\588\ Lockyer, 383 F.3d at 1013; Snohomish, 471 F.3d at 1080;
see also LEPA, 141 F.3d at 370.
---------------------------------------------------------------------------

    410. Further, the Commission has in place multiple layers of
protection for customers to ensure that market-based rates are just and
reasonable and that they remain so. For public utilities selling in
real-time and/or day-ahead markets administered by Commission-approved
ISOs and RTOs (which cover five regions of the country), in addition to
the market power analysis individual sellers must satisfy under this
rule, sellers must comply with market rules contained in RTO/ISO
tariffs approved by the Commission. These single price auction markets
set clearing prices based on economic dispatch principles to which
various safeguards have been added, as appropriate, including rules
against improper bidding and, in some cases, bid price caps including
conduct and impact tests. In addition, to ensure that market-based
rates, once granted, remain just and reasonable and not unduly
discriminatory or preferential, the Commission has incorporated filing
and reporting requirements into the market-based rate program (EQRs,
change in status filings, regularly-scheduled updated market power
analyses). These filing requirements help the Commission to monitor
potential gains in market power and to take remedial steps as
appropriate, including revocation of market-based rate authority and
civil penalties. The Commission has also required each of the RTO/ISOs
to have market monitors to help oversee their wholesale markets and
report to the Commission any concerns that market rules have been
violated or concerns regarding seller behavior. This provides an added
level of monitoring against the potential exercise of market power in
the regional markets administered by the jurisdictional RTO/ISOs.
    411. That market-based rates are permissible under FPA was recently
affirmed by the Ninth Circuit in Lockyer and Snohomish. In Lockyer, the
Ninth Circuit cited with approval the Commission's dual requirement of
an ex ante finding of the absence of market power and sufficient post-
approval reporting requirements and found that the Commission did not
rely on market forces alone in approving market-based rate tariffs. The
Ninth Circuit held that this dual requirement was ``the crucial
difference'' between the Commission's regulatory scheme and the FCC's
regulatory scheme, remanded in MCI, which had relied on market forces
alone in approving market-based rate tariffs.\589\ The Ninth Circuit
thus held that ``California's facial challenge to market-based tariffs
fails'' and ``agree[d] with FERC that both the Congressionally enacted
statutory scheme, and the pertinent case law, indicate that market-
based tariffs do not per se violate the FPA.''\590\ The Ninth Circuit
determined that initial grant of market-based rate authority, together
with ongoing oversight and timely reconsideration of market-based rate
authorization under

section 206 of the FPA, enables the Commission to meet its statutory
duty to ensure that all rates are just and reasonable.\591\ While the
court in Lockyer found that the Commission's market-based rate
reporting requirements were not followed in that particular case, it
did not find those reporting requirements invalid and, in fact, upheld
the Commission's market program as complying with the FPA. The market-
based rate requirements and oversight adopted in this rule are more
rigorous than those reviewed by the Lockyer court.
---------------------------------------------------------------------------

    \589\ Lockyer, 383 F.3d at 1013.
    \590\ Id. at 1013 & n.5; id. at 1014 (``The structure of the
tariff complied with the FPA, so long as it was coupled with
enforceable post-approval reporting that would enable FERC to
determine whether the rates were `just and reasonable' and whether
market forces were truly determining the price.'').
    \591\ See Snohomish, 471 F.3d at 1080 (in which the Ninth
Circuit discusses its decision in Lockyer). In Snohomish, the Ninth
Circuit explained, ``As in Lockyer, we do not dispute that FERC may
adopt a regulatory regime that differs from the historical cost-
based regime of the energy market, or that market-based rate
authorization may be a tenable choice if sufficient safeguards are
taken to provide for sufficient oversight.'' Id. at 1086.
---------------------------------------------------------------------------

    412. Accordingly, we find to be without merit the arguments raised
on rehearing that the Commission lacks authority to continue to permit
market-based rates for wholesale sales of electric energy. The courts
have sustained the Commission's finding that market-based rates are one
method of setting just and reasonable rates under the FPA. As
supplemented by the Final Rule, the Commission finds that the market-
based rate program complies with the statutory and judicial standards
for acceptable market-based rates. We address below the specific
arguments raised on rehearing.
    413. We reject Consumer Advocates' argument that the Commission's
market-based rate program delegates to others the determination of
lawful rates because it allows buyers and sellers to negotiate rates.
The Commission, and no one else, undertakes the up-front analysis
described above that a seller lacks or has mitigated market power and
thus pre-determines that future rates charged by the seller will be
just and reasonable. It is the Commission, not buyers and sellers, that
makes the determination of whether and when negotiated rates will be
lawful. It is also the Commission, not others, that makes a final
determination with respect to any market rules or restrictions that
must be put in place with respect to market-based rate sellers in RTO/
ISO markets.
    414. Thus, contrary to Consumer Advocates' claim, the Commission
has not ``delegat[ed] to wholesale buyers'' its ratemaking obligations
under the FPA.\592\ Consumer Advocates contend that the Commission held
that it could not delegate to state commissions its ``ratemaking
obligations under the FPA,'' and that it could not delegate such rate
determinations to ``jurisdictional utilities.'' \593\ However, the case
relied on by Consumer Advocates is distinguishable from the issue here.
In Entergy, the Commission denied Entergy's petition for a declaratory
order requesting that the Commission find that, where a resource to be
acquired or constructed by one or more of the Entergy Operating
Companies has met certain approval requirements, including a public
interest finding by such retail regulators as may have jurisdiction,
the resource shall be a system resource and all costs of such facility
may be reflected in the applicable formula rates. The Commission
concluded that there was no local interest comparable to that present
in the cases relied on by Entergy, and therefore denied Entergy's
request to delegate to state commissions, and to Entergy itself, the
determination of the reasonableness of Entergy's Commission
jurisdictional rates.\594\ By contrast, in the instant rulemaking
proceeding, the Commission is not delegating to a state commission or
to a utility the determination of the reasonableness of Commission
jurisdictional rates. Rather, as explained above, in granting market-
based rate authority, the Commission exercises its statutory
responsibility under the FPA to ensure that market-based rates are just
and reasonable through the dual requirement of an ex ante finding of
the absence of market power and post-approval oversight through
reporting requirements and ongoing monitoring.
---------------------------------------------------------------------------

    \592\ Consumer Advocates Rehearing Request at 10, 12 (citing
Entergy Services, Inc., 120 FERC ] 61,020 (2007) (Entergy), citing
Louisiana, Inc. v. Louisiana Public Service Comm., 539 U.S. 39, 43
n.1; City of New Orleans v. Entergy Corp., 55 FERC ] 61,211, at
61,729 (1991)).
    \593\ Consumer Advocates Rehearing Request at 12.
    \594\ Entergy Services, Inc., 120 FERC ] 61,020 (2007).
---------------------------------------------------------------------------

    415. Additionally, with respect to Consumer Advocates' argument
that the Commission has overlooked the economic fact that wholesale
buyers/re-sellers do not bear the risk of loss because the prices paid
by wholesale buyers/re-sellers ``must be passed through to retail
ratepayers,'' not only is this argument irrelevant to whether the
Commission has legal authority to permit market-based rates as just and
reasonable under the FPA, the argument also is not accurate.\595\ It is
true that only the Commission has the authority to determine the
justness and reasonableness of a public utility's wholesale rates and
that a state cannot disallow pass-through in retail rates on the basis
that it disagrees with the Commission's just and reasonable
determination. However, the Commission has consistently recognized that
wholesale ratemaking does not, as a general matter, determine whether a
purchaser has prudently chosen among available supply options.\596\
---------------------------------------------------------------------------

    \595\ Id. at 10.
    \596\ See Philadelphia Electric Co., 15 FERC ] 61,264, at 61,601
(1981); Pennsylvania Power & Light Co., 23 FERC ] 61,006, order on
reh'g, 23 FERC ] 61,325, at 61,716 (1983) (``We do not view our
responsibilities under the Federal Power Act as including a
determination that the purchaser has purchased wisely or has made
the best deal available.''); Southern Company Service, 26 FERC ]
61,360, at 61,795 (1984); Pacific Power & Light Co., 27 FERC ]
61,080, at 61,148 (1984); Minnesota Power & Light Co., 43 FERC ]
61,104, at 61,342-43, reh'g denied, 43 FERC ] 61,502, order denying
reconsideration, 44 FERC ] 61,302 (1988); Palisades Generating Co.,
48 FERC ] 61,144, at 61,574 and n.10 (1989).
---------------------------------------------------------------------------

    416. In most circumstances ``a state commission may legitimately
inquire into whether the retailer prudently chose to pay the FERC-
approved wholesale rate of one source, as opposed to the lower rate of
another source.'' \597\ It is in the narrow situation where the
Commission, in setting a wholesale rate, leaves the purchaser no legal
choice but to purchase a specified amount of power that such
determinations would be precluded.\598\ Thus, we reject Consumer
Advocates' arguments that these cases are relevant to the issue at
hand.
---------------------------------------------------------------------------

    \597\ Pike County Light & Power Co. v. Pennsylvania Public
Utility Comm'n, 465 A.2d 735, 738 (1983) (Pike County) (finding that
while the state cannot review the reasonableness of the wholesale
rate set by the Commission, it may determine whether it is in the
public interest for the wholesale purchaser whose retail rates it
regulates to pay a particular price in light of its alternatives).
The Supreme Court's decisions in Nantahala, 476 U.S. 953 and
Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U.S.
354 (1988) do not preclude, in every circumstance, state regulators
from reviewing the prudence of a utility's purchasing decisions.
See, e.g., Kentucky West Virginia Gas Co. v. Pennsylvania Public
Utility Comm'n, 837 F.2d 600, 609 (3d Cir.) cert. denied, 488 U.S.
941 (1988) (Kentucky West Virginia); Doswell Limited Partnership, 50
FERC ] 61,251, at 61,758 n.18 (1990).
    \598\ Nantahala, 476 U.S. 953; Mississippi Power & Light Co. v.
Mississippi ex rel. Moore, 487 U.S. 354 (1988) (Mississippi Power).
---------------------------------------------------------------------------

    417. We also reject Consumer Advocates' and NASUCA's arguments that
the Final Rule failed to provide an objective standard under which the
Commission can determine whether rate increases fall within a ``zone of
reasonableness.'' \599\ As part of their argument on rehearing, they
again contend that markets alone cannot be relied on to set just and
reasonable rates. As we explained in the Final Rule and reiterated
above, the courts have sustained the Commission's finding that

market-based rates are one method of setting just and reasonable rates
under the FPA.\600\ Before granting a seller market-based rate
authority, the Commission requires the seller to demonstrate that it
and its affiliates lack or have adequately mitigated market power in
relevant markets. The Commission undertakes a complete analysis of the
seller's horizontal and vertical market power in the relevant markets
and permits negotiated rates only if the seller demonstrates that it
lacks or has mitigated market power. While this is not the same
``objective standard'' as cost-of-service ratemaking, which calculates
the seller's costs and determines a specific rate of return, it
nevertheless provides an objective standard for analyzing a seller's
ability to exercise market power and thus determine whether rates will
fall within a zone which is not excessive to customers and which allows
the seller a reasonable opportunity to recover costs and earn a
reasonable rate of return. In addition, the Commission does not rely on
the market without adequate oversight. It has adopted filing
requirements (EQRs and change in status filings for all market-based
rate sellers and regularly scheduled updated market power analyses for
all Category 2 market-based rate sellers), market manipulation rules,
and enhanced market oversight through its enforcement division to help
oversee potential market manipulation.\601\ This approach, combined
with the opportunity for interested parties to file complaints pursuant
to FPA section 206, allows us to ensure that market-based rates remain
just and reasonable. On this basis, we conclude that the rates charged
pursuant to the Commission's market-based rate program fall within the
``zone of reasonableness.'' \602\
---------------------------------------------------------------------------

    \599\ Consumer Advocates cite several court cases in support of
their argument in this regard. We address these cases in detail
below.
    \600\ Lockyer, 383 F.3d at 1013; Snohomish, 471 F.3d at 1080;
see also LEPA, 131 F.3d at 370.
    \601\ Order No. 697 at P 952, 967.
    \602\ See Public Service Company of Indiana, Opinion No. 349, 51
FERC ] 61,367 at 62,226 (determining that market-based rate pricing
resulted in rates that were within the zone of reasonableness and
concluding that such pricing resulted in just and reasonable rates),
order on reh'g, Opinion No. 349-A, 52 FERC ] 61,260, clarified, 53
FERC ] 61,131 (1990), dismissed, Northern Indiana Public Service
Company v. FERC, 954 F.2d 736 (D.C. Cir. 1992).
---------------------------------------------------------------------------

    418. Further, as explained in the Final Rule, we believe that the
market-based rate program fully complies with judicial precedent.\603\
In Lockyer, the Ninth Circuit cited with approval the Commission's dual
requirement of an ex ante finding of the absence of market power and
sufficient post-approval reporting requirements and found that the
Commission did not rely on market forces alone in approving market-
based rate tariffs.\604\ In Snohomish, the Ninth Circuit again
determined that the initial grant of market-based rate authority,
together with ongoing oversight and timely reconsideration of market-
based rate authorization under section 206 of the FPA, enables the
Commission to meet its statutory duty to ensure that all rates are just
and reasonable.\605\
---------------------------------------------------------------------------

    \603\ Id. P 943-955.
    \604\ Lockyer, 383 F.3d at 1013.
    \605\ Snohomish, 471 F.3d at 1080.
---------------------------------------------------------------------------

    419. We disagree with Consumer Advocates' argument that the ``Final
Rule also fails to explain how FERC, which is not an antitrust agency,
acting under the FPA, which is not an antitrust statute but a rate
filing regulatory statute, can rely entirely on FERC's oft-changing
antitrust analyses regarding `market power' to determine whether
`market-based rates' are within a zone of reasonableness.'' \606\ As
explained in the section of the Final Rule addressing the Commission's
horizontal market power analyses,\607\ when the Commission determines
whether an applicant may sell wholesale electric power at market-based
rates, it evaluates whether a seller lacks, or has adequately
mitigated, market power in a particular market. When the Commission
determines that a seller lacks both horizontal and vertical market
power, it is making a determination that the resulting rates will be
established through competitive forces, not the exercise of market
power. Thus, rates resulting from competitive forces will not be
excessive to customers and will allow the seller the opportunity to
earn a fair return. As we explained in the Final Rule and reiterate
above, the courts have sustained the Commission's finding that market-
based rates are one method of setting just and reasonable rates under
the FPA. Further, market monitoring by both the RTO/ISO market monitors
and by the Commission help ensure that rates remain within a zone of
reasonableness. Thus, we reject Consumer Advocates' argument that the
Commission has failed to explain how it ``determine[s] whether `market-
based rates' are within a zone of reasonableness.''
---------------------------------------------------------------------------

    \606\ Consumer Advocates Rehearing Request at 13.
    \607\ See, e.g., Order No. 697 at P 62-79.
---------------------------------------------------------------------------

    420. We also reject Consumer Advocates' contention that the Final
Rule erroneously relied on NGA cases and Interstate Commerce Act oil
pipeline cases. The most recent court cases affirming the Commission's
market-based rate authority under the FPA cite to the very same NGA and
Interstate Commerce Act oil pipeline cases that the Commission
discusses in the Final Rule.\608\ It is settled law that market-based
rates can satisfy the just and reasonable standard of the FPA, as most
recently affirmed by the Ninth Circuit in Lockyer and Snohomish.\609\
The court in Lockyer expressly denied a ``facial challenge to market-
based [rate] tariffs.'' \610\ Further, the Lockyer court's analysis of
the Commission's market-based rate authority acknowledged that the use
of market-based tariffs was first approved by the courts as to sellers
of natural gas in Elizabethtown Gas, then as to wholesale sellers of
electric energy in LEPA.\611\ The Lockyer court also cited the Supreme
Court's determination in Mobil Oil Exploration that ``the just and
reasonable standard does not compel the Commission to use any single
pricing formula * * *.'' \612\ Additionally, Elizabethtown Gas, a
decision wherein the D.C. Circuit determined that markets were
sufficiently competitive to preclude a pipeline from exercising market
power to assure that prices were just and reasonable within the meaning
of NGA section 4, was relied on by the D.C. Circuit in LEPA, a case in
which the court affirmed the Commission's approval of an application by
CLECO to sell electric energy at market-based rates under the FPA.\613\
Accordingly, we find that the Commission did not err in citing NGA and
Interstate Commerce Act oil pipeline cases in the Final Rule.
---------------------------------------------------------------------------

    \608\ Order No. 697 at P 953; see Lockyer, 383 F.3d at 1011-
1014.
    \609\ Lockyer, 383 F.3d at 1013; Snohomish, 471 F.3d at 1080.
    \610\ Lockyer, 383 F.3d at 1013.
    \611\ Id. at 1012 (citing Elizabethtown Gas, 10 F.3d at 870;
LEPA, 141 F.3d at 365).
    \612\ Id. (citing Mobil Oil Exploration, 498 U.S. at 224).
    \613\ LEPA, 141 F.3d at 365 (citing Elizabethown Gas, 10 F.3d at
870).
---------------------------------------------------------------------------

    421. We also reject Consumer Advocates' argument that the Final
Rule incorrectly cites cases supporting the proposition that ``[c]ases
under the NGA and FPA are typically read in pari materia'' because this
language refers to the filing and rate review provisions of the two
statutes, not the different cost elements of the electric and natural
gas industries.\614\ Sierra and Arkansas-Louisiana Gas Co. v.
Hall,\615\ are correctly cited by the Final Rule for the proposition
that cases under the NGA and FPA are typically read in pari materia.
The Final Rule noted this proposition in its discussion of Texaco, a
case in which the Supreme Court held that the NGA permits the indirect
regulation of small-producer rates; however, in citing this
proposition, the

Final Rule did not claim that the cost elements of the electric and
natural gas industries are the same. Further, the Final Rule clearly
explained that Texaco may be distinguished from the market-based rate
regime set forth in the Final Rule, stating ``[i]n the market-based
rate program adopted in this rule and through other Commission actions,
unlike the situation in Texaco, the Commission is not relying solely on
the market, without adequate regulatory oversight, to set rates.''
\616\ Accordingly, Consumer Advocates' argument that the citation in
the Final Rule to Sierra and Arkansas-Louisiana Gas Co. v. Hall is
incorrect disregards the context in which these cases were cited.
---------------------------------------------------------------------------

    \614\ Consumer Advocates Rehearing Request at 19 (citing Order
No. 697 at P 946, n.1070).
    \615\ 453 U.S. 571, 578 n.7 (1981).
    \616\ Order No. 697 at P 952.
---------------------------------------------------------------------------

    422. We find Consumer Advocates' argument that the market-based
rate regime gives plant owners an incentive to keep power supplies
tight to raise their profits to be without merit. The two indicative
horizontal market power screens, each of which serves as a cross-check
on the other to determine whether sellers possess market power, take
into account the availability of generating capacity. In particular,
the first screen, the wholesale market share screen, measures for each
of the four seasons whether a seller has a dominant position in the
market based on the number of megawatts of uncommitted (available
generation) capacity owned or controlled by the seller as compared to
the uncommitted capacity of the entire relevant market.\617\ The second
screen is the pivotal supplier screen, which evaluates the potential of
a seller to exercise market power based on uncommitted capacity at the
time of the balancing authority area's annual peak demand. This screen
focuses on the seller's ability to exercise market power unilaterally
and examines whether the market demand can be met absent the seller
during peak times.\618\
---------------------------------------------------------------------------

    \617\ Id. P 34 (citing April 14 Order, 107 FERC ] 61,018 at P
100).
    \618\ Id. P 35.
---------------------------------------------------------------------------

    423. If there is not sufficient competing uncommitted capacity, a
seller fails the pivotal supplier analysis, which creates a rebuttable
presumption of market power.\619\ Thus, through the use of the
indicative horizontal market power screens, the Commission ensures that
market-based rate sellers are not able to exercise market power and
thereby should ensure that there is no incentive for plant owners to
keep power supplies tight.\620\
---------------------------------------------------------------------------

    \619\ Id. P 65.
    \620\ Consumer Advocates cite the Commission's decision in
Richard Blumenthal v. ISO New England, Inc., 117 FERC ] 61,038
(2006), reh'g denied, 118 FERC ] 61,205 (2007) (Blumenthal) to
support their statement that ``in the Connecticut complaint against
the ISO New England, the Complaint showed that excessive rates of
return were being made, but the Commission found this `not
relevant.' '' Consumer Advocates Rehearing Request at 19. Consumer
Advocates' argument in this regard is not clear because they do not
explain how the fact-specific determinations made by the Commission
in addressing the section 206 complaint at issue in Blumenthal
relate to the Commission's policy of granting market-based rate
authority to sellers without market power under the terms and
conditions set forth in the Final Rule. In Blumenthal, the
Commission denied a complaint filed against the ISO New England upon
concluding that the complainants had not met their burden under
section 206 to establish that the current provisions of the ISO New
England's Market Rule 1 were unjust and unreasonable.
---------------------------------------------------------------------------

    424. Additionally, as a condition of obtaining and retaining
market-based rate authority, a seller must timely report to the
Commission any change in status that would reflect a departure from the
characteristics the Commission relied upon in granting market-based
rate authority. Thus, if a market-based rate seller acquires ownership
or control of generation capacity that results in a net increase of 100
MW or more, or of inputs to electric power production, or ownership,
operation or control of transmission facilities, or affiliation with
any entity not disclosed in the application for market-based rate
authority that owns or controls generation or transmission facilities
or inputs to electric power production, the seller must report the
change to the Commission so that the Commission may re-evaluate whether
the seller is able to exercise market power.\621\
---------------------------------------------------------------------------

    \621\ 18 CFR 35.42.
---------------------------------------------------------------------------

    425. We reject Industrial Customers' argument that the Final Rule
does not reflect reasoned decision-making because the Commission did
not find the existence of a competitive market before relying on
market-based rate authority. Under the FPA, the Commission is not bound
to a particular ratemaking methodology in setting rates as long as
rates fall within a zone of reasonableness,\622\ i.e., the rates are
neither less than compensatory to the seller nor excessive to the
consumer.\623\ In addition, the ``zone of reasonableness'' may take
into account all relevant public interests, both existing and
foreseeable.\624\ These public interests may appropriately include non-
cost factors, such as the need to stimulate additional investment.\625\
In permitting market-based rates in its regulation of electric markets,
there are two approaches the Commission has used to ensure that rates
are just and reasonable: Either a finding that an individual seller and
its affiliates lack or have mitigated market power in a particular
market; or a finding that a particular market is competitive or yields
competitive results. Since the mid-1980's, the Commission's approach in
the electric area has been primarily to rely on an analysis of
individual seller market power, as was recently affirmed in the Final
Rule. In addition, with regard to rates for sales within RTO/ISOs, even
if sellers have been found to lack market power on an individual seller
basis, the Commission has relied on a blend of market and cost-based
elements, e.g., some form of cost cap or mitigated bids, to ensure just
and reasonable rates.\626\
---------------------------------------------------------------------------

    \622\ FPC v. Hope Natural Gas, 320 U.S. 591, 602 (1944)
(``[u]nder the statutory standard of `just and reasonable' it is the
result reached not the method employed which is controlling'');
Permian, 390 U.S at 776-777 (``rate-making agencies are not bound to
the service of any single regulatory formula; they are permitted,
unless their statutory authority otherwise plainly indicates, `to
make the pragmatic adjustments which may be called for by particular
circumstances,' '' citing FPC v. Natural Gas Pipeline Co., 315 U.S.
575, 586 (1942)).
    \623\ Bluefield, 262 U.S. at 692-93 (1923).
    \624\ Farmers Union, 734 F.2d at 1501 (citing Permian, 390 U.S.
at 790 (``Congress delegated ratemaking authority to FERC in broad
terms. Accordingly, `the breadth and complexity of the Commission's
responsibilities demand that it be given every reasonable
opportunity to formulate methods of regulation appropriate for the
solution of its intensely practical difficulties' '')).
    \625\ While the court in Farmers Union found that the Commission
had failed to demonstrate that its ruling in the underlying orders
would, in fact, stimulate new investment, the court acknowledged
that such ``non-cost factors may legitimate a departure from a rigid
cost-based approach.'' Farmers Union, 734 F.2d at 1502 (citing FERC
v. Pennzoil Producing Co., 439 U.S. at 518; Mobil Oil Corp. v. FPC,
417 U.S. at 308).
    \626\ See Order No. 697 at P 952. At the time the Commission
approved the tariffs for ISO New England, the New York Independent
System Operator, and PJM, it applied mitigation procedures in
markets administered by those organizations, and incorporated those
procedures in the RTO/ISO tariffs so as to apply to all sellers in
the RTO/ISO administered markets. See New England Power Pool, 85
FERC ] 61,379 (1998); Central Hudson Electric & Gas Corp., 86 FERC ]
61,062 (1999); Atlantic City Electric Co., 86 FERC ] 61,248 (1999).
See also AEP Power Marketing, Inc., 109 FERC ] 61,276 (2004), reh'g
denied, 112 FERC ] 61,320, at P 23 (2005) (after finding that AEP
passed the generation market power screening test in PJM, the
Commission also noted that ``RTOs such as PJM with Commission-
approved market monitoring and mitigation provide a check on the
exercise of generation market power''), aff'd sub nom. Industrial
Energy Users-Ohio v. FERC, No. 05-1435, 2007 U.S. App. LEXIS 3661,
at *2 (D.C. Cir. Feb. 16, 2007) (noting that ``the Commission
adequately considered and responded to petitioner's arguments'')
(unpublished).
---------------------------------------------------------------------------

    426. The Commission has previously considered a similar argument
(that the Commission must find that a market is competitive before it
can permit market-based rates) with regard to the Midwest ISO (MISO),
and rejected it. We stated:

    The Commission rejects MISO Industrial Customers' argument that,
as a prerequisite to reliance upon market-based rate pricing to
produce just and reasonable rates, the

Commission must, in addition to finding that applicants lack or have
adequately mitigated market power, make a separate and independent
finding that a competitive market exists. * * * We * * * incorporate
by reference the Commission's discussion in its final rule on
market-based rates (Order No. 697 [at P 943-71]) of the legality of
its approach to market-based rates. The Commission's long-
established approach involves assessing whether a seller lacks
market power, which includes an assessment of seller-specific market
power. This approach, combined with the Commission's filing
requirements and ongoing monitoring, allows the Commission to ensure
that market-based rates remain just and reasonable. Additionally,
for sellers in RTO/ISO organized markets, the Commission has in
place market monitoring and mitigation rules to mitigate the
exercise of market power, including price caps where appropriate,
and the Commission also uses RTO/ISO market monitors to help oversee
market behavior and market conditions. * * *\627\

    \627\ Midwest Independent Transmission System Operator, Inc.,
120 FERC ] 61,202 at P 9, 12 (2007).
---------------------------------------------------------------------------

    427. As we explained in the Final Rule, we retained our approach to
determining whether a seller should receive authorization to charge
market-based rates, as modified by the Final Rule, by analyzing seller-
specific market power. We have a long-established approach when a
seller applies for market-based rate authority of focusing on whether
the seller lacks market power.\628\
---------------------------------------------------------------------------

    \628\ Order No. 697 at P 955 (citing Heartland Energy Services,
Inc., 68 FERC ] 61,223, at 62,060-61 (1994); Louisville Gas and
Electric Co., 62 FERC ] 61,016, at 61,143 n.16 (1993) (and the cases
cited therein); Citizens Power & Light Corp., 48 FERC ] 61,210, at
61,776 & n.11 (1989); Pacific Gas and Electric Co. (Turlock), 42
FERC ] 61,406, at 62,194-98, order on reh'g, 43 FERC ] 61,403
(1988); Pacific Gas and Electric Co. (Modesto), 44 FERC ] 61,010, at
61,048-49, order on reh'g, 45 FERC ] 61,061 (1988). See also, e.g.,
LEPA, 141 F.3d at 365; Consumers Energy Co., 367 F.3d 915, 922-23
(D.C. Cir. 2004) (upholding Commission orders granting market-based
rate authority, noting that the Commission's longstanding approach
is to assess whether applicants for market-based rate authority do
not have, or have adequately mitigated, market power); Lockyer, 383
F.3d at 1012-1013.
---------------------------------------------------------------------------

    428. We reject Industrial Customers' argument that the Final Rule
is inconsistent with Farmers Union because that case requires the
Commission to point to ``empirical proof'' that competitive markets
exist.\629\ The regulatory scheme at issue in Farmers Union is
distinguishable from the Commission's market-based rate program. In
Farmers Union, a case concerning rates for oil pipelines, the court
found that the Commission ``sought to establish maximum rate ceilings
at a level far above the `zone of reasonableness' required by the
statute.'' \630\ The court found that the Commission departed from
established ratemaking principles when the Commission determined that
oil pipeline rate regulation should ``protect against only `egregious
price exploitation and gross abuse' '' by the regulated pipelines,\631\
since ``the cost of pipeline transportation, relative to the price of
oil, had become so insignificant that close regulation was not
required.'' \632\ The court found error in the Commission's approach,
finding that there was ``only anecdotal evidence of intermodal
competition on certain pipeline routes[,]'' \633\ and noted that the
Commission's ``evaluation of competition in the oil pipeline industry
is not entirely clear.'' \634\ The court concluded that ``the
fundamental flaw in the Commission's scheme'' was that ``nothing in the
regulatory scheme itself acts as a monitor to see if [actual prices are
driven back down into the zone of reasonableness] or to check rates if
[prices are not driven down].\635\ In this regard, the court also
explained that:
---------------------------------------------------------------------------

    \629\ Industrial Customers Rehearing Request at 7.
    \630\ Farmers Union, 734 F.2d at 1501.
    \631\ Id. at 1502 (citation omitted; emphasis supplied by
court).
    \632\ Id. at 1507.
    \633\ Id. at 1509.
    \634\ Id. n.50.
    \635\ Id. at 1509 (citation omitted).

    In setting extraordinarily high price ceilings as a substitute
for close regulation, FERC assumed that, with the wide exposed zone
between the ceiling and the `true' market rate, existing competition
would ensure that the actual price is just and reasonable. Without
empirical proof that it would, this regulatory scheme, however, runs
counter to the basic assumption of statutory regulation, that
`Congress rejected the identity between the `true' and the `actual'
---------------------------------------------------------------------------
market price.' \636\

    \636\ Id. at 1510.
---------------------------------------------------------------------------

Thus, the court found that the fundamental flaw in the Commission's
regulatory scheme in Farmers Union was that there was no monitoring.
    429. The Farmers Union court found that the Commission's ``largely
undocumented reliance on market forces as the principal means of rate
regulation'' was misplaced.\637\ In this regard, it noted that ``when
Congress amended the Interstate Commerce Act to account for competition
in the rail carrier industry, the amendment required the ICC to make a
specific finding that a particular rail carrier did not have `market
dominance' before deregulating the carrier. * * * We do not believe
that the unamended oil pipeline rate provisions of the Interstate
Commerce Act, which do not make any provision for deregulation, would
require any less of a particularized showing before competition might
be properly taken into account.'' \638\ The court nonetheless concluded
that `` `non-cost' factors may play a legitimate role in the setting of
just and reasonable rates.'' \639\ It also found that ``[m]oving from
heavy to lighthanded regulation within the boundaries set by an
unchanged statute can, of course, be justified by a showing that under
current circumstances the goals and purposes of the statute will be
accomplished through substantially less regulatory oversight.'' \640\
---------------------------------------------------------------------------

    \637\ Id. at 1508 (footnote omitted).
    \638\ Id. at n. 50.
    \639\ Id. at 1503.
    \640\ Id. at 1510.
---------------------------------------------------------------------------

    430. The defects that the court found to be present in the
regulatory scheme under review in Farmers Union are not present in the
Commission's market-based rate program. As an initial matter, in the
case under review in Farmers Union, the Commission had not undertaken
any analysis of the sellers participating in the oil pipeline industry
as part of its decision to adopt a generic ratemaking methodology to be
applied to all oil pipelines. Unlike Farmers Union, before granting a
seller market-based rate authority, the Commission performs an initial
evaluation to determine whether the seller or any of its affiliates has
horizontal or vertical market power and, if so, whether such market
power has been mitigated. The Commission only permits a seller to use
market-based rate pricing if the Commission finds that the seller
lacks, or has adequately mitigated, market power in the relevant
market.
    431. Similarly, unlike Farmers Union, where the court identified as
a ``fundamental flaw'' the absence of any monitoring to ensure that
rates remain within a zone of reasonableness, the market-based rate
program does not rely solely on the market, without adequate regulatory
oversight, to determine rates. Rather, the market-based rate program
includes post-approval oversight through reporting requirements and
ongoing monitoring. In addition, market monitoring by the Commission
helps ensure that rates remain within a zone of reasonableness.\641\
Thus, the Commission's market-based rate program does not contain the
defects that the court found to be present in Farmers Union,\642\ and
is not arbitrary

and capricious because, contrary to Industrial Customers' assertions,
under the market-based rate program the Commission performs an initial
evaluation of all sellers before granting market-based rate authority,
and because the market-based rate program includes adequate oversight
and monitoring.
---------------------------------------------------------------------------

    \641\ On this basis, we find State AGs and Advocates' reliance
on Farmers Union to support their argument that the Final Rule
failed to provide a standard under which the Commission can
determine whether rate increases fall within a ``zone of
reasonableness'' to be misplaced.
    \642\ See Midwest Independent Transmission System Operator,
Inc., 120 FERC ] 61,202, at P 9, 12 (2007); PJM Interconnection,
L.L.C., 121 FERC ] 61,173, at P 22 (2007).
---------------------------------------------------------------------------

    432. Industrial Customers contend that the Final Rule is
inconsistent with the Commission's decision in Southwest Power Pool,
Inc. (SPP) where the Commission made a finding that the market was
competitive before approving market-based rates for an energy imbalance
service.\643\ In SPP, the Commission found that the SPP imbalance
market is competitive in the absence of transmission constraints, and
that SPP's mitigation measures and monitoring plan are sufficient to
protect customers from the exercise of market power that might occur in
the energy imbalance market when transmission constraints bind.\644\ We
reject Industrial Customers' contention that the Commission may only
grant market-based rate authorization if it first analyzes whether a
competitive market exists. As explained above, the Commission has
discretion \645\ to rely on an analysis of individual seller market
power, as was affirmed in the Final Rule, and the courts have upheld
this approach.\646\ Our use of this approach for SPP does not require
its use elsewhere. At the same time, the Commission will allow RTO/ISOs
to conduct market power studies that the RTO/ISO members can rely on in
their market power filings, which will help ensure the accuracy and
consistency of data.
---------------------------------------------------------------------------

    \643\ 116 FERC ] 61,289, at P 30 (2006), appeal pending sub
nom., Southwest Indus. Customer Coalition v. FERC, No. 06-1390, et
al. (D.C. Cir. Nov. 27, 2006).
    \644\ Id.
    \645\ See e.g., Exxon Co., USA v. FERC, 182 F.3d 30, 37-38 (D.C.
Cir. 1999) (stating that where ``the analysis to be preformed
`requires a high level of technical expertise, we must defer to the
informed discretion of the responsible federal agencies.' '')
(internal citation omitted); Oxy USA, Inc. v. FERC, 64 F.3d 679,
690-91 (D.C. Cir. 1995).
    \646\ Lockyer, 383 F.3d at 1013; Snohomish, 471 F.3d at 1080;
LEPA, 141 F.3d at 370.
---------------------------------------------------------------------------

    433. With regard to Industrial Customers' contention that there are
market power issues prevalent in the PJM, Midwest ISO, Southwest Power
Pool, and ISO New England markets, we find that such issues are beyond
the scope of this proceeding. The instant rulemaking proceeding
codifies and revises the Commission's standards for market-based rates
and streamlines the administration of the market-based rate program;
however, this rulemaking is not intended to evaluate market power
issues with regard to particular markets throughout the United States.
2. Consistency of Market-Based Rate Program With FPA Filing
Requirements
a. Whether the Multiple Layers of Filing and Reporting Requirements
Incorporated into the Market-Based Rate Program Provide Adequate
Protection from Excessive Rates
Final Rule
    434. In rejecting Consumer Advocates' arguments that the
Commission's market-based rate program fails to comply with the
FPA,\647\ the Commission pointed out in the Final Rule that the FPA
requires that every public utility file with the Commission ``
schedules showing all rates and charges for any transmission or sale
subject to the jurisdiction of the Commission,'' but it explicitly
leaves the timing and form of those filings to the Commission's
discretion.\648\ The Commission noted that the courts have recognized
the Commission's discretion in establishing its procedures to carry out
its statutory functions.\649\ The Commission explained that the market-
based rate tariff, with its appurtenant conditions and requirement for
filing transaction-specific data in EQRs, is the filed rate.\650\
---------------------------------------------------------------------------

    \647\ Order No. 697 at P 959.
    \648\ Id. (quoting 16 U.S.C. 824d(c)).
    \649\ Id. P 960 (citing Lockyer, 383 F.3d at 1013; Wabash Valley
Power Association v. FERC, 268 F.3d 1105, 1115 (D.C. Cir. 2001),
Environmental Action v. FERC, 996 F.2d 401, 407-08 (D.C. Cir.
1993)).
    \650\ Id. P 961. The Commission further noted that it has held
that if every service agreement under a previously-granted market-
based rate authorization had to be filed prior to approval, then the
original market-based rate authorization would be a pointless
exercise. Id. (citing GWF Energy LLC, 98 FERC ] 61,330, at 62,390
(2002)).
---------------------------------------------------------------------------

    435. The Commission also disagreed with Consumer Advocates'
arguments that the Commission failed to show how competitive market-
based rates are just and reasonable and not unduly discriminatory or
preferential, stating ``the standard for judging undue discrimination
or preference remains what it has always been: Disparate rates or
service for similarly situated customers.'' \651\ The Commission
explained that rates do not have to be set by reference to an
accounting cost of service to be just, reasonable and not unduly
discriminatory, stating that when the Commission determines that a
seller lacks market power, it is making a determination that the
resulting rates will be established through competition, not the
exercise of market power. The Commission also explained that courts
have upheld the Commission's determinations that rates that are
established in a competitive market can be just, reasonable and not
unduly discriminatory.\652\
---------------------------------------------------------------------------

    \651\ Id. P 963 (citing Southwestern Electric Cooperative, Inc.
v. FERC, 347 F.3d 975, 981 (D.C. Cir. 2003)).
    \652\ Id. (citing Lockyer, 383 F.3d at 1012-13; Tejas Power
Corp. v. FERC, 980 F.2d 998, 1004 (D.C. Cir. 1990)).
---------------------------------------------------------------------------

    436. In the Final Rule, the Commission disagreed with Consumer
Advocates' argument that the market-based rate program eliminates the
statutory mandate that all rate increases be noticed by filing 60 days
in advance and, if warranted, suspended for up to five months, set for
hearing with the burden of proof on the seller, and made subject to
refund pending the outcome of the hearing.\653\ The Commission
explained that it has developed a thorough process to evaluate the
sellers that it authorizes to enter into transactions at market-based
rates.\654\ Under the market-based rate program, the rate change is
initiated when a seller applies for authorization of market-based rate
pricing. All applications are publicly noticed, entitling parties to
challenge a seller's claims. At that time, there is an opportunity for
a hearing, with the burden of proof on the seller to show that it
lacks, or has adequately mitigated, market power, and for the
imposition of a refund obligation.\655\ Additionally, if a seller is
granted market-based rate authority, it must comply with post-approval
reporting requirements, including the quarterly filing of transaction-
specific data in EQRs, change in status filings for all sellers, and
regularly-scheduled updated market power analyses for Category 2
sellers.\656\ In the Final Rule the Commission explained that it may,
based on its review of EQR filings or daily market price information,
investigate a specific utility or anomalous market circumstances to
determine whether there has been any conduct in violation of RTO/ISO
market rules or Commission orders or tariffs, or any prohibited market
manipulation, and take steps to remedy any violations. These steps
could include, among other things, disgorgement of profits and refunds
to customers if a seller is found to have violated Commission orders,
tariffs or rules, or a civil penalty.\657\
---------------------------------------------------------------------------

    \653\ Id. P 962.
    \654\ Id.
    \655\ Id.
    \656\ Id.
    \657\ Id. P 964.
---------------------------------------------------------------------------

Requests for Rehearing
    437. Consumer Advocates contend in their request for rehearing that
the Final

Rule failed to provide a standard for determining prohibited undue
preference or discrimination under the Commission's market-based rate
regime.\658\ In particular, Consumer Advocates argue that the
traditional FPA section 205(b) standard has no apparent application to
market-based rates because such rates, by definition, are allowed to be
any rate for any service on which the seller and buyer agree,
regardless of the relation of such prices or services to any other
market-based rate or service.\659\ Consumer Advocates assert that the
Final Rule relies on buyers to negotiate non-excessive rates, and if
the buyer is an affiliate or a competitor, the rationale supporting the
idea that disinterested sellers and buyers will negotiate non-
discriminatory rates, disappears altogether.\660\ They also argue that
the Final Rule does not provide a reason for why long-term affiliate
sales service agreements should not be filed.\661\ Consumer Advocates
further argue that the Final Rule erred in assuming that the
Commission's statutory role is to protect electricity markets,
regardless of the impact on consumers.\662\ They argue that the FPA was
enacted to protect consumers from the market,\663\ and that mere market
incentives alone cannot be relied upon to protect the public interest.
---------------------------------------------------------------------------

    \658\ Consumer Advocates Rehearing Request at 14 (citing 16
U.S.C. 824d(b)).
    \659\ Id.
    \660\ Id. at 15.
    \661\ Id.
    \662\ Id. at 21-22.
    \663\ Id. at 22 (citing Atlantic Ref. Co. v. Pub. Serv. Comm'n
of State of N.Y., 360 U.S. 378, 388 (1959); United Gas Pipe Line Co.
v. Mobile Gas Service Corp., 352 U.S. 332 (1956) (United Gas Pipe
Line); Sierra; Electrical District No. 1 v. FERC, 774 F.2d 490 (D.C.
Cir. 1985) (Electrical District).
---------------------------------------------------------------------------

    438. Consumer Advocates contend that the Final Rule erred in
finding that the Commission has legal authority to eliminate the
Congressionally-mandated consumer protections of FPA section
205(e).\664\ Specifically, they argue that the Final Rule continues to
effectively define rate increases out of existence by claiming that
none occur, and in so doing, eliminates the FPA-mandated prior rate
filings and review of rate increases required by section 205(d).\665\
Consumer Advocates argue that this definitional ploy eliminates both
the Commission's and the consumers' ability to exercise their statutory
rights under section 205(e) applying to rate increases, including the
opportunity for suspension of excessive rates, hearings with the burden
of proof on sellers to justify rate increases and with immediately
effective refund with interest obligations for consumers who are found
to have paid excessive rates.\666\ Consumer Advocates contend that
neither the Commission nor any court has the legal authority to gut
these statutory protections for consumers against excessive rates, and
the Final Rule erred in claiming such authority for either court or
agency.\667\
---------------------------------------------------------------------------

    \664\ Id.
    \665\ Id.
    \666\ Id.
    \667\ Id.
---------------------------------------------------------------------------

    439. Consumer Advocates argue that because rate increase filings
are controlled by a different FPA provision, the Final Rule erred in
relying on the Commission's discretion as to the form and timing of
filings of initial rates as legal justification for eliminating prior
filings of rate increases under market-based rate tariffs. They assert
that the Final Rule relied on the Commission's discretion under section
205(c) as to the form and timing of rate schedule filings to legally
justify eliminating the FPA-mandated filing of specific rates and rate
increases, yet insisted that the filing of market-based rate tariff
authorizations is a ``change'' in rate, and the filing of subsequent
actual charges are merely filings in satisfaction of Commission-created
`` `reporting requirements.' '' \668\ Consumer Advocates also contend
that one serious flaw in this argument is that section 205(d), not
section 205(c), controls ``'changes''' in rates, and section 205(d)
does not offer the same discretion as to the form and timing of rate
increase filings.\669\
---------------------------------------------------------------------------

    \668\ Id. at 23 (citing Order No. 697 at P 960; 962-63).
    \669\ Id.
---------------------------------------------------------------------------

    440. Consumer Advocates contend that the market-based rate tariff
authorization application would be, as a change in rate, subject to
section 205(d), not section 205(c). They argue that the relied-upon
discretion provided does not apply to any market-based rate, because
under the legal logic of the Final Rule there never are any initial
market-based rates filed.\670\ According to Consumer Advocates, the
Lockyer decision also relied erroneously on the Commission's discretion
under section 205(c) as authority to approve the Commission's
elimination of section 205(d) prior filings of rate changes.\671\
Consumer Advocates conclude that the Final Rule erred insofar as: (1)
It failed to explain how the Commission's market-based rate
authorization orders satisfy these plain requirements of section
205(d), which must apply to market-based rate tariff authorizations, as
``changes'' in rates; (2) market-based rate authorizations fail to
specify either a change in the amounts to be charged or the time when
such new charges will go into effect; and (3) all subsequent actual
increases in charges under the market-based rate tariff, according to
the Final Rule's logic, are not changes in the rate, but merely
reports, or EQRs, no matter how dramatically actual prices
increase.\672\
---------------------------------------------------------------------------

    \670\ Id. at 23-24.
    \671\ Id. at 24 (citing Lockyer, 383 F.3d at 1013; Order No. 697
at P 960). Consumer Advocates state that section 205(d) requires
that all rate increases and other changes in rates or charges must
be filed 60 days in advance of being charged, unless the Commission
for good cause issues an order ``specifying the changes'' to be made
to the rates and charges, and specifying ``the time when the change
or changes will go into effect.'' Id.
    \672\ Id. at 24-25.
---------------------------------------------------------------------------

    441. Consumer Advocates contend that the Final Rule claimed that
the Commission can suspend the use of market-based rate tariffs when
they are first filed, but does not try to justify either the consumer-
protection rationale or the legal authority for its attempted
elimination of the Commission's ability to suspend all subsequent
excessive rate increases under market-based ``rates.'' \673\ Consumer
Advocates contend that Lockyer acknowledges that the Commission's
ability to suspend excessive rate increases is lost under the market-
based rate regime, but appears to believe that the Commission can
eliminate such protections if it so chooses.\674\ Consumer Advocates
state that Lockyer does not acknowledge the other consumer protections
that are eliminated by the Commission's definition of ``change'' as
including none of the specific rate charges filed as ``reports.'' They
contend that loss of rate suspensions alone eliminates 8 months of
potential consumer protection from excessive rates: 5 months of the
Commission's lost ability to suspend rate increases and 3 months before
the rates are even seen in reports and can be set for hearing under
section 206.\675\ Consumer Advocates assert that this result is
directly contrary to Congress' intent in the Energy Policy Act of 2005
\676\ to extend the filing provisions of sections 205(c) and (d) to
non-public transmitting utilities, and to reduce the time before
section 206 rates can be made subject to refund.\677\
---------------------------------------------------------------------------

    \673\ Consumer Advocates Rehearing Request at 31.
    \674\ Id. at 30.
    \675\ Id. at 31.
    \676\ Pub. L. No. 109-58, 119 Stat. 594 (2005).
    \677\ Consumer Advocates Rehearing Request at 31 (citing 119
Stat. 594 sections 1285 and 1290(a)(2)).
---------------------------------------------------------------------------

    442. NASUCA argues that the Commission did not articulate an
adequate legal basis to support the Final Rule's reduced market power
review and filing requirements.\678\ While

NASUCA notes that the Final Rule responded to its concerns, citing the
decision of the Ninth Circuit in Lockyer and relying on FPA section
205(c) as authority to adjust the timing of rate filing, \679\ NASUCA
contends that the adjacent statutory language of section FPA 205(d)
limits that power.\680\ NASUCA argues that ``[t]he `crucial difference'
between impermissible exclusive reliance on market rates found in the
Lockyer decision * * * is absent in the revisions made in the Final
Rule.'' \681\ NASUCA also contends that the Ninth Circuit mistakenly
believed that the Commission looks at a seller's market power reviews
in triannual reviews, i.e., conducted once every four months, rather
than triennial reviews, i.e., once every three years.\682\ NASUCA
concludes that the actions being taken to streamline filing
requirements eliminate market power reviews for many sellers, and that
to rely mainly on a post hoc monitoring process does not constitute the
``bond'' of protection required for consumers.\683\
---------------------------------------------------------------------------

    \678\ NASUCA Rehearing Request at 17.
    \679\ Id. (citing Order No. 697 at P 953-954).
    \680\ Id. at n.16.
    \681\ Id. at 17.
    \682\ Id. at 18.
    \683\ Id. (citing Order No. 697 at P 958-59).
---------------------------------------------------------------------------

    443. Consumer Advocates argue that the Final Rule erred in failing
to explain what authority the Commission has to eliminate the statutory
remedy of refunds of excessive charges, with interest, under section
205(e), and replace it with only disgorgement of excess profits or
civil penalties whenever market manipulators are caught.\684\ They
contend that the Final Rule erred in relying on the Lockyer decision's
erroneous finding that, because the market-based rate regime eliminates
section 205(e) refunds for excessive charges paid, the Commission must
create and substitute a new refund remedy to replace them.\685\
Consumer Advocates assert that courts may not rewrite statutes or
direct agencies to do so.\686\ They argue that the Final Rule failed to
explain (1) how Lockyer's curious ``two wrongs make a right'' approach
is within the Ninth Circuit's authority, since only Congress can change
a statute, (2) how Lockyer's new remedy helps consumers, who are
supposed to receive refunds from excessive charges paid, not
administrative penalties for reports that have been omitted; and (3)
how the Lockyer decision's remedy replaces section 205(e)'s other
eliminated consumer protections--prior review, suspension, and hearings
with burden of proof on the seller.\687\
---------------------------------------------------------------------------

    \684\ Id. at 32-33.
    \685\ Id. at 32.
    \686\ Id. (citing MCI; Southwestern Bell).
    \687\ Id. at 33-34.
---------------------------------------------------------------------------

    444. Consumer Advocates also contend that punishing manipulators,
as the Final Rule proposed to do, is fine, but it does not make whole
customers who have paid excessive rates set in part by those who
manipulated the market.\688\ They note that the Colorado Consumers
Counsel section 206 proceeding is a case in which the Commission made
the rates subject to refund under section 206 and subsequently found
that all market-based rate tariffs which didn't have behavior rules
attached were unjust and unreasonable and that the Commission ordered
no refunds, but merely added behavior conditions to the market-based
rate tariffs prospectively.\689\
---------------------------------------------------------------------------

    \688\ Id. at 33.
    \689\ Id. (citing 97 FERC ] 61,220 (2001); 105 FERC ] 61,218
(2003); 107 FERC ] 61,175 (2004)).
---------------------------------------------------------------------------

    445. Consumer Advocates also argue that the Final Rule erred in
assuming that the Ninth Circuit and the D.C. Circuit are authorized to
eliminate or affirm agency elimination of statutory consumer
protections that Congress has enacted into law.\690\ They state that
agencies are bound, not only by the ultimate purposes Congress has
selected, but by the means it has deemed appropriate and prescribed for
the pursuit of those purposes.\691\ They argue that in sections 205(d)
and (e) of the FPA, Congress chose not only the goal of consumer
protection from excessive rate increases, but also the means--advance
rate filing and review, suspension, hearings with burden of proof on
the seller, and immediate refund insurance--by which such protections
would be afforded.\692\ Consumer Advocates contend that the Final Rule
ignored the clear mandates of the statute, and allows rate increases to
be filed three months after they are charged, when the Commission has
lost the power to initiate section 205(e) consumer protections.\693\
---------------------------------------------------------------------------

    \690\ Id. at 34.
    \691\ Id. at 36 (citing MCI, 512 U.S. at 231 n.4).
    \692\ Id.
    \693\ Id. at 35.
---------------------------------------------------------------------------

    446. Consumer Advocates contend that the Final Rule's discussion of
whether the Commission can simply eliminate any review of rate
increases under the statutory protections of FPA section 205(e) appears
to assume that the D.C. Circuit has authorized such elimination of
section 205(e), and that the Court has the power to do so.\694\
Consumer Advocates argue that the Supreme Court found that a wholesale
seller's major duty under the FPA is to file its rates for review by
the Commission and the public to determine whether hearings should be
instigated under section 206, for initial rates, or section 205, for
changes in rates.\695\ They assert that the Final Rule ignored the lead
cases on the FPA filing requirement, except to quote them for the
proposition that the filing and hearing requirements are typically read
in pari materia.\696\ Consumer Advocates agree with that citation,
however they argue that the purpose of the advance rate filings is for
the Commission and the public to review rates before they are
charged.\697\
---------------------------------------------------------------------------

    \694\ Id. at 34 (citing Order No. 697 at P 948).
    \695\ Id. at 34-35 (citing United Gas Pipe Line, 350 U.S. at
341-42; Sierra).
    \696\ Id. at 35 (citing Order No. 697 at P 946, n.1070).
    \697\ Id.
---------------------------------------------------------------------------

    447. Consumer Advocates argue that even if the Commission had
authority to redefine rate increases as being mere rate ``reports,'' or
EQRs, the Final Rule erred by failing to explain why the Commission
would wish to eliminate all section 205(e) consumer protections by
adopting this definition, and how such elimination satisfies the
Commission's consumer protection responsibilities under the FPA.\698\
They contend that the Commission's definition of rate increases as
never occurring under the market-based rate regime, once a market-based
rate tariff authorization is granted, allows the Commission to avoid
prior review of all market-based rate increases and deprives consumers
of all the protections provided by section 205(e).\699\ Consumer
Advocates note that the Final Rule's definitional elimination of rate
``increase'' protections is of particular importance to consumers in
Maryland, Delaware, Illinois, Montana, Connecticut, and Ohio, among
many other states, where retail ratepayers have been charged huge
retail rate increases resulting solely from the pass-through of huge
wholesale rate ``increases.''\700\ They also contend that under the
market-based rate regime as continued in the Final Rule, such wholesale
increases have never been and never will be reviewed by the Commission
under section 205(e) of the FPA.\701\
---------------------------------------------------------------------------

    \698\ Id. at 36-37 (citing 774 F.2d 490, 493).
    \699\ Id. (citing Atlantic Richfield; Electrical District;
Lockyer, 383 F.3d at 1017).
    \700\ Id. at 37.
    \701\ Id.
---------------------------------------------------------------------------

    448. Consumer Advocates also argue that the Final Rule erred by
failing to adequately distinguish the Supreme Court and Circuit court
decisions outlawing attempts by other regulatory agencies to replace
statutorily-mandated specific rates with a range of rates, when

the market-based rate tariffs allow a range of rates so broad as to
include any rate the parties agree to. Consumer Advocates contend that
``FERC's claim that the MBR's unlimited range of rates adequately
substitutes for the `specific' charges required under 205(d)'' is not
sustainable under court precedent applying to the FPA and to other
similar rate filing statutes.\702\ They argue that the market-based
rate, a statement that the rate will be anything the parties agree to,
is even less specific than the ``legal and accounting principles,''
which the D.C. Circuit rejected in Electrical District \703\ and state
that it is instead, ``no more than an invitation to negotiate,'' an
invitation that the same court rejected as a rate in Southwestern
Bell.\704\
---------------------------------------------------------------------------

    \702\ Id. at 27 (citing Electrical District; 16 U.S.C. 824e(a)).
    \703\ Id.
    \704\ Id. (quoting Southwestern Bell, 43 F.3d at 1521).
---------------------------------------------------------------------------

    449. Consumer Advocates contend that in unlawfully replacing the
requirement of section 205(d) for filing specific rate changes with a
range of rates,\705\ the Final Rule erred in relying on Lockyer's
attempt to distinguish certain cases by claiming they were remanded by
the Supreme Court because the agency had ``relied on market forces
alone.''\706\ According to Consumer Advocates, the Lockyer decision
erred in failing to recognize that Electrical District and Southwestern
Bell found unlawful the agencies' attempts to replace statutory
requirements to file specific rates with ``ranges of rates'' for ``non-
dominating'' entities.\707\ Consumer Advocates also argue that rate
ranges only apply to ``non-dominating'' wholesale sellers without
market power, and that the courts have held that it is the Congress,
not the agency, that determines what entities must continue to be
regulated.\708\
---------------------------------------------------------------------------

    \705\ Id. at 28.
    \706\ Id. (citing Lockyer, 353 F.3d at 1013; Order No. 697 at P
953).
    \707\ Id. at 29.
    \708\ Id. at 28-29 (citing Maislin Indus. U.S. v. Primary Steel
Inc., 497 U.S. 116 (1990) (Maislin); MCI; Southwestern Bell)
---------------------------------------------------------------------------

    450. Consumer Advocates contend that in Regular Common Carrier
Conference v. United States, the importance of actual rates contained
in tariffs was found to be ``utterly central'' to a rate filing
statute.\709\ They note that the Final Rule relied repeatedly on LEPA,
which relies on Elizabethtown Gas, yet neither court decided the issue
of whether the market-based rate filings or the overall market-based
rate regime complies with the FPA.\710\ Consumer Advocates also assert
that the D.C. Circuit has repeatedly refused on procedural grounds to
review the market-based rate regime's elimination of rate filings and
its disregard for other section 205 mandates.\711\ Consumer Advocates
therefore conclude that the law of the D.C. Circuit on rate filings
under section 206 of the FPA thus remains the decision in Electrical
District.
---------------------------------------------------------------------------

    \709\ Id. at 29 (citing Regular Common Carrier Conference v.
United States, 793 F.2d 376, 379 (D.C. Cir. 1986) (Regular Common
Carrier)).
    \710\ Id. (citing Order No. 697 at P 949-951). Consumer
Advocates contend that LEPA and Elizabethtown Gas both explicitly
state that they are not deciding the question of whether the market-
based rate filing requirements or overall market-based rate regime
comply with the FPA. Id. at 29-30 (citing LEPA, 141 F.3d at 366 n.2;
Elizabethtown Gas, 10 F.3d at 871).
    \711\ Id. at 30 (citing Elizabethtown Gas; LEPA; Power Company
of America, 245 F.3d 839 (D.C. Cir. 2001); Colorado Office of
Consumer Counsel v. FERC, 490 F.3d 954 (D.C. Cir. 2007)).
---------------------------------------------------------------------------

    451. Consumer Advocates argue that the Final Rule erred in relying
chiefly on Lockyer for legal support for replacing advance rate
increase filings with after-the-fact ``reporting requirements'' and
that the Ninth Circuit panel, in turn, erroneously relied on Commission
counsel's argument that the market-based rate tariffs plus the specific
information on actual charges filed pursuant to the ``reporting
requirements'' together comply with the FPA's requirement for filing
specific rates.\712\ Consumer Advocates state that if the reporting
requirement filings contain a necessary component of the rate, that is,
the component that renders the market-based rate specific enough to
comply with the statute, then such reports must be filed 60 days in
advance under section 205(d), otherwise, the rate reports must be filed
as specifically directed by a section 205(d) order so as to allow for
the full section 205(e) review, procedures and remedies.\713\ They
contend that the United Gas Pipe Line/Sierra cases and City of Piqua
support this interpretation.\714\ Consumer Advocates argue that under
the Commission's ``reporting requirements'' scheme, only prospective
section 206 review, hearings or refunds are possible and that under the
market-based rate regime, rates may be increased exponentially, yet
there are never any section 205(e) procedural protections or remedies
available to consumers regarding whether actual rate levels fall within
a ``zone of reasonableness.'' \715\
---------------------------------------------------------------------------

    \712\ Id. at 25 (citing Lockyer, 383 F.3d 1015).
    \713\ Id.
    \714\ Id. at 25-26 (citing City of Piqua v. FERC, 610 F.2d 950
(1979), quoting City of Kaukauna, 458 F.2d 731 (1971)) (City of
Piqua)).
    \715 \ Id. at 26.
---------------------------------------------------------------------------

    452. NASUCA contends that under the Final Rule, market power review
is to be eliminated altogether for many sellers in the Category 1
classification, with no specific review of those sellers' potential to
exercise power.\716\ NASUCA argues that there is no record in this case
to support a generic finding that a seller with 499 MW capacity needs
no market power review and a seller of 501 MW does.\717\ NASUCA
concludes that, in light of the Final Rule's reduced requirements for
market power review, the post hoc reporting requirement is not
sufficient to protect customers.\718\
---------------------------------------------------------------------------

    \716 \ NASUCA Rehearing Request at 18.
    \717\ Id.
    \718\ Id.
---------------------------------------------------------------------------

Commission Determination
    453. As we stated in the Final Rule, we disagree with Consumer
Advocates' arguments that the Commission failed to show how market-
based rates are just and reasonable and not unduly discriminatory or
preferential. We reject Consumer Advocates' argument that the Final
Rule failed to provide a standard for determining prohibited undue
preference or discrimination under the Commission's market-based rate
regime. The standard for judging undue discrimination remains what it
always has been: disparate rates or service for similarly situated
customers.\719\ The Commission has held in prior cases, and the courts
have upheld, that rates that are established in a market where a seller
cannot exercise market power can be just, reasonable and not unduly
discriminatory.\720\
---------------------------------------------------------------------------

    \719\ See e.g., Southwestern Electric Cooperative, Inc. v. FERC,
347 F.3d 975, 981 (D.C. Cir. 2003).
    \720\ See, e.g., Lockyer, 383 F.3d at 1012-13; Tejas Power Corp.
v. FERC, 908 F.2d 998, 1004 (D.C. Cir. 1990).
---------------------------------------------------------------------------

    454. The Final Rule does not violate the FPA's filing requirements.
The FPA requires that every public utility file with the Commission
``schedules showing all rates and charges for any transmission or sale
subject to the jurisdiction of the Commission,'' but it explicitly
leaves the timing and form of those filings to the Commission's
discretion.\721\ Public utilities must file ``schedules showing all
rates and charges'' under ``such rules and regulations as the
Commission may prescribe,'' and ``within such time and form as the
Commission may designate.'' \722\ Accordingly, ``so long as FERC has
approved a tariff within the scope of its FPA authority, it has broad
discretion to establish effective

reporting requirements for administration of the tariff.'' \723\ As the
Commission explained in the Final Rule, if a seller is granted market-
based rate authority, it must comply with post-approval reporting
requirements, including the quarterly filing of transaction-specific
data in EQRs, change in status filings for all sellers, and regularly-
scheduled updated market power analyses for Category 2 sellers.\724\
The Commission may, based on its review of EQR filings or daily market
price information, investigate a specific utility or anomalous market
circumstances to determine whether there has been any conduct in
violation of RTO/ISO market rules or Commission orders or tariffs, or
any prohibited market manipulation, and take steps to remedy any
violations. These steps could include, among other things, disgorgement
of profits and refunds to customers if a seller is found to have
violated Commission orders, tariffs or rules, or a civil penalty.\725\
---------------------------------------------------------------------------

    \721\ 16 U.S.C. 824d(c).
    \722\ 16 U.S.C. 824d. The FPA does not define ``schedules,''
leaving that to the Commission's discretion as well. The Commission
has defined ``rate schedule'' in its regulations at 18 CFR 35.2(b).
    \723\ Lockyer, 383 F.3d at 1013.
    \724\ Order No. 697 at P 962. The Commission explained in the
NOPR that preceded Order No. 2001 that it needed to make changes to
keep abreast of developments in the industry, and therefore
implemented the revised filing requirements in Order No. 2001. Id. P
965-966 (citing Revised Public Utility Filing Requirements, Notice
of Proposed Rulemaking, FERC Stats. & Regs., Proposed Regulations
1999-2003, ] 32,554, at 34,062 (2001); Revised Public Utility Filing
Requirements, Order No. 2001, FERC Stats. & Regs. ] 31,127, at P 31
(Order No. 2001), reh'g denied, Order No. 2001-A, 100 FERC ] 61,074,
reh'g denied, Order No. 2001-B, 100 FERC ] 61,342, order directing
filing, Order No. 2001-C, 101 FERC ] 61,314 (2002), order directing
filing, Order No. 2001-D, 102 FERC ] 61,334 (2003)). The Commission
has also issued Order No. 670, which adopted a new rule prohibiting
the employment of manipulative or deceptive devices or contrivances
in wholesale energy and natural gas markets. Prohibition of Energy
Market Manipulation, Order No. 670, 71 FR 4244 (Jan. 26, 2006), FERC
Stats. & Regs. ] 31,202 (2006), reh'g denied, 114 FERC ] 61,300
(2006).
    \725\ Order No. 697 at P 964. The Commission issued an
Enforcement Policy Statement to provide guidance to the industry on
how the Commission intends to determine remedies for violations,
including applying its new and expanded civil penalty authority.
Enforcement of Statutes, Orders, Rules, and Regulations, 113 FERC ]
61,068 (2005).
---------------------------------------------------------------------------

    455. Additionally, in response to arguments that the Commission
cannot or should not eliminate the triennial filing requirement for
Category 1 sellers, as discussed above in the section on
implementation, to the extent that any Category 1 sellers are located
in a Commission-identified submarket, we will consider whether there is
an indication that they have market power as we analyze the indicative
screens submitted by other sellers. If any market power concerns arise
with respect to any such Category 1 sellers, we may exercise our right
to require the filing of an updated market power analysis and direct
them at that time to submit one.
    456. We also disagree with Consumer Advocates' argument that the
market-based rate program eliminates the requirement in section 205(d)
of the FPA that, absent waiver by the Commission, all rate increases be
noticed by filing 60 days in advance, and the provision in section
205(e) which permits that, if warranted, rates be suspended for up to
five months, set for hearing with the burden of proof on the seller,
and made subject to refund pending the outcome of the hearing. Under
the market-based rate program, a rate change is initiated when a seller
applies for authorization of market-based rate pricing, not when it
subsequently enters into negotiated rates as interpreted by Consumer
Advocates. A seller must give the requisite 60 days' notice required by
section 205(d) before it may charge any market-based rates. All
applications are publicly noticed, entitling affected persons to
intervene and challenge a seller's proposed market-based rates. At that
time, there is an opportunity for a hearing, with the burden of proof
on the seller to show that it lacks, or has adequately mitigated,
market power, and for the imposition of a refund obligation.\726\ The
Commission has authority to suspend a request for market-based rates,
subject to refund. Thus, contrary to Consumer Advocates' claim, the
Commission's market-based rate program fully complies with both section
205(d) and section 205(e). Indeed, under Consumer Advocates'
interpretation of the law, if taken to its logical conclusion, the
Commission would be precluded not only from authorizing market-based
rates but also from authorizing flexible cost-based rates, e.g., ``up
to'' rates in which sellers are pre-authorized to sell up to a
specified cost-based rate cap. Under their theory, there would have to
be 60 days' notice of each rate charged under the cap (even though
there was prior notice that sales would be up to the cap) so long as it
represented a change from the previous amount charged. And presumably
this requirement would apply even for day-ahead or monthly short-term
sales for which it would be impossible to give 60 days' notice. We
simply do not read the FPA section 205(d) and (e) or the parallel NGA
section 4 provisions to hamstring the Commission in this way. Not only
does section 205(c) provide flexibility regarding the timing and form
in which rates shall be filed, but 205(d) allows the Commission to
waive the 60 days' notice by order specifying the changes to be made
and the time when they shall take effect and the manner in which they
shall be filed and published. The Commission's authorization of market-
based rates (and flexible cost-based rates) is consistent with the
flexibility allowed in section 205, and the public has notice of the
types of rates that may be charged and the manner in which they will be
filed and published.
---------------------------------------------------------------------------

    \726\ Id.; see also 18 CFR Part 35 (filing requirements and
procedures).
---------------------------------------------------------------------------

    457. We reject arguments that the Commission has eliminated
consumer protections under the FPA. Not only may the public intervene
in section 205 market-based rate proceedings and file complaints under
section 206 to eliminate market-based rate authorizations (with refund
protection up to 15 months), but the Commission has in place a multi-
part system for monitoring rates. If a seller is granted market-based
rate authority, it must comply with post-approval reporting
requirements, transaction-specific data in EQRs, change in status
filings for all sellers, and regularly-scheduled updated market power
analyses for Category 2 sellers.\727\ The quarterly reports (EQRs) that
sellers are required to file, include, for each individual purchase and
sale, the names of the parties, a description of the service, the
delivery point of the service, the price charged and quantity provided,
the contract duration, and any other attribute of the product being
purchased or sold that contributed to its market value.\728\ That
reporting requirement provides a means for the Commission and the
public to spot pricing trends or discriminatory patterns that might
indicate the exercise of market power.
---------------------------------------------------------------------------

    \727\ Id. (citing Lockyer, 383 F.3d at 1016).
    \728\ Id. P 855. See also Order No. 2001, FERC Stats. & Regs. ]
31,127. Required data sets for contractual and transaction
information are described in Attachments B and C of Order No. 2001.
---------------------------------------------------------------------------

    458. The Ninth Circuit has recognized that ``FERC's system consists
of a finding that the applicant lacks market power (or has taken
sufficient steps to mitigate market power), coupled with a strict
reporting requirement to ensure that the rate is `just and reasonable'
and that markets are not subject to manipulation.'' \729\ The Ninth
Circuit has explained that the reporting requirements are ``integral''
to the market-based rate tariff and that they, together with the
Commission's initial approval of market-based rate authority, comply
with the FPA's requirements.\730\ Through the EQRs, the Commission has
enhanced and updated the post-

transaction quarterly reporting filing requirements that were in place
during the time period at issue in Lockyer.\731\
---------------------------------------------------------------------------

    \729\ Lockyer, 383 F.3d at 1013.
    \730\ Id. at 1015.
    \731\ Order No. 697 at n.1105.
---------------------------------------------------------------------------

    459. We disagree with the Consumer Advocates' and NASUCA's argument
that the Final Rule erred in relying on Lockyer for legal support. The
Final Rule correctly relied on Lockyer because in Lockyer, the Ninth
Circuit cited with approval the Commission's dual requirement of an ex
ante finding of the absence of market power and sufficient post-
approval reporting requirements and found that the Commission did not
rely on market forces alone in approving market-based rate
tariffs.\732\ Further, the market-based rate requirements and oversight
adopted in the Final Rule are more rigorous than those reviewed by the
Lockyer court.\733\ We find Consumer Advocates' and NASUCA's argument
that in Lockyer the Ninth Circuit erroneously relied on Commission
counsel's argument that the market-based rate tariffs plus the specific
information on actual charges filed pursuant to the reporting
requirements together comply with the FPA's filing requirements to be
without merit. Lockyer has not been reversed, and in fact, was followed
by the Ninth Circuit in Snohomish.\734\
---------------------------------------------------------------------------

    \732\ Lockyer, 383 F.3d at 1013.
    \733\ See Order No. 697 at P 953.
    \734\ Snohomish, 471 F.3d at 1080-81.
---------------------------------------------------------------------------

    460. Consumer Advocates misapply United Gas Pipe Line, Sierra and
City of Piqua in arguing that these cases require that specific sale
prices must be filed ex ante under FPA section 205(d). In concluding
that the NGA does not empower natural gas companies unilaterally to
change their contracts in United Gas Pipe Line, the Supreme Court
interpreted provisions of the NGA that parallel the FPA, and it stated
that section 4(d) of the NGA says only that ``a change in the filed
rate cannot be made without proper notice to the Commission.'' \735\
That same day the Supreme Court held in Sierra that the FPA does not
authorize unilateral contract changes \736\ and determined that the
Federal Power Commission could not declare a rate set by a contract to
be ``unreasonable solely because it yields less than a fair return on
the next invested capital.'' \737\ In City of Piqua, the D.C. Circuit
explained that the primary purpose of section 205(d) is to notify the
Commission of changes in rates and schedules between parties to a
contract, stating ``[a] change in rates cannot take place without first
filing notice with the Commission.'' \738\
---------------------------------------------------------------------------

    \735\ United Gas Pipe Line, 350 U.S. at 339 (emphasis in
original).
    \736\ Sierra, 350 U.S. at 353.
    \737\ Id. at 355.
    \738\ City of Piqua, 610 F.2d at 953.
---------------------------------------------------------------------------

    461. Consumer Advocates' argument that United Gas Pipe Line, Sierra
and City of Piqua require that rate reports must be filed ex ante under
FPA section 205(d) overlooks the fact that, under the market-based rate
program, the rate change is initiated when a seller applies for
authorization of market-based rate pricing. As we explained, all
applications are publicly noticed and affected persons are entitled to
challenge a seller's claims. There is an opportunity for a hearing at
that time, with the burden of proof on the seller to show that it
lacks, or has adequately mitigated, market power, and for the
imposition of a refund obligation.\739\ That investigation fully
satisfies the requirements of FPA section 205(d) and (e).
---------------------------------------------------------------------------

    \739\ Order No. 697 at P 962; see also 18 CFR Part 35 (filing
requirements and procedures).
---------------------------------------------------------------------------

    462. With regard to Consumer Advocates' argument that the Final
Rule erred by failing to adequately distinguish certain Supreme Court
and Circuit case decisions, we find that Consumer Advocates
misinterpret Electrical District, Southwestern Bell, Maislin, MCI and
Regular Common Carrier in relying on these cases as support for their
argument that the Commission's market-based rate regime is unlawful.
Electrical District addressed the issue of whether to make a rate
increase effective as of the date of its order directing a compliance
filing, rather than upon the date of acceptance of the compliance
filing and resolved a ``disagreement over what it means to `fix' a rate
within the meaning of [section 206(a)] 16 U.S.C. 824e(a)''--not section
205(c).\740\ The D.C. Circuit rejected the Commission's ``policy of
making rates effective as of the date of an order [under section 206]
setting forth no more than the basic principles pursuant to which the
new rates are to be calculated.'' \741\ Electrical District holds only
that the Commission cannot, in a proceeding under section 206,
``announce some formula and later reveal that formula was to govern
from the date of announcement.'' \742\ It says nothing about whether
the Commission can establish rules under sections 205(c) and (d) that
permit the filing and approval of market-based rate tariffs.
---------------------------------------------------------------------------

    \740\ 774 F.2d at 492.
    \741\ Id. at 493.
    \742\ Transwestern Pipeline Co. v. FERC, 897 F.2d 570, 578 (D.C.
Cir. 1990) (emphasis added).
---------------------------------------------------------------------------

    463. In Southwestern Bell, the FCC ``adopt[ed] a policy of
permitting nondominant common carriers to file a range of rates as
opposed to fixed rates showing a schedule of charges.'' \743\ The court
held that the FCC policy violated 47 U.S.C. section 203(a), which
requires that every common carrier file ``schedules showing all
charges.'' \744\ That statute requires a specific list of discernible
rates, rather than a filing of a range of possible rates.\745\ The
quarterly reports required under the Final Rule require each seller to
list the terms of each transaction individually. The transaction-
specific data required in the Commission's quarterly reports do not
constitute a range of rates similar to that rejected in Southwestern
Bell.
---------------------------------------------------------------------------

    \743\ 43 F.3d at 1517.
    \744\ Id.
    \745\ Id. at 1521.
---------------------------------------------------------------------------

    464. In Regular Common Carrier, the Interstate Commerce Commission
(ICC) approved a tariff provision under which freight forwarders could
provide services to shippers at unpublished rates determined by
averaging prior charges to those shippers.\746\ The court found that
that provision violated 49 U.S.C. section 10761(a) (1982), which
required that rates be ``contained in a tariff,'' because the agreed-
upon average rates would never be published nor filed with the
Commission.\747\ The court noted that section 10761(a) expressly
prohibited the charging of any rate different from the tariffed
rate.\748\ By contrast, FPA section 205(c) permits sellers to set rates
either by tariff or by contract, and the Commission's market-based rate
program requires quarterly filings providing details of all
transactions.
---------------------------------------------------------------------------

    \746\ Regular Common Carrier, 793 F.2d at 377-78.
    \747\ Id. at 380.
    \748\ See id. at 379.
---------------------------------------------------------------------------

    465. Maislin involved an ICC policy that allowed carriers to charge
privately negotiated contract rates that differed from the filed tariff
rate, were never disclosed or reviewed by the ICC, and were not subject
to challenge for discrimination.\749\ The Supreme Court found that the
policy violated the filed-rate doctrine.\750\ Under the Final Rule, in
contrast, market-based sales are made in accordance with a market-based
rate umbrella tariff, approved only after the Commission determines, in
a publicly-noticed proceeding with opportunity for interested parties
to protest, that a seller lacks market power. Further, the Commission's
system requires quarterly filing of the actual rates charged for
individual transactions, allowing both the Commission and the public to
view all rates all rates charged. After market-based rate authority is
granted, affected persons can file complaints, or the

Commission can institute its own proceeding, to challenge market-based
rates on the basis that the seller has gained the ability to exercise
market power since the time the market-based rates were granted or that
the market-based rates otherwise are unjust, unreasonable, or unduly
discriminatory or preferential or to question whether a seller has
market power.
---------------------------------------------------------------------------

    \749\ 497 U.S. 116, 132-33 (1990).
    \750\ Id. at 127.
---------------------------------------------------------------------------

    466. Consumer Advocates' reliance on MCI is similarly misplaced.
MCI rejected an FCC policy that relieved all non-dominant carriers of
any requirement to file any of their rates with the agency. The Supreme
Court found that such wholesale detariffing for nondominant carriers
effectively removed all rate regulation where the FCC found competition
to exist.\751\ By contrast, the market-based rate program implemented
in Order No. 697 requires every seller with market-based rate authority
to have on file an umbrella market-based rate tariff and to file
quarterly reports detailing the specific rates charged for each sale.
No detariffing occurs in these circumstances. As the MCI court held, it
would not violate the filed-rate doctrine for the FCC to ``modify the
form, contents, and location of required filings, and [to] defer filing
or perhaps even waive it altogether in limited circumstances.'' \752\
---------------------------------------------------------------------------

    \751\ 512 U.S. 218, 231-32 (1994).
    \752\ Id. at 234.
---------------------------------------------------------------------------

    467. Consumer Advocates' argument that the Commission relied
repeatedly on Elizabethtown Gas and LEPA, yet neither court decided the
issue whether the market-based rate filings or the overall market-based
rate regime complies with the FPA, misses the point that the Commission
cited these cases in providing an overview of the cases relied on in
the most recent court cases affirming the Commission's market-based
rate authority under the FPA.\753\ Further, the Commission properly
cited Elizabethtown Gas for the proposition that the use of market-
based rate tariffs was first approved by the courts as to sellers of
natural gas,\754\ and properly cited LEPA for the proposition that use
of market-based rate tariffs was first approved by the courts as to
wholesale sellers of electricity.\755\ In any event, as the Commission
explained in the Final Rule, the more recent precedent in Lockyer and
Snohomish has upheld the Commission's dual requirement of an ex ante
finding of the absence of market-power and sufficient post-approval
reporting requirements as complying with the requirements of the
FPA.\756\
---------------------------------------------------------------------------

    \753\ Order No. 697 at P 944; see also, id. at 945-953; Lockyer,
383 F.3d at 1011-1014.
    \754\ Elizabethtown Gas, 10 F.3d at 869; see also Order No. 697
at P 948.
    \755\ LEPA, 141 F.3d at 365, 370; see also Order No. 697 at P
951. Consumer Advocates' reliance on Power Company of America, 245
F.3d 839 (D.C. Cir. 2001) and Colorado Office of Consumer Counsel v.
FERC, 490 F.3d 954 (D.C. Cir. 2007) does not support their argument
that the Final Rule violates the FPA's filing requirement. In Power
Company of America the court declined to address Power Company of
America's (PCA) argument that umbrella agreements of power marketers
were required to be on file because this argument was not raised in
PCA's opening brief. See Power Company of America, 245 F.3d at 845.
In Colorado Office of Consumer Counsel, the court denied the
Colorado Office of Consumer Counsel's petition for review of a
Commission order approving market behavior rules because FPA section
206's plain language does not require the Commission, having found
only one aspect of the market-based rate tariffs to be unjust and
unreasonable, to revisit all elements of its market-based rate
tariffs. Thus, the D.C. Circuit did not review the market-based rate
regime's filing requirements in these two cases because the filing
requirement issue was not before the court. Consumer Advocates'
argument in this regard fails because it disregards the precedent
upholding the Commission's dual requirement of an ex ante finding of
the absence of market power and sufficient post-approval reporting
requirements. Lockyer, 383 F.3d 1006; Snohomish, 471 F.3d 1053.
    \756\ Lockyer, 383 F.3d 1006; Snohomish, 471 F.3d 1053. Consumer
Advocates also argue that the Final Rule ignored the lead cases on
the FPA filing requirement, except to quote them for the proposition
that the filing and hearing requirements of the NGA and FPA are
typically read in pari materia. Consumer Advocates Rehearing Request
at 34-35 (citing United Gas Pipe Line; Sierra; Order No. 697 at P
946, n.1070). We address Consumer Advocates' argument in this regard
at supra P 412, 461-64.
---------------------------------------------------------------------------

    468. With respect to Consumer Advocates' concern about long-term
affiliate sales contracts not being filed, the Commission pointed out
in the Final Rule that since 2002, its regulations have provided that
long-term market-based rate power sales service agreements, with
affiliates or otherwise, are not to be filed with the Commission.\757\
However, the affiliate restrictions require that no wholesale sales of
electric energy may be made between a franchised public utility with
captive customers and a market-regulated power sales affiliate without
first receiving Commission authorization (separate from the general
market-based rate authorization at issue in this docket) for the
transaction under section 205 of the FPA. As a result, a franchised
public utility with captive customers cannot enter into a long-term
contract with an affiliate without the seller under the contract
(whether the franchised public utility or the affiliate) first
receiving Commission authorization to engage in the affiliate
sale.\758\ To the extent that a particular affiliate relationship
presents issues of concern, it will be considered in the context of our
determination whether to authorize any affiliate sales. Further, our
market-based rate program incorporates numerous protections against
excessive rates, regardless of the identities of the parties to a
transaction. Finally, although long-term contracts generally are not
filed at the Commission, all relevant contract information is contained
in the EQRs and thus the same information is available to the public
and the Commission. Thus, we will continue to direct sellers not to
file long-term market-based rate sales contracts, unless otherwise
permitted by Commission rule or order.\759\
---------------------------------------------------------------------------

    \757\ Order No. 697 at P 969 (citing 18 CFR 35.1(g)).
    \758\ Id. P 969-970.
    \759\ Id. P 970.
---------------------------------------------------------------------------

    469. For the reasons stated in the section of this order addressing
Implementation Process, we reject NASUCA's argument that there is no
record to support the finding that a seller with 499 MW capacity needs
no triennial power review and a seller of 501 MW does need market power
review.\760\
---------------------------------------------------------------------------

    \760\ See supra P 344-47.
---------------------------------------------------------------------------

b. Whether the Final Rule Shifts the Burden of Proof Under Section 205
of the FPA
Final Rule
    470. In the Final Rule, the Commission noted that it had previously
addressed and rejected the argument that the legal presumptions that
follow from the Commission's market power screens would unduly shift
the burden of demonstrating the existence of market power to
intervenors. On rehearing of the April 14 Order, the Commission
explained that nothing in that order shifts the burden of proof that
section 205 imposes on the filing utility. Passing both screens or
failing one merely establishes a rebuttable presumption. To challenge a
seller who passes both screens, the intervenor need not conclusively
prove that the seller possesses market power. Rather, the intervenor
need only meet a burden of going forward with evidence that rebuts the
results of the screens. At that point, the burden of going forward
would revert back to the seller to prove that it lacks market power.
Thus, the burden of proof under section 205 ultimately belongs to the
seller.\761\
---------------------------------------------------------------------------

    \761\ Order No. 697 at P 968. The Commission also concluded that
it will continue to direct sellers not to file long-term market-
based rate sales contracts, unless otherwise permitted by Commission
rule or order. Id. P 969-70.
---------------------------------------------------------------------------

Requests for Rehearing
    471. Consumer Advocates argue that the Final Rule unlawfully shifts
the statutory burden of proof from the electricity seller under section
205(e), to justify increased rates, to the electricity

consumer under section 206(a), to prove both that such increased rates
are excessive and to justify different rates.\762\ They also contend
that the Final Rule claims to justify this shift of burden of proof by
stating that the burden is still on the seller to show it has no market
power, even though sellers are no longer required to justify rate
increases.\763\ Consumer Advocates assert that FPA section 205, under
which market-based rate tariff authorizations are approved, does not
mention ```market power,''' but requires that sellers have the burden
of justifying proposed rate increases.\764\ Consumer Advocates state
that the results on consumers can be seen in the Commission's recent
denial of a complaint by the Connecticut Attorney General because
Connecticut failed to carry its burden of proof under section
206(a).\765\
---------------------------------------------------------------------------

    \762\ Consumer Advocates Rehearing Request at 31-32.
    \763\ Id. at 32 (citing MCI; Southwestern Bell).
    \764\ Id.
    \765\ Id. (citing Blumenthal, 117 FERC ] 61,038 at P 57).
---------------------------------------------------------------------------

    472. Southern contends that the Final Rule violates the requirement
in FPA section 206 that the Commission bear the burden of proof in
section 206 proceedings and that the Commission's determinations be
based on substantial evidence.\766\ According to Southern, this
shifting of the burden of proof occurs through the use of indicative
screens, which Southern contends are inherently flawed. Southern states
that once a screen failure occurs and a presumption of market power
arises, sellers only have two options: Either accept a determination
that it has market power and adopt cost-based mitigation measures, or
provide the Commission with a DPT analysis.\767\ Southern concludes
that by applying the indicative screens codified in the Final Rule the
Commission will effectively shift to sellers the evidentiary burden in
a section 206 proceeding.\768\
---------------------------------------------------------------------------

    \766\ Southern Rehearing Request at 7-8 (citing 16 U.S.C.
824e(a); Sierra, 350 U.S. at 353; Public Service Commission of New
York v. FERC, 642 F.2d 1335, 1345 (D.C. Cir. 1980); Public Service
Co. of New Mexico, 115 FERC ] 61,090, at P 33 (2006)).
    \767\ Id. at 7 (citing Order No. 697 at P 63).
    \768\ Id. at 8.
---------------------------------------------------------------------------

    473. Southern also argues that the screens are inherently flawed in
their ability to definitively assess market power when none is actually
present, noting that the Final Rule ``acknowledges that the screens are
`conservative' in nature and will undoubtedly result in `false
positives' indicating market power.'' \769\ Southern argues that
because of their conservative nature and propensity to result in false
positives, such screens cannot properly provide a basis for shifting
the burden of proof to sellers, and are incapable of providing
substantial evidence of market power.
---------------------------------------------------------------------------

    \769\ Id. at 8 (citing Order No. 697 at P 62, 71, 74, 89).
---------------------------------------------------------------------------

    474. Southern contends that by shifting the section 206 burden of
proof to sellers, the Final Rule shifted to sellers the burden of
rebutting the presumption of generation market power. Southern states
that the unlawfulness of shifting this burden is exacerbated by the
restriction placed on the type of evidence that sellers may present to
rebut the market power presumption. Specifically, Southern asserts that
the Final Rule only allows sellers to submit (1) historical sales and
transmission data and (2) an analysis using the DPT (using only
historical data) to demonstrate that they do not have market power, and
that these limitations on sellers' ability to rebut the false
presumption of generation market power are inconsistent with the FPA
since they arise in the context of a section 206 proceeding, in which
the Commission is required to bear the burden of proof.\770\
---------------------------------------------------------------------------

    \770\ Id. at 10-11 (citing Order No. 697 at P 33, 75).
---------------------------------------------------------------------------

    475. Southern argues that the Commission should reconsider its
determination in the Final Rule that a failure of an indicative screen
results in a presumption of market power, and should instead determine
that the indicative screens are only intended to identify sellers that
appear to raise no horizontal market power concerns and thus can be
considered for market-based rate authority without the necessity of
further analysis.\771\ In other words, passing the screens should raise
a favorable presumption that a seller does not have market power, and a
seller would never be ``presumed'' to have generation market
power.\772\
---------------------------------------------------------------------------

    \771\ Id. at 11.
    \772\ Id.
---------------------------------------------------------------------------

Commission Determination
    476. With regard to Consumer Advocates' assertion that the Final
Rule shifts the burden of proof from the electricity seller under
section 205(e) to the electricity consumer under section 206(a), we
reiterate that the Commission has not shifted the burden of proof that
section 205 imposes on the filing utility. A utility seeking to make
sales at market-based rates has the burden of proof under section 205
to show that it does not have, or has adequately mitigated, market
power. Because passing both indicative horizontal market power screens
establishes a rebuttable presumption that the seller lacks market
power, the burden is then on the intervenor to provide evidence to
rebut the presumption of no market power.\773\ To challenge a seller
who passes both screens, the intervenor need not conclusively prove
that the seller possesses market power. Rather, the intervenor need
only meet a burden of going forward with evidence that rebuts the
results of the screens. At that point, the burden of going forward
would revert back to the seller to prove it lacks market power.
Ultimately, however, the burden of proof under section 205 belongs to
the seller.\774\
---------------------------------------------------------------------------

    \773\ See Order No. 697 at P 968 (citing July 8 Order, 108 FERC
] 61,026, at P 29).
    \774\ See July 8 Order at P 29 (stating that passing both
screens or failing one merely establishes a rebuttable presumption,
and explaining that in the case of an intervenor in a section 205
proceeding that seeks to prove that the applicant possesses market
power, ``the intervenor need only meet a `burden of going forward'
with evidence that rebuts the results of the screens. At that point,
the burden of going forward would revert back to the applicant to
prove that it lacks market power.'') (citing Pennzoil Co. v. FERC,
645 F.2d 360, 392 (5th Cir. 1981), cert. denied, 454 U.S. 1142
(1982); accord Transcontinental Gas Pipe Line Corp., Opinion No.
135, 17 FERC ] 61,232, at 61,450 (1981) (``The presumption * * * is
the same as that which arises from a prima facie case: it imposes on
the party against whom it is directed the burden of going forward
with substantial evidence to rebut or meet the presumption, but does
not shift the burden of persuasion.''); Generic Determination of
Rate of Return on Common Equity for Electric Utilities, Order No.
389-A, 29 FERC ] 61,223 (1984) (concluding that the rebuttable
presumption that a rate of return based on a benchmark is just and
reasonable does not shift the ultimate burden of proof imposed by
the FPA).
---------------------------------------------------------------------------

    477. We reject Consumer Advocates' argument that the Final Rule
shifts the FPA section 205 burden of proof to justify rate increases
from the electricity seller to the electricity consumer under section
206(a) to prove both that such increased rates are excessive and to
justify different rates, and that this can be seen in the Commission's
denial of the Connecticut Attorney General's complaint in Blumenthal
because Connecticut failed to carry its burden of proof under FPA
section 206(a). Blumenthal was an FPA section 206 complaint proceeding
in which the complainants challenged ISO-NE's current Market Rule 1 as
unjust and unreasonable with regard to the compensation of generation
facilities needed for reliability in Connecticut. Because that case was
brought under section 206 of the FPA, the burden properly was on
complainants to establish that the current provisions of Market Rule 1
are unjust and unreasonable. However, that case is distinguishable from
the circumstance where a seller seeks authorization to make sales at
market-based rates. As

discussed above, in the case of a seller seeking market-based rate
authority from the Commission under section 205, the burden of proof is
on the seller to prove that it lacks market power. However, in a
section 206 complaint proceeding, the burden is on the complainant to
show that the current rates are unjust and unreasonable. Thus, State
AGs and Advocates' argument that Blumenthal supports their assertion
that the Final Rule shifts the FPA section 205 burden of proof to
justify rate increases from the electricity seller to the electricity
consumer under section 206(a) is without merit.
    478. For the reasons stated in the section of this order addressing
horizontal market power, we reject Southern's argument that the burden
of proof in a section 206 proceeding is shifted to entities that fail
one of the indicative screens.
c. Whether Elimination of the Requirement To File Market-Based Rate
Contracts in a Prior Rulemaking Proceeding May Be Challenged in the
Instant Rulemaking
Final Rule
    479. The Final Rule concluded that the multiple layers of filing
and reporting requirements incorporated into the market-based rate
program, the Commission's enhanced market oversight and enforcement
functions, and the ability of the public to file section 206 complaints
meet the filing requirements of the FPA and provide adequate protection
from excessive rates. In reaching this determination, the Commission
noted that the decision to eliminate the filing of market-based rate
contracts was made almost five years ago in a generic rulemaking
proceeding that was open to participation by all interested
parties.\775\ The Commission explained that commenters' failure to
raise this concern in that proceeding precludes them from attacking the
Commission's well-settled practice in the instant rulemaking.\776\
---------------------------------------------------------------------------

    \775\ Order No. 697 at P 967, n.1112.
    \776\ Id.
---------------------------------------------------------------------------

Requests for Rehearing
    480. Consumer Advocates argue that the Final Rule erred in
asserting that challengers to the Commission's market-based rate regime
are precluded by the passage of time and by earlier rulemaking
proceedings from now raising their challenges to the Commission's
authority to issue its market-based rate regulations, including their
arguments that the regulations are contrary to the filing and other
requirements of FPA sections 205 and 206.\777\ Consumer Advocates state
that the Final Rule noted that the failure of commenters to object to
an earlier rulemaking that eliminated the filing of market-based rate
contracts almost five years ago now precludes them from asserting that
the Commission's actions in the instant rulemaking violate the FPA's
filing requirements.\778\ Consumer Advocates contend that the
Commission's view that commenters are precluded from attacking the
rules promulgated in this proceeding is incorrect insofar as the D.C.
Circuit has made clear that where an agency itself reopens an issue by
initiating a new rulemaking procedure, participants in the rulemaking
are not barred from challenging the new rule by their failure to
challenge prior agency actions.\779\ Consumer Advocates argue that
members of the public may raise issues notwithstanding failure to
participate in an earlier rulemaking `` `when the agency in question by
some new promulgation creates the opportunity for renewed comment and
objection.' '' \780\
---------------------------------------------------------------------------

    \777\ Consumer Advocates Rehearing Request at 37-38.
    \778\ Id. at 38 (citing Order No. 697 at P 967, n.1112).
    \779\ Id. (citing Montana v. Clark, 749 F.2d 740, 744 (D.C. Cir.
1984), cert. denied, 474 U.S. 919 (1985)).
    \780\ Id. at 38 (quoting Ohio v. EPA, 838 F.2d 1325, 1328 (D.C.
Cir. 1988); accord Ass'n of Am. R.Rs. v. ICC, 846 F.2d 1465, 1473
(D.C. Cir. 1988); Public Citizen v. NRC, 901 F.2d 147, 150 (D.C.
Cir. 1990), cert. denied, 498 U.S. 992 (1990)).
---------------------------------------------------------------------------

    481. Consumer Advocates argue that where the challenge is that the
agency lacks statutory authority to take an action, a commenter's
earlier failure to challenge another regulation cannot bar
consideration of the agency's statutory authority for the action it now
proposes to take. They conclude that where the petitioner challenges
the substantive validity of a rule, failure to exercise a prior
opportunity to challenge the regulation ordinarily will not preclude
review.\781\ Consumer Advocates assert that the D.C. Circuit has held
that the rule barring collateral attacks on regulations does not apply
to claims that ``an agency lacked the statutory authority to adopt the
rule.''\782\
---------------------------------------------------------------------------

    \781\ Id. at 39 (citing Montana v. Clark, 749 F.2d at 744 n.8).
    \782\ Id. (quoting Indep. Community Bankers of Am. v. Bd. of
Governors of Fed. Reserve Sys., 195 F.3d 28, 34 (D.C. Cir. 1999);
NRDC v. NRC, 666 F.2d 595, 602 (D.C. Cir. 1981)).
---------------------------------------------------------------------------

    482. Consumer Advocates also state that they filed a petition for
review in the D.C. Circuit over three years ago raising these issues in
the context of a challenge to the Commission's actions in its
Investigation of Terms and Conditions of Public Utility Market-Based
Rate Authorizations, an FPA section 206 proceeding in which Consumer
Advocates participated and presented their challenges to the market-
based rate regime to the Commission in great detail.\783\ They state
that the Commission has argued in the D.C. Circuit, successfully so
far, that Consumer Advocates' challenge to the market-based rate regime
was not properly presented in that matter and should be addressed in
some other appropriate proceeding.\784\ Consumer Advocates conclude
that the Commission may not now assert that Consumer Advocates have
slept on their rights and cannot present their arguments in a
rulemaking that raises the issue of the lawfulness of the Commission's
market-based rate regime.\785\
---------------------------------------------------------------------------

    \783\ Id. at 40.
    \784\ Id. (citing Colorado Office of Consumer Counsel v. FERC,
490 F.3d 954 (D.C. Cir. 2007)).
    \785\ Id.
---------------------------------------------------------------------------

Commission Determination
    483. Consumer Advocates' attack on a sentence in a footnote stating
that ``Commenters' failure to raise this concern [regarding the filing
of market-based rate contracts] in that proceeding precludes them from
attacking the Commission's well-settled practice here'' \786\ makes
more of this footnote than it was intended to convey. This sentence was
intended to clarify that the Commission had previously determined to
eliminate the filing of market-based rate contracts in Order No.
2001,\787\ and to clarify that the Commission is not reconsidering this
issue as part of this rulemaking proceeding. This sentence does not
stand for the broad proposition, as suggested by Consumer Advocates,
that ``challengers to the Commission's market-based rate regime are
precluded by the passage of time and by earlier rulemaking proceedings
from now raising their challenges to the Commission's authority to
issue its market-based rate regulations, including their arguments that
the regulations are contrary to the filing and other requirements of
FPA sections 205 and 206.'' Indeed, in the Final Rule, the Commission
fully responded to the arguments raised by Consumer Advocates in their
NOPR comments, in which they challenged the Commission's authority to
issue its market-based rate regulations and argued, among other things,
that the regulations are contrary to the filing and other requirements
of FPA sections 205

and 206.\788\ Moreover, the Commission is responding to their arguments
on rehearing in the instant order. Thus, the Commission has thoroughly
addressed Consumer Advocates' arguments regarding the instant market-
based rate rulemaking proceeding in both the Final Rule and in this
order.
d. Whether the Commission Should Clarify That Sellers With Market Power
Must File Their Actual Rates and Contracts Before the Charges Are
Implemented
---------------------------------------------------------------------------

    \786\ Order No. 697 at n.1112.
    \787\ Order No. 2001, FERC Stats. & Regs. ] 31,127 at P 31.
    \788\ Order No. 697 at P 943-955, 959-968.
---------------------------------------------------------------------------

Final Rule
    484. The Final Rule concluded that, with regard to NASUCA's
assertion that the rule would allow mitigated sellers with cost-based
rates to declare their own rates without filing them, all mitigation
proposals, whether based on the default cost-based rates or some other
cost-based rates, must be filed with the Commission for review. The
Commission stated that, as explained in the Mitigation section of the
Final Rule, any such filings are noticed, and interested parties are
given an opportunity to intervene, comment on, or protest the
submittal.\789\
---------------------------------------------------------------------------

    \789\ Id. P 971.
---------------------------------------------------------------------------

Requests for Rehearing
    485. NASUCA raises a similar argument on rehearing, claiming that
sellers with market power should not be allowed to determine and change
their rates without complying with FPA filing requirements.\790\ NASUCA
states that sellers with market power, have, until now, been required
to file cost-based rates, and argues that the Final Rule allows sellers
with market power to dispense with the filing of contracts and changes
in rates for sales of less than one year under the default mitigation
rates.\791\ NASUCA states that only contracts for sales greater than
one year would be filed under section 205.\792\ According to NASUCA, a
consequence is that there is no possibility of public notice, protest,
Commission review prior to imposition of unreasonable new charges, and
no opportunity for refund of unreasonable rates charged by sellers with
market power for sales of up to one year's duration.\793\
---------------------------------------------------------------------------

    \790\ NASUCA Rehearing Request at 8.
    \791\ Id. at 9 (citing Order No. 697 at 18 CFR 35.38).
    \792\ Although NASUCA refers to contracts for ``sales greater
than one year,'' the Commission's default rates for long-term sales
cover sales of ``one year or more.'' Order No. 697 at P 659.
    \793\ NASUCA Rehearing Request at 9.
---------------------------------------------------------------------------

    486. NASUCA contends that allowing sellers with market power to
dispense with the filing of contracts and changes in rates for sales of
less than one year under the default mitigation rates, and ``to set
rates at will between marginal cost and embedded cost may not be
reasonable and could allow discrimination.'' \794\ NASUCA argues that
even though looked at separately, the incremental cost rate base and
the embedded cost rate could be within the zone of reasonableness,
giving the utility the option to pick its rates and its customers in
bilateral transactions, which could give the utility with wholesale
market power the opportunity to extend it into retail markets, favoring
its retail affiliate.\795\ NASUCA notes that in FPC v. Conway Corp.,
the Supreme Court held that a utility could not set low retail rates to
attract retail industrial customers from other utilities and set
wholesale rates at prices higher than the retail rate so that its
wholesale competitors could not compete in the retail market. Thus,
NASUCA concludes that the Commission should not allow this potentially
discriminatory and predatory conduct in the name of granting ``
`flexibility' '' to utilities.\796\
---------------------------------------------------------------------------

    \794\ Id.
    \795\ Id.
    \796\ Id. at 10 (citing 426 U.S. 271 (1976)).
---------------------------------------------------------------------------

    487. NASUCA also argues that allowing sellers with market power to
make sales for less than one year without filing them is a
subdelegation to private parties of basic duties conferred upon the
Commission by Congress.\797\ In support of this point, NASUCA states
that in ISO New England, Inc., Chairman Kelliher disagreed with the
Commission's decision to deny rehearing of an earlier order that
accepted for filing three mitigation agreements and granted waiver of
the 60 day prior notice requirement.\798\ NASUCA concludes that the
Final Rule has the same defect identified by Chairman Kelliher: Rates
of sellers with market power, when they involve sales for less than one
year, are allowed to take effect without observing prior filing
requirements, with the Commission relying on private parties to
negotiate and charge reasonable rates.\799\ NASUCA asserts that there
is no provision in the FPA granting the Commission the power to direct
utilities not to file their rates for sales of less than one year, and
no evidence that such rates are reasonable.\800\ NASUCA states that the
D.C. Circuit rejected rates that had been charged by utility
negotiation at marginal cost plus 10 percent without being timely filed
for possible review and revision by the Commission for lack of
evidence, and argues that the same flaw applies here to the generic
rate ranges approved for sellers with market power. According to
NASUCA, there is no evidence that such rates are reasonable.\801\
---------------------------------------------------------------------------

    \797\ Id. (citing U.S. Telecom Ass'n v. FCC, 359 F.3d 554, 567-
78 (D.C. Cir. 2004)).
    \798\ Id. (citing ISO New England, Inc., 112 FERC ] 61,057
(2005), reversed on other grounds, NSTAR Electric & Gas Corp. v.
FERC, 481 F.3d 794 (D.C. Cir. 2007) (NSTAR)).
    \799\ Id. at 11.
    \800\ Id. (citing MCI, 512 U.S. at 229-30; American Telephone &
Telegraph Co. v. Central Office Telephone Inc., 524 U.S. 214
(1998)).
    \801\ Id. (citing NSTAR, 481 F.3d 794).
---------------------------------------------------------------------------

    488. NASUCA states the Final Rule responded to NASUCA's concerns by
saying that rate `` `proposals' '' of mitigated sellers would be filed,
but the Final Rule does not say rates, rate schedules, and contracts
will be filed.\802\ NASUCA contends that the Final Rule adopted a rule
which clearly states that only new contracts of a duration longer than
one year are to be filed under section 205. NASUCA argues that in
analogous circumstances where actual changes in rates and charges had
not been filed, the D.C. Circuit stated that `` `making rates effective
as of the date of an order setting forth no more than the basic
principles pursuant to which the new rates are to be calculated would
make unforeseeable liabilities a regular consequence of rate
adjustments.' '' \803\ NASUCA therefore requests that the Commission
clarify that sellers with market power must file not only ``
`proposals,' '' but also schedules containing their actual rates and
contracts, before the charges are implemented, in accordance with FPA
section 205.\804\
---------------------------------------------------------------------------

    \802\ Id. at 12 (citing Order No. 697 at section 35.38).
    \803\ Id. (quoting Electrical District, 774 F.2d at 492-93).
    \804\ Id.
---------------------------------------------------------------------------

Commission Determination
    489. With regard to NASUCA's arguments concerning filing
requirements for sellers with market power, to the extent a seller
proposes a cost-based rate that is based on a formula, it is our
practice to require that the rate formula used be provided for
Commission review and such formula included in the cost-based rate
tariff, including formulas used in calculating incremental cost for
purposes of the Commission's default cost-based rates.\805\ As the
Commission explained in the Final Rule, all mitigation proposals by a
seller found, or presumed, to have market power must be filed with the
Commission for review. These filings are noticed and interested parties
are provided the opportunity to intervene, comment or

protest the submittal.\806\ In response to NASUCA's concern regarding
the Commission's use of the word ``proposals,'' we clarify that by
``mitigation proposals'' we were referring to cost-based rate tariffs