generation in multiple control areas and different regions, the
Commission proposed that the corporate family would be required to file
an update for each region in which members of the corporate family sell
power during the time period specified for that region.
Comments
    870. Several commenters, including ELCON, APPA/TAPS, NRECA, Suez/
Chevron, and Newmont, support the Commission's proposal. ELCON states
that the requirement that a seller file its updated market power
analysis at the same time the Commission examines other sellers in the
relevant market and region is an excellent idea because it provides a
better picture to the Commission during its review. APPA/TAPS state
that the regional approach will lead to data consistency and
availability, and will allow the Commission to fulfill its obligations
more completely. Newmont believes that the Commission's proposal
appropriately balances the need to effectively monitor and mitigate
market power while avoiding unnecessary and unproductive regulatory
requirements.\1010\
---------------------------------------------------------------------------

    \1010\ Newmont at 1.
---------------------------------------------------------------------------

    871. Alternatively some commenters oppose the proposal entirely, or
suggest modifications. Reliant states that the regional review and
schedule would significantly increase the administrative burdens of
compliance rather than streamline them. According to Reliant, companies
that engage in business in multiple regions of the United States would
have to file several times over the three year schedule instead of once
as is required currently.\1011\ Morgan Stanley and Financial Companies
state that the Commission should require Category 2 sellers to file
only once every three years, either with the region where they have a
franchised service territory or the region in which they own the
greatest amount of generation. EEI and EPSA maintain that a regional
review will pose a great burden on utilities operating in multiple
markets and will lead to confusion over contradictory
information.\1012\
---------------------------------------------------------------------------

    \1011\ Similarly, Allegheny, Mirant, FP&L, EEI, FirstEnergy,
MidAmerican, TXU, Morgan Stanley, Financial Companies, and EPSA
argue that large corporate families could find themselves in a
perpetual triennial review that would place a substantial regulatory
burden and expense on them.
    \1012\ EEI reply comments at 27-29, EPSA reply comments at 11-
14.
---------------------------------------------------------------------------

    872. State AGs and Advocates warn that the regional approach will
result in a too infrequent analysis of each area. They and others state
that, with the combined approach, each specific region will only be
looked at completely every three years, which is less oversight than
the Commission has currently.\1013\
---------------------------------------------------------------------------

    \1013\ See, e.g., State AGs and Advocates at 49-51, Reliant at
9-11, Mirant at 2-6, EPSA at 39-40, EEI reply comments at 27-29,
EPSA reply comments at 11-14.
---------------------------------------------------------------------------

    873. FirstEnergy notes that the Commission has encouraged PJM and
Midwest ISO to eliminate ``seams'' between their respective regions and
comments that the proposal to schedule submittal of updated market
power analyses for sellers in these two regions

at different times is inconsistent with the reasons underlying adoption
of common filing dates. Mirant states that the limited number of
consultants that perform market power analyses use separate,
proprietary databases and warns that the market data submitted on a
regional basis will remain inconsistent. Further, Mirant asserts that
there may be antitrust issues if a group of competing sellers jointly
hires one consultant.
    874. NRECA replies that any increase in the burden on sellers does
not outweigh the substantial benefits of greater data consistency and a
complete picture of each region under review.\1014\ APPA/TAPS assert
that the Commission should not sacrifice improvements to its program
for the interests of a few companies and that any increased cost to
companies associated with regional reviews is outweighed by the
companies' profits from market-based rate sales. They dismiss concerns
regarding a scarcity of consultants, noting that the market should
respond to an increase in demand for consulting services, and that
``competition will force efficiency gains to be passed along to
consultants'' clients.'' \1015\ Further, with respect to a group of
sellers jointly hiring a consultant to produce a market analysis, they
comment that antitrust counsel should be able to ensure joint
representation does not result in improper information sharing.\1016\
---------------------------------------------------------------------------

    \1014\ NRECA reply comments at 28-30.
    \1015\ APPA/TAPS reply comments at 20.
    \1016\ Id. at 19-21.
---------------------------------------------------------------------------

    875. PNM/Tucson state that the updated market power analyses in a
given region should be deliberately staggered so that utilities are
able to build upon data sets already submitted in prior proceedings,
instead of each having to construct its own, which would result in
varying, competing data sets.
    876. Mirant and FP&L add that with all the entities filing
concurrently it will be difficult for some, such as non-transmission
owning entities, to acquire the necessary data (i.e., simultaneous
import limit data). NRECA, Mirant and Powerex ask the Commission to
have transmission-owning utilities file their updated market power
analyses (or information necessary for others to perform preliminary
screens) at a minimum 90 days prior to the regional due date;
MidAmerican requests that the Commission require each transmission
provider to post to its OASIS a simultaneous import study 60 days
before the filing deadline that could be used by first-tier entities to
develop their market power analyses. Similarly, Suez/Chevron suggests
requiring RTOs and/or control area operators in each region to file
certain information in advance of the filing deadline so that sellers
can rely on uniform baseline data.\1017\ EEI critiques the proposals
for sharing of data prior to submission of triennial reviews, stating
that this would increase the complexity of an already cumbersome
process.\1018\
---------------------------------------------------------------------------

    \1017\ The data Suez/Chevron refer to include the information
indicated in proposed Appendix C, Pivotal Supplier Analysis at Rows
E through J, O, P and Q and also proposed Appendix C, Wholesale
Market Share Analysis at Rows F through Q, and the accompanying
workpapers.
    \1018\ EEI reply comments at 27-29.
---------------------------------------------------------------------------

    877. APPA/TAPS state that data sharing by companies should be
enhanced by regional reviews, not impaired, and that more robust data
and opportunities to reconcile conflicting submissions with a regional
review will lead to a better analysis by the Commission.\1019\
---------------------------------------------------------------------------

    \1019\ APPA/TAPS reply comments at 19-21.
---------------------------------------------------------------------------

    878. MidAmerican asserts that the Commission should allow more time
between the end of the qualification period and the filing of market
power analyses. It states that these analyses require Form 1 data that
is not available until several months after the end of the calendar
year and that control area loads as filed in Form 714 are frequently
not available until the third quarter following the end of the calendar
year, usually July. Additionally, it states that generation and load
data from Forms EIA-860 and EIA-861, respectively, are likewise not
available until late in the following year. Accordingly, it suggests
that market analyses should not be due until mid-October following the
end of the qualification period, allowing roughly 90 days between the
availability of Form 714 and the deadline for filing.\1020\
---------------------------------------------------------------------------

    \1020\ See MidAmerican at 33.
---------------------------------------------------------------------------

    879. Many commenters also argue that the Commission should extend
the time until the first regional reviews are due. Suggested beginning
filing dates include: the first filing period for a region that is no
earlier than a company's next required updated analysis; \1021\ the
first filing period that occurs no earlier than two years from the
latest filed updated analysis; \1022\ the first filing period that is
no earlier than one year from the latest filed updated analysis; \1023\
or 180 days after the Final Rule is published in the Federal
Register.\1024\ Duke suggests that, rather than extending the first
filing times, the Commission clarify that those entities due to file
their next updates before the scheduled regional reviews are due can
forgo making any interim filings.
---------------------------------------------------------------------------

    \1021\ See Consumers at 2-4, Allegheny at 16-18.
    \1022\ See MidAmerican at 30-33.
    \1023\ See Constellation at 13.
    \1024\ See Allegheny at 16-18.
---------------------------------------------------------------------------

    880. APPA/TAPS ask the Commission to extend the period for
commenting on the updated market power analyses from the current 21-day
comment period to 60 days, at a minimum. They state that because
numerous sellers will file the updated market power analyses
contemporaneously, intervenors should be given sufficient time to make
meaningful use of the expanded body of information and to prepare
multiple pleadings dealing with various sellers in the region. They add
that the additional time should improve the quality of the analyses
that the Commission receives from intervenors.
    881. Finally, regarding the Commission's proposal to require all
updates (and all new applications) to include an appendix listing all
generation assets owned or controlled by the corporate family, in-
service dates and capacity ratings by unit, Duke agrees with the
proposal that the appendix should also reflect all electric
transmission and natural gas intrastate pipelines and/or gas storage
facilities owned or controlled by the corporate family. It states that
having such a standardized listing will be helpful both to the
Commission and to other market participants.\1025\ Duke cautions,
however, that including the location of transmission and gas pipeline
facilities in the appendix could conflict with CEII requirements, and
requests clarification that sellers will have discretion with
locational descriptions.
---------------------------------------------------------------------------

    \1025\ Duke at 49.
---------------------------------------------------------------------------

Commission Determination
    882. The Commission adopts the NOPR proposal to conduct a regional
review of updated market power analyses, with certain modifications. We
agree with commenters such as APPA/TAPS that the regional approach will
lead to data consistency and availability. In this regard, both the
Commission and market participants will benefit from greater data
consistency that will result from regional examination of updated
market power analyses and a methodical study of all sellers in the same
region. This will give the Commission a more complete view of market
forces in each region and the opportunity to reconcile conflicting
submissions, enhancing our ability to ensure that sellers' rates remain
just and reasonable.
    883. Although some commenters express concern that a regional
review approach will increase administrative

burdens, particularly for sellers operating in multiple regions, we
believe that the Commission's proposal properly and fairly balances the
need to effectively monitor and mitigate market power in wholesale
markets with the desire to minimize any administrative burden
associated with the filing and review of updated market power analyses.
While we recognize that some sellers may have to file updates more
frequently than they do currently, we have carefully balanced the
interests of all involved, and we believe that regional reviews of
updated market analyses is both needed and desirable and will enhance
the Commission's ability to continue to ensure that sellers either lack
market power or have adequately mitigated such market power.
    884. We note that sellers currently must prepare a market power
analysis for all of their generation assets nationwide. Some sellers
with assets in multiple regions have chosen to submit their individual
updated market power analyses when each is due (every three years)
rather than combining them into a single updated market power analysis.
Others file one updated market power analysis for the entire corporate
family, with individual analyses of the different markets in which
their assets are located. Either way, the same analyses must be filed
under the status quo and the approach adopted in this Final Rule. The
timing may differ, but the increased burden is minimal.\1026\
---------------------------------------------------------------------------

    \1026\ In this regard, we note that preparation of multiple
market power analyses is likely less burdensome and less expensive
than what would otherwise be required under cost-based regulation
which can result in extended administrative litigation to determine
the just and reasonable rate.
---------------------------------------------------------------------------

    885. Nevertheless, considering the comments received and upon
further review of the Commission's proposal, we believe that some of
the proposed regions should be consolidated. Therefore, we will reduce
the number of regions from the proposed nine to six. In Appendix D we
identify the six regions (Northeast, Southeast, Central, Southwest
Power Pool, Southwest, and Northwest), and will require Category 2
sellers that own or control generation assets in each region to file an
updated market power analysis for that region every three years based
on a rotating schedule shown in the Appendix.\1027\ We believe that,
with fewer and larger regions, some sellers will likely be present in
fewer regions and administrative burdens for those sellers accordingly
will be reduced. In addition, the decrease in the number of regions
will also extend the time period between filings. In the NOPR, the
Commission stated that three regions would be reviewed per year, with
four months between each set of filings. Here we adopt review of two
regions per year, with the filing periods six months apart.
---------------------------------------------------------------------------

    \1027\ Concerning power marketers that may not own or control
generation assets in any region, we will require the submission of a
filing explaining why the seller meets the Category 1 criteria, as
discussed above. Power marketers must submit such a filing with the
first scheduled geographic region in which they make any sales.
---------------------------------------------------------------------------

    886. Regarding FirstEnergy's argument that PJM and Midwest ISO
should be placed in the same region, we continue to encourage PJM and
the Midwest ISO to address ``seams'' issues. However, we find that
placing them in different regions for the purpose of determining when
an updated market power analysis is submitted should in no way affect
or discourage efforts to address seams between these two regions. Other
considerations (such as balancing RTO/ISO and non-RTO/ISO filings, and
scheduling approximately the same number of filings each year) outweigh
FirstEnergy's concerns.
    887. The Commission rejects the arguments by some commenters that
the regional approach will result in too infrequent an analysis of each
area. As a practical matter, currently sellers are required to file an
updated market power analysis every three years. In the intervening
years between updated market power analyses, most utilities either
enjoy the 18 CFR 35.27(a) exemption from filing a generation market
power analysis or rely on the previously filed updated market power
analysis. The regional approach will provide the Commission with a
snapshot of sellers across a larger area and will provide a more
accurate view of simultaneous import capability into the relevant
geographic markets under review. Accordingly, contrary to claims that
the regional approach will result in less Commission oversight, the
regional approach will enhance the Commission's ability to analyze
market power using better data with less opportunity for conflicting
claims of ownership or control of generation assets.
    888. Regarding concerns about the scarcity of consulting firms, we
note that our proposal will not necessarily increase the number of
market power analyses to be performed (indeed, by exempting all
Category 1 sellers from submitting updated market power analyses, the
number may be decreased). We agree with APPA/TAPS that any shortage of
consultants performing market power analyses should be temporary as
firms adjust to a new schedule reflecting the regional review timetable
and take precautions to prevent improper information sharing.
    889. We agree with commenters that transmission-owning entities
should file their updated market power analyses in advance of others in
each region. Thus, the Commission will modify the schedule proposed in
the NOPR to better allow sellers to rely on the transmission-owning
utilities' information, and we will adopt a staggered filing approach
for each region which will require different types of entities to file
at different times. The transmission-owning utilities, which have the
information necessary to perform SIL studies, will be required to file
their updated market power analyses first. Six months later, all others
in that region will be required to file their updated market power
analyses.\1028\
---------------------------------------------------------------------------

    \1028\ If the Commission has not processed a particular SIL
study before six months have passed and non-transmission owning
entities must file their updated market power analyses, then those
entities should rely on the filed SIL study. If the initial SIL
study subsequently changes, the Commission will make conforming
adjustments as needed.
---------------------------------------------------------------------------

    890. Staggering the time periods within which transmission-owning
and non-transmission-owning utilities will be required to submit their
updated market power analyses will provide an opportunity for those
non-transmission owning sellers that need simultaneous transmission
import limits to perform the screens to rely on the SIL studies
performed by the transmission-owning utilities rather than rely on a
``proxy'' for the import limits.
    891. Our experience is that sellers located in RTOs/ISOs typically
do not need to rely on a SIL study in performing the screens, and
transmission-owning utilities in RTOs/ISOs typically do not prepare or
submit such studies. Accordingly, staggered filings for sellers in
RTOs/ISOs may not be necessary for purposes of data availability.
Nevertheless, we will retain the staggered filing deadlines for all
regions for consistency and to avoid any confusion in this regard. If a
particular seller that is located in an RTO/ISO finds that it needs
import data in order to complete its market power analysis, we expect
the RTO/ISO to assist such sellers if requested.
    892. In response to MidAmerican's suggestion that the Commission
allow adequate time between the date that all data is available and the
date that a region's analyses are due, we will schedule the updates to
be filed in December (12 months after the study year), and June (18
months after the study year). We note that studies due in

December and June may be filed anytime during the applicable month.
Such a schedule will allow adequate time for the data to be available
(at least 6 weeks after EIA Forms 860 and 861 become public) and the
analyses to be completed.
    893. In response to commenters' requests that the Commission extend
the time until the first analyses are due, we will commence the
schedule in December 2007. The Commission believes this will provide
adequate notice and time to prepare the analyses. In addition, we
clarify that sellers that otherwise would have been required to file an
updated market power analysis before the effective date of this rule
should submit their updated market power analyses in accordance with
past orders directing them to do so. Starting with the effective date
of this rule, sellers should submit their updated market power analyses
in accordance with the schedule set forth in Appendix D.
    894. We also agree with the suggestion of APPA/TAPS to extend the
period for intervenors to comment on the updates. We agree that
extending the comment period will allow intervenors a better
opportunity to review and comment on filings, especially considering
the large number of filings that will be submitted at one time. For
that reason, the Commission will establish a 60-day comment period for
updated market power analyses. Further, we adopt the NOPR proposal to
require that with each new application and updated market power
analysis, the seller must list in an appendix, among other things, all
affiliates that have market-based rate authority and identify any
generation assets owned or controlled by the seller and any such
affiliate. In addition, we extend this obligation to relevant change in
status notifications.\1029\ We believe that requiring the submission of
such data will provide the Commission with more accurate and up-to-date
information about each corporate family and will address some of our
concerns regarding confusion that has occurred with respect to
corporate families and, in particular, what sellers are authorized to
transact at market-based rates in each corporate family.
---------------------------------------------------------------------------

    \1029\ Relevant change in status notifications would include,
for example, the addition of new facilities, but not a name change.
---------------------------------------------------------------------------

    895. Accordingly, the appendix must list all generation assets
owned (clearly identifying which affiliate owns which asset) or
controlled (clearly identifying which affiliate controls which asset)
by the corporate family by balancing authority area, and by geographic
region, and provide the in-service date and nameplate and/or seasonal
ratings by unit. As a general rule, any generation assets included in a
seller's or a seller's affiliate's market study should be listed in the
asset appendix. We find that the in-service date and nameplate and/or
seasonal ratings help identify and provide the Commission and market
participants with critical market information. In addition, the
appendix must reflect all electric transmission and natural gas
intrastate pipelines and/or gas storage facilities owned or controlled
by the corporate family and the location of such facilities.
    896. In response to Duke, we clarify that CEII data is more
detailed than ``simply [giving] the general location of the critical
infrastructure.'' \1030\ As the location of the facilities listed in
the appendix need only include the balancing authority area and
geographic region (see sample appendix attached as Appendix B) in which
they are located, we do not anticipate that any CEII will be disclosed.
---------------------------------------------------------------------------

    \1030\ 18 CFR 388.113(c)(1)(iv).
---------------------------------------------------------------------------

F. MBR Tariff

Commission Proposal
    897. In the NOPR, the Commission proposed to adopt a market-based
rate tariff of general applicability (MBR tariff), applicable to all
sellers authorized to sell electric energy, capacity or ancillary
services at wholesale at market-based rates, as a condition of market-
based rate authority. The MBR tariff, as proposed, would require each
seller to comply with the applicable provisions of the market-based
rate regulations to be codified at 18 CFR Part 35, Subpart H. The
Commission proposed that each seller would be required to list on the
MBR tariff the docket numbers and case citations, where applicable, of
any proceedings where the seller received authorization to make sales
of energy between affiliates or where its market-based rate authority
was otherwise restricted or limited.
    898. The Commission explained that not all of the provisions of the
proposed regulations may be applicable to all sellers. For example, a
seller may not wish to offer ancillary services under the tariff. The
Commission sought comments regarding whether a placeholder should be
reserved in the MBR tariff for the seller to indicate those parts of
the regulations that are not applicable to it.
    899. The Commission stated that this streamlining effort is not
intended to reduce the flexibility of sellers and customers in
negotiating the terms of individual transactions. The Commission noted
that sellers would continue to negotiate the terms and conditions of
sales entered into under their MBR tariff, and the terms and conditions
of those underlying agreements and the transaction data would be
reflected in the quarterly EQRs. The Commission stated that if sellers
wish to offer or require certain ``generic'' terms and conditions that
in the past were contained in their market-based rate tariff, they may
place customers on notice of such requirements by including such
information on a company Web site and include any related provisions in
individual transaction agreements. The Commission explained its desire
that the MBR tariff reflect, in a consistent manner, only those matters
that are required to be on file.\1031\
---------------------------------------------------------------------------

    \1031\ NOPR at P 163.
---------------------------------------------------------------------------

    900. Further, rather than each entity having its own MBR tariff,
which can result in dozens of tariffs for each corporate family with
potentially conflicting provisions, the Commission proposed that each
corporate family have only one tariff, with all affiliates with market-
based rate authority separately identified in the tariff.\1032\ The
Commission stated that this would reduce the administrative burden and
confusion that occurs when there are multiple, and potentially
conflicting, tariffs in a single corporate family, and would allow the
Commission and customers to know what sellers are in each corporate
family.
---------------------------------------------------------------------------

    \1032\ Id. at P 164.
---------------------------------------------------------------------------

1. Tariff of General Applicability
Comments
    901. Several commenters do not support the adoption of a tariff of
general applicability. Allegheny argues that ``the Commission is
without legal authority to impose a one-size-fits-all market-based rate
tariff.'' \1033\ It argues that the Commission has made no finding of
undue discrimination and is not proposing to act under FPA section 206,
and asserts that administrative efficiency is an insufficient
justification to impose a standardized tariff on market-based rate
sellers. Similarly, FirstEnergy asserts that requiring a uniform MBR
tariff would impose undue administrative burdens on sellers, as each
would have to make a compliance filing modifying its currently
effective tariff and would also

have to expand its compliance program to confirm that its tariff was in
conformance with the uniform tariff.
---------------------------------------------------------------------------

    \1033\ Allegheny at 20.
---------------------------------------------------------------------------

    902. Xcel states that the Commission has not made clear its basis
for and expected benefit from a pro forma tariff. Xcel suggests that,
if it is adopted, then the Commission should describe any limitations
on a seller's market-based rate authority, in addition to identifying
any docket numbers where they were imposed.\1034\
---------------------------------------------------------------------------

    \1034\ Xcel at 17.
---------------------------------------------------------------------------

    903. Similarly, Avista Corporation believes that all of the terms
and conditions of a tariff should be included in one easily accessible
place. Requiring that certain terms and conditions be posted on a
company Web site, rather than the tariff, is bound to cause unnecessary
confusion as to which terms and conditions apply, and will increase the
burden on both the utilities to notify, and customers to remain
apprised, of when those terms and conditions change.\1035\
Additionally, FirstEnergy states that a process by which a seller
places customers on notice of such terms and conditions beyond the
minimum by including such information on a company Web site, and
including related provisions in individual transaction agreements,
would be cumbersome at best, and would deprive sellers and customers of
the benefit of having the ``generic'' terms and conditions in one
document.\1036\
---------------------------------------------------------------------------

    \1035\ Avista at 10-12.
    \1036\ First Energy at 27-31.
---------------------------------------------------------------------------

    904. Commenters who responded to the question of whether a
placeholder should be reserved in the tariff to indicate parts of the
regulations that are not applicable to the seller, support the idea of
a placeholder.\1037\
---------------------------------------------------------------------------

    \1037\ Avista at 10; MidAmerican at 33 (suggesting that the
placeholder could be included as an attachment to each seller's
tariff in order to preserve the generic nature of the tariff
itself); Progress Energy at 19.
---------------------------------------------------------------------------

    905. Mirant notes that the sample MBR tariff attached to the NOPR
did not provide for specific RTO/ISO ancillary service products and
states that it is unclear how the Commission would identify which
seller under the corporate tariff is permitted to sell the specific
ancillary services traded in each region. Mirant asks whether the
Commission would require each seller of ancillary services to maintain
an ancillary services tariff on file with the Commission. Mirant
further notes that some sellers not located in an RTO/ISO have been
granted authorization to sell ancillary services at market-based rates
if they post those services on their Web sites and suggests that the
requirement that sellers maintain such a Web site would have to be
cross-referenced in the corporate tariff.
    906. EEI states that companies with operations in multiple markets
may need to tailor their market-based rate tariffs to reflect the
particular circumstances of each market. This will be true for RTO and
ISO markets as well as non-RTO markets. In each of these cases,
participants in the markets typically must agree to abide by specific
market terms and conditions that may need to be reflected in the
tariff. Therefore, EEI encourages the Commission to allow each company
to file multiple tariffs, as may be necessary to reflect these market
differences.\1038\
---------------------------------------------------------------------------

    \1038\ EEI at 49.
---------------------------------------------------------------------------

    907. Regarding the timing of tariff implementation, MidAmerican
comments that the Commission should apply the new tariff prospectively
only to future transactions, and urges that existing tariffs should be
unaffected until existing transactions expire. MidAmerican observes
that if existing tariffs containing terms and conditions are replaced
by the proposed generic tariff, then neither the new tariff nor the
existing service agreements will reflect the terms and conditions of
ongoing transactions.
    908. ELCON supports the proposed MBR tariff, believing that it will
be more customer-friendly. APPA/TAPS agree, stating that a pro forma
tariff will help by addressing variations in MBR tariffs that increase
transaction costs by creating potential confusion about applicable
terms and conditions.\1039\ A number of commenters find some merit in
the concept of the MBR tariff, but request clarifications or
revisions.\1040\ Some of these entities comment that companies with
operations in multiple markets may need to tailor their tariffs to
reflect the particular circumstances of each market, and state that
participants in organized markets typically must agree to abide by
specific terms that may need to be reflected in their tariffs.
---------------------------------------------------------------------------

    \1039\ EEI counters APPA/TAPS, asserting that each seller's MBR
tariff in a given market is fully available to market participants,
so there should be no confusion. EEI reply comments at 30-31.
    \1040\ FirstEnergy at 27-29; Constellation at 27-29; Progress
Energy at 19-23.
---------------------------------------------------------------------------

    909. Indianapolis P&L asserts that any restrictions on market-based
rate authority should be in a tariff, rather than in Commission orders.
It believes that ``converting concepts (e.g., all sales in a control
area will be mitigated) into precise contract-worthy terms and
conditions can be very difficult'' and argues that the best way to
prevent misunderstandings between parties is to have ``precise,
transparent and, publicly-available language in a tariff explaining the
precise conditions on an entity's market-based rate authority.'' \1041\
Indianapolis P&L further warns that ``having restrictions on an
entity's market-based rate authorization contained in a tariff only
through cross-reference to a Commission order may run afoul of the FPA
requirement that rates be `on file' with the Commission.'' \1042\
---------------------------------------------------------------------------

    \1041\ Indianapolis P&L at 15.
    \1042\ Id.
---------------------------------------------------------------------------

    910. Constellation seeks clarification that a seller that has
received waiver from the code of conduct need not report in its MBR
tariff that the affiliate restrictions in proposed Sec.  35.39 do not
apply to it. Alternatively, Constellation suggests that the Commission
allow sellers to list the appropriate docket numbers in which the
Commission has granted waivers of the code of conduct or provide a
place to indicate that the provisions are not applicable. Constellation
notes that many market-based rate sellers have included provisions in
their tariffs regarding reassignment of transmission capacity and sale
of firm transmission rights, congestion contracts, or fixed
transmission rights (as a group, ``FTRs''), and requests that the
Commission either provide for inclusion of such provisions in the MBR
tariff or state affirmatively that they will not be required.
Commission Determination
    911. In the NOPR, the Commission explained that it was acting
pursuant to sections 205 and 206 of the FPA in proposing to amend its
regulations to govern market-based rate authorizations for wholesale
sales of electric energy, capacity and ancillary services by public
utilities, ``including modifying all existing market-based rate
authorizations and tariffs so they will be expressly conditioned on or
revised to reflect certain new requirements proposed herein.'' \1043\
Section 205 of the FPA requires that all rates for sales subject to our
jurisdiction, and all rules and regulations pertaining to such rates,
be just and reasonable. Section 206 of the FPA provides that, when the
Commission finds that a rate or a rule, regulation or practice
affecting a rate, is unjust or unreasonable, the Commission shall
determine the just and reasonable rate, rule or regulation and order it
so.
---------------------------------------------------------------------------

    \1043\ NOPR at P 1.
---------------------------------------------------------------------------

    912. Based on careful consideration of the comments received, the
Commission agrees that complete uniformity of market-based rate tariffs
is not necessary. However, pursuant to our

authority under sections 205 and 206, we conclude that the lack of
consistent tariff form and content has hampered our ability to manage
the market-based rate program in an efficient manner and has introduced
uncertainty for potential customers. We find that continuing to allow
basic inconsistencies in the market-based rate tariffs on file with the
Commission is unjust and unreasonable. Nevertheless, we find that we
can achieve our goal without imposing a uniform tariff requirement on
all sellers by, instead, requiring that all sellers revise their
market-based rate tariffs to contain certain standard provisions, as
discussed below.
    913. We believe the approach we adopt here addresses the concerns
of commenters that the Commission not impose a one-size-fits-all
approach while, at the same time, presenting a uniform set of required
provisions that will provide adequate certainty and will be more
customer friendly. In addition, we believe that allowing sellers to
include seller specific terms and conditions in their market-based rate
tariffs will offer a greater degree of transparency and serve customers
by providing for the opportunity to have all terms and conditions
identified and in one place. As Progress Energy asserts, ``[g]reater
consistency of tariffs within the industry * * * will not only reduce
customer confusion, it also will reduce the administrative burden of
those responsible for the implementation and administration of the
tariff.'' \1044\
---------------------------------------------------------------------------

    \1044\ Progress Energy at 19-20.
---------------------------------------------------------------------------

    914. Accordingly, in this Final Rule, we adopt two standard
``required'' provisions that each seller must include in its market-
based rate tariff: a provision requiring compliance with the
Commission's regulations and a provision identifying any limitations
and exemptions regarding the seller's market-based rate authority.
    915. In particular, with regard to compliance with the Commission's
regulations, we will require each seller to include the following
provision in its market-based rate tariff:

    Seller shall comply with the provisions of 18 CFR Part 35,
Subpart H, as applicable, and with any conditions the Commission
imposes in its orders concerning seller's market-based rate
authority, including orders in which the Commission authorizes
seller to engage in affiliate sales under this tariff or otherwise
restricts or limits the seller's market-based rate authority.
Failure to comply with the applicable provisions of 18 CFR Part 35,
Subpart H, and with any orders of the Commission concerning seller's
market-based rate authority, will constitute a violation of this
tariff.

    916. We also will require that the seller include a provision
identifying all limitations on its market-based rate authority
(including markets where the seller does not have market-based rate
authority) and any exemptions from, or waivers of, or blanket
authorizations under the Commission's regulations that the seller has
been granted (such as exemption from affiliate sales restrictions;
waiver of the accounting regulations; blanket authority under Part 34
for the issuances of securities and liabilities, etc.), including cites
to the relevant Commission orders.
    917. In addition to the required tariff provisions, we also will
adopt a set of standard provisions (which we reference herein as
``applicable provisions'') that must be included in a seller's market-
based rate tariff to the extent that they are applicable based on the
services provided by the seller. For example, if the seller's sales
under its market-based rate tariff are subject to mitigation, it must
include the standard provision governing mitigated sales. Similarly, if
the seller makes sales of certain ancillary services in certain RTOs/
ISOs, or if it makes sales of ancillary services as a third-party
provider, it must include the standard ancillary services provisions,
as applicable.
    918. Attached hereto as Appendix C is a listing of the standard
required provisions and the standard applicable provisions. The
Commission will post these provisions on its web site and will update
them as appropriate.
    919. In addition, as discussed more fully below, we will permit
sellers to list in their market-based rate tariffs additional seller-
specific terms and conditions that go beyond the standard provisions
set forth in Appendix C.
    920. As Constellation observes, the uniform MBR tariff proposed in
the NOPR did not provide for sellers to offer reassignment of
transmission capacity or FTRs. As revised in this Final Rule, Appendix
C does not contain a standard provision for the reassignment of
transmission capacity. The Commission believes that, although these
items have historically been offered in the context of sales of
electric energy and capacity, they are transmission-related rather than
generation services. Accordingly, the Commission has made provision for
reassignment of transmission capacity in the revised OATT, as discussed
in Order No. 890.\1045\ Thus, we state affirmatively here that
provisions concerning the reassignment or sale of transmission capacity
or FTRs are not required to be included in a seller's market-based rate
tariff, nor is it appropriate to include transmission-related services
in the seller's market-based rate tariff. Sellers seeking to reassign
transmission capacity should adhere to the provisions of Order No. 890
\1046\ and should revise their market-based rate tariffs to remove
provisions governing these services at the time they otherwise revise
their tariffs to conform them to the standard provisions discussed
herein.
---------------------------------------------------------------------------

    \1045\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 814-816
& n.496.
    \1046\ Id. at P 816.
---------------------------------------------------------------------------

    921. Regarding FTRs and, incidentally, virtual trading,\1047\ we
note that Commission-approved market rules for RTOs/ISOs address
resales of FTRs and virtual trading to ensure that no market power is
exercised in such trades. In addition, sellers engaging in these
activities sign a participation agreement with RTOs/ISOs which require
them to abide by those market rules. Hence, the approval of the market
rules in conjunction with approval of the generic participation
agreement by the Commission constitutes authorization for public
utilities to engage in the resale of FTRs and virtual transactions, and
no separate authorization is required under the FPA. The Commission's
monitoring of the effectiveness of the market rules and oversight of
participants engaging in FTR resales and virtual trading in the RTO/ISO
markets provide sufficient protections against the exercise of market
power. Nevertheless, if the Commission concludes in the future that a
separate section 205 authorization would better enable us to ensure
that FTR resales or virtual trading do not result in unjust and
unreasonable

wholesale rates, the Commission may change the filing requirements for
engaging in these activities.\1048\
---------------------------------------------------------------------------

    \1047\ Virtual trading involves sales or purchases in an RTO/ISO
day-ahead market that do not go to physical delivery. For example,
virtual bidding allows entities that do not serve load to make
purchases in the day-ahead market. Such purchases are subsequently
sold in the real-time spot market. Likewise, entities without
physical generating assets can make power sales in the day-ahead
market that are subsequently purchased in the real-time market. By
making virtual energy sales or purchases in the day-ahead market and
settling these positions in the real-time, any market participant
can arbitrage price differences between the two markets. For
example, a participant can make virtual purchases in the day-ahead
if the prices are lower than it expects in the real-time market, and
then sell the purchased energy back into the real-time market. The
result of this transaction would be to raise the day-ahead price
slightly due to additional demand and, thus, improve the convergence
of the day-ahead and real-time energy prices due to additional
supply in the real-time. Virtual trading is not limited to entities
without assets. For example, generators or loads that prefer to
transact at the real-time price may use virtual trading to
accomplish this without having to under-schedule load or withhold
generation from the day-ahead market by submitting matching virtual
trades.
    \1048\ To the extent that this position departs from our holding
in California Independent System Operator, Inc., 89 FERC ] 61,153 at
61,435-36 (1999) (requiring, among other things, that all public
utility resellers of FTRs file a rate schedule for authorization to
make resales) we note that that analysis rested on Order No. 888's
filing requirements for resales of transmission capacity. As Order
No. 890 has modified the filing requirements with respect to
reassignments of transmission capacity (in addition to the reasons
cited above) we find it appropriate not to require a separate rate
schedule for FTRs or virtual trading at this time.
---------------------------------------------------------------------------

    922. To the extent that individual companies within a corporate
family need or desire a tariff separate from their affiliates, the
Commission will allow this, as discussed below. Although EEI asserts
that participants in organized markets may need to meet the
requirements of various organized markets, EEI offers no specific
examples in this regard. Nevertheless, we believe that our action to
replace the uniform MBR tariff proposed in the NOPR with standard
provisions that we will require to be included in a seller's market-
based rate tariff and the allowance of seller specific terms and
conditions in the market-based rate tariff should meet the needs of all
sellers with market-based rate authority.
    923. We will require all market-based rate sellers to make section
206 compliance filings to modify their existing tariffs to include the
standard required provisions set forth in Appendix C as well as any of
the standard applicable provisions. These compliance filings are to be
made by each seller the next time the seller proposes a tariff change,
makes a change in status filing, or submits an updated market power
analysis (or a demonstration that Category 1 status is appropriate) in
accordance with the schedule in Appendix D.
    924. One of the required standard provisions (the compliance with
Commission regulations provision) states that failure to comply with
the applicable provisions of the regulations adopted in this Final Rule
or with any Commission orders concerning a seller's market-based rate
authority will constitute a violation of the seller's tariff. As
provided in this Final Rule, the regulations at 18 CFR Part 35, Subpart
H will become effective 60 days after publication of this Final Rule in
the Federal Register. Accordingly, this provision will be considered
part of each seller's market-based rate tariff effective as of the
effective date of this Final Rule. As noted above, all sellers will be
required to amend their market-based rate tariffs to include the
required standard provisions, as well as the required applicable
provisions, either at the time that they file any other amendment to
their current tariffs, when they report a change in status, or when
they file their updated market power analysis, whichever occurs first.
However, regardless of the date on which sellers make their compliance
filing, the provision providing that failure to abide by the
regulations will constitute a tariff violation will be considered part
of each seller's current market-based rate tariff as of 60 days after
the date of publication of this Final Rule in the Federal Register.
2. Placement of Terms and Conditions
Comments
    925. In the NOPR, the Commission observed that the purpose of an
MBR tariff of general applicability is not to direct the terms and
conditions of particular sales but to ensure that the tariff on file
reflects in a consistent manner only those matters that are required to
be on file, namely, the identity of the seller(s), the docket number(s)
of the market-based rate authorization, the seller's requirement to
follow the conditions of market-based rate authorization contained in
the proposed regulations, and that the rates, terms and conditions of
any particular sale will be negotiated between the seller and
individual purchasers. The Commission stated that sellers could offer
other ``generic'' terms and conditions as information on a company Web
site.
    926. In response, several commenters state that requiring companies
to move generic terms and conditions to a company Web site, or to
replicate them in individual agreements or rely on Commission orders,
would be confusing and/or overly cumbersome.\1049\ Avista and
FirstEnergy believe that all of the terms and conditions of a tariff
should be in one easily accessible place; otherwise, sellers and
customers would be deprived of the benefit of having them in one
document. According to FirstEnergy, this ``would be contrary to the
goal of establishing a `customer-friendly tariff' as contemplated in
the NOPR.'' \1050\ Further, FirstEnergy states that the fact that the
Commission may not review individualized commercial terms included in
tariffs does not make it unjust and unreasonable for sellers to include
such terms in their tariffs; thus, there is no basis for the Commission
to exercise its authority under FPA Sec.  206 to require changes to
existing market-based rate tariffs. However, Progress Energy agrees
with the Commission that commercial terms and conditions for sales
under the MBR tariff should not be filed for Commission review.
---------------------------------------------------------------------------

    \1049\ Avista at 10-12; Indianapolis P&L at 14-15; FirstEnergy
at 27-31.
    \1050\ FirstEnergy at 29.
---------------------------------------------------------------------------

Commission Determination
    927. As discussed above, we find consistency of standard market-
based rate tariff provisions to be essential, and we modify the
proposal in the NOPR by adopting a set of standard tariff provisions
that we will require each seller to include in its market-based rate
tariff, but we do not adopt the NOPR proposal that all sellers adopt
the uniform MBR tariff of general applicability set forth in the NOPR.
After careful consideration of the comments, we also will not adopt the
NOPR proposal that sellers offer other generic terms and conditions as
information on a company Web site. We agree with commenters as to the
benefits to sellers and customers of having all terms and conditions
relevant to a seller's market-based rate power sales available in one
document. Thus, we will permit sellers to list in their market-based
rate tariffs additional terms and conditions that go beyond the
standard provisions required in Appendix C (with the exception of
transmission-related services, as discussed above), as modified in this
Final Rule. As has been our practice in many instances, we will not
evaluate the justness and reasonableness of such additional provisions,
but will allow them to be included in the market-based rate tariff that
is on file with the Commission. Our reasoning is that such additional
provisions are presumptively just and reasonable. A seller granted
market-based rate authority has been found not to have, or to have
adequately mitigated, market power; thus, if a customer is not
satisfied with the terms and conditions offered by a seller, the
customer can choose to purchase from a different supplier.
3. Single Corporate Tariff
Comments
    928. ELCON supports the NOPR proposal that each corporate family
have one tariff on file, stating that it will lead to better
transparency regarding what each seller in a corporate family owns or
controls. APPA/TAPS agree, commenting that a single corporate tariff
addresses recurring problems with determining exactly who is affiliated
with whom.\1051\ Sempra agrees in

general that the single tariff structure should eliminate confusion
that results when entities within the same corporate family have
tariffs with terms that differ.
---------------------------------------------------------------------------

    \1051\ EEI disagrees, contending that, since companies already
disclose affiliations in their individual market-based rate filings
and are separately subject to the Commission's affiliate
transactions rules, any confusion about affiliations does not
justify a single tariff requirement. EEI reply comments at 30-31.
---------------------------------------------------------------------------

    929. However, a number of commenters raise potential implementation
issues and believe that having all entities in a corporate family
selling under the same tariff should be optional and not
mandatory.\1052\ Several of these commenters state that the Commission
has not demonstrated the need for a single corporate tariff and believe
that the added burden of implementation would outweigh any
benefits.\1053\
---------------------------------------------------------------------------

    \1052\ See, e.g., EPSA at 41; Duke at 45-48; MidAmerican at 33-
35; FirstEnergy at 27-31; Constellation at 27-29; Progress Energy at
19-23; EEI at 49. Cogentrix also expresses reservations about
requiring a single corporate tariff. See Cogentrix/Goldman at 6-8.
    \1053\ See, e.g., Mirant at 6-10; FirstEnergy at 27-31.
---------------------------------------------------------------------------

    930. Some of the problems with the single corporate tariff proposal
identified by commenters include the following:
     The proposal does not make sense for diversified energy
companies with a variety of non-utility generator or power marketer
affiliates because it would require increased regulatory and legal
coordination among affiliates;
     The burden of replacing multiple market-based rate tariffs
with one umbrella tariff would be significant, requiring amendment and
re-execution of many documents with many trading counterparties, as
well as extensive changes to the existing quarterly reporting process;
     A single tariff listing all affiliates could create
confusion regarding which affiliates may be bound by certain executed
service agreements, or which terms and conditions apply to certain
affiliates;
     Confusion would result when trying to create a single
tariff per corporate family when sellers can have multiple corporate
families; listing the same seller on the MBR tariffs of multiple
corporate groups would not improve transparency; and
     Given that some sellers' upstream ownership can include
multiple investors, passive investors, and limited partners, the
proposal could impose a filing requirement on entities that have only a
passive role and may not otherwise be engaged in the energy business.
    931. Several commenters assert that, while they support the
objective of simplifying tariff administration, the Commission has not
considered the administrative and commercial ramifications of mandating
one tariff per family. For instance, Duke cites the possibility that
any seller under the corporate tariff could be sued for an affiliate's
alleged breach, and the complications of Company A selling Subsidiary X
to Company B and the status of X's sales under Company A's tariff.
Mirant questions how the sale of a subsidiary's MBR tariff to a non-
affiliate would be handled, given that the tariffs are assets that can
be bought and sold. In a related comment, Ameren asks for which company
or companies would the tariff be a jurisdictional facility for purposes
of FPA section 203. EPSA and Sempra request clarification regarding how
an enforcement action would be affected by the presence of other
members of a corporate family on the same tariff, and Ameren seeks
clarification on the effect of a revocation of market-based rate
authority of only some companies in a corporate family. MidAmerican
suggests that, since different affiliates within a corporate family may
have authority to offer different services, a service schedule to the
tariff should specify the products that each affiliate is authorized to
offer and any restrictions or limitations on a seller's market-based
rate authorization. Morgan Stanley notes that, in many cases, the
``parent'' is not a jurisdictional entity or is a holding company, and
recommends requiring each corporate family to designate a lead company
that will submit its filing and those of its affiliates, rather than
specifically appointing the ``parent corporation'' as the filing
entity. Duke urges the Commission to consider what legal means would be
required to ensure that the tariff is legally a separate and severable
tariff for each member of a family.
    932. Further, commenters state that there are transitional issues
that the Commission should consider, such as whether existing tariffs
will be superseded or cancelled and all existing service agreements
migrated to the joint tariff; which corporate entity would be required
to file and maintain the MBR tariff; and the extent to which affiliates
may have to file separate quarterly reports due to the fact that the
responsible employees are not shared (e.g., regulated versus
unregulated merchant employees).
    933. In reply comments, EPSA reiterates its opposition to a
mandatory single corporate tariff, urging the Commission to abandon the
proposal because it ``poses major practical obstacles for corporate
parents that own vastly differing affiliates.'' \1054\ EPSA contends
that the Commission's premise for adopting the proposal, i.e., entities
within a corporate family can have conflicting tariff provisions, is
mooted by the adoption of a standardized tariff. In addition, EPSA
echoes implementation concerns raised by other parties, in particular:
(1) The situation where a seller is a member of two corporate families;
and (2) increased regulatory burden from frequent tariff amendments
each time ownership changes and corporate affiliations are terminated
or created.
---------------------------------------------------------------------------

    \1054\ EPSA reply comments at 3-4.
---------------------------------------------------------------------------

    934. Indianapolis P&L argues that affiliates should be permitted to
maintain separate market-based rate tariffs for many of the reasons
already cited. In addition, it contends that consolidation will
increase the burden on many entities by requiring increased regulatory
and legal coordination between affiliates. Whereas many utilities
presently separate their utility and non-utility operations in part to
comply with Commission regulations, Indianapolis P&L asserts that
mandating a single tariff per corporate family would necessarily
require utility and non-utility affiliates to operate in closer
coordination. FirstEnergy agrees, stating that ``[t]he Commission
should not expect franchised public utilities with captive customers to
market power totally independently of their affiliates where they are
all required to sell power to wholesale purchasers under the same
tariff.'' \1055\
---------------------------------------------------------------------------

    \1055\ FirstEnergy at 30.
---------------------------------------------------------------------------

    935. Finally, some commenters state that the Commission's concerns
can be satisfied through means other than a single tariff per corporate
family. Duke recommends allowing affiliated utilities to operate with
separate but uniform tariffs while posting on their corporate Web sites
a centralized list of each of the affiliates' market-based rate
tariffs. Similarly, Progress Energy suggests requiring sellers to use
the standardized tariff but having them include a section identifying
all affiliates with market-based rate authority and any restrictions on
that authority.
Commission Determination
    936. We will modify the NOPR proposal and allow sellers to elect
whether to transact under a single market-based rate tariff for an
entire corporate family or under separate tariffs. The benefits that
the Commission hoped to realize by requiring all corporate families to
consolidate their operations under one tariff will be achievable by
other means, namely, by

having each individual seller revise its existing market-based rate
tariff to include the standard tariff provisions we require in this
Final Rule and by maintaining up-to-date information on sellers'
affiliates through the submission of asset appendices.\1056\
---------------------------------------------------------------------------

    \1056\ The asset appendix is discussed above in Implementation
Process.
---------------------------------------------------------------------------

    937. For the benefit of those sellers that choose a single
corporate tariff, we clarify that each seller should continue to report
its own transactions using the docket number under which it initially
received market-based rate authority.

G. Legal Authority

1. Whether Market-Based Rates Can Satisfy the Just and Reasonable
Standard Under the FPA
Comments
    938. A number of commenters challenge the Commission's authority to
adopt a market-based rate regime.\1057\ State AGs and Advocates contend
that the courts have never actually reviewed the Commission's market-
based rate program and found that it satisfies the FPA. They contend
that the Commission in the NOPR cited dictum in Louisiana Energy and
Power Authority v. FERC,\1058\ noting that the petitioner in that case
did not challenge the Commission's general policy of permitting market-
based rates in the absence of market power. They further argue that the
D.C. Circuit in Elizabethtown Gas Company v. FERC,\1059\ relied on
dictum in a prior gas case to the effect that, where markets are
competitive, it is ``rational'' to assume that a seller will make
``only a normal return on its investment.'' State AGs and Advocates
then criticize the D.C. Circuit's opinion, arguing that ``this sort of
judicial economic theorizing does not constitute either the substantial
evidence required to support orders of this Commission under the [FPA],
or the `empirical proof' required by the courts when an agency attempts
to substitute competition for statutorily required regulation.'' \1060\
---------------------------------------------------------------------------

    \1057\ E.g., State AGs and Advocates at 3-13, 18-28, 38-40;
NASUCA at 33-37.
    \1058\ 141 F.3d 364, 365 (D.C. Cir. 1998) (LEPA).
    \1059\ 10 F.3d 866, 870 (D.C. Cir. 1993) (Elizabethtown Gas).
    \1060\ State AGs and Advocates at 8-9.
---------------------------------------------------------------------------

    939. NASUCA similarly questions the Commission's reliance on
Elizabethtown Gas as the legal foundation for its market-based rate
regime. NASUCA suggests that the Supreme Court's decision in MCI v.
AT&T,\1061\ casts considerable doubt on the vitality of Elizabethtown
Gas and cases that follow its apparent endorsement of market-based
rates that did not consider the statutory filing issues found crucial
in MCI. NASUCA also notes that, in another case the Commission relied
on, Mobil Oil Exploration v. United Distribution Co.,\1062\ the Supreme
Court cited to FPC v. Texaco, where it held that just and reasonable
rates cannot be determined solely by reference to market prices.\1063\
---------------------------------------------------------------------------

    \1061\ 512 U.S. 218 (1994) (MCI).
    \1062\ 498 U.S. 211 (1991).
    \1063\ 417 U.S. 380, 397 (1974).
---------------------------------------------------------------------------

    940. Some commenters argue that a finding that competitive markets
exist is a prerequisite to relying upon market-based rate authority to
satisfy the mandates of the FPA.\1064\ Industrial Customers contend
that the Commission may rely on market-based rate authority to produce
just and reasonable rates if it finds that a competitive market exists
and the seller lacks or has adequately mitigated market power. They
submit that the duty to determine that a competitive market exists is
separate and independent of the determination that a seller lacks, or
has adequately mitigated, market power.
---------------------------------------------------------------------------

    \1064\ Industrial Customers at 3-12; NRECA at 6-10; State AGs
and Advocates reply comments at 17-22.
---------------------------------------------------------------------------

    State AGs and Advocates contend that the market-based rate program
offers no way to monitor whether existing competition results in just
and reasonable rates, nor a way to check rates if it does not.\1065\
---------------------------------------------------------------------------

    \1065\ State AGs and Advocates reply comments at 18-19, citing
Farmers Union (finding reliance on existing competition, with no
monitoring or mitigation, unacceptable).
---------------------------------------------------------------------------

    941. In reply, PNM/Tucson argues that the Commission need not
entertain attacks on the existence of competitive power markets and the
legality of market-based rates under the FPA, as they constitute
collateral attacks on recent Commission decisions and the Lockyer
opinion, and because a theoretical debate on the subject is beyond the
scope of this rulemaking proceeding. PNM/Tucson asserts that those
cases found that market-based rates are permissible by law and urges
the Commission to reject any attacks on market-based rates
generally.\1066\
---------------------------------------------------------------------------

    \1066\ PNM/Tucson reply comments at 3-4 (citing Lockyer and the
underlying Commission orders, State of California, ex rel. Bill
Lockyer v. British Columbia Power Exchange Corp., 99 FERC ] 61,247,
order on reh'g, 100 FERC ] 61,295 (2002)).
---------------------------------------------------------------------------

    942. Financial Companies respond to State AGs and Advocates'
assertion that the Commission should suspend or revoke all market-based
rates and return to cost-of-service ratemaking by commenting that the
complaining parties mischaracterize the state of the wholesale market.
Financial Companies enumerate the ``myriad of approval, reporting and
other obligations'' \1067\ that constitute the Commission's oversight
and point out that ISOs and RTOs provide another layer of market
monitoring and mitigation. They state that it is preferable to shape
market power remedies addressing specific circumstances than to revoke
market-based rate tariffs for all sellers.
---------------------------------------------------------------------------

    \1067\ Financial Companies reply comments at 10.
---------------------------------------------------------------------------

Commission Determination
    943. The Commission rejects arguments that it has no authority to
adopt market-based rates or that the market-based rate program it is
adopting in this rule does not comply with the FPA. The Supreme Court
has held that ``[f]ar from binding the Commission, the FPA's just and
reasonable requirement accords it broad ratemaking authority.* * * The
Court has repeatedly held that the just and reasonable standard does
not compel the Commission to use any single pricing formula in general.
* * *'' \1068\ It is settled law that market-based rates can satisfy
the just and reasonable standard of the FPA, as most recently
reaffirmed by the Ninth Circuit in Lockyer and Snohomish,\1069\ and the
court in Lockyer expressly denied a ``facial challenge to the market-
based [rate] tariffs,'' as discussed below.
---------------------------------------------------------------------------

    \1068\ See Mobil Oil Exploration v. United Distribution Co., 498
U.S. 211, 224 (1991) (Mobil Oil Exploration), citing FPC v. Hope
Natural Gas Co., 320 U.S. 591, 602 (1944); FPC v. Natural Gas
Pipeline Co., 315 U.S. 575, 586 (1942); Permian Basin Area Rate
Cases, 390 U.S. 747, 776-77 (1968) (Permian); Texaco; Mobil Oil
Corp. v. FPC, 417 U.S. 283, 308 (1974).
    \1069\ Public Utility District No. 1 of Snohomish County,
Washington v. FERC, 471 F.3d 1053 (9th Cir. 2006) (Snohomish).
---------------------------------------------------------------------------

    944. In the Lockyer court's analysis of the Commission's market-
based rate authority, the Ninth Circuit cited the Supreme Court's
determination in Mobil Oil Exploration. It also noted that the use of
market-based rate tariffs was first approved (by the courts) as to
sellers of natural gas in Elizabethtown Gas, then as to wholesale
sellers of electricity in LEPA.
    945. Commenters have also argued that the proposed rule
impermissibly relies solely on the market to determine just and
reasonable rates, as was the case in Texaco. We reject these arguments
as well.
    946. In Texaco, the Supreme Court found that the Natural Gas Act
(NGA) permits the indirect regulation of small-producer rates.\1070\
The Supreme Court

explained that ``[t]he Act directs that all producer rates be just and
reasonable but it does not specify the means by which that regulatory
prescription is to be attained. That every rate of every natural gas
company must be just and reasonable does not require that the cost of
each company be ascertained and its rates fixed with respect to its own
costs.'' \1071\ The Supreme Court noted that it had sustained rate
regulation based on setting area rates that were based on composite
cost considerations, citing its decision in FPC v. Hope Natural Gas Co.
\1072\ The Supreme Court further explained, with respect to the prior
area rate cases, ``we recognized that encouraging the exploration for
and development of new sources of natural gas was one of the aims of
the Act and one of the functions of the Commission. The performance of
this role obviously involved the rate structure and implied a broad
discretion for the Commission.'' \1073\ Quoting Permian Basin, the
Supreme Court added that ``[i]t follows that ratemaking 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.' '' \1074\
---------------------------------------------------------------------------

    \1070\ Cases under the NGA and the FPA are typically read in
pari materia. See, e.g., FPC v. Sierra Pacific Power Company, 350
U.S. 348, 353 (1956); Arkansas-Louisiana Gas Company v. Hall, 453
U.S. 571, 578 n.7 (1981).
    \1071\ 417 U.S. at 387.
    \1072\ 320 U.S. at 602 (``Under the statutory standard of `just
and reasonable' it is the result reached not the method employed
which is controlling.'').
    \1073\ Id. at 388.
    \1074\ Id. at 389, citing Permian, 390 U.S. at 776-777.
---------------------------------------------------------------------------

    947. The Texaco Court further stated that ``the prevailing price in
the marketplace cannot be the final measure of `just and reasonable'
rates mandated by the Act.'' \1075\ But, ``[t]his does not mean that
the market price of gas would never, in an individual case, coincide
with just and reasonable rates or not be a relevant consideration in
the setting of area rates.'' \1076\
---------------------------------------------------------------------------

    \1075\ Id.
    \1076\ Id.
---------------------------------------------------------------------------

    948. In Elizabethtown Gas, a decision relying on Texaco, the D.C.
Circuit addressed a Commission order approving a restructuring
settlement under which Transcontinental Gas Pipeline Corporation
(Transco) would no longer sell gas bundled with transportation, but
would sell gas at the wellhead or pipeline receipt point, to be
transported as the buyer sees fit. The sales would be market-based
(negotiated) and the rates for transportation on Transco's system would
be cost-of-service based. In approving the settlement, the Commission
had ``determined that Transco's markets are sufficiently competitive to
preclude the pipeline from exercising significant market power in its
merchant function and to assure that gas prices are `just and
reasonable' within the meaning of the NGA section 4.'' \1077\ The
Commission also ``authorized Transco in advance `to establish and to
change' individually negotiated rates free of customer challenge under
section 4 of the NGA; the `only further regulatory action' possible
under the settlement is the Commission's review of Transco's prices
under section 5 of the Act, upon the Commission's own motion or upon
the complaint of a customer that is not a party to the settlement.''
\1078\
---------------------------------------------------------------------------

    \1077\ 10 F.3d at 869.
    \1078\ Id.
---------------------------------------------------------------------------

    949. In Elizabethtown Gas, the D.C. Circuit upheld the Commission's
approval of market-based pricing, holding that ``nothing in FPC v.
Texaco precludes the FERC from relying upon market-based pricing.''
\1079\ The D.C. Circuit explained that in Texaco, the Commission had
failed to even mention the ``just and reasonable'' standard and
appeared to apply only the ``standard of the marketplace'' in reviewing
the reasonableness of the rate (which the Supreme Court had found to be
unacceptable). Thus, the D.C. Circuit explained with approval, ``the
FERC has made it clear that it will exercise its section 5 authority
(upon its own motion or upon that of a complainant) to assure that a
market (i.e., negotiated) rate is just and reasonable.'' \1080\
---------------------------------------------------------------------------

    \1079\ Id. at 870.
    \1080\ Id.
---------------------------------------------------------------------------

    950. The D.C. Circuit noted that the Commission had specifically
found that Transco's markets are sufficiently competitive to preclude
it from exercising significant market power. It further noted that the
Commission had explained that Transco would be providing comparable
transportation for all gas supplies and that ``adequate divertible gas
supplies exist'' to assure that Transco would have to sell at
competitive prices. Thus, the D.C. Circuit concluded that Transco would
not be able to raise its price above the competitive level without
losing substantial business. ``Such market discipline provides strong
reason to believe that Transco will be able to charge only a price that
is `just and reasonable' within the meaning of section 4 of the NGA.''
\1081\
---------------------------------------------------------------------------

    \1081\ Id. at 871.
---------------------------------------------------------------------------

    951. Likewise in LEPA, the D.C. Circuit affirmed the Commission's
approval of an application by Central Louisiana Electric Company
(CLECO) to sell electric energy at market-based rates. The D.C. Circuit
found reasonable the Commission's conclusion that there are no market
power considerations that should bar CLECO's application to sell at
market-based rates. It also found reasonable the Commission's
conclusion that even if CLECO had participated in oligopolistic
behavior in the past, the Commission's new open access transmission
rules had transformed the competitive environment. The D.C. Circuit
noted that ``competitors outside the current, alleged oligopoly will
now be able to transmit power into CLECO's territory on
nondiscriminatory terms.'' \1082\ Thus, according to the D.C. Circuit,
the Commission reasonably predicted that it was ``unlikely that `energy
suppliers will decline to participate in the emerging competitive
markets.' '' \1083\ Finally, the D.C. Circuit viewed favorably the
Commission's provision of a safeguard in the event that its predictions
are wrong:
---------------------------------------------------------------------------

    \1082\ 141 F.3d at 370.
    \1083\ Id. (quoting Commission order).

    FERC notes that should the Commission's sanguine predictions
about market conduct turn out to be incorrect, LEPA can file a new
complaint for any abuses of market power that do occur. While this
escape hatch might be insufficient if LEPA had shown a substantial
likelihood that FERC's predictions would prove incorrect, it
provides an appropriate safeguard against the uncertainties of
FERC's prognostications where there has been no such
showing.\[1084]\
---------------------------------------------------------------------------

    \1084\ Id. at 370-71 (footnotes and citations omitted).

    952. In 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. Rather, it has adopted filing
requirements (EQRs and change in status filings for all market-based
rate sellers, regularly scheduled updated market power analyses for all
Category 2 market-based rate sellers, \1085\), new

market manipulation rules, and a significantly enhanced market
oversight and enforcement division to help oversee potential market
manipulation. In addition, for sellers in RTO/ISO organized markets,
Commission-approved tariffs contain specific market rules designed to
prevent or mitigate exercises of market power.
---------------------------------------------------------------------------

    \1085\ In this Final Rule, the Commission creates two categories
of sellers. Category 1 sellers (wholesale power marketers and
wholesale power producers that own or control 500 MW or less of
generation in aggregate per region; that do not own, operate or
control transmission facilities other than limited equipment
necessary to connect individual generation facilities to the
transmission grid (or have been granted waiver of the requirements
of Order No. 888); that are not affiliated with anyone that owns,
operates or controls transmission facilities in the same region as
the seller's generation assets; that are not affiliated with a
franchised public utility in the same region as the seller's
generation assets; and that do not raise other vertical market power
issues) would not be required to file a regularly scheduled updated
market power analysis, but would be subject to the change in status
requirement. Category 2 sellers consist of all sellers that do not
qualify as Category 1 sellers.
---------------------------------------------------------------------------

    953. 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.\1086\ 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.'' \1087\ 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.\1088\ 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.
---------------------------------------------------------------------------

    \1086\ Id. at 1013.
    \1087\ 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.'').
    \1088\ 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.
---------------------------------------------------------------------------

    954. Accordingly, the Commission rejects the position of commenters
arguing that the Commission lacks authority to continue to permit
market-based rates for wholesale sales of electricity. 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 this Final Rule, the Commission finds that the market-
based rate program complies with the statutory and judicial standards
for acceptable market-based rates. We will retain our policy of
granting market-based rate authority to sellers without market power
under the terms and conditions set forth in this Final Rule and the
Commission's regulations.
    955. Further, we will retain 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.
The Commission has a long-established approach when a seller applies
for market-based rate authority of focusing on whether the seller lacks
market power.\1089\ This approach, combined with our filing
requirements (EQRs, change of status filings, and regularly scheduled
updated market power analyses for Category 2 sellers) and ongoing
monitoring through our enforcement office and complaints filed pursuant
to FPA section 206, allows us to ensure that market-based rates remain
just and reasonable. Moreover, for sellers in RTO/ISO organized
markets, the Commission has in place market rules to help mitigate the
exercise of market power, price caps where appropriate, and RTO/ISO
market monitors to help oversee market behavior and conditions. As
explained in our earlier discussion, we believe that the market-based
rate program fully complies with judicial precedent.
---------------------------------------------------------------------------

    \1089\ See, e.g., 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 at 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).
---------------------------------------------------------------------------

Consistency of Market-Based Rate Program With FPA Filing Requirements
Comments
    956. State AGs and Advocates contend that the Commission's market-
based rate program fails to comply with the FPA in several ways: (1) It
ignores the FPA mandate that all rates and contracts, as well as all
changes in rates and contracts, must be filed in advance and made open
to the public for prior review, and instead allows a seller to simply
report rates after-the-fact or, in some cases, not at all; (2) it
eliminates the statutory mandate that all rate increases must be
noticed by filing 60 days in advance so that they can be reviewed 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; (3) it provides no objective or independent
standard for determining whether ``competitive'' market-based rates are
in fact ``just and reasonable;''\1090\ (4) it provides no standard for
determining whether market rates are unduly preferential or
discriminatory; and (5) it provides no way for consumers in most cases
to know what the ``just and reasonable'' rate will be in advance.\1091\
They also contend 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 and away
from the Commission. They argue that, until an appropriate methodology
for predicting and checking market power is in place, the Commission
must suspend its market-based rate regime and return to cost-of-service
rates for all wholesale sales of electric power.
---------------------------------------------------------------------------

    \1090\ State AGs and Advocates express doubt that the rate of
return for power sold from a highly depreciated coal plant in an
auction process at a market price equal to the marginal cost of a
new, gas-fired plant could be within a zone of reasonableness. State
AGs and Advocates at 25-26.
    \1091\ Id. at 19-20.
---------------------------------------------------------------------------

    957. NASUCA objects that the proposed rules would prohibit
utilities from filing new wholesale energy contracts,\1092\ an apparent
reference to the Commission's policy, since the issuance of Order No.
2001,\1093\ that long-term affiliate sales contracts under a seller's
market-based rate tariff are not to be filed.\1094\ According to
NASUCA, by not requiring sellers to file long-term market-based rate
sales contracts, the Commission effectively precludes the

public and others from objecting before the rates take effect.
Additionally, NASUCA states that there is no statutory basis for a
Commission rule directing sellers not to file their rates when the
statute says exactly the opposite.\1095\ AARP similarly comments that
the Commission's policy of monitoring long-term market-based sales
through quarterly reports is too little oversight too late to ensure
that such rates are just and reasonable. AARP argues that the
Commission should reconsider its policy on affiliate transactions and
asserts that all affiliate contracts should be filed and reviewed under
section 205 to comply with the express requirements under the
FPA.\1096\
---------------------------------------------------------------------------

    \1092\ NASUCA at 32-33.
    \1093\ Revised Public Utility Filing Requirements, Order No.
2001, 67 FR 31043 (May 8, 2002), FERC Stats. & Regs., Regs.
Preambles 2001-2005 ] 31,127 (2002). See 18 CFR 35.10b.
    \1094\ NASUCA at 27-29.
    \1095\ Id. at 28.
    \1096\ AARP at 12.
---------------------------------------------------------------------------

    958. NASUCA also argues that the proposed rule allows sellers with
cost-based rates to declare their own rates without filing them,
subject to Commission review when the sales are for less than one year.
It contends that the burden of proof, under Farmers Union Central
Exchange, Inc. v. FERC \1097\ and Texaco,\1098\ is on the Commission to
demonstrate empirical proof that consumers are provided the ``complete,
effective and permanent bond of protection from excessive rates'' that
the statute anticipates.\1099\
---------------------------------------------------------------------------

    \1097\ 734 F.2d 1486 (D.C. Cir. 1984), cert. denied sub nom.
Williams Pipe Line Company v. Farmers Union Central Exchange, Inc.,
469 U.S. 1034 (1984) (Farmers Union).
    \1098\ 417 U.S. 380 (1974).
    \1099\ NASUCA cites Atlantic Ref. Co. v. Pub. Serv. Comm'n of
State of N.Y., 360 U.S. 378, 388 (1959).
---------------------------------------------------------------------------

Commission Determination
    959. We reject State AGs and Advocates' arguments that the
Commission's market-based rate program fails to comply with the FPA.
Contrary to State AGs and Advocates' contention that the Commission's
market-based rate program ``ignores the FPA mandate that all rates and
contracts, as well as all changes in rates and contracts, must be filed
in advance and made open to the public for prior review'' and instead
``allows sellers to simply `report' rates after-the-fact, or in some
cases, not at all,''\1100\ as the courts have found, the Commission's
market-based rate program 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,''\1101\ but it explicitly leaves the timing and form of
those filings to the Commission's discretion. 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 in such form as the Commission may designate.''\1102\
---------------------------------------------------------------------------

    \1100\ State AGs and Advocates at 19.
    \1101\ 16 U.S.C. 824d(c).
    \1102\ Id.
---------------------------------------------------------------------------

    960. We note that the courts have recognized the Commission's
discretion in establishing its procedures to carry out its statutory
functions. For example, the Ninth Circuit, in denying a California
Commission request to order the Commission to adopt different market-
based rate tariff reporting requirements, observed:

    Congress specified that filings be made ``within such time and
with such form'' and under ``such rules and regulations as the
Commission may prescribe.'' 16 U.S.C. Sec.  824d(c). Thus, 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.[\1103\]
---------------------------------------------------------------------------

    \1103\ Lockyer, 383 F.3d at 1013. See also Wabash Valley Power
Association v. FERC, 268 F.3d 1105, 1115 (citing with approval the
Commission's authority to fix just and reasonable rates under
section 206 as a condition of its market-based rate authorization);
Environmental Action v. FERC, 996 F.2d 401, 407-08 (D.C. Cir. 1993)
(in which the D.C. Circuit recognized ``the Commission's
determination to streamline its regulatory process to keep pace with
advances in information technology. Ratemaking is a time-consuming
process.'').
---------------------------------------------------------------------------

    961. The market-based rate tariff, with its appurtenant conditions
and requirement for filing transaction-specific data in EQRs, is the
filed rate. As the Commission has held, if every service agreement
under a previously-granted market-based rate authorization had to be
filed for prior approval, then the original market-based rate
authorization would be a pointless exercise.\1104\
---------------------------------------------------------------------------

    \1104\ GWF Energy LLC, 98 FERC ] 61,330, at 62,390 (2002).
---------------------------------------------------------------------------

    962. We also disagree with State AGs and 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. The Commission has developed a thorough process
to evaluate the sellers that it authorizes to enter into transactions
at market-based rates. 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. In addition, 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,\1105\ change of status filings for all sellers,
and regularly-scheduled updated market power analyses for Category 2
sellers.
---------------------------------------------------------------------------

    \1105\ The Ninth Circuit found the pre-EQR quarterly reporting
requirements to be ``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.
Lockyer, 383 F.3d at 1016. As discussed elsewhere in this Final
Rule, through the EQRs, the Commission has enhanced and updated the
post-transaction quarterly reporting filing requirements that were
in place during the period at issue in Lockyer.
---------------------------------------------------------------------------

    963. In addition, we disagree with State AGs and Advocates'
arguments that the Commission failed to show how competitive market-
based rates are just and reasonable and not unduly discriminatory or
preferential. The standard for judging undue discrimination or
preference remains what it has always been: Disparate rates or service
for similarly situated customers.\1106\ As the Commission has held in
prior cases, and as the courts have upheld, rates that are established
in a competitive market can be just, reasonable and not unduly
discriminatory.\1107\ Rates do not have to be set by reference to an
accounting cost of service to be just, reasonable and not unduly
discriminatory. When the Commission determines that a seller lacks
market power, it is therefore making a determination that the resulting
rates will be established through competition, not the exercise of
market power. Furthermore, the Commission's market-based rate program
includes many ongoing regulatory protections designed to ensure that
rates are just and reasonable and not unduly discriminatory or
preferential. The filing and reporting requirements incorporated into
the market-based rate program (EQRs, change in status filings,
regularly-scheduled updated market power analyses) help the Commission
to prevent, to discover and to remedy exercises of market power and
unduly discriminatory rates. In addition, the adoption of pro forma
transmission tariff provisions that apply industry-

wide ensures that potential customers are treated similarly in
obtaining transmission access to energy providers. Moreover,
Commission-approved RTOs and ISOs run real-time energy markets under
Commission-approved tariffs.\1108\ These single price auction markets
set clearing prices on economic dispatch principles, to which various
safeguards have been added to protect against anomalous bidding.
---------------------------------------------------------------------------

    \1106\ See, e.g., Southwestern Electric Cooperative, Inc. v.
FERC, 347 F.3d 975, 981 (D.C. Cir. 2003).
    \1107\ See, e.g., Lockyer, 383 F.3d at 1012-13; Tejas Power
Corp. v. FERC, 980 F.2d 998, 1004 (D.C. Cir. 1990).
    \1108\ In response to State AGs and Advocates' argument about
the rate of return for a seller receiving a market clearing price
for power sold in an auction process, the issue does not concern
whether a particular seller should have market-based rate authority,
and it is more appropriately addressed in the context of an RTO/ISO
proceeding rather than in this rulemaking proceeding.
---------------------------------------------------------------------------

    964. Thus, the Commission, through its ongoing oversight of market-
based rate authorizations and market conditions, may take steps to
address seller market power or modify rates should those steps be
necessary. For example, based on its review of updated market power
updates, its review of EQR filings made by market-based rate sellers,
and its review of required notices of change in status, the Commission
may institute a section 206 proceeding to revoke a seller's market-
based rate authorization if it determines that the seller may have
gained market power since its original market-based rate authorization.
The Commission may also, 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 paid
to the United States Treasury if a seller is found to have engaged in
prohibited market manipulation or to have violated Commission orders,
tariffs or rules.
    965. In the NOPR that preceded Order No. 2001, the Commission noted
that it needed to make changes to keep abreast of developments in the
industry, e.g., it had approved umbrella tariffs for market-based rates
by public utilities and there had been a significant increase in the
number of section 205 filings after the Commission's open access
initiatives in Order Nos. 888 and 889.\1109\ The Commission explained:

    \1109\ Open Access Same-Time Information System and Standards of
Conduct, Order No. 889, 61 FR 21737 (1996), FERC Stats. & Regs.,
Regs. Preambles ] 31,037 (1996), order on reh'g, Order No. 889-A, 62
FR 12484 (1997), FERC Stats. & Regs., Regs. Preambles ] 31,049
(1997), reh'g denied, Order No. 889-B, 81 FERC ] 61,253 (1997),
aff'd in part and rev'd in part sub nom Transmission Access Policy
Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom.
New York v. FERC, 535 U.S. 1 (2002).
---------------------------------------------------------------------------

    Under the Commission's current filing requirements in 18 C.F.R.
Part 35, individual service agreement filings associated with
approved tariffs require a significant amount of time, effort, and
expense on the part of public utilities to prepare and serve on
their customers and the Commission. These individual filings also
require a significant amount of staff time and effort associated
with docketing, noticing, loading the information onto RIMS, and
other processing tasks. Further, the information contained in such
filings that is most relevant to customers and the Commission could
also be provided in an alternative, streamlined form, thus
continuing to satisfy the requirements of FPA section 205(c), but in
a more efficient manner. Accordingly, we propose to replace the
filing of individual service agreements and Quarterly Transaction
Reports with the filing of an electronic Index of Customers. This
format will greatly increase the accessibility and usefulness of the
relevant data, which will confer greater benefits to the
public.\1110\
---------------------------------------------------------------------------

    \1110\ Revised Public Utility Filing Requirements, Notice of
Proposed Rulemaking, FERC Stats. & Regs., Proposed Regulations 1999-
2003, ] 32,554 at 34,062 (2001).

    966. The Commission implemented the revised filing requirements in
---------------------------------------------------------------------------
Order No. 2001. In so doing, it further explained that:

    The revised filing public utility requirements adopted in this
Final Rule create a level playing field vis-[agrave]-vis the filing
requirements applicable to traditional utilities and power
marketers. While the data to be reported in the data sets reduces
public utilities' overall reporting burden as compared to existing
requirements, it is hoped that the Electric Quarterly Reports' more
accessible format will make the information more useful to the
public and the Commission will better fulfill the public utilities'
responsibility under FPA section 205(c) to have rates on file in a
convenient form and place. The data should provide greater price
transparency, promote competition, enhance confidence in the
fairness of markets, and provide a better means to detect and
discourage discriminatory practices.\1111\

    \1111\ Order No. 2001, FERC Stats. & Regs., Regs. Preambles
2001-2005 ] 31,127 at P 31.
---------------------------------------------------------------------------

    967. Thus, we find that the multiple layers of filing and reporting
requirements incorporated into the market-based rate program meet the
filing requirements of the FPA and, in conjunction with our enhanced
market oversight and enforcement functions within the Commission, as
well as the ability of the public to file section 206 complaints,
provide adequate protection from excessive rates. Given our broad
discretion to determine the procedures to carry out our statutory
duties, our market-based rate program fully complies with the
requirements of the FPA.\1112\
---------------------------------------------------------------------------

    \1112\ Moreover, 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. Commenters' failure to raise this concern in
that proceeding precludes them from attacking the Commission's well-
settled practice here.
---------------------------------------------------------------------------

    968. Although State AGs and Advocates also argue 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, the Commission previously addressed and rejected
this argument. 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.\1113\ Ultimately, the burden of proof under section 205 belongs
to the seller.
---------------------------------------------------------------------------

    \1113\ July 8 Order, 108 FERC ] 61,026 at P 29.
---------------------------------------------------------------------------

    969. With respect to NASUCA's and AARP's concern about long-term
affiliate sales contracts not being filed, we note that since 2002, the
Commission's 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.\1114\ Although commenters acknowledge
that the Commission first considers in a separate proceeding whether to
authorize affiliate transactions, they believe that the Commission
should nevertheless review the resulting rates in a proceeding under
FPA section 205 before they go into effect.
---------------------------------------------------------------------------

    \1114\ See 18 CFR 35.1(g) (``[A]ny market-based rate agreement
pursuant to a tariff shall not be filed with the Commission'').
---------------------------------------------------------------------------

    970. NASUCA and AARP have not convinced us that this practice needs
to be modified as a legal or policy matter. Our market-based rate
program incorporates numerous protections against excessive rates,
regardless of the identities of the parties to a transaction, and
commenters do not provide any compelling reason why affiliate
transactions should be treated any differently. To the extent that a

particular affiliate relationship presents issues of concern, they will
be considered in the context of our determination whether to authorize
any affiliate sales. Accordingly, we will continue to direct sellers
not to file long-term market-based rate sales contracts, unless
otherwise permitted by Commission rule or order.
    971. Regarding NASUCA's assertion that our proposals would allow
sellers with cost-based rates to declare their own rates without filing
them, we emphasize that 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. As we make clear above in the
Mitigation section of this Final Rule, any such filings are noticed,
and interested parties are given an opportunity to intervene, comment
on, or protest the submittal.
 2. Whether Existing Tariffs Must Be Found To Be Unjust and
Unreasonable, and Whether the Commission Must Establish a Refund
Effective Date
Comments
    972. NASUCA states that the Commission invokes sections 205 and 206
of the FPA as authority for the proposed action, including modifying
all existing market-based rate authorizations and tariffs so they will
be expressly conditioned on or revised to reflect certain new
requirements. NASUCA submits that any action taken under section 206
must be prefaced by a Commission finding that existing rates are unjust
and unreasonable and the fixing of a refund effective date. It argues
that the Commission has failed to make express findings necessary to
support its proposal to modify all existing market-based rate tariffs
under section 206 or to explain how it can modify the existing tariffs
without finding that they are not just and reasonable and establishing
a refund effective date.\1115\
---------------------------------------------------------------------------

    \1115\ NASUCA at 32.
---------------------------------------------------------------------------

Commission Determination
    973. As discussed above in the MBR Tariff section, in requiring all
sellers to revise their existing market-based rate tariffs to include
certain standard provisions, the Final Rule finds that continuing to
allow basic inconsistencies in the market-based rate tariffs on file
with the Commission is unjust and unreasonable. Thus, NASUCA's concern
in that regard is addressed.
    974. We disagree with NASUCA that we must establish a refund
effective date because we are establishing rules under section 206.
Even if section 206 were read to require the establishment of a refund
effective date in rulemakings initiated under section 206, rather than
only in case-specific section 206 investigations initiated by
complaints or sua sponte by the Commission,\1116\ we have broad
discretion to adopt generic policy or make generic findings through
either a rulemaking or adjudication, and we have discretion whether to
order refunds.\1117\ This proceeding is not an adjudicatory
investigation of public utilities' existing market-based rate tariffs
for which refunds will be required. Rather, we are modifying existing
market-based rate tariffs prospectively only through this
rulemaking.\1118\ Accordingly, the establishment of a refund effective
date in this rulemaking would be meaningless.
---------------------------------------------------------------------------

    \1116\ The Congressional intent of the Regulatory Fairness Act
of 1988 (RFA), which added the refund effective date provision to
section 206, was to expedite the resolution of complaint
proceedings. Congress believed that, pre-RFA, public utilities had
little incentive to settle meritorious section 206 complaints since
any relief was prospective only, and the public utilities kept any
revenues collected during the pendency of a section 206 proceeding.
The purpose of the legislation was to ``correct this problem by
giving FERC the authority to order refunds, subject to certain
limitations.'' S. Rep. No. 491, 100th Cong., 2d Sess. 3 (1988),
reprinted in 1988 U.S.C.C.A.N. 2684, 2685. In so doing, Congress
left it to the Commission's discretion to determine when the public
interest would be served by requiring refunds under section 206,
stating ``Because the potential range of these situations cannot be
fully anticipated, no attempt has been made to enumerate them
here.'' S. Rep. No. 491, 100th Cong., 2d Sess. 6, reprinted in 1988
U.S.C.C.A.N. 2688. Nowhere in the Senate Report does Congress
mention setting refund effective dates in rulemakings.
    \1117\ See, e.g., Lockyer, 383 F.3d at 1016.
    \1118\ E.g., Wisconsin Gas Co. v. FERC, 770 F.2d 1144, 1166
(D.C. Cir. 1985); SEC v. Chenery, 332 U.S. 194, 202-03, reh'g
denied, 332 U.S. 747 (1947).
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 H. Miscellaneous

1. Waivers
Commission Proposal
    975. The Commission has granted certain entities with market-based
rate authority, such as power marketers and independent or affiliated
power producers, waiver of the Commission's Uniform System of Accounts
(USofA) requirements, specifically waiver of Parts 41, 101, and 141 of
the Commission's regulations.\1119\ The Commission has also granted
blanket approval under Part 34 of the Commission's regulations for
future issuances of securities and assumptions of liability where the
entity seeking market-based rate authority, such as a power marketer or
power producer, is not a franchised public utility.
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    \1119\ Part 41 pertains to adjustments of accounts and reports;
Part 101 contains the Uniform System of Accounts for public
utilities and licensees; Part 141 describes required forms and
reports.
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    976. In the NOPR, the Commission noted that, as the development of
competitive wholesale power markets continues, independent and
affiliated power marketers and power producers are playing more
significant roles in the electric power industry. In light of the
evolving nature of the electric power industry, the Commission sought
comment on the extent to which these entities with market-based rate
authority should be required to follow the USofA; what financial
information, if any, should be reported by these entities; how
frequently it should be reported; and whether the Part 34 blanket
authorizations continue to be appropriate.
    977. The Commission noted that some sellers have had their market-
based rate authority revoked, or have elected to relinquish their
market-based rate authority after a presumption of market power, and
have begun or resumed selling power at cost-based rates. As discussed
in the April 14 Order, any waivers previously granted in connection
with those sellers' market-based rate authority are no longer
applicable. Thus, the Commission currently rescinds any accounting and
reporting \1120\ waivers for mitigated sellers in the mitigated control
area. Similarly, the Commission stated in the April 14 Order that it
would rescind any blanket authorizations under Part 34 for the
mitigated seller and its affiliates. In the NOPR, the Commission
proposed that, in the case of any affiliates, this would entail
rescission of blanket authorizations in all geographic areas, not just
the mitigated control area.
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    \1120\ See 18 CFR 41.10-41.12, 141.1, 141.2 and 141.400.
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    978. The Commission proposed in the NOPR that any repeal of
previously granted waivers become effective 60 days from the date of an
order repealing such waivers in order to provide the affected utility
with time to make the necessary filings with the Commission and to
allow for an orderly transition from selling under market-based rates
to cost-based rates. The Commission sought comment on that proposal.
The Commission also sought input regarding any difficulties sellers may
have when transitioning to cost-based rates and whether a prior waiver
of the accounting regulations would leave them without adequate data to
come into conformance with the accounting rules.

a. Accounting Waivers
Comments
    979. The majority of commenters who comment on this topic urge the
Commission to retain existing waivers of the accounting
regulations.\1121\ They submit that the Commission's accounting
requirements are only relevant when the utility or marketer that is
being regulated charges cost-based rates. EPSA states that where a
market-based rate seller neither has cost-of-service rates nor captive
customers from which to recover cost-of-service rates, requiring such
entities to comply with the USofA would be burdensomely expensive and
would serve no purpose. The commenters explain that there has been no
change in the industry that warrants a departure from the Commission's
precedent. Commenters state that a change in policy would serve no
public benefit, and the costs that such market-based rate sellers would
have to incur in order to collect and report such data would
substantially outweigh the benefit of collecting and reporting it.
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    \1121\ See, e.g., Ameren at 23-24; EPSA at 33-36; Constellation
at 23-27; EEI at 49-52; Morgan Stanley at 9-10; Ormet at 15-17; PPM
at 6-7.
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    980. Financial Companies state that there is no reason for the
Commission to run the risk of discouraging participation in the energy
markets and chilling investment by requiring power marketers and power
producers who currently lack market power to comply with the USofA
absent concrete evidence that the wholesale power markets are being
harmed by the Commission's current practice of granting waivers or
blanket authority.\1122\
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    \1122\ Financial Companies at 18.
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    981. Absent special circumstances, Sempra supports the current
waivers and explains that the electric quarterly transaction reports
submitted pursuant to Order No. 2001 \1123\ provide detailed
information regarding transactions entered into by entities authorized
to make market-based rate sales. Sempra also notes that the retention
of these waivers for market-based rate entities is also consistent with
the treatment of power marketers and exempt wholesale generators (EWGs)
under the Public Utility Holding Company Act of 2005 and the
Commission's regulations promulgated thereunder.\1124\
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    \1123\ Revised Public Utility Filing Requirements, Order No.
2001, 67 FR 31043 (May 8, 2002), FERC Stats. & Regs. ] 31,127
(2002); reh'g denied, Order 2001-A, 100 FERC ] 61,074 (2002);
reconsideration and clarification denied, Order No. 2001-B, 100 FERC
] 61,342 (2002); further order, Order No. 2001-C, 101 FERC ] 61,314
(2002).
    \1124\ Sempra at 8-9, citing Public Utility Holding Company Act
of 2005, Pub. L. No. 109-58 1261 et seq., 119 Stat. 594 (2005)
(PUHCA 2005).
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    982. APPA/TAPS suggest that the Commission provide waivers to
Category 1 sellers, but not for Category 2 sellers.\1125\ In response
to the Commission's question about the orderly transition from market-
based to cost-based rates and the role that waivers may play in making
that transition more difficult, APPA/TAPS suggest that Category 2
sellers are more likely than Category 1 sellers to lose market-based
rate authority and find themselves subject to cost-based rates;
accordingly, not providing the waivers for Category 2 sellers should
address these transition concerns.
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    \1125\ However, any such waivers should not exempt a holding
company or service company from applicable reporting requirements
under the Commission's PUHCA 2005 regulations. APPA/TAPS at 29-30.
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Commission Determination
    983. We will continue the Commission's historical practice of
granting waiver of Parts 41, 101, and 141 of the Commission's
regulations to certain entities with market-based rate authority. We
agree with EPSA that little purpose would be served to require
compliance with accounting regulations for entities that do not sell at
cost-based rates and do not have captive customers. Such entities
typically include power marketers and independent and affiliated power
producers that are not franchised public utilities.\1126\
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    \1126\ Likewise, we will continue to grant waiver of Subparts B
and C of Part 35 of the Commission's regulations requiring the
filing of cost-of-service information, except for 18 CFR 35.12(a),
35.13(b), 35.15 and 35.16. We note that this waiver would not be
granted to an entity that makes sales at cost-based rates.
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    984. We conclude that the costs of complying with the Commission's
USofA requirements and, specifically Parts 41, 101, and 141 of the
Commission's regulations, outweigh any incremental benefits of such
compliance where the seller only transacts at market-based rates.\1127\
Further, the risk of discouraging participation in the energy markets
and the potential chilling effect on investment caused by requiring
power marketers and power producers, who do not otherwise have a cost-
based rate on file with the Commission, to comply with the USofA
outweigh the added oversight the Commission might gain in this regard.
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    \1127\ We have previously stated that Parts 41, 101 and 141
prescribe certain accounting and reporting requirements that focus
on the assets that a utility owns, and waiver of these requirements
is appropriate where the utility ``will not own any such assets, its
jurisdictional facilities will be only corporate and documentary,
its costs will be determined by utilities that sell power to it, and
its earnings will not be defined and regulated in terms of an
authorized return on invested capital.'' Citizens Power & Light
Corp., 48 FERC ] 61,210 at 61,780 (1989).
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    985. As we have done in the past, previously granted waivers of the
accounting requirements will continue to be rescinded where a seller is
found to have market power (or where the seller accepts a presumption
of market power) and the seller proposes cost-based rate mitigation or
the Commission imposes cost-based rate mitigation. Although the
Commission stated in the NOPR that it would also revoke the accounting
waivers for any of the mitigated seller's affiliates with market-based
rates in the mitigated balancing authority area, we clarify that we
will not require revocation of the accounting and reporting waivers for
a power marketer affiliated with a mitigated seller where such power
marketer has no assets, no cost-based rate on file, and its applicable
tariff prohibits sales in the mitigated balancing authority area.\1128\
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    \1128\ See, e.g., APS Energy Services Company, Inc., 117 FERC ]
61,158 (2006).
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    986. With regard to APPA/TAPS's suggestion that the Commission
provide waivers to sellers that qualify for Category 1 and not to
sellers that qualify for Category 2, we decline to adopt such an
approach. While APPA/TAPS may be correct that Category 2 sellers are
more likely than Category 1 sellers to possess market power, we do not
grant such accounting waivers based on the size of the seller (which
is, to a great extent, the critical factor in determining in which
category the seller is placed). Rather, as discussed above, the waivers
are granted on the basis of whether the seller is a franchised public
utility or otherwise is selling at cost-based rates.
    987. Finally, we note that all sellers, irrespective of accounting
or other waivers, must file EQRs regarding their transactions. In
addition, we agree with APPA/TAPS that any waivers in this rule do not
exempt a holding company or service company from applicable reporting
requirements under the Commission's PUHCA 2005 regulations.
b. Timing
Comments
    988. Regarding the proposal that rescission of accounting and
reporting waivers become effective 60 days from the date of an order
rescinding such waivers, several commenters state that 60 days may not
be enough time for sellers who have their market-based rate authority
revoked, or have elected to relinquish their market-based rate

authority after a presumption of market power and have begun or resumed
selling power at cost-based rates, to conform to the Commission's
accounting requirements.\1129\
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    \1129\ See Ameren at 24; EEI at 48-49; Mirant at 15-16.
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    989. EEI supports providing such companies at least six months post
revocation to comply with USofA recordkeeping requirements.\1130\ EEI
states that the Commission should allow the companies to begin keeping
records under the USofA starting at the beginning of the next calendar
year, or the companies' fiscal year, if different, and to report the
information the following year.\1131\ argues that to put USofA in place
and begin complying with the Commission's reporting requirements such
as the annual FERC Form 1 and quarterly FERC Form No. 3-Q takes
substantial company time and resources. EEI explains that companies
must put the necessary accounts and reporting formats in place within
their accounting systems. This involves substantial training of staff,
modification of accounting software, testing to ensure proper internal
controls under the Sarbanes Oxley Act of 2002,\1132\ and review by
company management and internal and external auditors to ensure
accuracy under the securities laws and the Sarbanes Oxley Act. EEI
submits that these measures can be quite costly--in the millions of
dollars for larger companies--and they take time to implement.
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    \1130\ Mirant also supports providing six months to comply with
the reporting requirements and states that, in addition, the
Commission should grant extensions to that deadline based upon a
demonstration that the entity is working in good faith to comply
with the deadline but, due to factors beyond the entity's control,
the deadline needs to be extended. Mirant at 15-16.
    \1131\ EEI at 48-49.
    \1132\ Sarbanes Oxley Act of 2002, Pub. L. 107-204, 116 Stat.
745.
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    990. Constellation supports the 60-day transition period as
reasonable but seeks clarification that under this approach the entity
would be required to (1) Maintain its accounts in accordance with the
Commission's USofA only for periods beginning at the end of such
transition period, and (2) obtain specific authorization for securities
to be issued, or liabilities to be assumed, subsequent to the end of
such transition period.\1133\
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    \1133\ Constellation at 33. See also PPL at 26-27 (supports
proposal to keep waivers effective for 60 days from date of order