's argument that
eliminating fixed energy price contracts is not discriminatory as
unsupported because of its assumptions about how fuel and purchased
power adjustment clauses operate. EPSA reasons that a franchised
utility's rates will be set based on costs they actually incur to
produce electricity for their customers and that such costs would be
the same energy costs that are used in determining the electric
utilities' avoided costs that will, in turn, set the as-available
avoided cost rates to be charged by QFs.\233\ In particular, EPSA
claims that the Commission appears to assume that fuel and purchase
power adjustment clauses will necessarily reflect short-term
fluctuations in fuel and other energy-based costs, while, in a number
of jurisdictions, these clauses also cover costs incurred under long-
term contracts, including long-term fuel supply contracts, long-term
power purchase agreements, and equivalent financial instruments.\234\
EPSA argues that remedying alleged discrimination requires providing
QFs with a degree of insulation from market volatility comparable to
that afforded to utility investments with effectively guaranteed cost
recovery in retail rates, which EPSA argues the fixed energy rate
contract option accomplishes.\235\
---------------------------------------------------------------------------

    \231\ Id.
    \232\ Id. at 6-7.
    \233\ Id. at 7-8.
    \234\ Id. at 8-9.
    \235\ Id. at 9-10.
---------------------------------------------------------------------------

    124. EPSA asserts that it was legally incorrect to claim that a QF
rate equal to the purchasing utility's avoided cost at the time of
delivery by definition could not be discriminatory because the
Commission's regulations and precedent leave no room for claims that,
for purposes of PURPA's avoided cost cap, there is a single measure of
avoided cost.\236\ EPSA claims that the Commission cannot avoid
ensuring that QF rates are non-discriminatory on the basis that such
rates are consistent with one measure of avoided costs if setting QF
rates based on another permissible measure of avoided costs would
eliminate some or all of the discrimination.\237\
---------------------------------------------------------------------------

    \236\ Id. at 16.
    \237\ Id. at 17.
---------------------------------------------------------------------------

    125. Public Interest Organizations argue that the Commission
allowed states to set rates that discriminate against QFs in
contravention of PURPA.\238\ Public Interest Organizations maintain
that allowing avoided costs to be set at short-run prices discriminates
against QFs and does not reflect utilities' avoided costs because
utilities incur long-term energy supply costs that exceed short run
costs. Public Interest Organizations assert that the Commission
incorrectly defined discrimination as comparing the standard across the
electric industry instead of how a specific purchasing electric utility
treats similar generation. Public Interest Organizations contend that
the Commission assumes without evidence that contracts whose energy
prices are linked to short-term prices in a competitive market at the
time of delivery is ``standard'' in long term contracts. Public
Interest Organizations argue that, on the contrary, non-QF renewable
generators are paid long-term fixed prices, including a fixed energy
rate.\239\
---------------------------------------------------------------------------

    \238\ Public Interest Organizations Request for Rehearing at 9,
92.
    \239\ Id. at 92-93.
---------------------------------------------------------------------------

    126. Public Interest Organizations claim that the Commission
interpreted the statutory term ``discriminate'' incorrectly.\240\
Public Interest Organizations assert that, in the final rule, the
Commission permitted states to deny QFs fixed energy pricing, ``even if
alternative energy the utility would acquire from its own generation or
non-QF power producers would be at fixed costs, based on the industry
`standard' followed by other utilities to limit the price for all
alternative energy (owned and third party) to the short run market
price.'' \241\ Public Interest Organizations contend that, while
discrimination is generally defined as a ``difference between the
subject entity and a single similar entity that is more favorably
treated,'' \242\ under PURPA, discrimination is not defined based on
the industry standard but rather is defined ``on how the specific
purchasing utility treats QFs compared to how it treats one or more
similarly situated non-QFs, including the utility's own generation.''
\243\
---------------------------------------------------------------------------

    \240\ Id. at 10, 92.
    \241\ Id. at 94-95.
    \242\ Id. at 94 (citing FTC v. Burton, 363 U.S. 536, 550 (1960);
Burton v. District of Columbia, 153 F. Supp. 3d 13, 67 (D.D.C.
2015)).
    \243\ Id. (citing 16 U.S.C. 824a-3(b)).
---------------------------------------------------------------------------

    127. Public Interest Organizations argue that the Commission lacked
evidence to support its assertion that short-term rates are not
discriminatory because they are the industry norm.\244\ Public Interest
Organizations contend that the Commission lacks evidence to assert that
the electric industry standard entails variable energy prices in long
term supply contracts, given that ``utilities make long-term
investments for energy resources, enter long-term contracts for fuel
for their own generation, [and] enter long term power purchase
agreements with long-run energy prices (or blended energy and capacity
prices).'' \245\ Public Interest Organizations claim that the
Commission lacked evidence to assert that that utilities recovering
cost-based rates must exclude long-term commitment costs such as rate-
based energy resources, fuel contracts, and power purchase contracts
when the long term energy portion of those costs, such as power
purchase agreement prices, later exceed short run energy costs like the
hourly LMP of the delivered energy.\246\ Public Interest Organizations
assert that the rate-based generation of

Alliant Energy, upon whose data the Commission relied, receives
``advanced ratemaking principles'' that fix favorable rate treatment
despite intervals when the short run price is less than the energy
price assumed when long-term fixed price recovery for those the energy
resources were approved. Public Interest Organizations contend that a
QF displacing such utility investments causes the utility to avoid the
long-term fixed cost of the utility investment rather than the short-
term day ahead or market hub price at the time energy is generated from
it.\247\
---------------------------------------------------------------------------

    \244\ Id. at 10, 95.
    \245\ Id. at 95-96 & n.280 (citing National Association of
Regulatory Utility Commissioners, Electric Utility Cost Allocation
Manual, at 49-59 (July 1992)).
    \246\ Id. at 96-97.
    \247\ Id. at 96.
---------------------------------------------------------------------------

    128. Public Interest Organizations argue that, contrary to the
Commission's assertions that long-term utility energy cost commitments
may be disallowed or modified due to short run energy price when the
energy is delivered, rate recovery is usually required for the cost of
supply contracts regardless of whether the contract price later appears
too high compared to prices when the power is delivered. Public
Interest Organizations therefore reason that non-QF energy supply that
utilities own themselves or purchase from another source are not
limited to short run energy market prices.\248\
---------------------------------------------------------------------------

    \248\ Id. at 97 (citing FPC v. Sierra Pac. Power Co., 350 U.S.
348 (1956); United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350
U.S. 332 (1956)).
---------------------------------------------------------------------------

    129. Public Interest Organizations similarly assert that the
Commission selectively quoted Town of Norwood v. FERC for the
proposition that long-term non-QF energy supply is limited to short-run
market price at the time of delivery. Public Interest Organizations
instead describe Town of Norwood as concerning a wholesale supply
contract from a supplier's mix of resources to serve a retail utility
instead of a power purchase agreement from a single generator
comparable to a QF contract. Public Interest Organizations contend that
the rate in Town of Norwood contained both energy pricing in two blocks
``with the first priced at fixed embedded costs and charged based on a
ratchetted demand and energy use, and the second block based on long
run marginal costs.'' \249\
---------------------------------------------------------------------------

    \249\ Id. at 97-98 (citing Town of Norwood v. FERC, 962 F.2d 20,
21, 24 (D.C. Cir. 1992)).
---------------------------------------------------------------------------

    130. Public Interest Organizations describe the Commission's
justifications for its determination that Order No. 872 does not enable
discrimination as poorly reasoned.\250\ Public Interest Organizations
argue that treating QFs without discrimination does not require
subjecting them to cost-of-service ratemaking in violation of PURPA but
rather should be the same as how the utility determines costs for other
purposes. Public Interest Organizations claim that the Commission's
argument that it is not discriminating against QFs when it subjects
them to short run energy prices because they still receive full avoided
costs is circular.\251\
---------------------------------------------------------------------------

    \250\ Id. at 10, 98.
    \251\ Id. at 98-99.
---------------------------------------------------------------------------

    131. Northwest Coalition asserts that the final rule authorizes a
discriminatory framework by eliminating the certainty of a predictable
revenue stream afforded by fixed prices. Northwest Coalition argues
that electric utilities can still rate-base long-term investments,
thereby ensuring that they can recover their capital investments plus
an authorized return, and then also recover their actual operating
costs under traditional cost-of-service ratemaking. Northwest Coalition
contends that, in contrast, the final rule's new framework authorizing
variable energy pricing deprives QFs of even a reasonable ability to
forecast avoided cost prices from which they must recover their
investment, much less guarantee such recovery provided to the typical
utility. Northwest Coalition asserts that this outcome places QFs on
unequal footing and ensures that utilities continue to dominate the
generation market. Northwest Coalition argues that, in sum, the new
regime is discriminatory because it permits utilities to make
acquisition decisions based on long-term cost forecasts, which contain
inherent forecast risk, but ties QFs to unpredictable future changes in
markets.\252\
---------------------------------------------------------------------------

    \252\ Northwest Coalition Request for Rehearing at 12.
---------------------------------------------------------------------------

    132. Northwest Coalition contends that the final rule fails to
address the critical point that utilities obtain virtually guaranteed
cost recovery and virtually absolute certainty that they will recover
their costs plus a profit, whereas QFs now do not even receive
certainty as to the prices they can rely upon if they are able to
perform successfully under their contracts. Northwest Coalition claims
that the discrimination is the failure to put QFs on reasonably equal
footing to utilities by providing QFs with the certainty of the right
to beat the utility's long-term marginal cost of generation, which
typically is the same long-term cost estimate used to justify the
utility's own rate-base acquisitions.\253\
---------------------------------------------------------------------------

    \253\ Id. at 13.
---------------------------------------------------------------------------

    133. Northwest Coalition argues that, although the discriminatory
policy in Environmental Action \254\ regarded transmission access and
not price certainty, the same principle applies equally here. Northwest
Coalition asserts that the Commission's ``effort to place QFs on an
essentially equal competitive footing with competing suppliers, . . .
by giving such suppliers the access it denies to QFs would effect an
administrative repeal of this congressional choice; by definition, this
is not in the public interest.'' \255\ Northwest Coalition contends
that, in this case, the Commission's alleged effort to place QFs on
equal footing with incumbent utilities by giving such utilities the
certainty of return on investment that will be denied to QFs is plainly
discriminatory.\256\ Northwest Coalition adds that this interpretation
of the anti-discrimination requirement is even supported by the Montana
Public Service Commission in the context of price certainty and
allocation of forecast risk, even though that state agency generally
supported the Commission's proposed rule.\257\
---------------------------------------------------------------------------

    \254\ Id. at 14 (citing Envtl. Action v. FERC, 939 F.2d 1057,
1061-62 (D.C. Cir. 1991) (Environmental Action)).
    \255\ Id. (citing Environmental Action, 939 F.2d at 1062).
    \256\ Id.
    \257\ Id. at 14-15.
---------------------------------------------------------------------------

ii. Commission Determination
    134. We disagree with the arguments raised on rehearing. To begin,
it is incorrect to state that the final rule eliminated fixed rates for
QFs. The final rule gave states the flexibility, if they choose to take
advantage of this flexibility, to require that the avoided cost energy
rates in QF contracts vary depending on avoided energy costs at the
time of delivery. In the final rule, as described above, the Commission
retained the QF's right for capacity rates to be fixed, which together
with the flexibility adopted in the final rule to allow states to set
avoided cost energy rates using competitive market forces should
provide a more transparent way of determining avoided costs. Those
capacity rates would still need to meet the standards of 18 CFR
292.304(e), which together with more transparent energy rates
determined pursuant to competitive market prices and the existing PURPA
Regulations, encourages the development of QFs.\258\
---------------------------------------------------------------------------

    \258\ See supra PP 42-43.
---------------------------------------------------------------------------

    135. Further, in response to EPSA's and Public Interest
Organizations' arguments that the final rule does not accurately
describe how merchant generators are financed and protect QFs against
volatility in fuel prices, the variable energy rate/fixed capacity rate
construct is common among merchant generators for power sales
agreements that include the sale of capacity, thus

demonstrating that other types of non-utility generation are able to
raise useful financing under such an arrangement.\259\
---------------------------------------------------------------------------

    \259\ Order No. 872, 172 FERC ] 61,041 at PP 35-41, 336-45.
---------------------------------------------------------------------------

    136. We also disagree with arguments raised on rehearing regarding
discrimination. We reiterate our holding in the final rule that PURPA
does not require, and indeed prohibits, subjecting QFs to the same rate
structures and procedures as utilities.\260\ Congress made this point
clear when it enacted PURPA. ``The conferees recognize that
cogenerators and small power producers are different from electric
utilities, not being guaranteed a rate of return on their activities
generally or on the activities vis-a-vis the sale of power to the
utility and whose risk in proceeding forward in the cogeneration or
small power production enterprise is not guaranteed to be
recoverable.'' \261\ And the Supreme Court relied on this legislative
history to conclude that ``The legislative history confirms, moreover,
that Congress did not intend to impose traditional ratemaking concepts
on sales by qualifying facilities to utilities.'' \262\
---------------------------------------------------------------------------

    \260\ Id. PP 85-88 (citing API, 461 U.S. at 414; Conf. Rep. at
97-98).
    \261\ Conf. Rep. at 97-98 (emphasis added).
    \262\ API, 461 U.S. at 414.
---------------------------------------------------------------------------

    137. Moreover, EPSA, Northwest Coalition, Public Interest
Organizations, and Solar Energy Industries miss the mark when they
argue that it would be discriminatory to permit states to require
variable energy rates in QF contracts if the energy the utility
otherwise would acquire from its own generation or non-QF power
producers would be at a fixed cost. These entities assert that, to
prevent such discrimination, the Commission must require fixed energy
rates in order to ensure comparable terms and conditions in QF
contracts. However, in the unlikely event that all of a purchasing
utility's other, non-QF resources happen to be long-term purchases with
fixed capacity and energy rates, such a utility's avoided capacity and
energy costs would not vary significantly over time. In that case, a
variable energy rate set at the utility's avoided costs at the time of
delivery would be based on the utility's essentially unchanging avoided
costs and thus would not change significantly over time.\263\
---------------------------------------------------------------------------

    \263\ We note that this situation of the variable energy avoided
cost rate not changing significantly over time would also address
rehearing arguments that the final rule impedes QF financeability.
---------------------------------------------------------------------------

    138. We find that Public Interest Organizations and Solar Energy
Industries conflate the variable rate issue with the contract length
issue in asserting that the final rule discriminates against QFs.
Although the Commission changed the extent to which a QF is entitled to
a fixed avoided cost energy rate, the Commission did not change the
requirement that a capacity rate should account for longer-term costs
(i.e., longer than as-available) associated with providing the
capability to delivery energy.\264\ A QF contract or LEO with a
variable energy rate should reflect a purchasing electric utility's
avoided energy costs estimated at the time of delivery. It is
irrelevant for calculating a purchasing electric utility's avoided
energy costs whether a purchasing electric utility makes purchases of
long-term capacity in non-QF bilateral agreements because a QF remains
entitled to a fixed capacity rate. In the final rule, as described
above, states must take into account the existing factors for setting
fixed avoided cost capacity rates, QFs are able to require that avoided
cost capacity rates in their contracts and LEOs be fixed, and QFs may
continue to bring enforcement petitions before the Commission if states
are failing to take into account those factors when setting avoided
cost capacity rates. In response to Solar Energy Industries' request
that the Commission clarify its intent to pursue enforcement against
states in setting avoided cost rates, if a QF believes that its fixed
capacity rate in a contract does not fully reflect the long-term
capacity avoided costs of the purchasing utility because of the length
of the QF contract, that QF may pursue a claim under the statutory
provisions for the enforcement of PURPA.
---------------------------------------------------------------------------

    \264\ See Windham Solar, 157 FERC ] 61,134, at P 4 (2016)
(``[S]ection 292.304(d)(2) of the Commission's regulations addresses
the option to sell energy or capacity pursuant to a legally
enforceable obligation over a specified term'' and ``provides (at
the QF's option) for pricing based on either avoided costs
calculated at the time of delivery or at the time the obligation is
incurred.'').
---------------------------------------------------------------------------

    139. Solar Energy Industries request that the Commission clarify
that where QFs continue to lack nondiscriminatory access to buyers
other than the host utility, the circumstances have not changed since
1980.\265\ It is not apparent what Solar Energy Industries asks the
Commission to clarify. But to the extent that this is a criticism of
the final rule, the final rule continues to require that state
determinations of avoided costs reflect the purchasing utility's
avoided costs and that QFs have the right to sell to directly and
indirectly interconnected utilities.\266\
---------------------------------------------------------------------------

    \265\ Solar Energy Industries Request for Rehearing and/or
Clarification at 42.
    \266\ See 18 CFR 292.303(a)(1)-(2), (d) (QFs have right to sell
to directly and indirectly interconnected utilities).
---------------------------------------------------------------------------

    140. We disagree with Public Interest Organizations' and Northwest
Coalition's assertions that the variable rate option overemphasizes the
avoided cost rate cap and underemphasizes the prohibition on
discrimination against the QF and the requirement to encourage QF
development.\267\ PURPA specifically states that ``[n]o such rule
prescribed under subsection (a) shall provide for a rate which exceeds
the incremental cost to the electric utility of alternative electric
energy.'' \268\ Thus, the Commission's actions to better ensure that it
has not prescribed a rule requiring that the rates paid to QFs not
exceed the purchasing utility's avoided costs reflect Congress's
priorities in enacting PURPA and give meaning to all provisions of the
statute.\269\
---------------------------------------------------------------------------

    \267\ See Northwest Coalition Request for Rehearing at 19;
Public Interest Organizations Request for Rehearing at 44-46.
    \268\ 16 U.S.C. 824a-3(b).
    \269\ See In re W. States Wholesale Nat. Gas Antitrust Litig.,
715 F.3d 716, 731 (9th Cir. 2013) (Western States Wholesale Natural
Gas Antitrust Litigation) (``[S]tatutory provisions should not be
read in isolation, and the meaning of a statutory provision must be
consistent with the structure of the statute of which it is a
part.''), aff'd sub nom. Oneok, Inc. v. Learjet, Inc., 575 U.S. 373
(2015); Brazos Elec. Power Co-op. v. FERC, 205 F.3d 235, 250 (5th
Cir. 2000) (Brazos) (``[I]f PURPA speaks clearly on the precise
issue in question, that plain meaning must govern; however, if
PURPA's application to a particular issue is ambiguous, FERC's
interpretation will be upheld so long as it is a `permissible
construction' of the statute.'').
---------------------------------------------------------------------------

    141. We disagree with Northwest Coalition that the final rule
discriminates against QFs by failing to put them on a competitive
footing with utilities in violation of Environmental Action.\270\ In
that case, the D.C. Circuit discussed PURPA's prohibition on
discriminating against QFs in connection with PURPA's mandatory
purchase obligation. The D.C. Circuit stated that ``[a] QF may force a
sale only at the purchasing utility's avoided cost . . . . If the QF is
less efficient (i.e., has higher costs) than its competitors, its
guaranteed ability to sell power only at a price below its cost will
not cause its competitors any loss of sleep.'' \271\ But, in contrast,
if a ``QF is more efficient [than the purchasing electric utility],
then the preference it receives is not a threat to, but only a
redundant (legal) guarantee of, the competitive (economic) outcome. In
fact, the principal effect of the preference seems

to be to ensure that large power producers do not discriminate against
QFs.'' \272\ Thus the court confirmed that QFs are not guaranteed to
recover their costs and they must take the risk of being unable to make
a profit selling at the purchasing utility's avoided costs. Contrary to
Northwest Coalition's assertions, this case hardly suggests that fixed
energy avoided cost rates are necessary to place QFs on a competitive
footing with utilities or that therefore the Commission must provide
QFs the same rate structure or rate recovery as a utility.
---------------------------------------------------------------------------

    \270\ Northwest Coalition Request for Rehearing at 13-14 (citing
Environmental Action, 939 F.2d at 1061-62).
    \271\ Environmental Action, 939 F.2d at 1061.
    \272\ Environmental Action, 939 F.2d at 1061-62.
---------------------------------------------------------------------------

    142. Public Interest Organizations cite Commission and federal
district court decisions to argue that the Commission's final rule
results in discrimination.\273\ But those cases do not address how
PURPA's nondiscrimination standard relates to the avoided cost cap, and
Order No. 872 provides that QFs are still entitled to a fixed avoided
cost capacity rate.\274\ Similarly, Congress and the Supreme Court both
recognized that PURPA treats QFs differently from purchasing utilities,
rendering QFs not similarly situated to non-QF resources.\275\
---------------------------------------------------------------------------

    \273\ Public Interest Organizations Request for Rehearing at 94
& n.279 (``Under PURPA, Congress provided that discrimination is
determined based on how the specific purchasing utility treats QFs
compared to how it treats one or more similarly situated non-QFs,
including the utility's own generation.'').
    \274\ See, e.g., Morgantown Energy Assocs. v. Pub. Serv. Comm'n
of W. Virginia, No. 2:12-CV-6327, 2013 WL 5462386, at *25 (S.D. W.
Va. Sept. 30, 2013) (discrimination under PURPA is measured ``with
respect to a similarly situated non-QF''); Pioneer Wind Park I, LLC,
145 FERC ] 61,215, at P 37 (2013) (curtailment of QFs compared to
utility resources is discriminatory under PURPA); Entergy Servs.
Inc. Gen. Coal. v. Entergy Servs., Inc., 103 FERC ] 61,125, at PP
27-29 (2003) (finding utility discriminated against QFs compared to
other independent generators when it imposed certain fees on QFs but
not on other generators)).
    \275\ See API, 461 at 413 (emphasis added) (``[T]he full-
avoided-cost rule plainly satisfies the nondiscrimination
requirement. . . . [W]e would be reluctant to infer that Congress
intended the terms `just and reasonable,' which are frequently
associated with cost-of-service utility ratemaking, . . . to adopt a
cost-of-service approach in the very different context of
cogeneration and small power production by nontraditional
facilities. The legislative history confirms, moreover, that
Congress did not intend to impose traditional ratemaking concepts on
sales by qualifying facilities to utilities.''); Conf. Rep. at 97-98
(emphasis added) (``The conferees recognize that cogenerators and
small power producers are different from electric utilities, not
being guaranteed a rate of return on their activities generally or
on the activities vis-a-vis the sale of power to the utility and
whose risk in proceeding forward in the cogeneration or small power
production enterprise is not guaranteed to be recoverable.'').
---------------------------------------------------------------------------

    143. We also disagree with Public Interest Organizations that the
final rule's reference to Town of Norwood does not justify use of
variable energy rates. The Commission cited Town of Norwood for the
proposition that ``variable energy rate/fixed capacity rate construct
is . . . the standard rate structure used throughout the electric
industry for power sales agreements that include the sale of
capacity.'' \276\ The D.C. Circuit in Town of Norwood explained that
the rate construct at issue in that case had separate fixed demand and
variable energy charges.\277\ The final rule does not state that this
rate construct necessarily represented a particular generator's
agreement nor did it need to do so to justify granting states
flexibility to use fixed capacity/variable energy avoided cost rates:
PURPA is only concerned with the purchasing electric utility's avoided
costs.\278\ Indeed, the rate construct in Town of Norwood was a
marginal cost rate structure, which resembles the definition of avoided
costs under PURPA. Therefore, the Commission properly referenced the
utility rate structure in Town of Norwood for the proposition that a
purchasing utility has a fixed capacity/variable energy rate structure.
---------------------------------------------------------------------------

    \276\ Order No. 872, 172 FERC ] 61,041 at P 38 (citing Town of
Norwood, 962 F.2d at 21, 24).
    \277\ Town of Norwood, 962 F.2d at 21.
    \278\ 16 U.S.C. 824a-3(b) (emphasis added) (``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.''); see also Order No. 69, FERC Stats. & Regs. ]
30,128 at 30,866 (``If the Commission required electric utilities to
base their rates for purchases from a qualifying facility on the
high capital or capacity cost of a base load unit and, in addition,
provided that the rate for the avoided energy should be based on the
high energy cost associated with a peaking unit, the electric
utilities' purchased power expenses would exceed the incremental
cost of alternative electric energy, contrary to the limitation set
forth in the last sentence of section 210(b).'').
---------------------------------------------------------------------------

    144. Furthermore, PURPA gives the Commission (and the states)
discretion to implement all the requirements applicable to QF rates in
a manner that gives all the requirements meaning. The Commission's
interpretation in the final rule is a reasonable one that gives effect
to all relevant statutory provisions by encouraging QF development and
preventing discrimination against QFs, while respecting the avoided
cost rate cap.\279\ In contrast, petitioners' interpretations do not
give appropriate effect to all provisions of the statute because they
fail to give full effect to the requirement that QF rates cannot exceed
the avoided cost rate cap. Together with the greater transparency the
final rule permits with respect to competitive market prices and
competitive solicitations and greater clarity with regard to LEOs, the
final rule has implemented all provisions of the statute consistent
with Congress's intent in passing PURPA.
---------------------------------------------------------------------------

    \279\ Cf. Western States Wholesale Natural Gas Antitrust
Litigation, 715 F.3d at 731 (``[S]tatutory provisions should not be
read in isolation, and the meaning of a statutory provision must be
consistent with the structure of the statute of which it is a
part.''); Brazos, 205 F.3d at 250 (``[I]f PURPA speaks clearly on
the precise issue in question, that plain meaning must govern;
however, if PURPA's application to a particular issue is ambiguous,
FERC's interpretation will be upheld so long as it is a `permissible
construction' of the statute.'').
---------------------------------------------------------------------------

c. Effect of Variable Energy Rates on Financing
    145. In the final rule, the Commission agreed with commenters that
PURPA does not guarantee QFs a rate that, in turn, guarantees
financing. The Commission stated that, although PURPA requires the
Commission to adopt rules that encourage the development of QFs, PURPA
does not provide a guarantee that any particular QF will be developed
or profitable.\280\
---------------------------------------------------------------------------

    \280\ Order No. 872, 172 FERC ] 61,041 at P 335.
---------------------------------------------------------------------------

    146. Notwithstanding that PURPA does not guarantee QF
financeability, the Commission stated its belief that the variable
avoided cost energy rate option implemented by the final rule will
still allow QFs to obtain financing.\281\
---------------------------------------------------------------------------

    \281\ Id. P 336.
---------------------------------------------------------------------------

    147. The Commission reiterated that it is not eliminating fixed
rate pricing for QFs. The Commission explained that, under the final
rule, QFs will be able to require that avoided cost capacity rates in
their contracts and LEOs be fixed. The Commission further explained
that capacity costs, as relevant here, include the cost of constructing
the capacity being avoided by purchasing utilities as a consequence of
their purchases from QFs. The Commission stated that a combination of
fixed avoided cost capacity rates and variable avoided cost energy
rates can provide important revenue streams that can support the
financing of QFs.\282\
---------------------------------------------------------------------------

    \282\ Id. at P 337.
---------------------------------------------------------------------------

    148. Furthermore, the Commission found that merely because QFs have
had access to fixed avoided cost energy rates does not mean that QFs
must have access to such rates to obtain future financing. The
Commission explained that, up to now, QFs have had the right under the
PURPA Regulations to both fixed capacity and fixed energy rates, and we
understand that most QFs executing long-term contracts have exercised
this right. The Commission described commenters insisting that the
Commission cannot allow states the option to impose variable avoided
cost energy rates without evidence that QFs have obtained financing
under such contract structures as attempting to

impose a standard that could never be satisfied.\283\
---------------------------------------------------------------------------

    \283\ See id. P 338 (citing Solar Energy Industries Comments,
Docket No. RM19-15-000, at 28 (Dec. 3, 2019); NIPPC, CREA, REC, and
OSEIA Comments, Docket No. RM19-15-000, at 29, 46 (Dec. 3, 2019);
Harvard Electricity Law Comments, Docket No. RM19-15-000, at 22, 25-
27 (Dec. 3, 2019); Public Interest Organizations Comments, Docket
No. RM19-15-000, at 6-7, 33-35 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    149. In response, the Commission cited to ample evidence
demonstrating that generation projects that are similar to QFs (i.e.,
independent power producers) with fixed capacity rate-variable energy
rate contracts are financeable.\284\
---------------------------------------------------------------------------

    \284\ Id. P 339.
---------------------------------------------------------------------------

    150. The Commission found that the record showed that, even without
the right to require long-term fixed energy rates, non-QF independent
power producers have been able to obtain financing for large amounts of
generation capacity, including from renewables. Based on this data, the
Commission found that the right to require counterparties to pay fixed
energy rates is not essential for the financing of independent power
generation capacity.\285\
---------------------------------------------------------------------------

    \285\ Id. P 340.
---------------------------------------------------------------------------

    151. The Commission acknowledged that a number of different
financing mechanisms were used for this independent generation
capacity, not all of which may be available to QFs. Nevertheless, the
Commission understood that a standard rate structure employed in the
electric industry is a fixed capacity rate-variable energy rate
structure and that many independent power production facilities have
been financed based on this structure.\286\ Accordingly, the Commission
found that record evidence and historical data regarding the financing
and construction of significant amounts of independent power production
facilities supports the Commission's conclusion that a fixed capacity
rate-variable energy rate structure--which will apply in those states
choosing the variable avoided cost energy rate option--also will
support financing of QFs.
---------------------------------------------------------------------------

    \286\ Id. P 341 (citing American Public Power Association, How
New Generation is Funded (Aug. 29, 2018), https://www.publicpower.org/blog/how-new-generation-funded (``Beginning in
2015, merchant generation [in RTOs/ISOs markets] began to increase
dramatically from prior years, amounting to 19.3 percent of new
capacity in 2015, 7.2 percent in 2016, and 29.1 percent in 2017.'').
The Commission noted that, in RTOs and ISOs with capacity markets,
merchant generators are compensated through variable energy rates
and fixed capacity rates, along with whatever ancillary service
revenues they can earn. Id. P 341 n.550.
---------------------------------------------------------------------------

    152. The Commission did not find compelling the concerns expressed
by some commenters that a fixed capacity rate-variable energy rate
construct may not work for solar and wind resources, which have high
fixed capacity costs and minimal variable energy costs.\287\ Similarly,
the Commission was not persuaded by comments that point out that energy
rates in typical independent power production contracts are designed to
recover the cost of a facility's fuel, whereas variable energy rates
would provide no such guarantee.\288\
---------------------------------------------------------------------------

    \287\ See id. P 342 (citing Harvard Electricity Law Comments,
Docket No. RM19-15-000, at 26 (Dec. 3, 2019); Public Interest
Organizations Comments, Docket No. RM19-15-000, at 33-34 (Dec. 3,
2019); Solar Energy Industries Comments, Docket No. RM19-15-000, at
30 (Dec. 3, 2019)).
    \288\ See id. (citing NIPPC, CREA, REC, and OSEIA Comments,
Docket No. RM19-15-000, at 42-43 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    153. The Commission found that the record demonstrated that the
amount of renewable resources being developed outside of PURPA greatly
exceeds the amount of renewable resources developed as QFs. The
Commission reasoned that the fact that renewable resources were able to
develop outside of PURPA showed that they were able to obtain financing
despite lacking the legal right to fixed energy rates.\289\
---------------------------------------------------------------------------

    \289\ See id. P 343.
---------------------------------------------------------------------------

    154. The Commission also disagreed with those commenters who
asserted that the Commission should ``require[] the variable energy
component to be structured in a way that removes market risk from the
QF.'' \290\ The Commission found that this argument is contrary to one
of the fundamental premises of PURPA, which is that QFs must accept the
market risk associated with their projects by being paid no more than
the purchasing utility's avoided cost, thereby preventing utility
retail customers from subsidizing QFs.\291\ The Commission described
concerns regarding the alleged mismatch between avoided costs and the
costs of renewable technologies as collateral attacks on the
requirements of PURPA itself, not our proposed implementation of it.
---------------------------------------------------------------------------

    \290\ Id. P 344 (citing NIPPC, CREA, REC, and OSEIA Comments,
Docket No. RM19-15-000, at 43 (Dec. 3, 2019)).
    \291\ See id. (citing Conf. Rep. at 97-98 (stating that the
``risk in proceeding forward in the [QF] enterprise is not
guaranteed to be recoverable''); API, 461 U.S. at 416 (holding that
QFs ``would retain an incentive to produce energy under the full-
avoided-cost rule so long as their marginal costs did not exceed the
full avoided cost of the purchasing utility'')).
---------------------------------------------------------------------------

    155. The Commission acknowledged those comments explaining that
hedging tools increase project expense and may not be available to all
QFs.\292\ However, the Commission stated that it never intended to
suggest that hedging is cost-free or that it would be appropriate for
all QFs.
---------------------------------------------------------------------------

    \292\ Id. P 345 (citing NIPPC, CREA, REC, and OSEIA Comments,
Docket No. RM19-15-000, at 45-46 (Dec. 3, 2019); Resources for the
Future Comments, Docket No. RM19-15-000, at 6-7 (Dec. 2, 2019);
Solar Energy Industries Comments, Docket No. RM19-15-000, at 30
(Dec. 3, 2019)).
---------------------------------------------------------------------------

    156. The Commission found that testimony that Public Interest
Organizations cited from the Technical Conference, which indicated that
Southern Company has negotiated non-QF renewable contracts with fixed
energy rates rather than variable energy rates, did not support the
contention that the Commission must provide for fixed avoided cost
energy rates for QF contracts and other LEOs.\293\
---------------------------------------------------------------------------

    \293\ Id. P 346 (citing Public Interest Organizations Comments,
Docket No. RM19-15-000, at 33-34 (Dec. 3, 2019) (citing NOPR, 168
FERC ] 61,184 at P 70 n.114)).
---------------------------------------------------------------------------

    157. In the NOPR comments, certain commenters expressed concern
that, when a purchasing electric utility is not avoiding the
construction or purchase of capacity as a consequence of entering into
a contract with a QF, under the NOPR's proposed rules a state could
limit the QF's contract rate to variable energy payments.\294\ The
Commission found that, in that event, the only costs being avoided by
the purchasing electric utility would be the incremental costs of
purchasing or producing energy at the time the energy is
delivered.\295\ The Commission stated that nothing in PURPA or the
legislative history of PURPA suggests that the Commission should set QF
rates so as to facilitate the financing of new QF capacity in locations
where no new capacity is needed.
---------------------------------------------------------------------------

    \294\ Id. P 347 (citing CARE Comments, Docket No. RM19-15-000,
at 4 n.7 (Dec. 3, 2019); EPSA Comments, Docket No. RM19-15-000, at
12 (Dec. 3, 2019)).
    \295\ Id. (citing City of Ketchikan, 94 FERC ] 61,293, at 62,061
(2001) (``[A]voided cost rates need not include the cost for
capacity in the event that the utility's demand (or need) for
capacity is zero. That is, when the demand for capacity is zero, the
cost for capacity may also be zero.'')).
---------------------------------------------------------------------------

    158. The Commission recognized that there is some evidence that
variable avoided cost energy rates in contracts and LEOs could result
in longer-term contracts.\296\ The Commission did not find that the
variable avoided cost energy rate provision in the final rule will
necessarily lead to longer term contracts and LEOs in every state, nor
did its decision to adopt this provision rely on such a finding.\297\
However, the

Commission found that the record supports the conclusion that the
variable avoided cost energy rate provision could lead to longer term
contracts in at least some states and that likelihood provides support
for the conclusion that QFs will be able to obtain financing for their
projects under this provision if their costs are indeed below the
purchasing utility's avoided costs.\298\
---------------------------------------------------------------------------

    \296\ Id. P 349 (citing NOPR, 168 FERC ] 61,184 at 5 n.5; Idaho
Commission Comments, Docket No. RM19-15-000, at 4 (Dec. 3, 2019)
(allowing states to set variable QF energy avoided costs ``would
allow states to consider longer term contracts without putting
ratepayers at risk'')).
    \297\ Id. The Commission did not find that variable avoided cost
energy rates would be appropriate only if they cause states to
require longer term contracts, and the Commission did not adopt the
suggestion made by certain commenters that the Commission order
states to require longer contract terms. See id. P 349 n.566 (citing
NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19-15-000, at 47-
48 (Dec. 3, 2019); Public Interest Organizations Comments, Docket
No. RM19-15-000, at 6-7 (Dec. 3, 2019); sPower Comments, Docket No.
RM19-15-000, at 11 (Dec. 3, 2019)).
    \298\ Id. P 349.
---------------------------------------------------------------------------

i. Requests for Rehearing
    159. Public Interest Organizations argue that the Commission
ignored evidence showing that allowing states to eliminate fixed energy
rate contracts discourages QF development.\299\ Public Interest
Organizations assert that the Commission ignored evidence that fixed
energy rates are important to QF development. Similarly, Public
Interest Organizations claim that the Commission ignored evidence that
(1) allowing states to adopt variable energy rate contracts will
violate PURPA and (2) states allowing only variable energy rate QF
contracts have experienced little or no renewable QF development and QF
development fell in states that switched from fixed price contracts to
variable price contracts.\300\ For support, Public Interest
Organizations point to the following: (1) Alabama offers standard
contracts with only QF rates that vary based on month and time of day
received and in 2018 Alabama's cumulative solar capacity was less than
300 MW; (2) Georgia Power's standard offer for solar QF contracts
offered only a variable hourly avoided energy cost rate and there are
about nine solar participants in this program with a total of less than
500 kW capacity; (3) Wisconsin utilities offer only short term variable
pricing at LMP and no QFs have been developed in response, in contrast
to neighboring states with fixed price contracts and substantial QF
development; and (4) QF development related to fixed rate contracts in
Idaho stopped after the Idaho Commission required variable energy rate
contracts that reset every two years.\301\
---------------------------------------------------------------------------

    \299\ Public Interest Organizations Request for Rehearing at 9,
72.
    \300\ Id. at 73-74.
    \301\ Id. at 74-75.
---------------------------------------------------------------------------

    160. Public Interest Organizations argue that large, non-QF
development and nuclear plant power purchase agreements also rely on
fixed price contracts. Public Interest Organizations maintain that,
even if non-QFs relied on variable- instead of fixed-energy price
contracts, the Commission has not shown that renewable projects that
are QFs can be developed under similar contract terms. Public Interest
Organizations represent that renewable QFs have only been developed
where contracts provide long-term price certainty (e.g., in Idaho, QF
development ceased when states provide only variable energy pricing
(even with fixed capacity rates), which is contrary to the Commission's
unfounded assertion that QF development would increase with variable
rates).\302\
---------------------------------------------------------------------------

    \302\ Id. at 75-76.
---------------------------------------------------------------------------

    161. Public Interest Organizations argue that the Commission relies
on speculation that QFs could be developed without fixed energy rates
and that the Commission lacks evidence to argue that long-term price
certainty is not material to QFs' ability to obtain financing. Public
Interest Organizations assert that the Commission's citation to
testimony from Southern Company about a hypothetical bilateral contract
with an independent natural gas power producer does not show how
renewable generators that could qualify as QFs using different
financing structures, using different fuels, and at much smaller
capacities could be developed. Public Interest Organizations contend
that the Commission could point to no renewable QF that could be
developed without long-term energy price certainty. Public Interest
Organizations similarly assert that the Commission misconstrued
testimony from Solar Energy Industries in suggesting that a fixed
energy price was unnecessary to encourage QF development.\303\
---------------------------------------------------------------------------

    \303\ Id. at 76-78.
---------------------------------------------------------------------------

    162. Public Interest Organizations argue that, contrary to the
Commission's assertions, there is no evidence that bilateral energy
transactions to hedge energy price risk as used in large gas plant
transactions are sufficient without fixed energy rates for lenders to
finance new wind and solar QF development. Public Interest
Organizations claim that the Commission has no evidence that financial
hedge products exist for QFs for a sufficient period of time and at a
reasonable price to permit financing.\304\ Public Interest
Organizations assert that, because the Commission has provided no
evidence that any QFs, renewable projects the size of QFs, or non-QF
renewables were developed without fixed price energy contracts, the
Commission's assertions that new generation was developed without
PURPA's avoided cost provisions are irrelevant.\305\
---------------------------------------------------------------------------

    \304\ Id. at 78.
    \305\ Id. at 78-79.
---------------------------------------------------------------------------

    163. Public Interest Organizations argue that the Commission
ignored evidence showing the fixed capacity rates alone will not
encourage renewable energy development.\306\ Public Interest
Organizations claim that the Commission ignored evidence showing that,
in vertically integrated markets like the Southeast, several utilities
have eliminated or dramatically lowered capacity payments to QFs and
that QFs cannot use financing arrangements available to non-QFs, such
as independent natural gas generators, to be viable. Public Interest
Organizations assert that, because the capacity price for a QF may be
zero, no QFs were effectively developed after Dominion Energy South
Carolina's capacity rates were set at zero and QF development is
minimal in Alabama due to Alabama Power's zero price capacity rates.
Therefore, Public Interest Organizations maintain that the Commission
has no evidence to support its contention that a fixed capacity rate
should be sufficient to recover QF capacity costs and enable QF
financing.\307\
---------------------------------------------------------------------------

    \306\ Id. at 9, 78-79.
    \307\ Id. at 79-82.
---------------------------------------------------------------------------

    164. Public Interest Organizations argue that renewable QFs have
different financing needs than non-QF independent natural gas
generators and that the Commission lacked evidence to support applying
the variable energy/fixed capacity rate construct to QFs.\308\
Specifically, Public Interest Organizations represent that ``wind and
solar QFs have higher capital costs, lower operating costs, and provide
energy intermittently--characteristics that may present different
financing challenges as compared to non-QF natural gas fired
capacity.'' \309\ Public Interest Organizations state that even RTO/ISO
capacity markets, which they note many QFs do not have access to, ``are
implicitly biased in favor of resources with low capital costs, such as
natural gas plants, and may be ``ill-suited to finance'' renewable
resources with high-fixed costs and near-zero operating costs.'' \310\
---------------------------------------------------------------------------

    \308\ Id. at 82-83.
    \309\ Id. at 83 (citing Harvard Electricity Law Comments, Docket
No. RM19-15-000, at 17-19 (Dec. 3, 2019)).
    \310\ Id. (citing Harvard Electricity Law Comments, Docket No.
RM19-15-000, at 17-19 (Dec. 3, 2019)).

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

    165. Solar Energy Industries contend that, while securing financing
based on an as-available energy rate and a fixed capacity rate may be a
rare possibility in a few locations across the country, there is no
evidence in the record that financing is generally available in such
circumstances.\311\ Solar Energy Industries claim that, therefore,
long-term contracts are necessary to finance new non-utility generation
because capital providers will not finance a project without a
reasonable expectation of the revenue the project expects to generate
over its useful life.\312\ Solar Energy Industries conclude that, if
the purchasing electric utility does not offer the QF a forecasted
energy rate over the life of a long-term contract and the QF is not
otherwise able to compete for a long-term contract through a
competitive bidding program, then the QF will not be able to obtain
financing in the capital markets.\313\
---------------------------------------------------------------------------

    \311\ Solar Energy Industries Request for Rehearing and/or
Clarification at 9, 12.
    \312\ Id. at 9.
    \313\ Id. at 10.
---------------------------------------------------------------------------

    166. Solar Energy Industries further argue that there is no
credible evidence in the record that even merchant generation projects
are financed on variable energy rate contracts.\314\ Solar Energy
Industries provide examples where such generators have sought longer-
term contracts as a means to support capital market financing.\315\
Solar Energy Industries further argue that merchant natural gas
generators have relatively low capital costs and are thus able to rely
on the fuel products markets to mitigate the risk of variable energy
pricing, whereas fuel-less QFs do not have a similar ability, and thus
bear the entire risk of volatile market prices.\316\ Solar Energy
Industries provide examples of industry studies that they claim have
consistently shown that only very small portions of new capacity
additions have been financed with variable energy rates.\317\
---------------------------------------------------------------------------

    \314\ Id. at 12.
    \315\ Id. at 12-13.
    \316\ Id. at 14.
    \317\ Id. at 14-15 (citing Power Plants are Not Built on Spec,
2014 Update, American Public Power Association (Oct. 2014), https://hepg.hks.harvard.edu/files/hepg/files/94_2014_power_plant_study.pdf?m=1523366757).
---------------------------------------------------------------------------

    167. Solar Energy Industries also assert that the Commission acted
arbitrarily and capriciously in failing to consider the fact that many
states do not offer QFs a fixed price for capacity that is sufficient
to support financing.\318\ Solar Energy Industries argue that, when
purchasing electric utilities do not provide for fixed capacity
payments over the term of the QF contract, the Commission should not
provide a state flexibility to terminate the QF's right to elect a
long-term energy rate in a long-term contract.\319\ Solar Energy
Industries contend that it would be arbitrary and capricious, for
example, to allow New Mexico the flexibility to terminate the QF's
right to elect a long-term energy rate because Public Service Company
of New Mexico (PNM) does not compensate QFs for capacity despite the
fact that PNM has announced it is replacing all of the capacity from
its San Juan Generating Station with renewables.\320\
---------------------------------------------------------------------------

    \318\ Id. at 16.
    \319\ Id.
    \320\ Id. at 16-17.
---------------------------------------------------------------------------

    168. Finally, Solar Energy Industries claim that the final rule's
reliance on the prospects for QFs' ability to leverage the use of
financial products (i.e., a hedge) when offered a variable energy rate
contract is without any factual basis, adding that, even when hedges
are made available, many hedge providers decline to work with small
projects because they are not cost effective and have higher risk
profiles.\321\
---------------------------------------------------------------------------

    \321\ Id. at 18.
---------------------------------------------------------------------------

    169. Northwest Coalition argues that the Commission's assumption
that QFs will be able to secure financing without fixed energy prices
is not supported by sufficient evidence and ignores extensive evidence
to the contrary. Northwest Coalition asserts that the Commission's
conclusion that QFs can be financed using contracts with variable
energy rates is without evidentiary support and arbitrarily ignores or
misconstrues evidence from different sources demonstrating that
exposing generation projects to unpredictable market risks makes
financing QFs impossible. Northwest Coalition contends that, although
the Commission relies on evidence that non-QF renewable energy projects
have grown in recent years, it cites no underlying contract terms and
ignores that these projects have largely been built on the strength of
fixed price contracts. Northwest Coalition claims that the Commission
takes evidence out of context and ignores real-world evidence that
attempts to develop generation based on short-term prices have failed
\322\ and that short-term prices do not represent utility avoided costs
for long-term energy.\323\
---------------------------------------------------------------------------

    \322\ Northwest Coalition Request for Rehearing at 4-5.
    \323\ Id. at 5 (citing Transmission Access Pol'y Grp. v. FERC,
225 F.3d 667, 688 (D.C. Cir. 2000)).
---------------------------------------------------------------------------

    170. Northwest Coalition argues that the Commission relies on
arbitrary reasoning to support the decision to reverse 40 years of
precedent, holding that fixed-price contracts are necessary to
encourage QFs and support financing of QFs, to authorize states to
deprive QFs of fixed energy prices. Northwest Coalition asserts that
the Commission failed to respond to legitimate objections raised by
commenters opposing the proposal, ignores evidence that QFs require a
substantial minimum term to support financing, and fails to establish
any minimum contract term, despite well-established precedent requiring
contract terms long enough to support financing and substantial
evidence that states have undermined PURPA by imposing unreasonably
short contract terms.\324\
---------------------------------------------------------------------------

    \324\ Id. (citing PPL Wallingford Energy LLC v. FERC, 419 F.3d
1194, 1198 (D.C. Cir. 2005) (PPL Wallingford); Ne. Md. Waste
Disposal Auth. v. EPA, 358 F.3d 936, 949 (D.C. Cir. 2004)).
---------------------------------------------------------------------------

    171. Northwest Coalition claims that there is no guarantee that the
long-term avoided capacity payment will be sufficient to support a QF's
financing and permitting avoided cost energy payments to vary with
volatile short-term market prices forces QFs to bear the risks of
market volatility.\325\
---------------------------------------------------------------------------

    \325\ Id. at 16-17.
---------------------------------------------------------------------------

ii. Commission Determination
    172. We disagree with the arguments raised on rehearing. First, in
enacting PURPA, Congress made clear that QFs' ``risk in proceeding
forward in the cogeneration or small power production enterprise is not
guaranteed to be recoverable.'' \326\ The Commission determined, based
on record evidence described in the final rule and below, that
significant amounts of generation capacity, including renewable
resource capacity, have obtained financing without a regulatorily-
required fixed energy rate. But to the extent that a state determines
that a variable energy rate is required to ensure that the QF's rate
does not exceed avoided costs, then PURPA prevents the Commission from
requiring that the state award the QF with a fixed energy rate to
ensure that the QF obtains financing.
---------------------------------------------------------------------------

    \326\ Conf. Rep. at 97-98 (emphasis added).
---------------------------------------------------------------------------

    173. We also reiterate that the Final Rule did not eliminate fixed
rates for QFs. The final rule gives states the flexibility, if they
choose to take advantage of this flexibility, to require that the
avoided cost energy rates in QF contracts vary depending on the
purchasing utility's avoided energy costs at the time of delivery.
However, in the final rule, the Commission did not alter QFs' right to
require capacity rates to be fixed for the length of the QF's contract.
Those capacity rates would still need to meet the standards of 18 CFR
292.304(e). Furthermore,

because those rates must continue to be set at a purchasing utility's
full avoided costs, a particular QF's inability to be developed under
that rate does not mean that rate violates PURPA.
    174. Further, as stated in the final rule, the variable energy
rate/fixed capacity rate construct is common among merchant generators
for power sales agreements that include the sale of capacity, which
demonstrates that other types of non-utility generation are able to
raise useful financing under such an arrangement.\327\ As Finadvice, a
commenter with experience in project finance observed in its NOPR
comments, given the mandatory purchase obligation,
---------------------------------------------------------------------------

    \327\ See Order No. 872, 172 FERC ] 61,041 at PP 30-31, 35-41,
336-345.

QFs utilizing a variety of standard hedging and risk management
tools, provide sufficient comfort to facilitate the financing of
variable priced PPAs. Having a fixed capacity rate, as proposed by
the Commission will help attract capital and reduce the cost of
financing in this regard, but is not a necessary prerequisite.\328\
---------------------------------------------------------------------------

    \328\ Finadvice Comments, Docket No. RM19-15-000, at 2 (Dec. 3,
2019); see also Ohio Commission Energy Advocate Comments, Docket No.
RM19-15-000, at 3-4 (Dec. 3, 2019 (``[O]rganized wholesale markets
such as PJM have successfully attracted new supplies and ensured
resource adequacy through a combination of fixed capacity rates and
variable energy rates such as the Commission is proposing here.
Fixing both the energy and the capacity components of the QF power
sales contract is not necessary to attract new resources or to
appropriately compensate qualifying facilities.'').

    175. Moreover, many QFs do share significant characteristics with
other types of independent, non-utility generation; thus, it is
reasonable to assume that they would be able to raise useful financing
under such a financing arrangement.\329\ It is not necessary to prove
that all potential QFs would be able to raise useful financing under
such an arrangement, particularly where a state has determined that
mandating variable as-available QF energy rates is necessary to respect
the statutory avoided cost cap on QF rates.\330\
---------------------------------------------------------------------------

    \329\ See Order No. 872, 172 FERC ] 61,041 at P 340.
    \330\ Cf. Environmental Action, 939 F.2d at 1064 (``[I]t is
within the scope of the agency's expertise to make such a prediction
about the market it regulates, and a reasonable prediction deserves
our deference notwithstanding that there might also be another
reasonable view.'').
---------------------------------------------------------------------------

    176. While independent non-QFs are not subject to the same limits
as QFs (i.e., avoided cost caps, 80 MW limit), these resources have
been developed, likely with financing, despite lacking the
encouragement provided by PURPA (i.e., mandatory purchase obligation,
interconnection rights, exemption from state and federal regulations).
While the Commission has indicated that hedging and other financial
instruments can be helpful for QFs to obtain financing, the Commission
did not suggest that all QFs need such instruments to obtain
financing.\331\
---------------------------------------------------------------------------

    \331\ See Order No. 872, 172 FERC ] 61,041 at P 345 (footnote
omitted) (``[T]he Commission never intended to suggest that hedging
is cost-free or that it would be appropriate for all QFs. The
commenters all agree that hedging is available for at least some
QFs. For such QFs, hedging can help provide energy rate certainty if
such certainty is required for financing. To the extent that
certainty is required, then the cost of hedging is a part of the
cost of financing the project that PURPA requires QFs to bear.'').
---------------------------------------------------------------------------

    177. We are not persuaded by Public Interest Organizations'
argument that states' use of variable energy rates is a dispositive
cause of a drop in QF development in particular states; it is possible
that such a decrease in QF development was due to a variety of reasons,
such as non-PURPA-related permitting, or PURPA-related reasons that
preceded the final rule, such as the avoided capacity costs equaling
zero, which has been permissible under Commission precedent.\332\ While
we do not in this proceeding invalidate any state actions taken thus
far, the final rule and this order provide greater emphasis that QFs
are entitled to a fixed capacity rate if the purchasing utility's
avoided capacity costs exceed zero. If a QF believes that a state is
not implementing these rules, then that QF may seek relief in the
appropriate forum, which could include any one or more of the
following: (1) Initiating or participating in proceedings before the
relevant state commission or governing body; (2) filing for judicial
review of any state regulatory proceeding in state court (under PURPA
section 210(g)); or, alternatively, (3) filing a petition for
enforcement against the state at the Commission and, if the Commission
declines to act, later filing a petition against the state in U.S.
district court (under PURPA section 210(h)(2)(B)).\333\
---------------------------------------------------------------------------

    \332\ Public Interest Organizations Request for Rehearing at 73-
74.
    \333\ See Policy Statement Regarding the Commission's
Enforcement Role Under Section 210 of the Public Utility Regulatory
Policies Act of 1978, 23 FERC ] 61,304.
---------------------------------------------------------------------------

d. Requested Clarification of the Final Rule
    178. If the Commission does not grant rehearing, Solar Energy
Industries request that the Commission clarify that such
``flexibility'' offered by revised 18 CFR 292.304(d) is not available
to any state unless the purchasing electric utility (1) has separately-
stated avoided energy and capacity rates on-file and (2) is complying
with the data reporting requirements of 18 CFR 292.302.\334\
---------------------------------------------------------------------------

    \334\ Solar Energy Industries Request for Rehearing and/or
Clarification at 11.
---------------------------------------------------------------------------

i. Commission Determination
    179. We grant Solar Energy Industries' request for clarification
that a state may only use variable rates to set avoided energy costs if
the utility has fulfilled its obligations to disclose avoided cost data
under 18 CFR 292.302. We do not find the disclosure of such information
unreasonable as the Commission's PURPA Regulations already require its
disclosure.\335\ In addition, although electric utilities are required
to disclose this data generally, it is especially important when a
state has selected the fixed capacity/variable energy rate construct to
ensure that QFs have this data from the purchasing electric utility to
provide transparency with regard to a utility's avoided costs, i.e., to
understand what a utility's cost are to generate itself or purchase
from another source. Particularly in the context of a state selecting a
variable energy rate that can change over the term of a QF contract,
ensuring that QFs have access to such avoided cost data encourages QF
development.\336\
---------------------------------------------------------------------------

    \335\ See 18 CFR 292.302.
    \336\ See Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,868
(``[I]n order to be able to evaluate the financial feasibility of a
cogeneration or small power production facility, an investor needs
to be able to estimate, with reasonable certainty, the expected
return on a potential investment before construction of a facility.
This return will be determined in part by the price at which the
qualifying facility can sell its electric output. Under 292.304 of
these rules, the rate at which a utility must purchase that output
is based on the utility's avoided costs, taking into account the
factors set forth in paragraph (e) of that section. Section 292.302
of these rules is intended by the Commission to assist those needing
data from which avoided costs can be derived.'').
---------------------------------------------------------------------------

    180. We deny Solar Energy Industries' additional request that a
utility must have separately-stated avoided energy and capacity rates
on-file in order for a state to set variable energy rates in QF
contracts. Solar Energy Industries has not shown how having such rates
on file necessarily encourages the development of QFs and, as explained
below, likely would be inconsistent with the authority that PURPA
grants the states.\337\ Under PURPA, states are permitted to determine
avoided cost rates differently among themselves (i.e., through
adjudication, rulemaking, or legislation).\338\ Requiring each utility
to

have a stated rate on file (beyond standard rates \339\) may interfere
with states' rights to determine a rate and the flexibility provided in
Order No. 872 to set such rates. However, as noted above, we are
requiring the disclosure of the data that would allow QFs to review any
rate that is set by a state, and the disclosure of such data should
encourage the development of QFs.
---------------------------------------------------------------------------

    \337\ While we do not require this here, states may choose to
require that rates are on file.
    \338\ See FERC v. Miss., 456 U.S. at 751 (``[A] state commission
may comply with the statutory requirements [of PURPA section 210] by
issuing regulations, by resolving disputes on a case-by-case basis,
or by taking any other action reasonably designed to give effect to
FERC's rules.'').
    \339\ See 18 CFR 292.304(c).
---------------------------------------------------------------------------

5. Consideration of Competitive Solicitations To Determine Avoided
Costs
    181. In the NOPR, the Commission proposed to revise the PURPA
Regulations in 18 CFR 292.304 to add subsection (b)(8). In combination
with new subsection (e)(1), this subsection would permit a state the
flexibility to set avoided cost energy and/or capacity rates using
competitive solicitations (i.e., requests for proposals or RFPs),
conducted pursuant to appropriate procedures.\340\
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    \340\ NOPR, 168 FERC ] 61,184 at P 82.
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    182. The Commission recognized that one way to enable the industry
to move toward more competitive QF pricing is to allow states to
establish QF avoided cost rates through a competitive solicitation
process. The Commission previously has explored this issue. In 1988,
the Commission issued a notice of proposed rulemaking proposing to
adopt regulations that would allow bidding procedures to be used in
establishing rates for purchases from QFs.\341\ That rulemaking
proceeding, along with several related proceedings, ultimately was
withdrawn as overtaken by events in the industry.\342\
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    \341\ Regulations Governing Bidding Programs, 53 FR 9324
(Mar.22, 1988), FERC Stats. & Regs. ] 32,455 (1988) (cross-
referenced at 42 FERC ] 61,323) (Bidding NOPR); see also
Administrative Determination of Full Avoided Costs, Sales of Power
to Qualifying Facilities, and Interconnection Facilities, 53 FR 9331
(Mar.22, 1988), FERC Stats. & Regs. ] 32,457 (1988) (cross-
referenced at 42 FERC ] 61,324) (ADFAC NOPR).
    \342\ See Regulations Governing Bidding Programs, 64 FERC ]
61,364 at 63,491-92 (1993) (terminating Bidding NOPR proceeding);
see also Administrative Determination of Full Avoided Costs, Sales
of Power to Qualifying Facilities, and Interconnection Facilities,
84 FERC ] 61,265 (1998) (terminating ADFAC NOPR proceeding).
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    183. Since then, in 2014, the Commission held, with respect to a
particular competitive solicitation, that an electric utility's
obligation to purchase power from a QF under a LEO could not be
curtailed based on a failure of the QF to win an only occasionally-held
competitive solicitation.\343\ In a separate proceeding involving a
different competitive solicitation, the Commission declined to initiate
an enforcement action where the state competitive solicitation was an
alternative to a PURPA program.\344\
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    \343\ See, e.g., Hydrodynamics, Inc., 146 FERC ] 61,193, at PP
31-35 (2014) (Hydrodynamics). Competitive solicitation processes
have been used more recently in a number of states, including
Georgia, North Carolina, and Colorado. Georgia's competitive
solicitation process is described at Ga. Comp. R. & Regs. 515-3-
4.04(3) (2018). North Carolina's competitive solicitation process is
described at 4 N.C. Admin. Code 11.R8-71 (2018). Colorado's
competitive solicitation process is described at sPower Development
Co., LLC v. Colorado Pub. Utils. Comm'n, 2018 WL 1014142 (D. Colo.
Feb. 22, 2018).
    \344\ Winding Creek Solar LLC, 151 FERC ] 61,103,
reconsideration denied, 153 FERC ] 61,027 (2015). But see Winding
Creek Solar LLC v. Peterman, 932 F.3d 861 (9th Cir. 2019).
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    184. Given this precedent, in the NOPR, the Commission proposed to
amend its regulations to clarify that a state could establish QF
avoided cost rates through an appropriate competitive solicitation
process. Consistent with its general approach of giving states
flexibility in the manner in which they determine avoided costs, the
Commission did not propose in the NOPR to prescribe detailed criteria
governing the use of competitive solicitations as tools to determine
rates to be paid to QFs, as well as to determine other contract terms.
The Commission stated that states arguably may be in the best position
to consider their particular local circumstances, including questions
of need, resulting economic impacts, amounts to be purchased through
auctions, and related issues.\345\
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    \345\ NOPR, 168 FERC ] 61,184 at P 86.
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    185. Nevertheless, in considering what constitutes proper design
and administration of a competitive solicitation, in the NOPR, the
Commission found it was appropriate to establish certain minimum
criteria governing the process by which competitive solicitations are
to be conducted in order for a competitive solicitation to be used to
set QF rates. In that regard, the Commission noted that it has
addressed competitive solicitations in prior orders in a number of
contexts that provide potential guidance to states and others. For
example, the Commission's policy for the establishment of negotiated
rates for merchant transmission projects,\346\ the Bidding NOPR, and
the Hydrodynamics case \347\ all suggest factors that could be
considered in establishing an appropriate competitive solicitation that
is conducted in a transparent and non-discriminatory manner.\348\
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    \346\ Id. P 87 (citing Allocation of Capacity on New Merchant
Transmission Projects and New Cost-Based, Participant-Funded
Transmission Projects, 142 FERC ] 61,038 (2013)).
    \347\ Id. (citing Hydrodynamics, 146 FERC ] 61,193 at P 32 n.70
(citing Bidding NOPR, FERC Stats. & Regs. ] 32,455 at 32,030-42)).
The Commission noted that, while QFs not awarded a contract pursuant
to an competitive solicitation would retain their existing PURPA
right to sell energy as available to the electric utility, if the
state has concluded that such QF capacity puts tendered after an
competitive solicitation was held are ``not needed,'' the capacity
rate may be zero because an electric utility is not required to pay
a capacity rate for such puts if they are not needed. Id. P 87 n.135
(citing Hydrodynamics, 146 FERC ] 61,193 at P 35 (referencing City
of Ketchikan, 94 FERC at 62,061 (``[A]voided cost rates need not
include the cost for capacity in the event that the utility's demand
(or need) for capacity is zero. That is, when the demand for
capacity is zero, the cost for capacity may also be zero.''))).
    \348\ Id.
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    186. As proposed in the NOPR, these factors included, among others:
(a) An open and transparent process; (b) solicitations should be open
to all sources to satisfy the purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity; \349\ (c) solicitations conducted at regular
intervals; (d) oversight by an independent administrator; and (e)
certification as fulfilling the above criteria by the state regulatory
authority or nonregulated electric utility. The Commission proposed
that a state may use a competitive solicitation to set avoided cost
energy and capacity rates, provided that such competitive solicitation
process is conducted pursuant to procedures ensuring the solicitation
is transparent and non-discriminatory. The Commission proposed that
such a competitive solicitation must be conducted in a process that
includes, but is not limited to, the factors identified above which
would be set forth in proposed subsection (b)(8).\350\
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    \349\ Id. (citing 18 CFR 292.304(e); Windham Solar, 157 FERC ]
61,134 at PP 5-6).
    \350\ Id.
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    187. In addition, the Commission sought comment on whether it
should provide further guidance on whether, and under what
circumstances, a competitive solicitation can be used as a utility's
exclusive vehicle for acquiring QF capacity.\351\
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    \351\ Id. P 88. The Commission proposed that, even if a
competitive solicitation were used as an exclusive vehicle for an
electric utility to obtain QF capacity, QFs that do not receive an
award in the competitive solicitation would be entitled to sell
energy to the electric utility at an as-available avoided cost
energy rate. Id. P 88 n.137.
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    188. In the final rule, the Commission adopted the NOPR proposal to
revise the PURPA Regulations to explicitly permit a state the
flexibility to set avoided energy and/or capacity rates using
competitive solicitations (i.e., RFPs) conducted pursuant to
appropriate procedures in a transparent and non-discriminatory manner.
The Commission stated that the primary

feature of a transparent and non-discriminatory competitive
solicitation is that a utility's capacity needs are open for bidding to
all capacity providers, including QF and non-QF resources, on a level
playing field. The Commission found that this level playing field
ensures that any QF's capacity rates that result from the competitive
solicitation are just and reasonable and non-discriminatory avoided
cost rates.\352\
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    \352\ Order No. 872, 172 FERC ] 61,041 at P 411.
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    189. Consistent with its general approach of giving states
flexibility in the manner in which they determine avoided costs, the
Commission did not prescribe detailed criteria governing the use of
competitive solicitations as tools to determine rates to be paid to QFs
and to determine other contract terms. The Commission found that states
are in arguably the best position to consider their particular local
circumstances, including questions of need, resulting economic impacts,
amounts to be purchased through auctions, and related issues.\353\
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    \353\ Id. P 412.
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    190. However, as in the NOPR, the Commission in the final rule
found it appropriate to establish certain minimum criteria governing
the process by which competitive solicitations are to be conducted in
order for a competitive solicitation to be used to set QF rates. The
Commission found that, in order to use the results of a competitive
solicitation to set avoided cost rates, the competitive solicitation
must be conducted in a transparent and non-discriminatory manner. Such
a competitive solicitation must be conducted in a process that
includes, but is not limited to, the following factors: (i) The
solicitation process is an open and transparent process that includes,
but is not limited to, providing equally to all potential bidders
substantial and meaningful information regarding transmission
constraints, levels of congestion, and interconnections, subject to
appropriate confidentiality safeguards; (ii) solicitations must be open
to all sources, to satisfy that purchasing electric utility's capacity
needs, taking into account the required operating characteristics of
the needed capacity; (iii) solicitations are conducted at regular
intervals; (iv) solicitations are subject to oversight by an
independent administrator; and (v) solicitations are certified as
fulfilling the above criteria by the relevant state regulatory
authority or nonregulated electric utility through a post-solicitation
report.\354\
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    \354\ Id. P 427.
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    191. The Commission affirmed that such competitive solicitations
must be conducted in a process that includes, but is not limited to,
the factors identified above that will be set forth in 18 CFR
292.304(b)(8). The Commission explained that the final rule does not
undo any competitive solicitations conducted prior to the effective
date of the final rule that may not have met these criteria. The
Commission described the final rule as applying only to competitive
solicitations conducted after the effective date of the final
rule.\355\ The Commission also stated that it will presume that any
future competitive solicitation that does not comply with the factors
adopted in the final rule does not comply with the Commission's
regulations implementing PURPA.\356\
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    \355\ Id. P 414.
    \356\ Id. P 428.
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    192. The Commission explained that, more generally, it supports the
use of competitive solicitations as a means to foster competition in
the procurement of generation and to encourage the development of QFs
in a way that most accurately reflects a purchasing utility's avoided
costs. The Commission further explained that allowing QFs to compete to
provide capacity and energy needs, through a properly administered
competitive solicitation, may help ensure an accurate determination of
the purchasing electric utility's avoided cost and therefore result in
prices meeting the PURPA's statutory requirements. The Commission found
that it is reasonable for states to choose to require QFs to be
responsive to price signals as to where and when capacity is needed.
The Commission expressed its belief that a properly administered
competitive solicitation can help provide such price signals.\357\
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    \357\ Id. P 416.
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    193. The Commission also clarified that, if a utility acquires all
of its capacity through properly conducted competitive solicitations
(using the factors described above) and does not add capacity through
self-building and purchasing power from other sources outside of such
solicitations, the competitive solicitations could be the exclusive
vehicle for the purchasing electric utility to pay avoided capacity
costs from a QF. In this situation, using properly conducted
competitive solicitations as the exclusive vehicle to determine the
purchasing electric utility's avoided cost capacity rates would allow
QFs a chance to compete to provide the utility's capacity needs on a
level playing field with the utility. The Commission clarified that it
is up to the states to determine whether to require that a utility's
total planned self-build and power purchase options must compete in the
competitive solicitations and declined to direct such a
requirement.\358\
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    \358\ Id. P 421.
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    194. The Commission determined that, if a state decides to require
utility self-build and power purchase options to participate in
competitive solicitations, then a QF that does not obtain an award in a
competitive solicitation would have no right to an avoided cost
capacity rate more than zero because the utility's full capacity needs
would have been met by the competitive solicitation.\359\ However, the
Commission determined that QFs would continue to have the right to put
energy to the utility at the as-available avoided cost energy rate
because the purchasing utility will still be able to avoid incurring
the cost of generating energy even when it does not need new
capacity.\360\
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    \359\ The Commission stated that this would be consistent with
City of Ketchikan, 94 FERC at 62,061 (``[A]voided cost rates need
not include the cost for capacity in the event that the utility's
demand (or need) for capacity is zero. That is, when the demand for
capacity is zero, the cost for capacity may also be zero.'').
    \360\ Order No. 872, 172 FERC ] 61,041 at P 422.
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    195. The Commission also determined that, if the state does not
require utility self-build and purchase options to participate in
competitive solicitations, then QFs that lose in a competitive
solicitation still may have the right to avoided cost capacity rates
more than zero if the state determines that the utility still has
capacity needs after the competitive solicitation that otherwise could