[Federal Register: November 1, 2006 (Volume 71, Number 211)]
[Rules and Regulations]
[Page 64341-64375]
[DOCID:fr01no06-20]

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Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 292

New PURPA Section 210(m) Regulations Applicable to Small Power
Production and Cogeneration Facilities; Final Rule

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

[Docket No. RM06-10-000; Order No. 688]

New PURPA Section 210(m) Regulations Applicable to Small Power
Production and Cogeneration Facilities

Issued October 20, 2006.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is
amending its regulations governing small power production and
cogeneration in response to section 1253 of the Energy Policy Act of
2005 (EPAct 2005), which added section 210(m) to the Public Utility
Regulatory Policies Act of 1978 (PURPA).

DATES: Effective Date: The rule will become effective January 2, 2007.

FOR FURTHER INFORMATION CONTACT: Deborah Wyrick (Technical
Information), Office of Energy Markets and Reliability, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 502-6113. Marka Shaw (Technical Information), Office of Energy
Markets and Reliability, Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426,<PHONE_NUMBER>. Samuel
Higginbottom (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426,<PHONE_NUMBER>. Eric Winterbauer (Legal
Information), Office of the General Counsel, Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
8329.

SUPLEMENTARY INFORMATION:
    Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G.
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)\1\
was signed into law. Section 1253(a) of EPAct 2005 adds section 210(m)
to the Public Utility Regulatory Policies Act of 1978 (PURPA)\2\ which
provides, among other things, for termination of the requirement that
an electric utility enter into a new contract or obligation to purchase
electric energy from qualifying cogeneration facilities and qualifying
small power production facilities (QFs) if the Federal Energy
Regulatory Commission (Commission) finds that the QF has
nondiscriminatory access to one of three categories of markets defined
in section 210(m)(1)(A), (B) or (C). Thus, to relieve an electric
utility of its mandatory purchase obligation under PURPA, the
Commission must identify which, if any, markets meet the criteria
contained in 210(m)(1)(A), (B) or (C), and, if such markets are
identified, it must determine whether QFs have nondiscriminatory access
to those markets.
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    \1\ Pub. L. 109-58, 1253, 119 Stat. 594 (2005).
    \2\ 16 U.S.C. 824a-3 (2000).
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    2. On January 19, 2006, the Commission issued a notice of proposed
rulemaking (NOPR) proposing regulations to implement the provisions of
the new PURPA section 210(m) and proposing to terminate the requirement
that an electric utility enter into a new contract or obligation to
purchase electric energy from QFs if the electric utility is a member
of Midwest Independent Transmission System Operator, Inc. (Midwest
ISO), PJM Interconnection, L.L.C. (PJM), ISO New England, Inc. (ISO-
NE), or New York Independent System Operator (NYISO). After considering
industry comments on the NOPR, the Commission issues this Final Rule
amending the Commission's regulations to implement the requirements in
section 210(m). We believe the regulations adopted in the Final Rule
reflect Congress's intent to differentiate between three types of
market structures, each of which presents differing factors relevant to
our determination of whether QFs have access to a sufficiently
competitive market to support elimination of the purchase requirement.
Our Final Rule also recognizes the special circumstances faced by small
QFs and, accordingly, applies a different test for this class of QFs.
In addition to a presumption in favor of small QFs, the rule also
recognizes that some QFs, irrespective of size, may not have the
ability to sell in certain markets because of operational
characteristics or other constraints.
    3. The Commission received extensive comments on its NOPR.\3\ At
one extreme are commenters who argue that the Commission may not
address the mandatory purchase requirement issues by rulemaking and
that competitive capacity and energy markets do not yet exist to
support a generic finding that QFs in the four regional transmission
organization/independent system operator (RTO/ISO) regions should lose
the right to require electric utilities to purchase their electric
output. At the other extreme are those who argue that the Commission,
with limited exceptions, should eliminate the mandatory purchase
requirement altogether.
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    \3\ Attached as Appendix A is a list of all commenters and the
abbreviations that are used throughout the order to refer to the
commenters.
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    4. We do not believe that either extreme reflects the letter or the
spirit of section 210(m). The QFs who advocate that we may not or
should not act at all by rulemaking fail to recognize that the
Commission has broad latitude to act by either rulemaking or
adjudication. Nowhere does section 210(m) preclude the Commission from
acting by rulemaking. Moreover, where, as here, recurring and common
issues of fact arise, acting by rulemaking is not only permissible, but
provides more effective notice to and opportunity for participation by
all affected parties. To some extent, generic findings about markets
are inevitable, either by rulemaking or in the first utility specific
filing concerning a specific market. Making generic findings by
rulemaking provides affected entities, including QFs, a better
opportunity to participate in the generic proceeding as well as the
individual proceedings that will follow. Finally, the substantive
arguments of these entities that underlie their procedural objections
fail to recognize that Congress, in enacting section 210(m), explicitly
recognized three different market structures and required the
Commission to respect the differences in those markets when making
determinations as to whether to rescind the purchase obligation. In
essence, they are rearguing the very debates that Congress settled in
adopting section 210(m).
    5. We also do not agree with the position of utilities that
advocate we should terminate the purchase obligation in summary fashion
in this rulemaking. Although our action today respects the choice of
Congress in establishing different tests for different market
structures, we do not, in this rulemaking, terminate the purchase
obligation of any utility. In this respect, we modify our approach in
the NOPR. In contrast to the NOPR, in this Final Rule we establish only
rebuttable presumptions that the purchase obligation should be
eliminated with respect to certain QFs, not final determinations.
    6. In sum, this Final Rule appropriately reflects Congressional
intent in enacting section 210(m). It does not, as some commenters
suggest, ignore the fact that Congress did not repeal PURPA section
210(a)'s directive

that the Commission prescribe, and from time to time revise, such rules
as it determines necessary to encourage cogeneration and small power
production. Rather, it recognizes the fundamental change which Congress
made to the statutory construct when it determined that ``no electric
utility shall be required * * * to purchase electric energy from'' a QF
if certain findings are made with respect to various markets. Our
action properly implements Congressional intent in the new section
210(m) that the three different market structures present different
considerations in determining whether to relieve utilities of the
purchase obligation. Our action also properly recognizes that smaller
QFs can face more significant challenges than larger QFs in accessing
competitive wholesale markets. Our action continues to support QF
development by ensuring that, where the requirements of section 210(m)
are met, QF development will, as determined by Congress, be stimulated
by market forces, and that where those requirements have not been met,
QF development will continue to be stimulated as it is today through
the mandatory purchase obligation. Finally, nothing in this Final Rule
affects any electric utility's resource adequacy obligations,
compliance with the Electric Reliability Organization's reliability
standards, prudent utility practice to build or purchase reliable power
at the most economical price, or resource portfolio obligations under
state law including obligations to purchase renewable energy.

II. Executive Summary

    7. This Final Rule amends the Commission's regulations in part 292
\4\ (pertaining to electric utilities' requirement to purchase electric
energy from or sell electric energy to a QF) to implement section 1253
of the EPAct 2005. As relevant here, section 1253 added a new section
210(m) to PURPA, which:
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    \4\ 18 CFR part 292, subpart C, Arrangements Between Electric
Utilities and Qualifying Cogeneration and Small Power Production
Facilities Under section 210 of the Public Utility Regulatory
Policies Act of 1978.
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    A. Provides for the termination of the requirement that an electric
utility enter into new contracts or obligations to purchase electric
energy from a QF, after appropriate findings by the Commission;
    B. Preserves existing contracts and obligations to purchase
electric energy or capacity from or to sell electric energy or capacity
to a QF;
    C. Provides for the reinstatement of the requirement to purchase
electric energy from a QF, upon a showing that the conditions for
terminating the requirement are no longer met; and
    D. Provides for the termination of the requirement that an electric
utility enter into new contracts to sell electric energy to QFs, after
appropriate findings by the Commission.
    The Commission is amending its Part 292 regulations to address the
above section 210(m) provisions and also to provide a process for
applying for the reinstatement of the requirement to sell electric
energy to QFs upon a showing that the conditions for the removal of
that requirement are no longer met.

A. Termination of the Mandatory Purchase Requirement That an Electric
Utility Enter Into a New Contract or Obligation To Purchase Electric
Energy From QFs

    8. This Final Rule promulgates regulations that set forth the
process by which electric utilities may apply to be relieved of the
requirement that they enter into new contracts or obligations for the
purchase of electric energy from QFs after August 8, 2005. New Sec.
292.309 of the Commission's regulations describes the findings that the
Commission must make to justify relieving an electric utility's
obligation to enter into new QF purchase contracts. If the Commission
finds that the QF has nondiscriminatory access to one of three
wholesale markets described in the statute, the requirement that the
electric utility enter into new contracts or obligations is terminated.
These three wholesale markets, set forth in the statute in section
210(m)(1), and incorporated in the new Commission regulations at Sec.
292.309, are:

    (A)(i) Independently administered, auction-based day ahead and
real time wholesale markets for the sale of electric energy; and
(ii) wholesale markets for long-term sales of capacity and electric
energy; or
    (B)(i) Transmission and interconnection services that are
provided by a Commission-approved regional transmission entity and
administered pursuant to an open access transmission tariff that
affords nondiscriminatory treatment to all customers; and (ii)
competitive wholesale markets that provide a meaningful opportunity
to sell capacity, including long-term and short-term sales, and
electric energy, including long-term, short-term and real-time
sales, to buyers other than the utility to which the qualifying
facility is interconnected. In determining whether a meaningful
opportunity to sell exists, the Commission shall consider, among
other factors, evidence of transactions within the relevant market;
or
    (C) Wholesale markets for the sale of capacity and electric
energy that are, at a minimum, of comparable competitive quality as
markets described in subparagraphs (A) and (B).

    We interpret section 210(m)(1) to require the Commission to
eliminate the purchase obligation in markets which meet the criteria of
section 210(m)(1)(A), (B) or (C) if QFs have nondiscriminatory access
to such markets. These three wholesale markets are characterized in
this rule in short-hand terms as ``Day 2'' markets (auction based day-
ahead and real-time markets), ``Day 1'' markets (auction based real-
time markets but not auction based day-ahead markets), and comparable
markets, respectively.\5\ The Final Rule finds that the Midwest ISO,
PJM, ISO-NE, and NYISO all meet the criteria of section 210(m)(1)(A).
These RTOs are independently administered and offer auction-based day
ahead and real time wholesale markets for the sale of electric energy;
and within the regions represented by these RTOs there is
nondiscriminatory access to wholesale markets for long-term sales of
capacity and electric energy. Therefore, except for the rebuttable
presumptions set forth below, the member electric utilities of these
four RTO/ISOs will be eligible for relief from the requirement to enter
into new contracts for the purchase of QF electric energy.
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    \5\ Reference to ``Day 2'' and ``Day 1'' and the corresponding
parenthetical are meant to be descriptive and thus are not a
recitation of the elements of section 210(m)(1)(A) or (B).
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    9. The Final Rule creates three rebuttable presumptions:
    (A) For all three of the above markets, with the exception of the
20 megawatt (MW) presumption discussed next, the Final Rule finds that
the existence of an open access transmission tariff (OATT), or a
reciprocity tariff filed by a non-jurisdictional utility, pursuant to
the Commission's open access regulations,\6\ creates a rebuttable
presumption, under section 210(m)(1), that QFs have ``nondiscriminatory
access to'' the relevant wholesale markets.\7\
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    \6\ 18 CFR 35.28(e). An OATT provides interconnection as well as
transmission services on a nondiscriminatory basis.
    \7\ To the extent that a QF raises issues about the adequacy of
an electric utility's implementation of an OATT, such issues are
more properly addressed in a complaint proceeding and will not be
considered in the context of petitions for the termination of
mandatory purchase requirements. However, a QF may raise other
issues, such as operational characteristics and transmission
limitations, to attempt to rebut the presumption of market access
when it files a response to an application submitted pursuant to
section 210(m)(3) of PURPA and section 292.310 of our regulations.
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    (B) For all three of the above markets, the Final Rule establishes
a rebuttable presumption that QFs with a net capacity no greater than
20 MW, do not have nondiscriminatory access to

wholesale markets.\8\ Unless an electric utility seeking the right to
terminate its requirement to purchase small QF power specifically
rebuts this small QF presumption, and that electric utility's request
is granted by the Commission, a small QF would be eligible to require
the electric utility to purchase its electric energy.
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    \8\ Herein referred to as small QFs.
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    (C) The Final Rule finds that the four RTO/ISOs with ``Day 2''
markets, i.e., the Midwest ISO, PJM, ISO-NE, and NYISO, qualify as
markets under section 210(m)(1)(A) and establishes a rebuttable
presumption that these organizations provide large QFs (above 20 MWs
net capacity) interconnected with member electric utilities with
nondiscriminatory access to the ``Day 2'' wholesale markets set forth
in section 210(m)(1)(A). An electric utility member of one of these
four RTO filing for relief from the requirement to purchase will need
to refer to this rebuttable presumption in the Final Rule as part of
its application. When it files an application for relief from the
purchase requirement it must also submit certain information, including
information about transmission constraints within its service
territory, in order to give potentially affected QFs information that
may be useful in rebutting the presumption that they have access to all
aspects of the applicable ``Day 2'' markets.\9\ A QF above 20 MWs net
capacity may rebut the presumption of nondiscriminatory access by
showing that it in fact lacks access.
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    \9\ The electric utility would have to make additional showings
if it wished to rebut the presumption that small QFs do not have
nondiscriminatory access to its region's ``Day 2'' wholesale
markets.
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    10. The rule does not find that any markets meet the statutory
criteria at this time other than the four listed RTO/ISOs (Midwest ISO,
PJM, ISO-NE, and NYISO) and the Electric Reliability Council of Texas
(ERCOT) (discussed below). There will be a rebuttable presumption that
QFs above 20 MWs net capacity have nondiscriminatory access to these
markets if they are eligible for service under a Commission-approved
OATT or Commission-filed reciprocity tariff.
    11. With respect to the California Independent System Operator
(CAISO), and the Southwest Power Pool (SPP), which have only ``Day 1''
markets, it would be premature to find now that the CAISO and SPP would
meet the criteria of section 210(m)(1)(A) once their ongoing market
redesigns become effective. However, we find that: the CAISO and SPP
meet the section 210(m)(1)(B)(i) criterion because they are Commission-
approved regional transmission entities that provide transmission and
interconnection services pursuant to open access transmission tariffs
that provide nondiscriminatory treatment to all customers. A member
electric utility of the CAISO or SPP may rely on this finding in its
application to be relieved of the obligation to enter into new
contracts to purchase QF electric energy, but must make all the other
showings required under section 210(m)(1)(B) before its request may be
granted.
    12. The Final Rule finds that ERCOT meets the criteria of section
210(m)(1)(C). ERCOT offers wholesale markets for the sale of capacity
and electric energy that are of comparable competitive quality as the
markets described in sections 210(m)(1)(A) and (C). Therefore, except
for the rebuttable presumptions set forth herein, the member electric
utilities of ERCOT will be eligible for relief from the requirement to
enter into new contracts for the purchase of QF electric energy.
    13. New Sec.  292.310 of the Commission's regulations sets forth
the filing requirements for an application by an electric utility
seeking to terminate its requirement to enter into new purchase
contracts with QFs. Among other things, the regulations require the
electric utility to list the names and addresses of all potentially
affected QFs, existing or under development. After notice and comment,
the Commission will issue an order making a final determination within
90 days of the application, as required by section 210(m)(3).

B. Preservation of Existing Contracts

    14. The Final Rule preserves the rights or remedies of any party
under existing contracts or obligations, in effect or pending approval
before the appropriate state regulatory authority or non-regulated
electric utility on or before August 8, 2005, to purchase electric
energy from or to sell electric energy to a QF. This provision is
stated in the new Sec.  292.314 of the Commission's regulations. The
Final Rule defines the term ``obligations'' broadly to encompass any
legally enforceable obligation established through a state's
implementation of PURPA.

C. Reinstatement of the Mandatory Purchase Requirement

    15. The Final Rule also sets forth a process by which a QF may seek
the reinstatement of the requirement to purchase electric energy, by
showing that the conditions necessary for the removal of the
requirement to purchase are no longer met. After notice, including
notice to the affected utilities, and comment, the Commission will
issue an order within 90 days of the application. This process is set
forth in the new Sec.  292.311 of the Commission's regulations. A QF's
request may be specific (and limited) to itself alone, generic for the
entire service territory of an electric utility, or regional in scope.
The Commission will address the merits of each request as warranted by
the circumstances presented in each case.

D. Termination of the Requirement To Sell Electric Energy to QFs

    16. The Final Rule provides for applications to remove the
requirement to enter into new contracts to sell electric energy to QFs.
The statute provides that if the Commission finds that competing retail
electric suppliers are willing and able to sell and deliver electric
energy to a QF, and the electric utility is not required by state law
to sell electric energy in its service territory, the requirement to
sell should be terminated. The new Sec.  292.312 of the Commission's
regulations describes this process. The Final Rule makes no findings or
presumptions with respect to an electric utility's obligation to sell
electric energy to QFs.

E. Reinstatement of the Requirement To Sell Electric Energy to QFs

    17. Finally, the Final Rule provides for applications to reinstate
the requirement of an electric utility to sell electric energy to QFs,
by showing that the conditions necessary for the removal of the
requirement to sell are no longer met. After notice and comment, the
Commission will issue an order within 90 days if the required showing
is made. Applications for reinstatement are addressed in the new Sec.
292.313 of the Commission's regulations.

F. Recovery of Prudently Incurred Costs Relating to QF Power Purchases

    18. The Final Rule does not adopt new regulations implementing
section 210(m)(7), regarding an electric utility's recovery of
prudently incurred costs relating to purchases of electricity from QFs.

III. Background

A. History of Section 210 of PURPA

    19. When Congress enacted section 210 of PURPA, it required the
Commission to prescribe such rules as the Commission determined
necessary to encourage cogeneration and small power production,
including rules requiring electric utilities to offer to purchase
electric energy from and sell

electric energy to QFs. Additionally, section 210 of PURPA authorized
the Commission to exempt QFs from certain federal and state laws and
regulations if necessary to encourage cogeneration and small power
production.
    20. A cogeneration facility is defined in the Federal Power Act
(FPA) \10\ as a facility which produces electric energy and steam or
forms of useful energy (such as heat) which are used for industrial,
commercial, heating, or cooling purposes.\11\ Thus, cogeneration
facilities simultaneously produce two forms of useful energy, namely
electric energy and heat. Cogeneration facilities can use significantly
less fuel to produce electric energy and steam (or other forms of
energy) than would be needed to produce the two separately.
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    \10\ 16 U.S.C. 824 et seq.
    \11\ Id. 796(18).
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    21. Small power production facilities, as defined in the FPA, use
biomass, waste, or renewable resources, including wind, solar energy
and water, to produce electric energy and have a power production
capacity which, together with any other facilities located at the same
site, is not greater than 80 megawatts.\12\ Reliance on these sources
of energy can reduce the need to consume fossil fuels to generate
electric power.
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    \12\ Id. 796(17)(A)(i)-(ii).
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    22. Prior to the enactment of PURPA, a cogenerator or small power
producer seeking to establish interconnected operation with a utility
faced three major obstacles. First, utilities were not generally
willing to purchase this electric output or were not willing to pay an
appropriate rate for that output. Second, utilities generally charged
discriminatorily high rates for back-up service to cogenerators and
small power producers. Third, a cogenerator or small power producer
which provided electric energy to a utility's grid ran the risk of
being considered a public utility and thus being subjected to extensive
state and federal regulation.
    23. Section 210 of PURPA was designed to remove these obstacles.
Each electric utility is required under section 210 to offer to
purchase available electric energy from cogeneration and small power
production facilities which obtain qualifying status. The rates for
such purchases from QFs must be just and reasonable to the ratepayers
of the utility, in the public interest, and must not discriminate
against cogenerators or small power producers. Rates also must not
exceed the incremental cost to the electric utility of alternative
electric energy (also known as the electric utility's ``avoided
costs''). Section 210 also requires electric utilities to provide
electric energy to QFs at rates which are just and reasonable, in the
public interest, and which do not discriminate against cogenerators and
small power producers. Rates for the purchase of energy from and the
sale of energy to a QF are set by the appropriate state regulatory
authority or non-regulated utility pursuant to the Commission's
regulations, 18 CFR 292.301-308 (2006).
    24. Since Congress enacted PURPA, electric utilities have
complained that their requirement to purchase from and sell to QFs, as
implemented by the Commission in 18 CFR 292.303(a)-(b), was not
economically beneficial and that they were purchasing energy they did
not need and selling energy they did not want to sell. In 1995, the
Commission clarified that determinations of the avoided-cost rate must
take into account all alternative sources including third-party
suppliers and an electric utility does not pay for electric energy it
does not need.\13\ In the past decade, with the development of exempt
wholesale generators (EWGs) introduced by the Energy Policy Act of
1992,\14\ the implementation of open access transmission via Order No.
888, the advent of ISOs and RTOs and organized markets, the
Commission's new interconnection requirements, and increasing
competition in wholesale electric markets as well as some retail
electric markets, Congress has debated whether to repeal PURPA
altogether, or to revise it. The result is new section 210(m), which is
the subject of this rulemaking, and new section 210(n), which was
addressed in Docket No. RM05-36-000.\15\
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    \13\ Southern California Edison Company and San Diego Gas &
Electric Company, 70 FERC ] 61,215 at 61,677-78, reconsideration
denied, 71 FERC ] 61,269 at 62,078 (1995) (finding that the
determination of avoided cost must take into account ``all
sources'').
    \14\ Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat.
2776, (1993) (EPAct 1992). EPAct 1992 added a new section 32 to the
Public Utility Holding Company Act of 1935 (PUHCA) to permit a
category of sellers called EWGs to be exempt from PUHCA.
    \15\ Revised Regulations Governing Small Power Production and
Cogeneration Facilities, Order No. 671, 71 FR 7852 (Feb. 15, 2006),
FERC Stats. & Regs. ] 31,203 (2006), order on reh'g, Order No. 671-
A, 71 FR 30585 (May 30, 2006), FERC Stats. & Regs. ] 31,219 (2006).
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B. New Section 210(m)

    25. Section 210(m) of PURPA is titled ``Termination of Mandatory
Purchase and Sale Requirements.'' The section revises the rights and
obligations between electric utilities and QFs. Section 210(m)(1)
requires the Commission to terminate the requirement of an electric
utility to enter into a new contract or obligation with the QF if it
finds that a QF has nondiscriminatory access to a market described in
section 210(m)(1)(A), (B) or (C). Section 210(m)(2) states that after
the date of enactment, no utility will be required to enter into a
contract to purchase from or sell to a new cogeneration facility,
unless the facility meets the criteria for new cogeneration facilities
established by the Commission in implementing section 210(n) of PURPA.
Section 210(m)(3) provides that an electric utility may file ``an
application for relief from the mandatory purchase obligation'' on a
service territory-wide basis and provides that the Commission must make
a final determination on such an application within 90 days of the
application. Section 210(m)(4) provides that a QF, a state agency, or
other affected person may apply for an order reinstating the electric
utility's ``obligation to purchase electric energy under this section''
upon a change in the market. Section 210(m)(5) provides for the
termination of the requirement that an electric utility enter into a
new contract or obligation to sell electric energy to a QF upon a
finding that specified competitive conditions exist. Section 210(m)(6)
provides that nothing in section 210(m) affects the rights or remedies
of any party under any contract or obligation in effect or pending
approval before the appropriate state regulatory authority or
nonregulated utility on the date of enactment of section 210(m). And
finally, section 210(m)(7) provides that the Commission shall issue and
enforce such regulations as are necessary to ensure that an electric
utility that purchases electric energy or capacity from a QF in
accordance with a legally enforceable obligation entered into or
imposed under section 210 of PURPA recovers all prudently incurred
costs associated with the purchase.

C. NOPR

    26. On January 19, 2006, the Commission issued a NOPR containing
its proposal to implement section 210(m) of PURPA. Generally, the
Commission proposed to incorporate the language of section 210(m) in
its regulations. While section 210(m) permits electric utilities to
file applications for relief from the mandatory purchase requirement,
and requires the Commission to act on such applications within 90 days,
the Commission determined in the NOPR that it is appropriate to act
generically as much as possible. Specifically, section 210(m)(1)(A) is
most suitable for

such a generic implementation and the Commission proposed to make
generic findings that certain markets meet the section 210(m)(1)(A)
criteria. The NOPR concluded that the most reasonable interpretation of
section 210(m)(1)(A) is that it was crafted to apply to regions in
which ISOs and RTOs administer auction-based day ahead and real time
wholesale markets for the sale of electric energy; and wholesale
markets for long-term sales of capacity and electric energy are that
these are available to participants/QFs in these markets.\16\ The
Commission proposed in the NOPR that it would make a generic finding
that the Midwest ISO, PJM, ISO-NE, and NYISO provide markets that meet
the requirements of section 210(m)(1)(A) and therefore utilities that
are members of those ISOs or RTOs meet the criteria for relieving those
electric utilities of the requirement to enter into new contracts or
obligations with QFs.\17\ Because the Commission proposed to make a
generic finding with respect to 210(m)(1)(A), the Commission proposed
that the electric utilities that are members of these four RTO/ISOs
submit a compliance filing instead of filing applications for relief of
the purchase requirement pursuant to 210(m)(3). In the compliance
filing, the electric utility would demonstrate: (1) Membership in the
RTO/ISO; (2) that the Commission has made a final finding that the RTO/
ISO it is a member of provides nondiscriminatory access to a section
210(m)(1)(A) market; (3) a list of all potentially affected QFs; and
(4) the QFs have the rights to request service under the OATT.\18\
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    \16\ NOPR at P 14.
    \17\ Id. at P 22-28.
    \18\ Id. at P 40. We note that, since the time comments were
filed in this proceeding, the Commission has issued a NOPR proposing
amendments to the OATT. Preventing Undue Discrimination and
Preference in Transmission Service, 71 FR 32636 (2006), FERC Stats.
& Regs. ] 32,603 (2006).
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    27. The Commission concluded that QFs have nondiscriminatory access
to transmission and interconnection if they have access to utilities
providing service under an Order No. 888 OATT (or to utilities
providing service under a Commission-accepted reciprocity tariff) and
interconnection services pursuant to the Commission's interconnection
rules.\19\ The Commission also proposed, however, that there be a
rebuttable presumption that a utility provides nondiscriminatory access
if it has an open access transmission tariff in compliance with our pro
forma OATT (or a Commission-approved reciprocity tariff) and that QFs
or any other affected party should be allowed to rebut that
presumption, for example, by providing specific and credible evidence
that the QF does not have nondiscriminatory access to wholesale
markets.\20\ The Commission noted that improper implementation of an
OATT is more properly the subject of a complaint.
---------------------------------------------------------------------------

    \19\ Id. at P 20.
    \20\ Id. at P 31.
---------------------------------------------------------------------------

    28. Further, the Commission proposed in the NOPR that other
markets, i.e., both non-auction-based markets and non-RTO/ISO markets
described in section 210(m)(1)(B) and (C), would not be addressed
generically in this rulemaking but would be addressed on a case-by-case
basis in response to applications filed pursuant to the Commission's
implementation of section 210(m)(3) of PURPA, i.e., pursuant to the
proposed Sec.  292.310 of the Commission's regulations.\21\ The
Commission proposed that subsequent changes to market conditions in all
markets, i.e., markets described subparagraphs (A), (B) and (C) also
would be handled on a case-by-case basis as well. Applications for
termination of the requirement to enter into new contracts or
obligations to purchase from QFs in markets described in subparagraphs
(B) and (C) would be addressed pursuant to the proposed Sec.  292.310
of the Commission's regulations. An application to reinstate the
requirement that a utility enter in the new contracts or obligations to
purchase from QFs, alleging subsequent changes to market conditions,
would be addressed pursuant to the proposed Sec.  292.311 of the
Commission's regulations. The Commission noted that it must make a
finding regarding an application for relief of the purchase requirement
and that the finding must be made within 90 days of the date of such
application. The Commission stated that it expected an application for
relief to be fully supported by documentation upon which the required
finding can be made.\22\
---------------------------------------------------------------------------

    \21\ Id. at P 29-30.
    \22\ The Commission interprets the 90-day period to begin upon
receipt of a completed application.
---------------------------------------------------------------------------

    29. Of the approximately 2,000 pages of comments the Commission has
received to its NOPR, a large portion of the comments focused on the
standards applicable to utilities within the ``Day 2'' RTO/ISOs and the
procedures for utilities within ``Day 2'' markets to claim relief from
the purchase requirement. Based on careful consideration of the
comments submitted in response to the NOPR, the Commission adopts a
Final Rule that makes certain modifications and clarifications to the
approach in the NOPR.

IV. Discussion

A. Section 210(m)(1)

    30. The new PURPA section 210(m)(1) amends the statutory
requirement that electric utilities purchase electric energy from QFs
and states that:

* * * No electric utility shall be required to enter into a new
contract or obligation to purchase electric energy from a qualifying
cogeneration facility or a qualifying small power production
facility under this section if the Commission finds that the
qualifying cogeneration facility or qualifying small power
production facility has nondiscriminatory access to--
(A)(i) Independently administered, auction-based day ahead and real
time wholesale markets for the sale of electric energy; and (ii)
wholesale markets for long-term sales of capacity and electric
energy; or
(B)(i) Transmission and interconnection services that are provided
by a Commission-approved regional transmission entity and
administered pursuant to an open access transmission tariff that
affords nondiscriminatory treatment to all customers; and (ii)
competitive wholesale markets that provide a meaningful opportunity
to sell capacity, including long-term and short-term sales, and
electric energy, including long-term, short-term and real-time
sales, to buyers other than the utility to which the qualifying
facility is interconnected. In determining whether a meaningful
opportunity to sell exists, the Commission shall consider, among
other factors, evidence of transactions within the relevant market;
or
(C) Wholesale markets for the sale of capacity and electric energy
that are, at a minimum, of comparable competitive quality as markets
described in subparagraphs (A) and (B).

1. Three Standards for Relief
a. NOPR
    31. Section 210(m)(1) defines under what conditions the Commission
must relieve an electric utility of the obligation to enter into a new
contract or obligation to purchase electric energy from a QF.
Essentially, section 210(m)(1) establishes three different standards
for relief from the purchase requirement depending on whether: (1)
Electric utilities are members of ``Day 2'' RTO/ISOs; (2) electric
utilities are members of ``Day 1'' RTO/ISOs; and (3) electric utilities
are in neither ``Day 2'' nor ``Day 1'' RTO/ISOs. The NOPR interpreted
the language of section 210(m)(1) as to what conditions must exist for
the three types of markets and sought comments.
    32. The NOPR explained that the first standard for relief is
established in section 210(m)(1)(A) of section 210(m)(1), which applies
to ``Day 2'' markets with wholesale bilateral long-

term contracts for the sale of capacity and electric energy available
to participants. The Commission indicated that, under section
210(m)(1)(A)(ii), there was no requirement, given the statutory
language, to consider ``evidence of transactions within the relevant
market'' when determining whether QFs have nondiscriminatory access to
``wholesale markets for long-term sales of capacity and electric
energy.'' The Commission suggested that Congress presumed QFs, which
have ``nondiscriminatory access to'' ISO and RTO regions with auction-
based day ahead and real time markets, have nondiscriminatory access to
long-term sales of electric energy and capacity wholesale markets
outside the interconnected utility. The Commission proposed to find
that Midwest ISO, PJM, ISO-NE, and NYISO meet the requirements of
section 210(m)(1)(A).
    33. The second standard for relief is established in section
210(m)(1)(B), which the Commission found to be intended to apply in
``Day 1'' RTO/ISOs, i.e., those that do not have both auction-based day
ahead and real time markets. Section 210(m)(1)(B) provides for
termination of the requirement that an electric utility enter into a
new contract or obligation to purchase electric energy from a QF so
long as there is (i) a Commission-approved regional transmission entity
providing nondiscriminatory transmission and interconnection services;
and (ii) ``competitive wholesale markets that provide a meaningful
opportunity'' to sell capacity and energy on both a short- and long-
term basis and energy on a real-time basis (emphasis added) to buyers
other than the utility to which the QF is interconnected. In the NOPR,
the Commission stated that ``meaningful opportunity'' is to be
determined by the Commission after considering, among other factors,
``evidence of transactions within the relevant market.'' The Commission
indicated that taken together, the terms ``competitive,'' ``meaningful
opportunity'' and ``evidence of transactions'' suggest that Congress
intended that termination of the purchase requirement in a ``Day 1''
market only if it could be established that QFs had opportunities to
make long-term and short-term sales of capacity and long-term, short-
term and real-time sales of energy into competitive wholesale markets.
    34. The third standard for relief is established in section
210(m)(1)(C) of section 210(m)(1). Under this standard, the purchase
requirement is removed in wholesale markets for the sale of capacity
and electric energy that are, ``at a minimum,'' of comparable
competitive quality as markets described in subparagraphs (A) and (B).
The Commission explained that although this provision is not clear on
its face, its reference to subparagraphs (A) and (B) requires the
Commission to be mindful, in interpreting the provision, of the two
types of requirements that are embodied in those sections, i.e., (1)
nondiscriminatory access to transmission and interconnection services,
and (2) competitive short-term and long-term markets that provide a
meaningful opportunity to sell to buyers other than the utility to
which the QF is interconnected.
b. Comments
    35. ELCON, AWEA, Caithness and Public Interest Organizations
(PIOs),\23\ for example, state that Congress did not repeal the
mandatory purchase requirement and that the Commission has a continuing
obligation to promote QF development. This, they contend, can only be
accomplished by assuring that markets meet criteria that guarantee that
QFs will enter into contracts with electric utilities of similar
quality to those that they received prior to the enactment of section
210(m) of PURPA before the mandatory purchase obligation can be
terminated. ELCON appears to suggest that there is only one standard
for relief from the purchase requirement: ``assurance of a competitive
market.'' \24\ In essence, ELCON argues that sections 210(m)(1)(A), (B)
and (C) establish a single standard for terminating the mandatory
purchase obligation. ELCON states that section 210(m) authorizes the
Commission to grant relief from the purchase requirement ``if and only
if a viable market exists.'' \25\ ELCON expresses its concern that
because discrimination continues and the markets are flawed,
competition and on-site generation will be discouraged. AWEA and
Caithness state that the Commission should grant relief from the
purchase requirement only in markets which are ``sufficiently
competitive.'' \26\ EPSA argues that the mandatory purchase requirement
can be terminated only where the Commission finds that the ``economic
and technical equivalent to mandatory purchase is available through a
competitive market.''\27\ PIOs argue that electric utilities have to
demonstrate that QFs do, in fact, have physical and economic access to
all of the required markets on a nondiscriminatory basis. The American
Chemistry Council contends that the mandatory purchase requirement can
be terminated only in those situations where wholesale markets have
evolved to ensure the long-term commercial viability of QFs which
enables QFs to attract investment capital and facilitates QF
development; the American Chemistry Council urges the Commission to
interpret section 210(m)(1) in such a manner.
---------------------------------------------------------------------------

    \23\ The PIOs filing these comments are the Center for Energy
Efficiency & Renewable Technologies, Delaware Division of the Public
Advocate, Environmental Law & Policy Center, Interwest Energy
Alliance, Izaak Walton League of America, Natural Resources Defense
Council, Northwest Energy Coalition, Office of the Ohio Consumers'
Counsel, Pace Energy Project, Project for Sustainable FERC Energy
Policy, West Wind Wires, and Western Resource Advocates.
    \24\ ELCON Comments at 8.
    \25\ Id.
    \26\ AWEA Comments at 2.
    \27\ EPSA Comments at 9.
---------------------------------------------------------------------------

    36. NPRA reminds the Commission that the main purpose of
cogeneration is not to serve the needs of an electric power grid or
``market,'' but, rather, it is to serve the interconnecting industrial
thermal and electrical load. Consequently, NPRA argues that the
operation of these facilities may require different market features
than are required by utility electric generation or merchant
generation. NPRA argues that Congress intended to terminate the ``must
take'' requirement only when it can be demonstrated that an electric
market supports not only the role of merchant power, but the retention
and encouragement of cogeneration. In other words, while a market may
prove an efficient and viable alternative for a merchant plant, it does
not necessarily ensure that it is an efficient and viable alternative
for sales of power by a cogeneration facility.
c. Commission Determination
    37. We disagree with commenters' interpretation of the statutory
standard for relief from the requirement that an electric utility enter
into a new contract or obligation to purchase electric energy from a
QF. There is nothing in section 210(m) to suggest that Congress
intended to ensure a QF's commercial viability. Nor does the statute
require the Commission to find that the ``economic and technical
equivalent to mandatory purchase is available through a competitive
market'' before it terminates the requirement that an electric utility
enter into a new contract or obligation to purchase electric energy
from QFs. Although we certainly agree with the QF commenters that
Congress did not repeal the mandatory purchase requirement in its
entirety, Congress clearly left the Commission with no choice but to
eliminate the mandatory purchase requirement for utilities operating in
certain markets upon

certain findings being made. The fact is that the language of section
210(m)(1) provides that an electric utility shall be relieved of the
requirement to purchase from a QF if the Commission makes certain
findings, which findings do not include a determination that the
``economic and technical equivalent to mandatory purchase is available
through a competitive market.'' This is not what section 210(m) says,
nor would it make any sense to infer such an interpretation.
Competitive markets do not, by definition, impose ``mandatory''
purchase obligations on buyers. Buyers choose among differing sellers
based on their relative cost, reliability, etc. The QFs making this
argument therefore ignore the relevant statutory language and, in doing
so, reargue the debate before Congress when it enacted section 210(m).
    38. The most reasonable interpretation of section 210(m)(1) is that
Congress, in setting forth discrete tests for three different types of
markets, was requiring the Commission to differentiate among these
markets, and the differing circumstances they present, in determining
whether a utility must be relieved of the mandatory purchase
obligation. Although the statute is ambiguous in certain respects, it
clearly reflects Congressional intent that the Commission differentiate
among these three markets in making its determination regarding whether
to terminate the purchase obligation. This approach not only reflects a
natural reading of the words of the statute, it also is reasonable
given the nature of the determination being made. There is little
debate in this proceeding that Day 2 organized markets, as a general
matter, provide greater opportunities for QFs (and other independent
generators) to compete than unorganized markets because of the
existence of day-ahead and real-time energy markets that allow all
competing generators to submit bids to participate in the market on a
nondiscriminatory basis. Although other markets--including ``Day 1''
markets and non-organized markets--also provide opportunities for
independent generators to compete, it is not surprising that Congress
would find that, as a general matter, they have less formalized
structures for doing so and, hence, utilities seeking relief from the
purchase obligation in those markets would bear a heavier evidentiary
burden to obtain relief. The Commission cannot, as some commenters in
effect ask us to do, simply collapse the three discrete tests into one
test that requires an electric utility to demonstrate that a QF will
remain economically viable if the purchase requirement is eliminated.
This would make the three different statutory standards meaningless.
2. The Nondiscriminatory Access Requirement of Section 210(m)(1) and
the OATT
a. NOPR
    39. Section 210(m)(1) provides for termination of the requirement
for an electric utility to enter into a new contract or obligation to
purchase from a QF if the QF has ``nondiscriminatory access'' to a
wholesale market described in section 210(m)(1)(A), (B), or (C). In the
NOPR, the Commission proposed that there be a rebuttable presumption
that a utility provides nondiscriminatory access if it has an Order No.
888 OATT (or a utility providing service under a Commission-approved
reciprocity tariff). The Commission stated that QFs or any other party
should be allowed to rebut that presumption, but that improper
implementation of an OATT is more properly the subject of a complaint
to ensure that the OATT is properly implemented.
b. Comments
    40. ELCON and virtually every other commenter from the QF industry
argue that the Commission erred in the NOPR by proposing a rebuttable
presumption that a utility provides ``nondiscriminatory access'' to the
market conditions identified in section 210(m)(1)(A), (B), or (C) if it
has an OATT in compliance with the Commission's pro forma OATT, or a
Commission-approved reciprocity tariff. They argue that the proposal
reflects an overly simplified interpretation of the statute's
``nondiscriminatory access'' requirement and that the mere existence of
transmission rights under an OATT does not necessarily ensure that QFs
have nondiscriminatory access to markets. ELCON and the QF industry
argue that barriers that discriminate against QFs could exist
notwithstanding the adoption of an OATT. The California Cogeneration
Council (CCC), for instance, states that these barriers could be
present in ISO policies that make it more difficult or burdensome for
QFs to participate in a market as compared with other types of
generators or market participants. ELCON and the QF industry argue that
section 210(m)(1) requires the Commission to consider such potential
barriers, and to evaluate whether QFs truly have nondiscriminatory
access to alternative markets, before concluding that the requirements
of section 210(m)(1) have been met.
    41. In addition, ELCON and the QF industry state that the
Commission has recognized that the intent of Order No. 888 concerning
nondiscriminatory access to transmission has not been fully realized;
first in Order No. 2000 \28\ and more recently in the NOPR on
Preventing Undue Discrimination and Preference in Transmission
Service.\29\
---------------------------------------------------------------------------

    \28\ Regional Transmission Organizations, Order No. 2000, 65 FR
809 (Jan. 6, 2000), FERC Stats. & Regs. P 31,089 (1999), order on
reh'g, Order No. 2000-A, 65 FR. 12,088 (Mar. 8, 2000), FERC Stats. &
Regs. P 31,092 (2000), aff'd sub nom. Pub. Util. Dist. No. 1 of
Snohomish County, Washington v. FERC, 272--F.3d--607 (D.C. Cir.
2001).
    \29\ See supra note 15.
---------------------------------------------------------------------------

    42. EPSA, Reliant and PIOs add that any tariff for transmission and
interconnection services must incorporate changes consistent with the
Commission's pro-competitive policies of Order No. 2000 and any further
improvements determined as part of the notice of inquiry (NOI). EPSA
argues that only then will the transmission and interconnection
services be provided on a nondiscriminatory, pro-competitive basis.
    43. Dow Chemical Company (Dow) states that there are numerous
instances in which QFs effectively have no access to organized markets
or to transmission services regardless of whether the utilities to
which they are interconnected technically participate in organized
markets or provide transmission and interconnection services on an open
access basis. Dow states that instead, in such instances, the only
entity physically capable of acquiring QF output is the utility with
which the QF is interconnected. American Forest & Paper states that
market rules designed for merchant generation are often highly
discriminatory to QFs which, because of the thermal needs of a
cogeneration QF's thermal host, have limited dispatchability and must
often be operated in base load configurations. American Forest & Paper
states that market rules designed around the dispatchability of
resources which do not have attendant manufacturing facility
obligations may discriminate unnecessarily and unreasonably against
QFs. Council of Industrial Boiler Owners (CIBO) state that by finding
that an OATT is sufficient to ensure nondiscriminatory access to
markets, the Commission fails to consider the operational differences
faced by QFs.
    44. In addition, Commenters argue that the NOPR's proposal that
there be a rebuttable presumption that a utility provides
nondiscriminatory access if it

has an OATT is in essence an irrebuttable presumption. ELCON and the
American Chemistry Council state that although the Commission
characterizes the presumption as ``rebuttable,'' it also states that
the presumption ``cannot be rebutted by an argument that the utility
has not properly implemented or administered its OATT.''
    45. ELCON argues that it will be difficult for the Commission to
sustain on judicial review an irrebuttable presumption that the OATT
provides nondiscriminatory transmission access for all QFs when its own
NOI recognizes the continuation of patterns of abuse--if anything
exacerbated as transmission owners feel the pressure of competition
from independent generation. ELCON states that the concern over
potential discrimination will only be exacerbated in a scenario like
the Entergy Independent Coordinator of Transmission (ICT) where the
utility and not the RTO provide service. ELCON states that while the
problem of discrimination in transmission is pervasive, a fortiori, QFs
of whatever size connected at distribution voltage do not have access
to markets. ELCON states that the scenario of QFs connected at
distribution voltage and the circumstances of small QFs illustrate why
generic conclusions are inappropriate.
    46. Further, Occidental Chemical Corporation (Occidental) argues
that the Commission's conclusion that a complaint, rather than the
application proceeding, is the only vehicle available to address a QF's
concern that the OATT is being administered or implemented in a
discriminatory manner is inconsistent with the plain language of the
statute. Occidental states that a QF cannot provide meaningful comments
on whether an electric utility's application meets the
nondiscriminatory showing required by statute, if the QF is barred from
raising issues regarding discriminatory administration or
implementation of the OATT and can only raise such issues in a separate
complaint proceeding. In addition, Occidental argues that it is unclear
how the Commission could make a determination that QFs have
nondiscriminatory access under an electric utility's OATT if the
Commission bars, from the outset, all evidence that the OATT is being
administered or implemented in a discriminatory manner.
    47. PJM is concerned with the Commission's presumption for both
section 210(m)(1)(B) and (C) that having an Order No. 888 OATT on file
is enough to establish a presumption of nondiscriminatory access to the
grid. PJM states that rather, the Commission should analyze particular
facts and circumstances relative to concerns raised with potential
access to the marketplace for QFs.
    48. EEI, Allegheny Power, Alliant, Entergy, National Grid and PSNM/
TNP agree with the NOPR's proposal. EEI states that QF commenters raise
no compelling evidence that access provided pursuant to Commission-
approved OATTs is deficient. EEI states that nondiscriminatory access
is the standard set by Congress in EPAct 2005, and Congress was fully
aware when it used this standard that the OATT is the mechanism for
achieving nondiscriminatory access. Allegheny joins EEI in stating that
the Commission should make a generic finding that QF access pursuant to
a Commission-approved OATT meets the ``nondiscriminatory access'' test
of section 210(m) for all markets, whether centrally organized and
administered or not.
    49. EEI states that the fact that the Commission is considering
updating Order No. 888 through its ongoing NOI does not mean that
reliance on the OATT as the current benchmark for nondiscriminatory
access is inappropriate. EEI states that at this preliminary stage of
the Commission's inquiry into whether changes to the OATT should be
required, it is premature to predict what the Commission may or may not
finally conclude with respect to the OATT. EEI states that by basing so
much of their argument on the Commission's consideration of reforms to
Order No. 888, QF commenters are in essence converting a Commission NOI
into a Commission final rule. EEI states that even if the Commission
fine tunes the OATT, it would not mean that existing open access
practices pursuant to Commission-approved OATT are discriminatory. EEI
states that if the Commission does ultimately require changes, QFs--
like any other generator--will reap the benefit of those enhancements.
    50. EEI further argues that where issues regarding implementation
or administration of a particular OATT arise, a complaint pursuant to
section 206 of the FPA is the established mechanism available to QFs
(or any other generator or transmission customer) to raise such
concerns. It states that in a complaint proceeding, the Commission has
the ability to remedy any denial of open access that results from
improper administration of an OATT, but that ability is not present
under PURPA section 210(m), where the Commission's only authority is to
reject an application for termination of the mandatory purchase
requirement.
    51. EEI argues against the QFs' claim that the Commission has made
the presumption of nondiscriminatory access under an OATT essentially
irrebuttable. It states that as the NOPR provides, QFs or any other
party will be afforded the opportunity to provide ``specific and
credible evidence that the QF does not have nondiscriminatory access to
wholesale markets.''
c. Commission Determination
    52. Under section 210(m)(1), the Commission must find that the QF
has ``nondiscriminatory access'' to the wholesale markets described in
section 210(m)(1)(A), (B), or (C) in order to terminate the requirement
that an electric utility enter into a new contract or obligation to
purchase electric energy from a QF. The Commission proposed in the NOPR
that there be a rebuttable presumption that a utility provides the
nondiscriminatory access required in section 210(m)(1) if it has an
open access transmission tariff in compliance with our pro forma OATT
(or a Commission-approved reciprocity tariff). However, the Commission
also proposed that QFs or any other affected party should be allowed to
rebut that presumption, for example, by providing specific and credible
evidence that the QF does not have nondiscriminatory access to
wholesale markets.
    53. The Commission reaffirms the determination in the NOPR that
only issues not related to the provision of open access transmission
under the OATT may be raised to rebut the nondiscriminatory access
presumption. We disagree with arguments of ELCON and Occidental that a
QF should be able to litigate open access implementation issues in the
context of 90-day QF applications or that, as Occidental claims, use of
complaint proceedings to address OATT implementation is inconsistent
with the language of the statute. We also reject arguments that,
because the Commission issued a NOPR to reform the OATT, that we can no
longer adopt a presumption that a Commission-approved OATT meets the
requirements of section 210(m) regarding nondiscriminatory transmission
access.\30\ As we have

found in market-based rate proceedings and other contexts, a
transmission owner that has an OATT on file has met the obligation set
forth in Order No. 888 to provide nondiscriminatory transmission
access. Until we issue a Final Rule in RM05-25-000 that modifies Order
No. 888, no more is required. Further, the FPA provides specific
mechanisms, complaints under FPA section 206 or 306, to address
allegations that a particular utility is not properly administering the
OATT. We take very seriously allegations that a transmission owner is
violating its OATT, but there are established statutory procedures for
addressing such allegations. PURPA section 210(m) does not change this
statutory framework.\31\
---------------------------------------------------------------------------

    \30\ In this regard we note that the rulemaking to reform the
OATT is intended to remedy the ``opportunity'' for undue
discrimination; the Commission did not base its institution of the
rulemaking in Docket No. RM05-25-000 on any finding that the OATT
allows actual discrimination. To the extent that ELCON argues that,
through the NOPR process, the Commission has recognized ``the
continuation of patterns of abuse,'' ELCON mischaracterizes the
basis of the OATT rulemaking.
    \31\ In fact, PURPA section 210(m) provides a compressed 90-day
time frame in which the Commission, after notice and opportunity for
comment, must act on applications. This provides a clear indication
that Congress did not intend hearing or lengthy proceedings in order
to make a determination of whether the electric utility must be
relieved of the mandatory purchase requirement. A QF may, of course,
file a complaint with the Commission at any time, including a
separate complaint in conjunction with its comments on an electric
utility's application for relief from the mandatory purchase
requirement.
---------------------------------------------------------------------------

    54. As to PJM's argument that a filed Order No. 888 OATT is not
enough to establish a presumption of nondiscriminatory access to the
grid with respect to markets in subparagraphs (B) and (C) of section
210(m)(1), we find PJM to have misinterpreted the NOPR. Affected
parties under subparagraphs (B) and (C) have the same opportunity to
rebut the presumption of nondiscriminatory access as parties affected
under subsection (A). We note that, in general, the evidentiary
showings for relief from the requirement that an electric utility enter
into a new obligation to purchase electric energy from a QF in section
210(m)(1)(B) are higher than the evidentiary showings in section
210(m)(1)(A), and the evidentiary showings in section 210(m)(1)(C) are
higher than the evidentiary showings required in section 210(m)(1)(B).
    55. Comments discussed above that are raised in the context of open
access service but also touch upon concerns with market rules and or
operational issues, for example, are addressed further below.
3. Other Market Access Issues Under Section 210(m)(1)
    56. The Commission explained in the NOPR, and has confirmed in this
rule, that the OATT adopted in Order No. 888,\32\ and interconnection
rules, adopted in Order Nos. 2003 \33\ and 2006,\34\ are designed to
eliminate undue discrimination in the provision of transmission and
interconnection services. However, in the NOPR the Commission
recognized that small QFs may be in a unique situation with respect to
nondiscriminatory access because they interconnect with the
interconnected utility at a distribution level.\35\ In the NOPR, the
Commission sought comment on whether the utilities' purchase obligation
should be retained for small renewable projects. The Commission also
sought comment on whether there may be other categories of QFs that
lack nondiscriminatory access to RTO/ISO short-term or long-term
wholesale markets for which the Commission should retain the utilities'
purchase obligation. With respect to whether the purchase obligation
should be retained for small renewable projects, the Commission sought
comments on how to define ``small,'' e.g., 5 MWs or below, 20 MWs or
below.\36\
---------------------------------------------------------------------------

    \32\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities and
Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities, Order No. 888, 61 FR 21540 (1996), FERC Stats. & Regs. ]
31,036 (1996), Order No. 888-A, FERC Stats. & Regs. ] 31,048 (1997),
order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), order on
reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in relevant
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).
    \33\ Standardization of Generator Interconnection Agreements and
Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats.
& Regs. ] 31,146 (2003), order on reh'g, Order No. 2003-A, 69 FR
15932 (Mar. 26, 2004), FERC Stats. & Regs. ] 31,160 (2004), order on
reh'g, Order No. 2003-B, 70 FR265 (Jan. 4, 2005), FERC Stats. &
Regs. ] 31,171 (2004), order on reh'g, Order No. 2003-C, 70 FR 37661
(June 30, 2005), FERC Stats. & Regs. ] 31,190 (2005).
    \34\ Standardization of Small Generator Interconnection
Agreements and Procedures, Order No. 2006, 70 Fed. Reg. 34,100 (Jun.
13, 2005), FERC Stats. & Regs. ] 31,180 at 31,406-31,551 (2005),
order on reh'g, Order No. 2006-A, 70 Fed. Reg. 71,760 (Nov. 30,
2005), FERC Stats. & Regs. ] 31,196 (2005).
    \35\ NOPR at P 20.
    \36\ Id.
---------------------------------------------------------------------------

    57. Commenters from the QF industry essentially argue that certain
categories of QFs should be ``exempt'' from section 210(m)(1) because
these QFs lack nondiscriminatory access to the markets described in
section 210(m)(1)(A), (B), or (C). In general, they argue that QFs lack
nondiscriminatory access if: (1) They are of a small size, (2) they
have certain operational characteristics such that the QF cannot access
a particular market, (3) they are interconnected at the distribution
level, or (4) a combination of the above. As discussed further below,
the comments we have received do not provide a justification for
categorically exempting any category of QFs from any future orders
which may terminate a utility's requirement to enter into new contracts
or obligations to purchase from QFs. No class of QFs has been shown to
uniformly lack nondiscriminatory access based on a single factor. We
also agree with commenters, such as AEP, Entergy, Missouri River,
Montana-Dakota, PJM Transmission Owners, PPL, Progress Energy and Xcel,
that section 210(m) does not give the Commission authority to
categorically exempt certain QFs from statutory provisions. However, we
believe the record does support creating a rebuttable presumption that
certain QFs may not have nondiscriminatory access to markets because of
their small size.
a. Small Size
i. Comments
    58. CIBO argue that smaller QFs typically are less able to predict
their generation and power export/import levels due to unpredictable
demand fluctuations. They state that while larger facilities may face
similar unpredictable situations, they may have more latitude in
selecting and operating alternative equipment and that latitude could
allow for a higher level of power flow control. CIBO also argue that
because of a QF's small size, the transmission charges involved in
accessing the three markets described in section 210(m)(1), including
locational marginal pricing and transition charges, can place a small
QF in a position where it cannot reach those markets. Also, CIBO, AWEA,
and Granite State argue that certain markets may require membership
fees in order to participate in the market. CIBO state that a
sufficiently large QF may face similar problems, but it presumably has
greater resources to address those problems, and sufficient economic
interest in the success of the generator to bring those resources to
bear on the problem. On the other hand, they argue that a small QF is
more likely to lack the resources and to have less economic incentive
to apply those resources to the problem, especially in light of the
staying power of its competition.
    59. Granite State adds that most small QF hydroelectric plants, for
example, are located in areas which do not provide direct access to
RTO/ISOs. It states that small QF hydroelectric projects are generally
located in areas remote from high voltage power lines, their locations
being determined by the site of existing dams. Granite State states
that the amount of generation

from a small QF hydroelectric plant is dependent on the amount of water
flowing through the turbines on a particular hour. It states that they
have limited resources and the staff employed by these projects are
generally engaged in the day to day operation of the projects. Granite
State states that developers of small hydroelectric plants do not have
the software, computer and monitoring equipment to integrate to RTO/ISO
operations and, in many regions, would not even be eligible to bid
their energy into these markets because they are too small for the
applicable minimum block.
    60. CIBO also argue that a small QF exemption, such as a MW limit,
would provide an administrative advantage because it would be less
likely to involve the QF and the Commission in additional proceedings
and thus, avoid potential additional burden on parties and the
Commission.
    61. Although not arguing for a size exemption, EEI states that it
would be appropriate to allow affected small QFs in all markets,
including ``Day 2'' organized markets, to have an opportunity to
demonstrate that they effectively lack nondiscriminatory access to
those markets, despite their legal right to such access under an OATT.
    62. EEI suggests that that the Commission could consider evidence
of the following limited circumstances as a basis for finding that a
small QF effectively may not have nondiscriminatory access to markets.
One, where a small industrial cogenerator \37\ (with a nameplate
capacity of 5 MW or less) has: (a) highly variable thermal and
electrical demand on a daily basis; (b) highly variable and
unpredictable wholesale sales on a daily basis; and (c) no access to a
mechanism to schedule transmission service or make sales in advance on
a consistent basis, either because of the variability of its
electricity production or because of market rules that prevent the QF
from scheduling transmission service or participating in organized
markets. Two, where a QF is very small,\38\ and cannot aggregate its
electricity production with other nearby facilities, and can
demonstrate that it is not directly or indirectly modeled in the energy
management or market information system, cannot directly sell any
product or service into the RTO or ISO market and appears to the RTO or
ISO only as a reduction to load.
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    \37\ EEI does not expect that the Commission would extend the
opportunity to demonstrate lack of access under this proposal to
wind generators. EEI states that while electricity production from
wind power is variable, wind generation is predictable in its
variability, and the Commission has accommodated this variability
through interconnection rules and other policies. EEI asserts that
wind generators differ as well from small industrial cogenerators,
whose primary purpose, in accordance with PURPA, is not intended to
be the production of electricity, while wind generators are
exclusively electricity producers.
    \38\ EEI states that the size of a ``very small'' QF for
purposes of its proposed exception to the termination of the
mandatory purchase obligation is likely to vary among RTO/ISOs,
based on factors such as operational requirements of the particular
RTO, any threshold level for transactions that may be required in an
RTO, any minimum size requirements for participation in the RTO
market, or other factors specific to the RTO/ISO market involved.
For example, EEI notes a ``very small'' QF for the NYISO market
could be a QF less than 1 MW that has not been able to aggregate
supply in order to participate at the 1 MW minimum transaction level
established in the NYISO tariff. See NYISO FERC Electric Tariff,
Original Volume No. 2 (``Services Tariff''), Sections 4.1.4,
4.2.2(c)(1) and 5.12.
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    63. AEP, Entergy, FirstEnergy, Missouri River and Montana-Dakota,
PJM Transmission Owners, PPL, Progress Energy and Xcel argue that no
exemption should be allowed because: (1) All QFs are eligible to
receive transmission service under the pro forma OATT, regardless of
the level at which they are interconnected; (2) Congress has not given
the Commission the authority to exempt QFs from the provisions of
section 210(m); and (3) an exemption could lead to uneconomic QF
``gaming'' strategies through dividing generating facilities so that
they are under the size limit for the mandatory purchase obligation to
kick-in.
    64. Other Commenters argue that no exemption should be granted in
certain RTO/ISOs. PJM Transmission Owners and PPL Electric argue that
PJM has developed special procedures to ensure that small generators,
even those under 20 MW, have comparable access to energy and capacity
markets. Specifically, the PJM Transmission Owners state that Subpart G
of PJM's tariff is dedicated to small generators to provide clear and
concise rules for these power producers to ensure that they have
comparable access to participate in energy and capacity markets
allowing load to rely upon such resources. PJM notes that since 1999,
PJM has successfully interconnected numerous small projects. These
include 44 projects rated between 5-20 MW and 28 rated at 5MW or less.
It further states that the majority of these projects are sponsored by
developers unaffiliated with transmission or distribution system
owners. Montana-Dakota adds that QFs have nondiscriminatory access to
the Midwest ISO markets regardless of size.
    65. With regard to the Midwest ISO, several commenters such as
Missouri River Energy and Montana-Dakota argue that no exemption is
necessary for small QFs because small renewable projects have become
very marketable given the current regulatory and political environment
of increasing renewable portfolio standards.
    66. As to NYISO and ISO-NE, National Grid states that they have
generation interconnection policies in place for small as well as large
generators. National Grid states that there are no minimum size
requirements for a generator to join NEPOOL, and while the NYISO
currently will not accept bids in the markets it administers from
generators with 1 MW or less of capacity, that limitation is not
immutable. It states that subject to that limitation, the market rules
in ISO-NE and the NYISO allow settlement for all sizes of generators.
NSTAR adds that there are sufficient privileges afforded to small
renewable resources in NEPOOL, and regulatory requirements and monetary
incentives in the New England states to sustain small renewable
projects. The New York Transmission Owners argue that in NYISO, all
facilities, including those with a capacity under 20 MW, have the same
equal and nondiscriminatory access to all NYISO markets and all
services offered by the NYISO under its tariffs. NYISO does not take a
position on whether there should be an exemption. It states, however,
that any unit, regardless of ownership or QF status, that has a
generating capacity of two MWs or higher can bid directly into the
NYISO markets.
    67. As to what QF size should be considered ``small,'' the
proposals varied significantly from 1 MW to 80 MWs.\39\ However, in
general, most of the QF industry supports a 20 MW exemption, utilities
generally support no exemption, and some entities are willing to
support an exemption for very small QFs (i.e., smaller than 1 MW) in
specific service territories. Granite State and American Energy argue
that a 20 MW demarcation strikes a reasonable balance between small and
large projects. The nameplate capacity of many renewable technologies
like wind and hydro do not accurately reflect the annual generating
capacity of such units due to the lower capacity factor dictated by the
variability in available river flow and wind. Granite State states that
the 20 MW limitation would provide the

needed flexibility to ensure that small projects are protected.
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    \39\ Industrial Boilers proposed 80 MW, UAE proposed 30 MW, AWEA
and ELCON proposed 20, and EEI proposed 1 MW for cogeneration and 5
MW for small production.
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    68. In addition, ELCON, Granite State, AWEA, and Landfill Gas state
that the 20 MW demarcation is consistent with: (1) Order No. 671; and
(2) the Standardization for Small Generation Interconnection Agreements
and Procedures, Order Nos. 2006 and 2006-A, which recognizes that small
generators, i.e., 20 MW or below, should have different standards than
large generators. AWEA also states that utilizing a 20 MW threshold for
``small'' generators will also avoid inconsistencies with state
interconnection procedures which are designed around the current 20 MW
threshold for ``small'' generators. Further, AWEA states that a 20 MW
threshold will help prevent RTO/ISO market-participation costs from
discouraging market participation and development of small generators.
    69. CIBO argue that ``small'' should be defined as 80 MW or less.
They state that Congress already adopted 80 MW to reflect what is small
in PURPA, which used 80 MW to treat as QFs small power production
facilities with a net capacity of 80 MW or less that produce
electricity from biomass, waste, renewable resources, geothermal
resources, or any combination of these sources. In addition, CIBO argue
that an 80 MW bright line would also resolve a number of the
operational concerns faced by QFs. They argue that a QF of greater than
80 MW is more likely to interconnect to the grid at higher voltages,
and less likely to interconnect at distribution voltages, thereby
addressing a number of the transmission access issues, including in
particular the distribution facilities charges that lower voltage QFs
will face. Regardless of the interconnection voltage, CIBO argue that a
QF of greater than 80 MW will more likely have an economic interest
sufficient to seek to participate in the market and the resources to
participate. Further, CIBO argue that a QF of greater than 80 MW will
probably have more latitude in selecting and operating alternative
equipment and that latitude can allow for a higher level of power flow
control. Finally, they argue that an 80 MW bright line will not
undercut what they claim is the Commission's goal of limiting PURPA
abuse and would ensure that units benefiting from the mandatory
purchase and sale obligations will in fact be the QFs that Congress has
wanted to protect.
    70. Granite State and USCHPA are open to a hybrid definition of
``small'' QF whereby small QFs with a nameplate capacity of 5 MW or
less would automatically retain the right to make sales to their
utilities at avoided cost rates. Those QFs with capacities of more than
5 MW and less than 20 MW would have the benefit of a rebuttable
presumption in favor of retaining the utility's mandatory purchase
obligation. UAE simply states that it believes that a small QF should
be defined as less than 30 MW without elaboration.
    71. PJM agrees that EEI's size limit exception (1 or 5 MWs) may be
appropriate as applied to very small entities that do not aggregate
their generation. PJM states, however, that in the PJM market resources
rated below very small levels are permitted to aggregate for the
purpose of submitting offers. Therefore, PJM concludes that a facility
less than 100 kW may meet a ``unique circumstances'' standard. PJM
states that it does not impose a size limit on modeling. PJM states
that it requires that new resources rated higher than 10 MW, whether in
the PJM market or behind the meter, as well as any new capacity
resource intending to set real-time locational marginal pricing (LMP),
must be explicitly modeled in the PJM Energy Management System network
model. As to access, PJM states that the PJM market has a 100 kW
minimum for offers to buy and sell in the Capacity and Day-Ahead
Markets and 1 kW for offers in the Real-Time Market.
ii. Commission Determination
    72. We believe that the record supports creating a rebuttable
presumption \40\ that certain QFs may not have nondiscriminatory access
to markets because of their small size. In addition, we find that a
reasonable and administratively workable definition of ``small'' is 20
MW. As a result, the Final Rule creates a rebuttable presumption that
the requirement that an electric utility enter into new contracts or
obligations to purchase from a QF remains in effect, in all markets,
for QFs sized 20 MW net capacity \41\ or smaller.\42\ This rebuttable
presumption will apply to applications in markets described in section
210(m)(A), (B), or (C). To rebut this presumption, the filing electric
utility will be required in its application to demonstrate, with regard
to each small QF that it, in fact, has nondiscriminatory access to the
market.
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    \40\ As we noted above in P 57, no class of QFs has been shown
to uniformly lack nondiscriminatory access based on a single factor.
Thus, we are not making a finding here but are establishing a
rebuttable presumption.
    \41\ A QF, when it seeks certification, states what size it is.
The size it is required to state is its ``net capacity'' which is
its gross capacity, less station power. In the case of Commission-
certified facilities, the Commission certifies the QF at its net
capacity; self-certified facilities self-certify at net capacity.
The Commission has been consistent over the years in requiring QFs
to state their net capacity in the Form 556 which is the basis of
both applications for Commission certification, and notices of self-
certification. A QF's Commission certified (or self-certified) net
capacity would determine whether the QF qualifies for the ``small
size'' rebuttable presumption in this Final Rule.
    \42\ Herein referred to as ``small QF.''
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    73. The Commission finds persuasive commenters' arguments that some
QFs may not have nondiscriminatory access to one of the three markets
described in section 210(m)(1)(A), (B), or (C) because of their small
size. There was agreement among commenters representing both QFs and
utilities that small size could affect a QF's ability to access
markets. To varying degrees, the QF industry, EEI, and also PJM,
recognized that small QFs may not have nondiscriminatory access to the
three markets described in section 210(m)(1)(A), (B), or (C). There was
not, however, consensus as to what constitutes ``small'' for purposes
of identifying QFs that may not have nondiscriminatory access to
markets.
    74. In determining what constitutes ``small'' for purposes of the
rebuttable presumption, we are not making a finding that all QFs
smaller than a certain size lack nondiscriminatory access to markets.
Rather, utilities seeking to terminate the requirement that they enter
into new contracts or obligations to purchase from small QFs will be
required to rebut the presumption that QFs sized 20 MW net capacity or
smaller do not have access. A utility's demonstration must be filed as
part of its application filed pursuant to section 292.310 of our
regulations.
    75. Commenters suggested various sizes as the demarcation between
QFs that can access markets. CIBO suggested 80 MW as the logical
demarcation point, pointing to the definition of ``small power
production facilities'' in PURPA. Granite State, AWEA and Landfill Gas
suggest that the Commission use 20 MW as the demarcation pointing to
the Commission's use of 20 MW as being the demarcation between large
and small generators for interconnection purposes and for purposes of
QF exemption from sections 205 and 206 of the FPA.
    76. Keeping in mind that we are creating a rebuttable presumption,
and to include most small QFs that may lack nondiscriminatory access to
markets within the presumption, we find that the 20 MW demarcation is
reasonable. As pointed out by commenters, the Commission used 20 MW in
Order No. 671 to exempt QFs that are 20 MW or smaller from sections 205
and 206 of the FPA. The Commission also used the 20 MW demarcation for
eligibility for the interconnection rules contained in Order Nos. 2006
and 2006-A, which recognize that small generators, i.e., 20

MW or below, should be subject to different standards than large
generators.\43\ In adopting this 20 MW demarcation in this proceeding,
we recognize that no single per-MW demarcation is perfect. However, we
believe that, in creating a rebuttable presumption, it is necessary to
establish a clear demarcation and, as indicated, that 20 MW is
appropriate for that purpose. We are influenced by the fact that the
statute provides a very compressed 90-day time frame in which parties
may provide the record support for a determination of whether a utility
must be relieved of the purchase obligation. The statute does not
provide time for lengthy litigation. Unlike other provisions of the
FPA, which require notice and an opportunity for ``hearing,'' section
210(m)(a)(3) provides for notice and opportunity for ``comment'' and a
final decision within 90 days of filing. Thus, it is consistent with
the statutory framework to provide clear demarcations that will permit
the Commission to make reasoned determinations within the 90-day
period. After balancing all relevant considerations, we therefore adopt
a clear demarcation of ``small QF'' in this Final Rule.
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    \43\ Order No. 2006 defined a ``Small Generating Facility'' as a
device used for the production of electricity having a capacity of
no more than 20 MW. The Commission concluded in Order No. 2006 that
general consistency between the Commission's interconnection
procedures document and interconnection agreement adopted in that
final rule and those of the states will be helpful to removing
roadblocks to the interconnection of Small Generating Facilities.
See Order No. 2006 at P 4.
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    77. The Commission will not allow for gaming of this 20 MW
rebuttable presumption. If parties are concerned that a QF has engaged
in such gaming with regard to the certification or siting of a
particular facility, we encourage those parties to bring their concerns
to our attention. In any such proceeding, we will consider all relevant
factors, including, but not limited to, ownership, proximity of
facilities, and whether facilities share a point of interconnection.
For purposes of evaluating proximity of facilities with regard to
alleged gaming of this rebuttable presumption, we will not be bound by
the one-mile standard set forth in 18 CFR 292.204(a)(2).
    78. In order to rebut the 20 MW presumption, an electric utility
will have the full burden to show that small QFs have nondiscriminatory
access to the market of which the electric utility is a member. We will
not specify, in this Final Rule, what evidence would be sufficient, but
note that relevant evidence may include the extent to which the QF has
been participating in the market or is is owned by, or is an affiliate
of, a entity that has been participating in the relevant market.
b. Operational Characteristics and Transmission Constraints
i. Comments
    79. Many commenters argue that dispatchability and intermittent
resource characteristics do not allow QFs to have nondiscriminatory
access to the markets described in section 210(m)(1)(A), (B), or (C).
Several commenters argue that before the purchase requirement is lifted
the Commission must consider the unique generation operational
differences of certain QFs that affect their nondiscriminatory access
to competitive markets. For example, American Forest & Paper states
that real-time and day-ahead, bid-based markets are, in themselves,
inadequate to support baseload operations of QFs with limited
dispatchability. American Forest & Paper states that bidding into an
hourly energy market subjects QFs to unworkable dispatch risks which
may require either: (1) Bidding a price too low to support fixed cost
recovery in order to ensure dispatch; or (2) jeopardizing industrial or
other processes required to be primary under newly enacted section
210(n). Similarly, CIBO argues that the Commission should require an
analysis of the operational issues, including, for example, the voltage
level of the interconnection between the QF and the grid, and the fact
that cogeneration thermal host limits the ability to dispatch a QF. It
states that the mandatory purchase obligation should only be removed if
it is demonstrated that markets are truly accessible to QFs, taking
into consideration QF operational issues, including size, in some cases
interconnecting at distribution voltage (with the attendant costs of
paying for distribution adders), the different efficiency and
operational constraints of industrial boilers, the different efficiency
and operational constraints caused by industrial cogeneration hosts,
and the impact of transmission charges, including locational marginal
pricing and transition charges, on economically marginal QF generation.
    80. Florida Industrial argues that the Commission should
specifically retain the utility obligations to purchase for that
category of ``process-following'' QFs that rely on a reject waste heat
from an associated industrial manufacturing process for the production
of electricity and thermal energy--and where the amount of reject waste
heat varies with manufacturing production rates--such as in phosphate
fertilizer manufacturing operations. It states that such process-
following QFs generate at high efficiencies and consume little or no
fossil fuels. However, because the rate of electric energy production
varies (``follows'') in direct proportion to the underlying
manufacturing processes, such QFs would find themselves at a
significant and untenable disadvantage--especially with regard to
deviation from schedule and energy imbalances, as well as other
associated factors--if PURPA's mandatory purchase obligation were
lifted in Florida.
    81. In addition to EEI's comments regarding a QF's size as a
contributor to a lack of nondiscriminatory access, EEI states that it
would also be appropriate to allow affected QFs in all markets,
including ``Day 2'' organized markets, to have an opportunity to
demonstrate that they effectively lack nondiscriminatory access to
those markets, despite their legal right to such access under an OATT
where an existing QF \44\ is located in an area in which persistent
transmission capacity constraints effectively cause the QF to have
neither physical \45\ nor financial access \46\ to markets outside the
persistently congested area and there is not a sufficient opportunity
to relieve the transmission constraint or to sell its output or
capacity within the area on a short-term and long-term basis because of
the transmission constraint.
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    \44\ An existing QF is one that is in existence as of the date
the mandatory purchase obligation is terminated.
    \45\ EEI suggests that for purposes of this exception, a QF is
prevented from having ``physical access'' outside its congested area
when the QF is located in a ``generation pocket.'' EEI believes this
means that during annual system peak conditions, the QF is unable
(because of transmission congestion) to deliver the power it
generates that is not consumed by local loads to the remainder of
the relevant ISO's or RTO's control area, or to other areas if the
QF is not located in an ISO or RTO control area. EEI concludes the
geographic area that should be evaluated as a potential ``generation
pocket'' is the area containing the QF and other generators that
sufficiently contribute to the congestion on the transmission line,
as defined by the ISO or RTO in its applicable resource adequacy
deliverability analysis, if the QF is located in an ISO or RTO
control area. See, e.g., CAISO Preliminary Deliverability Baseline
Analysis Study Report, May 3, 2005, Appendix I. In addition, a given
QF's lack of physical access should be subject to annual review in
order to determine whether the mandatory purchase obligation should
continue.
    \46\ EEI states that existing ``Day 2'' organized markets rely
on LMP and financial transmission rights rather than physical
transmission rights. Where a financial right exists, a generator
enjoys access to markets, regardless of whether a physical right
exists.

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ii. Commission Determination
    82. While we agree with commenters that there may be factors unique
to a QF that prevent its nondiscriminatory access to one of the three
markets described in section 210(m)(1), we do not believe that any
factor, other than small size, has been shown in this rulemaking to be
an appropriate basis on which the Commission can establish a rebuttable
presumption of lack of nondiscriminatory access. Unlike the size
limitation discussed above, operational characteristics and
transmission limitations are not susceptible to a clear demarcation for
purposes of establishing a rebuttable presumption. We do believe,
however, that by establishing a rebuttable presumption based on size,
we in effect capture some of the operational issues expressed by
commenters. Accordingly, the final rule does not establish a rebuttable
presumption specific to operational characteristics.
    83. However, with respect to the rebuttable presumption that QFs
larger than 20 MW net capacity in the four listed RTO/ISOs do have
access to markets, QFs larger than 20 MW may seek to rebut this
presumption in their response to applications pursuant to section
210(m)(3) of PURPA and Sec.  292.310 of our regulations. The comments
suggest that a QF may rebut the presumption by showing, for example,
one or more of the following factors. Although we do not make any final
determinations herein as to whether any such factor, standing alone, is
sufficient to rebut the presumption of market access, we do agree with
the commenters that these factors are relevant to the question of
whether the purchase obligation should be terminated and, upon an
appropriate evidentiary showing, may be sufficient to rebut that
presumption:
    (A) The QF has certain operational characteristics that effectively
prevent the QF's participation in a market. Such operational
characteristics might include, but are not limited to: (a) Highly
variable thermal and electrical demand (from the QF host) on a daily
basis, such that the QF cannot participate in a market; or (b) highly
variable and unpredictable wholesale sales on a daily basis.
    (B) The QF has no access to a mechanism to schedule transmission
service or make sales in advance on a consistent basis, either because
of the variability of the QF's electric energy production or because of
market rules that prevent the QF from scheduling transmission service
or participating in organized markets. Such operational characteristics
might include, but are not limited to, dispatchability or some other
characteristic.
    (C) A QF lacks access to markets due to transmission constraints. A
QF may show that it is located in an area where persistent transmission
constraints in effect cause the QF not to have access to markets
outside a persistently congested area to sell the QF output or
capacity.
    84. In evaluating transmission constraints, the Commission will
consider, on a case-by-case basis, among other things, the opportunity
for QFs, on a nondiscriminatory basis, to obtain transmission upgrades
to relieve constraints and whether the structure of the relevant market
provides for the opportunity for the QF to sell notwithstanding the
constraint.
c. Distribution Level
i. Comments
    85. AWEA and others point out that the problems for QFs connecting
at the distribution level include: (1) Wheeling charges over
distribution to reach RTO/ISO markets; (2) costs associated with access
to the RTO/ISO market; and (3) other costs and procedural barriers that
can be unilaterally imposed by the distribution utility to deny or
hinder access to the market.
    86. Many commenters including AWEA, argue that QFs are typically
located in areas which do not provide direct access to competitive
wholesale markets, such as RTO/ISO markets. AWEA states that, instead
such facilities are forced to connect to the distribution market
operated by competing utilities. AWEA states that utilities and state
commissions--not FERC or RTOs--control who can interconnect at the
distribution level and charge costs that are prohibitive for many QFs.
AWEA states that because QFs cannot reach the RTO/ISO without incurring
significant costs to interconnect at the distribution level, access is
typically uneconomic for QFs. AWEA states that accordingly, these QFs
have no opportunity to sell power in a competitive market. AWEA states
that there is no way to ensure fair and nondiscriminatory treatment to
QFs forced to interconnect with a competing utility. NPRA states that a
competitive market in which the utility baseloads its own generation
and seeks ``competitive'' solutions for peaking power may not fairly
accommodate the sale of capacity and energy from non-dispatchable QF
generating facilities.
    87. Other commenters disagree with the argument that the Commission
should retain the mandatory purchase obligation for QFs interconnected
at the distribution level. They argue that whether a QF interconnects
at the distribution or transmission level is irrelevant because it has
nondiscriminatory access to competitive markets through open access
transmission and interconnection services. Central Vermont and Southern
California Edison Company (SCE) state that under Order Nos. 2003-C and
2006-A all of the utility's facilities, including its distribution
facilities, that are used to implement a sale for resale or to transmit
electricity in interstate commerce are subject to the nondiscriminatory
requirements of the utility's OATT. In addition, EEI and SCE state that
QFs may take advantage of the interconnection provisions of section 210
of the FPA, under which they can obtain services at Commission-
determined rates, terms and conditions. Also, EEI points out that
section 1.11 of the pro forma OATT makes clear that a generator
interconnected at the distribution level is entitled to request
transmission service under the OATT.
    88. PJM states that regardless of whether a resource interconnects
at the transmission or distribution level, it is entitled in PJM to
obtain interconnection service and open-access delivery service. SCE
argues that if the Commission does not adopt a generic finding that
generators have open access on a nondiscriminatory basis to the local
distribution facilities of all Commission-regulated utilities, there is
support for such a finding as to the State of California, given the
existence of Wholesale Distribution Access Tariffs
ii. Commission Determination
    89. The connection of a QF to distribution-level facilities can
present two different issues: (i) Whether the utility owning the
distribution facilities will permit the QF to have access to markets
and (ii) if that access is granted, whether any associated distribution
charges are sufficient to negate that access for purposes of applying
section 210(m). As to the first question, we agree that a denial of
actual access to distribution facilities for purposes of selling power
into the wholesale market would constitute sufficient evidence to find
that section 210(m) has not been satisfied (and hence to retain the
mandatory purchase obligation). We recognize that open access
transmission service, adopted in Order No. 888,\47\ and interconnection
rules, adopted in Order Nos. 2003 \48\ and 2006,\49\ are designed to
eliminate undue discrimination in the

provision of transmission and interconnection services but do not
address certain distribution level issues. Indeed, the Commission does
not have jurisdiction over all distribution level facilities,\50\ and
thus QFs interconnected to those facilities face access issues that are
different from the access issues that are faced by QFs interconnected
directly to RTO/ISO facilities.\51\ Although we do not believe the
record supports any generic findings that QFs interconnected at a
distribution level do not have non-discriminatory access to markets, a
QF may be able to show, based on its specific circumstances, that it
does not have such access to markets as a result of not being able to
obtain non-discriminatory access to distribution facilities. Thus, for
purposes of the rebuttable presumption that QFs above 20 MWs in the
four ISOs/RTOs (ISO-NE, NYISO, PJM and Midwest ISO) have non-
discriminatory access to markets, QFs may be able to rebut the
presumption by, e.g., demonstrating a denial of actual access to
distribution facilities for the purposes of selling power to the
wholesale market. Moreover, we note that, for small QFs (many of whom
may be connected at distribution level), the utility must also overcome
the rebuttable presumption that such small QFs do not have sufficient
access to markets to satisfy section 210(m).
---------------------------------------------------------------------------

    \47\ Supra note 32.
    \48\ Supra note 33.
    \49\ Supra note 34.
    \50\ See, e.g., PJM Interconnection, LLC, 114 FERC ] 61,191,
order on reh'g, 116 FERC ] 61,102 (2006).
    \51\ The Small Generator Interconnection Procedures (SGIP) and
the Small Generator Interconnection Agreement (SGIA) outlined in
Orders Nos. 2006 and 2006-A, include separate definitions for
``Transmission System'' and ``Distribution System'' to account for
the distinct engineering and cost allocation implications of an
interconnection with a Distribution System. Order No. 2006 states
that use of the term ``Distribution System'' has nothing to do with
whether the facility is under this Commission's jurisdiction; some
``distribution'' facilities are under our jurisdiction and others
are ``local distribution facilities'' subject to state jurisdiction.
Further Order No. 2006 applies only to interconnections to
facilities that are already subject to a jurisdictional OATT at the
time the interconnection request is made and that will be used for
purposes of jurisdictional wholesale sales. Order No. 2006 explains
that because of this limited applicability, and because the majority
of small generators interconnect with facilities that are not
subject to an OATT, Order No. 2006 will not apply to most small
generator interconnections. See Order No. 2006 at P 6, 7 and 8.
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    90. With respect to the second issue, we find that the imposition
of a charge for access to the distribution system does not mean that
the QF does not have ``access'' to competitive markets. A QF wishing to
access competitive markets is expected to pay the reasonable charges,
whether for transmission or distribution facilities, that are
associated with such action. There is nothing in section 210(m) that
suggests otherwise. Thus, the requirement to pay an interconnection
charge, transmission charge, or distribution charge, in and of itself,
is not an indication that a QF does not have nondiscriminatory access
to a market.
4. Burden of Proof
a. NOPR
    91. In the NOPR, the Commission proposed to make generic findings
that certain markets satisfy the conditions of section 210(m)(1)(A). In
addition, the Commission proposed to create a rebuttable presumption
that the Order No. 888 OATT provides nondiscriminatory access to
markets.
b. Comments
    92. American Chemistry Council, Caithness, American Forest & Paper,
CCC, CIBO, Occidental, PIOs, Dow, and ELCON argue that the burden of
establishing that the section 210(m) criteria are met is placed
squarely on the electric utility seeking relief from the must purchase
requirement. Several of these commenters argue that the Commission
erred in making generic determinations for section 210(m)(1)(A). All of
these commenters argue that section 210(m)(3) shows Congressional
intent that electric utilities can be relieved only after careful
consideration on a utility-specific service territory basis--not on a
broader region-wide basis. ELCON and many others claim that the
Commission has a statutory obligation to make facility-specific
determinations that nondiscriminatory access to long-term markets truly
exists. Industrial Energy Consumers add that the statute requires that
the utility make a specific showing, supported by evidence, about the
existence of and nondiscriminatory access to long-term markets. ELCON
and others contend that the statute does not provide the Commission
with the discretion or legal authority to abandon this QF-level
analysis in favor of a generic analysis. Granite State is concerned
that a generic finding will adversely affect small developers because
they would not receive actual notice of the elimination of the
mandatory purchase requirement.
    93. The CCC argues that section 210(m) requires utilities to make
principal showings demonstrating that market conditions justifying
removal of the mandatory purchase requirement exist. It states that QFs
then have the ability to rebut the utilities' presentations. The CCC
states that the NOPR turns this scheme on its head by making initial,
unsupported conclusions regarding the existence of market opportunities
for QFs without any utility submission or evidence, and then shifting
the burden to QFs to rebut the NOPR's conclusions.
    94. CIBO argue that placing the burden on industrial QFs is
arbitrary, because industrial QFs generally lack the resources and
Commission regulatory expertise to participate in litigation before the
Commission. In addition, it argues that such a shifting of the burden
of proof is contrary to 5 U.S.C. 556(d) and contrary to the structure
of section 1253, which envisions that the Commission will act on
applications submitted by the utility and supported by a demonstration
made by the utility. Finally, the Council argues that it creates a
disincentive for its members and other industrial QFs, who generally
lack the resources and regulatory expertise to bear that burden.
    95. Occidental adds that section 210(m)(3) provides the single
mechanism by which an electric utility can eliminate its mandatory
purchase requirement. It argues that the statute does not permit the
Commission to relieve the applicants' burden to demonstrate the
``factual basis'' of their requested relief by rulemaking.
    96. EEI states in its reply comments that it strongly believes the
four RTO/ISOs provide nondiscriminatory access to all generators,
operate competitive wholesale markets meeting the criteria in section
210(m)(1)(A)(i), and afford opportunities for long-term sales of
capacity and energy within the meaning of section 210(m)(1)(A)(ii). EEI
states that the Commission is correct to make generic findings
regarding these markets. EEI states that to do otherwise would compel
the Commission to re-litigate the same issues time and time again to
reach the identical determination.
    97. EEI states that only QFs will have the evidence necessary to
demonstrate that they, in fact, lack access and thereby to rebut the
presumption and that the Commission is not reversing the burden of
proof, but placing it where it belongs. EEI states that the opportunity
to rebut this presumption generally will be available to QFs in their
comments to applications for relief filed pursuant to section
210(m)(3).
c. Commission Determination
    98. Commenters, in response to the NOPR's proposal to find that the
markets of the four RTO/ISOs satisfy section 210(m)(1)(A), raise
essentially the same issue from two different perspectives: (1) The
Commission's authority to make generic findings; and (2) section
210(m)(3) places the burden

of proof on the electric utility, not the QF.
    99. We have previously discussed the rebuttable presumptions being
adopted herein--in favor of electric utilities with respect to
``large'' QFs in the four organized markets and in favor of ``small''
QFs in all markets. Several parties challenge our ability to make any
such determinations on a generic basis in this rulemaking. We disagree.
First, we have broad discretion to adopt generic policy or make generic
findings through either rulemaking or adjudication.\52\ We believe
doing so through this rulemaking provides all affected entities--
including both utilities and QFs--a reasonable opportunity to be heard
on common issues that arise in various market structures and for
classes of QFs. It makes little sense to adopt such generic
determinations in the first case to present them, thereby effectively
denying the vast majority of utilities and QFs the ability to comment
on those policies or findings before they are adopted for the first
time. To some extent, generic findings about certain aspects of ``Day
2'' markets are inevitable, either by rulemaking or in the first
utility specific filing in each ``Day 2'' market. Making generic
findings by rulemaking provides affected QFs better notice.
    100. Second, we are not persuaded that the issues relevant to the
findings and rebuttable presumptions we adopt here vary so
significantly in each case that they must be resolved only on a case-
by-case basis. For example, the issue of whether the four ``Day 2''
markets satisfy section 210(m)(1)(A) is one that can be resolved
generically. We find no merit in the contention that we should
relitigate that issue hundreds of times for every QF located in ``Day
2'' organized markets. Our approach here is consistent with the
language of the statute. Section 210(m)(1)(B) provides for the
submission of ``evidence of transactions within the relevant market.''
Because this language is not included in section 210(m)(1)(A), our
approach providing for findings and rebuttable presumptions is
consistent with the statute. Finally, we note that, unlike the NOPR, we
are only establishing rebuttable presumptions of access to markets, not
final determinations. These rebuttable presumptions are not only
reasonable because they address common, recurring issues, but also will
permit better processing of applications under the compressed 90-day
timeframe required by statute.\53\
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    \52\ See SEC v. Chenery, 332 U.S. 194, 202-03, reh'g denied, 332
U.S. 747 (1947).
    \53\ We note in this regard that section 210(m) of PURPA
requires the Commission to act on an application, within 90 days of
such application, ``after notice * * * and an opportunity for
comment.'' This contrasts with the requirement of sections 205 and
206 of the FPA that the Commission act after a ``hearing,'' not just
after an opportunity to comment. See 16 U.S.C. 824d, e.
---------------------------------------------------------------------------

    101. We also note that certain QFs recognize our authority to make
generic findings. PIOs implicitly acknowledge the Commission's
authority to make generic findings in supplemental comments filed on
August 25, 2006. In those comments, PIOs urged the Commission to find
that certain classes of QFs should retain the right to require electric
utility purchases regardless of the state of the markets on the ground
that certain classes of QFs lack access to markets.
    102. As noted, while the Commission is making a finding in this
rulemaking that four markets satisfy the market criteria of section
210(m)(1)(A) of PURPA, and is establishing a rebuttable presumption
that QFs above 20 MWs have nondiscriminatory access to those markets,
electric utilities within those markets will nevertheless have to file
an application pursuant to our regulations implementing section
210(m)(3) of PURPA, that is pursuant to section 292.310 of the
Commission's regulations, for relief from the requirement to enter into
new contracts or obligations with QFs. An electric utility member of
one of these four RTO/ISOs filing for relief from the obligation to
purchase will need to refer to this finding in the Final Rule as part
of its application. When it files for relief from the purchase
obligation it must also submit information about transmission
constraints within its service territory in order to give potentially
affected QFs information that may be relevant to rebutting the
presumption that they have access to all aspects of the applicable
``Day 2'' market. A QF 20 MW or smaller located within the Midwest ISO,
PJM, ISO-NE, and NYISO will be presumed not to have nondiscriminatory
access to these wholesale markets.\54\ A QF larger than 20 MW located
within the Midwest ISO, PJM, ISO-NE, and NYISO will be presumed to have
nondiscriminatory access to these wholesale markets. A QF larger than
20 MW may rebut that presumption by showing that it in fact lacks
access.
---------------------------------------------------------------------------

    \54\ The electric utility would have to make additional showings
if it wished to rebut the presumption that small QFs do not have
nondiscriminatory access to its region's Day 2 wholesale markets,
and to long term capacity and energy markets.
---------------------------------------------------------------------------

    103. A similar process will be used in cases for utilities located
in ``Day 1'' or other markets. However, in those markets, other than
ERCOT, there will be no presumption that a market that satisfies
section 210(m)(1)(B) or (C) criteria for termination of the purchase
obligation exists. The utility seeking relief will have to make that
showing. In addition to providing evidence that such markets satisfy
the criteria of subsections (B) and (C) generally, a utility will have
to submit evidence sufficient to overcome the presumption that a QF of
20 MWs net capacity or below does not have nondiscriminatory access to
those markets. Further, as indicated, there will be no presumption
regarding QFs above 20 MWs for markets covered by sections 210(m)(1)(B)
and (C).
    104. The result of this procedural process is that, before the
Commission relieves an electric utility of its requirement to enter
into a new contract or obligation to purchase electric energy from any
QF, the Commission will have made a facility-specific determination
that the QF has nondiscriminatory access to a section 210(m)(1)(A), (B)
or (C) market. It is true that the process utilizes certain rebuttable
presumptions. But as discussed above, we believe that there is a
reasonable basis for the presumptions we are establishing, and we
stress that all of the presumptions being established are rebuttable.
We also believe that the use of the presumptions will assist the
parties--QFs as well as electric utilities--and the Commission to more
readily process applications for termination of the purchase
requirement consistent with the statute and within the 90-day timeframe
required by section 210(m)(1)(3) of PURPA. Finally, we recognize
concerns that QFs may not have access to the level of information that
electric utilities have and that some QFs lack the resources and
expertise to participate in Commission litigation. The creation of the
rebuttable presumption in favor of small QFs, as well as the
information requirements we are imposing on electric utilities as part
of their applications, should help QFs in this regard. Thus, we believe
that the procedures we are creating for processing applications to
terminate the requirement that an electric utility purchase electric
energy from a QF are consistent with the requirement in section
210(m)(3) of PURPA that: (1) QFs be given sufficient notice; (2) a
utility set forth the factual basis on which relief is requested; and
(3) a utility describe why the conditions set

for in sections 210(m)(1)(A), (B) or (C) have been met.
    105. As to the arguments that QFs do not have sufficient notice of
the Commission's generic conclusions, we disagree. As indicated above,
these parties have it backwards. We are providing greater, not lesser,
notice of our conclusions regarding these issues by addressing them in
a proposed rulemaking, rather than in individual adjudications.
Moreover, every potentially affected QF will be given notice of the
proceedings filed under Sec.  292.310 of our regulations and will, in
those proceedings, have the opportunity to rebut the generic findings
made in this Final Rule.

B. Section 210(m)(1)(A) of PURPA

1. Midwest ISO, PJM, ISO-NE, and NYISO
a. NOPR
    106. Section 210(m)(1)(A) of PURPA requires the Commission to
terminate an electric utility's obligation to purchase from QFs if QFs
have nondiscriminatory access to (i) independently administered,
auction-based, day-ahead and real-time wholesale markets for the sale
of electric energy; and (ii) wholesale markets for long-term sales of
capacity and electric energy.
    107. In the NOPR, the Commission interpreted section 210(m)(1)(A)
to apply in regions in which ISOs and RTOs administer day-ahead and
real-time markets, and bilateral long-term contracts for the sale of
capacity and electric energy are available to participants/QFs in these
markets. These are commonly known as ``Day 2'' RTO/ISOs. The Commission
proposed to find that the Midwest ISO, PJM, ISO-NE, and NYISO satisfy
the requirements of section 210(m)(1)(A).\55\ The Commission stated in
the NOPR that these entities are Commission approved ISOs or RTOs that
provide nondiscriminatory open access transmission services and
independently administer auction-based wholesale markets for day-ahead
and real-time energy sales. The Commission stated in the NOPR that
additionally, with respect to subparagraph (A)(ii), the existence of
bilateral long-term contracts for long-term sales of capacity and
energy indicates that there is a market. The Commission stated that it
is reasonable to conclude that the second prong of section 210(m)(1)(A)
is met because bilateral long-term contracts are available to
participants in the footprints of the Midwest ISO, PJM, ISO-NE, and
NYISO. Therefore, the Commission proposed to find that electric
utilities that are members of the Midwest ISO, PJM, ISO-NE, and NYISO
would meet the requirements for relief from the mandatory purchase
requirement.\56\
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    \55\ In the NOPR the Commission noted that while SPP and the
CAISO, respectively are a Commission-approved RTO and ISO, they do
not satisfy the requirements of section 210(m)(1)(A) because neither
has day-ahead markets. The Commission stated, however, that any
utility within SPP and CAISO may file an application with the
Commission to seek relief from the mandatory purchase requirement
under section 210(m)(1)(B) or (C), on a case-by-case basis.
    \56\ NOPR at P 22.
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b. Comments
    108. The American Chemistry Council, American Energy, American
Forest & Paper, CCC, and Midwest Transmission Customers disagree with
the Commission's finding and argue that Midwest ISO, PJM, ISO-NE, and
NYISO do not meet section 210(m)(1)(A). Several commenters argue that
the Commission's proposed findings with respect to the Midwest ISO,
PJM, ISO-NE, and NYISO markets are insufficiently supported by record
evidence. In addition, the American Chemistry Council and CCC argue
that these markets are premature.
    109. Wisconsin Industrial Energy Group, Inc. argues that the
Commission's proposed findings with respect to Midwest ISO are
premature because a viable competive market does not exist in the
Midwest ISO footprint and because QF owners and operators do not have
nondiscriminatory access to the Midwest ISO market. Midwest
Transmission Customers argue that Midwest ISO markets are still not
sufficiently mature to justify the Commission terminating the PURPA
purchase obligation in Midwest ISO. The American Chemistry Council and
CCC argue that there is no evidentiary basis that shows bilateral
contracts for long-term sales of capacity are available to QFs on a
nondiscriminatory basis or that there is a ``market'' for such
contracts. These commenters argue that the NOPR offers no qualitative
analysis of the bilateral markets that are presumed to exist. ELCON
argues that a QF-specific review would establish that, in many cases,
QFs do not have nondiscriminatory access to long-term bilateral markets
whether in RTOs or otherwise. ELCON states that considerable evidence
establishes that markets either are in their infancy (e.g., Midwest
ISO), or are not functioning vis-a-vis long-term sales of capacity or
energy. ELCON states that it will be difficult for the Commission to
sustain on judicial review a generic finding that ISOs and RTOs offer
long-term markets for power when the Commission's own recent rulemaking
announcing financial transmission rights (FTRs) is predicated on the
need for FTRs to jump start long-term power markets specifically in
regions with ISOs and RTOs. ELCON takes issue with the assertion that
PJM operates an open, competitive market, citing the State of Delaware
as an example. ELCON states that according to a recent report by the
Delaware Cabinet Committee on Energy, competitive markets are not
working in Delaware.\57\
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    \57\ ELCON's August 25, 2006 Supplemental Comments at 8-9.
---------------------------------------------------------------------------

    110. Deere & Company (Deere) states that open access transmission
service presumes the existence of bilateral sale and purchase parties
separate from the transmitting utility, with the transmitting utility
providing the transmission service to either the seller or the buyer.
Deere states that that does not mean that there is nondiscriminatory
access to the long-term sale and purchase market. Deere states that one
buyer for all long-term sellers in a market would mean that there is a
monopsony, and through the exercise by the single buyer of its
monopsony ``market power,'' manifested in the form of a refusal to
deal, a new seller would not have any access to the long-term sale and
purchase market.
    111. Caithness argues that sections 210(m)(1)(A) and (B) both
require that there be markets for long-term wholesale sales of energy
and capacity before the must-purchase requirement can be terminated.
The American Chemistry Council argues that in trying to make sense of
the fact that section 210(m)(1)(B) contains a directive to ``consider
evidence of transactions in the relevant market,'' while section