Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, 86656-86754 [2020-26106]

Download as PDF 86656 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Energy Regulatory Commission 18 CFR Part 292 [Docket Nos. RM19–15–001 and AD16–16– 001; Order No. 872–A] Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978 Federal Energy Regulatory Commission. ACTION: Final rule; Order addressing arguments raised on rehearing and clarifying prior order in part. AGENCY: VerDate Sep<11>2014 19:00 Dec 29, 2020 In this Order, the Federal Energy Regulatory Commission addresses arguments raised on rehearing and clarifies, in part, its final rule adopting revisions to its regulations implementing sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA). These changes will enable the Commission to continue to fulfill its statutory obligations under sections 201 and 210 of PURPA. SUMMARY: DEPARTMENT OF ENERGY Jkt 253001 This rule is effective February 16, 2021. DATES: FOR FURTHER INFORMATION CONTACT: Lawrence R. Greenfield (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE, PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 Washington, DC 20426, (202) 502– 6415, lawrence.greenfield@ferc.gov Helen Shepherd (Technical Information), Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502– 6176, helen.shepherd@ferc.gov Thomas Dautel (Technical Information), Office of Energy Policy and Innovation, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502– 6196, thomas.dautel@ferc.gov SUPPLEMENTARY INFORMATION: E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 86657 TABLE OF CONTENTS Paragraph I. Background ............................................................................................................................................................................................ A. Statutory Background ................................................................................................................................................................... B. Final Rule’s Updating of the PURPA Regulations ...................................................................................................................... C. Summary of Changes to the PURPA Regulations Implemented by the Final Rule .................................................................. II. Discussion ............................................................................................................................................................................................ A. Threshold Issues ........................................................................................................................................................................... 1. Whether the Commission Appropriately Consulted With Representatives of Relevant State and Federal Agencies .... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ 2. Whether the PURPA Regulations Continue To Encourage QFs .......................................................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ B. QF Rates ........................................................................................................................................................................................ 1. Overview ................................................................................................................................................................................ 2. LMP as a Permissible Rate for Certain As-Available Avoided Cost Rates ......................................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ 3. Tiered Avoided Cost Rates .................................................................................................................................................... a. Request for Clarification ................................................................................................................................................. b. Commission Determination ............................................................................................................................................ 4. Providing for Variable Energy Rates in QF Contracts Is Consistent With PURPA ............................................................ a. Whether the Current Approach Has Resulted in Payments to QFs in Excess of Avoided Costs .............................. i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... b. Whether the Proposed Change Would Violate the Statutory Requirement That the PURPA Regulations Encourage QFs and Do Not Discriminate Against QFs ............................................................................................................ i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... c. Effect of Variable Energy Rates on Financing ............................................................................................................... i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... d. Requested Clarification of the Final Rule ..................................................................................................................... i. Commission Determination ..................................................................................................................................... 5. Consideration of Competitive Solicitations To Determine Avoided Costs ........................................................................ i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... C. Rebuttable Presumption of Separate Sites .................................................................................................................................. 1. Need for Reform ..................................................................................................................................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ 2. Distance Between Facilities ................................................................................................................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ 3. Factors .................................................................................................................................................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ D. QF Certification Process ............................................................................................................................................................... 1. Requests for Rehearing .......................................................................................................................................................... 2. Commission Determination ................................................................................................................................................... E. Corresponding Changes to the FERC Form No. 556 ................................................................................................................... 1. Requests for Rehearing .......................................................................................................................................................... 2. Commission Determination ................................................................................................................................................... F. PURPA Section 210(m) Rebuttable Presumption of Nondiscriminatory Access to Markets ................................................... 1. Requests for Rehearing and Clarification ............................................................................................................................. 2. Commission Determination ................................................................................................................................................... G. Legally Enforceable Obligation .................................................................................................................................................... 1. Requests for Rehearing .......................................................................................................................................................... 2. Commission Determination ................................................................................................................................................... III. Information Collection Statement ...................................................................................................................................................... A. Request for Rehearing .................................................................................................................................................................. B. Commission Determination .......................................................................................................................................................... 1. QFs Submitting Self-Certifications ....................................................................................................................................... a. Small Power Production Facility Greater Than 1 MW, and Less Than One Mile From an Affiliated Small Power Production QF ................................................................................................................................................................. b. Small Power Production Facility Greater Than 1 MW, and More Than One Mile but Less Than 10 Miles From an Affiliated Small Power Production QF ..................................................................................................................... c. Small Power Production Facility Greater Than 1 MW and 10 Miles or More From an Affiliated Small Power Production QF ................................................................................................................................................................. 2. QFs Submitting Applications for Commission Certification .............................................................................................. a. Small Power Production Facility Greater Than 1 MW, and Less Than One Mile From an Affiliated Small Power Production QF ................................................................................................................................................................. b. Small Power Production Facility Greater Than 1 MW, and More Than One Mile but Less Than 10 Miles From an Affiliated Small Power Production QF ..................................................................................................................... VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\30DER2.SGM 30DER2 4 4 10 11 23 24 24 24 25 27 27 39 46 46 53 60 63 66 66 72 74 84 95 104 114 118 134 145 159 172 178 179 181 203 214 232 235 236 238 246 250 255 261 265 273 280 290 306 327 330 331 334 354 360 374 381 384 389 392 393 403 404 405 406 407 408 409 86658 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations TABLE OF CONTENTS—Continued Paragraph c. Small Power Production Facility Greater Than 1 MW and 10 Miles or More From an Affiliated Small Power Production QF ................................................................................................................................................................. 3. Calculations for Additional Burden and Cost ...................................................................................................................... IV. Environmental Analysis ..................................................................................................................................................................... A. No EIS or EA Is Required ............................................................................................................................................................ 1. NEPA Analysis Is Not Required Where Environmental Impacts Are Not Reasonably Foreseeable ................................. a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ 2. A Categorical Exclusion Applies .......................................................................................................................................... a. Exception to Categorical Exclusion ............................................................................................................................... i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... b. Applying a Categorical Exclusion for Clarifying and Corrective Actions Is Appropriate ......................................... i. Requests for Rehearing ............................................................................................................................................. ii. Commission Determination .................................................................................................................................... 3. That the Commission Prepared NEPA Analyses for the Promulgation of the Original PURPA Rule and Other Prior Rulemakings Does Not Mean That Such Analysis Was Possible or Required Here .......................................................... a. Requests for Rehearing ................................................................................................................................................... b. Commission Determination ............................................................................................................................................ V. Regulatory Flexibility Act Certification ............................................................................................................................................. VI. Document Availability ....................................................................................................................................................................... VII. Effective Dates and Congressional Notification ............................................................................................................................... 1. On July 16, 2020, the Federal Energy Regulatory Commission (Commission) issued its final rule (final rule or Order No. 872) 1 adopting revisions to its regulations (PURPA Regulations) 2 implementing sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA).3 Those regulations were promulgated in 1980 and have been modified in only specific respects since then. On August 17, 2020, the Commission received requests for rehearing and/or clarification of the final rule from the following entities and individuals: (1) California Utilities; 4 (2) Electric Power Supply Association (EPSA); (3) Northwest Coalition; 5 (4) One Energy Enterprises; 1 Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Order No. 872, 85 FR 54638 (Sep. 2, 2020), 172 FERC ¶ 61,041 (2020). 2 18 CFR part 292. In connection with the revisions to the PURPA Regulations, the Commission also revised its delegation of authority to Commission staff in 18 CFR part 375. 3 16 U.S.C. 796(17)–(18), 824a–3. 4 California Utilities consist of Pacific Gas & Electric Company; San Diego Gas & Electric Company; and Southern California Edison Company. 5 Northwest Coalition consists of Northwest and Intermountain Independent Power Producers Association; the Community Renewable Energy Association; the Renewable Energy Coalition; IdaHydro; Oregon Solar Energy Industries Association; and NewSun Energy LLC. Excluding IdaHydro and NewSun Energy LLC, the entities comprising Northwest Coalition filed comments referred to in Order No. 872 as ‘‘NIPPC, CREA, REC, and OSEIA.’’ For ease of reference, in some instances below, we refer to Northwest Coalition below interchangeably with ‘‘NIPPC, CREA, REC, and OSEIA.’’ VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 (5) Public Interest Organizations; 6 (6) Solar Energy Industries Association (Solar Energy Industries); and (7) Thomas Mattson. On September 1, 2020, California Public Utilities Commission (California Commission) filed a response to California Utilities’ request for clarification. 2. Pursuant to Allegheny Defense Project v. FERC,7 the rehearing requests filed in this proceeding may be deemed denied by operation of law. As permitted by section 313(a) of the Federal Power Act (FPA),8 however, we modify the discussion in the final rule 6 Public Interest Organizations consist of Alabama Interfaith Power and Light; Appalachian Voices; Center for Biological Diversity; Environmental Law and Policy Center; Gasp; Georgia Interfaith Power and Light; Montana Environmental Information Center; Natural Resources Defense Council; North Carolina Sustainable Energy Association; Sierra Club; South Carolina Coastal Conservation League; Southern Alliance for Clean Energy; Southern Environmental Law Center; Southface Institute; Sustainable FERC Project; Tennessee Interfaith Power and Light; Upstate Forever; and Vote Solar. Some of these entities filed comments as ‘‘Southeast Public Interest Organizations’’ and some of these entities filed comments as ‘‘Public Interest Organizations.’’ For ease of reference, we refer below to these organizations on rehearing as ‘‘Public Interest Organizations,’’ however, but when referring to the separate groups’ comments in this rulemaking proceeding, we refer to their separate comments. 7 964 F.3d 1 (D.C. Cir. 2020) (en banc). 8 16 U.S.C. 825l(a) (‘‘Until the record in a proceeding shall have been filed in a court of appeals, as provided in subsection (b), the Commission may at any time, upon reasonable notice and in such manner as it shall deem proper, modify or set aside, in whole or in part, any finding or order made or issued by it under the provisions of this chapter.’’). PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 410 411 412 412 414 420 425 436 443 443 444 445 445 449 455 462 465 469 471 474 and continue to reach the same result in this proceeding, as discussed below.9 3. Specifically, we either dismiss or disagree with most arguments raised on rehearing. We also provide further clarification on (1) states’ use of tiered avoided cost pricing; (2) states’ use of variable energy rates in QF contracts and availability of utility avoided cost data; (3) the role of independent entities overseeing competitive solicitations; (4) the circumstances under which a small power production qualifying facility (QF) needs to recertify; (5) application of the rebuttable presumption of separate sites for the purpose of determining the power production capacity of small power production facilities; and (6) the PURPA section 210(m) rebuttable presumption of nondiscriminatory access to markets and accompanying regulatory text, as further discussed below. I. Background A. Statutory Background 4. PURPA section 210(a) requires that the Commission prescribe rules that it determines necessary to encourage the development of qualifying small power production facilities and cogeneration facilities (together, QFs).10 PURPA section 210(b) sets out the standards governing the rates purchasing utilities must pay to QFs.11 Sections 210(b)(1) and (b)(2) provide that QF rates ‘‘shall 9 Allegheny Def. Project, 964 F.3d at 16–17. The Commission is not changing the outcome of the final rule. See Smith Lake Improvement & Stakeholders Ass’n v. FERC, 809 F.3d 55, 56–57 (D.C. Cir. 2015). 10 16 U.S.C. 824a–3(a). 11 16 U.S.C. 824a–3(b). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations be just and reasonable to the electric consumers of the electric utility and in the public interest’’ and ‘‘shall not discriminate against qualifying cogenerators or qualifying small power producers.’’ 12 5. After establishing these standards, Congress then imposed statutory limits on the extent to which the PURPA Regulations may encourage the development of QFs pursuant to PURPA section 210(a), and also placed bounds on how the PURPA Regulations may implement the statutory provisions in PURPA section 210(b) governing QF rates. 6. The first such statutory limit appears in the final sentence of PURPA section 210(b). There, Congress established a cap on the level of the rates utilities could be required to pay QFs: ‘‘No such rule prescribed under subsection (a) shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.’’ 13 As the Conference Report for PURPA (PURPA Conference Report) explains: [T]he utility would not be required to purchase electric energy from a qualifying cogeneration or small power production facility at a rate which exceeds the lower of the rate described above, namely a rate which is just and reasonable to consumers of the utility, in the public interest, and nondiscriminatory, or the incremental cost of alternate electric energy. This limitation on the rates which may be required in purchasing from a cogenerator or small power producer is meant to act as an upper limit on the price at which utilities can be required under this section to purchase electric energy.14 7. Another way in which Congress set boundaries on the Commission’s ability to encourage development of QFs was to define small power production facilities, one of the categories of generators that is to be encouraged under the statute. This statutory definition of small power production facilities applies to almost all renewable resources that wish to be QFs, requiring that those facilities have ‘‘a power production capacity which, together with any other facilities located at the same site (as determined by the Commission), is not greater than 80 12 Id. 13 Id. (emphasis added). The statute defines an electric utility’s ‘‘incremental costs’’ as ‘‘the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source.’’ 16 U.S.C. 824a– 3(d); see also 18 CFR 292.101(b)(6) (implementing same and defining such ‘‘incremental costs’’ as ‘‘avoided costs’’). 14 H.R. Rep. No. 95–1750, at 98 (1978) (Conf. Rep.) (emphasis added). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 megawatts.’’ 15 In order to comply with this statutory requirement that the capacity of all small power production facilities ‘‘located at the same site’’ not exceed 80 MW, the Commission is required to define what constitutes a ‘‘site.’’ In 1980, the Commission determined that, essentially, those facilities that are owned by the same or affiliated entities and using the same energy resource should be deemed to be at the same site ‘‘if they are located within one mile of the facility for which qualification is sought.’’ 16 This approach, known as the ‘‘one-mile rule,’’ interpreted Congress’s limitation of 80 MW located at the same site to apply to those affiliated small power production qualifying facilities located within one mile of each other that use the same energy resource. 8. Finally, Congress amended PURPA in 2005 to place further limits on the extent to which the PURPA Regulations may encourage QFs. Congress amended PURPA section 210 to, among other things, add section 210(m), which provides for termination of the requirement that an electric utility enter into a new obligation or contract to purchase from a QF (frequently described as the ‘‘mandatory purchase obligation’’) if the QF has nondiscriminatory access to certain defined types of markets.17 This amendment reflected Congress’s judgment that non-discriminatory access to these markets provided adequate encouragement for those QFs, such that the mandatory purchase obligation could be lifted. 9. Congress directed the Commission to amend the PURPA Regulations to implement this new requirement, which the Commission did in Order No. 688. In that order, pursuant to PURPA section 210(m), the Commission identified markets in which utilities would no longer be subject to the PURPA mandatory purchase obligation because QFs have nondiscriminatory access to such markets.18 Although not required by PURPA section 210(m), the Commission also established a rebuttable presumption for small QFs, which the Commission determined at that time were QFs at or below 20 MW, because they may not have nondiscriminatory access to such 15 16 U.S.C. 796(17)(A)(ii). CFR 292.204(a)(ii). 17 See 16 U.S.C. 824a–3(m). 18 New PURPA Section 210(m) Regulations Applicable to Small Power Production and Cogeneration Facilities, Order No. 688, 117 FERC ¶ 61,078, at PP 9–12 (2006), order on reh’g, Order No. 688–A, 119 FERC ¶ 61,305 (2007), aff’d sub nom. Am. Forest & Paper Ass’n v. FERC, 550 F.3d 1179 (D.C. Cir. 2008) (AFPA v. FERC). 16 18 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 86659 markets.19 In creating this rebuttable presumption, the Commission made clear that ‘‘we are not making a finding that all QFs smaller than a certain size lack nondiscriminatory access to markets.’’ 20 B. Final Rule’s Updating of the PURPA Regulations 10. In the final rule, the Commission amended the PURPA Regulations, principally with regard to the three statutory provisions described above: (1) The avoided cost cap on QF rates; (2) the 80 MW limitation applicable to the combined capacity of affiliated small power production QFs that use the same energy resource located at the same site; and (3) the termination of the mandatory purchase obligation for QFs with nondiscriminatory access to markets. The Commission stated that it was modifying the PURPA Regulations, based on demonstrated changes in circumstances that took place after the PURPA Regulations were first adopted, to ensure that the regulations continue to comply with PURPA’s statutory requirements established by Congress.21 C. Summary of Changes to the PURPA Regulations Implemented by the Final Rule 11. In the final rule, the Commission revised the PURPA Regulations based on the record of this proceeding, including comments submitted in the technical conference in Docket No. AD16–16–000 (Technical Conference),22 the record evidence cited in the Notice of Proposed Rulemaking (NOPR),23 and the comments submitted in response to the NOPR.24 These changes, including modifications to the proposals made in the NOPR, are summarized below. 12. First, the Commission granted states 25 the flexibility to require that 19 18 CFR 292.309(d)(1). No. 688, 117 FERC ¶ 61,078 at P 74. 21 Order No. 872, 172 FERC ¶ 61,041 at P 20. 22 Supplemental Notice of Technical Conference, Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Docket No. AD16– 16–000 (May 9, 2016). The Technical Conference covered such issues as: (1) Various methods for calculating avoided cost; (2) the obligation to purchase pursuant to a legally enforceable obligation (LEO); (3) application of the one-mile rule; and (4) the rebuttable presumption the Commission has adopted under PURPA section 210(m) that QFs 20 MW and below do not have nondiscriminatory access to competitive organized wholesale markets. 23 Qualifying Facility Rates and Requirements, 84 FR 53246 (Oct. 4, 2019), 168 FERC ¶ 61,184 (2019) (NOPR). 24 Order No. 872, 172 FERC ¶ 61,041 at P 56. 25 Nonregulated electric utilities implement the requirements of PURPA with respect to themselves. An electric utility that is ‘‘nonregulated’’ is any electric utility other than a ‘‘state regulated electric 20 Order E:\FR\FM\30DER2.SGM Continued 30DER2 86660 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations energy rates (but not capacity rates) in QF power sales contracts and other LEOs 26 vary in accordance with changes in the purchasing electric utility’s as-available avoided costs at the time the energy is delivered. If a state exercises this flexibility, a QF no longer would have the ability to elect to have its energy rate be fixed but would continue to be entitled to a fixed capacity rate for the term of the contract or LEO.27 13. Second, the Commission granted states additional flexibility to allow QFs to have a fixed energy rate and provided that such state-authorized fixed energy rate can be based on projected energy prices during the term of a QF’s contract based on the anticipated dates of delivery.28 14. Third, the Commission implemented a number of revisions intended to grant states flexibility to set ‘‘as-available’’ QF energy rates based on market forces. The Commission established a rebuttable presumption that the locational marginal price (LMP) established in the organized electric markets defined in 18 CFR 292.309(e), (f), or (g) represents the as-available avoided costs of energy for electric utilities located in these markets.29 With respect to QFs selling to electric utilities located outside of the organized electric markets defined in 18 CFR 292.309(e), (f), or (g), the Commission permitted states to set as-available energy avoided cost rates at competitive prices from liquid market hubs or calculated from a formula based on natural gas price indices and specified heat rates, provided that the states first determine utility.’’ 16 U.S.C. 2602(9). The term ‘‘state regulated electric utility,’’ in contrast, means any electric utility with respect to which a state regulatory authority has ratemaking authority. 16 U.S.C. 2602(18). The term ‘‘state regulatory authority,’’ as relevant here, means a state agency which has ratemaking authority with respect to the sale of electric energy by an electric utility. 16 U.S.C. 2602(17). 26 The Commission has held that a LEO can take effect before a contract is executed and may not necessarily be incorporated into a contract. JD Wind 1, LLC, 129 FERC ¶ 61,148, at P 25 (2009), reh’g denied, 130 FERC ¶ 61,127 (2010) (‘‘[A] QF, by committing itself to sell to an electric utility, also commits the electric utility to buy from the QF; these commitments result either in contracts or in non-contractual, but binding, legally enforceable obligations.’’). For ease of reference, however, references herein to a contract also are intended to refer to a LEO that is not incorporated into a contract. 27 Order No. 872, 172 FERC ¶ 61,041 at P 57. 28 Id. P 58. 29 These are the markets operated by Midcontinent Independent System Operator, Inc. (MISO); PJM Interconnection, L.L.C. (PJM); ISO New England Inc. (ISO–NE); New York Independent System Operator, Inc. (NYISO); Electric Reliability Council of Texas (ERCOT); California Independent System Operator, Inc. (CAISO); and Southwest Power Pool, Inc. (SPP). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that such prices represent the purchasing electric utilities’ energy avoided costs.30 15. The Commission granted states the flexibility to choose to adopt one or more of these options or to continue setting QF rates under the standards long established in the PURPA Regulations.31 16. Fourth, the Commission provided states the flexibility to set energy and capacity rates pursuant to a competitive solicitation process conducted under transparent and non-discriminatory procedures consistent with the Commission’s Allegheny standard.32 17. Fifth, the Commission modified its ‘‘one-mile rule’’ for determining whether generation facilities are considered to be at the same site for purposes of determining qualification as a qualifying small power production facility. Specifically, the Commission allowed electric utilities, state regulatory authorities, and other interested parties to show that affiliated small power production facilities that use the same energy resource and are more than one mile apart and less than 10 miles apart actually are at the same site (with distances one mile or less apart still irrebuttably at the same site and distances 10 miles or more apart irrebuttably at separate sites). The Commission also allowed a small power production facility seeking QF status to provide further information in its certification (whether a self-certification or an application for Commission certification) or recertification (whether a self-recertification or an application for Commission recertification) to defend preemptively against subsequent challenges, by identifying factors affirmatively demonstrating that its facility is indeed at a separate site from other affiliated small power production qualifying facilities. The Commission added a definition of the term ‘‘electrical generating equipment’’ to the PURPA Regulations to clarify how the distance between facilities is to be calculated.33 18. Sixth, the Commission allowed an entity to challenge an initial selfcertification or self-recertification without being required to file a separate petition for declaratory order and to pay the associated filing fee. However, the Commission clarified that such protests may be made to new certifications (both self-certifications and applications for 30 Order No. 872, 172 FERC ¶ 61,041 at P 59. Commission certification) but only to self-recertifications and applications for Commission recertifications making substantive changes to the existing certification.34 19. Seventh, the Commission revised its regulations implementing PURPA section 210(m), which provide for the termination of an electric utility’s obligation to purchase from a QF with nondiscriminatory access to certain markets. Under the PURPA Regulations before the final rule becomes effective, there is a rebuttable presumption that certain small QFs (i.e., those below 20 MW) may not have nondiscriminatory access to such markets. The Commission updated the rebuttable presumption threshold for small power production facilities (but not cogeneration facilities) from 20 MW to 5 MW and revised the PURPA Regulations to provide a nonexclusive list of examples of factors that QFs may cite to support an argument that they lack nondiscriminatory access to such markets.35 20. Finally, the Commission clarified that a QF must demonstrate commercial viability and a financial commitment to construct its facility pursuant to objective and reasonable statedetermined criteria before the QF is entitled to a contract or LEO. The Commission prohibited states from imposing any requirements for a LEO other than a showing of commercial viability and a financial commitment to construct the facility.36 21. The Commission explained that these changes will enable the Commission to continue to fulfill its statutory obligations under PURPA sections 201 and 210. The Commission emphasized that these changes are effective prospectively for new contracts or LEOs and for new facility certifications and recertifications filed on or after the effective date of the final rule; the Commission stated that it does not by the final rule permit disturbance of existing contracts or LEOs or existing facility certifications.37 22. On August 17, 2020, (1) EPSA, California Utilities, Northwest Coalition, One Energy Enterprises, and Thomas Mattson filed timely requests for rehearing of the final rule; (2) One Energy Enterprises, Public Interest Organizations, and Solar Energy Industries filed timely requests for rehearing and clarification of the final rule; and (3) California Utilities filed a timely request for clarification of the 31 Id. 32 Id. P 60 (referencing Allegheny Energy Supply Co., LLC, 108 FERC ¶ 61,082, at P 18 (2004) (Allegheny Energy)). 33 Id. P 62. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 34 Id. P 63. P 64. 36 Id. P 65. 37 Id. P 66. 35 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Final Rule. On September 1, 2020, California Public Utilities Commission (California Commission) filed an answer to California Utilities’ request for clarification of the final rule.38 II. Discussion 23. In this order, we sustain the final rule. Specifically, we either dismiss or disagree with most arguments raised on rehearing. We also provide further clarification on (1) states’ use of tiered avoided cost pricing; (2) states’ use of variable energy rates in QF contracts and availability of utility avoided cost data; (3) the role of independent entities overseeing competitive solicitations; (4) the circumstances under which a small power production QF needs to recertify; (5) application of the rebuttable presumption of separate sites in PURPA 210(m) proceedings; and (6) the PURPA section 210(m) rebuttable presumption of nondiscriminatory access to markets and accompanying regulatory text, as further discussed below. A. Threshold Issues 1. Whether the Commission Appropriately Consulted With Representatives of Relevant State and Federal Agencies a. Requests for Rehearing 24. Public Interest Organizations state that the final rule is flawed because the Commission failed to consult with state and federal officials as required by PURPA section 210(a).39 Public Interest Organizations argue that the Commission’s actions to hold a technical conference and invite public comments, both of which involved participation from state and federal entities, are insufficient to meet this statutory requirement.40 Public Interest Organizations aver that these actions satisfy the statutory requirement to provide ‘‘notice and reasonable opportunity for interested persons (including State and Federal agencies) to submit oral as well as written data, views, and arguments’’ but that the Commission failed to satisfy what Public Interest Organizations claim is a separate and distinct requirement: To ‘‘consult[ ]’’ with representatives of state and federal officials.41 Public Interest Organizations argue that Congress included the word ‘‘consultation’’ in the 38 Because California Utilities requested clarification, and not rehearing, of the final rule, we accept California Commission’s answer to California Utilities’ request for clarification of the final rule. See 18 CFR 385.213(a)(3). 39 Public Interest Organizations Request for Rehearing at 6, 12–14. 40 Id. at 13. 41 Id. (citing 16 U.S.C. 824a–3(a)(2)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 statute to connote deliberations more formal and focused than the general notice and comment process and further assert that statutes and regulations routinely distinguish between the two.42 Public Interest Organizations contend that this lack of consultation has hamstrung the Commission and prevents the Commission from crafting informed policy.43 b. Commission Determination 25. Public Interest Organizations’ argument that the Commission failed to fulfill the consultation provision has no merit. First, we reemphasize the participation by state entities at the Commission’s 2016 Technical Conference. Upon the Commission’s open invitation,44 several state entities participated in that conference and filed post-conference comments, including members of state regulatory authorities and the president of the national association representing state commissions (NARUC).45 Second, several federal and state entities availed themselves of the opportunity to be heard via the NOPR’s notice and comment process. More than 20 state entities, including state commissions, state consumer advocates, state attorneys general, governors, and others, submitted comments in response to the NOPR.46 In addition, NARUC submitted 42 Id. at 13–14 (citing 50 CFR 402.14; Cooling Water Intake Structure Coal. v. U.S. Envtl. Prot. Agency, 905 F.3d 49, 78 (2d Cir. 2018)). 43 Id. at 14. 44 See Notice Inviting Post-Technical Conference Comments, Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Docket No. AD16–16–000 (Sept. 6, 2016); Supplemental Notice of Technical Conference, Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Docket No. AD16–16–000 (Mar. 4, 2016) (announcing preliminary agenda and inviting interested speakers). 45 Connecticut Public Utilities Regulatory Authority (Connecticut Authority) and Massachusetts Department of Public Utilities (Massachusetts DPU) Comments, Docket No. AD16– 16–000 (Nov. 7, 2016); Idaho Public Utilities Commission (Idaho Commission) Comments, Docket No. AD16–16–000 (Nov. 7, 2016); Commissioner Paul Kjellander, Idaho Commission Comments, Docket No. AD16–16–000 (June 29, 2016); Commissioner Christine Raper, Idaho Commission Comments, Docket No. AD16–16–000 (June 29, 2016); Commissioner Travis Kavulla, Montana Public Service Commission (Montana Commission) and on behalf of NARUC Comments, Docket No. AD16–16–000 (June 29, 2016). 46 Commissioner Anthony O’Donnell, Montana Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Arizona Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); California Public Utilities Commission (California Commission) Comments, Docket No. RM19–15–000 (Dec. 3, 2019); District of Columbia Public Service Commission (DC Commission) Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Governor Brad Little (Idaho) Comments, Docket No. RM19–15–000 (Dec. 2, 2019); Idaho Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Kentucky PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 86661 several filings throughout this process, and a group calling themselves State Entities—a diverse group including eight attorneys general and two state commissions—filed a combined comment on the PURPA NOPR; the NOPR was published in the Federal Register.47 Third, no state or federal entity has sought rehearing on this (or any other) basis. 26. In sum, throughout this process, the Commission repeatedly sought information and input from state and federal entities. As explained above, numerous state entities submitted comments or otherwise participated in the process and other state and federal entities had the opportunity to participate in the process. The Commission fully satisfied its consultation obligations. 2. Whether the PURPA Regulations Continue To Encourage QFs a. Requests for Rehearing 27. Solar Energy Industries and Public Interest Organizations state that the Commission is required under PURPA section 210 to apply its regulations in a manner that encourages QFs and that it has failed to do so.48 28. Solar Energy Industries argue that, in the final rule, the Commission failed Public Service Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Massachusetts Attorney General Maura Healey Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Massachusetts DPU Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Michigan Public Service Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Montana Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); North Carolina Attorney General Comments, Docket No. RM19–15– 000 (Dec. 3, 2019); North Carolina Public Service Commission Public Staff Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Nebraska Power Review Board Comments, Docket No. RM19–15– 000 (Nov. 22, 2019); Ohio Consumers Counsel Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Oregon Public Utility Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Pennsylvania Public Utility Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019); Public Utility Commission of Ohio Federal Energy Advocate Comments, Docket No. RM19–15– 000 (Dec. 3, 2019); South Dakota Public Utilities Commission Comments, Docket No. RM19–15–000 (Dec. 3, 2019). 47 State Entities Comments, Docket No. RM19– 15–000 (Dec. 3, 2019) (filed on behalf of Massachusetts Attorney General, Delaware Attorney General, District of Columbia Attorney General, Maryland Attorney General, Michigan Attorney General, New Jersey Attorney General, North Carolina Attorney General, Oregon Attorney General, New Jersey Board of Public Utilities, Rhode Island Division of Public Utilities and Carriers); NARUC Comments, Docket No. RM19– 15–000 (Dec. 3, 2019); NARUC Supplemental Comments, Docket No. AD16–16–000 (Oct. 17, 2018); see also NOPR, 168 FERC ¶ 61,184, (NOPR published in Federal Register). 48 Public Interest Organizations Request for Rehearing at 8, 43–60; Solar Energy Industries Request for Rehearing and/or Clarification at 2–4, 4–6, 8–9, 42–45. E:\FR\FM\30DER2.SGM 30DER2 86662 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations to meet this statutory requirement in the following ways: (1) Terminating a Qualifying Facility’s right to elect a long-term energy rate when delivering energy under a long-term contract; (2) revising the long-standing regulations providing that a Qualifying Facility is not ‘‘at the same site’’ so long as the facilities are located more than one mile apart; and (3) allowing utilities within the boundaries of [Regional Transmission Organization or an Independent System Operator (RTO/ISO)] to seek a waiver of the [obligation] to purchase from small power production Qualifying Facilities larger than 5 MW despite the fact that few, if any, of such facilities have meaningful access to organized wholesale markets.49 29. Solar Energy Industries claim that the Commission’s assertion that the final rule ‘‘continue[s] to encourage the development of QFs consistent with PURPA’’ is unsupported by the record and erroneous.50 Solar Energy Industries argue that requiring utilities to interconnect with QFs and allowing QFs to purchase station power services is not new and is part and parcel of a utility’s obligation to provide open access service today.51 Solar Energy Industries add that maintaining existing exemptions from the FPA and similar state and federal regulations is not helpful because other rule changes serve as severe obstructions to QF development in the first place. 30. Public Interest Organizations assert that the Commission incorrectly framed this issue as a set of false choices between encouraging QFs or violating statutory limits and encouraging QFs or never modifying its 1980 regulations.52 Public Interest Organizations argue that the Commission has inappropriately focused on whether the final rule eliminates all encouragement, rather than whether the final rule advances the goal of encouraging QFs in comparison to a suite of alternatives that could be more favorable to QFs. Public Interest Organizations add that the Commission must give effect to every relevant clause and use the significant space between encouraging and exceeding other statutory mandates, rather than following the conclusion in the final rule that PURPA itself limits the extent to which PURPA Regulations can encourage QFs, which would create a false dichotomy between meeting the mandate that QFs be encouraged and 49 Solar Energy Industries Rehearing Request at 4, 8–9. 50 Id. at 6 (citing Order No. 872, 172 FERC ¶ 61,041 at P 78). 51 Id. 52 Public Interest Organizations Request for Rehearing at 43–45. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 violating Congressionally defined limits.53 31. Public Interest Organizations contend that the Commission is acting arbitrarily and capriciously because the record fails to support the Commission’s claim that the changes in the final rule encourage QFs.54 Public Interest Organizations point to the Commission’s statements in the final rule that these revisions will ‘‘lower payments from certain electric utilities to certain QFs,’’ will result in additional filing burdens, and may result in more protests being filed in opposition to QF filings.55 Public Interest Organizations argue that the Commission implicitly admitted that the majority of the changes do not encourage QF development when the Commission stated that ‘‘several of the changes’’ in the final rule provide encouragement.56 32. Public Interest Organizations argue that the final rule is not the product of reasoned decision-making because the Commission’s assertions that these revisions encourage QFs are insufficient, even if true.57 Public Interest Organizations state that in Order No. 69 the Commission identified three major obstacles and crafted its rules to address these barriers. Public Interest Organizations aver that, in contrast, the Commission conducted no such inquiry here to identify whether those barriers persist or new ones exist.58 33. Public Interest Organizations claim that the Commission ignored evidence in the record.59 Public Interest Organizations state that the Commission dismissed as beyond the scope of the rulemaking evidence that the PURPA Regulations in place since 1980 fail to encourage QFs, yet at the same time rely on the strength of those rules to support its claim that the PURPA Regulations continue to encourage QFs.60 Public Interest Organizations argue that the 53 Id. at 44–46 (citing Order No. 872, 172 FERC ¶ 61,041 at P 72). 54 Id. at 46–60. 55 Id. at 46 (citing Order No. 872, 172 FERC ¶ 61,041 at PP 553, 584, 587, 746). 56 Id. at 46–47 (citing Order No. 872, 172 FERC ¶ 61,041 at P 78). 57 Id. at 48–49 (citing Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, Order No. 69, 45 FR 12214 (Feb. 25,1980), FERC Stats. & Regs. ¶ 30,128, at 30,863 (cross-referenced 10 FERC ¶ 61,150), order on reh’g, Order No. 69–A, 45 FR 33958 (May 21, 1980), FERC Stats. & Regs. ¶ 30,160 (1980) (cross-referenced at 11 FERC ¶ 61,166), aff’d in part & vacated in part sub nom. Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), rev’d in part sub nom. Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983) (API)). 58 Id. 59 Id. at 49–57. 60 Id. at 49. PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 Commission avoided consideration of this evidence by making the following three claims: (1) Relaxing some standards may actually induce some states to more robustly implement the rules; (2) evidence claiming that existing rules fail to encourage QF development should be dismissed as overstated; and (3) any lack of implementation of PURPA speaks to states’ failures to implement, rather than gaps in the PURPA Regulations themselves.61 34. Public Interest Organizations argue that examples of the Commission’s failure to fully consider the record were that one of the commenters described the amendments to the Public Utility Holding Company Act of 1935 (PUHCA) in 2005 that effectively repealed that statute and that interconnection procedures stymie QF development. Public Interest Organizations argue that the Commission did not sufficiently consider this information in the record and, if it had, it would not have mistakenly asserted that related regulatory exemptions provided in the 1980 rules are sufficient to encourage QF development.62 35. Public Interest Organizations contend that, because the Commission explicitly considered broad changes from Order No. 69 and addressed a broad range of topics in the final rule, the Commission improperly excluded consideration of evidence of barriers faced by QFs when it found that such evidence is outside the scope of this proceeding.63 36. Public Interest Organizations argue that the Commission was misguided in its reliance on U.S. Energy Information Administration (EIA) data showing that some states with the highest rates of QF penetration are located in non-RTO regions to support the claim that evidence of barriers to QFs in such regions are overblown.64 Public Interest Organizations aver that three states (North Carolina, Idaho, and Utah) skew the data with successful outcomes for QFs, while PURPA remains largely irrelevant in the 47 other states. Public Interest Organizations add that reliance even on these three states is in error because these states saw significant QF penetration due to long-term fixed energy rates, which the Commission is 61 Id. at 49–50 (citing Order No. 872, 172 FERC ¶ 61,041 at PP 43–46). 62 Id. at 51–52 (citing Harvard Electricity Law Initiative (Harvard Electricity Law) Comments, Docket No. RM19–15–000, at 19–21 (Dec. 3, 2019); Solar Energy Industries Supplemental Comments, Docket No. AD16–16–000, at 16 (Aug. 28, 2019)). 63 Id. at 52–53. 64 Id. at 53. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations now no longer requiring, claiming that, even in Idaho, barriers have since been erected with a subsequent cessation in QF development.65 37. Public Interest Organizations assert that the Commission inappropriately dismissed barriers to QF development as matters only relevant to state implementation or PURPA enforcement dockets.66 Public Interest Organizations add that the Commission’s claim that more relaxed standards will lead to more robust state implementation is speculative, internally contradictory, and ignores relevant evidence.67 38. Public Interest Organizations argue that, even if the Commission properly considered the full record, the Commission’s finding that the revised rules encourage QFs is arbitrary and capricious.68 Public Interest Organizations restate their concern that providing more flexibility will not lead to more robust PURPA implementation by states. Public Interest Organizations contend that the changes adopted in the final rule overwhelmingly cut in favor of utilities and against encouraging QFs and that none of the revisions require regulators to strengthen incentives or eliminate burdens on QF development.69 Public Interest Organizations aver that these changes amount to lowering the federal floor, therefore reducing QF bargaining power, even if state regulators implement the rules in good faith. Public Interest Organizations add that, contrary to the Commission’s assertions in the final rule, leaving intact the requirement for full avoided costs is insufficient to continue to encourage QFs, especially in the face of new barriers erected by the final rule.70 b. Commission Determination 39. Contrary to claims that the PURPA Regulations as revised do not encourage QFs, the PURPA Regulations as revised in the final rule continue as a whole to encourage the development of QFs consistent with the statutory limits on such encouragement, as explained below.71 65 Id. at 54. at 55. 67 Id. at 56. 68 Id. at 57. 69 Id. at 58–59. 70 Id. at 59–60. 71 In subsequent sections of this order, we address Solar Energy Industries’ concerns that the PURPA Regulations, as revised, fail to encourage QFs due to the specific revisions (1) allowing states to set avoided energy costs using variable energy rates; (2) expanding the one-mile rule; and (3) lowering the threshold for presumptive nondiscriminatory access for facilities in competitive wholesale markets from 66 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 40. Public Interest Organizations improperly frame the encouragement analysis. In Public Interest Organizations’ view, the encouragement standard should be analyzed on the basis that a revision is inadequate in encouraging QFs if there exist alternative revisions that are more favorable to QFs.72 We reject this premise. PURPA requires the Commission’s regulations to encourage QFs, but that is not all that PURPA says. PURPA also requires that the Commission prescribe no rule requiring that states set payments to QFs that exceed avoided costs and PURPA requires that qualifying small power production facilities do not exceed 80 MW. Furthermore, in the final rule, the Commission strikes a balance among the interests of all relevant stakeholders, including not just the selling QFs, but also the purchasing electric utilities and, moreover, consumers, consistent with PURPA. 41. Regarding QF rates, the final rule provides states further flexibility to better enable states to implement PURPA’s statutory obligation that QF rates not exceed the purchasing electric utility’s avoided costs. We acknowledge that different states have implemented PURPA differently, but such differences are not prohibited by the statute. If parties believe that a state has failed to implement the PURPA Regulations consistent with their terms, then these parties may bring an enforcement petition before the Commission or other fora.73 But just because parties are unsatisfied with some states’ implementation of PURPA to date 74 does not preclude the Commission from making the revisions to its PURPA Regulations adopted in the final rule. 42. In the final rule, the Commission complied with PURPA’s requirement that rates not exceed avoided costs by, for example, allowing states to implement variable avoided cost energy 20 MW to 5 MW. See infra sections III.B.4, III.C, and III.F. 72 See Public Interest Organizations Request for Rehearing at 46 (footnote omitted) (‘‘There is significant space provided within the confines of the limitations Congress established to encourage QFs. FERC’s reasoning that because it cannot encourage QFs by exceeding the bounds set by Congress it need not fully encourage QFs within the bounds of the statute fails to give effect to Congress’ command to encourage QFs. The Commission can, and must, issue rules that support QF development while complying with the other statutory requirements and limits on the form of that support.’’). 73 Order No. 872, 172 FERC ¶ 61,041 at P 359 (citing Policy Statement Regarding the Commission’s Enforcement Role Under Section 210 of the Public Utility Regulatory Policies Act of 1978, 23 FERC ¶ 61,304 (1983)). 74 See Public Interest Organizations Request for Rehearing at 37–39. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 86663 rates if they so choose.75 The Commission also continued to fulfill its obligation under PURPA to encourage the development of QFs. Specifically, with the additions from the final rule, the PURPA Regulations continue to encourage QFs by combining elements that include, among other things: (1) Providing the potential for increased transparency of avoided cost determinations under competitive solicitations or competitive market prices; (2) continuing to provide the ability for QFs to be exempt from most of the provisions of the FPA and PUHCA and certain state laws and regulations; (3) continuing to grant QFs special rights to supplementary and backup power; (4) providing extra benefits and rights for QFs 5 MW or smaller and especially those smaller than 100 kW; and (5) clarifying that states may only impose objective and reasonable criteria, limited to demonstrating commercial viability and financial commitment, as prerequisites to QF LEO formation that states may impose, which ensures that the purchasing utility does not unilaterally and unreasonably decide when its obligation arises.76 These elements of the PURPA Regulations, among others, will continue to provide rules that, as a whole, encourage QF development. 43. We disagree with Public Interest Organizations’ assertion that there is insufficient evidence to support the Commission’s conclusion that providing more flexibility to states may better enable states to encourage QF development. As one example, Idaho State Commissioner, Kristine Raper, stated during the 2016 Technical Conference that ‘‘[s]tate Commissions do not have enough tools in the toolbox’’ and that this lack of flexibility caused Idaho to amend its regulations to award only two-year standard contracts for QFs, rather than twenty-year standard contracts with periodic updates to the avoided cost rate.77 Therefore, it was reasonable for the Commission to conclude that the new flexibility granted by the final rule may lead states to lengthen the contract period, which could encourage QF development. Additionally, the new competitive market price options should be less burdensome for all involved, 75 Order No. 872, 172 FERC ¶ 61,041 at PP 232– 360. 76 In addition, the Commission in Order No. 872 kept intact the regulations issued to overcome the barriers to QFs identified in Order No. 69. Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,863; see also Order No. 872, 172 FERC ¶ 61,041 at PP 10, 28–41, 78. 77 Technical Conference Tr. at 143–44 (Commissioner Kristine Raper, Idaho Commission). E:\FR\FM\30DER2.SGM 30DER2 86664 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations compared to the administrative determination of avoided cost rates, because the new options rely on transparent, publicly available competitive prices or transparent and non-discriminatory competitive solicitations.78 QFs may spend less time and money pursuing their interests in a competitive market price environment than they previously did in the administrative determination process. Finally, to the extent energy prices rise at some point in the future, QFs with variable rates would necessarily benefit. 44. We disagree with Public Interest Organizations’ claim that the Commission has failed to adequately consider the evidence that states have achieved various levels of PURPA implementation. Public Interest Organizations have overly relied on the examples of North Carolina, Idaho, and Utah, which they contend have unusually high levels of QF development. We are committed to promoting PURPA’s central feature of cooperative federalism.79 In the final rule, the Commission provided states further flexibility to implement this statutory obligation as most appropriate and consistent with the terms of the statute. 45. We disagree with Public Interest Organizations that retaining the exemption from PUHCA is unimportant or that PUHCA has been repealed. While now more focused on recordkeeping obligations,80 PUHCA remains a regulatory obligation for entities, including entities that seek QF status retroactively. By granting QFs retroactive status when they had not yet certified but should have done so previously, the Commission has relieved those entities of PUHCA’s record-keeping obligations (similar to other federal and state exemptions), thereby further encouraging the development of QFs.81 Similarly, contrary to Public Interest Organizations’ request for rehearing, alleged deficiencies in stateadministered QF interconnection 78 See Order No. 872, 172 FERC ¶ 61,041 at PP 30–32. 79 See FERC v. Miss., 456 U.S. 742, 767 (1982) (internal quotations omitted) (stating that PURPA is a ‘‘program of cooperative federalism that allows the States, within limits established by federal minimum standards, to enact and administer their own regulatory programs, structured to meet their own particular needs’’). 80 See 18 CFR 366.3(a)(1). 81 See, e.g., GRE 314 East Lyme LLC, 171 FERC ¶ 61,199 (2020); Branch Street Solar Partners, LLC, 169 FERC ¶ 61,269 (2019); Zeeland Farm Servs., Inc., 163 FERC ¶ 61,115 (2018); Minwind I, 149 FERC ¶ 61,109 (2014); Beaver Falls Mun. Auth., 149 FERC ¶ 61,108 (2014). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 procedures are not within the scope of this rulemaking. B. QF Rates 1. Overview 46. PURPA requires the Commission to promulgate rules to be implemented by the states that ‘‘shall insure’’ that the rates electric utilities pay for purchases of electric energy from QFs meet the statutory criteria, including that ‘‘[n]o such rule . . . shall provide for a rate which exceeds’’ the purchasing utility’s ‘‘incremental cost . . . of alternative electric energy.’’ 82 Under PURPA, such rates must (1) be just and reasonable to the electric consumers of the electric utility and in the public interest; (2) not discriminate against qualifying cogenerators or qualifying small power producers; 83 and, as noted above, (3) not exceed ‘‘the incremental cost to the electric utility of alternative electric energy,’’ 84 which is ‘‘the cost to the electric utility of the electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source.’’ 85 The ‘‘incremental cost to the electric utility of alternative electric energy’’ referred to in prong (3) above, which sets out a statutory upper bound on a QF rate, has been consistently referred to by the Commission and industry by the shorthand phrase ‘‘avoided cost,’’ 86 although the term ‘‘avoided cost’’ itself does not appear in PURPA. 47. In addition, the PURPA Regulations in effect before the final rule provide a QF two options for how to sell its power to an electric utility. The QF could choose to sell as much of its energy as it chooses when the energy becomes available, with the rate for the sale calculated at the time of delivery (frequently referred to as a so-called ‘‘asavailable’’ sale).87 Alternatively, the QF could choose to sell pursuant to a LEO (such as a contract) over a specified term.88 82 16 U.S.C. 824a–3(b). U.S.C. 824a–3(b)(1)–(2). 84 16 U.S.C. 824a–3(b). 85 16 U.S.C. 824a–3(d) (emphasis added). 86 See 18 CFR 292.101(b)(6) (defining avoided costs in relation to the statutory terms); see also Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,865 (‘‘This definition is derived from the concept of ‘the incremental cost to the electric utility of alternative electric energy’ set forth in section 210(d) of PURPA. It includes both the fixed and the running costs on an electric utility system which can be avoided by obtaining energy or capacity from qualifying facilities.’’). 87 18 CFR 292.304(d)(1). 88 18 CFR 292.304(d)(2)(i)–(ii); see also FLS Energy, Inc., 157 FERC ¶ 61,211, at P 21 (2016) (FLS) (citing 18 CFR 292.304(d)). The LEO or contract is frequently referred to as a long-term 83 16 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 48. If the QF chooses to sell under the second option, the PURPA Regulations in effect before the final rule provide the QF the further option of receiving, in terms of pricing, either: (1) The purchasing electric utility’s avoided cost calculated at the time of delivery; 89 or (2) the purchasing electric utility’s avoided cost calculated and fixed at the time the LEO is incurred.90 49. In implementing the PURPA Regulations, the Commission recognized that a contract with avoided costs calculated at the time a LEO is incurred could exceed the electric utility’s avoided costs at the time of delivery in the future, thereby seemingly violating PURPA’s requirement that QFs not be paid more than an electric utility’s avoided costs. The Commission reasoned, however, that the fixed avoided cost rate might also turn out to be lower than the electric utility’s avoided costs over the course of the contract and that, ‘‘in the long run, ‘overestimations’ and ‘underestimations’ of avoided costs will balance out.’’ 91 The Commission’s justification for allowing QFs to fix their rate at the time of the LEO for the entire life of the contract was that fixing the rate provides ‘‘certainty with regard to return on investment in new technologies.’’ 92 50. In the NOPR, the Commission proposed to revise its PURPA Regulations to permit states to incorporate competitive market forces in setting QF rates. Specifically, the Commission proposed to revise its PURPA Regulations with regard to QF rates to provide states with the flexibility to: • Require that ‘‘as-available’’ QF energy rates paid by electric utilities transaction, when contrasted with an ‘‘as available’’ sale and rate. 89 18 CFR 292.304(d)(2)(i). 90 18 CFR 292.304(d)(2)(ii). Rates calculated at the time of a LEO (for example, a contract) do not violate the requirement that the rates not exceed avoided costs if they differ from avoided costs at the time of delivery. 18 CFR 292.304(b)(5). 91 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880; see also 18 CFR 292.304(b)(5) (‘‘In the case in which the rates for purchases are based upon estimates of avoided costs over the specific term of the contract or other legally enforceable obligation, the rates for such purchases do not violate this subpart if the rates for such purchases differ from avoided costs at the time of delivery.’’); Entergy Servs., Inc., 137 FERC ¶ 61,199, at P 56 (2011) (‘‘Many avoided cost rates are calculated on an average or composite basis, and already reflect the variations in the value of the purchase in the lower overall rate. In such circumstances, the utility is already compensated, through the lower rate it generally pays for unscheduled QF energy, for any periods during which it purchases unscheduled QF energy even though that energy’s value is lower than the true avoided cost.’’). 92 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations located in RTO/ISO markets be based on the market’s LMP, or similar energy price derived by the market, in effect at the time the energy is delivered. • Require that ‘‘as-available’’ QF energy rates paid by electric utilities located outside of RTO/ISO markets be based on competitive prices determined by (1) liquid market hub energy prices, or (2) formula rates based on observed natural gas prices and a specified heat rate. • Require that energy rates under QF contracts and LEOs be based on asavailable energy rates determined at the time of delivery rather than being fixed for the term of the contract or LEO. • Implement an alternative approach of requiring that the fixed energy rate be calculated based on estimates of the present value of the stream of revenue flows of future LMPs or other acceptable as-available energy rates at the time of delivery. • Require that energy and/or capacity rates be determined through a competitive solicitation process, such as a request for proposals (RFP), with processes designed to ensure that the competitive solicitation is performed in a transparent, non-discriminatory fashion.93 51. Although the Commission proposed to modify how the states are permitted to calculate avoided costs, it did not propose to terminate the requirement that the states continue to calculate, and to set QF rates at, such avoided costs.94 52. In the final rule, the Commission adopted these proposals, with certain modifications. 2. LMP as a Permissible Rate for Certain As-Available Avoided Cost Rates 53. In the final rule, the Commission revised 18 CFR 292.304 to add subsections (b)(6) and (e)(1). In combination, these subsections permit a state the flexibility to set the asavailable energy rate paid to a QF by an electric utility located in an RTO/ISO at LMPs calculated at the time of delivery.95 54. The Commission adopted with one modification the NOPR proposal to allow LMP to be used as a measure of as-available energy avoided costs for electric utilities located in RTO/ISO markets.96 55. The Commission found that (1) LMPs reflect the true marginal cost of production of energy, taking into account all physical system constraints; 93 NOPR, 168 FERC ¶ 61,184 at PP 32–33. No. 872, 172 FERC ¶ 61,041 at P 101. 95 Id. P 124. 96 Id. P 151. 94 Order VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 (2) these prices would fully compensate all resources for their variable cost of providing service; (3) LMP prices are designed to reflect the least-cost of meeting an incremental megawatt-hour of demand at each location on the grid, and thus prices vary based on location and time; and (4) unlike average systemwide cost measures of the avoided energy cost used by many states, LMP should provide a more accurate measure of the varying actual avoided energy costs, hour by hour, for each receipt point on an electric utility’s system where the utility receives power from QFs.97 56. The Commission recognized that an LMP selected by a state to set a purchasing utility’s avoided energy cost component might not always reflect a purchasing utility’s actual avoided energy costs. Accordingly, the Commission found that it is appropriate to modify the option for a state to set avoided energy costs using LMP from a per se appropriate measure of avoided cost to a rebuttable presumption that LMP is an appropriate means to determine avoided cost.98 57. The Commission disagreed with the arguments made by Union of Concerned Scientists,99 NIPPC, CREA, REC, and OSEIA,100 and Public Interest Organizations 101 that LMP should not be used as a measure of avoided energy costs because LMP prices are depressed in many markets where self-scheduling rights and state cost-recovery mechanisms for fuel and operating costs create the opportunity for market participation at a loss. The Commission recognized that, all other things being equal, self-scheduling of resources may impact market clearing prices. The Commission found that this potential price effect, however, does not mean that the LMP is not an accurate measure of avoided energy costs. The Commission stated that, while selfscheduling or other factors may impact LMPs, in any case, an electric utility’s purchases during periods when these price impacts are occurring would be 97 See id. P 153 (citing NOPR, 168 FERC ¶ 61,184 at PP 44–45 (citing SMUD, 616 F.3d at 524; FERC v. Elec. Power Supply Ass’n, 136 S. Ct. at 768–69 (describing how LMP is typically calculated); Offer Caps in Markets Operated by Regional Transmission Organizations and Independent System Operators, Order No. 831, 81 FR 87770 (Dec. 5 2016), 157 FERC ¶ 61,115, at P 7 (2016), order on reh’g and clarification, Order No. 831–A, 82 FR 53403 (Nov. 16, 2017), 161 FERC ¶ 61,156 (2017))). 98 Id. P 152. 99 Union of Concerned Scientists Comments, Docket No. RM19–15–000, at 3–8 (Nov. 15, 2019). 100 NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 52 (Dec. 3, 2019). 101 Public Interest Organizations Comments, Docket No. RM19–15–000, at 52–64 (Dec. 3, 2019). PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 86665 made at the resulting LMPs, whatever those LMPs may be. Therefore, the Commission found that LMPs meet the Commission’s long-standing definition of avoided costs for a purchasing electric utility, even if they happen to reflect price impacts from selfscheduling or other factors.102 58. The Commission rejected the related request for clarification made by Solar Energy Industries,103 i.e., that the flexibility to set QF payments for asavailable energy at the applicable LMP should require an on-the-record determination that the purchasing utility procures incremental energy from the identified LMP market at those prices. The Commission found that, unless an aggrieved entity seeks to rebut this presumption in a state avoided cost adjudication, rulemaking, legislative determination, or other proceeding, that state would not need to make such an on-the-record determination before it decides to use LMP.104 59. The Commission rejected the arguments made by NIPPC, CREA, REC, and OSEIA that, more generally, prices for long-term QF contracts should be set by reference to long-term price indices or other indicators that genuinely reflect the long-term costs of generation avoided by the purchasing utility.105 The Commission stated that it only addressed as-available energy and asavailable energy prices by definition are short term.106 a. Requests for Rehearing 60. Public Interest Organizations argue that it was erroneous for the Commission to make a ‘‘rebuttable presumption’’ that the state or nonregulated utility can use the LMP as ‘‘a rate for as-available qualifying facility energy sales to electric utilities located in a market defined in [18 CFR] 292.309(e), (f), or (g).’’ 107 Public Interest Organizations claim that the Commission acted contrary to precedent that limits an administrative agency’s authority to establish presumptions by creating a rebuttable presumption that LMP is the avoided cost price ‘‘for asavailable qualifying facility energy sales to electric utilities located in’’ an organized market.108 Public Interest Organizations claim that the 102 Order No. 872, 172 FERC ¶ 61,041 at PP 155– 56. 103 Solar Energy Industries Comments, Docket No. RM19–15–000, at 27–28 (Dec. 3, 2019). 104 Order No. 872, 172 FERC ¶ 61,041 at P 158. 105 NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 53 (Dec. 3, 2019). 106 Order No. 872, 172 FERC ¶ 61,041 at P 160. 107 Public Interest Organizations Request for Rehearing at 60–72 (citing 18 CFR 292.304(b)(6)). 108 Id. at 62. E:\FR\FM\30DER2.SGM 30DER2 86666 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations presumption unlawfully shifts the burden under the statute and is not based on record evidence showing that avoided cost energy prices are necessarily the same as the LMP, adding that there are no alternative explanations for a utility ever to incur energy prices that exceed the LMP.109 61. Public Interest Organizations argue that, because the final rule stated that ‘‘an LMP selected by a state to set a purchasing utility’s avoided energy cost component might not always reflect a purchasing utility’s actual avoided energy costs,’’ the Commission cannot make the necessary finding under the statute that the LMP is, per se, the full avoided energy cost.110 Public Interest Organizations contend that, to create the LMP presumption lawfully, the Commission must have substantial record evidence showing that ‘‘a sound and rational connection between’’ the LMP and the full avoided cost of each utility (as necessary to ensure full encouragement and nondiscrimination) is ‘‘so probable that it is sensible and timesaving to assume’’ it unless disproven, arguing that there are no alternative explanations for a conclusion contrary to the presumption.111 Public Interest Organizations maintain that the record contains numerous examples of instances in which a utility in an organized market incurs costs greater than the LMP.112 62. Public Interest Organizations claim that the Commission relies on an implicit and absolute connection between price and cost by repeatedly conflating the cost to buy in the day ahead market with the cost of energy to the utility.113 Public Interest Organizations maintain that, even when a utility is simultaneously selling into and buying energy from the day ahead market, the utility’s costs for energy are the higher of the market price or the cost to produce or procure the power it sells into the market. Public Interest Organizations refer for example to a utility that dispatches its own generation at $35/MWh, sells into the market at $20/MWh, and then buys back at $20/MWh to meet load; the LMP 109 Id. 110 Id. at 64 (citing Order No. 872, 172 FERC ¶ 61,041 at P 52). 111 Id. at 66 (citing Cablevision Sys. Corp. v. FCC, 649 F.3d 695, 716 (D.C. Cir. 2011) (Cablevision); Nat’l Mining Ass’n v. Dep’t of Interior, 177 F.3d 1, 6 (D.C. Cir. 1999)); Sec’y of Labor v. Keystone Coal Min. Corp., 151 F.3d 1096, 1100–01 (D.C. Cir. 1998)). 112 Id. at 68 & n.200 (citing Public Interest Organizations Comments, Docket No. RM19–15– 000, at 47–54 (Dec. 3, 2019)). 113 Id. at 69. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 price is $20, but the cost to the utility for energy is $35.114 b. Commission Determination 63. We reject the arguments against establishing the rebuttable presumption that LMP reflects avoided costs for asavailable energy. We disagree with Public Interest Organizations that the relevant precedent prohibits establishing a rebuttable presumption. Indeed, the courts have made clear that ‘‘[u]nder the APA, agencies may adopt evidentiary presumptions provided that the presumptions (1) shift the burden of production and not the burden of persuasion . . . and (2) are rational.’’ 115 The final rule did not shift the burden of persuasion, only the burden of production. We emphasize that LMP typically reflects a purchasing utility’s actual avoided energy costs.116 64. However, we also acknowledged in the final rule that there may be instances when LMP does not reflect a purchasing utility’s avoided cost and that is why the Commission allowed the presumption to be challenged. Requiring an entity challenging the state’s use of the presumption in the first instance to show why the state was wrong does not negate the legal requirement that, unless the parties agree to another rate, the rates for purchases in a QF contract must equal a purchasing utility’s avoided costs. If so challenged, a state would need to address the challenging entity’s arguments in order to demonstrate that LMP represents the purchasing utility’s avoided costs. Therefore, the Commission did not change the burden of persuasion.117 Moreover, in the final rule, the Commission appropriately established a rebuttable presumption to frame how it (and, potentially, reviewing courts) would evaluate challenges to states setting avoided costs at LMP.118 65. We also disagree with Public Interest Organizations’ assertion that the Commission failed to provide adequate support for why the presumption is rational in organized markets. As explained in the final rule, the Commission relied on a variety of supporting facts, including the fact that LMP definitionally reflects the true 114 Id. at 69–72. Cablevision, 649 F.3d at 716 (citing 5 U.S.C. 556(d)). 116 See Order No. 872, 172 FERC ¶ 61,041 at PP 153, 156. 117 See id. P 152. 118 See AFPA v. FERC, 550 F.3d at 1183 (permitting Commission to establish rebuttable presumption via rulemaking rather than case-bycase adjudication in PURPA section 210(m) context). 115 See PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 marginal cost of production of energy, taking into account physical system constraints, and other listed benefits of LMP.119 Because LMP is likely to reflect the true marginal cost of energy in the vast majority of cases for the reasons discussed in the final rule, it is ‘‘so probable that it is sensible and timesaving to assume’’ 120 that LMP for a particular utility is an appropriate measure of the utility’s avoided costs for as-available energy, unless disproven in a particular case. We leave open for specific cases to determine the appropriateness of using a particular LMP such that a QF could rebut the presumption that LMP is appropriate.121 Regarding Public Interest Organizations’ claims that numerous examples in the record support their argument that utilities often incur costs greater than the LMP, we disagree. Public Interest Organizations’ assertion is based on the evidence of self-scheduling they supplied in NOPR comments, and their assertion that this self-scheduling behavior is enabled by out-of-market subsidization through retail rate cost recovery.122 However, Public Interest Organizations have provided no proof that such out-of-market subsidization takes place and there are legitimate reasons for self-scheduling that are consistent with rational market participant behavior. For example, 119 Order No. 872, 172 FERC ¶ 61,041 at P 153 (finding that ‘‘(1) LMPs reflect the true marginal cost of production of energy, taking into account all physical system constraints; (2) these prices would fully compensate all resources for their variable cost of providing service; (3) LMP prices are designed to reflect the least-cost of meeting an incremental megawatt-hour of demand at each location on the grid, and thus prices vary based on location and time; and (4) unlike average system-wide cost measures of the avoided energy cost used by many states, LMP should provide a more accurate measure of the varying actual avoided energy costs, hour by hour, for each receipt point on an electric utility’s system where the utility receives power from QFs’’) (citing NOPR, 168 FERC ¶ 61,184 at PP 44–45 (citing FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 768–69 (2016) (describing how LMP is typically calculated); Sacramento Mun. Util. Dist. v. FERC, 616 F.3d 520, 524 (D.C. Cir. 2010); Order No. 831, 157 FERC ¶ 61,115 at P 7). 120 Nat’l Mining Ass’n v. U.S. Dep’t of Interior, 177 F.3d at 6. 121 See Order No. 872, 172 FERC ¶ 61,041 at PP 155–71 (discussing why LMP is presumptively an appropriate measure of avoided energy costs even if in particular circumstances it is not appropriate). 122 See Public Interest Organizations Request for Rehearing at 71 (footnote omitted) (citing Public Interest Organizations Comments, Docket No. RM19–15–000, at 46–55 (Dec. 3, 2019)) (‘‘[E]ven utilities that operate in organized markets acquire energy outside of the day ahead market or produce energy at variable costs that exceed the market price and sell at a loss to the day ahead market. Price suppression is thus one indicator of the larger problem that the day ahead market is not reflecting the actual cost of energy supply to utilities, which belies FERC’s assumption that the LMP reflects all utilities’ actual cost for all marginal energy.’’). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations generation units with start-up and shutdown sequences longer than a single market commitment period may decide to self-schedule at a loss in one period in order to earn profits in other periods that they expect to exceed the temporary loss. Absent proof that retail rate subsidization is the dominant driver for self-scheduling behavior, there is little evidence in the record that purchasing utilities often incur costs greater than the LMP. Nevertheless, entities may seek to rebut the presumption if, for example, the RTO/ISO market is affected by persistent price distortions that are not the result of legitimate market participant behavior (such as persistent self-scheduling at a loss that is proven to be the result of out-ofmarket subsidization, and thus demonstrates that the utility regularly incurs costs that exceed LMP). 3. Tiered Avoided Cost Rates a. Request for Clarification 66. California Utilities request that the Commission clarify that it is no longer the Commission’s policy or intent to permit states to subsidize QFs by the use of ‘‘tiered’’ avoided costs.123 California Utilities request that the Commission find that avoided cost rates may not be based only on the costs of a subset of facilities from which a state has mandated purchases or only on facilities that meet state-determined characteristics such as the facilities’ use of a renewable fuel. As such, California Utilities further request that the Commission find that the United States Court of Appeals for the Ninth Circuit decision in CARE v. CPUC 124 as well as certain aspects of the Commission’s orders 125 are no longer valid precedent. 67. According to California Utilities, Commission precedent on avoided costs for tiered resources is as follows for the following periods:126 1978–2010: All resources must be used to set avoided costs.127 2010–2019: States were permitted to adopt tiered avoided costs based on the costs of specific types of QFs, if the state had an unmet purchase mandate.128 123 California Utilities Motion for Clarification at 1–2. 124 Californians for Renewable Energy v. Cal. Pub. Utils. Comm’n, 922 F.3d 929 (9th Cir. 2019) (CARE v. CPUC). 125 Cal. Pub. Utils. Comm’n, 133 FERC ¶ 61,059 (2010) (CPUC 2010), clarification and reh’g denied, 134 FERC ¶ 61,044 (2011) (CPUC 2011). 126 California Utilities Motion for Clarification at 3–8. 127 Id. at 3 (citing S. Cal. Edison Co., 70 FERC ¶ 61,215 (CPUC 1995 I), reconsideration denied, 71 FERC ¶ 61,269 (1995) (CPUC 1995 II)). 128 Id. at 4 (citing CPUC 2010, 133 FERC ¶ 61,059 at P 30). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 April 2019–2020: Tiered avoided costs mandated within the Ninth Circuit if state procurement mandates are unmet.129 2020: The Commission returns to an allresource approach and rejects using PURPA to subsidize QFs that are not otherwise financeable.130 68. California Utilities request clarification for the following reasons: (1) The Commission’s failure to state in the final rule that it is overruling the CPUC cases or CARE v. CPUC; (2) the need for the Commission to defend a change in policy before an appellate court that will ask why the Commission no longer supports the policy it espoused in CPUC 2010; (3) the regulation that lists the factors a state may consider in determining avoided cost (18 CFR 292.304, which have been moved to 18 CFR 292.304(e)(2)) have not changed, which leaves them open to misinterpretation; and (4) the words ‘‘taking into account the operating characteristics of the needed capacity’’ 131 regarding competitive solicitations, although clarified by Paragraph 433 of the final rule, could be misread as allowing avoided costs for QFs with ‘‘operating characteristics’’ such as renewable fuel, cogeneration technology, under a certain size, or at specific locations (i.e., located on the distribution system).132 69. California Utilities maintain that adding the following language after 18 CFR 292.304(b)(5) will ensure that states will not use tiered avoided cost rates under PURPA as a vehicle to subsidize certain state-favored resources: ‘‘(6) Rates for purchases may not be based on an avoided cost set by determining the cost of procuring energy and/or capacity to fulfill a State regulatory authority or non-regulated electric utility mandate to procure energy and/or capacity from resources using a specific fuel type, using a specific technology, of a particular size, and/or located only on local distribution systems.’’ 133 70. California Commission disagrees that the final rule overrules CPUC 2011 and the Commission’s earlier precedent. California Commission contends that the Commission’s 1995 precedent prohibits assuming that ‘‘the utility can provide the capacity and generate the energy itself (i.e., through the establishment of the utility benchmark price), only to exclude the utility, cogenerators, and other resources from ultimately being able to supply the 129 Id. at 5 (citing CARE v. CPUC, 922 F.3d 929). (citing Order No. 872, 172 FERC ¶ 61,041 at P 123). 131 See new 18 CFR 292.304(d)(8)(i)(B). 132 California Utilities Motion for Clarification at 9–10. 133 Id. at 13–14. 86667 capacity and energy, by segmenting the portfolio and permitting only certain QFs to bid in certain segments against the benchmark and ultimately produce a higher-than-avoided-cost rate.’’ 134 California Commission interprets Commission precedent as permitting a state to determine what capacity a utility would be avoiding, to decide from which generators a utility could purchase to satisfy state programs, and to set tiered avoided cost rates based on those qualifying resources.135 71. California Commission asserts that the final rule’s requirement that competitive solicitations be open to all sources was intended to prevent discrimination against QFs and did not preclude states from using tiered avoided cost rates.136 California Commission argues that, contrary to California Utilities’ assertion, the final rule does not treat tiered rates as impermissible subsidies to QFs. California Commission contends, instead, that the final rule permits states to continue recognizing non-energy benefits outside the context of PURPA payments.137 California Commission requests that, with respect to CARE v. CPUC’s holding that a state that uses QFs to meet a renewable portfolio standard (RPS) must set avoided cost only on resources that could satisfy that RPS, the Commission clarify that ‘‘operating characteristics that qualify a QF to meet a state’s [RPS] are energyrelated benefits that can be the basis for determining avoided costs and multitier pricing, as opposed to benefits unrelated to their production of energy—akin to renewable energy credits—that may not be compensated by rates under PURPA.’’ 138 b. Commission Determination 72. We deny California Utilities’ request for clarification. Although Commission precedent does not allow the use of non-operational externalities, such as environmental benefits, in setting avoided cost rates, PURPA neither requires nor prohibits states from establishing tiered procurement (and thus tiered pricing), such as California does. California’s tiered supply procurement requirements reflect decisions regarding utility generation procurement (e.g., by specific fuel type or technology) that are within the boundaries of a state’s traditional authority. Once such tiered generation procurement requirements have been 130 Id. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 134 California Commission Answer at 4–5. at 5–6. 136 Id. at 7–9. 137 Id. at 9–11. 138 Id. at 11–12. 135 Id. E:\FR\FM\30DER2.SGM 30DER2 86668 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations established by a state, if a QF qualifies for a particular generation procurement tier, it is reasonable to assume that the mandatory QF purchase will displace resources otherwise in that tier; therefore, the rates for that tier are in fact the cost avoided by the purchasing utility when it instead purchases from that QF. 73. We cannot overrule a Court of Appeals decision, as California Utilities suggest. In addition, California Utilities have not adequately supported that there is any conflict between the final rule and the precedent they cite.139 Therefore, we decline to add additional regulatory language to address the issues they raise. 4. Providing for Variable Energy Rates in QF Contracts Is Consistent With PURPA 74. As explained above, if a QF chooses to sell energy and/or capacity pursuant to a contract, the PURPA Regulations in effect before the final rule provide the QF the option of receiving the purchasing electric utility’s avoided cost calculated and fixed at the time the LEO is incurred.140 The Commission’s justification in Order No. 69 for allowing QFs to fix their rate at the time of the LEO for the entire term of a contract was that fixing the rate provides certainty ‘‘with regard to return on investment in new technologies necessary for the QF to obtain financing’’ 141 The Commission stated that its regulations pertaining to LEOs ‘‘are intended to reconcile the requirement that the rates for purchases equal the utilities’ avoided costs with the need for qualifying facilities to be able to enter contractual commitments based, by necessity, on estimates of future avoided costs.’’ 142 Further, the Commission agreed with the ‘‘need for certainty with regard to return on investment in new technologies,’’ and stated its belief that any overestimations 139 The Commission in the final rule addressed arguments that QFs provide non-energy benefits. The Commission stated that such benefits may be addressed by states outside of PURPA. Because tiered QF rates result from tiered procurement not limited to QFs, and are therefore established outside of PURPA, nothing in PURPA prohibits such tiered rates. See Order No. 872, 172 FERC ¶ 61,041 at P 123; see also CPUC 2010, 133 FERC ¶ 61,059 at P 31 (‘‘[A]lthough a state may not include a bonus or an adder in the avoided cost rate unless it reflects actual costs avoided, a state may separately provide additional compensation for environmental externalities, outside the confines of, and, in addition to the PURPA avoided cost rate, through the creation of renewable energy credits. . . .’’). 140 18 CFR 292.304(d)(2)(ii). 141 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880 (justifying the rule on the basis of ‘‘the need for certainty with regard to return on investment in new technologies’’). 142 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 or underestimations ‘‘will balance out.’’ 143 75. In the NOPR, the Commission proposed to revise 18 CFR 292.304(d) to permit a state to limit a QF’s option to elect to fix at the outset of a LEO the energy rate for the entire length of its contract or LEO, and instead allow the state the flexibility to require QF energy rates to vary during the term of the contract. However, under the proposed revisions to 18 CFR 292.304(d), a QF would continue to be entitled to a contract with avoided capacity cost rates (assuming there are avoided capacity costs) calculated and fixed at the time the contract or LEO is incurred. Only the energy rate in the contract or LEO could be required by a state to vary. Further, the NOPR did not propose to obligate states to require variable avoided cost energy rates; they would retain the ability to allow the QF’s energy rate be fixed at the time the LEO is incurred.144 76. In the final rule, the Commission adopted without modification the NOPR variable rate proposal. The Commission found that setting QF avoided energy cost contract and LEO rates at the level of the purchasing utility’s avoided energy costs at the time the energy is delivered is consistent with PURPA, which limits QF rates to the purchasing utility’s avoided costs. The Commission explained that a variable avoided cost energy rate approach is a superior way to ensure that payments to QFs equal, but do not exceed, avoided costs.145 The Commission stated that it is inevitable that, over the life of a QF contract or other LEO, a fixed avoided cost energy rate, such as that used in past years, will deviate from actual avoided costs.146 77. The Commission found that the record justifies its conclusions that longterm forecasts of avoided energy costs are inherently imperfect and that states should be given the flexibility to rely on a more reliable variable avoided cost energy rate approach. Further, the Commission pointed to instances where overestimates and underestimates have not balanced out.147 The Commission 143 Id. 144 NOPR, 168 FERC ¶ 61,184 at P 67. U.S.C. 824a–3(b)(1). 146 Order No. 872, 172 FERC ¶ 61,041 at P 253. 147 See id. (citing Duke Energy Comments, Docket No. RM19–15–000, at 6 (Dec. 3, 2019) (Duke’s QF contracts cost $4.66 billion but its ‘‘actual current avoided costs’’ are $2.4 billion); Idaho Power Comments, Docket No. RM19–15–000, at 10–11 (Dec. 3, 2019) (‘‘The cost of PURPA generation contained in Idaho Power’s base rates, on a dollars per MWh basis, is not just greater than Mid-C market prices, it is greater than all the net power supply cost components currently recovered in base rates. Idaho Power’s average cost of PURPA generation included in base rates is $62.49/MWh. 145 16 PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 found that, when that has occurred, consumers have borne the brunt of the overpayments, which subsidized QFs, in contravention of Congressional intent and the Commission’s expectations. Given that PURPA section 210(b) prohibits the Commission from requiring QF rates in excess of avoided costs, the Commission explained that record evidence supports its decision to give the states the flexibility to require variable avoided cost energy rates in QF contracts and other LEOs to prevent QF rates from exceeding avoided costs.148 78. The Commission found that the variable avoided cost energy rate provision is not based on any determination that the Commission’s At $62.49/MWh, the average cost of PURPA purchases is greater than the average cost of FERC Account 501, Coal at $22.79/MWh; greater than FERC Account 547, Natural Gas at $33.57/MWh; greater than FERC Account 555, Non-PURPA Purchases at $50.64/MWh; and significantly greater than what is being sold back to the market as FERC Account 447, Surplus Sales at $22.41/MWh.’’); Portland General Comments, Docket No. RM19–15– 000, at 5 (Dec. 3, 2019) (‘‘for a typical 3 MW Solar QF project that incurred a LEO in 2016 and reaches commercial operations three years later, [Portland General’s] customers would pay 67% more for the project’s energy than if the 2019 avoided cost rate had been used. As a result of this lag, [Portland General’s] customers would pay an additional $1.6 million more for the energy from the QF facility over the 15-year contract term.’’)); see also NOPR, 168 FERC ¶ 61,184 at P 64 n.101 (citing Alliant Energy Comments, Docket No. AD16–16–000, at 5 (Nov. 7, 2016) (‘‘Current market-based wind prices in the Iowa region of MISO are approximately 25% lower than the PURPA contract obligation prices [Interstate Power and Light Company] is forced to pay for the same wind power for long-term contracts entered into as of June 2016. As a result, PURPA-mandated wind power purchases associated with just one project could cost Alliant Energy’s Iowa customers an incremental $17.54 million above market wind prices over the next 10 years.’’) (emphasis in original); Edison Electric Institute (EEI) Supplemental Comments, Docket No. AD16–16–000, attach. A at 3–4 (June 25, 2018) (‘‘On August 1, 2014, a 10-year fixed price contract at the Mid-Columbia wholesale power market trading hub was priced at $45.87/MWh. On June 30, 2016, the same contract was priced as $30.22/MWh, a decline of 34% in less than two years. However, over the next 10 years, PacifiCorp has a legal obligation to purchase 51.9 million MWhs under its PURPA contract obligations at an average price of $59.87/ MWh. The average forward price curve for the MidColumbia trading hub during the same period is $30.22/MWh, or 50% below the average PURPA contract price that PacifiCorp will pay. The additional price required under long-term fixed contracts will cost PacifiCorp’s customers $1.5 billion above current forward market prices over the next 10 years.’’); Comm’r Kristine Raper, Idaho Commission Comments, Docket No. AD16–16–000, at 3–4 (June 30, 2016) (‘‘Idaho Power demonstrated that the average cost for PURPA power since 2001 has exceed the Mid-Columbia (Mid-C) Index Price and is projected to continue to exceed the Mid-C price through 2032. Likewise, PacifiCorp’s levelized avoided cost rates for 15-year contract terms in Wyoming shows a decrease of approximately 50% from 2011 through 2015 (from approximately $60 per megawatt-hour to less than $30 per megawatthour).’’)). 148 Order No. 872, 172 FERC ¶ 61,041 at PP 254– 55. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations rules no longer should encourage QF development. The Commission found, instead, that it was revising the PURPA Regulations by giving states the flexibility to require variable avoided cost energy rates in QF contracts and other LEOs in order to better comply with Congress’s clear requirement in PURPA that the Commission may not require QF rates in excess of a purchasing utility’s avoided costs.149 79. Opponents of variable avoided cost energy rates urged the Commission to continue placing this risk on the customers of electric utilities, as in the past, by retaining the option for QFs to fix their avoided cost energy rates in their contracts or LEOs notwithstanding record evidence that fixed energy rates compared to actual avoided costs have not balanced out over time. But, after consideration of the record, the Commission decided instead to allow states the flexibility to require variable avoided cost energy rates in QF contracts and LEOs and thereby reduce the risk to customers. The Commission found that its determination ensures that the PURPA Regulations continue to be consistent with the statutory avoided cost rate cap in PURPA section 210(b), coupled with the directive in the PURPA Conference Report that customers of utilities not be required to subsidize QFs.150 80. The Commission found that there is no merit to the contention that the PURPA Conference Report expresses Congressional intent that QFs are entitled to long-term fixed energy rates. The Commission found that, while Congress recognized that the better measure of avoided cost in certain scenarios might be the cost of the alternative fossil fuel unit that would not be run at that later date,151 nothing in the section of the PURPA Conference Report quoted by opponents of the variable energy rate proposal suggests that Congress intended the Commission to require that all avoided cost energy rates be fixed at the outset for the life of a QF contract or other LEO. The Commission further found that nothing in the revision being implemented in 149 Id. P 256. P 258 (citing Conf. Rep. at 98 (emphasis added) (‘‘The provisions of this section are not intended to require the rate payers of a utility to subsidize cogenerators or small power produc[er]s.’’)). 151 Under the approach adopted in the final rule, with the flexibility granted to states to adopt—but not a mandate directing states to adopt—variable avoided cost energy rates for QF contracts and other LEOs, the Commission permitted states to adopt a pricing approach that best fits their circumstances, including adopting the pricing approach described by the PURPA Conference Report to address the circumstances described by the PURPA Conference Report. Id. P 260 n.409. 150 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 the final rule would prohibit a state from calculating a QF’s avoided cost energy rate for a QF contract or LEO in the manner suggested in the PURPA Conference Report or, indeed, in the manner the Commission has long allowed, if a state determined that such an approach best reflects the purchasing electric utility’s avoided costs.152 81. The Commission described the variable avoided cost energy rate provision as not running afoul of the Freehold Cogeneration and Smith Cogeneration cases cited by Harvard Electricity Law.153 The Commission described those decisions, which overturned state avoided cost determinations allowing for changes in QF rates, as based on the provision in the original PURPA Regulations giving QFs the option to select contracts with long-term fixed avoided cost rates.154 The Commission explained that neither decision suggests that PURPA would prevent the Commission from revising its regulations to allow states the flexibility to require variable avoided cost energy rates. 82. The Commission found that it was not subjecting QFs to the same type of examination that is traditionally given to electric utility rate applications (e.g., cost-of-service rate regulation).155 Indeed, the Commission found that the regulation it adopted does not subject QF rates to any examination whatsoever of the costs incurred by QFs in producing and selling power. Rather, the Commission stated that the variable avoided cost energy rate provision applicable to QF contracts and other LEOs that the Commission adopted in the final rule sets QF rates based on the avoided costs of the purchasing utility. The Commission stated that this variable avoided cost energy rate provision cannot be characterized as imposing utility-style regulation on the QFs themselves.156 152 Id. P 260. P 261 (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 29 (Dec. 3, 2019) (citing Freehold Cogeneration Ass’n v. Bd. of Regulatory Comm’rs of State of N.J., 44 F.3d 1178, 1193 (3d Cir. 1995) (Freehold Cogeneration); Smith Cogeneration Mgmt. v. Corp. Comm’n, 863 P.2d 1227, 1227 (Okla. 1993) (Smith Cogeneration))). 154 Id. (citing Smith Cogeneration, 863 P.2d at 1241 (emphasis added) (holding that allowing reconsideration of established avoided costs ‘‘makes it impossible to comply with PURPA and FERC regulations requiring established rate certainty for the duration of long term contracts for qualifying facilities that have incurred an obligation to deliver power’’); Freehold Cogeneration, 44 F.3d at 1193 (emphasis added) (relying on Smith Cogeneration analysis that ‘‘that PURPA and FERC regulations preempted the State Commission rule’’)). 155 Id. P 262. 156 Id. P 263. 153 Id. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 86669 83. Finally, the Commission determined that state regulators may not change rates in existing QF contracts or other existing LEOs.157 The Commission explained that, by its terms, the variable avoided cost energy rate provision applies only prospectively to new contracts and new LEOs entered into after the effective date of the final rule. The Commission emphasized that nothing in the final rule should be read as sanctioning the modification of existing fixed-rate QF contracts and LEOs.158 a. Whether the Current Approach Has Resulted in Payments to QFs in Excess of Avoided Costs 84. In the final rule, the Commission gave states the flexibility to require variable energy pricing in QF contracts and other LEOs, instead of providing QFs the right to elect fixed energy prices, based on the Commission’s concern that, at least in some circumstances, long-term fixed avoided cost energy rates have been well above the purchasing utility’s avoided costs for energy and that this was a result prohibited by PURPA section 210(b). The Commission found that the record evidence demonstrates that QF contract and LEO prices for energy can exceed and have exceeded avoided costs for energy without any subsequent balancing out. In addition to the examples presented in the record of the Technical Conference that were cited in the NOPR, the Commission noted that commenters have provided additional examples of such overpayments.159 The Commission explained that such evidence persuaded it that it is necessary to give states the flexibility to address QF contract and LEO rates for energy that exceed avoided costs for energy, while at the same time still allowing states the flexibility to continue requiring long-term fixed avoided cost energy rates in QF contracts and other LEOs when such treatment is appropriate.160 85. In the final rule, the Commission found, as acknowledged in Harvard Electricity Law’s NOPR comments, that the examples of QF contract rates that exceed avoided costs that are in the record illustrate the general proposition that ‘‘energy forecasts have a manifest 157 Id. P 264 (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 23 (Dec. 3, 2019) (citing API, 461 U.S. at 414)). 158 Id. 159 Id. P 283 (citing Duke Comments, Docket No. RM19–15–000, at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19–15–000, at 10–11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19–15–000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ¶ 61,184 at P 64 n.101). 160 Id. E:\FR\FM\30DER2.SGM 30DER2 86670 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations record of failure.’’ 161 The Commission explained that it was this ‘‘manifest record of failure’’ including evidence in the record that the failure has been at the expense of consumers that motivated the Commission to make the change adopted in the final rule.162 86. The Commission also found that challenges to the idea that fixed avoided cost energy rates in QF contracts and other LEOs have exceeded actual avoided costs largely either conceded that overestimations have occurred while arguing that such overestimations impacted purchasing electric utilities just as much as QFs or attempted to argue that such overestimations were temporary or unusual.163 87. First, the Commission determined that the record evidence demonstrates that, contrary to the Commission’s finding in 1980, overestimations and underestimations of future avoided costs may not even out.164 Consequently, the Commission found that its determination in 1980, based on the record at that time, does not preclude the Commission from relying on new record evidence showing a change in circumstances since 1980 to revise the 1980 rule. 88. The Commission agreed with Public Interest Organizations that the recent electricity price overestimations were not unique to QFs and can be explained by general declines in natural gas prices since the adoption of hydraulic fracturing and the 2007–2009 recession.165 But the Commission explained that these overestimations are precisely why the estimates of avoided costs reflected in the QF contracts and LEOs were incorrect and why the resulting fixed avoided cost energy rates reflected in such QF contracts and other LEOs resulted in QF rates well above utility avoided costs in violation of PURPA section 210(b); the precipitous decline in natural gas prices caused a corresponding reduction in utilities’ energy costs, and thus in their avoided energy costs but this decline was not reflected in the QFs’ fixed contract rates 161 Id. P 284 (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 24 (Dec. 3, 2019) (citing Vaclav Smil, Energy at the Crossroads: Global Perspectives and Uncertainties, Mass. Inst. Tech., 2003, at 121, 145–49)). 162 Id. 163 Id. P 285. 164 Id. P 286 (citing Duke Comments, Docket No. RM19–15–000, at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19–15–000, at 10–11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19–15–000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ¶ 61,184 at 64 n.101). 165 Id. P 287 (citing Public Interest Organizations Comments, Docket No. RM19–15–000, at 47–50 (Dec. 3, 2019)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that remained at their previous levels.166 89. Similarly, the Commission found that arguments that electric utilities also based resource acquisitions on incorrect forecasts of natural gas prices 167 ignore a key distinction between utility rates and fixed QF rates. As the Commission explained, electric utilities may have relied on incorrect natural gas price forecasts to justify the timing and type of their resource acquisitions, as commenters assert. However, the Commission found that, once an electric utility resource decision was made, electric utilities’ cost-based rate regimes typically obligated them eventually to pass through to customers any energy cost savings realized as a result of declining natural gas and other fuel prices, as well as any energy cost savings due to lower purchased power rates resulting from the decline in natural gas prices. The Commission found that, by contrast, once QF avoided cost energy rates were fixed based on now-incorrect (and now-high) natural gas price forecasts, those energy rates remained fixed for the term of the QFs’ contracts and LEOs. Therefore, unlike fixed avoided cost energy rates in QF contracts and LEOs, the Commission determined that cost-based electric utility energy rates declined as the cost of natural gas and other fuels and purchased power declined.168 90. The Commission also disagreed with Public Interest Organizations’ assertions that it was improper to have used competitive market hub prices to determine whether fixed QF contract and LEO prices resulted in overpayments as compared to electric utilities’ actual avoided costs.169 The Commission recognized that the competitive market hub prices used in the comparisons may not have precisely reflected the avoided energy costs of all electric utilities located in the same region as the competitive market hub. However, the Commission found that competitive market prices in general should reflect the marginal avoided energy costs of utilities with access to 166 Id. 167 Id. P 288 (citing Electricity Consumers Resource Council, American Chemistry Council, and American Forest and Paper Association (ELCON) Comments, Docket No. RM19–15–000, at 22 (Dec. 3, 2019); North Carolina Commission Staff Comments, Docket No. RM19–15–000, at 2–3 (Dec. 3, 2019); NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 31 (Dec. 3, 2019); Public Interest Organizations Comments, Docket No. RM19–15–000, at 40, 43 (Dec. 3, 2019); Solar Energy Industries Comments, Docket No. RM19–15–000, at 36–38 (Dec. 3, 2019)). 168 Id. 169 Id. P 289 (citing Public Interest Organizations Comments, Docket No. RM19–15–000, at 40–41 (Dec. 3, 2019)). PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 such markets and that those markets generally reflect the marginal cost of energy in the region.170 The Commission further found that the magnitude of the differences between the market hub prices and the QF contract and LEO prices provides solid evidence that the QF contract and LEO prices used in the comparison were well above actual avoided energy costs at the time the energy was delivered by the QFs, even if the exact magnitude is unclear.171 91. The Commission acknowledged that energy prices may increase in the future but explained that giving states the flexibility to require variable avoided cost energy rates in QF contracts and in other LEOs will allow states to better ensure that avoided cost energy payments made to QFs will more accurately reflect the purchasing utility’s avoided costs regardless of whether energy prices are increasing or declining. The Commission also noted that, if energy prices do in fact increase, variable avoided cost energy pricing would protect and even benefit the QF itself because it would not be locked into a fixed energy rate contract or LEO that would be below the purchasing electric utility’s avoided energy cost.172 92. The Commission noted that, although many commenters agreed that fixed QF energy rates were higher than actual avoided energy costs in at least some instances, challenges were raised against both Duke Energy’s estimate that its fixed QF contract rates were $2.6 billion above market costs and the Concentric Report’s comparison of QF fixed rates for wind and solar facilities with the cost of wind and solar projects with competitive, non-PURPA contracts.173 93. The Commission found that the expert testimony cited by the SC Solar Alliance, that the witness ‘‘wouldn’t put a whole lot of weight in [Duke’s 170 Id. The Commission stated that a review of recent Mid-C Hub daily spot prices (from Intercontinental Exchange (ICE) https:// www.eia.gov/electricity/wholesale/, indicates that they reflect the marginal cost of energy in that area since they are usually the result of a significant number of trades (averaging 54 per day), counterparties (averaging 16 per day), and trading volume (averaging 26,714 MWh/day), which usually exceed those of the NP–15 trading hub, an active Western trading hub in Northern California in the CAISO footprint (averaging 6 trades per day, 4 counterparties per day, and 2,756/MWh per day). The Commission described prices for Mid-C as ranging between an average of approximately $16/ MWh high price and $13/MWh low price during the recent spring (Mar 19–Jun 20, 2020). During this period the index was reported for 65 trading days for Mid-C and 9 trading days for NP–15. Id. 171 Id. 172 Id. PP 290–91. 173 Id. P 291. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations estimate],’’ 174 does not address Duke’s calculation of past overpayments. Rather, the Commission described the witness as answering a question regarding the potential for overpayments ‘‘[f]or going forward solar,’’ i.e., future overpayments as a result of the new fixed avoided cost rates being considered by the South Carolina Commission that were the subject of the expert witness’ testimony.175 The Commission noted that the same witness acknowledged the past overpayments made by Duke Energy, which he attributed to ‘‘drops in natural gas prices that no one could’ve foreseen.’’ 176 The Commission explained that it was these overpayments due to unforeseen declines in natural gas prices that formed an important basis for the Commission’s determination in the final rule to now give states the flexibility to require variable avoided cost energy rates in QF contracts and LEOs.177 94. The Commission also emphasized that it did not rely on the Concentric Report to support the variable energy avoided cost provision adopted in the final rule. The Commission determined that it is not clear that the difference in costs identified by Concentric can be ascribed to the fixed rates in the QF contracts or rather to the fact that the avoided cost rates in the QF contracts were based on more expensive nonrenewable capacity that was avoided by the purchasing utilities.178 i. Requests for Rehearing 95. EPSA argues that the Commission erred in relying on the idea that overestimates and underestimates have not balanced out because the Commission has neither validated these allegations, nor assessed whether the overestimations of avoided cost have, in fact, balanced out.179 Public Interest Organizations argue that the Commission’s determination to permit variable energy rates to mitigate the risk of alleged overpayments to QFs is arbitrary and capricious and unsupported by substantial evidence.180 Likewise, Solar Energy Industries assert that there is a lack of evidence to 174 Id. P 292 (citing SC Solar Alliance Comments, Docket No. RM19–15–000, at 7 (Dec. 3, 2019)). 175 Id. (citing Public Service Commission of South Carolina, Docket No. 2019–185 & 186–E, Hearing Transcript Vol. 2, Tr. 596: 3–4 (Horii Test.) (attached as Appendix 1 to SC Solar Alliance Comments, Docket No. RM19–15–000 (Dec. 3, 2019))). 176 Id. (citing Horii Test. 593:21–22). 177 Id. 178 Id. P 293. 179 EPSA Request for Rehearing at 10. 180 Public Interest Organizations Request for Rehearing at 9, 84. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 conclude that protecting electric consumers warrants terminating the QF’s right to elect long-term fixed energy rates.181 EPSA argues that overand under-estimations over time is irrelevant absent evidence that avoided cost forecasts are inherently less accurate than the cost estimates used to set the purchasing utilities’ own rates.182 96. Public Interest Organizations contend that the Commission incorrectly defined avoided costs and incorrectly defined avoided costs with short run prices.183 Public Interest Organizations assert that the Commission did not respond to arguments that historic avoided cost rates ‘‘have likely underestimated utilities’ actual ‘but for’ avoided costs, resulting in underpayment rather than overpayment to QFs.’’ 184 They also assert that ‘‘there is no evidence in the record showing that utilities would have—as the Commission assumed— relied on short term energy markets rather than entering into long-term contracts based on similarly speculative avoided cost estimates or building new generating resources,’’ and that ‘‘utilities often build and operate generating resources at costs well above their purported avoided cost rate.’’ 185 Public Interest Organizations argue that the Commission incorrectly assumed that the cost for energy that a utility would incur ‘‘but for’’ a QF is the short run cost and that utilities never lock in energy costs by constructing their own energy resources, executing long term fuel contracts or executing long term energy supply contracts. Public Interest Organizations claim that, if a utility ever locks in energy costs instead of relying on the short run energy or fuel markets for supply, a QF can displace those long-run costs rather than the short run cost, adding that, contrary to the Commission’s assertions, avoided energy rates paid to QFs are significantly lower than utilities’ true generation costs.186 97. Public Interest Organizations argue that the overestimations upon which the Commission relied ‘‘were incorrectly calculated based on long-run contract prices and short-run costs, rather than the long-term QF price and the cost of the resource that the utility would have acquired but for the 181 Solar Energy Industries Request for Rehearing and/or Clarification at 19. 182 EPSA Request for Rehearing at 10. 183 Public Interest Organizations Request for Rehearing at 84. 184 Id. at 85. 185 Id. 186 Id. at 86. PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 86671 QFs.’’ 187 Public Interest Organizations contend that the Commission assumed without any evidence that those utilities would have built their own energy resources, executed long term fuel contracts, or executed non-QF power purchase agreements without the QF purchases. Public Interest Organizations assert that, while QF contracts entered into before 2007–2009 might not have accounted for declining natural gas prices, which caused these contracts to be higher than short term market prices, alternative long-term commitments those utility might have made without QF purchases might also not have accounted for those natural gas price declines. Public Interest Organizations reason that avoided costs therefore should be based on those alternative sources that a utility would have purchased but for QF purchases rather than short run market prices and the Commission lacked evidence to assert that ‘‘utilities’ actual incremental cost of generating energy ‘but for’ QF generation exceeds rates QFs have received through long-term fixed energy rate contracts.’’ 188 98. Public Interest Organizations maintain that the Commission lacked evidence to assert that natural gas price declines would have decreased the prices of utility power purchase agreements, energy supply investments, fuel contracts and other long-term energy supply commitments. Public Interest Organizations contend that the failure to predict natural gas price declines did not entail any energy cost savings, yielded energy price increases passed along to customers, and rendered uneconomic utilities’ long-term coal plant investments, coal contracts, and power supply contracts to ensure long term energy supply. Public Interest Organizations assert that the Commission’s conflating short-run market prices with utility supply costs excludes supply beyond the day-ahead market and costs above market price. Public Interest Organizations claim that the Commission did not address concerns that vertically integrated utilities’ monopoly status ensures that utilities operate their own plants at above-market prices and would have added their own new generation but for QF purchases. Public Interest Organizations assert that, even though QF prices may have been higher than market prices, that simply reflects foregone utility windfall profits and not 187 Id. 188 Id. E:\FR\FM\30DER2.SGM at 86–87. at 87. 30DER2 86672 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations costs that customers would otherwise have paid.189 99. Public Interest Organizations argue that the Commission was internally inconsistent in defending its decision to presumptively consider competitive market prices like LMP equal to full avoided cost in conjunction with its determination to allow states to eliminate fixed energy rate contracts.190 Public Interest Organizations contend that, in permitting competitive market prices like LMP to set avoided costs, the Commission also inconsistently acknowledged that utilities incur long term energy costs that exceed those prices and that the competitive market prices are only being used to set the asavailable short term avoided cost rates instead of long-run energy costs that can be avoided with long-term QF contracts.191 Public Interest Organizations claim that the Commission permitted a price determined at the time of delivery to set the price for long-term contracts, even though the Commission acknowledged that long term QF energy supply avoids alternative long term energy supply commitments and costs that are not reflected in the short run LMP or market hub price.192 100. EPSA argues that the Commission’s regulations and precedent contradict reliance on the idea that overestimates and underestimates have not balanced out.193 EPSA points out that 18 CFR 292.304(b)(5) expressly provides that, ‘‘[i]n the case in which the rates for purchases are based upon estimates of avoided costs over the specific term of the contract or other legally enforceable obligation, the rates for such purchases do not violate this subpart if the rates for such purchases differ from avoided costs at the time of delivery.’’ 194 101. EPSA asserts that, because the final rule did not modify, much less eliminate, 18 CFR 292.304(b)(5), which allows states to retain the fixed energy rate contract option, it is impossible to claim that the fixed energy rate contract option conflicts with the avoided cost cap and that the Commission cannot take a position that is at odds with the terms of its own regulations.195 102. According to Solar Energy Industries, there is no indication in the record that any retail rates paid by electric consumers fluctuate based on 189 Id. at 87–90. at 9, 90. 191 Id. at 90. 192 Id. at 91–92. 193 EPSA Request for Rehearing at 14. 194 Id. at 15 (citing 18 CFR 292.305(b)). 195 Id. at 14–15. 190 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 the purchasing utility’s obligation to purchase from QFs. Solar Energy Industries also argue that, for utilities with stated retail rates, there is no evidence to suggest that these rates will be reduced in any manner in the event the state utilizes the ‘‘flexibility’’ provided by revised Section 292.304(d), unless the Commission mandates otherwise.196 Solar Energy Industries add that the evidence in the record of alleged overpayments was both flawed and not adequately supported and thus does not support the contention that overpayments and underpayments did not balance out for an extended period of time.197 103. Solar Energy Industries argue that, to the extent that existing methodologies in some states have produced inaccurate forecasts of longrun avoided costs, the solution is better methodologies—not an abandonment of long-run marginal costs.198 ii. Commission Determination 104. As an initial matter, it is beyond any reasonable question that the Commission’s determination to give the states the flexibility to require variable energy rates in QF contracts is within the Commission’s authority under PURPA. By definition, such a rate compensates the QF at a rate reflecting the energy costs avoided by the purchasing utility as a result of its purchase of energy from the QF. Moreover, a utility’s avoided purchased energy costs constantly change over the term of a contract as the utility’s marginal resource changes due to changes in load, changes in the availability of alternative resources, and changes in the availability of the marginal resource. The avoided energy cost also changes with fluctuations in fuel use at different loading levels and with changes in fuel costs. Consequently, a variable energy contract rate by definition would more accurately reflect the utility’s avoided energy costs than a fixed contract that does not vary over the length of a multiyear contract. 105. As a result, there is no question but that the Commission could have imposed a variable energy contract requirement when it promulgated the PURPA Regulations in 1980 instead of requiring fixed energy contract rates. The only question in this proceeding is whether the Commission has adequately supported its holding in the final rule to change the determination made in 1980 196 Solar Energy Industries Request for Rehearing and/or Clarification at 20. 197 Id. at 21–23. 198 Id. at 23. PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 and instead give the states the flexibility to require variable energy contract rates.199 In addition, because the Commission’s revision to the fixed energy rate requirement is based on changed circumstances since the issuance of the PURPA Regulations in 1980, we must provide ‘‘a reasoned explanation . . . for disregarding facts and circumstances that underlay or were engendered by the prior policy.’’ 200 As we explain below, we disagree with assertions that we have not provided such an explanation. 106. We disagree with the arguments raised on rehearing that there was insufficient evidence of overestimations. The Commission explained in the final rule why overestimations and underestimations of avoided costs had not balanced out.201 Broad price declines over time throughout the energy industry show that long-term fixed price QF contracts likely exceeded the avoided energy costs at the time of delivery for extended periods of time; thus, it is not necessary to confirm every allegation of a lack of balance in the past or every estimation of prices and costs.202 But even had there been less evidence of lack of balance over time,203 there was sufficient evidence for the Commission to conclude that the Commission’s assumption in 1980 may not be the best way to ensure compliance with PURPA. Allowing a state to set a variable avoided cost energy rate could better avoid that outcome. In the context of long-term fixed QF rates, given evidence of overestimations, the statutory avoided cost cap may be better met if the rates may be varied over time to ensure they stay within the requirements of PURPA. Moreover, as stated in the final rule, to 199 See, e.g., Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 42 (1983) (‘‘An agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change’’). 200 FCC v. Fox Television Stations, Inc., 556 U.S. 502, 516 (2009). 201 See Order No. 872, 172 FERC ¶ 61,041 at PP 285–92. 202 See id. P 287 (footnote omitted) (‘‘We agree with Public Interest Organizations that the recent electricity price overestimations were not unique to QFs and can be explained by general declines in natural gas prices since the adoption of hydraulic fracturing and the 2007–2009 recession. But that is precisely why the estimates of avoided costs reflected in the QF contracts and LEOs were incorrect and why the resulting fixed avoided cost energy rates reflected in such QF contracts and other LEOs resulted in QF rates well above utility avoided costs in violation of PURPA section 210(b); the precipitous decline in natural gas prices caused a corresponding reduction in utilities’ energy costs, and thus in their energy avoided costs but this decline was not reflected in the QFs’ fixed contract rates that remained at their previous levels’’). 203 See, e.g., Public Interest Organizations Request for Rehearing at 85. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations the extent energy prices increase over time, QFs could benefit from that variability.204 Therefore, it was well within the Commission’s authority under PURPA, and the Commission had sufficient evidence, to provide a tool states can use to ensure that the avoided cost rates stay within the requirements of the statute and not be based on an assumption that over-recoveries balance out with under-recoveries. 107. States previously had little ability to address the potential for overestimations over the term of a QF contract, which caused some states to respond by adopting shorter contract terms. In the final rule, the Commission did not determine that any particular QF contracts violated the avoided cost cap and did not change its prior determination that PURPA does not ‘‘require a minute-by-minute evaluation of costs which would be checked against rates established in long term contracts between qualifying facilities and electric utilities.’’ 205 Instead, the Commission acted reasonably to better ensure that, over the term of a contract, QF rates do not exceed a utility’s avoided costs. The Commission achieved this goal by providing the states with a tool that allows them to address the potential that, over the term of a contract, contract rates may exceed a purchasing utility’s avoided costs determined at the time of delivery. Providing this tool to the states ensures that they are not required to set rates that exceed avoided costs. Moreover, this tool gives effect to PURPA’s requirement that rates paid to QFs be just and reasonable to the consumers of the electric utility and in the public interest.206 204 See Order No. 872, 172 FERC ¶ 61,041 at P 290. 205 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. 206 16 U.S.C. 824a–3; see also Indep. Energy Producers Ass’n, Inc. v. Cal. Pub. Utils. Comm’n, 36 F.3d 848, 850 (9th Cir. 1994) (‘‘Section 210(b) requires that Commission to promulgate regulations that ensure that the rates for these purchases ‘shall be just and reasonable to the electric consumers of the electric utility and in the public interest.’ However, these rates may not exceed the incremental cost to the utility of purchasing alternative energy.’’); Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d 380, 384 (5th Cir. 2014) (‘‘While Congress sought to promote energy generation by Qualifying Facilities, it did not intend to do so at the expensive of the American consumer. PURPA thus strikes a balance between these two interests . . . PURPA requires utilities to purchase power generated by Qualifying Facilities, but also mandates that the rates that utilities pay for such power ‘shall be just and reasonable to the electric consumers of the electric utility and in the public interest.’ ’’); Conn. Valley Elec. Co. v. FERC, 208 F.3d 1037, 1045 (D.C. Cir. 2000) (‘‘PURPA expressly requires the Commission to balance the interests of consumers against those of producers. . . . ’’); see also Swecker v. Midland Power Co-op, 807 F.3d VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 108. The Commission emphasized that the final rule is prospective, thereby protecting existing contracts. We find no merit in EPSA’s argument that the grant of flexibility to states in the final rule to set variable avoided cost energy rates is inconsistent with 18 CFR 292.304(b)(5), which provides: ‘‘In the case in which the rates for purchases are based upon estimates of avoided costs over the specific term of the contract or other legally enforceable obligation, the rates for such purchases do not violate this subpart if the rates for such purchases differ from avoided costs at the time of delivery.’’ 207 109. Nothing in the final rule is inconsistent with this regulatory provision. The final rule gives states the flexibility to continue to require fixed energy rates for the term of a QF’s contract, and this regulatory provision continues to be necessary to make clear that such rates are permitted. The provision does not apply to QF contracts where the energy rate is not fixed based on estimates of avoided costs but instead varies with estimates of avoided costs at the time of delivery. 110. We also disagree with Public Interest Organizations that, in permitting states to set a variable avoided cost energy rate, the Commission ignored utilities’ long-run avoided costs.208 The Commission has not assumed that utilities procure energy only through short-term contracts or never lock in their costs by constructing their own energy resources, executing long term fuel contracts, or executing long term energy supply contracts. In Order No. 69, the Commission defined ‘‘energy’’ costs as ‘‘the variable costs associated with the production of electric energy (kilowatthours)’’ and ‘‘represent[ing] the cost of fuel, and some operating and maintenance expenses.’’ 209 By contrast, in Order No. 69, the Commission defined ‘‘capacity’’ costs as ‘‘the costs associated with providing the capability to deliver energy; they consist primarily of the capital costs of facilities.’’ 210 The 883, 884 (8th Cir. 2015) (citing legislative history that PURPA is ‘‘not intended to require the rate payers of a utility to subsidize cogenerators or small power producers’’). 207 EPSA Request for Rehearing at 15. 208 See Public Interest Organizations Request for Rehearing at 87 (‘‘FERC conflates short-run market prices with utilities’ energy supply costs. . . . [T]he latter includes costs of supply other than the day ahead market and that impose costs above the market price’’). 209 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,865; see also id. at 30,881–82 (also defining energy as ‘‘non-firm power’’ that entails ‘‘the cost of operating [the seller’s] generating units and administration’’). 210 Id. at 30,865; see also id. at 30,881–82 (also defining capacity as ‘‘firm’’ power that entails PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 86673 Commission has not changed these definitions; they still apply to both ‘‘short-run’’ (energy or non-firm power) and long-run (capacity or firm power) avoided costs. 111. While the final rule changed how states may calculate avoided energy costs (both pursuant to competitive market prices and variable rates), the Commission did not change the factors states must take into account, to the extent practicable, for setting fixed, avoided capacity costs; among these factors states must take into account, to the extent practicable, are the utility’s own avoided cost data and the utility’s deferral of capacity additions.211 Under this existing and unchanged framework, states already should take into account the long-run (capacity) and short-run (energy) incremental costs that utilities would incur but for their purchase from QFs. 112. As stated in the final rule, the difficulty in predicting prices necessarily also applies to predicting which costs a utility would incur from generating power itself or purchasing such power from another source over the term of a QF contract. Therefore, while there may be open questions over which costs a utility would incur from generating power itself or purchasing such power from another source in lieu of QF purchases, continuing to prohibit a state from allowing an energy rate to fluctuate would prevent states from choosing not to use unreliable price forecasts in setting avoided cost energy rates in QF contracts. 113. Public Interest Organizations’ characterization of overestimated energy costs as ‘‘foregone windfall profits’’ due to utilities’ monopoly status not only is inapt,212 but it ignores that utility customers ultimately bore the cost of avoided cost estimates that ultimately exceeded avoided costs in a way that is inconsistent with PURPA’s avoided cost cap. Likewise, Solar Energy Industries’ ‘‘payments for the cost of fuel and operating expenses, and also for the fixed costs associated with the construction of generating units needed to provide power at the purchaser’s discretion.’’). 211 See 18 CFR 292.304(e); see also Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,865 (‘‘If a qualifying facility offers energy of sufficient reliability and with sufficient legally enforceable guarantees of deliverability to permit the purchasing electric utility to avoid the need to construct a generating unit, to build a smaller, less expensive plant, or to reduce firm power purchases from another utility, then the rates for such a purchase will be based on the avoided capacity and energy costs.’’). 212 As explained in the final rule, electric utilities almost always are required to pass decreases in energy costs through to their retail customers, whereas QFs with fixed energy contract rates are not obligated to reduce their rates as avoided energy costs decline. Order No. 872, 172 FERC ¶ 61,041 at P 122. E:\FR\FM\30DER2.SGM 30DER2 86674 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations assertion that there is no evidence that states will lower retail rates if states require variable energy rates in QF contracts is irrelevant to whether the Commission may provide that flexibility under PURPA. The requirement found in PURPA is that the Commission cannot require that a rate paid to the QF exceed a certain amount. b. Whether the Proposed Change Would Violate the Statutory Requirement That the PURPA Regulations Encourage QFs and Do Not Discriminate Against QFs 114. In the final rule, the Commission determined, based on the record evidence, that it is not necessarily the case that overestimations and underestimations of avoided energy costs will balance out over time. The Commission concluded that a fixed energy rate in a QF contract or LEO potentially could violate the statutory avoided cost cap on QF rates.213 115. The Commission found that the PURPA Regulations continue to encourage the development of QFs by, among other things, allowing a state to vary the rate paid to the QF over time but in a way that satisfies the rate cap established in PURPA section 210(b). In this way, over time, the QF can obtain a higher rate when the utility’s avoided costs increase, and ratepayers are not paying more than the utility’s avoided costs when prices decrease. Furthermore, the Commission explained that allowing the use of variable energy rates may promote longer contract terms, which would help encourage and support QFs.214 The Commission concluded that it is consistent with PURPA section 210(b), as well as the obligation imposed by PURPA section 210(a), to revise the PURPA Regulations ‘‘from time to time,’’ to provide the states the flexibility to require that QF contracts and other LEOs implement variable avoided cost energy rates in order to prevent payments to QFs in excess of the purchasing electric utility’s avoided energy costs. The Commission noted that PURPA section 210(b) prohibits the Commission from requiring QF rates above avoided costs even if, according to some commenters, a fixed avoided cost energy rate above avoided costs would provide greater encouragement to QFs than a variable avoided cost energy rate.215 116. The Commission described the discrimination claims as based on the incorrect assumption that electric utilities have not been required to lower their energy rates as prices have 213 Order 214 Id. No. 872, 172 FERC ¶ 61,041 at P 295. P 296. 215 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 declined. The Commission found, to the contrary, that utilities typically charge their customers cost-based rates, and, as their fuel and purchased power costs have declined, they typically have been required to provide corresponding reductions in the energy portion of their rates to their customers. The Commission explained that requiring QF avoided cost energy rates to likewise change as purchasing electric utilities’ avoided energy costs change does not create a discriminatory difference, but rather puts QF rates on par with utility rates.216 117. The Commission explained that it was not changing the requirement that QF avoided cost energy rates be set at the purchasing utility’s full avoided energy costs. Rather, the Commission allowed the states the option to now choose to require QF avoided cost energy rates that vary with the purchasing utility’s avoided costs of energy, rather than QF avoided cost energy rates that are fixed for the life of the QF’s contract or LEO, to ensure the rates comply with PURPA.217 i. Requests for Rehearing 118. Solar Energy Industries argue that, by revoking the long-standing regulations that provide a QF with the right to elect to be paid a long-term energy rate in a contract for long-term energy delivery, the Commission is actively discouraging the development of QFs in contravention of the statutory direction to encourage the development of such facilities.218 Solar Energy Industries describe as inaccurate the Commission’s claim that this revocation is necessary to protect the consumers of electric utilities because inaccurate administratively-determined avoided costs can be fully mitigated when a state adopts the Commission’s new competitive bidding framework.219 119. Solar Energy Industries request that the Commission clarify several portions of the final rule. First, Solar Energy Industries request that the Commission clarify that the circumstances that do not allow QFs to have nondiscriminatory access to buyers other than the host utility are largely the same today as in 1980 when the Commission first implemented its PURPA Regulations.220 Second, Solar Energy Industries request that the Commission clarify that states must ensure that QFs receive comparable 216 Id. P 302. P 303. 218 Solar Energy Industries Request for Rehearing and/or Clarification at 10. 219 Id. at 10–11. 220 Id. at 42. 217 Id. PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 avoided cost calculations and rates, terms, and conditions.221 Solar Energy Industries contend, for example, that utilizing a 20-year depreciation schedule for an avoided unit to calculate the long-run marginal cost rate and then offering a QF a two-year contract fails to ensure compatibility. Third, Solar Energy Industries request that the Commission clarify that it supports and renews its commitment to pursue enforcement actions when states discriminate against QFs.222 120. Northwest Coalition asserts that the final rule’s change of the requirement that QFs be offered fixed prices for energy is arbitrary, capricious, and not in accordance with law. Northwest Coalition argues that, in a ‘‘reversal’’ of 40 years of precedent since enactment of PURPA, the final rule unlawfully ‘‘guts’’ the bedrock requirement that QFs be offered fixed energy rates, which have long been recognized as necessary for the development of QFs.223 Northwest Coalition adds that the right to secure fixed energy prices supports the continued operation of existing QFs upon the expiration of their existing contracts when substantial interconnection and other capital upgrades must typically be undertaken and that elimination of fixed prices is likely to result in loss of substantial existing QF capacity.224 121. Northwest Coalition claims that, despite the final rule’s assertion that nothing in PURPA requires the Commission to ensure financeability of individual QFs, PURPA ‘‘does require the Commission to encourage their development, which we have previously equated with financeability.’’ 225 Northwest Coalition argues that, under the final rule, QFs could face a world in which there is no minimum contract term, a payment of zero for their capacity, and an avoided cost energy price based on highly volatile and unpredictable short-term markets. Northwest Coalition contends that rendering many QFs not financeable or financeable only at extreme interest rates discourages QFs, which is contrary to what PURPA requires.226 122. EPSA argues that, although the Commission cannot, in the name of remedying discrimination, require QF 221 Id. at 43. at 43–44. 223 Northwest Coalition Request for Rehearing at 8 (citing Order No. 872, 172 FERC ¶ 61,041 at P 232). 224 Id. 225 Id. at 9–10 (citing Order No. 872, 172 FERC ¶ 61,041 (Glick, Comm’r, dissenting in part, at P 13)). 226 Id. at 11. 222 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations rates that exceed avoided cost, allowing states to eliminate the fixed rate energy contract option does not result in QF rates that are non-discriminatory to the maximum extent permitted by the avoided cost cap.227 EPSA reiterates that the statutory requirement in PURPA section 210(b)(1) that QF rates ‘‘shall not discriminate against’’ QFs is more restrictive than the FPA’s prohibition against ‘‘unduly discriminatory’’ rates.228 EPSA asserts that this more restrictive requirement does not leave room for avoided cost rates that discriminate against QFs relative to purchasing electric utilities, even if the Commission finds the discrimination to be justified (i.e., not undue).229 EPSA argues that, subject to compliance with the avoided cost cap, the Commission cannot allow states to set discriminatory QF rates, even if the Commission determines those discriminatory rates are justified by differences between QFs and utilities or other policy goals, such as minimizing the burden of forecasting error on consumers.230 123. EPSA claims that, in the final rule, the Commission does not adequately address these arguments, which it had raised in its NOPR comments.231 EPSA contends that the Commission erred in relying on the idea that variable energy rate/fixed capacity rate contracts are standard in the electric industry because PURPA requires that avoided cost rates not discriminate against QFs relative to purchasing electric utilities, not that such rates conform to standard industry practices.232 EPSA describes the Commission’s argument that eliminating fixed energy price contracts is not discriminatory as unsupported because of its assumptions about how fuel and purchased power adjustment clauses operate. EPSA reasons that a franchised utility’s rates will be set based on costs they actually incur to produce electricity for their customers and that such costs would be the same energy costs that are used in determining the electric utilities’ avoided costs that will, in turn, set the as-available avoided cost rates to be charged by QFs.233 In particular, EPSA claims that the Commission appears to assume that fuel and purchase power adjustment clauses will necessarily reflect short-term fluctuations in fuel and other energybased costs, while, in a number of 227 EPSA 228 Id. Request for Rehearing at 5. at 6. 229 Id. 230 Id. 231 Id. 232 Id. 233 Id. at 6–7. at 7–8. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 jurisdictions, these clauses also cover costs incurred under long-term contracts, including long-term fuel supply contracts, long-term power purchase agreements, and equivalent financial instruments.234 EPSA argues that remedying alleged discrimination requires providing QFs with a degree of insulation from market volatility comparable to that afforded to utility investments with effectively guaranteed cost recovery in retail rates, which EPSA argues the fixed energy rate contract option accomplishes.235 124. EPSA asserts that it was legally incorrect to claim that a QF rate equal to the purchasing utility’s avoided cost at the time of delivery by definition could not be discriminatory because the Commission’s regulations and precedent leave no room for claims that, for purposes of PURPA’s avoided cost cap, there is a single measure of avoided cost.236 EPSA claims that the Commission cannot avoid ensuring that QF rates are non-discriminatory on the basis that such rates are consistent with one measure of avoided costs if setting QF rates based on another permissible measure of avoided costs would eliminate some or all of the discrimination.237 125. Public Interest Organizations argue that the Commission allowed states to set rates that discriminate against QFs in contravention of PURPA.238 Public Interest Organizations maintain that allowing avoided costs to be set at short-run prices discriminates against QFs and does not reflect utilities’ avoided costs because utilities incur long-term energy supply costs that exceed short run costs. Public Interest Organizations assert that the Commission incorrectly defined discrimination as comparing the standard across the electric industry instead of how a specific purchasing electric utility treats similar generation. Public Interest Organizations contend that the Commission assumes without evidence that contracts whose energy prices are linked to short-term prices in a competitive market at the time of delivery is ‘‘standard’’ in long term contracts. Public Interest Organizations argue that, on the contrary, non-QF renewable generators are paid long-term fixed prices, including a fixed energy rate.239 234 Id. at 8–9. at 9–10. 236 Id. at 16. 237 Id. at 17. 238 Public Interest Organizations Request for Rehearing at 9, 92. 239 Id. at 92–93. 235 Id. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 86675 126. Public Interest Organizations claim that the Commission interpreted the statutory term ‘‘discriminate’’ incorrectly.240 Public Interest Organizations assert that, in the final rule, the Commission permitted states to deny QFs fixed energy pricing, ‘‘even if alternative energy the utility would acquire from its own generation or nonQF power producers would be at fixed costs, based on the industry ‘standard’ followed by other utilities to limit the price for all alternative energy (owned and third party) to the short run market price.’’ 241 Public Interest Organizations contend that, while discrimination is generally defined as a ‘‘difference between the subject entity and a single similar entity that is more favorably treated,’’ 242 under PURPA, discrimination is not defined based on the industry standard but rather is defined ‘‘on how the specific purchasing utility treats QFs compared to how it treats one or more similarly situated non-QFs, including the utility’s own generation.’’ 243 127. Public Interest Organizations argue that the Commission lacked evidence to support its assertion that short-term rates are not discriminatory because they are the industry norm.244 Public Interest Organizations contend that the Commission lacks evidence to assert that the electric industry standard entails variable energy prices in long term supply contracts, given that ‘‘utilities make long-term investments for energy resources, enter long-term contracts for fuel for their own generation, [and] enter long term power purchase agreements with long-run energy prices (or blended energy and capacity prices).’’ 245 Public Interest Organizations claim that the Commission lacked evidence to assert that that utilities recovering cost-based rates must exclude long-term commitment costs such as rate-based energy resources, fuel contracts, and power purchase contracts when the long term energy portion of those costs, such as power purchase agreement prices, later exceed short run energy costs like the hourly LMP of the delivered energy.246 Public Interest Organizations assert that the rate-based generation of 240 Id. at 10, 92. at 94–95. 242 Id. at 94 (citing FTC v. Burton, 363 U.S. 536, 550 (1960); Burton v. District of Columbia, 153 F. Supp. 3d 13, 67 (D.D.C. 2015)). 243 Id. (citing 16 U.S.C. 824a–3(b)). 244 Id. at 10, 95. 245 Id. at 95–96 & n.280 (citing National Association of Regulatory Utility Commissioners, Electric Utility Cost Allocation Manual, at 49–59 (July 1992)). 246 Id. at 96–97. 241 Id. E:\FR\FM\30DER2.SGM 30DER2 86676 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Alliant Energy, upon whose data the Commission relied, receives ‘‘advanced ratemaking principles’’ that fix favorable rate treatment despite intervals when the short run price is less than the energy price assumed when long-term fixed price recovery for those the energy resources were approved. Public Interest Organizations contend that a QF displacing such utility investments causes the utility to avoid the long-term fixed cost of the utility investment rather than the short-term day ahead or market hub price at the time energy is generated from it.247 128. Public Interest Organizations argue that, contrary to the Commission’s assertions that long-term utility energy cost commitments may be disallowed or modified due to short run energy price when the energy is delivered, rate recovery is usually required for the cost of supply contracts regardless of whether the contract price later appears too high compared to prices when the power is delivered. Public Interest Organizations therefore reason that nonQF energy supply that utilities own themselves or purchase from another source are not limited to short run energy market prices.248 129. Public Interest Organizations similarly assert that the Commission selectively quoted Town of Norwood v. FERC for the proposition that long-term non-QF energy supply is limited to short-run market price at the time of delivery. Public Interest Organizations instead describe Town of Norwood as concerning a wholesale supply contract from a supplier’s mix of resources to serve a retail utility instead of a power purchase agreement from a single generator comparable to a QF contract. Public Interest Organizations contend that the rate in Town of Norwood contained both energy pricing in two blocks ‘‘with the first priced at fixed embedded costs and charged based on a ratchetted demand and energy use, and the second block based on long run marginal costs.’’ 249 130. Public Interest Organizations describe the Commission’s justifications for its determination that Order No. 872 does not enable discrimination as poorly reasoned.250 Public Interest Organizations argue that treating QFs without discrimination does not require subjecting them to cost-of-service ratemaking in violation of PURPA but rather should be the same as how the at 96. at 97 (citing FPC v. Sierra Pac. Power Co., 350 U.S. 348 (1956); United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 (1956)). 249 Id. at 97–98 (citing Town of Norwood v. FERC, 962 F.2d 20, 21, 24 (D.C. Cir. 1992)). 250 Id. at 10, 98. utility determines costs for other purposes. Public Interest Organizations claim that the Commission’s argument that it is not discriminating against QFs when it subjects them to short run energy prices because they still receive full avoided costs is circular.251 131. Northwest Coalition asserts that the final rule authorizes a discriminatory framework by eliminating the certainty of a predictable revenue stream afforded by fixed prices. Northwest Coalition argues that electric utilities can still rate-base long-term investments, thereby ensuring that they can recover their capital investments plus an authorized return, and then also recover their actual operating costs under traditional cost-ofservice ratemaking. Northwest Coalition contends that, in contrast, the final rule’s new framework authorizing variable energy pricing deprives QFs of even a reasonable ability to forecast avoided cost prices from which they must recover their investment, much less guarantee such recovery provided to the typical utility. Northwest Coalition asserts that this outcome places QFs on unequal footing and ensures that utilities continue to dominate the generation market. Northwest Coalition argues that, in sum, the new regime is discriminatory because it permits utilities to make acquisition decisions based on longterm cost forecasts, which contain inherent forecast risk, but ties QFs to unpredictable future changes in markets.252 132. Northwest Coalition contends that the final rule fails to address the critical point that utilities obtain virtually guaranteed cost recovery and virtually absolute certainty that they will recover their costs plus a profit, whereas QFs now do not even receive certainty as to the prices they can rely upon if they are able to perform successfully under their contracts. Northwest Coalition claims that the discrimination is the failure to put QFs on reasonably equal footing to utilities by providing QFs with the certainty of the right to beat the utility’s long-term marginal cost of generation, which typically is the same long-term cost estimate used to justify the utility’s own rate-base acquisitions.253 133. Northwest Coalition argues that, although the discriminatory policy in Environmental Action 254 regarded 247 Id. 251 Id. 248 Id. 252 Northwest VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 at 98–99. Coalition Request for Rehearing at 12. 253 Id. at 13. 254 Id. at 14 (citing Envtl. Action v. FERC, 939 F.2d 1057, 1061–62 (D.C. Cir. 1991) (Environmental Action)). PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 transmission access and not price certainty, the same principle applies equally here. Northwest Coalition asserts that the Commission’s ‘‘effort to place QFs on an essentially equal competitive footing with competing suppliers, . . . by giving such suppliers the access it denies to QFs would effect an administrative repeal of this congressional choice; by definition, this is not in the public interest.’’ 255 Northwest Coalition contends that, in this case, the Commission’s alleged effort to place QFs on equal footing with incumbent utilities by giving such utilities the certainty of return on investment that will be denied to QFs is plainly discriminatory.256 Northwest Coalition adds that this interpretation of the anti-discrimination requirement is even supported by the Montana Public Service Commission in the context of price certainty and allocation of forecast risk, even though that state agency generally supported the Commission’s proposed rule.257 ii. Commission Determination 134. We disagree with the arguments raised on rehearing. To begin, it is incorrect to state that the final rule eliminated fixed rates for QFs. The final rule gave states the flexibility, if they choose to take advantage of this flexibility, to require that the avoided cost energy rates in QF contracts vary depending on avoided energy costs at the time of delivery. In the final rule, as described above, the Commission retained the QF’s right for capacity rates to be fixed, which together with the flexibility adopted in the final rule to allow states to set avoided cost energy rates using competitive market forces should provide a more transparent way of determining avoided costs. Those capacity rates would still need to meet the standards of 18 CFR 292.304(e), which together with more transparent energy rates determined pursuant to competitive market prices and the existing PURPA Regulations, encourages the development of QFs.258 135. Further, in response to EPSA’s and Public Interest Organizations’ arguments that the final rule does not accurately describe how merchant generators are financed and protect QFs against volatility in fuel prices, the variable energy rate/fixed capacity rate construct is common among merchant generators for power sales agreements that include the sale of capacity, thus 255 Id. (citing Environmental Action, 939 F.2d at 1062). 256 Id. 257 Id. at 14–15. 258 See supra PP 42–43. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations demonstrating that other types of nonutility generation are able to raise useful financing under such an arrangement.259 136. We also disagree with arguments raised on rehearing regarding discrimination. We reiterate our holding in the final rule that PURPA does not require, and indeed prohibits, subjecting QFs to the same rate structures and procedures as utilities.260 Congress made this point clear when it enacted PURPA. ‘‘The conferees recognize that cogenerators and small power producers are different from electric utilities, not being guaranteed a rate of return on their activities generally or on the activities vis-a-vis the sale of power to the utility and whose risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable.’’ 261 And the Supreme Court relied on this legislative history to conclude that ‘‘The legislative history confirms, moreover, that Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities.’’ 262 137. Moreover, EPSA, Northwest Coalition, Public Interest Organizations, and Solar Energy Industries miss the mark when they argue that it would be discriminatory to permit states to require variable energy rates in QF contracts if the energy the utility otherwise would acquire from its own generation or non-QF power producers would be at a fixed cost. These entities assert that, to prevent such discrimination, the Commission must require fixed energy rates in order to ensure comparable terms and conditions in QF contracts. However, in the unlikely event that all of a purchasing utility’s other, non-QF resources happen to be long-term purchases with fixed capacity and energy rates, such a utility’s avoided capacity and energy costs would not vary significantly over time. In that case, a variable energy rate set at the utility’s avoided costs at the time of delivery would be based on the utility’s essentially unchanging avoided costs and thus would not change significantly over time.263 138. We find that Public Interest Organizations and Solar Energy Industries conflate the variable rate issue with the contract length issue in asserting that the final rule discriminates against QFs. Although the Commission changed the extent to which a QF is entitled to a fixed avoided cost energy rate, the Commission did not change the requirement that a capacity rate should account for longer-term costs (i.e., longer than as-available) associated with providing the capability to delivery energy.264 A QF contract or LEO with a variable energy rate should reflect a purchasing electric utility’s avoided energy costs estimated at the time of delivery. It is irrelevant for calculating a purchasing electric utility’s avoided energy costs whether a purchasing electric utility makes purchases of longterm capacity in non-QF bilateral agreements because a QF remains entitled to a fixed capacity rate. In the final rule, as described above, states must take into account the existing factors for setting fixed avoided cost capacity rates, QFs are able to require that avoided cost capacity rates in their contracts and LEOs be fixed, and QFs may continue to bring enforcement petitions before the Commission if states are failing to take into account those factors when setting avoided cost capacity rates. In response to Solar Energy Industries’ request that the Commission clarify its intent to pursue enforcement against states in setting avoided cost rates, if a QF believes that its fixed capacity rate in a contract does not fully reflect the long-term capacity avoided costs of the purchasing utility because of the length of the QF contract, that QF may pursue a claim under the statutory provisions for the enforcement of PURPA. 139. Solar Energy Industries request that the Commission clarify that where QFs continue to lack nondiscriminatory access to buyers other than the host utility, the circumstances have not changed since 1980.265 It is not apparent what Solar Energy Industries asks the Commission to clarify. But to the extent that this is a criticism of the final rule, the final rule continues to require that state determinations of avoided costs reflect the purchasing utility’s avoided costs and that QFs have the right to sell 259 Order No. 872, 172 FERC ¶ 61,041 at PP 35– 41, 336–45. 260 Id. PP 85–88 (citing API, 461 U.S. at 414; Conf. Rep. at 97–98). 261 Conf. Rep. at 97–98 (emphasis added). 262 API, 461 U.S. at 414. 263 We note that this situation of the variable energy avoided cost rate not changing significantly over time would also address rehearing arguments that the final rule impedes QF financeability. 264 See Windham Solar, 157 FERC ¶ 61,134, at P 4 (2016) (‘‘[S]ection 292.304(d)(2) of the Commission’s regulations addresses the option to sell energy or capacity pursuant to a legally enforceable obligation over a specified term’’ and ‘‘provides (at the QF’s option) for pricing based on either avoided costs calculated at the time of delivery or at the time the obligation is incurred.’’). 265 Solar Energy Industries Request for Rehearing and/or Clarification at 42. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 86677 to directly and indirectly interconnected utilities.266 140. We disagree with Public Interest Organizations’ and Northwest Coalition’s assertions that the variable rate option overemphasizes the avoided cost rate cap and underemphasizes the prohibition on discrimination against the QF and the requirement to encourage QF development.267 PURPA specifically states that ‘‘[n]o such rule prescribed under subsection (a) shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.’’ 268 Thus, the Commission’s actions to better ensure that it has not prescribed a rule requiring that the rates paid to QFs not exceed the purchasing utility’s avoided costs reflect Congress’s priorities in enacting PURPA and give meaning to all provisions of the statute.269 141. We disagree with Northwest Coalition that the final rule discriminates against QFs by failing to put them on a competitive footing with utilities in violation of Environmental Action.270 In that case, the D.C. Circuit discussed PURPA’s prohibition on discriminating against QFs in connection with PURPA’s mandatory purchase obligation. The D.C. Circuit stated that ‘‘[a] QF may force a sale only at the purchasing utility’s avoided cost . . . . If the QF is less efficient (i.e., has higher costs) than its competitors, its guaranteed ability to sell power only at a price below its cost will not cause its competitors any loss of sleep.’’ 271 But, in contrast, if a ‘‘QF is more efficient [than the purchasing electric utility], then the preference it receives is not a threat to, but only a redundant (legal) guarantee of, the competitive (economic) outcome. In fact, the principal effect of the preference seems 266 See 18 CFR 292.303(a)(1)–(2), (d) (QFs have right to sell to directly and indirectly interconnected utilities). 267 See Northwest Coalition Request for Rehearing at 19; Public Interest Organizations Request for Rehearing at 44–46. 268 16 U.S.C. 824a–3(b). 269 See In re W. States Wholesale Nat. Gas Antitrust Litig., 715 F.3d 716, 731 (9th Cir. 2013) (Western States Wholesale Natural Gas Antitrust Litigation) (‘‘[S]tatutory provisions should not be read in isolation, and the meaning of a statutory provision must be consistent with the structure of the statute of which it is a part.’’), aff’d sub nom. Oneok, Inc. v. Learjet, Inc., 575 U.S. 373 (2015); Brazos Elec. Power Co-op. v. FERC, 205 F.3d 235, 250 (5th Cir. 2000) (Brazos) (‘‘[I]f PURPA speaks clearly on the precise issue in question, that plain meaning must govern; however, if PURPA’s application to a particular issue is ambiguous, FERC’s interpretation will be upheld so long as it is a ‘permissible construction’ of the statute.’’). 270 Northwest Coalition Request for Rehearing at 13–14 (citing Environmental Action, 939 F.2d at 1061–62). 271 Environmental Action, 939 F.2d at 1061. E:\FR\FM\30DER2.SGM 30DER2 86678 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations to be to ensure that large power producers do not discriminate against QFs.’’ 272 Thus the court confirmed that QFs are not guaranteed to recover their costs and they must take the risk of being unable to make a profit selling at the purchasing utility’s avoided costs. Contrary to Northwest Coalition’s assertions, this case hardly suggests that fixed energy avoided cost rates are necessary to place QFs on a competitive footing with utilities or that therefore the Commission must provide QFs the same rate structure or rate recovery as a utility. 142. Public Interest Organizations cite Commission and federal district court decisions to argue that the Commission’s final rule results in discrimination.273 But those cases do not address how PURPA’s nondiscrimination standard relates to the avoided cost cap, and Order No. 872 provides that QFs are still entitled to a fixed avoided cost capacity rate.274 Similarly, Congress and the Supreme Court both recognized that PURPA treats QFs differently from purchasing utilities, rendering QFs not similarly situated to non-QF resources.275 143. We also disagree with Public Interest Organizations that the final rule’s reference to Town of Norwood does not justify use of variable energy 272 Environmental Action, 939 F.2d at 1061–62. Interest Organizations Request for Rehearing at 94 & n.279 (‘‘Under PURPA, Congress provided that discrimination is determined based on how the specific purchasing utility treats QFs compared to how it treats one or more similarly situated non-QFs, including the utility’s own generation.’’). 274 See, e.g., Morgantown Energy Assocs. v. Pub. Serv. Comm’n of W. Virginia, No. 2:12–CV–6327, 2013 WL 5462386, at *25 (S.D. W. Va. Sept. 30, 2013) (discrimination under PURPA is measured ‘‘with respect to a similarly situated non-QF’’); Pioneer Wind Park I, LLC, 145 FERC ¶ 61,215, at P 37 (2013) (curtailment of QFs compared to utility resources is discriminatory under PURPA); Entergy Servs. Inc. Gen. Coal. v. Entergy Servs., Inc., 103 FERC ¶ 61,125, at PP 27–29 (2003) (finding utility discriminated against QFs compared to other independent generators when it imposed certain fees on QFs but not on other generators)). 275 See API, 461 at 413 (emphasis added) (‘‘[T]he full-avoided-cost rule plainly satisfies the nondiscrimination requirement. . . . [W]e would be reluctant to infer that Congress intended the terms ‘just and reasonable,’ which are frequently associated with cost-of-service utility ratemaking, . . . to adopt a cost-of-service approach in the very different context of cogeneration and small power production by nontraditional facilities. The legislative history confirms, moreover, that Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities.’’); Conf. Rep. at 97–98 (emphasis added) (‘‘The conferees recognize that cogenerators and small power producers are different from electric utilities, not being guaranteed a rate of return on their activities generally or on the activities vis-avis the sale of power to the utility and whose risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable.’’). 273 Public VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 rates. The Commission cited Town of Norwood for the proposition that ‘‘variable energy rate/fixed capacity rate construct is . . . the standard rate structure used throughout the electric industry for power sales agreements that include the sale of capacity.’’ 276 The D.C. Circuit in Town of Norwood explained that the rate construct at issue in that case had separate fixed demand and variable energy charges.277 The final rule does not state that this rate construct necessarily represented a particular generator’s agreement nor did it need to do so to justify granting states flexibility to use fixed capacity/variable energy avoided cost rates: PURPA is only concerned with the purchasing electric utility’s avoided costs.278 Indeed, the rate construct in Town of Norwood was a marginal cost rate structure, which resembles the definition of avoided costs under PURPA. Therefore, the Commission properly referenced the utility rate structure in Town of Norwood for the proposition that a purchasing utility has a fixed capacity/variable energy rate structure. 144. Furthermore, PURPA gives the Commission (and the states) discretion to implement all the requirements applicable to QF rates in a manner that gives all the requirements meaning. The Commission’s interpretation in the final rule is a reasonable one that gives effect to all relevant statutory provisions by encouraging QF development and preventing discrimination against QFs, while respecting the avoided cost rate cap.279 In contrast, petitioners’ interpretations do not give appropriate effect to all provisions of the statute 276 Order No. 872, 172 FERC ¶ 61,041 at P 38 (citing Town of Norwood, 962 F.2d at 21, 24). 277 Town of Norwood, 962 F.2d at 21. 278 16 U.S.C. 824a–3(b) (emphasis added) (‘‘No such rule prescribed under subsection (a) shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.’’); see also Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,866 (‘‘If the Commission required electric utilities to base their rates for purchases from a qualifying facility on the high capital or capacity cost of a base load unit and, in addition, provided that the rate for the avoided energy should be based on the high energy cost associated with a peaking unit, the electric utilities’ purchased power expenses would exceed the incremental cost of alternative electric energy, contrary to the limitation set forth in the last sentence of section 210(b).’’). 279 Cf. Western States Wholesale Natural Gas Antitrust Litigation, 715 F.3d at 731 (‘‘[S]tatutory provisions should not be read in isolation, and the meaning of a statutory provision must be consistent with the structure of the statute of which it is a part.’’); Brazos, 205 F.3d at 250 (‘‘[I]f PURPA speaks clearly on the precise issue in question, that plain meaning must govern; however, if PURPA’s application to a particular issue is ambiguous, FERC’s interpretation will be upheld so long as it is a ‘permissible construction’ of the statute.’’). PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 because they fail to give full effect to the requirement that QF rates cannot exceed the avoided cost rate cap. Together with the greater transparency the final rule permits with respect to competitive market prices and competitive solicitations and greater clarity with regard to LEOs, the final rule has implemented all provisions of the statute consistent with Congress’s intent in passing PURPA. c. Effect of Variable Energy Rates on Financing 145. In the final rule, the Commission agreed with commenters that PURPA does not guarantee QFs a rate that, in turn, guarantees financing. The Commission stated that, although PURPA requires the Commission to adopt rules that encourage the development of QFs, PURPA does not provide a guarantee that any particular QF will be developed or profitable.280 146. Notwithstanding that PURPA does not guarantee QF financeability, the Commission stated its belief that the variable avoided cost energy rate option implemented by the final rule will still allow QFs to obtain financing.281 147. The Commission reiterated that it is not eliminating fixed rate pricing for QFs. The Commission explained that, under the final rule, QFs will be able to require that avoided cost capacity rates in their contracts and LEOs be fixed. The Commission further explained that capacity costs, as relevant here, include the cost of constructing the capacity being avoided by purchasing utilities as a consequence of their purchases from QFs. The Commission stated that a combination of fixed avoided cost capacity rates and variable avoided cost energy rates can provide important revenue streams that can support the financing of QFs.282 148. Furthermore, the Commission found that merely because QFs have had access to fixed avoided cost energy rates does not mean that QFs must have access to such rates to obtain future financing. The Commission explained that, up to now, QFs have had the right under the PURPA Regulations to both fixed capacity and fixed energy rates, and we understand that most QFs executing long-term contracts have exercised this right. The Commission described commenters insisting that the Commission cannot allow states the option to impose variable avoided cost energy rates without evidence that QFs have obtained financing under such contract structures as attempting to 280 Order No. 872, 172 FERC ¶ 61,041 at P 335. P 336. 282 Id. at P 337. 281 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations impose a standard that could never be satisfied.283 149. In response, the Commission cited to ample evidence demonstrating that generation projects that are similar to QFs (i.e., independent power producers) with fixed capacity ratevariable energy rate contracts are financeable.284 150. The Commission found that the record showed that, even without the right to require long-term fixed energy rates, non-QF independent power producers have been able to obtain financing for large amounts of generation capacity, including from renewables. Based on this data, the Commission found that the right to require counterparties to pay fixed energy rates is not essential for the financing of independent power generation capacity.285 151. The Commission acknowledged that a number of different financing mechanisms were used for this independent generation capacity, not all of which may be available to QFs. Nevertheless, the Commission understood that a standard rate structure employed in the electric industry is a fixed capacity rate-variable energy rate structure and that many independent power production facilities have been financed based on this structure.286 Accordingly, the Commission found that record evidence and historical data regarding the financing and construction of significant amounts of independent power production facilities supports the Commission’s conclusion that a fixed capacity rate-variable energy rate structure—which will apply in those states choosing the variable avoided cost energy rate option—also will support financing of QFs. 152. The Commission did not find compelling the concerns expressed by 283 See id. P 338 (citing Solar Energy Industries Comments, Docket No. RM19–15–000, at 28 (Dec. 3, 2019); NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 29, 46 (Dec. 3, 2019); Harvard Electricity Law Comments, Docket No. RM19–15–000, at 22, 25–27 (Dec. 3, 2019); Public Interest Organizations Comments, Docket No. RM19–15–000, at 6–7, 33–35 (Dec. 3, 2019)). 284 Id. P 339. 285 Id. P 340. 286 Id. P 341 (citing American Public Power Association, How New Generation is Funded (Aug. 29, 2018), https://www.publicpower.org/blog/hownew-generation-funded (‘‘Beginning in 2015, merchant generation [in RTOs/ISOs markets] began to increase dramatically from prior years, amounting to 19.3 percent of new capacity in 2015, 7.2 percent in 2016, and 29.1 percent in 2017.’’). The Commission noted that, in RTOs and ISOs with capacity markets, merchant generators are compensated through variable energy rates and fixed capacity rates, along with whatever ancillary service revenues they can earn. Id. P 341 n.550. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 some commenters that a fixed capacity rate-variable energy rate construct may not work for solar and wind resources, which have high fixed capacity costs and minimal variable energy costs.287 Similarly, the Commission was not persuaded by comments that point out that energy rates in typical independent power production contracts are designed to recover the cost of a facility’s fuel, whereas variable energy rates would provide no such guarantee.288 153. The Commission found that the record demonstrated that the amount of renewable resources being developed outside of PURPA greatly exceeds the amount of renewable resources developed as QFs. The Commission reasoned that the fact that renewable resources were able to develop outside of PURPA showed that they were able to obtain financing despite lacking the legal right to fixed energy rates.289 154. The Commission also disagreed with those commenters who asserted that the Commission should ‘‘require[] the variable energy component to be structured in a way that removes market risk from the QF.’’ 290 The Commission found that this argument is contrary to one of the fundamental premises of PURPA, which is that QFs must accept the market risk associated with their projects by being paid no more than the purchasing utility’s avoided cost, thereby preventing utility retail customers from subsidizing QFs.291 The Commission described concerns regarding the alleged mismatch between avoided costs and the costs of renewable technologies as collateral attacks on the requirements of PURPA itself, not our proposed implementation of it. 155. The Commission acknowledged those comments explaining that hedging tools increase project expense and may not be available to all QFs.292 However, 287 See id. P 342 (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 26 (Dec. 3, 2019); Public Interest Organizations Comments, Docket No. RM19–15–000, at 33–34 (Dec. 3, 2019); Solar Energy Industries Comments, Docket No. RM19–15–000, at 30 (Dec. 3, 2019)). 288 See id. (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 42–43 (Dec. 3, 2019)). 289 See id. P 343. 290 Id. P 344 (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 43 (Dec. 3, 2019)). 291 See id. (citing Conf. Rep. at 97–98 (stating that the ‘‘risk in proceeding forward in the [QF] enterprise is not guaranteed to be recoverable’’); API, 461 U.S. at 416 (holding that QFs ‘‘would retain an incentive to produce energy under the full-avoided-cost rule so long as their marginal costs did not exceed the full avoided cost of the purchasing utility’’)). 292 Id. P 345 (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 45–46 (Dec. 3, 2019); Resources for the Future PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 86679 the Commission stated that it never intended to suggest that hedging is costfree or that it would be appropriate for all QFs. 156. The Commission found that testimony that Public Interest Organizations cited from the Technical Conference, which indicated that Southern Company has negotiated nonQF renewable contracts with fixed energy rates rather than variable energy rates, did not support the contention that the Commission must provide for fixed avoided cost energy rates for QF contracts and other LEOs.293 157. In the NOPR comments, certain commenters expressed concern that, when a purchasing electric utility is not avoiding the construction or purchase of capacity as a consequence of entering into a contract with a QF, under the NOPR’s proposed rules a state could limit the QF’s contract rate to variable energy payments.294 The Commission found that, in that event, the only costs being avoided by the purchasing electric utility would be the incremental costs of purchasing or producing energy at the time the energy is delivered.295 The Commission stated that nothing in PURPA or the legislative history of PURPA suggests that the Commission should set QF rates so as to facilitate the financing of new QF capacity in locations where no new capacity is needed. 158. The Commission recognized that there is some evidence that variable avoided cost energy rates in contracts and LEOs could result in longer-term contracts.296 The Commission did not find that the variable avoided cost energy rate provision in the final rule will necessarily lead to longer term contracts and LEOs in every state, nor did its decision to adopt this provision rely on such a finding.297 However, the Comments, Docket No. RM19–15–000, at 6–7 (Dec. 2, 2019); Solar Energy Industries Comments, Docket No. RM19–15–000, at 30 (Dec. 3, 2019)). 293 Id. P 346 (citing Public Interest Organizations Comments, Docket No. RM19–15–000, at 33–34 (Dec. 3, 2019) (citing NOPR, 168 FERC ¶ 61,184 at P 70 n.114)). 294 Id. P 347 (citing CARE Comments, Docket No. RM19–15–000, at 4 n.7 (Dec. 3, 2019); EPSA Comments, Docket No. RM19–15–000, at 12 (Dec. 3, 2019)). 295 Id. (citing City of Ketchikan, 94 FERC ¶ 61,293, at 62,061 (2001) (‘‘[A]voided cost rates need not include the cost for capacity in the event that the utility’s demand (or need) for capacity is zero. That is, when the demand for capacity is zero, the cost for capacity may also be zero.’’)). 296 Id. P 349 (citing NOPR, 168 FERC ¶ 61,184 at 5 n.5; Idaho Commission Comments, Docket No. RM19–15–000, at 4 (Dec. 3, 2019) (allowing states to set variable QF energy avoided costs ‘‘would allow states to consider longer term contracts without putting ratepayers at risk’’)). 297 Id. The Commission did not find that variable avoided cost energy rates would be appropriate E:\FR\FM\30DER2.SGM Continued 30DER2 86680 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Commission found that the record supports the conclusion that the variable avoided cost energy rate provision could lead to longer term contracts in at least some states and that likelihood provides support for the conclusion that QFs will be able to obtain financing for their projects under this provision if their costs are indeed below the purchasing utility’s avoided costs.298 i. Requests for Rehearing 159. Public Interest Organizations argue that the Commission ignored evidence showing that allowing states to eliminate fixed energy rate contracts discourages QF development.299 Public Interest Organizations assert that the Commission ignored evidence that fixed energy rates are important to QF development. Similarly, Public Interest Organizations claim that the Commission ignored evidence that (1) allowing states to adopt variable energy rate contracts will violate PURPA and (2) states allowing only variable energy rate QF contracts have experienced little or no renewable QF development and QF development fell in states that switched from fixed price contracts to variable price contracts.300 For support, Public Interest Organizations point to the following: (1) Alabama offers standard contracts with only QF rates that vary based on month and time of day received and in 2018 Alabama’s cumulative solar capacity was less than 300 MW; (2) Georgia Power’s standard offer for solar QF contracts offered only a variable hourly avoided energy cost rate and there are about nine solar participants in this program with a total of less than 500 kW capacity; (3) Wisconsin utilities offer only short term variable pricing at LMP and no QFs have been developed in response, in contrast to neighboring states with fixed price contracts and substantial QF development; and (4) QF development related to fixed rate contracts in Idaho stopped after the Idaho Commission required variable energy rate contracts that reset every two years.301 only if they cause states to require longer term contracts, and the Commission did not adopt the suggestion made by certain commenters that the Commission order states to require longer contract terms. See id. P 349 n.566 (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15– 000, at 47–48 (Dec. 3, 2019); Public Interest Organizations Comments, Docket No. RM19–15– 000, at 6–7 (Dec. 3, 2019); sPower Comments, Docket No. RM19–15–000, at 11 (Dec. 3, 2019)). 298 Id. P 349. 299 Public Interest Organizations Request for Rehearing at 9, 72. 300 Id. at 73–74. 301 Id. at 74–75. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 160. Public Interest Organizations argue that large, non-QF development and nuclear plant power purchase agreements also rely on fixed price contracts. Public Interest Organizations maintain that, even if non-QFs relied on variable- instead of fixed-energy price contracts, the Commission has not shown that renewable projects that are QFs can be developed under similar contract terms. Public Interest Organizations represent that renewable QFs have only been developed where contracts provide long-term price certainty (e.g., in Idaho, QF development ceased when states provide only variable energy pricing (even with fixed capacity rates), which is contrary to the Commission’s unfounded assertion that QF development would increase with variable rates).302 161. Public Interest Organizations argue that the Commission relies on speculation that QFs could be developed without fixed energy rates and that the Commission lacks evidence to argue that long-term price certainty is not material to QFs’ ability to obtain financing. Public Interest Organizations assert that the Commission’s citation to testimony from Southern Company about a hypothetical bilateral contract with an independent natural gas power producer does not show how renewable generators that could qualify as QFs using different financing structures, using different fuels, and at much smaller capacities could be developed. Public Interest Organizations contend that the Commission could point to no renewable QF that could be developed without long-term energy price certainty. Public Interest Organizations similarly assert that the Commission misconstrued testimony from Solar Energy Industries in suggesting that a fixed energy price was unnecessary to encourage QF development.303 162. Public Interest Organizations argue that, contrary to the Commission’s assertions, there is no evidence that bilateral energy transactions to hedge energy price risk as used in large gas plant transactions are sufficient without fixed energy rates for lenders to finance new wind and solar QF development. Public Interest Organizations claim that the Commission has no evidence that financial hedge products exist for QFs for a sufficient period of time and at a reasonable price to permit financing.304 Public Interest Organizations assert that, because the Commission has provided no evidence that any QFs, renewable 302 Id. at 75–76. at 76–78. 304 Id. at 78. 303 Id. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 projects the size of QFs, or non-QF renewables were developed without fixed price energy contracts, the Commission’s assertions that new generation was developed without PURPA’s avoided cost provisions are irrelevant.305 163. Public Interest Organizations argue that the Commission ignored evidence showing the fixed capacity rates alone will not encourage renewable energy development.306 Public Interest Organizations claim that the Commission ignored evidence showing that, in vertically integrated markets like the Southeast, several utilities have eliminated or dramatically lowered capacity payments to QFs and that QFs cannot use financing arrangements available to non-QFs, such as independent natural gas generators, to be viable. Public Interest Organizations assert that, because the capacity price for a QF may be zero, no QFs were effectively developed after Dominion Energy South Carolina’s capacity rates were set at zero and QF development is minimal in Alabama due to Alabama Power’s zero price capacity rates. Therefore, Public Interest Organizations maintain that the Commission has no evidence to support its contention that a fixed capacity rate should be sufficient to recover QF capacity costs and enable QF financing.307 164. Public Interest Organizations argue that renewable QFs have different financing needs than non-QF independent natural gas generators and that the Commission lacked evidence to support applying the variable energy/ fixed capacity rate construct to QFs.308 Specifically, Public Interest Organizations represent that ‘‘wind and solar QFs have higher capital costs, lower operating costs, and provide energy intermittently—characteristics that may present different financing challenges as compared to non-QF natural gas fired capacity.’’ 309 Public Interest Organizations state that even RTO/ISO capacity markets, which they note many QFs do not have access to, ‘‘are implicitly biased in favor of resources with low capital costs, such as natural gas plants, and may be ‘‘illsuited to finance’’ renewable resources with high-fixed costs and near-zero operating costs.’’ 310 305 Id. at 78–79. at 9, 78–79. 307 Id. at 79–82. 308 Id. at 82–83. 309 Id. at 83 (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 17–19 (Dec. 3, 2019)). 310 Id. (citing Harvard Electricity Law Comments, Docket No. RM19–15–000, at 17–19 (Dec. 3, 2019)). 306 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 165. Solar Energy Industries contend that, while securing financing based on an as-available energy rate and a fixed capacity rate may be a rare possibility in a few locations across the country, there is no evidence in the record that financing is generally available in such circumstances.311 Solar Energy Industries claim that, therefore, longterm contracts are necessary to finance new non-utility generation because capital providers will not finance a project without a reasonable expectation of the revenue the project expects to generate over its useful life.312 Solar Energy Industries conclude that, if the purchasing electric utility does not offer the QF a forecasted energy rate over the life of a long-term contract and the QF is not otherwise able to compete for a long-term contract through a competitive bidding program, then the QF will not be able to obtain financing in the capital markets.313 166. Solar Energy Industries further argue that there is no credible evidence in the record that even merchant generation projects are financed on variable energy rate contracts.314 Solar Energy Industries provide examples where such generators have sought longer-term contracts as a means to support capital market financing.315 Solar Energy Industries further argue that merchant natural gas generators have relatively low capital costs and are thus able to rely on the fuel products markets to mitigate the risk of variable energy pricing, whereas fuel-less QFs do not have a similar ability, and thus bear the entire risk of volatile market prices.316 Solar Energy Industries provide examples of industry studies that they claim have consistently shown that only very small portions of new capacity additions have been financed with variable energy rates.317 167. Solar Energy Industries also assert that the Commission acted arbitrarily and capriciously in failing to consider the fact that many states do not offer QFs a fixed price for capacity that is sufficient to support financing.318 Solar Energy Industries argue that, when purchasing electric utilities do not provide for fixed capacity payments 311 Solar Energy Industries Request for Rehearing and/or Clarification at 9, 12. 312 Id. at 9. 313 Id. at 10. 314 Id. at 12. 315 Id. at 12–13. 316 Id. at 14. 317 Id. at 14–15 (citing Power Plants are Not Built on Spec, 2014 Update, American Public Power Association (Oct. 2014), https:// hepg.hks.harvard.edu/files/hepg/files/94_2014_ power_plant_study.pdf?m=1523366757). 318 Id. at 16. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 over the term of the QF contract, the Commission should not provide a state flexibility to terminate the QF’s right to elect a long-term energy rate in a longterm contract.319 Solar Energy Industries contend that it would be arbitrary and capricious, for example, to allow New Mexico the flexibility to terminate the QF’s right to elect a long-term energy rate because Public Service Company of New Mexico (PNM) does not compensate QFs for capacity despite the fact that PNM has announced it is replacing all of the capacity from its San Juan Generating Station with renewables.320 168. Finally, Solar Energy Industries claim that the final rule’s reliance on the prospects for QFs’ ability to leverage the use of financial products (i.e., a hedge) when offered a variable energy rate contract is without any factual basis, adding that, even when hedges are made available, many hedge providers decline to work with small projects because they are not cost effective and have higher risk profiles.321 169. Northwest Coalition argues that the Commission’s assumption that QFs will be able to secure financing without fixed energy prices is not supported by sufficient evidence and ignores extensive evidence to the contrary. Northwest Coalition asserts that the Commission’s conclusion that QFs can be financed using contracts with variable energy rates is without evidentiary support and arbitrarily ignores or misconstrues evidence from different sources demonstrating that exposing generation projects to unpredictable market risks makes financing QFs impossible. Northwest Coalition contends that, although the Commission relies on evidence that non-QF renewable energy projects have grown in recent years, it cites no underlying contract terms and ignores that these projects have largely been built on the strength of fixed price contracts. Northwest Coalition claims that the Commission takes evidence out of context and ignores real-world evidence that attempts to develop generation based on short-term prices have failed 322 and that short-term prices do not represent utility avoided costs for long-term energy.323 170. Northwest Coalition argues that the Commission relies on arbitrary reasoning to support the decision to reverse 40 years of precedent, holding 86681 that fixed-price contracts are necessary to encourage QFs and support financing of QFs, to authorize states to deprive QFs of fixed energy prices. Northwest Coalition asserts that the Commission failed to respond to legitimate objections raised by commenters opposing the proposal, ignores evidence that QFs require a substantial minimum term to support financing, and fails to establish any minimum contract term, despite well-established precedent requiring contract terms long enough to support financing and substantial evidence that states have undermined PURPA by imposing unreasonably short contract terms.324 171. Northwest Coalition claims that there is no guarantee that the long-term avoided capacity payment will be sufficient to support a QF’s financing and permitting avoided cost energy payments to vary with volatile shortterm market prices forces QFs to bear the risks of market volatility.325 ii. Commission Determination 172. We disagree with the arguments raised on rehearing. First, in enacting PURPA, Congress made clear that QFs’ ‘‘risk in proceeding forward in the cogeneration or small power production enterprise is not guaranteed to be recoverable.’’ 326 The Commission determined, based on record evidence described in the final rule and below, that significant amounts of generation capacity, including renewable resource capacity, have obtained financing without a regulatorily-required fixed energy rate. But to the extent that a state determines that a variable energy rate is required to ensure that the QF’s rate does not exceed avoided costs, then PURPA prevents the Commission from requiring that the state award the QF with a fixed energy rate to ensure that the QF obtains financing. 173. We also reiterate that the Final Rule did not eliminate fixed rates for QFs. The final rule gives states the flexibility, if they choose to take advantage of this flexibility, to require that the avoided cost energy rates in QF contracts vary depending on the purchasing utility’s avoided energy costs at the time of delivery. However, in the final rule, the Commission did not alter QFs’ right to require capacity rates to be fixed for the length of the QF’s contract. Those capacity rates would still need to meet the standards of 18 CFR 292.304(e). Furthermore, 319 Id. 320 Id. at 16–17. at 18. 322 Northwest Coalition Request for Rehearing at 4–5. 323 Id. at 5 (citing Transmission Access Pol’y Grp. v. FERC, 225 F.3d 667, 688 (D.C. Cir. 2000)). 321 Id. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 324 Id. (citing PPL Wallingford Energy LLC v. FERC, 419 F.3d 1194, 1198 (D.C. Cir. 2005) (PPL Wallingford); Ne. Md. Waste Disposal Auth. v. EPA, 358 F.3d 936, 949 (D.C. Cir. 2004)). 325 Id. at 16–17. 326 Conf. Rep. at 97–98 (emphasis added). E:\FR\FM\30DER2.SGM 30DER2 86682 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations because those rates must continue to be set at a purchasing utility’s full avoided costs, a particular QF’s inability to be developed under that rate does not mean that rate violates PURPA. 174. Further, as stated in the final rule, the variable energy rate/fixed capacity rate construct is common among merchant generators for power sales agreements that include the sale of capacity, which demonstrates that other types of non-utility generation are able to raise useful financing under such an arrangement.327 As Finadvice, a commenter with experience in project finance observed in its NOPR comments, given the mandatory purchase obligation, QFs utilizing a variety of standard hedging and risk management tools, provide sufficient comfort to facilitate the financing of variable priced PPAs. Having a fixed capacity rate, as proposed by the Commission will help attract capital and reduce the cost of financing in this regard, but is not a necessary prerequisite.328 175. Moreover, many QFs do share significant characteristics with other types of independent, non-utility generation; thus, it is reasonable to assume that they would be able to raise useful financing under such a financing arrangement.329 It is not necessary to prove that all potential QFs would be able to raise useful financing under such an arrangement, particularly where a state has determined that mandating variable as-available QF energy rates is necessary to respect the statutory avoided cost cap on QF rates.330 176. While independent non-QFs are not subject to the same limits as QFs (i.e., avoided cost caps, 80 MW limit), these resources have been developed, likely with financing, despite lacking the encouragement provided by PURPA (i.e., mandatory purchase obligation, interconnection rights, exemption from state and federal regulations). While the Commission has indicated that hedging 327 See Order No. 872, 172 FERC ¶ 61,041 at PP 30–31, 35–41, 336–345. 328 Finadvice Comments, Docket No. RM19–15– 000, at 2 (Dec. 3, 2019); see also Ohio Commission Energy Advocate Comments, Docket No. RM19–15– 000, at 3–4 (Dec. 3, 2019 (‘‘[O]rganized wholesale markets such as PJM have successfully attracted new supplies and ensured resource adequacy through a combination of fixed capacity rates and variable energy rates such as the Commission is proposing here. Fixing both the energy and the capacity components of the QF power sales contract is not necessary to attract new resources or to appropriately compensate qualifying facilities.’’). 329 See Order No. 872, 172 FERC ¶ 61,041 at P 340. 330 Cf. Environmental Action, 939 F.2d at 1064 (‘‘[I]t is within the scope of the agency’s expertise to make such a prediction about the market it regulates, and a reasonable prediction deserves our deference notwithstanding that there might also be another reasonable view.’’). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 and other financial instruments can be helpful for QFs to obtain financing, the Commission did not suggest that all QFs need such instruments to obtain financing.331 177. We are not persuaded by Public Interest Organizations’ argument that states’ use of variable energy rates is a dispositive cause of a drop in QF development in particular states; it is possible that such a decrease in QF development was due to a variety of reasons, such as non-PURPA-related permitting, or PURPA-related reasons that preceded the final rule, such as the avoided capacity costs equaling zero, which has been permissible under Commission precedent.332 While we do not in this proceeding invalidate any state actions taken thus far, the final rule and this order provide greater emphasis that QFs are entitled to a fixed capacity rate if the purchasing utility’s avoided capacity costs exceed zero. If a QF believes that a state is not implementing these rules, then that QF may seek relief in the appropriate forum, which could include any one or more of the following: (1) Initiating or participating in proceedings before the relevant state commission or governing body; (2) filing for judicial review of any state regulatory proceeding in state court (under PURPA section 210(g)); or, alternatively, (3) filing a petition for enforcement against the state at the Commission and, if the Commission declines to act, later filing a petition against the state in U.S. district court (under PURPA section 210(h)(2)(B)).333 d. Requested Clarification of the Final Rule 178. If the Commission does not grant rehearing, Solar Energy Industries request that the Commission clarify that such ‘‘flexibility’’ offered by revised 18 CFR 292.304(d) is not available to any state unless the purchasing electric utility (1) has separately-stated avoided energy and capacity rates on-file and (2) 331 See Order No. 872, 172 FERC ¶ 61,041 at P 345 (footnote omitted) (‘‘[T]he Commission never intended to suggest that hedging is cost-free or that it would be appropriate for all QFs. The commenters all agree that hedging is available for at least some QFs. For such QFs, hedging can help provide energy rate certainty if such certainty is required for financing. To the extent that certainty is required, then the cost of hedging is a part of the cost of financing the project that PURPA requires QFs to bear.’’). 332 Public Interest Organizations Request for Rehearing at 73–74. 333 See Policy Statement Regarding the Commission’s Enforcement Role Under Section 210 of the Public Utility Regulatory Policies Act of 1978, 23 FERC ¶ 61,304. PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 is complying with the data reporting requirements of 18 CFR 292.302.334 i. Commission Determination 179. We grant Solar Energy Industries’ request for clarification that a state may only use variable rates to set avoided energy costs if the utility has fulfilled its obligations to disclose avoided cost data under 18 CFR 292.302. We do not find the disclosure of such information unreasonable as the Commission’s PURPA Regulations already require its disclosure.335 In addition, although electric utilities are required to disclose this data generally, it is especially important when a state has selected the fixed capacity/variable energy rate construct to ensure that QFs have this data from the purchasing electric utility to provide transparency with regard to a utility’s avoided costs, i.e., to understand what a utility’s cost are to generate itself or purchase from another source. Particularly in the context of a state selecting a variable energy rate that can change over the term of a QF contract, ensuring that QFs have access to such avoided cost data encourages QF development.336 180. We deny Solar Energy Industries’ additional request that a utility must have separately-stated avoided energy and capacity rates on-file in order for a state to set variable energy rates in QF contracts. Solar Energy Industries has not shown how having such rates on file necessarily encourages the development of QFs and, as explained below, likely would be inconsistent with the authority that PURPA grants the states.337 Under PURPA, states are permitted to determine avoided cost rates differently among themselves (i.e., through adjudication, rulemaking, or legislation).338 Requiring each utility to 334 Solar Energy Industries Request for Rehearing and/or Clarification at 11. 335 See 18 CFR 292.302. 336 See Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,868 (‘‘[I]n order to be able to evaluate the financial feasibility of a cogeneration or small power production facility, an investor needs to be able to estimate, with reasonable certainty, the expected return on a potential investment before construction of a facility. This return will be determined in part by the price at which the qualifying facility can sell its electric output. Under 292.304 of these rules, the rate at which a utility must purchase that output is based on the utility’s avoided costs, taking into account the factors set forth in paragraph (e) of that section. Section 292.302 of these rules is intended by the Commission to assist those needing data from which avoided costs can be derived.’’). 337 While we do not require this here, states may choose to require that rates are on file. 338 See FERC v. Miss., 456 U.S. at 751 (‘‘[A] state commission may comply with the statutory requirements [of PURPA section 210] by issuing regulations, by resolving disputes on a case-by-case basis, or by taking any other action reasonably designed to give effect to FERC’s rules.’’). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations have a stated rate on file (beyond standard rates 339) may interfere with states’ rights to determine a rate and the flexibility provided in Order No. 872 to set such rates. However, as noted above, we are requiring the disclosure of the data that would allow QFs to review any rate that is set by a state, and the disclosure of such data should encourage the development of QFs. 5. Consideration of Competitive Solicitations To Determine Avoided Costs 181. In the NOPR, the Commission proposed to revise the PURPA Regulations in 18 CFR 292.304 to add subsection (b)(8). In combination with new subsection (e)(1), this subsection would permit a state the flexibility to set avoided cost energy and/or capacity rates using competitive solicitations (i.e., requests for proposals or RFPs), conducted pursuant to appropriate procedures.340 182. The Commission recognized that one way to enable the industry to move toward more competitive QF pricing is to allow states to establish QF avoided cost rates through a competitive solicitation process. The Commission previously has explored this issue. In 1988, the Commission issued a notice of proposed rulemaking proposing to adopt regulations that would allow bidding procedures to be used in establishing rates for purchases from QFs.341 That rulemaking proceeding, along with several related proceedings, ultimately was withdrawn as overtaken by events in the industry.342 183. Since then, in 2014, the Commission held, with respect to a particular competitive solicitation, that an electric utility’s obligation to purchase power from a QF under a LEO could not be curtailed based on a failure of the QF to win an only occasionallyheld competitive solicitation.343 In a 339 See 18 CFR 292.304(c). 340 NOPR, 168 FERC ¶ 61,184 at P 82. 341 Regulations Governing Bidding Programs, 53 FR 9324 (Mar.22, 1988), FERC Stats. & Regs. ¶ 32,455 (1988) (cross-referenced at 42 FERC ¶ 61,323) (Bidding NOPR); see also Administrative Determination of Full Avoided Costs, Sales of Power to Qualifying Facilities, and Interconnection Facilities, 53 FR 9331 (Mar.22, 1988), FERC Stats. & Regs. ¶ 32,457 (1988) (cross-referenced at 42 FERC ¶ 61,324) (ADFAC NOPR). 342 See Regulations Governing Bidding Programs, 64 FERC ¶ 61,364 at 63,491–92 (1993) (terminating Bidding NOPR proceeding); see also Administrative Determination of Full Avoided Costs, Sales of Power to Qualifying Facilities, and Interconnection Facilities, 84 FERC ¶ 61,265 (1998) (terminating ADFAC NOPR proceeding). 343 See, e.g., Hydrodynamics, Inc., 146 FERC ¶ 61,193, at PP 31–35 (2014) (Hydrodynamics). Competitive solicitation processes have been used more recently in a number of states, including Georgia, North Carolina, and Colorado. Georgia’s VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 separate proceeding involving a different competitive solicitation, the Commission declined to initiate an enforcement action where the state competitive solicitation was an alternative to a PURPA program.344 184. Given this precedent, in the NOPR, the Commission proposed to amend its regulations to clarify that a state could establish QF avoided cost rates through an appropriate competitive solicitation process. Consistent with its general approach of giving states flexibility in the manner in which they determine avoided costs, the Commission did not propose in the NOPR to prescribe detailed criteria governing the use of competitive solicitations as tools to determine rates to be paid to QFs, as well as to determine other contract terms. The Commission stated that states arguably may be in the best position to consider their particular local circumstances, including questions of need, resulting economic impacts, amounts to be purchased through auctions, and related issues.345 185. Nevertheless, in considering what constitutes proper design and administration of a competitive solicitation, in the NOPR, the Commission found it was appropriate to establish certain minimum criteria governing the process by which competitive solicitations are to be conducted in order for a competitive solicitation to be used to set QF rates. In that regard, the Commission noted that it has addressed competitive solicitations in prior orders in a number of contexts that provide potential guidance to states and others. For example, the Commission’s policy for the establishment of negotiated rates for merchant transmission projects,346 the Bidding NOPR, and the Hydrodynamics case 347 all suggest factors that could be competitive solicitation process is described at Ga. Comp. R. & Regs. 515–3–4.04(3) (2018). North Carolina’s competitive solicitation process is described at 4 N.C. Admin. Code 11.R8–71 (2018). Colorado’s competitive solicitation process is described at sPower Development Co., LLC v. Colorado Pub. Utils. Comm’n, 2018 WL 1014142 (D. Colo. Feb. 22, 2018). 344 Winding Creek Solar LLC, 151 FERC ¶ 61,103, reconsideration denied, 153 FERC ¶ 61,027 (2015). But see Winding Creek Solar LLC v. Peterman, 932 F.3d 861 (9th Cir. 2019). 345 NOPR, 168 FERC ¶ 61,184 at P 86. 346 Id. P 87 (citing Allocation of Capacity on New Merchant Transmission Projects and New CostBased, Participant-Funded Transmission Projects, 142 FERC ¶ 61,038 (2013)). 347 Id. (citing Hydrodynamics, 146 FERC ¶ 61,193 at P 32 n.70 (citing Bidding NOPR, FERC Stats. & Regs. ¶ 32,455 at 32,030–42)). The Commission noted that, while QFs not awarded a contract pursuant to an competitive solicitation would retain their existing PURPA right to sell energy as available to the electric utility, if the state has PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 86683 considered in establishing an appropriate competitive solicitation that is conducted in a transparent and nondiscriminatory manner.348 186. As proposed in the NOPR, these factors included, among others: (a) An open and transparent process; (b) solicitations should be open to all sources to satisfy the purchasing electric utility’s capacity needs, taking into account the required operating characteristics of the needed capacity; 349 (c) solicitations conducted at regular intervals; (d) oversight by an independent administrator; and (e) certification as fulfilling the above criteria by the state regulatory authority or nonregulated electric utility. The Commission proposed that a state may use a competitive solicitation to set avoided cost energy and capacity rates, provided that such competitive solicitation process is conducted pursuant to procedures ensuring the solicitation is transparent and nondiscriminatory. The Commission proposed that such a competitive solicitation must be conducted in a process that includes, but is not limited to, the factors identified above which would be set forth in proposed subsection (b)(8).350 187. In addition, the Commission sought comment on whether it should provide further guidance on whether, and under what circumstances, a competitive solicitation can be used as a utility’s exclusive vehicle for acquiring QF capacity.351 188. In the final rule, the Commission adopted the NOPR proposal to revise the PURPA Regulations to explicitly permit a state the flexibility to set avoided energy and/or capacity rates using competitive solicitations (i.e., RFPs) conducted pursuant to appropriate procedures in a transparent and non-discriminatory manner. The Commission stated that the primary concluded that such QF capacity puts tendered after an competitive solicitation was held are ‘‘not needed,’’ the capacity rate may be zero because an electric utility is not required to pay a capacity rate for such puts if they are not needed. Id. P 87 n.135 (citing Hydrodynamics, 146 FERC ¶ 61,193 at P 35 (referencing City of Ketchikan, 94 FERC at 62,061 (‘‘[A]voided cost rates need not include the cost for capacity in the event that the utility’s demand (or need) for capacity is zero. That is, when the demand for capacity is zero, the cost for capacity may also be zero.’’))). 348 Id. 349 Id. (citing 18 CFR 292.304(e); Windham Solar, 157 FERC ¶ 61,134 at PP 5–6). 350 Id. 351 Id. P 88. The Commission proposed that, even if a competitive solicitation were used as an exclusive vehicle for an electric utility to obtain QF capacity, QFs that do not receive an award in the competitive solicitation would be entitled to sell energy to the electric utility at an as-available avoided cost energy rate. Id. P 88 n.137. E:\FR\FM\30DER2.SGM 30DER2 86684 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations feature of a transparent and nondiscriminatory competitive solicitation is that a utility’s capacity needs are open for bidding to all capacity providers, including QF and non-QF resources, on a level playing field. The Commission found that this level playing field ensures that any QF’s capacity rates that result from the competitive solicitation are just and reasonable and non-discriminatory avoided cost rates.352 189. Consistent with its general approach of giving states flexibility in the manner in which they determine avoided costs, the Commission did not prescribe detailed criteria governing the use of competitive solicitations as tools to determine rates to be paid to QFs and to determine other contract terms. The Commission found that states are in arguably the best position to consider their particular local circumstances, including questions of need, resulting economic impacts, amounts to be purchased through auctions, and related issues.353 190. However, as in the NOPR, the Commission in the final rule found it appropriate to establish certain minimum criteria governing the process by which competitive solicitations are to be conducted in order for a competitive solicitation to be used to set QF rates. The Commission found that, in order to use the results of a competitive solicitation to set avoided cost rates, the competitive solicitation must be conducted in a transparent and non-discriminatory manner. Such a competitive solicitation must be conducted in a process that includes, but is not limited to, the following factors: (i) The solicitation process is an open and transparent process that includes, but is not limited to, providing equally to all potential bidders substantial and meaningful information regarding transmission constraints, levels of congestion, and interconnections, subject to appropriate confidentiality safeguards; (ii) solicitations must be open to all sources, to satisfy that purchasing electric utility’s capacity needs, taking into account the required operating characteristics of the needed capacity; (iii) solicitations are conducted at regular intervals; (iv) solicitations are subject to oversight by an independent administrator; and (v) solicitations are certified as fulfilling the above criteria by the relevant state regulatory authority or nonregulated electric utility through a post-solicitation report.354 No. 872, 172 FERC ¶ 61,041 at P 411. P 412. 354 Id. P 427. 191. The Commission affirmed that such competitive solicitations must be conducted in a process that includes, but is not limited to, the factors identified above that will be set forth in 18 CFR 292.304(b)(8). The Commission explained that the final rule does not undo any competitive solicitations conducted prior to the effective date of the final rule that may not have met these criteria. The Commission described the final rule as applying only to competitive solicitations conducted after the effective date of the final rule.355 The Commission also stated that it will presume that any future competitive solicitation that does not comply with the factors adopted in the final rule does not comply with the Commission’s regulations implementing PURPA.356 192. The Commission explained that, more generally, it supports the use of competitive solicitations as a means to foster competition in the procurement of generation and to encourage the development of QFs in a way that most accurately reflects a purchasing utility’s avoided costs. The Commission further explained that allowing QFs to compete to provide capacity and energy needs, through a properly administered competitive solicitation, may help ensure an accurate determination of the purchasing electric utility’s avoided cost and therefore result in prices meeting the PURPA’s statutory requirements. The Commission found that it is reasonable for states to choose to require QFs to be responsive to price signals as to where and when capacity is needed. The Commission expressed its belief that a properly administered competitive solicitation can help provide such price signals.357 193. The Commission also clarified that, if a utility acquires all of its capacity through properly conducted competitive solicitations (using the factors described above) and does not add capacity through self-building and purchasing power from other sources outside of such solicitations, the competitive solicitations could be the exclusive vehicle for the purchasing electric utility to pay avoided capacity costs from a QF. In this situation, using properly conducted competitive solicitations as the exclusive vehicle to determine the purchasing electric utility’s avoided cost capacity rates would allow QFs a chance to compete to provide the utility’s capacity needs on a level playing field with the utility. The Commission clarified that it is up 352 Order 355 Id. 353 Id. 356 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 P 414. P 428. 357 Id. P 416. PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 to the states to determine whether to require that a utility’s total planned selfbuild and power purchase options must compete in the competitive solicitations and declined to direct such a requirement.358 194. The Commission determined that, if a state decides to require utility self-build and power purchase options to participate in competitive solicitations, then a QF that does not obtain an award in a competitive solicitation would have no right to an avoided cost capacity rate more than zero because the utility’s full capacity needs would have been met by the competitive solicitation.359 However, the Commission determined that QFs would continue to have the right to put energy to the utility at the as-available avoided cost energy rate because the purchasing utility will still be able to avoid incurring the cost of generating energy even when it does not need new capacity.360 195. The Commission also determined that, if the state does not require utility self-build and purchase options to participate in competitive solicitations, then QFs that lose in a competitive solicitation still may have the right to avoided cost capacity rates more than zero if the state determines that the utility still has capacity needs after the competitive solicitation that otherwise could be met through the utility’s selfbuild or purchase options.361 196. The Commission affirmed that, when capacity is not needed, the avoided capacity cost rate can be zero.362 The Commission described how competitive solicitations conducted pursuant to the rules adopted in the final rule that are held whenever capacity is needed provide QFs a level playing field on which to compete to sell capacity. The Commission explained that this approach further shields purchasing electric utilities from situations like those explained by Xcel, where QFs could simply sit out the competitive solicitation process (or participate but not have their bids accepted), but then seek to sell capacity 358 Id. P 421. Commission stated that this would be consistent with City of Ketchikan, 94 FERC at 62,061 (‘‘[A]voided cost rates need not include the cost for capacity in the event that the utility’s demand (or need) for capacity is zero. That is, when the demand for capacity is zero, the cost for capacity may also be zero.’’). 360 Order No. 872, 172 FERC ¶ 61,041 at P 422. 361 Id. P 423. 362 City of Ketchikan, 94 FERC at 62,061 (‘‘[A]voided cost rates need not include the cost for capacity in the event that the utility’s demand (or need) for capacity is zero. That is, when the demand for capacity is zero, the cost for capacity may also be zero.’’). 359 The E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations to the purchasing electric utility and to receive a separate higher administratively-determined avoided cost rate including an avoided cost capacity rate, and even potentially displace non-QF competitive solicitation winners.363 The Commission found that this approach benefits ratepayers because allowing QFs to compete in properly conducted, competitive solicitations that are held whenever capacity is needed allows the purchasing utility to obtain needed capacity efficiently. The Commission clarified, however, that the competitive solicitation is not to be a means to determine a QF’s right to put asavailable energy to the utility. Rather, the competitive solicitation can be the means to determine what, if any, rate the QF will be paid for capacity.364 197. The Commission clarified that competitive solicitations must also be conducted in accordance with the Allegheny principles under which the Commission evaluates a competitive solicitation: (1) Transparency, a requirement that the solicitation process be open and fair; (2) definition, a requirement that the product, or products, sought through the competitive solicitation be precisely defined; (3) evaluation, a requirement that the evaluation criteria be standardized and applied equally to all bids and bidders; and (4) oversight, a requirement that an independent third party design the solicitation, administer bidding, and evaluate bids prior to selection.365 198. The Commission also revised the proposed language in 18 CFR 292.304(d)(8)(i) to clarify that participants must be provided with substantial and meaningful information regarding transmission constraints, levels of congestion, and interconnections, subject to appropriate confidentiality safeguards. The Commission found that it is important that all participants in the competitive solicitation have access to these data as a necessary predicate for a nondiscriminatory competitive solicitation process and that requiring that this information be provided will help ensure that a competitive solicitation is open and transparent.366 199. The Commission also clarified that the requirement that the competitive solicitation process be open and transparent includes that the electric utility provide the state 363 See Xcel Comments, Docket No. RM19–15– 000, at 2–3, 9–10 (Dec. 3, 2019). 364 Order No. 872, 172 FERC ¶ 61,041 at P 424. 365 Allegheny Energy, 108 FERC ¶ 61,082 at P 18. 366 Order No. 872, 172 FERC ¶ 61,041 at P 431. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 commission, and make available for public inspection, a post-solicitation report that: (1) Identifies the winning bidders; (2) includes a copy of any reports issued by the independent evaluator; and (3) demonstrates that the solicitation program was implemented without undue preference for the interests of the purchasing utility or its affiliates. The Commission found this post-solicitation report requirement to be consistent with the requirement that competitive solicitations be open and transparent, not only to ensure that utilities are not discriminating against QFs, but also to help all stakeholders and the public at large better understand the utility’s competitive solicitation processes and thus to be confident in the fairness of the process and of the results.367 200. The Commission declined to be overly prescriptive as to what constitutes an ‘‘independent administrator,’’ responsible for administering the competitive solicitation. The Commission clarified that the independent administrator must be an entity independent from the purchasing electric utility in order to help ensure fairness. Whether called an independent administrator or a thirdparty consultant, the Commission stated that the substantive requirement is that the competitive solicitation not be administered by the purchasing electric utility itself or its affiliates, but by a separate, unbiased, and unaffiliated entity not subject to being influenced by the purchasing utility.368 201. The Commission declined to add any additional requirements for competitive solicitations, given that states may be in the best position to consider their particular local circumstances. The Commission found that the guidelines adopted in the final rule, in conjunction with the Allegheny principles and other clarifications, provide an adequate framework for competitive solicitations to be conducted efficiently, transparently and in a nondiscriminatory manner.369 202. Regarding facilities not designed primarily to sell electricity to the purchasing electric utility, such as waste-to-power small power production facilities and cogeneration facilities, the Commission found that an exemption from competitive solicitation processes is unnecessary. The Commission did not exempt small power production facilities from the competitive solicitation process and was not persuaded that such an exemption is appropriate given that exempting large classes of small power producers could frustrate the price discovery function of the competitive solicitation. The Commission clarified, however, that QFs with capacity of 100 kW or less already are entitled to standard rates regardless of whether they compete in a competitive solicitation, and the final rule did not change that regulation.370 i. Requests for Rehearing 203. Northwest Coalition argues that allowing states to use competitive solicitations to be the exclusive means of securing a long-term PPA to sell energy and/or capacity is arbitrary, capricious, and not in accordance with law.371 204. Northwest Coalition notes that PURPA section 210(a) requires that the Commission’s rules must ‘‘encourage’’ QFs and must ‘‘require electric utilities to offer to . . . purchase electric energy from such facilities.’’ 372 Northwest Coalition argues that, while the term ‘‘electric energy’’ is not defined in the statute, the phrase’s context within the statutory scheme unambiguously confirms that electric energy includes both energy and capacity, meaning that the Commission’s rules must require utilities to purchase energy and capacity made available by QFs.373 Northwest Coalition asserts that, following the enactment of PURPA, the Commission interpreted this language in Order No. 69 to mean that the statutory phrase ‘‘electric energy’’ must include both energy and capacity.374 Northwest Coalition contends that the final rule does not provide any basis to change the Commission’s longstanding interpretation of PURPA section 210(a) that requires electric utilities to purchase all energy and capacity made available by QFs.375 205. Northwest Coalition relies on the U.S. Court of Appeals for the Ninth Circuit’s invalidation of the California Commission’s Re-Mat competitive solicitation program, which found that under the Re-Mat program, ‘‘a utility could purchase less energy than a QF makes available, an outcome forbidden by PURPA.’’ 376 Northwest Coalition argues that, because the same problem exists with the final rule’s exclusive use of competitive solicitations to offer to buy capacity from QFs, allowing states 370 See 18 CFR 292.304(c). Coalition Request for Rehearing at 371 Northwest 39. 372 Id. at 40 (citing 16 U.S.C. 824a–3(a)(2)). 373 Id. 374 Id. at 40–41. at 41. 376 Id. at 41–42 (citing Winding Creek Solar LLC v. Peterman, 932 F.3d at 865). 367 Id. P 432. 368 Id. P 435. 369 Id. P 437. PO 00000 Frm 00031 86685 375 Id. Fmt 4701 Sfmt 4700 E:\FR\FM\30DER2.SGM 30DER2 86686 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations to refuse to require electric utilities to offer to purchase capacity from QFs violates the statutory requirement that utilities offer to purchase all capacity made available from QFs.377 206. Northwest Coalition asserts that PURPA section 210(a) requires that the Commission design its rules implementing the statutory mustpurchase obligation in such a manner that those rules will encourage the development of QFs, adding that allowing utilities to evade the mandatory purchase obligation through the exclusive use of competitive solicitations that utility-owned resources commonly win is inconsistent with statutory requirements.378 207. Northwest Coalition contends that the final rule arbitrarily fails to acknowledge the Commission’s own precedent and therefore does not constitute reasoned decision making.379 Northwest Coalition points to Hydrodynamics, in which the Commission rejected the ‘‘Montana Rule,’’ which imposed a ‘‘competitive solicitation process as the only means by which a QF greater than 10 MW can obtain long-term avoided cost rates.’’ 380 Northwest Coalition also points to Windham Solar LLC, in which the Commission confirmed that it has held ‘‘a state regulation to be inconsistent with PURPA and the PURPA regulations ‘to the extent that it offers the competitive solicitation process as the only means by which a QF . . . can obtain long term avoided cost rates.’ ’’ 381 Northwest Coalition argues that, under Commission precedent, ‘‘regardless of whether a QF has participated in a request for proposal, that QF has the right to obtain a legally enforceable obligation.’’ 382 Northwest Coalition claims that the final rule’s reasoning for allowing states to use competitive solicitations as a substitute for long-term PURPA contracts does not acknowledge these precedents or explain how the use of competitive solicitations could still comply with the statute.383 Northwest Coalition argues that, aside from generally averring it expects competitive solicitations will be fair with the newly adopted criteria, the final rule does not cite evidence suggesting that competitive solicitations will provide an adequate mechanism for 377 Id. at 42. 378 Id. QFs to sell energy and capacity or any other basis to overrule Commission precedent and therefore is arbitrary and capricious.384 208. Northwest Coalition asserts that the final rule relies on insufficient evidence to conclude that exclusive use of competitive solicitations will encourage QFs.385 First, Northwest Coalition contends that the Commission’s decision fails to address multiple commenters’ concerns with inherent bias in utility-run competitive solicitations and the difficulty and complexity of designing competitive solicitations that are fair to independent bidders, especially in regions with vertically integrated utility structures like the Pacific Northwest.386 Northwest Coalition argues that, given the evidence submitted concerning competitive solicitations in the Northwest, the Commission is required to conduct a more meaningful investigation and inquiry into the subject before it could rationally conclude that it has now developed bidding criteria that would suffice to justify denial of an LEO to any QF.387 209. Northwest Coalition claims that the Commission fails to explain why it rejected more restrictive criteria proposed by parties but not included in the final rule. As an example, Northwest Coalition points to the Commission’s failure to discuss in the final rule its additional proposed criteria for any RFP process to overcome inherent utilityownership bias: (1) Require that the RFP include no utility-ownership options; or (2) if utility-owned generation may result, the RFP must be (i) administered and scored (not just overseen by an independent evaluator) by a qualified independent party, not the utility, (ii) any utility or affiliate ownership bid must be capped at its bid price and not allowed traditional cost plus ratemaking treatment, and (iii) the product sought, minimum bidding criteria, and detailed scoring criteria must be made known to all parties at the same time, i.e., the utility or affiliate may not have an informational advantage in the RFP. Northwest Coalition asserts that, while the final rule adopted a requirement for independent third-party design and administration of the RFP, it rejected the rest of its proposals without discussion.388 210. Northwest Coalition contends that the final rule also ignores the lack 379 Id. 380 Id. at 43 (citing Hydrodynamics, 146 FERC ¶ 61,193 at P 33). 381 Id. (citing Windham Solar, 156 FERC ¶ 61,042, at P 5 (2016) (Windham Solar)). 382 Id. (citing Windham Solar, 156 FERC ¶ 61,042 at P 5). 383 Id. at 43–44. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 384 Id. at 44. 385 Id. 386 Id. (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 13–25, 66–67 (Dec. 3, 2019)). 387 Id. at 44–45. 388 Id. at 45. PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 of reasonable enforcement for the proposed exclusive use of competitive solicitations.389 Northwest Coalition argues that the final rule established a process that only allows QF advocates to challenge competitive solicitations after the fact, when it is too late to correct the harm caused by the utility’s reliance on the competitive solicitation process as a basis to refuse to contract with QFs in the interim.390 211. Northwest Coalition asserts that the final rule relies on insufficient evidence that small QFs and those primarily engaged in a business other than power production (e.g., irrigation districts and waste-to-power facilities) can succeed in the type of all-source competitive solicitation identified in the final rule.391 Northwest Coalition contends that the final rule summarily declines to adopt any exceptions other than a statement that 100 kW and smaller QFs can still obtain standard rates 392 without a meaningful explanation, which fails to encourage such QFs, in contravention of PURPA.393 212. Mr. Mattson asserts that a QF should not have to compete in a competitive solicitation with coal and natural gas generators where the utility is selling their excess energy.394 Mr. Mattson alleges that requiring a QF to accept the competitive solicitation process to sell its capacity is a violation of the ‘‘constitutional law right to contract.’’ 395 Mr. Mattson argues that QFs should have the right to a capacity payment if a capacity reduction will occur and the right to sell their capacity in the market.396 213. Public Interest Organizations contend that the competitive solicitation provisions are arbitrary and capricious, unless the Commission clarifies that the solicitation only sets the full avoided energy costs for QFs when the utility procures all energy through solicitation.397 Public Interest Organizations claim that the final rule does not require a state or non-regulated utility which uses a competitive solicitation process to determine the price for QF energy and/or capacity rates to also determine that the price 389 Id. at 46. 390 Id. 391 Id. 392 Id. (citing Order No. 872, 172 FERC ¶ 61,041 at P 440). 393 Id. at 46–47. 394 Mr. Mattson Motion for Time, Reconsideration, and Request Answers at 1. 395 Id. at 1. 396 Id. at 1. 397 Public Interest Organizations Rehearing Request at 10. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations reflects the utility’s avoided cost.398 Public Interest Organizations assert that 18 CFR 292.304(b)(8) not only requires that a utility procure all capacity through competitive solicitations to satisfy its capacity requirement but also assumes that such competitive solicitation results reflect the full avoided energy cost without similarly requiring the purchasing electric utility to acquire all energy requirements through competitive solicitation.399 Public Interest Organizations allege that QFs are discriminated against in circumstances in which the competitive solicitation price is lower than the cost of energy produced or acquired by the utility outside the solicitation process.400 Public Interest Organizations argue that, while the final rule appears to agree that out-of-market acquisitions preclude competitive solicitation from setting the avoided cost price, the regulation only imposes limitations on the use of competitive solicitations in the capacity context.401 ii. Commission Determination 214. We find no merit in the competitive solicitation arguments on rehearing. As an initial matter, we emphasize that the competitive solicitation framework adopted in the final rule: (1) Harmonizes the Commission’s precedent on competitive solicitations; (2) establishes transparent and non-discriminatory procedural protections for and encourages the development of QFs; and (3) provides price discovery that may better determine a purchasing utility’s avoided cost rates. 215. We disagree with Northwest Coalition’s arguments that the final rule goes against Commission precedent in Hydrodynamics and Windham Solar and essentially eliminates the mandatory purchase obligation for QF capacity. In those cases, the Commission found the states’ decisions inconsistent with PURPA because the competitive solicitations were not regularly held.402 In contrast, the 398 Id. at 100. 399 Id. 400 Id. 401 Id. at 101. Hydrodynamics, which the Commission quoted in Windham Solar, the Commission found relevant the fact that the Montana Commission’s competitive solicitation were not held at regular intervals. See Hydrodynamics, 146 FERC ¶ 61,193 at P 32 (emphasis added) (‘‘[W]e find that requiring a QF to win a competitive solicitation as a condition to obtaining a long-term contract imposes an unreasonable obstacle to obtaining a legally enforceable obligation particularly where, as here, such competitive solicitations are not regularly held.’’); id. P 33 (emphasis added) (‘‘The Montana Rule creates, as well, a practical disincentive to amicable contract formation because a utility may 402 In VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 Commission in the final rule found that a properly run solicitation must be held at regular intervals, in which a utility’s capacity needs are open for bidding to all capacity providers, including QF and non-QF resources, which is a level playing field for QFs to provide capacity. 216. If a state does not require utility self-build and purchase options to participate in competitive solicitations, then QFs that lose still may have the right to avoided cost capacity rates more than zero if the state determines that the utility still has capacity needs.403 The Commission has already determined, and affirmed in the final rule, that capacity rates can be zero.404 The possibility of a zero capacity rate does not mean that the Commission has determined that utilities have no obligation to purchase capacity from QFs. It just means that, under our precedent, if a purchasing utility avoids no capacity costs due to the QF purchase, then the avoided cost for capacity will be zero. As we mentioned above, Northwest Coalition has conflated avoided energy costs with long-term power purchase agreements. Long-term avoided costs necessarily represent a utility’s avoided capacity costs, and the Commission described how competitive solicitations could be ‘‘exclusive’’ means for obtaining a capacity rate, not an energy rate. 217. Under the final rule, even if a QF loses a competitive solicitation where the state requires utility self-build and purchase options to participate, it is still entitled to an energy rate outside of the competitive solicitation and would receive a capacity rate of zero, which is already permitted under Commission precedent where the purchasing utility’s avoided cost capacity value is zero.405 The final rule, which largely adopted refuse to negotiate with a QF at all, and yet the Montana Rule precludes any eventual contract formation where no competitive solicitation is held.’’); Windham Solar, 156 FERC ¶ 61,042 at P 5 (citing Hydrodynamics, 146 FERC ¶ 61,193 at PP 32–33). 403 See Order No. 872, 172 FERC ¶ 61,041 at PP 421–23. 404 See City of Ketchikan, 94 FERC at 62,061. 405 See supra PP 194–196; see also Order No. 872, 172 FERC ¶ 61,041 at P 421 (‘‘The Commission clarifies that, if a utility acquires all of its capacity through properly conducted competitive solicitations (using the factors described above), and does not add capacity through self-building and purchasing power from other sources outside of such solicitations, the competitive solicitations could be the exclusive vehicle for the purchasing electric utility to pay avoided capacity costs from a QF. In this situation, using properly conducted competitive solicitations as the exclusive vehicle to determine the purchasing electric utility’s avoided cost capacity rates would allow QFs a chance to compete to provide the utility’s capacity needs on a level playing field with the utility.’’). PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 86687 the NOPR, also provides procedural protections that the Commission has already indicated are prerequisites to competitive solicitations while allowing for a competitive solicitation, under certain conditions, to be a state’s exclusive vehicle for setting QF capacity rates.406 The final rule therefore merely harmonizes, rather than overrules, that prior precedent. 218. We also disagree with Northwest Coalition’s argument that the final rule does not encourage QFs. Using competitive solicitations encourages the development of QFs by providing them a price both consistent with a competitive market and more accurately reflecting a purchasing utility’s avoided costs of capacity. The procedural protections the Commission has adopted for conducting competitive solicitations protect QFs from auctions that only benefit the utility’s self-build because the QF is still entitled to a capacity rate that may exceed zero if the utility’s self-build is not included in the competitive solicitation. Furthermore, the competitive solicitation regulation helps ensure that states can set QF rates no higher than avoided costs while guaranteeing QFs’ rights to sell capacity and energy.407 In addition, while a competitive solicitation may be the exclusive forum for establishing avoided cost capacity rates, once a state has determined that the competitive solicitation set avoided capacity costs (even if they equal zero), there is no infringement on QFs’ rights, and the rule does not allow a utility to evade its purchase obligation. 219. We also disagree with Northwest Coalition’s argument that the Commission fails to address multiple commenters’ concerns about inherent bias in utility-run competitive solicitations, especially in regions with vertically integrated utility structures like the Pacific Northwest. The final rule described practices that cannot be used and incorporated into the Commission’s regulations a requirement for independent administration and review to prevent the exercise of any utility bias. The Commission will not assume that failure to hold an acceptable competitive solicitation in the past will prevent the establishment of an acceptable solicitation in the future given the guard rails for independent administration and review the Commission has now required through the final rule. Indeed, the new rules are designed to ensure that future 406 See Order No. 872, 172 FERC ¶ 61,041 at P 363 (describing NOPR as citing Hydrodynamics, 146 FERC ¶ 61,193 at PP 31–35). 407 See id. P 416. E:\FR\FM\30DER2.SGM 30DER2 86688 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations competitive solicitations are not biased in favor of the purchasing utility. Northwest Coalition’s concerns that this new competitive solicitation framework will leave QFs without a contract while they challenge the process or results of a competitive solicitation is misplaced. This framework is not meaningfully different from administrative determinations of avoided costs, wherein a QF might not receive a contract until it has exhausted administrative or judicial processes. 220. Northwest Coalition argues that the Commission failed to explain why it rejected more restrictive criteria proposed by parties, including some of Northwest Coalition’s own suggestions. The Commission weighed and considered all proposed criteria in determining which criteria to adopt. We explain below why the Commission did not adopt Northwest Coalition’s proposed criteria. 221. First, Northwest Coalition proposed that the Commission require that the competitive solicitation include no utility-ownership options. The Commission did not adopt this criterion because precluding utility ownership from competitive solicitations or limiting how a utility could bid does not provide the price discovery benefit of competitive solicitations. 222. Second, Northwest Coalition proposed that, if utility-owned generation may result from the competitive solicitation, the competitive solicitation must be (1) administered and scored (not just overseen by an independent evaluator) by a qualified independent party, not the utility, (2) any utility or affiliate ownership bid must be capped at its bid price and not allowed traditional cost plus ratemaking treatment, and (3) the product sought, minimum bidding criteria, and detailed scoring criteria must be made known to all parties at the same time (i.e., the utility or affiliate may not have an informational advantage in the RFP).408 223. With regard to Northwest Coalition’s proposed criterion for an independent administrator, as noted above, the Commission ‘‘decline[d] to be overly prescriptive as to what constitutes an ‘independent administrator.’ ’’ 409 Although this finding in the final rule had to do with whether the Commission required an ‘‘independent administrator’’ or a ‘‘third party consultant,’’ the Commission stated that the ‘‘substantive requirement of this factor is that the competitive 408 Northwest Coalition Request for Rehearing at 45 (citing NIPPC, CREA, REC, OSEIA Comments, Docket No. RM19–15–000 at 67 (Dec. 3, 2019)). 409 Order No. 872, 172 FERC ¶ 61,041 at P 435. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 solicitation not be administered by the purchasing electric utility itself or its affiliates, but rather by a separate, unbiased, and unaffiliated entity not subject to being influenced by the purchasing utility.’’ 410 We continue to believe that we should not be overly prescriptive, but expect states to design competitive solicitations that meet these criteria in a transparent and nondiscriminatory manner. To that end, we grant Northwest Coalition’s request that a competitive solicitation should be administered and scored by an independent entity. We conclude that this requirement is consistent with our efforts to ensure a fair competitive solicitation and the criteria we established in the final rule pursuant to the Allegheny factors.411 224. Regarding Northwest Coalition’s proposal that any utility or affiliate ownership bid must be capped at its bid price and not allowed traditional costplus ratemaking treatment, we decline to adopt this criterion on rehearing. The Commission does not have any jurisdiction to dictate how electric utility retail rates should be set. Instead, it is the responsibility of retail regulators to establish the retail rates associated with an award to a utility resulting from a competitive solicitation. And to the extent that Northwest Coalition is arguing that QFs are entitled to cost plus ratemaking, Congress has already determined that QFs are not entitled to the same rate recovery as purchasing utilities. With regard to Northwest Coalition’s proposal that the product sought, minimum bidding criteria, and detailed scoring criteria must be made known to all parties at the same time, we find that these requests should already be addressed in the factors adopted by the Commission here, including the first factor, that the process be open and transparent, and the fifth factor, which includes the requirement of a postsolicitation report.412 We note that our inclusion of the Allegheny principles also addresses the concerns underlying this proposal. 225. We disagree with Northwest Coalition’s argument that the final rule ignores the lack of reasonable enforcement. If a QF believes that it was 410 Id. 411 See Allegheny Energy, 108 FERC ¶ 61,082 at P 22 (‘‘[A]n independent third party should design the solicitation, administer bidding, and evaluate bids prior to the company’s selection.’’). 412 See Order No. 872, 172 FERC ¶ 61,041 at P 432 (stating that a report must ‘‘(1) [identify] the winning bidders; (2) [include] a copy of any reports issued by the independent evaluator; and (3) [demonstrate] that the solicitation program was implemented without undue preference for the interests of the purchasing utility or its affiliates’’). PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 improperly excluded from a competitive solicitation or lost a competitive solicitation that did not meet the criteria in the final rule, the QF may bring an enforcement action to the Commission or other appropriate fora. Further, the final rule more clearly establishes how states must run their auctions, and we do not presume at this juncture that states will fail to follow these new rules. If the Commission or a court finds that a competitive solicitation violates these criteria, then a remedy may be warranted, for example a court may decide to require a state to provide a specific rate to a QF or re-run the competitive solicitation pursuant to those criteria. 226. We also disagree with Northwest Coalition’s argument that the final rule relies on insufficient evidence that small QFs and those primarily engaged in a business other than power production (e.g., irrigation districts and waste-to-power facilities) can succeed in the type of all-source competitive solicitation identified in the rule. We find that it may be difficult to define which entities could qualify for this exemption and that this exemption may defeat the price discovery benefits of including these entities in competitive solicitations. We believe that a fairly administered competitive solicitation is a more accurate reflection of a purchasing electric utility’s avoided energy and capacity costs. Moreover, in addition to the requirement to provide standard rates for QFs 100 kW and below, states already have discretion to set that standard rate threshold above 100 kW. Removing their discretion to determine which entities must participate in competitive solicitations may undermine the price discovery benefit of competitive solicitations. 227. We disagree with Public Interest Organizations’ claim that the final rule does not address its argument that Nevada’s competitive solicitation process is unfair because it limits to QFs to meet a small, segregated portion of the utility’s energy and unmet capacity requirements. The final rule does not apply to competitive solicitations, like the one in Nevada, that occurred prior to the effective date of the final rule. For that reason, the Commission did not address Public Interest Organizations’ concerns with the Nevada process in the final rule, nor will we do so here.413 413 See id. P 428 (‘‘Without judging the competitive solicitations conducted to date, we find that henceforth any competitive solicitation that does not comply with these factors will be viewed as not transparent and discriminatory, and not a basis for either setting the avoided cost capacity rate that a QF may charge the purchasing electric utility or limiting which generators can receive a capacity E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Any future competitive solicitation must meet the criteria outlined in the final rule, including the Allegheny principles.414 We clarify that, if a competitive solicitation is not conducted in accordance with the requirements of the final rule guidelines, then an aggrieved entity may challenge the competitive solicitation before the Commission or in the appropriate fora. 228. A state must still ensure that QFs are entitled to an as-available energy avoided cost rate regardless of whether they win a competitive solicitation for capacity.415 Such as-available avoided cost energy rates could be determined as a result of the competitive solicitation, a competitive market price, or the avoided cost regulations in 18 CFR 292.304(e) that pre-date the final rule. 229. We reject Mr. Mattson’s argument that the competitive solicitation framework infringes on a ‘‘constitutional law right to contract.’’ 416 Regardless of the outcome of a competitive solicitation, the PURPA Regulations continue to permit QFs to negotiate agreements with electric utilities that differ from those required by PURPA.417 Similarly, the Commission’s requirement in the final rule that a QF may receive a capacity rate of zero if the QF loses a competitive solicitation following the framework adopted in the final rule and in which a utility’s self-build participated is consistent with the Commission’s precedent.418 The final rule only governs the maximum rate for a sale made pursuant to the mandatory purchase obligation imposed on purchasing utilities by PURPA, but continues to permit a QF to contract voluntarily at a different rate with a purchasing utility. 230. We disagree with Public Interest Organizations’ assertion that the competitive solicitation framework fails to ensure that a competitive solicitation pays QFs the full avoided energy costs because it does not require a utility to obtain all its energy needs through a rate. Phrased differently, we will presume that any future competitive solicitation that does not comply with the factors adopted in this final rule does not comply with the Commission’s regulations implementing PURPA.’’). 414 See id. P 430. 415 See id. P 422. 416 Mr. Mattson Motion for Time, Reconsideration, and Request Answers at 1. 417 See 18 CFR 292.301(b)(1). 418 See City of Ketchikan, 94 FERC at 62,061 (‘‘[A]voided cost rates need not include the cost for capacity in the event that the utility’s demand (or need) for capacity is zero. That is, when the demand for capacity is zero, the cost for capacity may also be zero.’’)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 competitive solicitation.419 The primary purpose of a competitive solicitation is to determine a utility’s capacity needs, not its energy needs, which can be purchased separately from capacity. The final rule provides that QFs can continue to sell energy to utilities at the purchasing utility’s avoided energy costs outside of the context of a competitive solicitation, even if such solicitations are the exclusive vehicle for acquisition of capacity. The new regulatory text in 18 CFR 292.304(c)(8)(ii) provides that: To the extent that the electric utility procures all of its capacity, including capacity resources constructed or otherwise acquired by the electric utility, through a competitive solicitation process conducted pursuant to Paragraph (b)(8)(i) of this section, the electric utility shall be presumed to have no avoided capacity costs unless and until it determines to acquire capacity outside of such competitive solicitation process. However, the electric utility shall nevertheless be required to purchase energy from qualifying small power producers and qualifying cogeneration facilities.420 231. This regulation provides that the utility presumptively has no avoided capacity costs if all the utility’s capacity needs are satisfied through the competitive solicitation. If the utility’s avoided energy costs change after a competitive solicitation is conducted, the as-available avoided energy rate for a QF selling outside such a competitive solicitation would necessarily be different than the avoided energy rate determined in the competitive solicitation itself. States must continue to use either competitive market prices or the traditional factors in 18 CFR 292.304(e) to calculate avoided energy costs at the time of delivery for QFs. Under the final rule, where the purchasing electric utility procures all of its capacity, including capacity resources constructed or otherwise acquired by the electric utility, through a competitive solicitation process, the electric utility is presumed to have no avoided capacity costs unless and until it determines to acquire capacity outside of such competitive solicitation process. However, under the final rule, QFs continue to have the opportunity, outside of a regularly held competitive solicitation, to sell energy at a purchasing utility’s avoided cost rate. 419 Public Interest Organizations Comments at 99– 101. 420 See new 18 CFR 292.304(c)(8)(iii) (emphasis added); see also Order No. 872, 172 FERC ¶ 61,041 at P 422 (‘‘QFs would continue to have the right to put energy to the utility at the as-available avoided cost energy rate because the purchasing utility will still be able to avoid incurring the cost of generating energy even when it does not need new capacity.’’). PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 86689 C. Rebuttable Presumption of Separate Sites 232. In the final rule, the Commission determined that, if a small power production facility seeking QF status is located one mile or less from any affiliated small power production QFs that use the same energy resource, it will be irrebuttably presumed to be at the same site as those affiliated small power production QFs. If a small power production facility seeking QF status is located 10 miles or more from any affiliated small power production QFs that use the same energy resource, it will be irrebuttably presumed to be at a separate site from those affiliated small power production QFs. If a small power production facility seeking QF status is located more than one mile but less than 10 miles from any affiliated small power production QFs that use the same energy resource, it will be rebuttably presumed to be at a separate site from those affiliated small power production QFs.421 233. The Commission adopted the NOPR proposal to allow a small power production facility seeking QF status to provide further information in its certification (both self-certification and application for Commission certification) or recertification (both self-certification and application for Commission recertification) to preemptively defend against anticipated challenges by identifying factors that affirmatively show that its facility is indeed at a separate site from affiliated small power production QFs that use the same energy resource and that are more than one but less than 10 miles from its facility. The Commission stated that it would allow any interested person or entity to challenge a QF certification (both self-certification and application for Commission certification) or recertification (both self-recertification and application for Commission recertification) that makes substantive changes to the existing certification.422 234. The Commission also adopted the NOPR’s proposed factors, with certain additions.423 1. Need for Reform 235. In the final rule, the Commission found that, since the establishment of the one-mile rule in the PURPA Regulations in 1980, the development of large numbers of affiliated renewable resource facilities requires a revision of the one-mile rule. The Commission found that the final rule will reduce the 421 Order No. 872, 172 FERC ¶ 61,041 at P 466. P 467. 423 Id. P 468. 422 Id. E:\FR\FM\30DER2.SGM 30DER2 86690 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations opportunity for developers of small power production facilities to circumvent the current one-mile rule by strategically siting small power production facilities that use the same energy resource slightly more than one mile apart.424 a. Requests for Rehearing 236. Public Interest Organizations reiterate that there is little or no evidence of circumvention in the record.425 Public Interest Organizations argue that a theoretical threat that has failed to materialize in any significant way during 40 years of small powerproduction facility development sufficiently for the Commission to consider it more than a possibility does not justify the burden imposed by the final rule.426 Similarly, Solar Energy Industries assert that changing one-mile rule precedent to prevent gaming without any evidence of gaming in the record is arbitrary and capricious and will discourage QF development.427 Solar Energy Industries contend that the Commission is seeking to reduce the number of QFs that can be constructed in any one territory.428 237. Public Interest Organizations argue that, assuming that it is true that some QF developers are indeed making siting decisions based on the one-mile boundary, it will be just as likely that they will make siting decisions based on the ten-mile boundary; therefore, expanding the radius from one mile to 10 miles does nothing to address the purported problem of gaming boundaries.429 Public Interest Organizations contend that developers will take the boundary into account when making siting decisions, which is not to game the system but rather to play by the rules.430 Solar Energy Industries agree that facilities that are sited more than one mile apart have not ‘‘gamed’’ the one-mile rule; rather, those facilities have complied with the onemile rule.431 b. Commission Determination 238. As the Commission explained in the final rule, the record shows that some large facilities were disaggregating into smaller facilities and strategically 424 Id. P 472. Interest Organizations Request for Rehearing at 128 (citing Order No. 872, 172 FERC ¶ 61,041 at P 471). 426 Id. at 128. 427 Solar Energy Industries Request for Rehearing and/or Clarification at 5, 26. 428 Id. at 26. 429 Public Interest Organizations Request for Rehearing at 121. 430 Id. at 122. 431 Solar Energy Industries Request for Rehearing and/or Clarification at 26. 425 Public VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 spacing themselves slightly more than one mile apart in order to be able to qualify as separate small power production facilities.432 Because PURPA provides advantages for small power production facilities, i.e., no larger than 80 MW, not large facilities that exceed that cap and have disaggregated into smaller facilities under that cap, and based on evidence and examples of QFs separating into several smaller QFs just over one mile apart (in efforts to be considered separate QFs for purposes of the one-mile rule), the Commission determined that reform of the one-mile rule was necessary. 239. The following specific examples demonstrate the need for the Commission to revise the one-mile rule. The Idaho Commission gave the example of a group of five projects that had originally been proposed as a single project greater than 80 MW and not eligible for PURPA. This project was disaggregated into five smaller projects, each separated by one mile, which were then eligible for Idaho’s standard published rate contracts at that time. The estimated cost impact of these five projects disaggregating in order to qualify for more favorable standard rate contracts was $10 million per year over the term of the contract.433 The Idaho Commission also provided a chart showing the wind projects brought before the Idaho Commission in 2009 and 2010, explaining that the circumstances of these projects suggest that they were disaggregated to qualify for the more favorable standard rate or to take advantage of PURPA’s mustpurchase obligation.434 432 Order No. 872, 172 FERC ¶ 61,041 at P 470 (citing APPA Comments, Docket No. RM19–15–000, at 21 (Dec. 3, 2019); Center for Growth and Opportunity Comments, Docket No. RM19–15–000, at 5–6 (Dec. 3, 2019); Consumers Energy Comments, Docket No. RM19–15–000, at 4 (Dec. 3, 2019); East River Comments, Docket No. RM19–15–000, at 1– 2; EEI Comments, Docket No. RM19–15–000, at 43 (Dec. 3, 2019); ELCON Comments, Docket No. RM19–15–000, at 35 (Dec. 3, 2019); Governor Brad Little, Idaho Comments, Docket No. RM19–15–000, at 1 (Dec. 3, 2019); Idaho Commission Comments, Docket No. RM19–15–000, at 5–7 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19–15–000, at 13 (Dec. 3, 2019); Missouri River Energy Comments, Docket No. RM19–15–000, at 5 (Dec. 3, 2019); Stephen Moore Comments, Docket No. RM19–15–000, at 2 (Dec. 3, 2019); Northern Laramie Range Alliance Comments, Docket No. RM19–15–000, at 2 (Dec. 3, 2019); NorthWestern Comments, Docket No. RM19–15–000, at 9 (Dec. 3, 2019); NRECA Comments, Docket No. RM19–15– 000, at 14–15 (Dec. 3, 2019); Portland General Comments, Docket No. RM19–15–000, at 14 (Dec. 3, 2019)). 433 Idaho Commission Comments, Docket No. AD16–16–000, at 8–9 (Nov. 7, 2016); see also Technical Conference Tr. at 34–35 (Commissioner Paul Kjellander, Idaho Commission). 434 Idaho Commission Comments, Docket No. AD16–16–000, at 9–11 (Nov. 7, 2016). PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 240. Commissioner Paul Kjellander of the Idaho Commission also stated that, within Idaho Power’s territory, there were 183 MW of power from four developers that were broken up into 16 projects. He stated that the Oregon Commission approved six PURPA projects that require Idaho Power to take 60 MW of power from six solar projects, adding that the similarities among these six projects include the same operation dates, project size, terms and payment conditions, developer, and solar panel manufacturers. He concluded that this looked like a disaggregated project that stretched the spirit and intent of PURPA.435 241. EEI and Xcel argued that the onemile requirement can be evaded as resources with common ownership, financing, and even operation are located just slightly over one mile from each other to qualify for the 80 MW threshold in the statute. EEI and Xcel provided the example of Northern Laramie Range Alliance, in which the applicant filed for QF self-certification of two 48.6 MW projects that were part of a single wind farm with one site permit and that shared a point of interconnection. Because the projects were located more than one mile apart, each project was certified as an individual QF.436 242. Furthermore, large power stations based on modular generation technologies like solar photovoltaic (PV) panels and wind turbines can relatively easily be presented as subsets of the component generation modules in order to appear as multiple smaller generation stations, even if they act and operate as one large (i.e., over 80 MW) power station in reality. 243. Based on these concerns and evidence of large facilities disaggregating into small facilities in order to circumvent the one-mile rule and receive QF status, the Commission determined that it would be best to address the circumvention of the onemile rule by reforming the one-mile rule, not simply addressing this concern on a case-by-case basis. 244. We agree that QF developers may make siting decisions based on the 10mile boundary just as they may have in the past based on the one-mile 435 Technical Conference Tr. at 35–36 (Commissioner Paul Kjellander, Idaho Commission). 436 EEI Comments, Docket No. RM19–15–000, at 43 (Dec. 3, 2019) (citing N. Laramie Range All., 138 FERC ¶ 61,171 (2012)); Xcel Comments, Docket No. AD16–16–000, at 11 (Nov. 7, 2016); see also EEI Comments, Docket No. RM19–15–000, at 43 (Dec. 3, 2019) (citing Beaver Creek II, 160 FERC ¶ 61,052 (2017)); Xcel Comments, Docket No. AD16–16–000, at 11 (Nov. 7, 2016) (citing DeWind Novus, LLC, 139 FERC ¶ 61,201 (2012)). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations boundary. However, in the final rule, the Commission found that, at 10 miles or more apart, it can be assumed that affiliated small power production facilities are sufficiently far apart that it is reasonable to treat them as irrebuttably at separate sites.437 In contrast, the Commission found that, for affiliated small power production facilities using the same resource that are more than one mile but less than 10 miles apart, the distinction between same site or separate site was not as clear and thus provided for a rebuttable presumption of separate sites.438 In adopting these boundaries and accompanying presumptions, the Commission recognized that 10 miles is a more reasonable place to draw the line of irrebuttably separate sites than the previous one-mile boundary, and provided for the ability to rebut the presumption for affiliated small power production facilities in the less clear, grey zone where affiliated facilities are more than one mile apart but less than 10 miles apart.439 245. We disagree with Public Interest Organizations and Solar Energy Industries’ contentions that taking the boundary into account when making siting decisions is not gaming the system but playing by the rules and that the Commission seeks to reduce the number of QFs that can be constructed in any one territory. We find that disaggregation practices—whereby a facility exceeding the 80 MW cap and therefore unable to take advantage of the benefits of PURPA (such as mandating that the utility buy its output) disaggregates into several smaller facilities for the purpose of fitting within the statutory mandate and receiving the benefits of PURPA— contradict the spirit and purpose of PURPA. PURPA section 210(a) directs the Commission to encourage cogeneration and small power production.440 PURPA defines a small power production facility as an eligible facility, which, together with other facilities located at the same site (as determined by the Commission), has a power production capacity no greater than 80 MW.441 The statute bestows certain advantages on small power production, not on large power production facilities that masquerade as small power production. Disaggregation practices aim to advantage large power production facilities with benefits that they are not eligible to receive. The 437 Order No. 872, 172 FERC ¶ 61,041 at P 491. 438 Id. id. P 466, 491. U.S.C. 824a–3(a). 441 16 U.S.C. 796(17)(A). intention of the new same site determination framework is not to reduce the number of QFs that can be constructed in an area, but to encourage small power production facilities as Congress intended under PURPA. 2. Distance Between Facilities 246. In the final rule, the Commission adopted the NOPR proposal that an entity can seek to rebut the presumption of separate sites only for a small power production facility seeking QF status that have an affiliated small power production QF or QFs that are located more than one and less than 10 miles from it.442 The Commission recognized that it is debatable where to set these thresholds. The Commission stated that PURPA requires that no small power production facility, together with other facilities located ‘‘at the same site,’’ exceed 80 MW and Congress has tasked the Commission with defining what constitutes facilities being at the same site for purposes of PURPA. The Commission found that providing set geographic distances will limit unnecessary disputes over whether facilities are at the same site; therefore, the Commission must choose reasonable distances at which small power production facilities will be considered irrebuttably at the same site or irrebuttably at separate sites.443 247. The Commission found that there are some affiliated small power production facilities using the same energy resource that are so close together that it is reasonable to treat them as irrebuttably at the same site and that one mile or less is a reasonable distance to treat such facilities as irrebuttably at the same site. The Commission found that there are some small power production facilities that are affiliated and may use the same energy resource but that are sufficiently far apart that it is reasonable to treat them as irrebuttably at separate sites and found that 10 miles or more is a reasonable distance to treat such facilities as irrebuttably at separate sites. For affiliated small power production facilities using the same resource that are more than one mile but less than 10 miles apart, the Commission found that the distinction between the same site or separate site is not as clear; therefore, it is reasonable to treat them as rebuttably at separate sites but to allow interested parties to provide evidence to attempt to rebut that presumption. The Commission found that establishing these reasonable distances, and particularly establishing the ability to 439 See 440 16 VerDate Sep<11>2014 19:00 Dec 29, 2020 442 Order 443 Id. Jkt 253001 PO 00000 No. 872, 172 FERC ¶ 61,041 at P 490. P 491. Frm 00037 Fmt 4701 Sfmt 4700 86691 rebut the presumption of separate sites for affiliated small power production facilities more than one mile but less than 10 miles apart, better allows the Commission to address the evolving shape and configuration of resources that are being developed as QFs, such as modular solar or wind power plants, and provides for improved administration of PURPA. The Commission therefore determined that the one-mile and 10-mile limits are reasonable inflection points for differentiating between the same site and separate sites.444 248. In the final rule, the Commission explained that, with respect to hydroelectric generating facilities, the regulations currently provide that the same energy resources essentially means ‘‘the same impoundment for power generation,’’ finding that it is unlikely that hydroelectric generating facilities located more than one mile apart would rely on the same impoundment.445 The Commission explained that, if that circumstance arises, the applicant could seek waiver, and argue that its facilities should not be considered at the same site.446 249. The Commission also noted that it was retaining the waiver provision in 18 CFR 292.204(a)(3), allowing the Commission to waive the method of calculation of the size of the facility for good cause.447 a. Requests for Rehearing 250. Public Interest Organizations argue that the Commission does not connect the one-mile and 10-mile rule to the statutory phrase ‘‘located at the same site,’’ instead relying on policy arguments that exceed the statutory text and FERC’s authority.448 Public Interest Organizations assert that the Commission ignored relevant data presented by commenters and failed to articulate a satisfactory explanation connecting facts to its ‘‘ten-mile rule’’ determination.449 Public Interest Organizations contend that the decision was arbitrary and capricious because the Commission ignored relevant data and 444 Id. 445 Id. P 492 n.769 (quoting 18 CFR 292.204(a)(2)(i)). 446 Id. (citing 18 CFR 292.204(a)(3)). 447 Id. P 492 (citing 18 CFR 292.204(a)(3)). 448 Public Interest Organizations Request for Rehearing at 106. 449 Id. at 124 (citing Solar Energy Industries Comments, Docket No. RM19–15–000, at 62 (Dec. 3, 2019); North Carolina DOJ Comments, Docket No. RM19–15–000, at 3–4 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 17 (Dec. 3, 2019); North Carolina Commission Staff Comments, Docket No. RM19–15–000, at 6 (Dec. 3, 2019); Borrego Solar Comments, Docket No. RM19– 15–000, at 3–5 (Dec. 3, 2019)). E:\FR\FM\30DER2.SGM 30DER2 86692 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations failed to articulate a satisfactory explanation connecting the facts presented to its determination.450 Public Interest Organizations further argue that there is nothing in the record to show that 10 miles is a rational or appropriate threshold for determining whether QFs are at the same site, adding that the record indicates that the new approach will cause regulatory uncertainty and substantial burden on an industry it is supposed to be encouraging.451 Similarly, Solar Energy Industries argue that the Commission has not offered any justification for the change.452 251. Public Interest Organizations contend that the Commission does not explain why there should be any geographic distance at which two facilities are irrebuttably considered to be located at the same site.453 252. Public Interest Organizations question whether the same opportunities for waiver provided under the previous bright-line test, which the Commission maintained in the final rule, will apply for facilities within one mile of each other.454 Public Interest Organizations argue that, if a facility received a waiver in the past, there is no guarantee that they would receive one again under the final rule.455 Public Interest Organizations assert that the inability for an applicant to show that a small power production facility should not be treated as located at the same site as other affiliated facilities using the same resource within one mile discourages QF development.456 253. Public Interest Organizations raise concerns about how the final rule will apply to hydroelectric facilities, asserting that the previous one-mile rule did not penalize hydroelectric facilities that were located in close proximity but should not be deemed to be at the same site.457 Public Interest Organizations state that, under the previous one-mile rule, hydroelectric facilities were considered to be located at the same site whenever they use water from the same impoundment.458 Public Interest Organizations further state that the final rule creates a new rule that a hydroelectric facility will be considered to be located at the same site as the one for which certification is sought if the 450 Id. (citing Motor Vehicles Mfrs. Ass’n v. State Farm Mut. Auto. Inst. Col, 463 U.S. at 43). 451 Id. at 125. 452 Solar Energy Industries Request for Rehearing and/or Clarification at 29. 453 Public Interest Organizations Request for Rehearing at 120. 454 Id. at 106–07. 455 Id. at 132. 456 Id. at 107. 457 Id. at 107–08 & n.312. 458 Id. at 108 n.312. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 facility is ‘‘located within one mile of the facility for which qualification or recertification is sought and use[s] water from the same impoundment for power generation.’’ 459 Public Interest Organizations add that a footnote in the final rule states that ‘‘[f]or hydroelectric generating facilities, the regulations currently provide that the same energy resources essentially means ‘‘the same impoundment for power generation.’’ 460 Public Interest Organizations state that it appears that the Commission in practice would consider a hydroelectric facility to be located at the same site whenever it uses the same impoundment as the facility for which qualification is sought, is located within one mile, or both, which would conflict with the text of the final rule and limit QF development.461 254. Northwest Coalition, Public Interest Organizations, and Solar Energy Industries reiterate NOPR comments that the new rebuttable presumption will increase the ‘‘exclusion zone’’ around a QF’s electrical generating equipment from approximately three square miles to over 300 square miles— a 100% increase.462 Public Interest Organizations argue that a 100-fold increase in the area in which a party that owns a small power production facility will find it very difficult or impossible to develop another facility is the definition of discouraging small power production facilities.463 b. Commission Determination 255. We disagree with Public Interest Organizations’ arguments that the Commission did not provide an explanation for the ‘‘10-mile rule’’ beyond policy arguments and did not adequately connect the ‘‘10-mile rule’’ to the statutory determination of ‘‘located at the same site.’’ PURPA requires that no small power production facility, together with other facilities located ‘‘at the same site,’’ exceed 80 MW, and Congress has tasked the Commission with defining what constitutes facilities being at the same site for purposes of PURPA.464 The Commission explained that, just as there are some facilities that may be so close that it is reasonable to irrebuttably treat them as a single facility (those one mile 459 Id. at 107–09 & n.312. at 108–09 n.312 (citing Order No. 872, 172 FERC ¶ 61,041 at P 492 n.769). 461 Id. 462 Northwest Coalition Request for Rehearing at 54 (citing Order No. 872, 172 FERC ¶ 61,041 at P 483); Public Interest Organizations Request for Rehearing at 109; Solar Energy Industries Request for Rehearing and/or Clarification at 27, 29. 463 Public Interest Organizations Request for Rehearing at 109–10. 464 16 U.S.C. 796(17)(A)(ii). 460 Id. PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 or less apart), there are some facilities that are sufficiently far apart that it is reasonable to treat them as irrebuttably separate facilities.465 The Commission believed that the latter distance is 10 miles or more apart.466 The statute allows the Commission to determine the meaning of ‘‘same site.’’ 467 Pursuant to this discretion, the Commission chose to pick a distance as an inflection point beyond which it is safe to irrebuttably presume separate sites. 256. In response to arguments that the 10-mile demarcation is arbitrary and that nothing in the record supports it as a rational or appropriate threshold,468 we note that PURPA requires that no small power production facility, together with other facilities located ‘‘at the same site,’’ exceed 80 MW. In the final rule, the Commission aimed to protect that statutory requirement by ensuring that facilities that, together with other affiliated facilities located ‘‘at the same site,’’ exceeded 80 MW did not receive the benefits that Congress intended only small facilities 80 MW and under to receive. The Commission therefore found that 10 miles is qualitatively a large enough distance to serve as the inflection point beyond which it is safe to irrebuttably presume separate sites, while allowing entities to seek to rebut such presumption between one mile and 10 miles.469 Ten miles need not be the only possible choice under the statute in order for it to be considered reasonable; what matters is that the choice made in the exercise of the Commission’s discretion does not run afoul of the statue and is reasonable rather than arbitrary and capricious.470 465 Order No. 872, 172 FERC ¶ 61,041 at P 491. See also id. P 466. 466 Id. P 491. See also id. P 466. 467 16 U.S.C. 796(17)(A)(ii). 468 Public Interest Organizations state that ‘‘[t]here is nothing in the record to show that [10] miles is a rational or appropriate threshold for determining whether QFs are at the ‘same site.’ ’’ We correct Public Interest Organizations’ statement by noting that affiliated small power production facilities 10 miles or more apart are irrebuttably presumed to be at separate sites and facilities between one mile and 10 miles are rebuttably presumed to also be separate sites. Order No. 872, 172 FERC ¶ 61,041 at P 466. 469 Id. P 491. 470 See CP Kelco Oy v. United States, 37 ITRD 1093 (Ct. Int’l Trade 2015) (‘‘[T]his threshold is a line in the sand: Commerce might have picked a different number to effectuate the statute’s purpose, with reasonable results . . . Yet because the agency’s choice does not run afoul of the statute and is not arbitrary, the court will defer to Commerce despite the possibility of alternatives.’’). See also U.S. Steel Grp. v. United States, 96 F.3d 1352, 1362 (Fed. Cir. 1996) (‘‘So long as the Commission’s analysis does not violate any statute and is not otherwise arbitrary and capricious, the Commission may perform its duties in the way it believes most suitable.’’); Mid Continent Nail Corp. v. United States, 34 C.I.T. 512, 520–21 (2010) E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 257. We find no merit in Public Interest Organizations’ arguments that the final rule does not explain why there should be any geographic distance at which two facilities are irrebuttably considered located at the same site. PURPA requires that no small power production facility, together with other facilities located ‘‘at the same site,’’ exceed 80 MW. As the Commission explained in the final rule, there are some affiliated small power production facilities using the same energy resource that are so close together that it is reasonable to treat them as irrebuttably at the same site. Consistent with long standing practice, the Commission has found that one mile or less is a reasonable distance to treat such affiliated facilities as irrebuttably at the same site.471 Additionally, in response to Public Interest Organizations, we reiterate that the final rule retains the waiver provision in 18 CFR 292.204(a)(3), which allow the Commission to waive the method of calculation of the size of the facility for good cause.472 258. In response to Public Interest Organizations’ concerns that it is unclear what the waiver provision will mean now that the one-mile rule is irrebuttable, or whether those who previously obtained a waiver will get it again if they recertify, we note that the Commission has always determined whether to grant waivers on a case-bycase basis. The Commission will continue to apply the waiver provision consistent with the Commission’s waiver precedent. For example, in Windfarms, Ltd., the Commission granted waiver of the one-mile rule, finding that three clusters of wind turbine generators were at three separate and distinct sites when they ‘‘had sufficiently distinct and identifiable topographical and energy resourcerelated characteristics.’’ 473 In contrast, in Pinellas County, the Commission declined to grant waiver of the one-mile rule because a new generator was within (finding, in response to contentions that the Commission’s definitions of statutory terms were ‘‘seemingly random values,’’ that the numbers in the Commission’s definitions did not violate the statute and were not otherwise arbitrary and capricious where the they are applied reasonably). Cf. Int’l Soc. for Krishna Consciousness, Inc. v. McAvey, 450 F. Supp. 1265, 1269 (S.D.N.Y. 1978) (‘‘choosing any fixed number would seem arbitrary, yet necessary in order to strike a balance between the competing interests.’’); AFPA v. FERC, 550 F.3d at 1183 (permitting Commission to establish rebuttable presumption via rulemaking rather than case-by-case adjudication in PURPA section 210(m) context). 471 Order No. 872, 172 FERC ¶ 61,041 at P 491. 472 Id. P 492 (citing 18 CFR 292.204(a)(3)). 473 Windfarms, Ltd., 13 FERC ¶ 61,017 (1980). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 600 to 700 feet of the existing generator.474 259. We disagree with Public Interest Organizations that the final rule establishes a new rule that hydroelectric facilities are at the same site if they are located within one mile of the facility for which qualification is sought and at the same impoundment. The final rule did not change the prior requirement that hydroelectric facilities are at the same site if they are located within one mile of the facility for which qualification is sought and at the same impoundment.475 The only change that the Commission made in the final rule was to create a rebuttable presumption of separate sites for affiliated small power production facilities located more than one mile but less than 10 miles apart. Footnote 769 of the final rule, noted by Public Interest Organizations, explains that it is unlikely that hydroelectric generating facilities located more than one mile apart would be located on the same impoundment. We clarify that, if a hydroelectric generating facility is more than a mile apart (but less than 10 miles apart) from an affiliated facility, yet on the same impoundment, the rebuttable presumption would be that they are at separate sites. We further clarify that, although the second sentence of footnote 769 suggested that a hydroelectric generating facility in this circumstance was free to seek waiver (most likely in order to eliminate any uncertainty as to its status), it would be 474 Pinellas County, Florida, 50 FERC ¶ 61,269 (1990). 475 See El Dorado Cty. Water Agency, 24 FERC ¶ 61,280, at 61,577 (1983) (El Dorado) (‘‘Under the rule, hydroelectric facilities using the same impoundment as a water source and located within one mile of each other are considered part of the same site.’’); Small Power Production and Cogeneration Facilities—Qualifying Status, Order No. 70, 45 FR 17995 (Mar. 20, 1980), FERC Stats. & Regs. ¶ 30,134, at 30,943 (1980) (cross-referenced at 10 FERC ¶ 61,230) (‘‘Hydroelectric facilities . . . are considered to be located at the same site only if the facilities use water from the same impoundment for power generation. The Commission views this additional provision for hydroelectric facilities as necessary because use of the one-mile rule alone might discourage the development of facilities on separate waterways which are within one mile of each other.’’) (crossreferenced at 10 FERC ¶ 61,230), orders on reh’g, Order No. 70–A, FERC Stats. & Regs. ¶ 30,159 (cross-referenced at 11 FERC ¶ 61,119) and FERC Stats. & Regs. ¶ 30,160 (cross-referenced at 11 FERC ¶ 61,166), order on reh’g, Order No. 70–B, FERC Stats. & Regs. ¶ 30,176 (cross-referenced at 12 FERC ¶ 61,128), order on reh’g, FERC Stats. & Regs. ¶ 30,192 (1980) (cross-referenced at 12 FERC ¶ 61,306), amending regulations, Order No. 70–D, FERC Stats. & Regs. ¶ 30,234 (cross-referenced at 14 FERC ¶ 61,076), amending regulations, Order No. 70–E, FERC Stats. & Regs. ¶ 30,274 (1981) (crossreferenced at 15 FERC ¶ 61,281) (emphasis added). PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 86693 unlikely that any such a facility would, in practice, need to request such waiver. 260. In the final rule, the Commission addressed Northwest Coalition, Public Interest Organizations, and Solar Energy Industries’ contention that the new rule causes a 100-times increase to the ‘‘exclusion zone’’ around a QF’s electrical generating equipment and a 100-fold increase in the area in which a party who owns a small power production facility will find it very difficult or impossible to develop another facility is almost the definition of discouraging small power production facilities.476 We reiterate that the rule providing for a rebuttable presumption for affiliated small power production QFs located more than one but less than 10 miles apart is necessary to address allegations of improper circumvention of the one-mile rule that had been presented to the Commission.477 Furthermore, we disagree with characterizing a rebuttable presumption of separate sites between one mile and 10 miles as an ‘‘exclusion’’ zone for development purposes. While QF developers understandably may prefer that any attempts to rebut be prohibited, our disagreement with their preference (and our establishment of a presumption of separate sites between one mile and 10 miles, albeit a rebuttable presumption) can hardly be equated with enacting a development exclusion zone. 3. Factors 261. In the final rule, the Commission adopted the physical and ownership factors proposed in the NOPR with a few modifications. First, the Commission modified the NOPR proposal by changing terminology relating to the determination of whether facilities are separate facilities to focus not on whether they are separate facilities, but rather to mirror the statutory language referring to ‘‘the same site.’’ Accordingly, the Commission adopted these factors as relevant indicia of whether affiliated small power production facilities are ‘‘at the same site.’’ Second, the Commission modified the NOPR proposal to identify the following additional physical factors as indicia that small power production facilities should be considered located at the same site: (1) Evidence of shared control systems; (2) common permitting and land leasing; and (3) shared step-up transformers.478 476 See Order No. 872, 172 FERC ¶ 61,041 at P 495. 477 Id. 478 Id. E:\FR\FM\30DER2.SGM P 508. 30DER2 86694 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 262. Specifically, the Commission adopted the following factors as examples of the factors the Commission may consider in deciding whether small power production facilities that are owned by the same person(s) or its affiliates are located ‘‘at the same site’’: (1) Physical characteristics, including such common characteristics as infrastructure, property ownership, property leases, control facilities, access and easements, interconnection agreements, interconnection facilities up to the point of interconnection to the distribution or transmission system, collector systems or facilities, points of interconnection, motive force or fuel source, off-take arrangements, connections to the electrical grid, evidence of shared control systems, common permitting and land leasing, and shared step-up transformers; and (2) ownership/other characteristics, including such characteristics as whether the facilities in question are owned or controlled by the same person(s) or affiliated persons(s), operated and maintained by the same or affiliated entity(ies), selling to the same electric utility, using common debt or equity financing, constructed by the same entity within 12 months, managing a power sales agreement executed within 12 months of a similar and affiliated small power production qualifying facility in the same location, placed into service within 12 months of an affiliated small power production QF project’s commercial operation date as specified in the power sales agreement, or sharing engineering or procurement contracts.479 263. The Commission adopted the NOPR proposal to allow a small power production facility seeking QF status to provide further information in its certification (both self-certification and application for Commission certification) or recertification (both self-recertification and application for Commission recertification) to preemptively defend against rebuttal by identifying factors that affirmatively show that its facility is indeed at a separate site from affiliated small power production QFs more than one but less than 10 miles away from it. The Commission stated that any party challenging a QF certification (both selfcertification and application for Commission certification) or recertification (both self-recertification and application for Commission recertification) that makes substantive changes to the existing certification would, in its protest, be allowed to correspondingly identify factors to show 479 Id. P 509. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that the small power production facility seeking QF status and affiliated small power production QFs more than one but less than 10 miles from that facility are actually at the same site.480 264. The Commission emphasized that, as a general matter, no one factor is dispositive. The Commission stated that it will conduct a case-by-case analysis, weighing the evidence for and against, and the more compelling the showing that affiliated small power production QFs should be considered to be at the same site as the small power production facility seeking QF status in a specific case, the more likely the Commission will be to find that the facilities involved in that case are indeed located ‘‘at the same site.’’ 481 a. Requests for Rehearing 265. Solar Energy Industries assert that in adopting the physical and ownership characteristics as proposed in the NOPR, the Commission stepped beyond the statutory bounds that limit the Commission to determining whether a facility is located ‘‘at the same site’’ as any other facilities,482 instead imposing a separate facilities analysis. Solar Energy Industries argue that the Commission has previously recognized that ‘‘[t]he critical test under PURPA relates to whether the facilities are located at one site rather than whether they are integrated as a project.’’ 483 Solar Energy Industries contend that the Commission erred in concluding that ownership and other characteristics are germane to the ‘‘same site’’ determination.484 Solar Energy Industries claim that Congress did not authorize the Commission to analyze factors that have nothing to do with physical commonality or surrounding geographical terrain as part of the same site determination.485 266. Similarly, Public Interest Organizations assert that the Commission’s definition of ‘‘at the same site’’ is ‘‘beyond the meaning that the statute can bear.’’ 486 Public Interest Organizations argue that the American Heritage Dictionary defines ‘‘site’’ as ‘‘[t]he place where a structure or group of structures was, is, or is to be 480 Id. P 510. P 511. 482 Solar Energy Industries Request for Rehearing and/or Clarification at 30. 483 Id. at 26, 31–32 (citing El Dorado, 24 FERC at 61,578). 484 Id. at 31. 485 Id. at 30–31. 486 Public Interest Organizations Request for Rehearing at 103 (citing MCI Telecommunications Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 229 (1994)). 481 Id. PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 located.’’ 487 Public Interest Organizations contend that the statute limits multiple QF facilities to the 80 MW cap only if those facilities are located at the same physical place.488 Public Interest Organizations claim that whether affiliated generators using the same energy resource and which are located between one mile and 10 miles are located at separate sites depends on various non-exclusive and nondispositive factors, many of which have no relationship to whether the two facilities are located in the same physical place.489 267. Public Interest Organizations argue that the reasonable meaning of the phrase does not permit the Commission’s definition that introduces numerous extraneous factors, such as corporate structure, financing, offtake entities, number of energy sources or ‘‘motive forces,’’ shared use of offsite engineering services or maintenance contractors, or construction timelines.490 Solar Energy Industries assert that the employment of common contractors, such as grading and electrical contractors, has nothing to do with whether two otherwise distinct generation facilities are located at the ‘‘same site,’’ instead having more to do with the availability of experienced, qualified contractors in a given region.491 Solar Energy Industries contend that many QFs are developed in rural regions where there are often a limited number of qualified maintenance providers and a commonality of such engagement should not be a factor in the Commission’s ‘‘same site’’ analysis. Solar Energy Industries add that the fact that two facilities are constructed by the same entity within a period of 12 months is also irrelevant for a ‘‘same site’’ determination given that there are a limited number of qualified construction firms within each region.492 Solar Energy Industries claim that portfolios of QFs in multiple states (and which thus are unquestionably at separate sites) are frequently financed (and re-financed) as part of a common investment portfolio for passive investment vehicles that do not exercise day-to-day control over the QF; therefore, they should not determine whether two facilities with separate ownership structures should not be 487 Id. (citing The American Heritage Dictionary of the English Language 55 (3d ed. 1992)). 488 Id. at 103–04. 489 Id. at 105. 490 Id. at 104 (citing Summit Petroleum Corp. v. U.S. EPA, 690 F.3d 733, 742 (6th Cir. 2012)). 491 Solar Energy Industries Request for Rehearing and/or Clarification at 31. 492 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations consolidated for purposes of the 80 MW size limitation.493 268. Public Interest Organizations argue that there are significant problems with the factors list that render the factors unreasonable, arbitrary, and capricious.494 Public Interest Organizations assert that the failed to respond to the flaws raised regarding the factors identified by the Commission for consideration under the rebuttable presumption, instead summarily adopting these factors.495 Public Interest Organizations state that commenters identified the list of ‘‘physical characteristics,’’ particularly ‘‘control facilities,’’ ‘‘access and easements,’’ ‘‘collector systems or facilities,’’ and ‘‘property leases,’’ as ‘‘far too broad and unclear,’’ and subject to varying interpretations.496 Public Interest Organizations contend that factors listed under ‘‘ownership and other characteristics,’’ such as control and maintenance, are even more problematic.497 Public Interest Organizations argue that, in certain geographic regions, there are often a limited number of solar maintenance companies, creating the opportunity for frivolous challenges to QF certifications and recertifications.498 Public Interest Organizations point to Southeast Public Interest Organizations’ comments that ‘‘[l]ikewise, the sale of electricity to a common utility, the financing of a project through a mutual lender, the construction of a facility through a mutual contractor, the timing of contract execution, and the timing of facilities being placed into service are all factors listed in the NOPR which do not provide relevant evidence as to common ownership requiring facilities to be considered a single unit. The use of these factors will likely prejudice solar facilities constructed nearby each other that used common associates, contractors, or partnering organizations or entities.’’ 499 493 Id. 494 Public Interest Organizations Request for Rehearing at 111. 495 Id. at 124–25 (citing Order No. 872, 172 FERC ¶ 61,041 at PP 501–09). 496 Id. at 126 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 34 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 17 (Dec. 3, 2019)). 497 Id. (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 34 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 17–18 (Dec. 3, 2019)). 498 Id. (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 35 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 18 (Dec. 3, 2019); North Carolina DOJ Comments, Docket No. RM19–15–000, at 7–8 (Dec. 3, 2019)). 499 Id. at 127 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 35 (Dec. 3, 2019)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 269. Public Interest Organizations assert that, rather than grappling with the data and information presented by commenters on these factors, the final rule simply summarizes the critiques and then summarily concludes that these factors shall be adopted in the final rule.500 Public Interest Organizations argue that the lack of response to these criticisms and failure to articulate a rationale for why the factors are appropriate for making a same site determination render the Commission’s determination arbitrary and capricious.501 270. Solar Energy Industries contend that, by going beyond the same site limitation, the Commission is discouraging the development of these resources.502 Solar Energy Industries assert that the Commission’s failure to provide support for the expansion of its authority beyond that granted by Congress is arbitrary, capricious, and not consistent with reasoned decisionmaking.503 271. Solar Energy Industries seek rehearing of the Commission’s determination in Paragraph 508 and ask the Commission to rescind dicta and associated regulations allowing for review, evaluation, or consideration of physical and operational characteristics that are not germane to whether a facility, ‘‘together with any other facilities located at the same site,’’ has a power production capacity greater than 80 MW.504 Solar Energy Industries argue that, if the Commission does not grant reconsideration, a QF could be subject to challenge throughout the facility’s entire useful life based on overly broad factors that are not related to preventing a QF from ‘‘gaming’’ the same-site determination and development of other QFs long after a QF starts operation.505 272. Public Interest Organizations add that, although the final rule allows applicants to ‘‘preemptively defend against rebuttal by identifying factors that affirmatively show that its facility is indeed at a separate site,’’ it does not provide guidance on what these factors are, which creates uncertainty.506 500 Id. 501 Id. 502 Solar Energy Industries Request for Rehearing and/or Clarification at 26. 503 Id. at 27, 30 (citing Windfarms, Ltd., 13 FERC at 61,032). 504 Id. at 27. 505 Id. at 34. 506 Public Interest Organizations Request for Rehearing at 110 (citing Order No. 872, 172 FERC ¶ 61,041 at PP 480, 510). PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 86695 b. Commission Determination 273. PURPA defines small power production facilities as those facilities that have ‘‘a power production capacity which, together with any other facilities located at the same site (as determined by the Commission), is not greater than 80 megawatts.’’ 507 Congress notably did not specify that ‘‘site’’ may only encompass consideration of physical or geographic factors; in fact, Congress expressly delegated the determination of ‘‘site’’ to the Commission.508 When the Commission adopted the PURPA Regulations in 1980, it determined that the capacity of all facilities within one mile of each other and which use the same energy resource and are owned by the same person, be added together.509 Thus, for 40 years the PURPA Regulations implementing ‘‘same site’’ have included examination not only of geography or distance, but also ownership and resource. The final rule’s inclusion of physical and ownership factors is a continuation of the Commission’s past practice and is not, as Solar Energy Industries contend, an expansion of the Commission’s authority. We therefore decline to rescind the list of example factors, as requested by Solar Energy Industries. 274. Solar Energy Industries’ reliance on El Dorado is misplaced. In El Dorado, a protester argued that three hydroelectric facilities located more than one mile from each other should nevertheless be treated as a single hydroelectric project, noting that the three facilities were aggregated together as a single project for the purposes of receiving a hydroelectric license. The Commission found that, because the three facilities were located more than a mile from each other, under the thencurrent regulations, the facilities were located at three distinct sites, despite having been aggregated together for the purpose of receiving a hydroelectric license. The sentence Solar Energy Industries quotes, ‘‘the critical test under PURPA relates to whether the facilities are located at one site rather than whether they are integrated as a project,’’ explains that the requirements for certification as a small power production facility are not the same requirements to receive a hydroelectric license.510 The Commission did not address which kind of considerations may go into the same site determination; it merely applied the same site analysis 507 16 U.S.C. 796(17)(A)(ii). 508 Id. 509 Order No. 70, FERC Stats. & Regs. ¶ 30,134 at 30,939; see also 18 CFR 292.204(a)(1). 510 El Dorado, 24 FERC at 61,577–78. E:\FR\FM\30DER2.SGM 30DER2 86696 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations that existed at the time, distinct from other requirements. 275. We disagree with Solar Energy Industries’ contention that, if the Commission does not grant reconsideration of the list of example factors, a QF could be subject to challenge throughout the facility’s entire useful life. We note that, prior to the final rule, an interested party could file a petition for declaratory order challenging the QF certification at any time and on any grounds. An interested party may still file a petition for declaratory order with the accompanying filing fee, just as they could prior to the effective date of the final rule. The final rule merely added what already exists for essentially every Commission proceeding, ‘‘no fee’’ protests, which will not subject a QF to challenges throughout the facility’s entire useful life because any such protest must be filed with 30 days from the date of the filing of the Form No. 556 at the Commission.511 276. Moreover, we reiterate that the final rule provided that such protests (and hence, consideration of the factors) may only be filed in response to an initial certification or to a recertification that makes substantive changes to the existing certification,512 which limits the time periods during which such a protest may be filed. Additionally, once the Commission has affirmatively certified an applicant’s QF status in response to a protest opposing a selfcertification or self-recertification, or in response to an application for Commission certification or recertification, any later protest to a recertification (self-recertification or application for Commission recertification) making substantive changes to a QF’s existing certification must demonstrate changed circumstances from the facts upon which the Commission acted on the certification filing that call into question the continued validity of the earlier certification.513 277. We also disagree with Public Interest Organizations’ assertion that the Commission failed to respond to the flaws raised regarding the factors, including that the list of ‘‘physical characteristics,’’ particularly ‘‘control facilities,’’ ‘‘access and easements,’’ ‘‘collector systems or facilities,’’ and ‘‘property leases,’’ was far too broad, unclear, and subject to varying interpretations.514 In the final rule, the 511 Order No. 872, 172 FERC ¶ 61,041 at P 554. P 550. 513 Id. P 469. 514 Public Interest Organizations Request for Rehearing at 126 (citing Southeast Public Interest 512 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 Commission explained that these are examples of factors the Commission may consider on a case-by-case basis. The factors are not further defined because their application will depend on the context of the individual certification. Likewise, we disagree with Public Interest Organizations’ contentions that ‘‘ownership and other characteristics’’ is a problematic factor and ‘‘the sale of electricity to a common utility, the financing of a project through a mutual lender, the construction of a facility through a mutual contractor, the timing of contract execution, and the timing of facilities being placed into service’’ do not provide relevant evidence of common ownership that requires facilities to be considered a single unit.515 We reiterate that no single factor is dispositive and the factors are included as examples of facts that the Commission may consider on a case-by-case basis.516 For example, Public Interest Organizations state that, in certain geographic regions, there are a limited number of solar maintenance companies, and Southeast Public Interest Organizations NOPR Comments stated that, because of the costs and complexity of financing the construction of QFs, developers frequently secure financing for a portfolio of distinct projects that may be hundreds of miles apart, at clearly separate facilities.517 A protester could indeed assert common maintenance or common financing as evidence that a facility is at the same site as another facility, but the Commission could choose to dismiss a protest based on those factors if the protestor’s claims are not sufficient to warrant a ‘‘same site’’ finding, particularly if there are no other factors indicating that the facilities are at the same site. 278. Similarly, Public Interest Organizations argues that the Commission must articulate a rationale for why the factors are appropriate for making a same site determination. We believe that, when affiliated facilities are located more than one mile but less than 10 miles from each other and demonstrate these factors, then they may reasonably be considered to be located at the same site. We again stress Organizations Comments, Docket No. RM19–15– 000, at 34 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 17 (Dec. 3, 2019)). See also Order No. 872, 172 FERC ¶ 61,041 at P 501. 515 Public Interest Organizations Request for Rehearing at 127 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 35 (Dec. 3, 2019)). 516 Order No. 872, 172 FERC ¶ 61,041 at P 511. 517 Southeast Public Interest Organizations Comments, Docket No. RM19–15–000, at 35 (Dec. 3, 2019). PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 that, in the final rule, the Commission stated that the factors in the list were merely ‘‘examples of the factors the Commission may consider.’’ 518 The Commission will conduct a case-by-case analysis, weighing the evidence for and against determining whether small power production facilities that are owned by the same person(s) or its affiliates are located ‘‘at the same site.’’ The Commission included the example factors in the final rule to provide a guide for the kinds of facts that an applicant seeking QF status or that a protester may assert, and that the Commission may consider in making its determination. 279. In response to Public Interest Organizations’ concern that the Commission allows applicants to ‘‘preemptively defend against rebuttal by identifying factors that affirmatively show that its facility is indeed at a separate site’’ without identifying these factors, we clarify that the factors that may be used by an applicant to preemptively defend against rebuttal include the example factors identified in that same Paragraph 509 of the final rule which is the subject of the discussion above.519 D. QF Certification Process 280. In the final rule, the Commission adopted the NOPR proposal to revise 18 CFR 292.207(a) to allow an interested person or entity to seek to intervene and to file a protest of a self-certification or self-recertification of a QF and not have to file a petition for declaratory order and pay the filing fee for petitions. The Commission found that any increased administrative burden or litigation risk imposed by the new rule is justified by the need to ensure that QFs meet the statutory criteria for QF status.520 The Commission stated that the ability to intervene and to file a protest of a selfcertification or self-recertification of a QF without having to file a petition for declaratory order and pay the filing fee for petitions is effective as of the effective date of the final rule.521 281. The Commission agreed with commenters that QF recertifications to implement or address non-substantive changes should not be subject to the new protest rule in order to respect QFs’ settled expectations. The Commission therefore found that protests may be filed to an initial certification (both selfcertification and application for Commission certification) filed on or after the effective date of the final rule, 518 Order No. 872, 172 FERC ¶ 61,041 at P 509. id. 520 Id. P 547. 521 Id. P 548. 519 See E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations but only to a recertification (both selfrecertification and application for Commission recertification) that makes substantive changes to the existing certification and that are filed on or after the effective date of the final rule. The Commission explained that substantive changes that may be subject to a protest may include, for example, a change in electrical generating equipment that increases power production capacity by the greater of 1 MW or five percent of the previously certified capacity of the QF or a change in ownership in which an owner increases its equity interest by at least 10% from the equity interest previously reported. The Commission found that recertifications (both selfrecertifications and applications for Commission recertifications) making ‘‘administrative only’’ changes should not be subject to a protest pursuant to the final rule.522 282. The Commission disagreed with Solar Energy Industries’ estimates that compliance with these new requirements would require an additional approximately 90 to 120 hours per year. The Commission noted that 18 CFR 292.207(d) already stated that, if a QF fails to conform with any material facts or representations presented in the certification, the QF status of the facility may no longer be relied upon; hence, it is long-standing practice that a QF must recertify when material facts or representations in the Form No. 556 change.523 283. The Commission explained that certifications and recertifications are already subject to protests, albeit in the form of petitions for declaratory order; therefore, dealing with objections to a certification or recertification is not new. The Commission stated that, although the new procedures may result in more protests being filed than the number of petitions that had been filed, the Commission believed that the conditions imposed in the final rule will limit the number of protests filed. The Commission anticipated that most, though not all, of the protests filed pursuant to the new 18 CFR 292.207(a) will relate to the new more-than-onebut-less-than-10-miles rebuttable presumption. The Commission reasoned that such protests will necessarily be limited because not all certifications and recertifications will be subject to the new more-than-one-but-less-than10-miles rebuttable presumption. The Commission stated that only a small power production facility seeking QF status that has an affiliated small power production QF more than one but less than 10 miles away and that uses the same energy resource would be subject to the rebuttable presumption. The Commission stated that small power production facilities that do not have affiliated small power production facilities will not be affected by the new rebuttable presumption, nor will cogeneration QFs be affected by the new rebuttable presumption. The Commission reiterated that protests may only be made to an initial certification (both self-certification and application for Commission certification) filed on or after the effective date of the final rule, and only to a recertification (selfrecertification or application for Commission recertification) that makes substantive changes to the existing certification that is filed on or after the effective date of the final rule.524 284. The Commission instituted time limits on protests that may be filed under the final rule. The Commission adopted the NOPR proposal that interested parties will have 30 days from the date of the filing of the Form No. 556 (both initial self-certification and self-recertification) at the Commission to file a protest (without paying a fee).525 285. The Commission also stated that, even if it indeed takes some small power production facilities an additional 90 to 120 hours to comply with the new requirements (which the Commission thought was unlikely), that was not an unreasonable burden to impose to ensure that a generating facility that seeks to be a QF is, in fact, entitled to QF status and is complying with PURPA.526 286. The Commission found that, due to the unique nature of rooftop solar PV developers, the recertification requirement for PV developers could be unduly burdensome. Therefore, to lessen the burden on such developers when recertifying, the Commission permitted rooftop solar PV developers an alternative option to file their recertification applications. Rather than require the developer to file for recertification each time the developer adds or removes a rooftop facility, the Commission allowed a rooftop solar PV developer to recertify on a quarterly basis. The Commission stated that the recertification filing would be due within 45 days after the end of the calendar quarter. However, if in any quarter a rooftop solar PV developer either has no changes or only has changes of power production capacity of 1 MW or less, the Commission stated 524 Id. P 553. P 554. 526 Id. P 556. 522 Id. P 550. 523 Id. P 552. VerDate Sep<11>2014 525 Id. 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00043 86697 that the rooftop solar PV developer would not be required to recertify until it has accumulated changes greater than 1 MW total over the quarters since its last filing. Additionally, the Commission stated that rooftop solar PV developers, like all small power production facilities, will not be subject to protests when they file recertifications that are ‘‘administrative only’’ in nature but would be subject to such protests when they make substantive changes to the existing certification, as detailed above.527 287. The Commission limited the ability to file a protest (rather than a petition for declaratory order, with the accompanying filing fee) to within 30 days of the date of the filing of the selfcertification or self-recertification. The Commission stated that, if an interested party would like to contest a selfcertification or self-recertification later than 30 days after the date of its filing, then the interested party may file a petition for declaratory order with the accompanying filing fee, just as they could prior to the effective date of the final rule.528 288. The Commission declined to impose a 60-day deadline after which a failure of the Commission to rule on the protest would result in the protest being denied by operation of law. The Commission stated that self-certification will be effective upon filing and will remain effective after a protest has been filed, until such time as the Commission issues an order revoking certification. The Commission clarified that selfrecertifications will likewise remain effective after a protest has been filed, until such time as the Commission issues an order revoking recertification.529 289. The Commission noted that the presumption continues to be that a small power production facility seeking QF status that is located more than one but less than 10 miles from any affiliated small power production QFs is at a separate site from those affiliated small power production QFs, explaining that the Commission was simply making this presumption rebuttable.530 1. Requests for Rehearing 290. Solar Energy Industries state that the self-certification process was intended to be ‘‘quick and not unduly burdensome’’ 531 to avoid the 527 Id. P 560. P 563. 529 Id. P 565. 530 Id. P 567. 531 Solar Energy Industries Request for Rehearing and/or Clarification at 33 (citing Revisions to Form, Procedures, and Criteria for Certification of 528 Id. Continued Fmt 4701 Sfmt 4700 E:\FR\FM\30DER2.SGM 30DER2 86698 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations ‘‘complexity, delays, and uncertainties created by a case-by-case qualification procedure’’ that ‘‘would act as an economic disincentive to owners of smaller facilities.’’ 532 Solar Energy Industries argue that the new ‘‘[10]-mile rule’’ adds unnecessary regulatory burdens on QFs which will have a chilling effect on the development of QFs that is directly counter to PURPA’s mandate to encourage QF development. Solar Energy Industries assert that, if the Commission does not reconsider the rebuttable presumption framework, the self-certification process will no longer be quick and will become unduly burdensome for all parties, including the Commission and its staff.533 291. Public Interest Organizations state that one of the ways that PURPA directs the Commission to encourage development of small power production facilities is to prescribe rules exempting them from the FPA, PUHCA, and state laws and regulations, as necessary to encourage development.534 Public Interest Organizations argue that the final rule does the opposite by requiring applicants to list in Form No. 556 all ‘‘affiliated small power production QFs using the same energy resource within one mile,’’ as well as ‘‘all affiliated small power production QFs using the same energy resource whose nearest electrical generating equipment is less than 10 miles from the electrical generating equipment of the entity seeking small power production QF status.535 Public Interest Organizations note that multiple commenters argued that this proposal would impose a significant burden,536 and that the burden is substantial.537 Public Interest Organizations contend that the basis for the Commission’s estimate that the final rule would impose 62 hours of administrative work on every small power production facility over 1 MW with affiliated facilities between one and 10 miles away is not clear.538 Public Interest Organizations note that Solar Energy Industries extensively raised and documented the expected regulatory Qualifying Facility Status for a Small Power Production or Cogeneration Facility, Order No. 732, 130 FERC ¶ 61,214, at P 8 (2010)). 532 Id. at 28 (citing Revised Regulations Governing Small Power Production and Cogeneration Facilities, Order No. 671, 114 FERC ¶ 61,102, at P 83, order on reh’g, Order No. 671–A, 115 FERC ¶ 61,225 (2006)). 533 Id. at 34. 534 Public Interest Organizations Request for Rehearing at 116. 535 Id. 536 Id. (citing Order No. 872, 172 FERC ¶ 61,041 at PP 485, 539–42, 577–83). 537 Id. at 127–29. 538 Id. at 117 (citing Order No. 872, 172 FERC ¶ 61,041 at P 587). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 burden of the new rule, and refer to Solar Energy Industries’ estimate that the new rule would require an additional 90 to 120 hours per year to comply.539 292. Public Interest Organizations assert that the Commission’s explanation for establishing its new protest procedure is unreasonable and unsupported by the record.540 Public Interest Organizations note that the new procedures make it far easier and more likely that an interested party will challenge certification. Both Public Interest Organizations and Solar Energy Industries contend that there is no need for this new procedure because any interested person could file a petition for declaratory order challenging certification.541 Public Interest Organizations and Solar Energy Industries claim that, if petitions for declaratory orders have been standing in for protests until now, they should be able to continue to do so without increasing the regulatory burden on small power production facilities by adding a protest option.542 Solar Energy Industries add that, while the current $30,000 543 filing fee for petitions for declaratory order is substantial, it is not nearly as substantial as the increased legal fees that QFs will now have to bear to seek and defend certification.544 293. Public Interest Organizations assert that the Commission’s new same site determination is contrary to the congressional intent of PURPA because it will discourage small power production facilities.545 Public Interest Organizations argue that the litigation risk created by the possibility that various interested parties will protest the facility owners’ certifications throughout the life of the project any time there is a change in circumstance will effectively establish a 10-mile exclusion zone for a developer around each small power production facility.546 294. Solar Energy Industries claim that the rebuttable presumption process and procedure will discourage investment in QFs because it brings a substantially increased litigation risk in 539 Id. at 129 (citing Solar Energy Industries Comments, Docket No. RM19–15–000, at 52 (Dec. 3, 2019)). 540 Id. at 122. 541 Id. at 122–23; Solar Energy Industries Request for Rehearing and/or Clarification at 28. 542 Public Interest Organizations Request for Rehearing at 123. 543 We note that the current filing fee for a petition for declaratory order is $30,060. 544 Solar Energy Industries Request for Rehearing and/or Clarification at 28. 545 Public Interest Organizations Request for Rehearing at 106. 546 Id. at 107, 112. PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 each certification and recertification.547 Solar Energy Industries argue that Congress did not give the Commission authority to undertake a detailed casespecific review to determine if the facility meets the maximum size requirements set forth in the statute.548 Solar Energy Industries assert that, by authorizing the Commission to determine whether facilities are considered to be located at ‘‘the same site,’’ Congress did not intend for the Commission to promulgate regulations that would stymie the development of QFs by discouraging potential financiers, investors, and owners from backing such resources.549 295. Northwest Coalition asserts that the application of the final rule’s same site determination to existing facilities is arbitrary, capricious, and not in accordance with law.550 Northwest Coalition argues that the Commission erred by failing to exempt existing facilities from applicability of the new same site determination for determining eligibility as a small power production facility.551 Northwest Coalition contends that the Commission arbitrarily applied the new rule to any existing facility that makes any substantive change to its certification documents with the Commission, causing owners of facilities financed and constructed in reliance on the former one-mile rule now to face the risk of decertification almost any time a non-ministerial change is made, including sale of a relatively minor stake in ownership of the facility.552 296. Northwest Coalition argues that the new rule decreases the marketability of such facilities and upsets investmentbacked expectations of their owners, who often invest in a portfolio of resources with the expectation that it can eventually be sold to another owner.553 Northwest Coalition argues that the new rule will effectively bar the transfer or sale of existing assets that were lawfully qualified under the onemile rule but cannot qualify under the new same site determination because they consist of more than 80 MW of aggregate capacity within 10 miles.554 It asserts that this new precedent of the Commission upsetting settled 547 Solar Energy Industries Request for Rehearing and/or Clarification at 33. 548 Id. 549 Id. at 26. 550 Northwest Coalition Request for Rehearing at 6. 551 Id. at 53. 552 Id. at 53–55; see also Public Interest Organizations Request for Rehearing at 132. 553 Northwest Coalition Request for Rehearing at 55. 554 Id. at 55. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations expectations undermines the predictability needed for long-term investments in generation assets.555 297. Public Interest Organizations argue that the final rule could lock in old technology because owners of existing facilities will have an enormous incentive to avoid making changes to their facility to avoid needing to recertify.556 Public Interest Organizations add that the final rule discourages development of new small power production facilities within 10 miles of existing facilities because the new facilities could potentially trigger revocation of certification for one or more existing facilities.557 298. Northwest Coalition and Public Interest Organizations note that, since 1980, facilities located more than one mile apart enjoyed certainty that the rules would not result in them being located at the same site.558 Public Interest Organizations argue that the Commission arbitrarily and unlawfully ignored serious reliance interests because the Commission did not fully consider it or failed to provide a ‘‘more detailed justification’’ for its decision to not respect acknowledged, settled expectations in all cases, despite commenters’ lengthy discussion of reliance interest.559 299. Public Interest Organizations assert that the Commission’s decision not to grant more extensive legacy treatment for existing facilities whose owners have reasonably relied on the longstanding one-mile rule sets a precedent of dramatic regulatory uncertainty that will have a chilling effect on the market.560 Public Interest Organizations contend that, going forward, entrepreneurs will question whether the Commission will further change the regulatory structure, despite longstanding precedent and reliance interests.561 300. Northwest Coalition claims that, the Administrative Procedures Act (APA), pursuant to which the Commission acted, does not authorize retroactive rules; however, the new rebuttable presumption will have the retroactive effect of applying to existing 555 Id. at 55. 556 Public Interest Organizations Request for Rehearing at 115. 557 Id. 558 Northwest Coalition Request for Rehearing at 53; Public Interest Organizations Request for Rehearing at 132. 559 Public Interest Organizations Request for Rehearing at 133 (citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)). 560 Id. at 115. 561 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 facilities seeking recertification.562 Northwest Coalition asserts that the failure to exempt existing facilities is a significant change from the Commission’s past practice of applying new certification criteria only to new facilities, not existing facilities seeking recertification.563 Northwest Coalition notes that, when the Commission revised section 292.205(d) of its regulations regarding the new operation and efficiency certification criteria required by the Energy Policy Act of 2005 (EPAct 2005) for cogeneration facilities, those new criteria applied only to ‘‘any cogeneration facility that was either not a qualifying cogeneration facility on or before August 8, 2005, or that had not filed a notice of selfcertification or an application for Commission certification as a qualifying cogeneration facility under [18 CFR] 292.207 of this chapter prior to February 2, 2006. . . .’’ 564 Northwest Coalition further notes that the Commission clarified ‘‘that there is a rebuttable presumption that an existing QF does not become a ‘new cogeneration facility’ for purposes of the requirements of newly added section 210(n) of PURPA merely because it files for recertification.’’ 565 Northwest Coalition also points out that, in Order No. 671, the Commission found that only changes to the facility that lead it to be a whole new facility, ‘‘such as an increase in capacity from 50 MW to 350 MW,’’ could trigger the applicability of the new qualification criteria.566 301. Northwest Coalition argues that the Commission did not respond to the precedent on this issue that NIPPC, CREA, REC, and Solar Energy Industries provided in their NOPR comments.567 Northwest Coalition asserts that the Commission’s failure to respond to legitimate objections renders its decision arbitrary and capricious.568 302. Public Interest Organizations state that several commenters provided data, maps, and information to show that the application of the new ‘‘[10]mile rule’’ to existing projects has potentially widespread implications for states with significant QF 562 Northwest Coalition Request for Rehearing at 55 (citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208–09 (1988)). 563 Id. 564 Id. at 55–56 (citing 18 CFR 292.205(d)). 565 Id. at 56 (citing Order No. 671, 114 FERC ¶ 61,102 at P 115). 566 Id. (citing Order No. 671, 114 FERC ¶ 61,102 at P 115). 567 Id. (citing NIPPC, CREA, REC, and OSEIA Comments, Docket No. RM19–15–000, at 76 (Dec. 3, 2019)). 568 Id. (citing PPL Wallingford, 419 F.3d at 1198). PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 86699 development.569 For example, Public Interest Organizations point out Southeast Public Interest Organizations’ comment that the change to the onemile rule would have implications for nearly every existing QF in North Carolina and map that shows that facilities in compliance with the original one-mile rule are within 10 miles from other QFs and could trigger the new rule on recertification.570 303. Public Interest Organizations complain that, although the Commission responded to these concerns by limiting protests to recertifications to instances in which a substantive change is made to an existing certification, it provided no further explanation or rationale as to how the ‘‘substantive change’’ limitation would specifically address the concerns raised.571 Public Interest Organizations add that the Commission failed to consider the valid concerns because the term ‘‘substantive changes’’ is vague and undefined and is unlikely to meaningfully limit protests.572 304. Solar Energy Industries argue that, if the Commission does not grant rehearing of the ‘‘10-mile rule,’’ then the Commission must establish a grandfathering provision for facilities that are already installed.573 Solar Energy Industries ask the Commission to clarify that all existing facilities will retain their QF status unless a recertification filing is made that changes the maximum net output or qualifying technologies of the QF.574 Solar Energy Industries assert that, unless there is a change in the output of the facilities or another change in circumstance that has economic consequences to the utility-purchaser, then the facility’s status should be beyond challenge.575 Solar Energy Industries contend that failing to offer grandfathering to existing facilities is arbitrary, capricious, inconsistent with Commission precedent that preserves contractual expectations between parties in the event of regulatory 569 Public Interest Organizations Request for Rehearing at 130 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 29–33 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 18 (Dec. 3, 2019); North Carolina DOJ Comments, Docket No. RM19–15–000, at 8 (Dec. 3, 2019)). 570 Id. at 130–31 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 31 (Dec. 3, 2019)). 571 Id. at 131. 572 Id. at 131–32. 573 Solar Energy Industries Request for Rehearing and/or Clarification at 34. 574 Id. at 35. 575 Id. E:\FR\FM\30DER2.SGM 30DER2 86700 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations change, and does not encourage QFs as the statute requires.576 305. Solar Energy Industries state that, if the Commission does not grant rehearing and grandfather existing facilities, then they seek clarification that challenges to recertification filings can only be brought ‘‘in circumstance that has economic consequences to the utility-purchaser and its ratepayers.’’ 577 Solar Energy Industries argue that, by limiting challenges to existing facilities to situations where there is a change in output of the facilities or other change in circumstances that has economic consequences to the utility-purchaser and its ratepayers, the final rule will more closely align with the direction of the statute.578 2. Commission Determination 306. As explained in the final rule (and also above), the record shows that large facilities were disaggregating into smaller facilities and spacing themselves at a distance sufficient to be able to qualify as QFs. PURPA provides advantages for small power production facilities, and the final rule, consistent with the statute, limits those advantages to small power production facilities. To that end, the purpose of the new rules regarding the same site determination is to ensure compliance with PURPA. 307. We disagree with Solar Energy Industries’ arguments that the ‘‘[10]mile rule’’ adds unnecessary regulatory burdens, making the self-certification process no longer ‘‘quick and not unduly burdensome.’’ The changes to the one-mile rule and the corresponding changes to the Form No. 556 are necessary to provide the Commission the information it needs to determine whether a facility qualifies to be a QF, consistent with the standards laid out in the statute. In particular, the new requirement to list affiliated small power production QFs using the same energy resource whose nearest electrical generating equipment is less than 10 miles from the electrical generating equipment of the entity seeking small power production QF status, both on initial certification and recertification, is needed to assess whether the applicant facility and other affiliated facilities using the same energy resource are located at the same site and ultimately whether they meet the statutory 80 MW limit. Moreover, the requirement is to list affiliated small power production QFs; thus, only facilities with affiliates will be affected by this information 576 Id. 577 Id. (citing Zond-PanAero Windsystem Partners I, 76 FERC ¶ 61,137 (1996)). 578 Id. at 36. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 requirement—single, unaffiliated QFs will face no additional burden. Similarly, for QF applicants with few affiliated facilities less than 10 miles from the applicant facility, this listing requirement should be only minimally burdensome. The requirement to list affiliates less than 10 miles from the applicant facility would likely require more time when a project owner owns many QFs less than 10 miles from the applicant facility, which will likely be a larger, more sophisticated QF developer that has resources to prepare the form. Even then, it is a necessary burden in order to ensure compliance with PURPA. 308. Additionally, in response to Solar Energy Industries’ argument that the final rule adds unnecessary regulatory burden ‘‘on QFs,’’ 579 the final rule was responsive to comments on the burden of the proposed rule and, as an example of the Commission taking care to ascertain that the rules are not unduly burdensome, specifically lessened the burden on rooftop solar PV developers.580 309. However, in light of Public Interest Organizations’ and Solar Energy Industries’ renewed assertion that the regulatory burden on QFs is substantial,581 we modify and clarify our requirements regarding the identification of affiliated small power production QFs, in order to further ensure that the regulatory burden on small power production facilities is within reasonable limits. The new Form No. 556, as revised by the final rule, requires that a facility filing a certification or recertification after the effective date of the final rule identify, in item 8a of the Form No. 556, any affiliated small power production QFs that use the same energy resource and are located less than 10 miles from the electrical generating equipment of the applicant facility, by including in the Form No. 556 each affiliated facility’s: (1) Location, including geographic coordinates; (2) root docket number, if any; (3) maximum net power production capacity; and (4) common owners. Section 292.207(d) of the Commission’s regulations, which the final rule renumbered to 18 CFR 292.207(f), states that if a QF fails to conform with any material facts or representations presented in the certification the QF 579 Solar Energy Industries Comments, Docket No. RM19–15–000, at 51 (Dec. 3, 2019). 580 See Order No. 872, 172 FERC ¶ 61,041 at P 560. 581 Public Interest Organizations Request for Rehearing at 127–29; see Solar Energy Industries Request for Rehearing and/or Clarification at 34. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 status of the facility may no longer be relied upon.582 310. As a result, when any of a small power production QF’s affiliated facilities less than 10 miles away changes any of the items listed above, the final rule would require a small power production QF to recertify its own Form No. 556 to reflect its affiliated facility’s updated information. This represents an expansion from the requirement prior to the final rule that a small power production QF reflect the updated information of its affiliated small power production facilities one mile or less away.583 Moreover, in order to maintain an up-to-date Form No. 556 and recertify with the correct affiliated facility information, under the final rule a small power production QF would need to monitor continually all of its affiliated small power production QFs that are less than 10 miles away for changes. This also is an expansion from the requirement, prior to the final rule, that a small power production QF monitor its affiliated small power production QFs one mile or less away for changes.584 We conclude that it may be overly burdensome that a small power production QF monitor continually all of its affiliated facilities less than 10 miles away for changes, and that the small power production QF recertify its own facility whenever an affiliated small power production QF less than 10 miles away changes. 311. We therefore modify the final rule to state that a small power production QF evaluating whether it needs to recertify does not need to recertify due to a change in the information it has previously reported regarding its affiliated small power production QFs that are more than one mile but less than 10 miles from its electrical generating equipment, including adding or removing an affiliated small power production QF more than one mile but less than 10 miles away, or if an affiliated small 582 18 CFR 292.207(d), which the final rule renumbered to 18 CFR 292.207(f). 583 Item 8a of the Form No. 556 effective prior to the final rule required an applicant to ‘‘[i]dentify any facilities with electrical generating equipment located within 1 mile of the electrical generating equipment of the instant facility . . .’’ Section 292.207(d) of the Commission’s regulations, which the final rule renumbered to 18 CFR 292.207(f), states that if a QF fails to conform with any material facts or representations presented in the certification the QF status of the facility may no longer be relied upon. While the requirement, prior to the final rule, that a small power production QF update its Form No. 556 with the updated information of its affiliated small power production facilities one mile or less away, is not explicit, we believe that this requirement is the logical result of the intersection of the above. 584 See supra note 583. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations power production QF more than one mile but less than 10 miles away and previously reported in item 8a makes a modification, unless that change also impacts any other entries on the evaluating small power production QF’s Form No. 556. 312. We will continue to require that a small power production QF, as it was prior to the final rule, recertify its Form No. 556 to update item 8a due to a change at any of its affiliated small power production facilities that use the same energy resource and are located one mile or less from its electrical generating equipment.585 We will also still require that a small power production QF recertify due to a change in material fact or representation to its own facility. 313. At such time as the small power production QF makes a recertification due to a change in material fact or representation to its own facility or at any of its affiliated small power production facilities that use the same energy resource and are located one mile or less from its electrical generating equipment, we will require that the small power production QF update item 8a for all of its affiliated small power production QFs within 10 miles, including adding or deleting affiliated small power production QFs, and recording changes to previously listed small power production QFs, so that the information in its Form No. 556 is complete, accurate, and up-to-date.586 314. We believe that this modification reduces the burden on small power production QFs because they will not be required to continually monitor their affiliated small power production QFs more than one mile but less than 10 miles away for changes, nor will we require a small power production QF that is evaluating whether it must recertify its facility to recertify to update item 8a due to a change at its affiliated small power production facilities more than one mile but less than 10 miles from the evaluating facility’s electrical generating equipment.587 However, the affiliated QF of that evaluating small power production QF will need to recertify if the affiliated QF makes a material change to its information in its Form No. 556. In providing this modification, we reiterate that the rule 585 See supra note 583. 586 If a small power production QF that was certified prior to the effective date of this final rule is required to recertify due to a material change to its own facility, then at that time it will be required to identify affiliates less than 10 miles from the applicant facility. 587 We note that we are maintaining the final rule’s alternative option for rooftop solar PV developers to file their recertification applications. See Order No. 872, 172 FERC ¶ 61,041 at P 560. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 providing for a rebuttable presumption for affiliated small power production QFs located more than one but less than 10 miles apart is necessary to address allegations of improper circumvention of the one-mile rule that had been presented to the Commission.588 We emphasize that identifying affiliated facilities, and updating affiliated facility information, are necessary for the Commission to assess whether small power production facilities located more than one but less than 10 miles apart should be considered to be at the same site. However, we note that for affiliated small powder production QFs more than one mile but less than 10 miles apart, the presumption is that they are at separate sites. Therefore, we modify the recertification requirement as to a small power production QF’s affiliated small power production QFs more than one mile but less than 10 miles away, because we believe this modification strikes an appropriate balance between the need to address improper circumvention and the need to avoid unduly burdening small power production QFs consistent with the presumption that QFs more than one mile but less than 10 miles apart are located at separate sites. 315. We note that, when a small power production QF makes a material change to its own facility, or when any of its affiliated small power production facilities that use the same energy resource and are one mile or less from of its electrical generating equipment makes a material change, it needs to recertify, at which point it would also be required to update item 8a for all of its affiliated small power production QFs within 10 miles. If any of the changes made are substantive, including substantive changes at any of its affiliates less than 10 miles away, the recertification will be subject to protests.589 316. In response to Public Interest Organizations’ concerns that existing facilities will lose their certification any time they make a change requiring a recertification, we note that protests may only be made to recertification making substantive changes, and if a substantive change is made, both the entity filing the QF certification and any protesters will be allowed to present evidence supporting their respective positions. The Commission will examine any such evidence presented on a case-by-case basis to determine whether the facility in question does not actually meet the qualifications for QF status under PURPA. For a same site 588 Id. 589 Id. PO 00000 P 495. P 550. Frm 00047 Fmt 4701 Sfmt 4700 86701 determination, the Commission will examine the relevant factors as discussed above. The Commission will decertify only if, after a review of the evidence, the Commission determines that the facility in question should be considered at the same site with affiliated facilities and their combined power production capacity exceeds 80 MW. The Commission’s decision will be based on the evidence of whether the entity continues to comply with PURPA. 317. In response to Public Interest Organizations’ assertion that several commenters provided data, maps, and information showing that the application of the new ‘‘[10]-mile rule’’ to existing projects has potentially widespread implications for states with significant QF development 590 and argument that litigation risk will effectively establish a 10-mile exclusion zone for a developer around each small power production facility,591 we note that the Commission anticipated that most protests filed pursuant to the new 18 CFR 292.207(a) will relate to the new more-than-one-but-less-than-10-miles rebuttable presumption.592 If two facilities are not owned by the same person(s) or its affiliates, then the facilities are definitionally not located at the same site.593 Thus, protests cannot assert that two facilities are at the same site, unless those facilities are affiliates using the same energy resource (and more than one mile but less than 10 miles apart). Conversely only entities that have affiliates will be subject to protests regarding the same site determination. Single, unaffiliated facilities will not be subject to protests on the new same site determination.594 Furthermore, facilities with nearby affiliates whose combined capacity does not exceed 80 MW also will not be decertified because of the new same site determination. The only facilities that will have concerns under the new same site determination are those that are affiliated with other facilities using the same energy resource, are relatively near each other, have a total combined capacity with such affiliated facilities exceeding 80 MW, and are considered at 590 Public Interest Organizations Request for Rehearing at 130 (citing Southeast Public Interest Organizations Comments, Docket No. RM19–15– 000, at 29–33 (Dec. 3, 2019); SC Solar Alliance Comments, Docket No. RM19–15–000, at 18 (Dec. 3, 2019); North Carolina DOJ Comments, Docket No. RM19–15–000, at 8 (Dec. 3, 2019)). 591 Id. at 107, 112. 592 Order No. 872, 172 FERC ¶ 61,041 at P 533 & n.877. 593 Id. P 286 n.797. 594 See id. P 553. E:\FR\FM\30DER2.SGM 30DER2 86702 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations the same site by the Commission after a consideration of the evidence. 318. Therefore, assertions that existing QFs risk decertification almost any time they recertify and that the new rule decreases marketability or discourages QF development are overstated. To the extent that the new same site determination decertifies particular QFs, decreases their marketability, or discourages their development, it only does so because such entities do not comply with PURPA. To the extent that large facilities disaggregated in order to qualify as small power production facilities, or strategically built facilities just over one mile apart, in reliance on the old one-mile rule, we note that rules can and do change. In fact, Congress specifically directed the Commission to revise its PURPA rules from time to time.595 Moreover, we note that the new regulations do not apply to an existing facility unless and until it makes substantive changes. When the existing QF makes a substantive change, it is no longer the same facility it was before, and it is only then that the new regulations should apply. Additionally, we note that the facilities more than one but less than 10 miles from affiliated facilities continue to enjoy the presumption that they are at separate sites; only now the presumption is rebuttable. 319. The Commission provided examples of factors it may consider when determining whether affiliated facilities using the same resource and more than one mile but less than 10 miles apart should be considered to be at the same site, and stated that it will make a case-by-case determination on whether such facilities are indeed at the same site.596 In response to Solar Energy Industries’ argument that Congress did not give the Commission authority to undertake a detailed case-specific review, we find that Congress delegated to the Commission the authority to determine the ‘‘same site’’ and did not limit the way in which the Commission can do so, nor did Congress specify that the Commission cannot conduct a caseby-case analysis.597 320. Regarding Public Interest Organizations and Solar Energy Industries’ arguments that there is no need for the new protest procedure because any interested person could file a petition for declaratory order to challenge a certification, we further explain the rationale for implementing the new protest structure. First, 595 See 16 U.S.C. 824a–3(a). No. 872, 172 FERC ¶ 61,041 at P 511. 597 16 U.S.C. 796(17)(A). 596 Order VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 allowing protests will bring the certification process more in line with other Commission procedures, where protests to filings do not require a petition for a declaratory order and associated filing fee. Second, while selfcertifications themselves are free, prior to the final rule, the only way to protest a self-certification was via paying the fee for a declaratory order, which today is $30,060. Consequently, it was possible for a facility owner to file multiple certifications with minor changes effectively shutting out a protester who could not afford to repeatedly pay the declaratory order fee for every QF submission. Allowing protests equalizes the opportunity for both facility owners and opponents to weigh in on the certification of a facility as a QF.598 321. While petitioners are correct that purchasing electric utilities, competitors, and local project opponents now may file protests, we believe that a more robust protest system encourages transparency and allows for better oversight by the Commission, as well as by states and other stakeholders. To the extent that petitioners imply that such entities may file frivolous protests for the purposes of delaying or otherwise hindering QF development or certification, the Commission has limited protests to within 30 days of the date of the filing of an initial certification or of a recertification making a substantive change.599 For a facility that meets the standards to qualify as a QF, the only effect is the potential for an exchange of filings immediately after the certification is filed and some limited uncertainty while awaiting the Commission’s decision. Additionally, we note that quite often QF developers file for certification even before construction of the facility has commenced; in such a case, the potential for some limited uncertainty during the exchange of filings will have minimal impact. The Commission also has determined that self-certifications will be effective upon filing and will remain effective after a protest has been filed, until such time as the Commission issues an order revoking the certification.600 598 The Commission notes that if the Commission issues an order in response to a self-certification that is protested, or in response to an application for Commission certification, the order issued by the Commission will continue to be a declaratory order which determines whether or not a project, as described by the applicant and protester, meets the technical and ownership standards for QFs, and serves only to establish eligibility for benefits of PURPA. 599 Order No. 872, 172 FERC ¶ 61,041 at P 554. 600 Id. P 527. PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 322. In response to Public Interest Organizations’ argument that the final rule does the opposite of exempting QFs from the FPA, PUHCA, and state laws and regulations, the Commission is not removing or amending the exemptions provided by the regulations implementing PURPA section 210(e).601 323. We also disagree with Public Interest Organizations’ arguments that ‘‘substantive change’’ is vague and does not limit challenges. In the final rule, the Commission explained that ‘‘substantive changes that may be subject to a protest may include, for example, a change in electrical generating equipment that increases power production capacity by the greater of 1 MW or 5 percent of the previously certified capacity of the QF, or a change in ownership in which an owner increases its equity interest by at least 10% from the equity interest previously reported.’’ 602 The Commission provided examples of what it may consider to be a substantive change because it intends to make a case-by-case determination. The Commission will be able to reject a protest to a recertification that the Commission does not believe rises to the level of a substantive change. 324. Regarding Northwest Coalition’s argument that the APA does not authorize retroactive rules, we disagree with Northwest Coalition’s premise that the new rebuttable presumption for affiliated facilities more than one mile but less than 10 miles apart will have retroactive effect when applied to existing facilities seeking recertification. The new regulations do not apply to an existing facility unless and until it must recertify because of changes to the material facts and representations at its facility or that of an affiliated facility one mile or less away. When the existing QF makes a change to the material facts and circumstances of its certification, it very well may no longer be the same facility it was when originally certified. Due to the change in material facts, the new regulations should apply. Thus, the rule is prospective, and applied only if and when new facts have prompted a recertification.603 325. Northwest Coalition argues that the Commission’s past practice in developing new certification criteria is to apply the new criteria only to new facilities, not existing facilities seeking 601 Id. P 514. P 550. 603 Furthermore, no commenter has explained how and why applying the new rules to new recertifications make them retroactive rules. 602 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations recertification.604 We disagree. Northwest Coalition relies on Commission Order No. 671, which implemented section 210(n) following EPAct 2005. However, Northwest Coalition overlooks that section 210(n) of PURPA required the Commission to issue a rule revising the criteria for new cogeneration facilities, and therefore the Commission in Order No. 671 focused on defining what is a new facility.605 In contrast, here the Commission was not implementing 210(n) and therefore was not revising the criteria solely for new facilities. 326. For the foregoing reasons, we decline to establish further legacy treatment for existing facilities, as requested. Existing QFs that seek to recertify due to substantive changes will be subject to protests. The Commission can determine, on a case-by-case basis, whether the evidence presented represents a substantive change or whether the change is non-substantive and thus not subject to protests, in which case the Commission will dismiss any protests submitted. We decline to specify, as Solar Energy Industries request, that only changes to the maximum net output or the qualifying technology, or in circumstances that have economic consequences to the utility-purchaser and its ratepayers, will make an existing QF’s recertification subject to challenge. We likewise disagree with Solar Energy Industries’ contention that failing to offer grandfathering to existing facilities is arbitrary, capricious, and inconsistent with Commission precedent. We continue to believe that conducting a case-by-case analysis is the best way to determine whether the change that prompted recertification is substantive, will avoid arbitrary outcomes, and is necessary to comply with the intent of PURPA to provide advantages only to small power production facilities. E. Corresponding Changes to the FERC Form No. 556 327. In the final rule, the Commission adopted the NOPR proposals regarding changes to the Form No. 556, with some further clarifications and additions. The Commission found that the added information collected through these changes was necessary to implement the changes made to the regulations in the final rule and thus justified the increase in reporting burden.606 604 Northwest Coalition Request for Rehearing at 55. 605 16 U.S.C. 824a–3(n). Order No. 872, 172 FERC ¶ 61,041 at P 606 See 584. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 328. The final rule revised the ‘‘Who Must File’’ section to include a ‘‘Recertification’’ section which provides the text of revised 18 CFR 292.207(f) (previously 18 CFR 292.207(d)), which states that a QF must file for recertification whenever the QF ‘‘fails to conform with any material facts or representations presented . . . in its submittals to the Commission.’’ 607 The Commission stated that this addition does not alter our recertification requirements, and the Commission included it on the Form No. 556 simply to make the Form No. 556 clearer in its application.608 329. The Commission stated that the total burden estimates in the ‘‘Paperwork Reduction Act Notice’’ section of Form No. 556 would be updated based on the changes in the final rule, to provide the following estimates: 1.5 hours for selfcertifications of facilities of 1 MW or less; 1.5 hours for self-certifications of a cogeneration facility over 1 MW; 50 hours for applications for Commission certification of a cogeneration facility; 3.5 hours for self-certifications of small power producers over 1 MW and less than a mile or more than 10 miles from affiliated small power production QFs that use the same energy resource; 56 hours for an application for Commission certification of a small power production facility over 1 MW and less than a mile or more than 10 miles from affiliated small power production QFs that use the same energy resource; 9.5 hours for self-certifications of small power producers over 1 MW with affiliated small power production QFs more than one but less than 10 miles that use the same energy resource; 62 hours for an application for Commission certification of a small power production facility over 1 MW with affiliated small power production QFs more than one but less than 10 miles that use the same energy resource.609 1. Requests for Rehearing 330. Public Interest Organizations state that the final rule would impose 62 hours of administrative work on every small power production facility over 1 MW with affiliated facilities between one and 10 miles away and the basis for this calculation is not clear.610 607 18 CFR 292.207(d), which the final rule renumbered to 292.207(f). 608 Order No. 872, 172 FERC ¶ 61,041 at P 586. 609 See Order No. 872, 172 FERC ¶ 61,041 at P 587. 610 Public Interest Organizations Request for Rehearing at 117 (citing Order No. 872, 172 FERC ¶ 61,041 at P 587). PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 86703 2. Commission Determination 331. Public Interest Organizations misread the final rule on this point. The final rule provided a total burden estimate of 9.5 hours for selfcertifications of small power producers over 1 MW with affiliated small power production QFs more than one but less than 10 miles apart that use the same energy resource, but 62 hours for an application for Commission certification of a small power production facility over 1 MW with affiliated small power production QFs more than one but less than 10 miles that use the same energy resource.611 The estimate is not that every small power production facility over 1 MW with affiliated facilities between one and 10 miles away will have a total burden of 62 hours, but only those who chose to apply for Commission certification (as opposed to use the self-certification process). For those who self-certify, the burden estimate is 9.5 hours. 332. In response to Public Interest Organizations’ assertion that the basis for the calculation is not clear, below we explain the calculation. Prior to the final rule, ‘‘[t]he estimated burden for completing the Form No. 556, including gathering and reporting information, [was] as follows: 1.5 hours for selfcertification of a small power production facility . . . 50 hours for an application for Commission certification of a small power production facility. . . .’’ 612 The Information Collection Section of the final rule showed changes due to the final rule and estimated an additional 8 hours for the category ‘‘self-certifications’’ and 12 hours for the category ‘‘applications for Commission certification’’ of small power production facilities greater than 1 MW that are more than one but less than 10 miles from affiliated small power production QFs. Therefore, the total burden estimate as provided in the final rule is as follows: 1.5 hours plus 8 hours for a total of 9.5 hours for selfcertifications and 50 hours plus 12 hours for a total of 62 hours for applications for Commission certification. 333. In light of the modification to the final rule described in section III.D, we 611 See Order No. 872, 172 FERC ¶ 61,041 at P 587. The majority of QFs choose the less burdensome option to self-certify pursuant to 18 CFR 292.207(a), by filing a Form No. 556. An application for Commission certification pursuant to 18 CFR 292.207(b) also requires filing the Form No. 556, but applicants for Commission certification typically additionally prepare a written petition arguing why the Commission should grant QF status. 612 Commission Information Collection Activities (FERC–556); Comment Request; Extension, Docket No. IC19–16–000, at 5 (issued May 15, 2019). E:\FR\FM\30DER2.SGM 30DER2 86704 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations further modify the ‘‘Recertification’’ section in page one of the instructions of the Form No. 556, which was added by the final rule. The ‘‘Recertification’’ section currently reads ‘‘A QF must file a recertification whenever the qualifying facility ‘fails to conform with any material facts or representations presented . . . in its submittals to the Commission.’ 18 CFR 292.207(f).’’ To this, we will add ‘‘Among other possible changes in material facts that would necessitate recertification, a small power production QF is required to recertify to update item 8a due to a change at an affiliated facility(ies) one mile or less from its electrical generating equipment. A small power production QF is not required to recertify due to a change at an affiliated facility(ies) listed in item 8a that is more than one mile but less than 10 miles away from its electrical generating equipment, unless that change also impacts any other entries on the Form 556.’’ F. PURPA Section 210(m) Rebuttable Presumption of Nondiscriminatory Access to Markets 334. In the final rule, the Commission acknowledged that, when Order Nos. 688 and 688–A were issued, the Commission decided that small QFs may not have nondiscriminatory access to markets.613 In Order Nos. 688 and 688–A, based on factors present at that time, the Commission decided to draw the line for small entities at 20 MW.614 However, as stated in the final rule, energy markets have matured and market participants have gained a better understanding of the mechanics of such markets.615 In the final rule, the Commission stated that, since Order Nos. 688 and 688–A, the Commission recognized multiple examples of small power production facilities under 20 MW participating in RTO/ISO energy markets.616 The Commission stated that it had found that the electric utilities in those proceedings rebutted the presumption of no market access and therefore terminated the mandatory purchase obligation.617 335. The Commission adopted the proposal to revise 18 CFR 292.309(d) to update the net power production capacity level at which the presumption 613 Order No. 688, 117 FERC ¶ 61,078 at P 72; Order No. 688–A, 119 FERC ¶ 61,305 at PP 94–96; N. States Power Co., 151 FERC ¶ 61,110, at PP 31– 36 (2015); PPL Elec. Utilities Corp., 145 FERC ¶ 61,053, at PP 21–24 (2013). 614 Order No. 688, 117 FERC ¶ 61,078 at PP 74, 76; Order No. 688–A, 119 FERC ¶ 61,305 at P 103. 615 Order No. 872, 172 FERC ¶ 61,041 at P 629. 616 Id. P 624. 617 Id. (citing Fitchburg Gas and Elec. Light Co., 146 FERC ¶ 61,186, at P 33 (2014); City of Burlington, Vt., 145 FERC ¶ 61,121, at P 33 (2013)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 of nondiscriminatory access to a market attaches for small power production facilities, but not for cogeneration facilities. After reviewing commenters’ concerns, the Commission updated the rebuttable presumption from 20 MW to 5 MW, rather than from 20 MW to 1 MW as originally proposed in the NOPR. The Commission explained that small power production facilities with a net power production capacity at or below 5 MW will be presumed not to have nondiscriminatory access to markets and, conversely, small power production facilities with a net power production capacity over 5 MW will be presumed to have nondiscriminatory access to markets. 336. The Commission disagreed with commenters who argued that a lack of record evidence existed to support the proposed reduction below 20 MW. The Commission explained that, in Order Nos. 688 and 688–A, the Commission had determined that small QFs may not have nondiscriminatory access to wholesale markets and, therefore, it was reasonable to establish a presumption for small QFs. The Commission explained that, at that time, the Commission had found that it was ‘‘reasonable and administratively workable’’ to define ‘‘small’’ for purposes of this regulation to be QFs below 20 MW.618 The Commission noted that a number of commenters, including state entities which are charged with applying PURPA in their jurisdictions, supported revising the definition of small QFs eligible for the presumption in reducing the 20 MW threshold. 337. The Commission again acknowledged that there is no unique number to draw a line for determining what is a small entity.619 The Commission explained that, in establishing the 20 MW presumption as the line between large and small QFs for purposes of section 210(m), the Commission had looked at other non-QF rulemaking orders in which it had considered what constituted a small 618 Id. PP 626–29 (citing Order No. 688, 117 FERC ¶ 61,078 at PP 74–78 (establishing rebuttable presumption); Order No. 688–A, 119 FERC ¶ 61,305 at P 95 (‘‘There is no perfect bright line that can be drawn and we have reasonably exercised our discretion in adopting a 20 MW or below demarcation for purposes of determining which QFs are unlikely to have nondiscriminatory access to markets.’’)). 619 Order No. 872, 172 FERC ¶ 61,041 at P 627 (citing Order No. 688–A, 119 FERC ¶ 61,305 at P 97 (‘‘Although there is no unique and distinct megawatt size that uniquely determines if a generator is small, in other contexts the Commission has used 20 MW, based on similar considerations to those presented here, to determine the applicability of its rules and policies.’’)). PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 entity and those orders showed 20 MW was a reasonable number at which to draw the line.620 The Commission explained that it had since determined, based on changed circumstances since the issuance of Order Nos. 688 and 688– A, that entities with capacity lower than 20 MW have nondiscriminatory access to the markets and, therefore, a capacity level of 20 MW may no longer be a reasonable place to establish the presumption on what constitutes a smaller entity under our regulations. 338. The Commission explained that it was updating the rebuttable presumption based on industry changes since Order No. 688. The Commission stated that it was reasonable to update the rebuttable presumption as the markets defined in PURPA section 210(m)(1)(A), (B), and (C) evolve because the statute itself does not establish a presumption and the statue requires the Commission to update the rules from time to time to ensure it complies with PURPA. 339. The Commission explained that, over the last 15 years, the RTO/ISO markets have matured and market participants have gained a better understanding of the mechanics of such markets. As a result, the Commission found that it is reasonable to presume that access to the RTO/ISO markets has improved and that it is appropriate to update the presumption for smaller production facilities. The Commission further explained that, as in Order No. 688, it looked to indicia in other orders to determine where the presumption should be set.621 340. The Commission found that market rules are inclusive of power producers below 20 MW participating in markets. The Commission explained that, for example, since the issuance of Order No. 688, the Commission has required public utilities to increase the availability of a Fast-Track interconnection process for projects up to 5 MW.622 341. The Commission found that, while the existence of Fast-Track interconnection processes does not on its own demonstrate nondiscriminatory access for resources under 20 MW, it does indicate that entities smaller than 20 MW have access to the market. The Commission found that presuming that QFs above 5 MW have such access is 620 Id. PP 628–29 (citing Order No. 688, 117 FERC ¶ 61,078 at P 76; Order No. 688–A, 119 FERC ¶ 61,305 at PP 96–97). 621 Id. P 629. 622 Id. P 630 (citing Small Generator Interconnection Agreements and Procedures, Order No. 792, 78 FR 73240 (Dec. 5, 2013), 145 FERC ¶ 61,159, at P 103 (2013), clarifying, Order No. 792– A, 146 FERC ¶ 61,214 (2014)). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations therefore a reasonable approach to identifying a capacity level at which to update the rebuttable presumption of nondiscriminatory market access.623 342. The Commission explained that, since the issuance of Order No. 688 the Commission has required each RTO/ISO to update its tariff to include a participation model for electric storage resources that established a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100 kW.624 The Commission explained that these proposals require RTO/ISOs to revise their tariffs to provide easier access for smaller resources. The Commission determined that requiring markets to accommodate storage resources as low as 100 kW also supports this finding that resources smaller than 20 MW have nondiscriminatory access to those RTO/ ISO markets. The Commission stated that it believed that these developments support updating the 20 MW presumption to a lower number. 343. The Commission found that, when these changes are viewed together, their cumulative effect demonstrates that it is reasonable for the Commission to maintain a small entity presumption but update its determination of what is a small entity under this presumption under the PURPA Regulations. The Commission found that the prospect of increased participation of distributed energy resources in energy markets further supports the proposition that wholesale markets are accommodating resources with smaller capacities.625 344. The Commission recognized that certain of these precedents would support reducing the presumption below 5 MW and perhaps even lower than 1 MW. The Commission explained that it carefully considered the comments detailing the problems that QFs have had in participating in RTO/ ISO markets, problems that necessarily are more acute for smaller QFs at or near the 1 MW threshold proposed in the NOPR.626 The Commission therefore 623 Id. P 631. P 632 (citing Elec. Storage Participation in Mkts. Operated by Reg’l Transmission Orgs. and Indep. Sys. Operators, 83 FR 9580 (Mar. 6, 2018), Order No. 841, 162 FERC ¶ 61,127, at P 265 (2018)). 625 Id. P 633 (citing Elec. Participation in Mkts Operated by Reg’l Transmission Orgs and Indep. Sys. Operators, 157 FERC ¶ 61,121, at P 129 (2016) (footnote omitted) (‘‘The costs of distributed energy resources have decreased significantly, which when paired with alternative revenue streams and innovative financing solutions, is increasing these resources’ potential to compete in and deliver value to the organized wholesale electric markets.’’)). 626 Id. P 634 (referencing Allco Comments, Docket No. RM19–15–000, at 17–19 (Dec. 3, 2019); Advanced Energy Economy Comments, Docket No. RM19–15–000, at 10–11 (Dec. 3, 2019); DC 624 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 determined that 5 MW is a more reasonable threshold of nondiscriminatory access to RTO/ISO markets. 345. The Commission therefore found it reasonable to update the presumption under these regulations as to what constitutes a small entity that is presumed to have non-discriminatory access to RTO/ISO markets and markets of comparable competitive quality below 20 MW, and that 5 MW represents a reasonable new threshold that accounts for the change of circumstances indicating that 20 MW no longer is appropriate but also accommodates commenters’ concerns that a 1 MW threshold would be too low. The Commission acknowledged that ‘‘there is no unique and distinct megawatt size that uniquely determines if a generator is small.’’ 627 The Commission found that a 5 MW threshold accords with PURPA’s mandate to encourage small power production facilities, recognizes the progress made in wholesale markets as discussed above, and balances the competing claims of those seeking a lower threshold and those seeking a higher threshold.628 346. The Commission explained that individual small power production QFs that are over 5 MW and less than 20 MW can seek to make the case; however, they do not truly have nondiscriminatory access to a market and should still be entitled to a mandatory purchase obligation.629 347. The Commission disagreed with Advanced Energy Economy’s argument that the Commission failed to sufficiently justify its change in policy.630 The Commission noted that, in FCC v. Fox Television, the court stated that, when an agency makes a change in policy, the agency must show that there are good reasons for the change, ‘‘[b]ut it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.’’ 631 Commission Comments, Docket No. RM19–15–000, at 5 (Dec. 3, 2019); Public Interest Organizations Comments, Docket No. RM19–15–000, at 89–90 (Dec. 3, 2019); Solar Energy Industries Comments, Docket No. RM19–15–000, at 45–49 (Dec. 3, 2019)). 627 Order No. 688–A, 119 FERC ¶ 61,305 at P 97. 628 Order No. 872, 172 FERC ¶ 61,041 at P 635. 629 Id. P 636. 630 Id. P 639 (referencing Advanced Energy Economy Comments, Docket No. RM19–15–000, at 6 (Dec. 3, 2019) (citing FCC v. Fox Television, 556 U.S. at 515)). 631 FCC v. Fox Television, 556 U.S. at 515. PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 86705 348. The Commission clarified that it was maintaining its determination from Order No. 688 that small entities potentially may not have nondiscriminatory access for purposes of PURPA section 210(m). The Commission explained that it had determined that using 20 MW as an indicator of what constitutes a small entity is no longer valid. The Commission found that entities below 20 MW increasingly have access to the markets and become familiar with practices and procedures and that markets have since implemented changes to provide easier access to smaller facilities, including small power production QFs, storage facilities, and distributed energy resources. The Commission found that these changes demonstrate a change in facts since the time it issued Order No. 688, which supports updating what constitutes a small entity for purposes of PURPA section 210(m).632 349. The Commission explained that, while it found that it is reasonable to update the rebuttable presumption from 20 MW to 5 MW, it recognized commenters’ concerns regarding specific barriers to participation in RTO markets that may affect the nondiscriminatory access to those markets of some individual small power production facilities between 5 MW and 20 MW. The Commission explained that, to address these concerns, it was revising 18 CFR 292.309(c)(2)(i)–(vi) to include factors that small power production facilities between 5 MW and 20 MW can point to in seeking to rebut the presumption that they have nondiscriminatory access. The Commission clarified that these factors are in addition to the existing ability, pursuant to 18 CFR 292.309(c), to rebut the presumption of access to the market by demonstrating, inter alia, operational characteristics or transmission constraints.633 350. The Commission added to 18 CFR 292.309(c) the following factors: (1) Specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates; (2) the unique circumstances impacting the time/ length of interconnection studies/queue to process small power QF interconnection requests; (3) a lack of affiliation with entities that participate in RTO/ISO markets; (4) a predominant purpose other than selling electricity which would warrant the small power QF being treated similarly to cogenerators (e.g., municipal solid waste 632 Order 633 Id. E:\FR\FM\30DER2.SGM No. 872, 172 FERC ¶ 61,041 at P 638. P 640. 30DER2 86706 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations facilities, biogas facilities, run-of-river hydro facilities, and non-powered dams); (5) the QF has certain operational characteristics that effectively prevent the QF’s participation in a market; and (6) the QF lacks access to markets due to transmission constraints, including 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. The Commission explained that this list was not intended to be an exhaustive list of the factors that a QF could rely upon in seeking to rebut the presumption. The Commission further explained that these factors, among other indicia of lack of nondiscriminatory access, would be assessed by the Commission on a case-by-case basis when considering a claim that the presumption of nondiscriminatory access to the defined markets should be considered rebutted for a specific QF.634 351. The Commission found that the addition of these factors addressed commenters’ concern that not all small power production facilities between 5 and 20 MW may have nondiscriminatory access to competitive markets and facilitates the ability of small power production facilities facing barriers to participation in RTO markets to demonstrate their lack of access.635 The Commission explained, for example, that, while a small power production facility between 5 MW and 20 MW does not need to be physically interconnected to transmission facilities to be considered as having access to the statutorily-defined wholesale electricity markets, there are some small power production facilities between 5 MW and 20 MW that may face additional barriers, such as excessively high costs and pancaked delivery rates, to access wholesale markets.636 352. The Commission further explained that, for example, several commenters expressed concern over the resources or administrative burden for some small power QFs that lack the necessary experience or expertise to participate in energy markets. Recognizing these concerns, the Commission added consideration of both the fact that some small power production facilities will face additional difficulties due to costs, administrative burdens, length of the interconnection study process and the size of the queues and the fact that some small power 634 Id. 635 Id. P 641. P 642. 636 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 production QFs do not have access to the expertise of affiliated entities.637 353. The Commission agreed with commenters that some small power production facilities are similar to cogeneration facilities because their predominant purpose is not power production. The Commission found that, like cogeneration facilities, the sale of electricity from these small power production facilities is a byproduct of another purpose and these facilities might not be as familiar with energy markets and the technical requirements for such sales. The Commission therefore allowed the small subset of small power production facilities that are between 20 MW and 5 MW to rebut the presumption of access to markets when the predominant purpose of the facility is other than selling electricity, and the sale of electricity is simply a byproduct of that purpose. The Commission recognized that, like all QFs over 20 MW, there may be particular small power production facilities with certain operational characteristics or that are 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.638 1. Requests for Rehearing and Clarification 354. Northwest Coalition, Public Interest Organizations, and Solar Energy Industries contend that the Commission erred in revising the rebuttable presumption for QFs between 5 MW and 20 MW, arguing that the Commission failed to demonstrate that QFs between 5 MW and 20 MW have nondiscriminatory access to markets prior to shifting the burden from requiring utilities to demonstrate QFs 20 MW and under have non-discriminatory access to markets to requiring QFs between 5 MW and 20 MW to prove that they do not have access.639 Public Interest Organizations, Northwest Coalition and Solar Energy Industries argue that, under the terms of section 210(m), a utility must ‘‘set forth the factual basis’’ showing that QFs have non-discriminatory access to the market, and the Commission is statutorily required to determine if the record 637 Id. P 643. P 644. 639 Public Interest Organizations Request for Rehearing and Clarification at 136–37 (citing 5 U.S.C. 556(d); Nat’l Min. Ass’n v. Babbitt, 172 F.3d 906, 910 (D.C. Cir. 1999); United Scenic Artists v. NLRB, 762 F.2d 1027, 1034 (D.C. Cir. 1985)); Northwest Coalition Request for Rehearing at 47– 48; Solar Energy Industries Request for Rehearing and/or Clarification at 38–41. 638 Id. PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 sufficiently demonstrates that QFs have non-discriminatory access to the market before terminating the mandatory purchase obligation.640 Public Interest Organizations argue that general presumptions that conditions are improving for small QFs to access competitive markets is insufficient justification.641 355. Northwest Coalition and Public Interest Organizations assert that there is no evidence that circumstances have changed since Order No. 688, arguing that most QFs 20 MW and under (1) are still connected to lower-voltage distribution facilities that are subject to state regulations instead of Commissionregulated interconnection procedures; and (2) require technical enhancements, face pancaked rates, and additional administrative burdens.642 Public Interest Organizations contend that the Commission has repeatedly concluded that QFs below 20 MW face obstacles to transmission access in RTO/ISO regions that prevent them from participating in competitive markets.643 Northwest Coalition and Public Interest Organizations claim that the only two examples of small QFs selling into wholesale markets that the Commission included in the final rule did so with a larger, more experienced company acting on their behalf.644 Public Interest Organizations and Northwest Coalition contend that there is no evidence that small QFs are actually participating in regional markets, therefore, it is impossible to conclude that small QFs do so regularly.645 356. Northwestern Coalition and Public Interest Organizations dispute the Commission’s claims that (1) small QFs have gained a better understanding of the markets; (2) changes to interconnection rules indirectly support small QFs’ access to markets; and (3) changes in RTO/ISO market rules to accommodate energy storage resources support the Commission’s finding that QFs between 5 and 20 MW have nondiscriminatory access to markets.646 Northwestern Coalition and Public Interest Organizations argue that the Commission provided no evidence that 640 Public Interest Organizations Request for Rehearing at 136 (citing 16 U.S.C. 824a–3(m)(3)). 641 Solar Energy Industries Request for Rehearing and/or Clarification at 38–39; Public Interest Organizations Request for Rehearing and Clarification at 40. 642 Public Interest Organizations Request for Rehearing at 138–140. 643 Id. at 138–39. 644 Id. at 140. 645 Id. at 139; Northwest Coalition Request for Rehearing at 49–50. 646 Northwest Coalition Request for Rehearing at 50; Public Interest Organizations Request for Rehearing at 137–140. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations small QFs have gained a better understanding or how that understanding helped them overcome the obstacles small QFs face in accessing markets.647 Northwestern Coalition and Public Interest Organizations assert that the adoption of fast-track procedures for facilities under 5 MW or accommodations for energy storage resources do nothing to support access by QFs between 5 and 20 MW to markets.648 Northwest Coalition contends that the Commission also ignored evidence that smaller resources face unique barriers to accessing competitive markets, such as that the standard trading block in wholesale markets is 25 MW, or that requiring transmission be scheduled in 1 MW blocks place a disproportionate burden on small generators.649 357. One Energy claims that behindthe-meter distributed energy resources (DERs) are more like cogeneration than small power production because their primary purpose is to directly power homes and business and not to sell energy at wholesale.650 Therefore, One Energy argues that the final rule was ‘‘unduly discriminatory’’ in finding that behind-the-meter DERs between 5 and 20 MW have non-discriminatory access to markets. One Energy asserts that behind-the-meter resources should be exempted from the reduction like cogeneration facilities. Further, One Energy contends that the Commission cited QFs that are similar to cogeneration facilities, such as solid waste facilities and biogas facilities, but did not specifically include behind-themeter DERs. One Energy argues that at a minimum the Commission should list behind-the-meter DERs like other categories of small power production facilities that are entitled to rebut the presumption of nondiscriminatory market access.651 358. One Energy also seeks clarification as to how the new same site determination rules will affect the PURPA section 210(m) presumption that small power production facilities with a net power production capacity at or below 5 MW do not have nondiscriminatory access to markets. One Energy states that it has three behind-the-meter wind projects with 647 Northwest Coalition Request for Rehearing at 49; Public Interest Organizations Request for Rehearing at 139. 648 Northwest Coalition Request for Rehearing at 51–52; Public Interest Organizations Request for Rehearing at 140. 649 Northwest Coalition Request for Rehearing at 52–53. 650 One Energy Request for Rehearing and Clarification at 5–7. 651 Id. at 7. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 three separate off-takers, within one mile of each other. One Energy is concerned that, if one of the off-takers no longer takes service, the Commission would aggregate the formerly behindthe-meter facility with the other facilities within one mile, find that the three together are 15 MW and consequently find that the formerly behind-the-meter facility is not eligible for the below 5 MW presumption.652 359. Public Interest Organizations assert that the rebuttable list of factors is only included in 18 CFR 292.309(c) and was not added to 18 CFR 292.309(e) that applies to QFs in ISO–NE, MISO, NYISO and PJM nor in 18 CFR 292.309(f) that applies to QFs in ERCOT. Public Interest Organizations request that, to prevent unnecessary confusion, the Commission incorporate the factors listed in 18 CFR 292.309(c) into both (e) and (f).653 2. Commission Determination 360. We disagree with parties’ arguments and reaffirm the finding that market conditions have changed since the issuance of Order No. 688. In establishing the original rebuttable presumption of 20 MW in Order No. 688, the Commission relied on the market conditions at that time. As the Commission stated, markets have matured and the markets have provided, and continue to provide, increased access to smaller resources demonstrating the need for the Commission to reconsider its definition of small power production QFs. In the final rule, the Commission updated the relevant definition of a small power production facility for purposes of 292.309 to be 5 MW and, despite the arguments on rehearing, we affirm that finding here.654 361. We disagree with arguments that the Commission did not provide sufficient support for its finding that QFs between 5 and 20 MW can be presumed to have non-discriminatory access competitive markets. Specifically, the Commission explained that, since the issuance of Order No. 688, the Commission has required each RTO/ISO to update its tariff to include a participation model for electric storage resources that established a minimum size requirement for participation in the RTO/ISO markets that does not exceed 100 kW.655 The Commission explained that these proposals require RTO/ISOs 652 Id. at 8–9. Interest Organizations Request for Rehearing at 143–44. 654 Order No. 872, 172 FERC ¶ 61,041 at PP 629– 633. 655 Id. P 632 (citing Order No. 841, 162 FERC ¶ 61,127 at P 265). 653 Public PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 86707 to revise their tariffs to provide easier access for smaller resources. The Commission determined that requiring markets to accommodate storage resources as low as 100 kW also supports this finding that resources smaller than 20 MW have nondiscriminatory access to those RTO/ ISO markets. Further, that the Commission chose a 5 MW cut-off for eligibility for the fast-track procedures represents an implicit judgment by the Commission that facilities larger than 5 MW do not need such procedures to be able to interconnect to the grid.656 The Commission stated that it believed that these developments support updating the 20 MW presumption to a lower number.657 362. While these factors were a sufficient basis to support the Commission’s action, they were by no means an exhaustive recitation of relevant developments in competitive markets since Order Nos. 688. For example, as the Commission noted in another recent rulemaking, all of the RTOs/ISOs have at least one participation model that allows resources as small as 100 kW to participate in their markets.658 Indeed, even since the final rule, the Commission has continued to provide greater opportunities for small power production facilities to participate in wholesale organized markets.659 363. Regarding arguments from Public Interest Organizations and Northwest Coalition that the final rule failed to consider that smaller resources face unique barriers to accessing competitive markets, we disagree. In the final rule, the Commission carefully considered such concerns and amended 18 CFR 292.309(c) to include factors that small power production QFs between 5 and 20 MW can use to rebut the presumption of non-discriminatory access to markets.660 These factors include (1) specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates; (2) unique circumstances impacting the time/ 656 Id. PP 630–31. P 632. 658 Order No. 841, 162 FERC ¶ 61,127 at P 272. 659 See Participation of Distributed Energy Resource Aggregations in Markets Operated by Regional Transmission Organizations and Independent System Operators, Order No. 2222, 172 FERC ¶ 61,247 (2020). While Order No. 2222 will not become effective until after the effective date of the rulemaking in the instant proceeding and applies only to Commission-jurisdictional RTOs/ISOs, we find it appropriate to mention it here to provide another example of the greater opportunities for small power producer participation in organized electric markets. 660 Order No. 872, 172 FERC ¶ 61,041 at P 640. 657 Id. E:\FR\FM\30DER2.SGM 30DER2 86708 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations length of interconnection studies/queue to process small power QF interconnection requests; (3) lack of affiliation with entities that participate in RTO/ISO markets; (4) predominant purpose other than selling electricity which would warrant the small power QF being treated similarly to cogenerators (e.g., municipal solid waste facilities, biogas facilities, run-of-river hydro facilities, and non-powered dams); (5) having certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; and (6) lack of access to markets due to transmission constraints, including 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.661 The Commission adopted the first four of these factors recognizing that some small power production facilities between 5 and 20 MW may lack nondiscriminatory access to markets.662 The first four factors address concerns that a small power production QF may lack expertise, either directly or within its corporate family, to access markets defined in PURPA section 210(m)(1) or has operational characteristics or is remotely located such that it faces additional transmission obstacles to reach such markets. Additionally, the Commission applied the last two factors on the list, i.e., ‘‘operational characteristics’’ and ‘‘transmission constraints,’’ which were originally adopted in Order No. 688 for QFs between 20 and 80 MW, to permit QFs between 5 and 20 MW to rebut the presumption that they have nondiscriminatory access to markets. This list of factors, we stress, is not exclusive but was adopted in the final rule to address the specific concerns commenters raised in responding to the NOPR. 364. Like the initial regulations implementing PURPA section 210(m), the final rule’s revision to the rebuttable presumption merely provides a framework for evaluating whether individual small power production facilities have nondiscriminatory access to the markets defined in PURPA section 210(m); it does not decide that every small power producer QF between 5 MW and 20 MW in fact has nondiscriminatory access. The D.C. Circuit has held that ‘‘[t]he fact that FERC chose to adopt certain rebuttable presumptions via rulemaking, rather than by case-by-case adjudication, does 661 Id. 662 Id. P 641. PP 640, 642. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 not violate any of the statute’s requirements.’’ 663 Contrary to Public Interest Organizations’ argument,664 the rebuttable presumption, if applicable, provides the requisite ‘‘factual basis’’ for a utility to invoke. Conversely, the corresponding factors for rebutting this presumption, if applicable, provide a ‘‘factual basis’’ that a QF may invoke to rebut that presumption. 365. In undertaking this rulemaking, the Commission stated its intent to modify PURPA in light of changed circumstances since it first implemented PURPA section 210(m).665 During the rulemaking process, the Commission appropriately reviewed the MW level at which to set a presumption of nondiscriminatory market access for small power production qualifying facilities. As discussed above, a variety of factors have led to the increased ability to access wholesale markets by small power production qualifying facilities, and in supporting this trend of an increased ability to access the energy market, the Commission has established policies and procedures such as the fasttrack interconnection process, among others, to accommodate and encourage smaller energy resources’ participation in organized electricity markets.666 Thus, as the Commission stated in the final rule, 20 MW is no longer the appropriate threshold to presume nondiscriminatory access to markets for small power production QFs under PURPA section 210(m).667 366. In the final rule, as noted above, the Commission addressed commenters’ concerns by establishing a list of established specific factors that QFs between 5 and 20 MW can utilize, among others, to rebut nondiscriminatory access.668 Commenters stated that small power production QFs 20 MW and less are often located on local distribution systems and have additional hurdles to gain transmission access to energy markets. To address this concern, the Commission established the first factor: Specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates.669 367. In response to commenters’ concerns over the potential disproportionate high costs and delays a small power production QF between 5 663 AFPA v. FERC, 550 F.3d at 1183. Interest Organizations Request for Rehearing at 136 (citing 16 U.S.C. 824a–3(m)(3)). 665 See NOPR, 168 FERC ¶ 61,184 at P 127. 666 See Order No. 872, 172 FERC ¶ 61,041 at PP 628–33. 667 See id. P 627. 668 Id. PP 641–42. 669 Id. 664 Public PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 and 20 MW could face, the Commission added the second factor: The unique circumstances impacting the time or length of interconnection studies or queue to process small power producer QF interconnection requests.670 368. Commenters asserted that those QFs between 5 and 20 MW that have larger energy affiliates could access the knowledge and expertise needed to participate in such markets, whereas other QFs could not, which led the Commission to adopt the third factor: A lack of affiliation with entities that participate in RTO/ISO markets.671 369. Commenters representing solid waste, biogas, and hydro facilities claimed that some small power production QFs between 5 and 20 MW were more similar to cogeneration QFs than small power production QFs in that their primary purpose was not the sale of electricity. In response, the Commission included the fourth factor: A predominant purpose other than selling electricity, which would warrant the small power QF being treated similarly to cogenerators (e.g., municipal solid waste facilities, biogas facilities, run-of-river hydro facilities, and non-powered dams).672 370. As the Commission explained in the final rule (and reiterated above), this is not intended to be an exhaustive list but is intended to provide a framework for the Commission to evaluate small power producer QFs between 5 and 20 MW who wish to rebut the presumption of nondiscriminatory access.673 Any small power producer QF may use these factors (or other evidence) to rebut the presumption that a specific QF between 5 MW and 20 MW has nondiscriminatory access to markets, and the Commission will review each request on a case-by-case basis. 371. One Energy argues that a behindthe-meter DER’s primary purpose is to generate electricity for its host and any potential sale is secondary like cogeneration facilities. While not ruling on the validity of this argument with respect to any behind-the-meter DER, we clarify that small power production QFs that are behind-the-meter DERs are permitted to argue that the fourth factor which states ‘‘a predominant purpose other than selling electricity which would warrant the small power QF being treated similarly to cogenerators (e.g., municipal solid waste facilities, biogas facilities, run-of-river hydro facilities, and non-power dams)’’ supports their argument that they lack 670 Id. PP 641, 643. 671 Id. 672 Id. 673 Id. E:\FR\FM\30DER2.SGM PP 641, 644. P 641. 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations nondiscriminatory access to markets.674 We will rule on any such arguments on a case-by-case basis taking into account the specific facts of the DER making the argument. 372. We grant Public Interest Organizations request for clarification that the list of factors in section 18 CFR 292.309(c) that small power production facilities between 5 MW and 20 MW can point to in seeking to rebut the presumption that they have nondiscriminatory access was not—but should be—added to 18 CFR 292.309(e) that applies to QFs in ISO–NE, MISO, NYISO, and PJM, and also to 18 CFR 292.309(f) that applies to QFs in ERCOT. In order to avoid confusion, we hereby incorporate the factors listed in 18 CFR 292.309(c) into both (e) and (f). 373. In response to One Energy’s request for clarification as to how the new same site determination rules will affect the PURPA section 210(m) presumption, in determining whether a QF is eligible for the rebuttable presumption that a qualifying small power production facility with a capacity at or below 5 MW does not have nondiscriminatory access to the market, the Commission will look primarily at the net certified capacity of each QF. We note that the regulations state that, for the purposes of implementing the rebuttable presumption of nondiscriminatory access, the Commission will not be bound by the standards (i.e., the new ten-mile rule) of section 292.204(a)(2). The Commission will review, on a caseby-case basis, any question that involves applying both 18 CFR 292.309 and 292.204 to the same entity. We further note that, while we will look primarily at the net certified capacity of each QF, we may consider, inter alia, the new ‘‘ten-mile rule.’’ G. Legally Enforceable Obligation 374. In the final rule, the Commission adopted the NOPR proposal to require QFs to demonstrate that a proposed project is commercially viable and that the QF has a financial commitment to construct the proposed project, pursuant to objective, reasonable, statedetermined criteria in order to be eligible for a LEO.675 The Commission affirmed that the states have flexibility in determining what constitutes an acceptable showing of commercial viability and financial commitment, albeit subject to the criteria being objective and reasonable. The Commission found that requiring a showing of commercial viability and financial commitment, based on objective and reasonable criteria, would ensure that no electric utility obligation is triggered for those QF projects that are not sufficiently advanced in their development and, therefore, for which it would be unreasonable for a utility to include in its resource planning. At the same time, the Commission found, the criteria also ensure that the purchasing utility does not unilaterally and unreasonably decide when its obligation arises. The Commission believed that this struck the right balance for QF developers and purchasing utilities and should encourage development of QFs.676 375. The Commission explained that examples of factors a state could reasonably require are that a QF demonstrate that it is in the process of at least some of the following prerequisites: (1) Taking meaningful steps to obtain site control adequate to commence construction of the project at the proposed location and (2) filing an interconnection application with the appropriate entity. The Commission found that the state could also require that the QF show that it has submitted all applications, including filing fees, to obtain all necessary local permitting and zoning approvals. The Commission also clarified that it is appropriate for states to require a QF to demonstrate that it is in the process of obtaining site control or has applied for all local permitting and zoning approvals, rather than requiring a QF to show that it has obtained site control or secured local permitting and zoning. Moreover, the Commission noted that the factors that the state requires must be factors that are within the control of the QF.677 376. The Commission clarified that demonstrating the required financial commitment does not require a demonstration of having obtained financing. The Commission explained that requiring QFs to, for example, apply for all relevant permits, take meaningful steps to seek site control, or meet other objective and reasonable milestones in the QF’s development can sufficiently demonstrate QF developers’ financial commitment to the QFs’ development and allows utilities to reasonably rely on the LEO in planning for system resource adequacy.678 377. The Commission explained that the intent of these factors is to provide a reasonable balance between providing QFs with objective and transparent milestones up front that are needed to obtain a LEO, allowing states the 676 Id. 674 Id. 675 Id. 677 Id. P 684. VerDate Sep<11>2014 678 Id. 19:00 Dec 29, 2020 Jkt 253001 PO 00000 P 685. P 687. Frm 00055 Fmt 4701 Sfmt 4700 86709 flexibility to establish factors that address the individual circumstances of each state, and increasing utilities’ ability to accurately plan their systems.679 The Commission further explained that establishing objective and reasonable factors is intended to limit the number of unviable QFs obtaining LEOs and unnecessarily burdening utilities that currently have to plan for QFs that obtain a LEO very early in the process but ultimately are never developed.680 The Commission explained that, in adopting this provision, the Commission was raising the bar to prevent speculative QFs from obtaining LEOs, with an associated burden on purchasing utilities, but was not establishing a barrier for financially committed developers seeking to develop commercially viable QFs. 378. The Commission disagreed that establishing reasonable, transparent factors is an onerous barrier or will cause a substantial reduction in QFs. The Commission found that the objective and reasonable criteria it had established would protect QFs against onerous requirements for LEOs that hinder financing, such as a requirement for a utility’s execution of an interconnection agreement 681 or power purchase agreement,682 requiring that QFs file a formal complaint with the state commission,683 limiting LEOs to only those QFs capable of supplying firm power,684 or requiring the QF to be able to deliver power in 90 days.685 The Commission found that, by making clear that such conditions are not permitted, and by instead providing objective criteria to clarify when a LEO commences, the LEO provisions it adopted would encourage the development of QFs. 379. The Commission, however, declined to establish specific factors for the states to adopt, to establish a baseline for eligible factors, or to otherwise limit states’ flexibility. The Commission found that states are in the best position to determine, in the first instance, what specific factors would 679 Id. P 688. 680 Id. 681 Id. P 689 (citing FLS, 157 FERC ¶ 61,211 at P 26 (stating that requiring signed interconnection agreement as prerequisite to LEO is inconsistent with PURPA Regulations)). 682 Id. (citing Murphy Flat Power, LLC, 141 FERC ¶ 61,145, at P 24 (2012) (finding that requiring a signed and executed contract with an electric utility as a prerequisite to a LEO is inconsistent with PURPA Regulations)). 683 Id. (citing Grouse Creek Wind Park, LLC, 142 FERC ¶ 61,187, at P 40 (2013)). 684 Id. (citing Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d at 400). 685 Id. (citing Power Resource Group, Inc. v. Public Utility Comm’n of Texas, 422 F.3d 231 (5th Cir. 2005)). E:\FR\FM\30DER2.SGM 30DER2 86710 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations best suit the specific circumstances of each state so long as they are objective and reasonable and provided the suggested prerequisites above as examples of objective and reasonable factors.686 380. The Commission explained that the concept of a LEO was specifically adopted to prevent utilities from circumventing the mandatory purchase requirement under PURPA by refusing to enter into contracts.687 The Commission stated that it had found that requiring a QF to have a utilityexecuted contract or interconnection agreement or requiring the completion of a utility-controlled study places too much control over the LEO in the hands of the utility and defeats the purpose of a LEO and is inconsistent with PURPA.688 The Commission stated that, when reviewing factors to demonstrate commercial viability and financial commitment, states thus should place emphasis on those factors that show that the QF has taken meaningful steps to develop the QF that are within the QF’s control to complete, and not on those factors that a utility controls. The Commission explained, for example, that requiring a QF to make a deposit or whether the QF has applied for system impact, interconnection or other needed studies are the types of factors that may show that the QF has taken meaningful steps to develop the QF that are within the QF’s control and the type of objective and reasonable standards that states can consider in their implementation.689 1. Requests for Rehearing 381. Public Interest Organizations argue that the final rule’s provision allowing states to require a showing of commercial viability and financially commitment results in additional barriers to QFs without sufficient safeguards to protect QFs from states’ 686 Id. P 690. P 695 (citing JD Wind 1, LLC, 129 FERC ¶ 61,148 at P 25, reh’g denied, 130 FERC ¶ 61,127 (citing Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880); see also Midwest Renewable Energy Projects, LLC, 116 FERC ¶ 61,017 (2006)). 688 Id. (citing FLS, 157 FERC ¶ 61,211 at P 23 (finding such requirements ‘‘allows a utility to control whether and when a legally enforceable obligation exists—e.g., by delaying the facilities study’’)). 689 Id. 687 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 abuses. Public Interest Organizations contend that the Commission erred in failing to justify how these factors are consistent with PURPA’s purpose of encouraging QFs. Public Interest Organizations assert that the Commission ignored the evidence that utilities adopt requirements to avoid their mandatory purchase obligation and states often acquiesce. Public Interest Organizations contend that the requirement that the factors be reasonable and objective are insufficient to protect QFs in seeking to establish a LEO and reiterate their request that the Commission establish specific limits on the kind of showing that is required before a LEO is established.690 382. Public Interest Organizations argue that the Commission has repeatedly issued declaratory orders showing the unlawfulness of several LEO restrictions adopted by states but has repeatedly declined to initiate enforcement actions. They add that state regulators and courts have dismissed the Commission’s declaratory orders as advisory and states have supported utilities’ efforts to restrict LEOs. Public Interest Organizations assert that the Commission erred in considering the potential benefits to the utility’s planning process of imposing new burdens on QFs. Instead, they contend that Congress directed the Commission to develop rules that would encourage QFs, not impose new burdens on QFs to benefit a utility’s planning process.691 383. Mr. Mattson argues that requiring financing as a factor to obtain a LEO is problematic because a LEO is needed to obtain financing.692 2. Commission Determination 384. We disagree with the arguments raised on rehearing. The Commission created the LEO concept in Order No. 69 and has the authority to refine its contours in a way that continues to encourage QF development. The final rule achieves that result. Therefore, we reaffirm the Commission’s finding in the final rule that requiring a showing of commercial viability and financial 690 Public Interest Organizations Request for Rehearing at 145. 691 Id. at 147–49. 692 Mr. Mattson Motion for Time, Reconsideration, and Request Answers at 2. PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 commitment based on objective and reasonable criteria encourages the development of QFs.693 It also strikes an appropriate balance between the needs of the QFs and the needs of the purchasing utilities. 385. That the revisions to the LEO eligibility requirements encourage the development of QFs is clear. In the past, purchasing utilities impeded the development of QFs by unilaterally erecting barriers to QFs establishing an obligation, such as by requiring a QF to have entered into an interconnection agreement or a power purchase agreement with the purchasing utility. It would then be up to the purchasing utility to decide whether and when to enter into such an agreement. The Commission changed that dynamic in the final rule by adopting regulations formalizing Commission precedent that takes away from the purchasing utility the unilateral ability to determine when the purchasing utility’s obligation arises. Under the final rule, stateestablished objective and reasonable criteria would clarify when an obligation arises, rather than leave it to the purchasing utility.694 What is more, the criteria should be such that the ability to meet the criteria is in the hands of the QF and not in the hands of the purchasing utility. For example, it is the QF, and not the purchasing utility, that decides when it will apply for necessary permits or when it will apply for an interconnection agreement.695 Therefore, providing guidelines for establishing reasonable and objective criteria will prevent purchasing utilities from unilaterally and unreasonably deciding when its obligation to purchase arises and provides guidance to QFs seeking to establish a LEO. Moreover, to meet the needs of the purchasing utility, requiring a showing of commercial viability and financial commitment will ensure that no electric utility obligation is triggered for those QF projects that are not sufficiently advanced in their development and, therefore, for which it would be unreasonable for a utility to include in its resource planning. 693 Order No. 872, 172 FERC ¶ 61,041 at P 684. P 690. 695 Id. P 694. 694 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 386. The criteria the Commission provided under the final rule are different from the prerequisites that the Commission in the past has found inconsistent with PURPA or that courts have permitted despite such Commission precedent.696 Objective and reasonable criteria for demonstrating commercial viability and financial commitment to proceed give a better sense to a state and a purchasing utility that a QF is more likely to be built. In comparison, requiring that a utility execute an interconnection agreement 697 or power purchase agreement,698 a QF file a formal complaint with the state commission,699 a QF be capable of supplying firm power,700 or a QF be able to deliver power in 90 days 701 are likely beyond the control of a QF or procedural requirements that do not reveal the likelihood that a QF will be developed and are therefore inappropriate obstacles to QF development. 387. Allowing states to require a showing of commercial viability and financial commitment from QFs will enable utilities and states to know which QFs are more likely to be built, thus enabling them to better plan their systems and accommodate all sources of QF power, and are just and reasonable to the consumers of the electric utility. States are not required to adopt specific criteria, but, as with other PURPA Regulations, the Commission has established the boundaries within which each state can adopt appropriate criteria that address each states’ unique characteristics. As explained in the final rule, providing guidance as to how QFs can establish commercial viability and a financial commitment will provide certainty that QF developers can rely 696 See id. P 34 (citing examples of stateestablished prerequisites to obtaining LEOs that are inconsistent with PURPA Regulations because they hinder QF financing). 697 Id. P 689 (citing FLS, 157 FERC ¶ 61,211 at P 26 (stating that requiring signed interconnection agreement as prerequisite to LEO is inconsistent with PURPA Regulations)). 698 Id. (citing Murphy Flat Power, LLC, 141 FERC ¶ 61,145 at P 24 (finding that requiring a signed and executed contract with an electric utility as a prerequisite to a LEO is inconsistent with PURPA Regulations)). 699 Id. (citing Grouse Creek Wind Park, LLC, 142 FERC ¶ 61,187 at P 40). 700 Id. (citing Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d at 400 (requiring that only QFs capable of providing firm power are entitled to an LEO)). 701 Id. (citing Power Resource Group, Inc. v. Pub. Util. Comm’n of Texas, 422 F.3d 231, 237–39 (5th Cir. 2005) (requiring that only QFs capable of delivering power within 90 days are entitled to an LEO)). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 upon, thereby encouraging QF development.702 We believe that providing clear, objective, and reasonable guidelines for establishing a LEO will also reduce disputes between state commissions, utilities, and QF developers. 388. Finally, the final rule explicitly provided that ‘‘obtaining a PPA or financing cannot be required to show proof of financial commitment.’’ 703 III. Information Collection Statement 389. The Paperwork Reduction Act 704 requires each federal agency to seek and obtain the Office of Management and Budget’s (OMB) approval before undertaking a collection of information (including reporting, record keeping, and public disclosure requirements) directed to 10 or more persons or contained in a rule of general applicability. OMB regulations require approval of certain information collection requirements contained in rulemakings (including deletion, revision, or implementation of new requirements).705 Upon approval of a collection of information, OMB will assign an OMB control number and an expiration date. Respondents subject to the information collection of a rule will not be penalized for failing to respond to the collection of information unless the collection of information displays a valid OMB control number. 390. With respect to the Form No. 556 information collection (Certification of Qualifying Facility (QF) Status for a Small Power Production or Cogeneration Facility, OMB Control No. 1902–0075), in the final rule, the Commission affirmed that the relevant burdens derive from the change from the Commission’s current ‘‘one-mile rule’’ for determining whether generation facilities should be considered to be at the same site for purposes of determining qualification as a qualifying small power production facility, to allowing an interested person or other entity challenging a QF certification the opportunity to file a protest, without a fee, to rebut the presumption that affiliated small power production QFs using the same energy resource and located more than one mile and less than 10 miles from the applicant facility are considered to be at separate sites. The Commission stated 702 Id. P 684. P 687 (emphasis added). 704 44 U.S.C. 3501–21. 705 See 5 CFR 1320.11. 703 Id. PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 86711 that it was making the following changes to the Form No. 556 which affect the burden of the information collection: • Allow an interested person or other entity challenging a QF certification the opportunity to file a protest, without a fee, to an initial certification (both selfcertification and application for Commission certification) filed on or after the effective date of the final rule, or to a recertification (self-recertification or application for Commission recertification) that makes substantive changes to the existing certification that is filed on or after the effective date of the final rule. • Require all applicants to report the applicant facility’s geographic coordinates, rather than only for applications where there is no street address. • Change the current requirement to identify any affiliated facilities with electrical generating equipment within one mile of the applicant facility’s electrical generating equipment to instead require applicants to list only affiliated small power production QFs using the same energy resource one mile or less from the applicant facility. • Additionally require applicants to list affiliated small power production QFs using the same energy resource whose nearest electrical generating equipment is greater than one mile and less than 10 miles from the electrical generating equipment of the applicant facility. • Require the applicant to list the geographic coordinates of the nearest ‘‘electrical generating equipment’’ of both its own facility and the affiliated small power production QF in question based on the definitions adopted in the final rule. • Provide space for the applicant to explain, if it chooses to do so, why the affiliated small power production QFs using the same energy resource, that are more than one mile and less than 10 miles from the electrical generating equipment of the applicant facility, should be considered to be at separate sites from the applicant’s facility, considering the relevant physical and ownership factors identified in the final rule. The Commission stated that these changes in burden are appropriate because they are necessary to meet the statutory requirements contained in PURPA. E:\FR\FM\30DER2.SGM 30DER2 86712 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 391. The Commission included the following table (shown below) which provided estimated changes to the burden and cost of the Form No. 556 due to the final rule.706 (The estimates have not changed from the final rule.) FERC–556, CHANGES DUE TO FINAL RULE IN DOCKET NOS. RM19–15–000 AND AD16–16–000 707 Facility type Filing type Number of respondents Annual number of responses per respondent (1) (2) Total number of responses Increased average burden hours & cost per response ($) Increased total annual burden hours & total annual cost ($) Increased annual cost per respondent ($) (1) * (2) = (3) (4) (3) * (4) = (5) (5) ÷ (1) = (6) no change (1.5 hrs.); $0. no change (1.5 hrs.); $0. no change (50 hrs.); $0. no change (1,297.5 hrs.); $0. no change (118.125 hrs.); $0. no change (62.5 hrs.); $0. 2,247.5 hrs.; $186,542.5. Cogeneration and Small Power Production Facility ≤1 MW 708. Cogeneration Facility >1 MW Self-certification .................... no change (692). no change (1.25). no change (865). Self-certification .................... no change (63). no change (1.25). no change (78.75). Cogeneration Facility >1 MW Application for FERC certification. no change (1) no change (1.25). no change (1.25). Small Power Production Facility >1 MW, ≤1 Mile from Affiliated Small Power Production QF. Small Power Production Facility >1 MW, ≤1 Mile from Affiliated Small Power Production QF. Small Power Production Facility >1 MW, >1 Mile, <10 Miles from Affiliated Small Power Production QF. Small Power Production Facility >1 MW, >1 Mile, <10 Miles from Affiliated Small Power Production QF. Small Power Production Facility >1 MW, ≥10 Miles from Affiliated Small Power Production QF. Small Power Production Facility >1 MW, ≥10 Miles from Affiliated Small Power Production QF. Self-certification .................... no change (899) 709. no change (1.25). no change (1,123.75). 2 hrs.; $166 ... Application for FERC certification. no change (0) no change (1.25). no change (0) 6 hrs.; $498 ... no change (0 hrs.); $0. Self-certification .................... no change (900). no change (1.25). no change (1,125). 8 hrs.; $664 ... 9,000 hrs.; $747,000. Application for FERC certification. no change (0) no change (1.25). no change (0) 12 hrs.; $996 no change (0 hrs.); $0. Self-certification .................... no change (899). no change (1.25). no change (1,123.75). 2 hrs.; $166 ... 2,247.5 hrs.; $186,542.5. Application for FERC certification. no change (0) no change (1.25). no change (0) 6 hrs.; $498 ... no change (0 hrs.); $0. ............................................... no change (3,454). ........................ no change (4,317.5). ....................... 13,495 hrs.; $1,120,085. FERC–556, Total Additional Burden and Cost Due to Final Rule. A. Request for Rehearing 392. Public Interest Organizations state that Solar Energy Industries questioned the Commission’s burden estimate in the NOPR, anticipating that the actual burden will be far higher.710 Public Interest Organizations assert that the Commission dismissed Solar Energy Industries’ estimates that the new rule 706 There were no rehearing requests related to the estimated burden changes for the FERC–912 (PURPA Section 210(m) Notification Requirements Applicable to Cogeneration and Small Power Production Facilities; OMB Control No. 1902– 0237), so it is not addressed further. 707 The figures in this table reflect estimated changes to the current OMB-approved inventory for the Form No. 556 (approved by the Office of Management and Budget (OMB) on November 18, 2019). As of October 21, 2020, the Paperwork Reduction Act (PRA) packages for the reporting requirements in the final rule in Docket Nos. RM19–15 and AD16–16 are still pending review at OMB. Where ‘‘no change’’ is indicated, the current figure is included parenthetically for information VerDate Sep<11>2014 20:05 Dec 29, 2020 Jkt 253001 would require an additional 90 to 120 hours per year to comply 711 without providing additional justification or explanation for the Commission’s time and expense estimates, which is arbitrary and capricious.712 $0 0 0 207.5 0 830 0 207.5 0 ........................ Industries comments and explained why it did not agree with Solar Energy Industries’ estimates.713 Additionally, we note that while other commenters agreed that the NOPR’s proposals would result in increased administrative B. Commission Determination 393. The Commission in the final rule directly addressed Solar Energy only. Those parenthetical figures are not included in the final total for column 5. Commission staff believes that the industry is similarly situated in terms of wages and benefits. Therefore, cost estimates are based on FERC’s 2020 average hourly wage (and benefits) of $83.00/hour. (The submittal to and approval of OMB in 2019 for Form No. 556 was based on FERC’s 2018 average annual wage hourly rate of $79.00/hour. Because the change from the $79.00 hourly rate to the current $83.00 hourly rate was not due to the final rule, this chart does not depict this increase.) 708 Not required to file. 709 In the Form No. 556 approved by OMB in 2019, for the category ‘‘Small Power Production Facility > 1 MW, Self-certification,’’ we estimated the number of respondents at 2,698. We have now PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 divided that category into three categories: ‘‘Small Power Production Facility >1 MW, ≤1 Mile from Affiliated Small Power Production QF,’’ ‘‘Small Power Production Facility >1 MW, >1 Mile, <10 Miles from Affiliated Small Power Production QF,’’ ‘‘Small Power Production Facility >1 MW, ≥10 Miles from Affiliated Small Power Production QF.’’ In this column, the numbers 899, 900, and 899 are a distribution of those same estimated 2,698 respondents across the three categories. 710 Public Interest Organizations Request for Rehearing at 129. 711 Id. (citing Solar Energy Industries Comments, Docket No. RM19–15–000, at 52 (Dec. 3, 2019)). 712 Id. at 129–30. 713 Order No. 872, 172 FERC ¶ 61,041 at PP 552– 56. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations burden and expense,714 Solar Energy Industries was the only commenter to provide a numerical estimate to challenge the Commission’s proposed estimates. The Commission nevertheless increased its burden estimates in the final rule in response to the comments received.715 We also note that Solar Energy Industries did not independently support its estimate of increased burden of 90 to 120 hours. Rather, Solar Energy Industries relied on a separate rulemaking proceeding for a different regulatory program administered by the Commission,716 and stated, without justification, that it believed the estimates for an ultimately withdrawn portion of that rulemaking (the proposed Connected Entity Information requirement) are a reasonable approximation of the burden that QFs would face in complying with the new requirements in the final rule.717 While both rulemakings require the disclosure of affiliate information, the withdrawn Connected Entity Information proposal would have also required reporting of certain employee information.718 714 Ares EIF Management, LLC Comments, Docket No. RM19–15–000, at 6 (Dec. 2, 2019); Borrego Solar Systems, Inc. Comments, Docket No. RM19– 15–000, at 4 (Dec. 3, 2019); Consolidated Edison Development, Inc. Comments, Docket No. RM19– 15–000, at 5 (Nov. 15, 2019); Public Interest Organizations Comments, Docket No. RM19–15– 000, at 97–98 (Dec. 3, 2019); Solar Energy Industries Comments, Docket No. RM19–15–000, at 51–52, 54, 57–58 (Dec. 3, 2019); South Carolina Solar Business Alliance Comments, Docket No. RM19–15–000, at 15–18 (Dec. 3, 2019); Southern Environmental Law Center, et al. Comments, Docket No. RM19–15–000, at 29, 35 (Dec. 3, 2019); sPower Development Company, LLC Comments, Docket No. RM19–15– 000, at 14 (Dec. 3, 2019). 715 For example, in the NOPR, the Commission estimated that a small power production facility greater than 1 MW, but less than one mile from an affiliated facility, that submits a self-certification would not change the annual burden or cost. However, the Commission in the final rule estimated that such a small power production facility would need two additional hours to complete the Form No. 556; thus, the total annual burden hours and cost per response for this category would increase by two hours and by $166. Moreover, in the NOPR, the Commission estimated that a small power production facility greater than 1 MW, and greater than 10 miles from an affiliated facility, that submits an application for Commission certification would not change the annual burden or cost. However, Commission in the final rule estimated that such a small power production facility would need six additional hours to complete the Form No. 556; thus, the total annual burden hours and cost per response for this category would increase by six hours and by $498. 716 See Data Collection for Analytics and Surveillance and Market-Based Rate Purposes, Order No. 860, 168 FERC ¶ 61,039 (2019) (adopting rules concerning data collection for public utilities with market-based rates). 717 Solar Energy Industries Comments, Docket No. RM19–15–000, at 57–58 (Dec. 3, 2019). 718 See Data Collection for Analytics and Surveillance and Market-Based Rate Purposes, Notice of Proposed Rulemaking, 156 FERC ¶ 61,045, at P 52 (2016). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 Furthermore, the final rule limits the information geographically to require the listing of only those affiliated entities that are less than 10 miles away, whereas the withdrawn Connected Entity Information requirement from the other proceeding would not have limited its information collection geographically. 394. Moreover, we believe that Solar Energy Industries’ estimate vastly overstates the regulatory burden. First, the Commission explained in the final rule that 18 CFR 292.207(d) (which the Commission did not alter in the final rule except to renumber as 18 CFR 292.207(f)) already states that if a QF fails to conform with any material facts or representations presented in the certification, the QF status of the facility may no longer be relied upon,719 and hence it is long-standing practice that a QF must recertify when material facts or representations in the Form No. 556 change. 395. Second, with regard to the new Form No. 556 requirement to identify all affiliated small power production QFs using the same energy resource that are less than 10 miles from the electrical generating equipment of the certifying facility, we note that the final rule expanded the requirement to identify such facilities to less than 10 miles away, but the requirement to identify such facilities less than one mile already existed. 396. Third, we note that not all QFs will be affected by this expanded requirement. Only small power production QFs that have an affiliated small power production QF more than one but less than 10 miles away that uses the same energy resource will be subject to the new requirement to list the affiliated small power production QF. QFs that have no affiliated small power production QFs will not be affected, nor will those whose only affiliates are more than 10 miles away. Moreover, those QFs that have only a few affiliated small power production QFs more than one but less than 10 miles away will only suffer a small increase in burden to list these affiliated facilities. The only facilities that may suffer a more significant burden—from the new requirement to identify affiliated facilities that use the same energy resource more than one and less than 10 miles away—are facilities with multiple facilities close together, and it is precisely this group of facilities from whom the Commission needs this information, in order to determine 719 18 CFR 292.207(d), which the final rule renumbered to 18 CFR 292.207(f). PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 86713 whether those facilities should be considered to be at the same site. 397. However, in light of Public Interest Organizations’ and Solar Energy Industries’ renewed assertion that the regulatory burden on QFs is substantial,720 we modify and clarify our requirements regarding the identification of affiliated small power production QFs, in order to further ensure that the regulatory burden on small power production facilities is within reasonable limits as described in section III.D. Specifically, as explained more fully in section III.D above, we modify the final rule to state that a small power production QF evaluating whether it needs to recertify does not need to recertify due to a change in the information it has previously reported regarding its affiliated small power production QFs that are more than one mile but less than 10 miles from its electrical generating equipment, including adding or removing an affiliated small power production QF more than one mile but less than 10 miles away, or if an affiliated small power production QF more than one mile but less than 10 miles away and previously reported in item 8a makes a modification, unless that change also impacts any other entries on the evaluating small power production QF’s Form No. 556. 398. We will continue to require that a small power production QF, as it was prior to the final rule, recertify its Form No. 556 to update item 8a due to a change at any of its affiliated small power production facilities located one mile or less from of its electrical generating equipment.721 We will also still require that a small power production QF recertify due to a change in material fact or representation to its own facility. 399. At such time as the small power production QF makes a recertification due to a change in material fact or representation to its own facility or at any of its affiliated small power production facilities that use the same energy resource and are located one mile or less from its electrical generating equipment, we will require that the small power production QF update item 8a for all of its affiliated small power production QFs within 10 miles, including adding or deleting affiliated small power production QFs, and recording changes to previously listed small power production QFs, so that the 720 Public Interest Organizations Request for Rehearing at 127–29; see Solar Energy Industries Request for Rehearing and/or Clarification at 34. 721 See supra note 583. E:\FR\FM\30DER2.SGM 30DER2 86714 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations information in its Form No. 556 is complete, accurate, and up-to-date.722 400. We believe that this modification reduces the burden on small power production QFs because we will not require them to monitor continually their affiliated small power production QFs more than one mile but less than 10 miles away for changes nor will we require a small power production QF that is evaluating whether it must recertify its facility to recertify to update item 8a due to a change at its affiliated small power production facilities more than one mile but less than 10 miles from the evaluating facility’s electrical generating equipment.723 However, the affiliated QF of that evaluating small power production QF will need to recertify if the affiliated QF makes a material change to its information in its Form No. 556. After reviewing the rehearing requests, and implementing the modification described above, we conclude that this requirement strikes an appropriate balance between the need to address improper circumvention and the need to avoid unduly burdening small power production QFs. With the modification described above, we find that our burden estimates, as reported in the final rule, continue to be reasonable, especially now that we have lessened the burden as compared to the final rule by making this change on rehearing. We do not believe that the change we have made today to the Form No. 556 to implement the above modification adds any additional burden to the information collection. We also note that, in retaining the pre-final rule requirement that a small power production recertify information on affiliate small power production facilities one mile or less away,724 we are not adding any additional burden. 401. Though Public Interest Organizations and Solar Energy Industries questioned the Commission’s estimates, the Commission provided ample justification for why the burden and cost estimates would increase as a result of the final rule. In the final rule, the Commission estimated that the annual burden hours and costs for the information collection for the Form No. 556 would increase as a result of the changes to the ‘‘one-mile rule’’ in the 722 If a small power production QF that was certified prior to the effective date of this final rule is required to recertify due to a material change to its own facility, then at that time it will be required to identify affiliates less than 10 miles from the applicant facility. 723 We note that we are maintaining the final rule’s alternative option for rooftop solar PV developers to file their recertification applications. See Order No. 872, 172 FERC ¶ 61,041 at P 560. 724 See supra note 583. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 final rule.725 The Commission explained that it was implementing new requirements for applicants to report the QF’s geographic coordinates, list affiliated small power production QFs using the same energy resource one mile or less from the applicant facility, list affiliated small power production QFs using the same energy resource whose nearest electrical generating equipment is greater than one mile and less than 10 miles from the electrical generating equipment of the applicant facility, and list the geographic coordinates of the nearest ‘‘electrical generating equipment’’ of both its own facility and the affiliated small power production QF in question.726 The Commission also suggested that if applicants anticipate a protest to their certifications, they could provide explanations as to why the affiliated small power production QFs using the same energy resource that are more than one mile and less than 10 miles from the electrical generating equipment of the applicant facility should be considered at separate sites from the applicant’s facility.727 402. Additionally, the Commission noted that, as a result of the changes to the PURPA Regulations made in the final rule, small power production QFs will have to spend more time identifying any affiliated small power production QFs that are less than one mile, between one and 10 miles, and more than 10 miles, apart. The Commission further expected that there will be an increase in the burden hours and cost due to the new ability of entities to protest without a fee, which will affect initial self-certifications, applications for Commission certification, or recertifications that make substantive changes to an existing certification after the effective date of the final rule.728 1. QFs Submitting Self-Certifications 403. Prior to the final rule, the estimated burden for a small power production facility greater than 1 MW filing a self-certification was 1.5 hours.729 a. Small Power Production Facility Greater Than 1 MW, and Less Than One Mile From an Affiliated Small Power Production QF 404. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would 725 Order 726 Id. No. 872, 172 FERC ¶ 61,041 at P 699. P 698. take a small power production facility greater than 1 MW, and less than one mile from an affiliated facility, two hours in addition to the prior estimated 1.5 hours to fill out the new version of the Form No. 556 for a selfcertification.730 In making this estimate of two additional hours, the Commission took into consideration that the applicant would now be required to additionally provide its geographic coordinates.731 While it would also be required to identify and provide the geographic coordinates for any small power production QFs located less than 10 miles from the applicant facility, the current Form No. 556 already required identifying any facilities located within one mile of the applicant facility. The Commission reasoned that the applicant may need to take some additional time to ascertain that there were no additional facilities located more than one mile from the applicant facility. The Commission therefore reasoned that, for this category, it may take an applicant facility an additional two hours to complete the Form No. 556.732 b. Small Power Production Facility Greater Than 1 MW, and More Than One Mile but Less Than 10 Miles From an Affiliated Small Power Production QF 405. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would take a small power production facility greater than 1 MW, and more than one mile but less than 10 miles from an affiliated facility, eight hours in addition to the prior estimated 1.5 hours to fill out the new version of the Form No. 556 for a self-certification.733 In making this estimate of eight additional hours, the Commission took into consideration that the applicant would now be required to additionally provide its geographic coordinates and to identify and provide the geographic coordinates for any small power production QFs located less than 10 miles from the applicant facility. If the applicant chose, it could provide explanations as to why the affiliated small power production QFs using the same energy resource that are more than one mile and less than 10 miles from the electrical generating equipment of the applicant facility should be considered to be at separate sites from the applicant’s facility.734 The Commission 727 Id. 730 Order 728 Id. 731 Id. P 699. 729 Commission Information Collection Activities (FERC–556); Comment Request; Extension, Docket No. IC19–16–000 (issued May 15, 2019). PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 No. 872, 172 FERC ¶ 61,041 at P 699. P 698. 732 Id. P 699. 733 Id. 734 Id. P 698. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations therefore reasoned that, for this category, it may take an applicant facility an additional eight hours to complete the Form No. 556.735 c. Small Power Production Facility Greater Than 1 MW and 10 Miles or More From an Affiliated Small Power Production QF 406. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would take a small power production facility greater than 1 MW and 10 miles or more from an affiliated facility two hours in addition to the prior estimated 1.5 hours to fill out the new version of the Form No. 556 for a self-certification.736 In making this estimate of two additional hours, the Commission took into consideration that the applicant would now be required to additionally provide its geographic coordinates but would not be required to identify and provide the geographic coordinates for any small power production QFs located more than 10 miles from the applicant facility. The Commission reasoned that the applicant may need to take some additional time to ascertain that there were no additional facilities located less than 10 miles from the applicant facility. The Commission therefore reasoned that, for this category, it may take an applicant facility an additional two hours to complete the Form No. 556.737 2. QFs Submitting Applications for Commission Certification 407. Prior to the final rule, the estimated burden for a small power production facility greater than 1 MW filing an application for Commission certification was 50 hours.738 a. Small Power Production Facility Greater Than 1 MW, and Less Than One Mile From an Affiliated Small Power Production QF 408. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would take a small power production facility greater than 1 MW, and less than one mile from an affiliated facility, six hours in addition to the prior estimated 50 hours to fill out the new version of the Form No. 556 as part of an application for Commission certification.739 In making this estimate of six additional hours, the Commission took into 735 Id. P 699. 736 Id. 737 Id. 738 Commission Information Collection Activities (FERC–556); Comment Request; Extension, Docket No. IC19–16–000 (issued May 15, 2019). 739 Order No. 872, 172 FERC ¶ 61,041 at P 699. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 consideration that the applicant would now be required to additionally provide its geographic coordinates. Also, while the applicant would also be required to identify and provide the geographic coordinates for any small power production QFs located less than 10 miles from the applicant facility, the current Form No. 556 already required identifying any facilities located within one mile of the applicant facility. The Commission reasoned that the applicant may need to take some additional time to ascertain that there were no additional facilities located more than one mile from the applicant facility. Unlike a self-certification, the application for Commission certification also requires the applicant to pay a filing fee, and applicants for a Commission certification generally provide more explanation and a narrative filing. The Commission therefore reasoned that, for this category, it may take an applicant facility an additional six hours to complete the Form No. 556.740 b. Small Power Production Facility Greater Than 1 MW, and More Than One Mile but Less Than 10 Miles From an Affiliated Small Power Production QF 409. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would take a small power production facility greater than 1 MW, and more than one mile but less than 10 miles from an affiliated facility, 12 hours in addition to the prior estimated 50 hours to fill out the new version of the Form No. 556 for an application for Commission certification.741 In making this estimate of 12 additional hours, the Commission took into consideration that the applicant would now be required to additionally provide its geographic coordinates and to identify and provide the geographic coordinates for any small power production QFs located less than 10 miles from the applicant facility. If the applicant chose, it could also provide explanations as to why the affiliated small power production QFs using the same energy resource, that are more than one mile and less than 10 miles from the electrical generating equipment of the applicant facility, should be considered to be at separate sites from the applicant’s facility.742 Unlike a self-certification, the application for Commission certification also requires the applicant to pay a filing fee, and applicants for a Commission certification generally provide more explanation and a narrative filing. Therefore, the Commission reasoned that, for this category, it may take an applicant facility an additional 12 hours to complete the Form No. 556.743 c. Small Power Production Facility Greater Than 1 MW and 10 Miles or More From an Affiliated Small Power Production QF 410. In the final rule, given the implementation of the new 10-mile rule, the Commission estimated that it would take a small power production facility greater than 1 MW and 10 miles or more from an affiliated facility six hours in addition to the prior estimated 50 hours to fill out the new version of the Form No. 556 for an application for Commission certification.744 In making this estimate of six additional hours, the Commission took into consideration that the applicant would now be required to additionally provide its geographic coordinates, but the applicant would not be required to identify and provide the geographic coordinates for any small power production QFs located more than 10 miles from the applicant facility. The Commission reasoned that the applicant may need to take some additional time to ascertain that there were no additional facilities located less than 10 miles from the applicant facility. Unlike a self-certification, the application for Commission certification also requires the applicant to pay a filing fee, and applicants for a Commission certification generally provide more explanation and a narrative filing. The Commission reasoned that, for this category, it may take an applicant facility an additional six hours to complete the Form No. 556.745 3. Calculations for Additional Burden and Cost 411. Lastly, the Commission explained that it believed that the industry is similarly situated in terms of wages and benefits. Therefore, estimates for the annual cost of additional burden are based on FERC’s 2020 average hourly wage (and benefits) of $83.00 per hour.746 In order to determine the cost per response in the column titled ‘‘Increased Average Burden Hours & Cost Per Response ($) (4),’’ the Commission multiplied the number of additional burden hours by the average hourly wage of $83.00 per hour. For 743 Id. 740 Id. 742 Id. PO 00000 P 699. 744 Id. 741 Id. 745 Id. P 698. Frm 00061 746 Id. Fmt 4701 Sfmt 4700 86715 E:\FR\FM\30DER2.SGM P 699 n.1050. 30DER2 86716 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations example, for small power production facilities greater than 1 MW located less than one mile from affiliated small power production QFs, the Commission determined that the increased average burden hours as a result of the final rule was two hours. The two-hour increase in the average burden hours, multiplied by an average hourly wage of $83.00 per hour, equals $166 cost per response.747 In order to determine the increased total annual burden hours and total annual cost in the column titled ‘‘Increased Total Annual Burden Hours & Total Annual Cost ($) (3) * (4) = (5),’’ the Commission multiplied the numbers in the column titled ‘‘Total Number of Responses (1) * (2) = (3)’’ by the numbers in the column titled ‘‘Increased Average Burden Hours & Cost Per Response ($) (4).’’ For example, for small power production facilities greater than 1 MW located less than one mile from affiliated small power production QFs, the Commission multiplied the increased average burden hours of two hours by the total number of responses of 1,123.75 for increased total annual burden hours of 2,247.5 hours. The Commission then multiplied the increased cost per response of $166 by the total number of responses of 1,123.75 for an increased total annual cost of $186,542.50.748 IV. Environmental Analysis A. No EIS or EA Is Required 412. In the final rule, the Commission noted that NEPA requires federal agencies to prepare a detailed statement on the environmental impact for ‘‘major Federal actions significantly affecting the quality of the human environment.’’ 749 The Council on Environmental Quality’s (CEQ) regulations implementing NEPA provide that federal agencies can comply with NEPA by preparing: (a) An Environmental Impact Statement (EIS) for a proposed action significantly affecting the quality of the human environment; 750 or (b) an Environmental Assessment (EA) to determine whether an EIS is required.751 The CEQ regulations also provide that agencies are not obligated to prepare either an EIS or an EA if they find that a categorical exclusion applies.752 747 Id. P 699. 748 Id. 749 Id. P 710 (citing 42 U.S.C. 4332(C)); see also Regulations Implementing the National Environmental Policy Act, Order No. 486, FERC Stats. & Regs. ¶ 30,783 (1987) (cross-referenced at 41 FERC ¶ 61,284)). 750 40 CFR 1502.4 (2019). 751 40 CFR 1508.9. 752 40 CFR 1508.4. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 413. The Commission found that no EA or EIS was required for the final rule because the rule does not involve a particular project that ‘‘define[s] fairly precisely the scope and limits of the proposed development’’ and any potential environmental impacts from the final rule are not reasonably foreseeable.753 In response to comments on the NOPR that although an EA and later an EIS was prepared for the 1980 initial rules implementing PURPA (Order No. 70), the Commission explained, based on a number of factual differences between the initial rules and the final rule, that a meaningful NEPA analysis could not be prepared for the final rule.754 The Commission also found that, as a separate and independent alternative ground, that a categorical exclusion applied to the final rule so that an EA or EIS need not be prepared.755 1. NEPA Analysis Is Not Required Where Environmental Impacts Are Not Reasonably Foreseeable 414. The Commission explained that the final rule does not propose or authorize, much less define, the scope and limits of any potential energy infrastructure and, as a result, there is no way to determine whether issuance of the rule will significantly affect the quality of the human environment.756 The Commission also explained that, while courts have held that NEPA requires ‘‘reasonable forecasting,’’ ‘‘NEPA does not require a ‘crystal ball’ inquiry.’’ 757 The Commission added that an agency ‘‘is not required to engage in speculative analysis’’ or ‘‘to do the impractical, if not enough information is available to permit meaningful consideration’’ 758 or to ‘‘foresee the unforeseeable.’’ 759 and ‘‘[i]n determining what effects are ‘reasonably foreseeable,’ an agency must engage in ‘reasonable forecasting and speculation,’ . . . with reasonable being the operative word.’’ 760 The Commission explained that environmental impacts are not 753 Order No. 872, 172 FERC ¶ 61,041 at PP 710, 715. 754 Id. PP 728–36. P 720. 756 Id. P 711. 757 Id. P 716 (citing Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 534 (1978)). 758 Id. (citing N. Plains Res. Council v. Surface Transp. Board, 668 F.3d 1067, 1078–79 (9th Cir. 2011) (citation omitted)). 759 Id. (citing Concerned About Trident v. Rumsfeld, 555 F.2d 817, 830 (D.C. Cir. 1976) (citation omitted)). 760 Id. (citing Sierra Club v. U.S. Dep’t of Energy, 867 F.3d 189, 198 (D.C. Cir. 2017) (emphasis in original) (citation omitted)). 755 Id. PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 reasonably foreseeable if the impacts would result only through a lengthy causal chain of highly uncertain or unknowable events.761 415. The Commission found that any consideration of whether the revised rules could potentially result in significant new environmental impacts due to less QF development and increased development of coal, nuclear, and combined cycle natural gas plants, would be unduly speculative, based on the difficulty in determining which, if any, of the additional flexibilities the final rule provides to the states will be adopted by each state, how state rules would impact QF development going forward and whether any reduction in QF renewables would be replaced by an increased amount of non-QF renewable resources with similar environmental characteristics.762 416. The Commission pointed to Center for Biological Diversity v. Ilano,763 in which the court held that no NEPA review was required for United States Forest Service designations, pursuant to the Healthy Forests Restoration Act (HFRA), of certain forests as ‘‘landscape-scale areas.’’ The Commission explained that the court held that no NEPA review was required for the designations, noting that no specific projects were proposed for any of the landscape-scale areas and that ‘‘[i]n such circumstances, ‘any attempt to produce an [EIS] would be little more than a study . . . containing estimates of potential development and attendant environmental consequences.’ ’’ 764 The Commission further explained that the court concluded that ‘‘unless there is a particular project that ‘define[s] fairly precisely the scope and limits of the proposed development of the region,’ there can be ‘no factual predicate for the production of an [EIS] of the type envisioned by NEPA.’ ’’ 765 761 Id. (citing Dep’t of Transp. v. Pub. Citizen, 541 U.S. 752, 767 (2004) (‘‘NEPA requires a ‘reasonably close causal relationship’ between the environmental effect and the alleged cause.’’); Metro. Edison Co. v. People Against Nuclear Energy, 460 U.S. 766, 774 (1983) (noting effects may not fall within section 102 of NEPA because ‘‘the causal chain is too attenuated’’)). 762 Id. P 717. 763 Id. P 712 (citing Ctr. for Biological Diversity v. Ilano, 928 F.3d 774 at 780) (9th Cir. 2019). 764 Id. 765 Id. See also Northcoast Ent. Ctr. v. Glickman, 136 F.3d 660, 668 (9th Cir. 1998) (citing Kleppe v. Sierra Club, 427 U.S. 390 (1976) (explaining that NEPA does not require agency to complete environmental analysis where environmental effects are speculative or hypothetical)). E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 417. The Commission found that the final rule does not fund any particular QFs or issue permits for their construction or operation (neither of which the Commission has jurisdiction to do) and neither the Commission’s regulation nor the final rule authorize or prohibit the use of any particular technology or fuel, or mandate or prohibit where QFs should be or are built.766 418. The Commission found that the final rule continues to give states wide discretion and that it is impossible to know what the states may choose to do in response to the final rule, whether they will make changes in their current practices or not, and how those state choices would impact QF development and the environment in any particular state, let in any particular locale.767 419. The Commission found that the scope of the final rule is even less defined than the landscape-scale area designations at issue in Center for Biological Diversity v. Ilano, explaining that PURPA applies throughout the entire United States and the revisions implemented by the final rule theoretically could affect future QF development anywhere in the country.768 The Commission reasoned that, as was the case in Center for Biological Diversity v. Ilano, any attempt to evaluate the environmental effects of the final rule by necessity would involve hypothesizing the potential development of QFs and the resultant environmental consequences.769 The Commission found that any attempt by the Commission to estimate the potential environmental effects of the final rule would be considerably more speculative than the estimates of potential development and attendant environmental consequences that the court in Center for Biological Diversity held are not required under NEPA. The Commission found that it was not possible to provide any reasonable forecast of the effects of the final rule on future QF development, whether any affected potential QF would be a renewable resource (such as solar or wind) or employ carbon-emitting technology (such as a fossil-fuel-burning cogenerator or a waste-coal-burning small power production facility). The Commission further found that environmental effects on land use, vegetation, water quality, etc. are all dependent on location, which is unknown and could be anywhere in the 766 Id. P 713. P 714. 768 Id. P 715. 769 Id. P 718. 767 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 United States.770 The Commission therefore concluded that any the potential effects of the final rule on future QF development are so speculative as to render meaningless any environmental analysis of these impacts.771 a. Requests for Rehearing 420. Northwest Coalition and Public Interest Organizations allege that the Commission erred in determining that there is no need to prepare an EA or EIS.772 With respect to the discussion in the final rule of why potential environmental impacts are too speculative, Northwest Coalition asserts, with no explanation, that the Commission provided ‘‘out-of-context quotations from a number of cases.’’ 773 Northwest Coalition and Public Interest Organizations argue that the impacts are not too speculative or uncertain for a NEPA analysis because the Commission used the wrong standard to determine impact, asserting that the ‘‘question is whether the proposed rules may have a significant impact on the human environment,’’ not whether it will have an impact.774 They claim that, because states were prohibited from lawfully denying fixed-price contracts to QFs under previous rules, the Commission must assume that under the new rules the states will eliminate the right to fixed-price contracts and that the development of new QFs will halt, which is the type of analysis that must be done in a NEPA document.775 Northwest Coalition claims that the final rule does not appear to seriously dispute that the new rules may have a significant effect; instead, it appears to merely conclude the precise impact would be too difficult to pinpoint. 421. Public Interest Organizations similarly argue that the Commission cannot avoid NEPA review by making unsupported claims that environmental impacts are unforeseeable, prior to any NEPA analysis, as the role of NEPA itself is to ‘‘indicate the extent to which environmental effects are uncertain or unknown.’’ 776 Public Interest 770 Id. 771 Id. P 719. 772 Northwest Coalition Request for Rehearing at 56–57; Public Interest Organizations Request for Rehearing at 15–16. 773 Northwest Coalition Request for Rehearing at 61 n.222. 774 Id. at 58. 775 Id. at 58–59. 776 Public Interest Organizations Request for Rehearing at 20, 26 (emphasis added) (citing Sierra Club v. Froehlke, 534 F.2d 1289, 1296 (8th Cir. 1976); Scientists’ Institute for Public Information, Inc. v. AEC, 481 F.2d 1079, 1092, 1098 (D.C. Cir. 1973); Jicarilla Apache Tribe of Indians v. Morton, 471 F.2d 1275, 1280 n.11 (9th Cir. 1973); Citizens PO 00000 Frm 00063 Fmt 4701 Sfmt 4700 86717 Organizations assert that the Commission mistakenly found that any environmental analysis of the final rule would be speculative and would not meaningfully inform the Commission or the public.777 Public Interest Organizations add that NEPA requires agencies to examine all foreseeable impacts, including cumulative and indirect impacts, when undertaking rule changes that grant states new regulatory authority, which ‘‘plainly includes changes to allow new ways and options for states when exercising their authority.’’ 778 Public Interest Organizations contend that NEPA may apply when the agency makes a decision that permits actions by other parties that will have an impact on the environment.779 Northwest Coalition adds that courts have required a NEPA analysis in cases where the agency proposes rules that will have an impact on future development, even for widespread regulatory changes that do not themselves authorize any discrete project.780 422. Public Interest Organizations assert that a NEPA analysis is required when uncertainty may be resolved by collecting further data or the collection of such data may prevent speculation on potential environmental effects.781 Public Interest Organizations add that the Commission’s position that collecting data and analyzing it would be too difficult is an impermissible basis for foregoing an EA or EIS.782 Public Interest Organizations contend that, when an agency is faced with incomplete or unavailable information, the CEQ regulations require an EIS to include a summary of existing credible scientific evidence that is relevant to evaluating the reasonably foreseeable impacts of a proposed action.783 423. Northwest Coalition and Public Interest Organizations argue the Commission is required to prepare an EIS because courts have found an EIS is required where ‘‘substantial questions’’ Against Toxic Sprays, Inc. v. Bergland, 428 F. Supp. 908, 922 (D. Or. 1977)). 777 Id. at 21 (citing NOPR, 168 FERC ¶ 61,184 at P 155). 778 Id. 779 Id. at 22 (citing Mid States Coal. for Progress v. Surface Transp. Bd., 345 F.3d 520, 549–50 (8th Cir. 2003); Scientists’ Inst. For Public Info., Inc. v. AEC, 481 F.2d at 1088–89). 780 Northwest Coalition Request for Rehearing at 60–61 (citing American Bird Conservancy, Inc. v. FCC, 516 F.3d 1027, 1033–34 (D.C. Cir. 2008)). 781 Public Interest Organizations Request for Rehearing at 24 (citing National Parks & Conservation Ass’n v. Babbitt, 241 F.3d 722, 732 (9th Cir. 2001)). 782 Id. (citing Seattle Audubon Soc’y v. Mosley, 798 F. Supp. 1494, 1497 (W.D. Wash. 1992)). 783 Id. at 24–25 (citing 40 CFR 1502.22(b)(3)– (b)(4)). E:\FR\FM\30DER2.SGM 30DER2 86718 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations have been raised as to whether an agency action ‘‘may cause significant degradation of some human environmental factor,’’ adding that parties are not required to show that significant effects will occur, but only raise substantial questions that they may occur.784 424. Northwest Coalition and Public Interest Organizations allege that the Commission improperly relied on Center for Biological Diversity v. Ilano to determine that the rulemaking’s impacts were too speculative for NEPA analysis.785 Public Interest Organizations assert that the court found that the action would not change the ‘‘status quo,’’ in contrast to here, where they claim the final rule legally alters the status quo.786 Public Interest Organizations claim that ‘‘significantly’’ reduced QF development is foreseeable based on experience in states that have undermined the prior rules, regardless of the fact that the proposed changes do not mandate or prohibit the construction of any specific QF’s, and the environmental impacts of removing major incentives for emissions-free renewable resources will be significant and far-reaching.787 Northwest Coalition asserts that the Center for Biological Diversity v. Ilano court ‘‘relied on its finding that the designation did not authorize any discrete projects and would only potentially lead to such projects, making the exercise of an EIS too speculative.’’ 788 Northwest Coalition claims that this reasoning does not apply to the final rule because the Commission has demonstrated it has the capability to conduct detailed market analysis on the impact of its proposed rules and their likely environmental impacts.789 b. Commission Determination 425. As an initial matter, Northwest Coalition errs in suggesting that the Commission does not dispute that the final rule may have significant impacts on the environment and that the precise impact would be too difficult to pinpoint. Rather, the Commission found 784 Northwest Coalition Request for Rehearing at 57 (citing LaFlamme v. FERC, 852 F.2d 389, 397 (9th Cir. 1988)); Public Interest Organizations Request for Rehearing at 17 (citing Greenpeace Action v. Franklin, 14 F.3d 1324, 1332 (9th Cir. 1992)). 785 Northwest Coalition Request for Rehearing at 59–60; Public Interest Organizations Request for Rehearing at 30. 786 Public Interest Organizations Request for Rehearing at 31 (citing Ctr. for Biological Diversity v. Ilano, 928 F.3d at 781). 787 Id. at 34. 788 Northwest Coalition Request for Rehearing at 60. 789 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that any consideration of whether the final rule could potentially have significant environmental impacts would be so speculative as to render meaningless any environmental analysis of these hypothetical impacts.790 426. Moreover, the Commission did not reach this conclusion based on an inability to ‘‘pinpoint’’ precise impacts. Rather the Commission made this determination based on, among other things, the inability to provide any reasonable forecast of the effects of the final rule on the environment. This is the case not only because it is not possible to predict how the states will exercise the increased flexibilities provided by the final rule and whether the effects, if any, of such state actions will encourage or discourage renewable resources as opposed to fossil-fueled resources, but also because any environmental effects on resources such as land use, vegetation, and water quality are all dependent on location, which is unknown at this time and could be anywhere in the United States.791 427. We also reject Northwest Coalition’s argument that in making an impact determination, the Commission erroneously considered whether the final rule ‘‘will,’’ rather than ‘‘may,’’ have a significant impact on the environment. In explaining why no EA or EIS was required, the Commission stated that any consideration of whether the final rule could potentially result in significant new environmental impacts due to less QF development and increased development of coal, nuclear, and combined cycle natural gas plants, would be highly speculative, based on the difficulty in determining which additional flexibilities the final rule provides to the states that each state will adopt, if any; how such state rules 790 Order No. 872, 172 FERC ¶ 61,041 at PP 717– 719. We note that CEQ issued a final rule, Update to the Regulations Implementing the Procedural Provisions of the National Environmental Policy Act, 85 FR 43,304 (July 16, 2020) (to be codified at 40 CFR pts. 1500–08, 1515–18), which became effective as of September 14, 2020. The final rule replaces the requirement for agency consideration of ‘‘direct, indirect, and cumulative effects’’ of a proposed action, with agency consideration of environmental effects ‘‘that are reasonably foreseeable and have a reasonably close causal relationship.’’ 40 CFR 1508.1(g). CEQ explains that agencies should not consider effects that are ‘‘remote in time, geographically remote, or the result of a lengthy causal chain.’’ Under this standard, the mere fact that an effect might not occur ‘‘but for’’ the project is not sufficient to trigger a NEPA analysis; rather, there must be a ‘‘reasonably close causal relationship’’ between the proposed action and the effect, ‘‘analogous to proximate cause in tort law.’’ Update to the Regulations Implementing the Procedural Provisions of the National Environmental Policy Act, 85 FR at 43,343. 791 Id. PO 00000 Frm 00064 Fmt 4701 Sfmt 4700 would impact QF development going forward; and whether any reduction in QF renewables would be replaced by the much greater amount of non-QF renewable resources with similar environmental characteristics.792 428. Public Interest Organizations’ reliance on Mid States Coal. for Progress v. Surface Transp. Bd 793 to support its claim that NEPA applies when an agency makes decisions which permit actions by other parties that will impact the environment is misplaced. In that case, parties challenged the permitting of a railroad extension that would transport coal to the Midwest, resulting in an increased availability of coal at reduced rates. The court found that the EIS prepared for the railroad extension had failed to address the indirect impacts of air emissions resulting from the consumption of this coal when it was used to generate electricity, even though the railroad had not yet signed any contracts to haul this coal. The court noted that ‘‘if the nature of the effect is reasonably foreseeable but its extent is not . . . the agency may not simply ignore the effects.’’ 794 In contrast to this proceeding, in Mid States Coal. for Progress v. Surface Transp. Bd, it was undisputed that the proposed rail line would increase the use of coal for power generation; the Surface Transportation Board itself had concluded that its action would lead to increased mining and air emissions but then failed to address those impacts in the EIS. Here, the Commission did not conclude that the final rule would have identifiable environmental impacts; on the contrary, it explained in detail why any potential impacts from the final rule are not reasonably foreseeable. 429. Public Interest Organizations’ reliance on Scientists’ Institute for Public Information, Inc., v. AEC 795 is equally misplaced. There, the D.C. Circuit faulted the Atomic Energy Commission (AEC) for failing to prepare a NEPA analysis for its proposed liquid metal fast breeder reactor program. The D.C. Circuit noted that AEC had prepared a complex cost/benefit analysis in attempting to justify the proposed program but failed to include a consideration of the environmental costs and benefits associated with the proposed program. The court was persuaded that a NEPA analysis should have been prepared because AEC had existing detailed estimates on the 792 Id. P 717. (emphasis added). States Coal. for Progress v. Surface Transp. Bd., 345 F.3d 520. 794 Id. (emphasis in original). 795 Scientists’ Institute for Public Information, Inc. v. AEC, 481 F.2d 1079. 793 Mid E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations amount of waste and the amount of land area necessary for storage of the waste, as well as ‘‘much information on alternatives to the program and their environmental effects.’’ 796 In contrast here, for the reasons discussed in the final rule and herein, the Commission has no existing detailed or quantifiable information, nor is such information attainable, with respect to future actions that might or might not occur as a result of the final rule that would assist us in a meaningful analysis.797 430. We also disagree with Public Interest Organizations’ arguments that ‘‘substantial questions’’ have been raised with respect to potential significant environmental impacts such that the Commission must prepare an EA or EIS for the final rule.798 Courts have found that the applicable standard for determining whether substantial questions have been raised is whether the ‘‘alleged facts if true, show that the proposed project may significantly degrade some human environmental factor.’’ 799 Public Interest Organizations’ arguments are based not on alleged facts, but on speculative assumptions which the Commission considered and addressed in the final rule.800 Public Interest Organizations’ reliance on LaFlamme v. FERC 801 is without merit. There, the Commission approved the construction of a new hydroelectric project without benefit of an EA or an EIS. The court found that substantial questions had been raised regarding identifiable potential impacts from site specific activities.802 In contrast, the final rule does not authorize any site-specific activities for which there are identifiable potential impacts; as discussed above, the final rule does not authorize any specific projects. 431. Greenpeace Action v. Franklin 803 is similarly inapposite. There, the National Marine Fisheries Service prepared an EA for proposed fishery harvest specifications for pollock 796 Id. 797 Order No. 872, 172 FERC ¶ 61,041 at PP 718– 19. 798 Northwest Coalition Request for Rehearing at 57 (citing LaFlamme v. FERC, 852 F.2d at 397); Public Interest Organizations Request for Rehearing at 17 (citing Greenpeace Action v. Franklin, 14 F.3d at 1332). 799 Foundation for N. Am. Wild Sheep v. USDA, 681 F.2d 1172, 1177–78 (9th Cir. 1982). 800 Order No. 872, 172 FERC ¶ 61,041 at PP 717– 19, 731–36. 801 LaFlamme v. FERC, 852 F.2d at 389. 802 Id. at 397 (finding that substantial questions were raised about potential ‘‘significant environmental degradation [of a hydropower project] due to both its site-specific impact on recreational use and visual quality and its cumulative impact[s]’’). 803 Greenpeace Action v. Franklin, 14 F.3d 1324. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that concluded in a finding of no significant impacts on the Stellar sea lion, whose diet included a significant amount of pollock.804 The National Marine Fisheries Service determined that, while it was uncertain there would be adverse impacts on the Stellar sea lion, it would take precautions and impose management measures to provide an adequate buffer against any adverse impacts. The court rejected plaintiff’s claim that the National Marine Fisheries Service should have prepared an EIS based on plaintiff’s competing affidavits with respect to National Marine Fisheries Service’s findings. While the court cited the general principle that an agency must prepare an EIS if substantial questions are raised as to environmental impacts, the court found that petitioner’s affidavits did not set forth facts demonstrating there would be significant impacts on the Stellar sea lion; rather they only demonstrated ‘‘uncertainty as to how pollock fishing affects the sea lion, which is undisputed.’’ 805 The court declined to set aside the National Marine Fisheries Service’s findings because there was no disagreement over whether the proposed action impact may have a significant impact on the environment but rather ‘‘represent[ed] a difference of scientific opinion’’ over the extent of potential impacts.806 432. We also reject Northwest Coalition’s claim that the Commission must consider the impacts of reasonably foreseeable future actions even if there is no specific proposal, asserting there are previous experiences on how states have allegedly reacted to prior PURPA Regulations. Specifically, Northwest Coalition argues the Commission must assume that under the new rules the states will eliminate the right to fixedprice contracts and, therefore, the development of new QFs will halt.807 Public Interest Organizations allege that the environmental impacts of removing major incentives for emissions-free renewable resources will be significant and far-reaching 808 Northwest 804 Id. at 1327. at 1333. 806 Id. (emphasis added). Plaintiffs in this case also cited several cases to support its claim that the very existence of uncertainty mandates the preparation of an EIS. However, the court noted that because the cases cited ‘‘deal not with whether an impact statement should be prepared, but with what information should be included in an impact statement after it has been judged necessary, they do not stand for the proposition that the existence of uncertainty mandates the preparation of an impact statement.’’ Id. at 1334 n.11. 807 Northwest Coalition Request for Rehearing at 59. 808 Public Interest Organizations Request for Rehearing at 34. 805 Id. PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 86719 Coalition’s and Public Interest Organizations’ arguments would require the Commission first to make highly speculative and hypothetical assumptions about future state action on QFs and that all QFs are renewables, as well as unrealistic and unsupported assumptions as to whether such actions would impact renewable QFs more than emitting QFs. 433. As discussed in the final rule, an agency ‘‘is not required to engage in speculative analysis’’ or ‘‘to do the impractical, if not enough information is available to permit meaningful consideration’’ or to ‘‘foresee the unforeseeable.’’ 809 Further, the Commission explained that the final rule ‘‘continues to give states wide discretion and it is impossible to know what the states may choose to do in response to [the final rule], whether they will make changes in their current practices or not, and how those state choices would impact QF development and the environment in any particular state, let alone any particular locale.’’ 810 434. Public Interest Organizations cite National Parks & Conservation Ass’n v. Babbitt for the proposition that an EA or EIS is required ‘‘where uncertainty may be resolved by further collection of data.811 Here, attempting to collect further data or information would not resolve uncertainty; the Commission has explained that it is not possible to collect detailed or quantifiable information regarding future QF development.812 This contrasts with National Parks & Conservation Ass’n v. Babbitt, where the National Park Service issued an EA finding that a substantial increase in cruise ship traffic entering Glacier Bay National Park and Preserve would have no significant impact on the environment. In requiring the National 809 See Order No. 872, 172 FERC ¶ 61,041 at P 716 (citing N. Plains Res. Council v. Surface Transp. Board, 668 F.3d at 1078–79; Concerned About Trident v. Rumsfeld, 555 F.2d at 830). 810 Id. P 714. 811 National Parks & Conservation Ass’n v. Babbitt, 241 F.3d 722, 732 (9th Cir. 2001) (emphasis added). 812 We also disagree with Public Interest Organizations’ assertion that because the Commission is faced with incomplete or unavailable information, the CEQ regulations state the Commission must include in an EIS a summary of existing credible scientific evidence that is relevant to evaluating the reasonably foreseeable impacts of a proposed action. Public Interest Organizations Request for Rehearing at 23–24 (citing 40 CFR 1502.22(b)(3)–(b)(4)). This regulation is inapplicable to the final rule, as it contemplates that an EIS has been prepared, and that there are reasonably foreseeable impacts for which existing credible scientific evidence may be relevant (emphasis added). The Commission did not prepare an EIS because there are no reasonably foreseeable impacts for the reasons discussed in the final rule and herein. E:\FR\FM\30DER2.SGM 30DER2 86720 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Park Service to prepare an EIS, the court explained that scientific evidence provided by the National Park Service’s own studies ‘‘revealed very definite environmental effects,’’ and the National Park Service’s EA established that information was ‘‘obtainable and that it would be of substantial assistance’’ in considering the environmental impacts of the increased cruise ship traffic.813 435. We also reject Northwest Coalition’s and Public Interest Organizations’ claims that the Commission improperly relied on Center for Biological Diversity v. Ilano, because, they assert, the final rule legally alters the ‘‘status quo.’’ The court in Center for Biological Diversity held that an EIS is not required where a proposed action does not change the status quo, and defined changes in the status quo as those ‘‘alter[ing] future land use or otherwise foreseeably impact[ing] the environment.’’ 814 The court further explained that ‘‘ ‘[l]ongrange aims are quite different from concrete plans,’ and ‘NEPA does not require an agency to consider the environmental effects that speculative or hypothetical projects might have . . . .’ ’’ 815 While the final rule results in changes to the implementation of the original PURPA Regulations, the final rule does not change the status quo as contemplated by NEPA. It does not direct or preclude the development of any project or otherwise require entities to take actions that foreseeably alter future land use or otherwise result in foreseeable environmental impacts. As discussed in the final rule, it is not possible to make simplifying assumptions that the mere implementation of the revised regulations necessarily would result in specific changes in the development of particular generation technologies compared to the status quo.816 The final rule is premised on a finding that, even after the revisions, the PURPA Regulations will continue to encourage QF development while addressing concerns about how PURPA works in today’s electric markets; therefore, there it cannot be presumed that the rule will result in a reduction in QF development or a change in the type of QFs that are built. The impact, if any, of the final rule on QF development is both 813 National Parks & Conservation Ass’n v. Babbitt, 241 F.3d 732. 814 Ctr. for Biological Diversity v. Ilano, 928 F.3d at 781. 815 Id. at 780 (quoting Northcoast Envtl. Ctr. v. Glickman, 136 F.3d at 668). 816 Order No. 872, 172 FERC ¶ 61,041 at P 733. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 uncertain or unknowable.817 As the court found in Center for Biological Diversity, such speculative environmental consequences are not required to be analyzed under NEPA.818 Thus, the Commission cannot analyze environmental impacts in this case, when such an analysis could only be done if multiple, unlikely, and unreasonable assumptions are made as to the variables above.819 2. A Categorical Exclusion Applies 436. The Commission found as a separate and independent alternative basis for concluding that no environmental analysis is warranted that the final rule falls within the categorical exclusion for rules that, as relevant here: (1) Are clarifying in nature; (2) are corrective in nature; or (3) are procedural in nature.820 437. The Commission explained that clarifying changes include those that clarify how market prices can be used to set as-available energy rates, the changes clarifying how fixed energy rates in contracts or LEOs may be determined, and the changes clarifying how competitive solicitations can be used to set avoided cost rates.821 438. The Commission stated that corrective changes include those needed in order to ensure that a regulation conforms to the requirements of the statutory provisions being implemented by the regulation. The Commission noted that it does not find that its existing PURPA Regulations were inconsistent with the statutory requirements of PURPA when promulgated. The Commission found instead that the changes adopted in the final rule are required to ensure continued future compliance of the PURPA Regulations with PURPA, based on the changed circumstances found by the Commission in the final rule.822 439. The Commission found that three aspects of the final rule are corrective in nature. The first is the change allowing 817 Id. P 716 (citing Dep’t of Transp. v. Pub. Citizen, 541 U.S. at 767; Metro. Edison Co. v. People Against Nuclear Energy, 460 U.S. at 774). 818 Ctr. for Biological Diversity, 928 F.3d at 781 (citing Northcoast Envtl. Ctr. v. Glickman, 136 F.3d at 668). 819 See Order No. 872, 172 FERC ¶ 61,041 at PP 733–35. 820 Id. P 720 (citing 18 CFR 380.4(a)(2)(ii)). The exclusion applies to a fourth type of rule, the promulgation of regulations ‘‘that do not substantially change the effect of . . . regulations being amended.’’ Further, although not challenged on rehearing, the final rule noted two revisions that are procedural in nature: The revision to procedures that apply to QF certification and the revision to the Commission’s Form No. 556, used by QFs seeking certification. Id. P 727. 821 Id. P 721. 822 Id. P 722. PO 00000 Frm 00066 Fmt 4701 Sfmt 4700 states to require variable energy rates in QF contracts. The Commission explained this change is required based on the Commission’s finding that, contrary to the Commission’s expectation in 1980, there have been numerous instances where overestimates and underestimates of energy avoided costs used in fixed energy rate contracts have not balanced out, causing the contract rate to violate the statutory avoided cost rate cap. The Commission explained that giving states the ability to require energy rates in QF contracts to vary based on the purchasing utility’s avoided cost of energy at the time of delivery ensures that QF rates do not exceed the avoided cost rate cap imposed by PURPA.823 440. The second corrective aspect is the change in the PURPA Regulations regarding the determination of what facilities are located at the same site for purposes of complying with the statutory 80 MW limit on small power production facilities located at the same site.824 The Commission explained that it found, based on changed circumstances, that the current one-mile rule is inadequate to determine which facilities are located at the same site. The Commission determined that, based on this finding, the Commission was obligated by PURPA to revise its definition of when facilities are located at the same site.825 441. The third corrective aspect relates to the implementation of PURPA section 210(m). The Commission explained that this statutory provision allows purchasing utilities to terminate their obligation to purchase from QFs that have nondiscriminatory access to certain statutorily-defined markets, which the Commission has determined to be the RTO/ISO markets.826 The Commission explained that the final rule updates the presumption in the PURPA Regulations that QFs with a capacity of 20 MW or less do not have non-discriminatory access to such markets, reducing the threshold for such presumption to 5 MW.827 442. The Commission explained that, since the 20–MW threshold was established in 2005, the RTO/ISO markets have matured and the industry has developed a better understanding of the mechanics of market participation.828 The Commission added that this determination rendered inaccurate the presumption currently 823 Id. 824 Id. P 723. P 724. 825 Id. 826 Id. P 725. 827 Id. 828 Id. E:\FR\FM\30DER2.SGM P 726. 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations reflected in the PURPA Regulations that QFs of 20 MW and below do not have non-discriminatory access to the relevant markets.829 The Commission explained that, once the Commission made this determination, it was appropriate for the Commission to update the 20 MW threshold to comply with the requirements of PURPA section 210(m).830 a. Exception to Categorical Exclusion i. Requests for Rehearing 443. Northwest Coalition and Public Interest Organizations assert that, as a threshold matter, the final rule does not qualify for a categorical exclusion because the Commission’s regulations provide that, ‘‘[w]here circumstances indicate that an action may be a major Federal action significantly affecting the quality of the human environment,’’ the Commission will prepare either an EA or an EIS.831 They add that the Commission’s regulations provide that an exception to a categorical exclusion may exist ‘‘[w]here the environmental effects are uncertain.’’ 832 ii. Commission Determination 444. We disagree that the Commission’s exceptions to categorical exclusions preclude the application of a categorical exclusion to the final rule. The CEQ regulations state that a categorical exclusion applies to an action that does not individually or cumulatively have a significant effect on the environment and an agency’s categorical exclusion procedures should provide for limitations on the use of a categorical exclusion where ‘‘extraordinary circumstances’’ indicate that a normally excluded action may have a significant environmental effect.833 The Commission’s regulations provide a list of these extraordinary circumstances, which are effects on Indian lands; Wilderness areas; Wild and Scenic rivers; Wetlands; Units of the National Park System, National Refuges, or National Fish Hatcheries; Anadromous fish or endangered species; or where environmental effects are uncertain.834 None of these extraordinary circumstances are present here except to the extent the environmental effects are uncertain. The final rule explained in detail why any 829 Id. 830 Id. 831 Northwest Coalition Request for Rehearing at 62; Public Interest Organizations Request for Rehearing at 36 (citing 18 CFR 380.4(b)(1)). 832 Northwest Coalition Request for Rehearing at 62; Public Interest Organizations Request for Rehearing at 36 (citing 18 CFR 380.4(b)(1)). 833 40 CFR 1508.4. 834 18 CFR 380.4(b)(ii). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 potential environmental impacts are uncertain and unknown as they are too speculative to provide an EA or EIS that would meaningfully inform the Commission.835 In any case, the Commission’s regulations state that the presence of one or more of the extraordinary circumstances ‘‘will not automatically require . . . the preparation of an environmental assessment or an environmental impact statement.’’ 836 b. Applying a Categorical Exclusion for Clarifying and Corrective Actions Is Appropriate i. Requests for Rehearing 445. Northwest Coalition and Public Interest Organizations also dispute that the final rule falls under the categorical exclusion for actions that are clarifying or corrective in nature.837 Northwest Coalition argues that the final rule is not merely clarifying in nature but rather a major change in policy.838 Northwest Coalition highlights what it deems the Commission’s decision to change its long-standing precedent by allowing use of RFPs as the exclusive means for all QFs to obtain a long-term contract to sell energy and capacity.839 Northwest Coalition further argues that overruling existing precedent is not clarifying and the new policy will result in loss of existing QF capacity.840 446. Northwest Coalition asserts that the Commission’s reliance on the ‘corrective’ exclusion fails because it is contrary to what Northwest Coalition deems the ‘‘obvious intent’’ of the categorical exclusion for corrective changes to regulations.’’ 841 Northwest Coalition opines that the categorical exclusion applies only to an action ‘‘to correct an error, such as a misplaced word or mis-numbered section.’’ 842 Northwest Coalition also contends that the Commission cites no authority to find that changes that are corrective in nature include ‘‘changes needed in order to ensure that a regulation conforms to the requirements of the statutory provisions being implemented by the regulation.’’ 843 Northwest Coalition asserts that, as noted in 835 Order No. 872, 172 FERC ¶ 61,041 at P 716. CFR 380.4. 837 Northwest Coalition Request for Rehearing at 62–63; Public Interest Organizations Request for Rehearing at 35. 838 Northwest Coalition Request for Rehearing at 63. 839 Id. We address in section III.B.5 above Northwest Coalition’s challenge to the competitive solicitation framework itself. 840 Id. 841 Id. at 63–64. 842 Id. at 64. 843 Id. at 63 (quoting Order No. 872, 172 FERC ¶ 61,041 at P 722). 836 18 PO 00000 Frm 00067 Fmt 4701 Sfmt 4700 86721 Commissioner Glick’s dissent, this interpretation would exempt from NEPA analysis virtually any action the Commission takes under any of its enabling statutes.844 447. Public Interest Organizations assert that the Commission fails to cite precedent for using multiple exclusionary categories for ‘‘such an impactful rulemaking.’’ 845 Public Interest Organizations suggest that doing so is a red flag that what they deem sweeping changes in the final rule are not suited for a categorical exclusion.846 448. Finally, Public Interest Organizations argue the Commission failed to engage in the appropriate scoping in determining that a categorical exclusion was appropriate. Public Interest Organizations assert that CEQ regulations require a federal agency to engage in scoping, which is defined in relevant part: ‘‘There shall be an early and open process for determining the scope of issues to be addressed and for identifying the significant issues related to a proposed action.’’ 847 Public Interest Organizations note that the CEQ regulations define ‘‘NEPA process’’ to mean ‘‘all measures necessary for compliance with the requirements of section 2 and Title 1 of NEPA.’’ 848 Public Interest Organizations conclude that taken together, these two regulations require the application of scoping to the entire NEPA process, including the application of a categorical exclusion.849 ii. Commission Determination 449. We affirm the alternative finding that the final rule was properly categorically excluded because it is clarifying and corrective in nature. Northwest Coalition’s arguments are based primarily on what they deem to be the appropriate interpretation of the Commission’s categorical exclusion regulation, rather than providing supporting precedent.850 450. Northwest Coalition specifically challenges the use of the clarifying categorical exclusion for the changes to the competitive solicitation process (allowing the use of RFPs as the means for QFs to obtain long-term 844 Id. at 63–64 (citing Order No. 872, 172 FERC ¶ 61,041, Glick, Comm’r, dissenting in part at P 26). 845 Public Interest Organizations Request for Rehearing at 35–36. 846 Id. at 35. 847 Id. at 41 (citing 40 CFR 1501.7). 848 Id. (citing 40 CFR 1508.21). 849 Id. 850 Northwest Coalition Request for Rehearing at 62–64. E:\FR\FM\30DER2.SGM 30DER2 86722 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations contracts).851 We affirm that the final rule’s treatment of competitive solicitations is clarifying in nature because competitive solicitations are already often used by industry to set capacity rates in both PURPA and nonPURPA contexts. Additionally, by including the standards discussed in the Allegheny Principles and elaborating on how states may conduct competitive solicitations as the Commission explained in prior precedent,852 the Commission clarified, formalized, and consolidated existing policy.853 Finally, the final rule clarifies and follows logically from Commission precedent by requiring that, if a utility places its own capacity in competitive solicitations held at regular intervals and satisfies its capacity needs only through competitive solicitations following the procedural requirements formalized in the final rule, then that utility need not have an alternative avoided cost capacity rate for QFs because it no longer has any avoided capacity costs. 451. We also affirm that the final rule was corrective in nature. With respect to the challenge to variable energy rates in the QF contracts or LEOs, the Commission found that, contrary to expectations in 1980, there are numerous instances where overestimates and underestimates of energy avoided costs used in fixed energy rates did not balance-out over the long term.854 Such an imbalance resulted in long-term fixed avoided cost energy rates well above the purchasing utility’s avoided costs for energy.855 This result is prohibited by PURPA section 210(b).856 The Commission’s actions to adjust the QF rate framework are necessary to harmonize the Commission’s regulations with this underlying finding and to comply with the statutory provisions of PURPA section 210(b). 452. We also find that the Commission’s interpretation that corrective actions include those that ensure that a regulation conforms to the requirements of the statutory provisions being implemented by the final rule is appropriate. We disagree that such an interpretation sets a precedent for evading NEPA analysis for future 851 Id. at 63. We address in section III.B.5 above Northwest Coalition’s challenge to the competitive solicitation framework itself. 852 E.g., Hydrodynamics, 146 FERC ¶ 61,193 at PP 31–35; City of Ketchikan, 94 FERC ¶ 61,293 at 62,061; Bidding NOPR, FERC Stats. & Regs. ¶ 32,455 at 32,030–42. 853 See Order No. 872, 172 FERC ¶ 61,041 at P 430 (citing Allegheny Energy, 108 FERC ¶ 61,082 at P 18). 854 Id. PP 283, 723. 855 Id. P 283. 856 Id. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 Commission actions. The Commission considers all matters before it, including rulemakings, on a case-by-case basis to determine whether an EIS, EA or a categorical exclusion is appropriate based on the facts and circumstances of each matter. Further, in this case the Commission is not relying on general statutory standards, such as the just and reasonable standard under the FPA, but specific statutory requirements that the Commission may not require above avoided cost rates, that small power production facilities located at a single site may not exceed 80 MW, and that the mandatory purchase obligation may be terminated with respect to QFs with nondiscriminatory access to certain markets. 453. We also disagree with Public Interest Organizations’ claim that the Commission inappropriately relied on multiple exclusionary categories in determining that the final rule was subject to a categorical exclusion. As an alternative to its explanation that the effect of the final rule are so speculative as to preclude the preparation of an environmental analysis, the Commission applied a single categorical exclusion that provides four possible bases for its application, including, as relevant here, that the rulemaking is clarifying, corrective, or procedural in nature. The categorical exclusion does not limit the Commission to invoking only one of these bases, nor do Public Interest Organizations elaborate on why the Commission is precluded from doing so. 454. Finally, contrary to Public Interest Organizations’ claim, the Commission was not required to initiate a scoping process for the application of the categorical exclusion to the final rule. Public Interest Organizations appear to erroneously conflate the definition of ‘‘scoping process’’ with the definition of ‘‘NEPA process.’’ The CEQ regulations address requirements for scoping only when an EIS is prepared.857 Notwithstanding that there is no requirement to provide for scoping for a categorical exclusion, all commenters, including Public Interest Organizations, now have had ample opportunity to provide comments on the application of the categorical exclusion, 857 40 CFR 1501.7 (‘‘As soon as practicable after its decision to prepare an environmental impact statement and before the scoping process the lead agency shall publish a notice of intent’’ to prepare an EIS). Moreover, CEQ guidance addressing whether scoping applies to EAs, states that where an EA is being prepared, ‘‘useful information might result from early participation . . . in a scoping process’’ CEQ, Forty Most Asked Questions Concerning CEQ’s National Environmental Policy Act Regulations, 46 FR 18,026, Q. 13 (Mar. 17, 1981) (emphasis added). PO 00000 Frm 00068 Fmt 4701 Sfmt 4700 which they have presented in their rehearing requests. 3. That the Commission Prepared NEPA Analyses for the Promulgation of the Original PURPA Rule and Other Prior Rulemakings Does Not Mean That Such Analysis Was Possible or Required Here 455. As discussed in the final rule, the Commission prepared an EA and EIS for its initial rules implementing PURPA in 1980.858 The Commission explained that the EA for Order No. 70 was based on a market penetration study and that, to carry out the market penetration study, the EA had to make the simplifying assumption that the mere implementation of PURPA would necessarily result in the development and operation of certain types of generation facilities that would not otherwise be developed.859 The Commission stated that, based on these types of facilities, the EA conducted in 1980 identified specific resource conflicts related to each type of facility, which were nothing more than a generalized listing of potential impacts.860 456. The Commission addressed comments on the NOPR that asserted that a NEPA analysis similarly should be possible for this rulemaking. The Commission explained that the assertions are undermined by the fact that circumstances have changed significantly since the promulgation of the original PURPA Regulations in 1980.861 The Commission explained that, prior to 1980, essentially no QF generation technologies or other independent generation facilities (other than those used to supply the loads of the owners rather than to sell at wholesale) had been constructed. The Commission explained that by contrast, today QF generation technologies and other independent generation facilities are common, and they are predominantly built and operated outside of PURPA. 457. The Commission further explained that, because there was virtually no QF or independent power development in 1980, the original PURPA EA could reasonably project that the incentives created by PURPA and the original PURPA Regulations would lead to increased development of 858 Order No. 872, 172 FERC ¶ 61,041 at P 728. P 729 (citing Order No. 70–E, 46 FR 33,025, 33,026 (June 18, 1981); Small Power Production and Cogeneration Facilities—Environmental Findings; No Significant Impact and Notice of Intent To Prepare Environmental Impact Statement, 45 FR 23,661, 23,664 (Apr. 8, 1980) (Original PURPA EA)). 860 Original PURPA EA, 45 FR at 23,664. 861 Order No. 872, 172 FERC ¶ 61,041 at P 731. 859 Id. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations power generated by QF technologies.862 The Commission stated that its market penetration study was based on these projections. 458. The Commission noted that, by contrast, it is not possible here to make simplifying assumptions that the mere implementation of the revised regulations necessarily would result in specific changes in the development of particular generation technologies compared to the status quo.863 The Commission explained that the revisions to the PURPA Regulations are premised on a finding that, even after the revisions, the PURPA Regulations will continue to encourage QFs. The Commission found that, consequently, there is no way to estimate whether any reduction in QF development, as opposed to the status quo, will be focused on one or more of the many different types of QF technologies, some of which are renewable resources and some of which are fueled by fossil fuels 864 and have emissions comparable to non-QF fossil fueled generators. The Commission explained that, because the rule primarily increases state flexibility in setting QF rates, including giving states the option of not changing their current rate-setting approaches, there is no way to develop any estimate of the location or size of any hypothetical reduction in QF development. 459. The Commission stated that renewable generation technologies today are commonly, and even predominantly, built and operated outside of PURPA.865 The Commission explained that current projections show that most new generation construction will be of renewable resources 866 and cost of renewables has declined so much that in some regions renewables are the most cost effective new generation technology available.867 The Commission found that, even if the final rule were to result in reduced renewable QF development, there is little likelihood today that hypothetical, unbuilt QFs necessarily would be replaced by new conventional fossil fuel generation. 862 Id. P 732. 863 Id. P 733. 864 This would include both cogeneration, which typically is fossil fueled, and those small power production facilities that are fueled by waste, which would include a range of fossil fuel-based waste. See 18 CFR 292.202(b), 292.204(b)(1). 865 Order No. 872, 172 FERC ¶ 61,041 at P 734. 866 EIA, Annual Energy Outlook 2020, at tbl. 9 (Jan. 29, 2020) (in table see rows labeled Cumulative Planned Additions and Cumulative Unplanned Additions in the reference case) (Annual Energy Outlook 2020), https:// www.eia.gov/outlooks/aeo/. 867 Order No. 872, 172 FERC ¶ 61,041 at P 734. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 460. The Commission found that, alternatively, in the absence of these hypothetical, unbuilt QFs, existing generation units—whose current emissions, if any, would already be part of the baseline for any environmental analysis of the impacts of the final rule—might continue to operate without any change in their emissions; in sum, in the absence of these hypothetical, unbuilt QFs, emissions would remain at the baseline and might not increase at all.868 The Commission explained that, in the current environment where stagnant load growth has prevailed in recent years, this would seem to be a more likely scenario than an alternative where these hypothetical, unbuilt QFs are replaced by brand new fossil fuel generation that would increase emissions over the baseline. 461. The Commission explained that, given these facts, it would not be possible to perform a market penetration study of the effects of the final rule that would not be wholly speculative.869 The Commission found that, without such a study, there could be no analysis defining the types and geographic location of facilities that could serve as the basis for any NEPA analysis similar to that performed in 1980. a. Requests for Rehearing 462. Northwest Coalition and Public Interest Organizations assert that, in addition to the NEPA analysis for Order No. 70, the Commission has conducted a NEPA analysis for prior rulemakings, which they argue undermines the Commission’s claim that the impacts here are too speculative and uncertain to prepare an EA or EIS.870 Specifically, Northwest Coalition and Public Interest Organizations point to the competitive bidding NOPR under section 210 of PURPA 871 and Order No. 888.872 868 Id. P 735. P 736. 870 Northwest Coalition Request for Rehearing at 59; Public Interest Organizations Request for Rehearing at 26–30. 871 Northwest Coalition Request for Rehearing at 59; Public Interest Organizations Request for Rehearing at 28 (citing Bidding NOPR, FERC Stats. & Regs. ¶ 32,455 at 32,047). 872 Northwest Coalition Request for Rehearing at 59; Public Interest Organizations Request for Rehearing at 29 (citing Promoting Wholesale Competition Through Open Access NonDiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996) (crossreferenced at 75 FERC ¶ 61,080 and 61 FR 21,540 (May 10, 1996)), order on reh’g, Order No. 888–A, FERC Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220 and 62 FR 12,274 (Mar. 14, 1997)), order on reh’g, Order No. 888–B, 81 FERC ¶ 61,248 (1997) (cross-referenced at 62 FR 64,688 (Dec. 9, 1997), order on reh’g, Order No. 888–C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. 869 Id. PO 00000 Frm 00069 Fmt 4701 Sfmt 4700 86723 463. Public Interest Organizations argue that, because an EA was prepared for Order No. 70, the Commission ‘‘has experience doing the very thing it alleges is so impossibly burdensome.’’ 873 Public Interest Organizations add that, with respect to Order No. 70, the Commission acknowledged that its NEPA analysis contains uncertainties but is nevertheless required to assess the environmental effects to the fullest extent possible.874 They add that Order No. 70 states that the proposed rules did not authorize or fund a particular project or forbid or authorize the use of certain fuels, but the Commission nevertheless prepared a NEPA analysis.875 Public Interest Organizations also argue that, in Order No. 70, the Commission was able to develop a specific methodology for predicting its effects on QF development and should be able to do so here as well.876 464. Northwest Coalition asserts that that the Commission’s statement in the final rule that the NEPA analysis for Order No. 70 was simpler (because very few renewable cogeneration facilities were online prior to the rule) fails to address how the Commission was able to conduct NEPA analyses for later rulemakings with equal or greater magnitude and complexity than the current case.877 Similarly, Public Interest Organizations claim that the Commission cannot underplay its past modeling efforts and could use similar methodology, or advancements in modern modeling software that has significantly improved over the last 40 years, to model the final rule’s potential impacts.878 As an example, Northwest Coalition and Public Interest Organizations point to the Commission’s environmental analysis for the competitive bidding NOPR and Order No. 888, which they claim involved uncertainties and more complex market changes than the final rule.879 Related to Order No. 888 specifically, Public Interest Organizations argue that the Transmission Access Pol’y Study Grp. v. FERC, 225 F.3d 667, aff’d sub nom. N.Y. v. FERC, 535 U.S. 1 (2002)). 873 Public Interest Organizations Request for Rehearing at 26. 874 Id. at 26–27 (citing Order No. 70, FERC Stats. & Regs. ¶ 30,134). 875 Id. at 27. 876 Id. 877 Northwest Coalition Request for Rehearing at 59. 878 Public Interest Organizations Request for Rehearing at 29. 879 Northwest Coalition Request for Rehearing at 59; Public Interest Organizations Request for Rehearing at 28–29. E:\FR\FM\30DER2.SGM 30DER2 86724 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Commission was able to conduct complex modeling to forecast emissions based on simulations of power generation patterns and should be able to reverse the modeling here to forecast the effects of the final rule.880 b. Commission Determination 465. We reiterate that the Commission considers all matters before it, including rulemakings, on a case-by-case basis as to whether an EIS, EA, or a categorical exclusion is appropriate. As the Commission stated in the final rule, the basis for its NEPA analysis for Order No. 70 was the ability to conduct a market penetration study.881 However, circumstances since the promulgation of Order No. 70 have changed significantly, making it impossible to perform a market penetration study of the effects of the final rule that would not be wholly speculative. This is due in large part to the fact that renewable technologies that are commonly adopted by QFs are also commonly adopted by non-QF generation developers today.882 In contrast, in 1980, essentially no QF technologies, renewable or otherwise, were being built by non-QFs.883 Thus, it was possible in 1980 to assume that certain generation technologies would only be deployed if the PURPA Regulations were issued, and that assumption enabled a market penetration study that could underpin an analysis of the environmental impact of deploying those technologies.884 These same assumptions cannot be made today. Renewable technology, for example, is being widely deployed without PURPA support; thus, it is impossible to assume that any potential impact of this rule change will necessarily reduce the deployment of renewables because PURPA is no longer the only route, or even the predominant route, to such development.885 To the contrary, as much as 90 percent of all renewable capacity placed in service today was developed outside of PURPA.886 466. We also disagree with Northwest Coalition’s and Public Interest Organizations’ arguments that the Commission should be able to prepare a NEPA analysis similar to those for the competitive bidding NOPR and Order No. 888, using similar methodology and advancements in modern modeling software. Contrary to Northwest 880 Public Interest Organizations Request for Rehearing at 29–30. 881 Order No. 872, 172 FERC ¶ 61,041 at P 729. 882 Id. P 731. 883 Id. 884 Id. PP 731–32. 885 Id. PP 731–34. 886 See id. P 240. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 Coalition’s and Public Interest Organizations’ assertions, the Commission’s ability to prepare NEPA analyses in these prior rulemakings does not facilitate our ability to prepare an EA or EIS for this rulemaking. While we agree that modelling technology has advanced since the Commission conducted a NEPA analysis in these prior rulemakings, the Commission would be required to make too many unsupported assumptions to undertake an analysis in this case, which would result in a speculative and meaningless analysis. 467. For example, the Commission would need to assume that all affected QFs would be renewables and all replacement utility generation would be conventional emitting resources, which as previously explained would not necessarily be true in either case.887 Similar to the original PURPA rulemaking, the technologies that could qualify for QF status and independent generation more broadly were not widely used outside of the PURPA context when studies were conducted for the competitive bidding NOPR, so the Commission could make basic assumptions about the effects the competitive bidding NOPR would have on QF development.888 The same assumptions cannot be made about the final rule as the technologies that renewable QFs use are now widespread and developed outside of PURPA, making any market penetration study wholly speculative. 468. Finally, we disagree that the Commission could reverse engineer the modeling used to forecast emissions based on simulations of power generation patterns in Order No. 888 to forecast the effects of the final rule in a NEPA analysis. The modeling from prior rulemakings is not applicable here. Order No. 888 involved the direct regulation of entities under the Commission’s jurisdiction to impose open access requirements, and it was possible to estimate potential changes in conventional generation (gas and coal) development and dispatch in light of the advent of open access to the transmission grid.889 In contrast, under the final rule, and PURPA more generally, the Commission sets rules for states and nonregulated electric utilities to implement. The Commission cannot predict how the states will choose to implement the final rule—if at all—and what effect that will have on QF development, whether renewable QFs 887 Id. P 734. PP 731–32. 889 See Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,861–96. will be impacted more than nonrenewable QFs or whether non-QFs will develop renewables or conventional generation. V. Regulatory Flexibility Act Certification 469. The Regulatory Flexibility Act of 1980 (RFA) 890 generally requires a description and analysis of rules that will have significant economic impact on a substantial number of small entities. No comments on the Regulatory Flexibility Act were filed on rehearing, and the comments on rehearing regarding burden and cost estimates are addressed in the Information Collection Statement section. 470. As discussed in the final rule, we estimate that annual additional compliance costs on industry (detailed above) will be approximately $1,149,965 (or an average additional burden and cost per response, of 3.187 hrs. and the corresponding $264.51) to comply with these requirements.891 Therefore, pursuant to section 605(b) of the RFA, we still conclude that this rule will not have a significant economic impact on a substantial number of small entities. VI. Document Availability 471. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the internet through the Commission’s Home Page (https:// www.ferc.gov). At this time, the Commission has suspended access to the Commission’s Public Reference Room due to the President’s March 13, 2020 proclamation declaring a National Emergency concerning the Novel Coronavirus Disease (COVID–19). 472. From the Commission’s Home Page on the internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. 473. User assistance is available for eLibrary and the Commission’s website during normal business hours from the Commission’s Online Support at (202) 502–6652 (toll free at 1–866–208–3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502–8371, TTY (202) 502–8659. Email the Public Reference Room at public.referenceroom@ferc.gov. 888 Id. PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 890 5 U.S.C. 601–12. No. 872, 172 FERC ¶ 61,041 at P 748. 891 Order E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VII. Effective Dates and Congressional Notification 474. The further revised regulation in this order is effective February 16, 2021. No other changes to the Commission’s regulations have been made on rehearing to the final rule, however we modify the instructions to the Form No. 556. Out of an abundance of caution, this order addressing arguments raised on rehearing is being submitted to the Administrator of the Office of Information and Regulatory Affairs of OMB, Senate, House, and Government Accountability Office. List of Subjects in 18 CFR Part 292 Electric power plants; Electric utilities, Reporting and recordkeeping requirements. By the Commission. Commissioner Glick is dissenting in part with a separate statement attached. Issued: November 19, 2020. Kimberly D. Bose, Secretary. In consideration of the foregoing, the Commission amends part 292, chapter I, title 18, Code of Federal Regulations, as follows. SUBCHAPTER K—REGULATIONS UNDER THE PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978 * * * * * PART 292—REGULATIONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC UTILITY REGULATORY POLICIES ACT OF 1978 WITH REGARD TO SMALL POWER PRODUCTION AND COGENERATION 1. The authority citation for part 292 continues to read as follows: ■ Authority: 16 U.S.C. 791a–825r, 2601– 2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352. 2. Amend § 292.309 by revising paragraphs (c), (d), (e), and (f) to read as follows: ■ § 292.309 Termination of obligation to purchase from qualifying facilities. * * * * * (c) For purposes of paragraphs (a)(1), (2) and (3) of this section, with the exception of paragraph (d) of this section, there is a rebuttable presumption that a qualifying facility has nondiscriminatory access to the market if it is eligible for service under a Commission-approved open access transmission tariff or Commission-filed reciprocity tariff, and Commissionapproved interconnection rules. (1) If the Commission determines that a market meets the criteria of paragraphs (a)(1), (2) or (3) of this section, and if a VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 qualifying facility in the relevant market is eligible for service under a Commission-approved open access transmission tariff or Commission-filed reciprocity tariff, a qualifying facility may seek to rebut the presumption of access to the market by demonstrating, inter alia, that it does not have access to the market because of operational characteristics or transmission constraints. (2) For purposes of paragraphs (a)(1), (2), and (3) of this section, a qualifying small power production facility with a capacity between 5 megawatts and 20 megawatts may additionally seek to rebut the presumption of access to the market by demonstrating that it does not have access to the market in light of consideration of other factors, including, but not limited to: (i) Specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates; (ii) Unique circumstances impacting the time or length of interconnection studies or queues to process the small power production facility’s interconnection request; (iii) A lack of affiliation with entities that participate in the markets in paragraphs (a)(1), (2), and (3) of this section; (iv) The qualifying small power production facility has a predominant purpose other than selling electricity and should be treated similarly to qualifying cogeneration facilities; (v) The qualifying small power production facility has certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; or (vi) The qualifying small power production facility lacks access to markets due to transmission constraints. The qualifying small power production facility may show that it is located in an area where persistent transmission constraints in effect cause the qualifying facility not to have access to markets outside a persistently congested area to sell the qualifying facility output or capacity. (d)(1) For purposes of paragraphs (a)(1), (2), and (3) of this section, there is a rebuttable presumption that a qualifying cogeneration facility with a capacity at or below 20 megawatts does not have nondiscriminatory access to the market. (2) For purposes of paragraphs (a)(1), (2), and (3) of this section, there is a rebuttable presumption that a qualifying small power production facility with a capacity at or below 5 megawatts does not have nondiscriminatory access to the market. PO 00000 Frm 00071 Fmt 4701 Sfmt 4700 86725 (3) Nothing in paragraphs (d)(1) through (3) affects the rights 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 electric utility on or before February 16, 2021, to purchase electric energy or capacity from or to sell electric energy or capacity to a small power production facility between 5 megawatts and 20 megawatts under this Act (including the right to recover costs of purchasing electric energy or capacity). (4) For purposes of implementing paragraphs (d)(1) and (2) of this section, the Commission will not be bound by the standards set forth in § 292.204(a)(2). (e) Midcontinent Independent System Operator, Inc. (MISO), PJM Interconnection, L.L.C. (PJM), ISO New England Inc. (ISO–NE), and New York Independent System Operator, Inc. (NYISO) qualify as markets described in paragraphs (a)(1)(i) and (ii) of this section, and there is a rebuttable presumption that small power production facilities with a capacity greater than 5 megawatts and cogeneration facilities with a capacity greater than 20 megawatts have nondiscriminatory access to those markets through Commission-approved open access transmission tariffs and interconnection rules, and that electric utilities that are members of such regional transmission organizations or independent system operators should be relieved of the obligation to purchase electric energy from the qualifying facilities. (1) A qualifying facility above 20 MW may seek to rebut this presumption by demonstrating, inter alia, that: (i) The qualifying facility has certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; or (ii) The qualifying facility lacks access to markets due to transmission constraints. The qualifying facility may show that it is located in an area where persistent transmission constraints in effect cause the qualifying facility not to have access to markets outside a persistently congested area to sell the qualifying facility output or capacity. (2) A small power producer qualifying facility between 5 megawatts and 20 megawatts may show it does not have access to the market in light of consideration of other factors, including, but not limited to: (i) Specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates; E:\FR\FM\30DER2.SGM 30DER2 86726 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations (ii) Unique circumstances impacting the time or length of interconnection studies or queues to process the small power production facility’s interconnection request; (iii) A lack of affiliation with entities that participate in the markets in section § 292.309(a)(1), (2), and (3); (iv) The qualifying small power production facility has a predominant purpose other than selling electricity and should be treated similarly to qualifying cogeneration facilities; (v) The qualifying small power production facility has certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; or (vi) The qualifying small power production facility lacks access to markets due to transmission constraints. The qualifying small power production facility may show that it is located in an area where persistent transmission constraints in effect cause the qualifying facility not to have access to markets outside a persistently congested area to sell the qualifying facility output or capacity. (f) The Electric Reliability Council of Texas (ERCOT) qualifies as a market described in paragraph (a)(3) of this section, and there is a rebuttable presumption that small power production facilities with a capacity greater than five megawatts and cogeneration facilities with a capacity VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 greater than 20 megawatts have nondiscriminatory access to that market through Public Utility Commission of Texas (PUCT) approved open access protocols, and that electric utilities that operate within ERCOT should be relieved of the obligation to purchase electric energy from the qualifying facilities. (1) A qualifying facility above 20 MW may seek to rebut this presumption by demonstrating, inter alia, that: (i) The qualifying facility has certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; or (ii) The qualifying facility lacks access to markets due to transmission constraints. The qualifying facility may show that it is located in an area where persistent transmission constraints in effect cause the qualifying facility not to have access to markets outside a persistently congested area to sell the qualifying facility output or capacity. (2) A small power producer qualifying facility between 5 megawatts and 20 megawatts may show it does not have access to the market in light of consideration of other factors, including, but not limited to: (i) Specific barriers to connecting to the interstate transmission grid, such as excessively high costs and pancaked delivery rates; (ii) Unique circumstances impacting the time or length of interconnection PO 00000 Frm 00072 Fmt 4701 Sfmt 4700 studies or queues to process the small power production facility’s interconnection request; (iii) A lack of affiliation with entities that participate in the markets in section § 292.309(a)(1), (2), and (3); (iv) The qualifying small power production facility has a predominant purpose other than selling electricity and should be treated similarly to qualifying cogeneration facilities; (v) The qualifying small power production facility has certain operational characteristics that effectively prevent the qualifying facility’s participation in a market; or (vi) The qualifying small power production facility lacks access to markets due to transmission constraints. The qualifying small power production facility may show that it is located in an area where persistent transmission constraints in effect cause the qualifying facility not to have access to markets outside a persistently congested area to sell the qualifying facility output or capacity. * * * * * Note: The following appendix will not appear in the Code of Federal Regulations. Appendix B Revised Form No. 556 BILLING CODE 6717–01–P E:\FR\FM\30DER2.SGM 30DER2 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00073 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86727 ER30DE20.000</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00074 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.001</GPH> 86728 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00075 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86729 ER30DE20.002</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00076 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.003</GPH> 86730 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86731 ER30DE20.004</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00078 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.005</GPH> 86732 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00079 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86733 ER30DE20.006</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00080 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.007</GPH> 86734 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00081 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86735 ER30DE20.008</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00082 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.009</GPH> 86736 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00083 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86737 ER30DE20.010</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.011</GPH> 86738 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00085 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86739 ER30DE20.012</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.013</GPH> 86740 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86741 ER30DE20.014</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00088 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.015</GPH> 86742 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00089 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86743 ER30DE20.016</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00090 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.017</GPH> 86744 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00091 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86745 ER30DE20.018</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00092 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.019</GPH> 86746 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00093 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 86747 ER30DE20.020</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00094 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.021</GPH> 86748 86749 VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 PO 00000 Frm 00095 Fmt 4701 Sfmt 4725 E:\FR\FM\30DER2.SGM 30DER2 ER30DE20.022</GPH> ER30DE20.023</GPH> Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations 86750 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations BILLING CODE 6717–01–C United States of America Federal Energy Regulatory Commission Docket Nos. Qualifying Facility Rates and Requirements ................................... Implementation Issues Under the Public Utility Regulatory Policies Act of 1978 .................................. RM19–15–001 AD16–16–001 (Issued November 19, 2020) GLICK, Commissioner, dissenting in part: 1. I dissent in part from today’s order on rehearing (Rehearing Order 1) because it upholds the overwhelming majority of Order No. 872,2 which effectively gutted the Commission’s implementation of the Public Utility Regulatory Policies Act (PURPA).3 The Commission’s basic responsibilities under PURPA are three-fold: (1) To encourage the development of qualifying facilities (QFs); (2) to prevent discrimination against QFs by incumbent utilities; and (3) to ensure that the resulting rates paid by electricity customers remain just and reasonable, in the public interest, and do not exceed the incremental costs to the utility of alternative energy.4 I do not believe that Order No. 872 satisfies those responsibilities. 2. Although I have concerns about many of the individual changes imposed by the Order No. 872,5 I remain, on a broader level, dismayed that the Commission is attempting to accomplish via administrative fiat what Congress has repeatedly declined to do via legislation. I am especially disappointed because Congress expressly provided the Commission with a different avenue for ‘‘modernizing’’ our administration of PURPA. The Energy Policy Act of 2005 gave the Commission the authority to excuse utilities from their obligations under PURPA where QFs have non-discriminatory access to competitive wholesale markets.6 Had we pursued reforms based on those provisions, rather than gutting our longstanding regulations, I believe we could have reached a durable, consensus solution that would ultimately have done more for all interested parties. • PURPA’s Continuing Relevance Is an Issue for Congress To Decide 3. This proceeding began with a bang. The Commission championed its NOPR as a 1 Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Order No. 872–A, 173 FERC ¶ 61,158 (2020). 2 Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Order No. 872, 172 FERC ¶ 61,041 (2020). 3 Public Law 95–617, 92 Stat. 3117 (1978). 4 See 16 U.S.C. 824a–3(a)–(b) (2018). 5 Those concerns notwithstanding, I supported certain aspects of Order No. 872, including the revisions to the ‘‘one-mile’’ rule, requiring that QFs demonstrate commercial viability before securing a legally enforceable obligation, and allowing stakeholders to protest a QF’s self-certification. See Order No. 872, 172 FERC ¶ 61,041 (Glick, Comm’r, dissenting in part at n.4). 6 Public Law 109–58, 1253, 119 Stat. 594 (2005). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 ‘‘truly significant’’ action that would fundamentally overhaul the Commission’s implementation of PURPA.7 And so it was. The NOPR suggested altering almost every significant aspect of the Commission’s PURPA regulations, thereby transforming the foundation on which the Commission had carried out its statutory responsibility to ‘‘encourage’’ the development of QFs for over four decades. Although Order No. 872 walked back some of the NOPR’s most extreme proposals, it adopted the overwhelming majority of the NOPR, including all of its tenets. In so doing, the Commission upended the regulatory regime that has formed the basis of its implementation of PURPA almost since the day the statute was enacted. 4. I partially dissented from both the NOPR and Order No. 872 in large part because I believe that it is not the Commission’s role to sit in judgment of a duly enacted statute and determine whether it has outlived its usefulness. As I explained, ‘‘almost from the moment PURPA was passed, Congress began to hear many of the arguments being used today to justify scaling the law back.’’ 8 Congress, however, has seen fit to significantly amend PURPA only once in its more-than-forty-year lifespan. As part of the Energy Policy Act of 2005, Congress amended PURPA, leaving in place the law’s basic framework, while adding a series of provisions that allowed the Commission to excuse utilities from its requirements in regions of the country with sufficiently competitive wholesale energy markets.9 And while Congress considered numerous proposals to further reform the law, it never saw fit to act on them.10 Against that background, I could not support my colleagues’ willingness to ‘‘remove[ ] an important debate from the halls of Congress and isolate[ ] it within the Commission.’’ 11 Whatever your position on PURPA—and I recognize views vary widely—‘‘what should concern all of us is that resolving these sorts of questions by regulatory edict rather than congressional legislation is neither a durable nor desirable approach for developing energy policy.’’ 12 5. Order No. 872 and today’s order on rehearing retreat from much of the original rationale used to support the NOPR, but the effect is the same: The Commission is administratively gutting PURPA. Make no mistake, although the Commission has dropped much of the NOPR preamble’s opening screed against PURPA’s continuing relevance, Order No. 872 is a full-throated endorsement of the conclusion that PURPA has outlived its usefulness. And while walking back the argument that PURPA is antiquated may reduce the risk that Order 7 Sept. 2019 Commission Meeting Tr. at 8. Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Notice of Proposed Rulemaking, 168 FERC ¶ 61,184 (2019) (NOPR) (Glick, Comm’r, dissenting in part at P 3). 9 Supra note 6. 10 See Solar Energy Industries Association (SEIA) Comments at 11. 11 NOPR, 168 FERC ¶ 61,184 (Glick, Comm’r, dissenting in part at P 4). 12 Id. 8 Qualifying PO 00000 Frm 00096 Fmt 4701 Sfmt 4700 No. 872 is overturned on appeal, that does not change the fact that the rule usurps what should be Congress’s proper role. 6. Throughout this proceeding, the Commission has been quick to point to Congress’s directive to from time to time amend our regulations implementing PURPA.13 Order No. 872, however, is a wholesale overhaul of the Commission’s PURPA regulations that reflects a deep skepticism of the need for the law we are charged with implementing. I continue to doubt that is what Congress had in mind when it gave us responsibility for periodically updating our implementing regulations. • The Commission’s Proposed Reforms Are Inconsistent With Our Statutory Mandate 7. PURPA directs the Commission to adopt such regulations as are ‘‘necessary to encourage’’ QFs,14 including by establishing rates for sales by QFs that are just and reasonable and by ensuring that such rates ‘‘shall not discriminate’’ against QFs.15 The changes adopted by the Commission in Order No. 872 fail to meet that standard. In addition, many of the reforms are unsupported—and, in many cases, contradicted—by the evidence in the record.16 Accordingly, I believe Order No. 872 is not just poor public policy, but also arbitrary and capricious agency action. A. Avoided Cost 8. The Final Rule adopted two fundamental changes to how QF rates are determined. First, and most importantly, it eliminated the requirement that a utility must afford a QF the option to enter a contract at a rate for energy that is either fixed for the duration of the contract or determined at the outset—e.g., based on a forward curve reflecting estimated prices over the term of the contract.17 Second, it presumptively allows states to set the rate for as-available energy at the relevant locational marginal price (LMP).18 The record in this proceeding does not support either of those changes. i. Elimination of Fixed Energy Rate 9. Prior to Order No. 872, a QF generally had two options for selling its output to a utility. Under the first option, the QF could sell its energy on an as-available basis and 13 Order No. 872–A, 173 FERC ¶ 61,158 at P 115; Order No. 872, 172 FERC ¶ 61,041 at PP 24, 48, 54, 67, 296, 628; NOPR, 168 FERC ¶ 61,184 at PP 4, 16, 29, 155. 14 A QF is a cogeneration facility or a small power production facility. See 18 CFR 292.101(b)(1) (2019). 15 16 U.S.C. 824a–3(a)–(b). 16 Genuine Parts Co. v. EPA, 890 F.3d 304, 312 (D.C. Cir. 2018) (‘‘[A]n agency cannot ignore evidence that undercuts its judgment; and it may not minimize such evidence without adequate explanation.’’) (citations omitted); id. (‘‘Conclusory explanations for matters involving a central factual dispute where there is considerable evidence in conflict do not suffice to meet the deferential standards of our review.’’ (quoting Int’l Union, United Mine Workers v. Mine Safety & Health Admin., 626 F.3d 84, 94 (D.C. Cir. 2010)). 17 Order No. 872, 172 FERC ¶ 61,041 at P 253. 18 Id. P 151. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations receive an avoided cost rate calculated at the time of delivery. This is generally known as the as-available option. Under the second option, a QF could enter into a fixed-duration contract at an avoided cost rate that was fixed either at the time the QF established a legally enforceable obligation (LEO) or at the time of delivery. This is generally known as the contract option. The ability to choose between the two options played an important role in fostering the development of a variety of QFs. For example, the as-available option provided a way for QFs whose principal business was not generating electricity, such as industrial cogeneration facilities, to monetize their excess electricity generation. The contract option, by contrast, provided QFs who were principally in the business of generating electricity, such as small renewable electricity generators, a stable option that would allow them to secure financing. Together, the presence of these two options allowed the Commission to satisfy its statutory mandate to encourage the development of QFs and ensured that the rates they received were non-discriminatory. 10. Order No. 872 eliminated the requirement that states provide a contract option that includes a fixed energy rate.19 Prior to this proceeding, the Commission recognized time and again that fixed-price contracts play an essential role in financing QF facilities, making them a necessary element of any effort to encourage QF development, at least in certain regions of the country.20 In addition, fixed-price contracts have helped prevent discrimination against QFs by ensuring that they are not structurally disadvantaged relative to vertically integrated utilities that are guaranteed to recover the costs of their prudently incurred investments through retail rates.21 19 Id. P 253. e.g., Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, Order No. 69, FERC Stats. & Regs. ¶ 30,128, at 30,880, order on reh’g sub nom. Order No. 69–A, FERC Stats. & Regs. ¶ 30,160 (1980), aff’d in part vacated in part, Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), rev’d in part sub nom. Am. Paper Inst. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983) (justifying the rule on the basis of ‘‘the need for certainty with regard to return on investment in new technologies’’); NOPR, 168 FERC ¶ 61,184 at P 63 (‘‘The Commission’s justification for allowing QFs to fix their rate at the time of the LEO for the entire term of a contract was that fixing the rate provides certainty necessary for the QF to obtain financing.’’); Windham Solar LLC, 157 FERC ¶ 61,134, at P 8 (2016). 21 See, e.g., ELCON Comments at 21–22 (‘‘More variable avoided cost rates will result in unintended consequences that result in less competitive conditions and may leave consumers worse off, as utility self-builds do not face the same market risk exposure. Pushing more market risk to QFs while utility assets remain insulated from markets creates an investment risk asymmetry. This puts QFs at a competitive disadvantage.’’); South Carolina Solar Business Association Comments at 8 (‘‘[A]savailable rates for QFs in vertically-integrated states therefore discriminate against QFs by requiring QFs to enter into contracts at substantially and unjustifiably different terms than incumbent utilities.’’); Southern Environmental Law Center Supplement Comments, Docket No. AD16–16–000, at 6–8 (Oct. 17, 2018) (explaining that vertically 20 See, VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 11. The record before us confirms the continuing importance of the fixed-price contract option for QFs. Numerous entities with experience in financing and developing QFs explain that a fixed revenue stream of some sort is necessary to obtain the financing needed to develop a new QF.22 In both Order No. 872 and today’s order on rehearing, the Commission responds to that evidence with a reference to the general track record of independent power producers, and renewables developers in particular, that develop new resources without a regulatory guarantee of a fixed revenue stream.23 But the overwhelming majority of the Commission’s statistics reflect development in RTO/ISO markets, where developers generally can rely on financing arrangements, such as commodity hedges, to lock-in the revenue needed to secure financing.24 12. Those products are far less ubiquitous—if they are available at all— outside of RTO/ISO markets.25 Accordingly, the success of relatively large independent power producers in the organized markets does not constitute substantial evidence suggesting that QFs will be able to finance new development outside RTO/ISO markets where PURPA plays a larger role.26 Indeed, the Commission’s deliberate blurring of the lines between RTO/ISO markets and the rest of the country is the equivalent of arguing that Tommie and Hank Aaron ought to both be hall-of-famers because, together, they hit 768 home runs, while ignoring the fact that Hank was responsible for 755 of the brothers’ 768 home runs.27 integrated utilities in Indiana, Alabama, Virginia and Tennessee only offer short-term rates to QFs); sPower Comments at 13; see also Statement of Travis Kavulla, Docket No. AD16–16–000, at 2 (June 29, 2016). 22 See, e.g., Public Interest Organizations Rehearing Request at 73–76; SEIA Comments at 29; North Carolina Attorney General’s Office Comments at 5; ConEd Development Comments at 3; South Carolina Solar Business Association Comments at 6; sPower Comments at 11; Resources for the Future Comments at 6–7; Southeast Public Interest Organizations Comments at 9. 23 Order No. 872–A, 173 FERC ¶ 61,158 at PP 150–151 (citing Order No. 872, 172 FERC ¶ 61,041 at P 340). 24 See, e.g., EEI Comments at 36; sPower Comments at 12; Public Interest Organization Comments at n. 87 (fixed price contracts for nonQF generation); SEIA Rehearing Request at 14–15. 25 See, e.g., SEIA Comments at 29–30 (‘‘As both Mr. Shem and Mr. McConnell explain, financial hedge products are not available outside of ISO/ RTO markets.’’); Resources for the Future Comments at 6–7 (‘‘[W]hile hedge products do support wind and solar project financing, they would not be suited for most QF projects. To hedge energy prices, wind projects have used three products: Bank hedges, synthetic power purchase agreements (synthetic PPAs), and proxy revenue swaps. . . . From US project data for 2017 and 2018, the smallest wind project securing such a hedge was 78 MW, and most projects were well over 100 MW. Additionally, as hedges rely on wholesale market access and liquid electricity trading, all of the projects were in ISO regions.’’); SEIA Rehearing Request at 18. 26 See, e.g., Public Interest Organizations Rehearing Request at 74–78; Northwest Coalition Rehearing Request at 28. 27 Compare https://en.wikipedia.org/wiki/Hank_ Aaron with https://en.wikipedia.org/wiki/Tommie_ PO 00000 Frm 00097 Fmt 4701 Sfmt 4700 86751 13. The Commission next responds that PURPA does not require that QFs be financeable.28 That is true in a literal sense; nothing in PURPA directs the Commission to ensure that at least some QFs be financeable. But it does require the Commission to encourage their development, which we have previously equated with financeability.29 If the Commission is going to abandon that standard, it must then explain why what is left of its regulations provides the requisite encouragement—an explanation that is lacking from this order, notwithstanding the Commission’s repeated assertions to the contrary.30 14. In addition, much of the Commission’s justification for eliminating the fixed-price contract option for energy rests on the availability of a fixed-price contract option for capacity.31 Commission precedent, however, permits utilities to offer a capacity rate of zero to QFs when the utility does not Aaron. The Commission also points to the rate structure discussed in Town of Norwood v. FERC, 962 F.2d 20, 21, 24 (D.C. Cir. 1992), ‘‘variable energy rate/fixed capacity rate construct is the standard rate structure used throughout the electric industry.’’ Order No. 872, 172 FERC ¶ 61,041 at P 38; see also Order No. 872–A, 173 FERC ¶ 61,158 at P 143. I do not believe that the discussion of a single contract in a single case, decided roughly thirty years ago, is substantial evidence regarding the typical financing and contractual requirements of a QF in the contemporary electricity sector. 28 See, e.g., Order No. 872–A, 173 FERC ¶ 61,158 at PP 145–146, 172. 29 See, e.g., Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880 (finding that ‘‘legally enforceable obligations are intended to reconcile the requirement that the rates for purchases equal to the utilities avoided cost with the need for qualifying facilities to be able to enter into contractual commitments, by necessity, on estimates of future avoided costs’’ and ‘‘the need for certainty with regard to return on investment in new technologies’’); NOPR, 168 FERC ¶ 61,184 at P 63 (‘‘The Commission’s justification for allowing QFs to fix their rate at the time of the LEO for the entire term of a contract was that fixing the rate provides certainty necessary for the QF to obtain financing.’’). The Commission responds that ‘‘[i]t is not necessary to prove that all potential QFs would be able to raise useful financing.’’ Order No. 872– A, 173 FERC ¶ 61,158 at P 175. Talk about moving the goal posts. No one has argued that this is the Commission’s burden. Rather, the argument is that the Commission’s reforms may render it impossible, or nearly so, for QFs outside the organized markets to obtain the necessary financing. Order No. 872, 172 FERC ¶ 61,041 (Comm’r, Glick, dissenting in part at PP 11–12); Public Interest Organizations at 79–84. The Commission cannot skirt that point by knocking down a strawman, especially given the weight it is has historically given to the importance of financeability for QFs. 30 See, e.g., Order No. 872–A, 173 FERC ¶ 61,158 at P 43. 31 See id. P 174; Order No. 872, 172 FERC ¶ 61,041 at P 36 (‘‘This assertion that the Commission has eliminated fixed rates for QFs is not correct. . . . The NOPR thus made clear: under the proposed revisions to 292.304(d), a QF would continue to be entitled to a contract with avoided capacity costs calculated and fixed at the time the LEO is incurred.’’) (internal quotation marks omitted); id. P 237 (‘‘The Commission stated that these fixed capacity and variable energy payments have been sufficient to permit the financing of significant amounts of new capacity in the RTOs and ISOs.’’). E:\FR\FM\30DER2.SGM 30DER2 86752 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations need incremental capacity.32 That means that, after Order No. 872, QF developers now face the very real prospect of not receiving any fixed revenue stream, whether for energy or capacity, on top the fact at they also may not be able to secure hedging products or other mechanisms needed to finance a new QF.33 It is hard for me to understand how the Commission can, with a straight face, claim to be encouraging QF development while at the same time eliminating the conditions necessary to develop QFs in the regions where they are being built.34 15. The Commission also does not sufficiently explain how eliminating the fixed-price contract requirement is consistent with PURPA’s requirement that rates ‘‘shall not discriminate against’’ QFs.35 Vertically integrated utilities effectively receive guaranteed fixed-price contracts through their rights to recover prudently incurred investments.36 QFs’ equivalent right to receive fixed-price contracts for energy has to date proved an integral element of the Commission’s ability to prevent discrimination against QFs.37 Neither Order No. 872 nor today’s order on rehearing adequately explain how eliminating the fixed-price option is consistent with that prohibition or, moreover, how permitting QFs to receive variable rates for energy while any vertically integrated utility to which they sell electricity receives fixed rates is consistent with the Commission’s obligation to encourage QF development.38 16. On rehearing, the Commission argues that both Congress and the Supreme Court ‘‘recognize that PURPA treats QFs differently from purchasing utilities, rendering QFs not similarly situated to non-QF resources.’’ 39 As an initial matter, the question of whether entities are similarly situated is one that is 32 See, e.g., Order No. 872, 172 FERC ¶ 61,041 at P 422 (citing to City of Ketchikan, Alaska, 94 FERC ¶ 61,293, at 62,061 (2001)). 33 See, e.g., Electric Power Supply Association (EPSA) Rehearing Request at 13–14; Resources for the Future Comments at 6; SEIA Comments at 30; Southeast Public Interest Organizations Comments at 12. 34 See Public Interest Organizations Comments at 10–11 (‘‘Obviously, rules that have an effect of discouraging QFs cannot be ‘necessary to’ encouraging them.’’); see also Massachusetts Attorney General Maura Healey Comments at 6 (‘‘This action may reduce investor confidence and discourage future development. That outcome is a negative one for the Commonwealth and its ratepayers.’’). 35 16 U.S. Code 824a–3(b)(2). Unlike provisions of the Federal Power Act, PURPA prohibits any discrimination against QFs, not just undue discrimination. See Order No. 872, 172 FERC ¶ 61,041 at P 82; see also EPSA Rehearing Request at 6; ELCON Comments at 21–22; South Carolina Solar Business Alliance Comments at 7–8; sPower Comments at 13. 36 Order No. 872, 172 FERC ¶ 61,041 at P 40. 37 See supra note 20; Commissioner Slaughter Comments at 4. 38 EPSA Rehearing Request at 8–9; Public Interest Organizations Comments at 51 (‘‘[L]imiting QFs to contracts providing no price certainty for energy values, while non-QF generation regularly obtains fixed price contracts and utility-owned generation receives guaranteed cost recovery from captive ratepayers, constitutes discrimination.’’). 39 Order No. 872–A, 173 FERC ¶ 61,158 at P 142. VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 relevant to evaluating whether any discrimination is undue.40 PURPA, however, prohibits any discrimination against QFs, not just undue discrimination.41 In any case, the congressional language cited by the Commission,42 which the Court reiterated, stands only for the proposition that Congress did not intend to apply traditional utility ratemaking concepts, such as guaranteed cost recovery, to QFs. But while Congress clearly envisioned different cost-recovery regimes for incumbent utilities and QFs, PURPA’s prohibition on discrimination against QFs indicates that the ratemaking regime applicable to QFs can be no less favorable than that applied to incumbent purchasing utilities. Permitting QFs to receive only variable-rate contracts while incumbent utilities simultaneously receive what are functionally decades-long fixed price contracts through their retail rates plainly falls short of the standard. 17. Finally, the Commission fails to explain why certain allegations of QF rates exceeding a utility’s actual avoided cost require us to abandon fixed-price contracts.43 The Commission has long recognized that QF rates may exceed actual avoided costs, but, at the same time, that avoided cost rates might also turn out to be lower than the electric utility’s avoided costs over the course of the contract. The Commission has reasoned that, ‘‘in the long run, ‘overestimations’ and ‘underestimations’ of avoided costs will balance out.’’ 44 Today’s order on rehearing takes the position that variable-price contracts are necessary to ensure that QF rates do not exceed utility avoided costs.45 The Commission, however, both fails to adequately explain that new interpretation of PURPA 46 and justify the avulsive change of course that it represents.47 ii. Setting Avoided Cost at LMP 18. I also do not support the Commission’s decision to treat LMP as a presumptively reasonable measure of a utility’s as-available avoided cost for energy.48 The short-term 40 See Public Interest Organizations Rehearing Request at 94–95; Northwest Coalition Rehearing Request at 11–12. 41 See supra note 35. 42 Order No. 872–A, 173 FERC ¶ 61,158 at P 142 n.275. 43 Id. PP 76–78. 44 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. 45 Order No. 872–A, 173 FERC ¶ 61,158 at PP 84, 175. 46 EPSA Rehearing Request at 15–16 (citing Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880). 47 Order No. 872 was quick to point to ‘‘the precipitous decline in natural gas prices’’ starting in 2008 that may have caused QF contracts fixed prior to that period to underestimate the actual cost of energy. See, e.g., Order No. 872, 172 FERC ¶ 61,041 at P 287. However, PURPA has been in place for forty years, and the Commission does not wrestle with the magnitude of potential savings conveyed to consumers from the fixed-price energy contracts that locked-in low rates for consumers during the decades prior when natural gas prices were several times higher. See Energy Information Administration Total Energy, tbl. 9.10, https:// www.eia.gov/totalenergy/data/browser/ (last viewed November 18, 2020). 48 Order No. 872, 172 FERC ¶ 61,041 at PP 151, 189, 211. PO 00000 Frm 00098 Fmt 4701 Sfmt 4700 marginal cost of production represented by LMP can be a useful and transparent input and ought to be considered in calculating an appropriate avoided-cost for as-available energy. But considering LMP in setting avoided cost is not the same thing as presuming that LMP is a sufficient measure to establish the avoided cost rate for energy. And, as the Public Interest Organizations explain, the record is replete with evidence indicating that vertically integrated utilities’ costs are often well above LMP.49 Where there is good reason to believe that LMP may not actually reflect the avoided cost of the purchasing utility, it makes no sense to put the burden on QFs to prove the point. 19. On rehearing, the Commission responds that its rebuttable presumption has not changed the burden of proof, only the burden of production.50 That’s an argument that only a lawyer’s mother could love. It discounts the very real concerns about whether LMP is an accurate reflection of a purchasing utility’s avoided energy costs. In any case, as the precedent cited by the Commission makes clear, an administrative agency cannot defend an irrational presumption simply by labeling it a shift in the burden of production.51 Because the presumption does not makes sense in its own right, the Commission cannot rehabilitate that presumption by labeling it merely a shift in the burden of production rather than persuasion.52 20. Finally, the presumption that LMP is an adequate measure of a utility’s full avoided energy cost is even more problematic when combined with the decision to eliminate the fixed-price contract option. Because the Commission has removed the 49 See, e.g., Public Interest Organizations Rehearing Request at 69–71. These points have also been raised throughout this proceeding. Public Interest Organizations Comments at 47–49 (explaining that numerous power plants incur marginal production costs that exceed the LMP); id at 50–51 (discussing analysis from Bloomberg New Energy Finance that compares marginal production costs with LMP and finds that many vertically integrated utilities regularly incur production costs that exceed LMP); id. at 51–52 (showing that a Springfield Illinois coal-fired power plant’s marginal dispatch costs exceeds LMP); id. at 52–53 (explaining that many utilities’ per-net-kWh costs exceed LMP); id. at 53–54 (contending that the cost associated with long-term fixed-price contracts for nuclear plants exceed LMP even net of capacity value). 50 Order No. 872–A, 173 FERC ¶ 61,158 at PP 63– 64 (citing Cablevision Sys. Corp. v. FCC, 649 F.3d 695, 716 (D.C. Cir. 2011)). 51 Cablevision, 649 F.3d at 716 (‘‘‘[A]n evidentiary presumption is only permissible if there is a sound and rational connection between the proved and inferred facts, and when proof of one fact renders the existence of another fact so probable that it is sensible and timesaving to assume the truth of the inferred fact.’ ’’ (quoting Nat’l Mining Ass’n v. Dep’t of Interior, 177 F.3d 1, 6 (D.C. Cir. 1999))). 52 It is also unclear from this record whether that presumption is best characterized as a shift in the burden of production rather than the burden of persuasion. To the extent that a QF or other entity must show that LMP is not an adequate measure of avoided cost in order to rebut the presumption, then the Commission has, for all intents and purposes, shifted the burden of persuasion to those entities no matter how the Commission describes its presumption. E:\FR\FM\30DER2.SGM 30DER2 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations requirement that utilities offer a fixed-price contract option for energy, it is entirely possible that a QF will be eligible to receive only LMP both on a short-term basis and a long-term basis as a result of the variable cost structure now permitted under the long-term contract.53 Given this reality, QFs may be reduced to relying solely on some highly variable measure of the spot market price for energy, all while the utilities whose costs the QF is avoiding potentially recover an effectively guaranteed rate well above that spot market price, particularly in RTO/ISO markets that remain vertically integrated.54 I am not persuaded that this approach will satisfy our obligation to encourage QFs and do so using rates that are non-discriminatory across all regions of the country. B. Rebuttable Presumption 20 MW to 5 MW 21. Following the Energy Policy Act of 2005, the Commission established a rebuttable presumption that QFs with a capacity greater than 20 MW operating in RTOs and ISOs have non-discriminatory access to competitive markets, eliminating utilities’ must-purchase obligation from those resources.55 Order No. 872 reduced the threshold for that presumption from 20 MW to 5 MW.56 That was an improvement over the NOPR, which—without any support whatsoever—proposed to lower that threshold to 1 MW.57 But, even so, the reduced 5–MW threshold is unsupported by the record and inadequately justified on rehearing. 22. When it originally established the 20– MW threshold, the Commission pointed to an array of barriers that prevented resources below that level from having truly nondiscriminatory access to RTO/ISO markets. Those barriers included complications associated with accessing the transmission system through the distribution system (a common occurrence for such small resources), challenges with reaching distant off-takers, as well as ‘‘jurisdictional differences, pancaked delivery rates, and additional administrative procedures’’ that complicate those resources’ ability to participate in those markets on a level playing field.58 In just the last few years, the Commission has recognized the persistence of those barriers ‘‘that gave rise to the rebuttable presumption that smaller QFs lack nondiscriminatory access to markets.’’ 59 23. Nevertheless, Order No. 872 abandoned the 20 MW threshold based on the conclusory assertion that ‘‘it is reasonable to 53 Public Interest Organizations Rehearing Request at P 61. 54 EPSA Rehearing Request at 13–14; Public Interest Organizations Rehearing Request at 98–99. 55 New PURPA Section 210(m) Regulations Applicable to Small Power Production and Cogeneration Facilities, Order No. 688, 117 FERC ¶ 61,078, at P 72 (2006), order on reh’g, Order No. 688–A, 119 FERC ¶ 61,305 (2007), aff’d sub nom. Am. Forest & Paper Ass’n v. FERC, 550 F.3d 1179 (D.C. Cir. 2008); see 16 U.S.C. 824a–3(m). 56 Order No. 872, 172 FERC ¶ 61,041 at P 625. 57 NOPR, 168 FERC ¶ 61,184 at P 126. 58 Order No. 688–A, 119 FERC ¶ 61,305 at PP 96, 103. 59 E.g., N. States Power Co., 151 FERC ¶ 61,110, at P 34 (2015). VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 presume that access to RTO/ISO markets has improved,’’ making it ‘‘appropriate to update the presumption.’’ 60 No doubt markets have improved. But a borderline-truism about maturing markets does not explain how the barriers arrayed against small resources have dissipated, why it is reasonable to ‘‘presume’’ that the remaining barriers do not still significantly inhibit non-discriminatory access, or why 5 MW is an appropriate new threshold for that presumption.61 24. Instead of any such evidence, Order No. 872 noted that the Commission uses the 5–MW level as a demarcating line for other rules applying to small resources. It points in particular to the fact that resources below 5 MW can use a ‘‘fast-track’’ interconnection process, whereas larger ones must use the large generator interconnection procedures.62 But the fact that the Commission used 5 MW as the cut off in another context hardly shows that it is the right cut off to use in this context. Specifically, the 5 MW cut off in the Commission’s interconnection rule is based on the impacts that projects below 5 MW are likely to have on system safety and reliability, not on whether they have nondiscriminatory market access.63 In addition, the Commission points to the fact that ‘‘‘all of the RTOs/ISOs have at least one participation model that allows resources as small as 100 kW to participate in their markets.’ ’’ 64 Be that as it may, that fact that all RTOs do not prohibit certain small resources from accessing their markets does not support the proposition that QFs below 5 MW now have non-discriminatory access to those markets. 25. Lacking substantial evidence to support the 5 MW threshold, Order No. 872 made a great deal out the deferential standard of review applied to the Commission’s rulemakings.65 But while judicial review of 60 Order No. 872, 172 FERC ¶ 61,041 at P 629 (‘‘Over the last 15 years, the RTO/ISO markets have matured, market participants have gained a better understanding of the mechanics of such markets and, as a result, we find that it is reasonable to presume that access to the RTO/ISO markets has improved and that it is appropriate to update the presumption for smaller production facilities.’’); see Order No. 872–A, 173 FERC ¶ 61,158 at P 361. 61 See Public Interest Organizations Rehearing Request at 135. 62 Order No. 872, 172 FERC ¶ 61,041 at P 630; Order No. 872–A, 173 FERC ¶ 61,158 at P 361. 63 Order No. 792, 145 FERC ¶ 61,159, at P 103 (2013) (‘‘The Commission finds that the modifications . . . are just and reasonable and strike a balance between allowing larger projects to use the Fast Track Process while ensuring safety and reliability.’’); see also SEIA Rehearing Request at 39–40. 64 Order No. 872–A, 173 FERC ¶ 61,158 at P 362 (citing Electric Storage Participation in Markets Operated by Regional Transmission Organizations and Independent System Operators, Order No. 841, 162 FERC ¶ 61,127 (2018), at P 272). 65 Order No. 872, 172 FERC ¶ 61,041 at P 637 (citing FCC v. Fox Television, 556 U.S. 502, 515 (2009), for the proposition that an agency ‘‘need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.’’); see Order No. 872–A, 173 FERC ¶ 61,158 at P 347. PO 00000 Frm 00099 Fmt 4701 Sfmt 4700 86753 agency policymaking is deferential, it is not toothless. The cases on which the Commission relied still require that, when an agency’s policy reversal ‘‘rests upon factual findings that contradict those which underlay its prior policy,’’ the agency must ‘‘provide a more detailed justification than what would suffice for a new policy created on a blank slate.’’ 66 That is because reasoned decisionmaking requires that, when an agency changes course, it must provide ‘‘a reasoned explanation . . . for disregarding facts and circumstances that underlay or were engendered by the prior policy.’’ 67 For the foregoing reasons, the Commission has failed to produce any such explanation, making its change of course arbitrary and capricious. • Environmental Review Under the National Environmental Policy Act 26. Today’s order also doubles down on the Commission’s refusal to conduct any environmental review whatsoever of the likely consequences of Order No. 872’s reforms. Whatever one may think of the questionable merits of those reforms, no one can seriously argue that they are anything short of a significant and sweeping overhaul of the Commission’s forty-year-old framework for implementing PURPA. And yet, at the same time that the Commission has championed the scope of its sweeping reforms, it simultaneously insists that no environmental review is necessary both because it cannot venture any guess as to the effects of those reforms and because they somehow fit into a categorical exception from NEPA review. Neither justification holds water. 27. As an initial matter, the Commission’s assertion that Order No. 872’s effects are overly speculative is tough to square with the fact that it has not undertaken any effort whatsoever to assess those effects. For example, instead of performing any modeling exercises, as the Commission did in the environmental assessment it issued along with its PURPA regulations in 1980,68 the Commission peremptorily rejects the possibility that it could glean anything useful from such an exercise. I have a hard time believing that our modeling capabilities have not improved dramatically over the course of the last four decades or that we cannot use those capabilities to perform an analysis that is quite a bit more detailed and reliable than that which was previously good enough for the Commission. In any case, NEPA does not require complete certainty or exacting precision. Instead, it recognizes that administrative agencies will often have to rely ‘‘ ‘reasonable forecasting’ ’’ aided by ‘‘ ‘educated assumptions.’ ’’ 69 Nothing in 66 Fox Television, 556 U.S. at 515; Advanced Energy Economy Comments at 6. 67 Fox Television, 556 U.S. at 516; Advanced Energy Economy Comments at 6–7. 68 Small Power Production and Cogeneration Facilities—Environmental Findings; No Significant Impact and Notice of Intent To Prepare Environmental Impact Statement, 45 FR 23,661 (Apr. 8, 1980). 69 Sierra Club v. FERC, 867 F.3d 1357, 1374 (D.C. Cir. 2018) (quoting Del. Riverkeeper Network v. FERC, 753 F.3d 1304, 1310 (D.C. Cir. 2014)). E:\FR\FM\30DER2.SGM 30DER2 86754 Federal Register / Vol. 85, No. 250 / Wednesday, December 30, 2020 / Rules and Regulations Order No. 872 or today’s order on rehearing adequately explains why those techniques could not have formed the basis for a useful environmental review of the likely consequences of this proceeding. 28. In addition, in a head-spinning contrast to the Commission’s crowing over the significance of its PURPA overhaul, the Commission describes the changes adopted as merely corrective and clarifying in nature for the purposes of avoiding its environmental review.70 In particular, the Commission contends that ‘‘the changes adopted in this final rule are required to ensure continued future compliance of the PURPA Regulations with PURPA, based on the changed circumstances found by the Commission in this final rule.’’ 71 In other words, because the Commission believes that the changes adopted are necessary to conform with the statute, they are mere corrective changes, which, in turn, qualifies them for the categorical exemption from any environmental review under NEPA, or so the argument goes. 29. But by that logic, any Commission action needed to comply with our various statutory mandates—whether ‘‘just and reasonable’’ or the ‘‘public interest’’—would be deemed corrective in nature and, therefore, excluded from environmental review. That would seem to exempt any future Commission action under PUPRA or Title II of the FPA from NEPA, at least absent a major congressional revision of those statutes. The Commission, however, fails to point to any evidence suggesting that is what the Council on Environmental Quality contemplated when it allowed for categorical exemptions. Accordingly, I do not believe 70 Order No. 872–A, 173 FERC ¶ 61,158 at P 449. No. 872, 172 FERC ¶ 61,041 at P 722; Order No. 872–A, 173 FERC ¶ 61,158 at P 438. 71 Order VerDate Sep<11>2014 19:00 Dec 29, 2020 Jkt 253001 that the Commission has demonstrated that the significant changes made in Order No. 872 qualify for any of the existing categorical exclusions, meaning that this significant revision of our PURPA regulations requires an environmental review under NEPA. • The Way To Revise PURPA Is To Create More Competition, Not Less 30. It didn’t have to be this way. When Congress reformed PURPA in the 2005 Energy Policy Act amendments, it indicated an unmistakable preference for using market competition as the off-ramp for utilities seeking relief from their PURPA obligations.72 Those reforms directed the Commission to excuse utilities from those obligations where QFs had nondiscriminatory access to RTO/ISO markets or other sufficiently competitive constructs.73 31. This record contains numerous comments explaining how the Commission could use those amendments as a way to ‘‘modernize’’ PURPA in a manner that both promotes actual competition and reflects Congress’s unambiguous intent.74 For example, in a white paper released prior to the NOPR, the National Association of Regulatory Utility Commissioners (NARUC) urged the Commission to give meaning to the 2005 amendments by establishing criteria by which a vertically integrated utility outside of an RTO or ISO could apply to terminate the must-purchase obligation if it conducts sufficiently competitive solicitations for energy and capacity.75 Other groups, 72 16 U.S.C. 824a–3(m). Order No. 688, 117 FERC ¶ 61,078 at P 8. 74 See Advanced Energy Economy Comments at 13; Industrial Energy Consumers Comments at 13– 14; EPSA Comments at 16. 75 National Association of Regulatory Utility Commissioners Supplemental Comments, Docket 73 See PO 00000 Frm 00100 Fmt 4701 Sfmt 9990 including representatives of QF interests, submitted additional comments on how an approach along those lines might work.76 Several parties commented on those proposals.77 32. It is a shame that the Commission has elected to administratively gut its longstanding PURPA implementation regime, rather than pursuing reform rooted in PURPA section 210(m), such as the NARUC proposal. Although the Commission can still consider proposals along the lines of the NARUC approach,78 making that approach the center of our reforms could have produced a durable, consensus solution to the issues before us. I continue to believe that the way to modernize PURPA is to promote real competition, not to simply dismantle the provisions that the Commission has relied on for decades out of frustration that Congress has repeatedly failed to repeal the statute itself. For these reasons, I respectfully dissent in part. Richard Glick, Commissioner. [FR Doc. 2020–26106 Filed 12–29–20; 8:45 am] BILLING CODE 6717–01–P No. AD16–16–00, Attach. A, at 8 (Oct. 17, 2018); id. (proposing the Commission’s Edgar-Allegheny criteria as a basis for evaluating whether a proposal was adequately competitive). 76 See, e.g., SEIA Supplemental Comments, Docket No. AD16–16–000 (Aug. 28, 2019). 77 See, e.g., Advanced Energy Economy Comments at 12; APPA Comments at 29; Colorado Independent Energy Comments at 7; ELCON Comments at 19; Public Interest Organizations Comments at 90; SEIA Comments at 24; Xcel Comments at 11. 78 Order No. 872, 172 FERC ¶ 61,041 at P 662. E:\FR\FM\30DER2.SGM 30DER2

Agencies

[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Rules and Regulations]
[Pages 86656-86754]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26106]



[[Page 86655]]

Vol. 85

Wednesday,

No. 250

December 30, 2020

Part II





Department of Energy





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Federal Energy Regulatory Commission





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18 CFR Part 292





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

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

[[Page 86656]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

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


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

AGENCY: Federal Energy Regulatory Commission.

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

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

DATES: This rule is effective February 16, 2021.

FOR FURTHER INFORMATION CONTACT: 
Lawrence R. Greenfield (Legal Information), Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6415, [email protected]
Helen Shepherd (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6176, [email protected]
Thomas Dautel (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE, 
Washington, DC 20426, (202) 502-6196, [email protected]

SUPPLEMENTARY INFORMATION: 

[[Page 86657]]



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

[[Page 86658]]

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

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

I. Background

A. Statutory Background

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

[[Page 86659]]

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

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

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

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

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

[[Page 86660]]

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

[[Page 86661]]

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

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

A. Threshold Issues

1. Whether the Commission Appropriately Consulted With Representatives 
of Relevant State and Federal Agencies
a. Requests for Rehearing
    24. Public Interest Organizations state that the final rule is 
flawed because the Commission failed to consult with state and federal 
officials as required by PURPA section 210(a).\39\ Public Interest 
Organizations argue that the Commission's actions to hold a technical 
conference and invite public comments, both of which involved 
participation from state and federal entities, are insufficient to meet 
this statutory requirement.\40\ Public Interest Organizations aver that 
these actions satisfy the statutory requirement to provide ``notice and 
reasonable opportunity for interested persons (including State and 
Federal agencies) to submit oral as well as written data, views, and 
arguments'' but that the Commission failed to satisfy what Public 
Interest Organizations claim is a separate and distinct requirement: To 
``consult[ ]'' with representatives of state and federal officials.\41\ 
Public Interest Organizations argue that Congress included the word 
``consultation'' in the statute to connote deliberations more formal 
and focused than the general notice and comment process and further 
assert that statutes and regulations routinely distinguish between the 
two.\42\ Public Interest Organizations contend that this lack of 
consultation has hamstrung the Commission and prevents the Commission 
from crafting informed policy.\43\
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    \39\ Public Interest Organizations Request for Rehearing at 6, 
12-14.
    \40\ Id. at 13.
    \41\ Id. (citing 16 U.S.C. 824a-3(a)(2)).
    \42\ Id. at 13-14 (citing 50 CFR 402.14; Cooling Water Intake 
Structure Coal. v.  U.S. Envtl. Prot. Agency, 905 F.3d 49, 78 (2d 
Cir. 2018)).
    \43\ Id. at 14.
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b. Commission Determination
    25. Public Interest Organizations' argument that the Commission 
failed to fulfill the consultation provision has no merit. First, we 
reemphasize the participation by state entities at the Commission's 
2016 Technical Conference. Upon the Commission's open invitation,\44\ 
several state entities participated in that conference and filed post-
conference comments, including members of state regulatory authorities 
and the president of the national association representing state 
commissions (NARUC).\45\ Second, several federal and state entities 
availed themselves of the opportunity to be heard via the NOPR's notice 
and comment process. More than 20 state entities, including state 
commissions, state consumer advocates, state attorneys general, 
governors, and others, submitted comments in response to the NOPR.\46\ 
In addition, NARUC submitted several filings throughout this process, 
and a group calling themselves State Entities--a diverse group 
including eight attorneys general and two state commissions--filed a 
combined comment on the PURPA NOPR; the NOPR was published in the 
Federal Register.\47\ Third, no state or federal entity has sought 
rehearing on this (or any other) basis.
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    \44\ See Notice Inviting Post-Technical Conference Comments, 
Implementation Issues Under the Public Utility Regulatory Policies 
Act of 1978, Docket No. AD16-16-000 (Sept. 6, 2016); Supplemental 
Notice of Technical Conference, Implementation Issues Under the 
Public Utility Regulatory Policies Act of 1978, Docket No. AD16-16-
000 (Mar. 4, 2016) (announcing preliminary agenda and inviting 
interested speakers).
    \45\ Connecticut Public Utilities Regulatory Authority 
(Connecticut Authority) and Massachusetts Department of Public 
Utilities (Massachusetts DPU) Comments, Docket No. AD16-16-000 (Nov. 
7, 2016); Idaho Public Utilities Commission (Idaho Commission) 
Comments, Docket No. AD16-16-000 (Nov. 7, 2016); Commissioner Paul 
Kjellander, Idaho Commission Comments, Docket No. AD16-16-000 (June 
29, 2016); Commissioner Christine Raper, Idaho Commission Comments, 
Docket No. AD16-16-000 (June 29, 2016); Commissioner Travis Kavulla, 
Montana Public Service Commission (Montana Commission) and on behalf 
of NARUC Comments, Docket No. AD16-16-000 (June 29, 2016).
    \46\ Commissioner Anthony O'Donnell, Montana Commission 
Comments, Docket No. RM19-15-000 (Dec. 3, 2019); Arizona Commission 
Comments, Docket No. RM19-15-000 (Dec. 3, 2019); California Public 
Utilities Commission (California Commission) Comments, Docket No. 
RM19-15-000 (Dec. 3, 2019); District of Columbia Public Service 
Commission (DC Commission) Comments, Docket No. RM19-15-000 (Dec. 3, 
2019); Governor Brad Little (Idaho) Comments, Docket No. RM19-15-000 
(Dec. 2, 2019); Idaho Commission Comments, Docket No. RM19-15-000 
(Dec. 3, 2019); Kentucky Public Service Commission Comments, Docket 
No. RM19-15-000 (Dec. 3, 2019); Massachusetts Attorney General Maura 
Healey Comments, Docket No. RM19-15-000 (Dec. 3, 2019); 
Massachusetts DPU Comments, Docket No. RM19-15-000 (Dec. 3, 2019); 
Michigan Public Service Commission Comments, Docket No. RM19-15-000 
(Dec. 3, 2019); Montana Commission Comments, Docket No. RM19-15-000 
(Dec. 3, 2019); North Carolina Attorney General Comments, Docket No. 
RM19-15-000 (Dec. 3, 2019); North Carolina Public Service Commission 
Public Staff Comments, Docket No. RM19-15-000 (Dec. 3, 2019); 
Nebraska Power Review Board Comments, Docket No. RM19-15-000 (Nov. 
22, 2019); Ohio Consumers Counsel Comments, Docket No. RM19-15-000 
(Dec. 3, 2019); Oregon Public Utility Commission Comments, Docket 
No. RM19-15-000 (Dec. 3, 2019); Pennsylvania Public Utility 
Commission Comments, Docket No. RM19-15-000 (Dec. 3, 2019); Public 
Utility Commission of Ohio Federal Energy Advocate Comments, Docket 
No. RM19-15-000 (Dec. 3, 2019); South Dakota Public Utilities 
Commission Comments, Docket No. RM19-15-000 (Dec. 3, 2019).
    \47\ State Entities Comments, Docket No. RM19-15-000 (Dec. 3, 
2019) (filed on behalf of Massachusetts Attorney General, Delaware 
Attorney General, District of Columbia Attorney General, Maryland 
Attorney General, Michigan Attorney General, New Jersey Attorney 
General, North Carolina Attorney General, Oregon Attorney General, 
New Jersey Board of Public Utilities, Rhode Island Division of 
Public Utilities and Carriers); NARUC Comments, Docket No. RM19-15-
000 (Dec. 3, 2019); NARUC Supplemental Comments, Docket No. AD16-16-
000 (Oct. 17, 2018); see also NOPR, 168 FERC ] 61,184, (NOPR 
published in Federal Register).
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    26. In sum, throughout this process, the Commission repeatedly 
sought information and input from state and federal entities. As 
explained above, numerous state entities submitted comments or 
otherwise participated in the process and other state and federal 
entities had the opportunity to participate in the process. The 
Commission fully satisfied its consultation obligations.
2. Whether the PURPA Regulations Continue To Encourage QFs
a. Requests for Rehearing
    27. Solar Energy Industries and Public Interest Organizations state 
that the Commission is required under PURPA section 210 to apply its 
regulations in a manner that encourages QFs and that it has failed to 
do so.\48\
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    \48\ Public Interest Organizations Request for Rehearing at 8, 
43-60; Solar Energy Industries Request for Rehearing and/or 
Clarification at 2-4, 4-6, 8-9, 42-45.
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    28. Solar Energy Industries argue that, in the final rule, the 
Commission failed

[[Page 86662]]

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to meet this statutory requirement in the following ways:

    (1) Terminating a Qualifying Facility's right to elect a long-
term energy rate when delivering energy under a long-term contract; 
(2) revising the long-standing regulations providing that a 
Qualifying Facility is not ``at the same site'' so long as the 
facilities are located more than one mile apart; and (3) allowing 
utilities within the boundaries of [Regional Transmission 
Organization or an Independent System Operator (RTO/ISO)] to seek a 
waiver of the [obligation] to purchase from small power production 
Qualifying Facilities larger than 5 MW despite the fact that few, if 
any, of such facilities have meaningful access to organized 
wholesale markets.\49\
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    \49\ Solar Energy Industries Rehearing Request at 4, 8-9.

    29. Solar Energy Industries claim that the Commission's assertion 
that the final rule ``continue[s] to encourage the development of QFs 
consistent with PURPA'' is unsupported by the record and erroneous.\50\ 
Solar Energy Industries argue that requiring utilities to interconnect 
with QFs and allowing QFs to purchase station power services is not new 
and is part and parcel of a utility's obligation to provide open access 
service today.\51\ Solar Energy Industries add that maintaining 
existing exemptions from the FPA and similar state and federal 
regulations is not helpful because other rule changes serve as severe 
obstructions to QF development in the first place.
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    \50\ Id. at 6 (citing Order No. 872, 172 FERC ] 61,041 at P 78).
    \51\ Id.
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    30. Public Interest Organizations assert that the Commission 
incorrectly framed this issue as a set of false choices between 
encouraging QFs or violating statutory limits and encouraging QFs or 
never modifying its 1980 regulations.\52\ Public Interest Organizations 
argue that the Commission has inappropriately focused on whether the 
final rule eliminates all encouragement, rather than whether the final 
rule advances the goal of encouraging QFs in comparison to a suite of 
alternatives that could be more favorable to QFs. Public Interest 
Organizations add that the Commission must give effect to every 
relevant clause and use the significant space between encouraging and 
exceeding other statutory mandates, rather than following the 
conclusion in the final rule that PURPA itself limits the extent to 
which PURPA Regulations can encourage QFs, which would create a false 
dichotomy between meeting the mandate that QFs be encouraged and 
violating Congressionally defined limits.\53\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86663]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86664]]

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

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

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

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

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

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

B. QF Rates

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

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

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

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

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

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

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

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

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

[[Page 86665]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86666]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 86667]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86668]]

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

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

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

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

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

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

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

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

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

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

    78. The Commission found that the variable avoided cost energy rate 
provision is not based on any determination that the Commission's

[[Page 86669]]

rules no longer should encourage QF development. The Commission found, 
instead, that it was revising the PURPA Regulations by giving states 
the flexibility to require variable avoided cost energy rates in QF 
contracts and other LEOs in order to better comply with Congress's 
clear requirement in PURPA that the Commission may not require QF rates 
in excess of a purchasing utility's avoided costs.\149\
---------------------------------------------------------------------------

    \149\ Id. P 256.
---------------------------------------------------------------------------

    79. Opponents of variable avoided cost energy rates urged the 
Commission to continue placing this risk on the customers of electric 
utilities, as in the past, by retaining the option for QFs to fix their 
avoided cost energy rates in their contracts or LEOs notwithstanding 
record evidence that fixed energy rates compared to actual avoided 
costs have not balanced out over time. But, after consideration of the 
record, the Commission decided instead to allow states the flexibility 
to require variable avoided cost energy rates in QF contracts and LEOs 
and thereby reduce the risk to customers. The Commission found that its 
determination ensures that the PURPA Regulations continue to be 
consistent with the statutory avoided cost rate cap in PURPA section 
210(b), coupled with the directive in the PURPA Conference Report that 
customers of utilities not be required to subsidize QFs.\150\
---------------------------------------------------------------------------

    \150\ Id. P 258 (citing Conf. Rep. at 98 (emphasis added) (``The 
provisions of this section are not intended to require the rate 
payers of a utility to subsidize cogenerators or small power 
produc[er]s.'')).
---------------------------------------------------------------------------

    80. The Commission found that there is no merit to the contention 
that the PURPA Conference Report expresses Congressional intent that 
QFs are entitled to long-term fixed energy rates. The Commission found 
that, while Congress recognized that the better measure of avoided cost 
in certain scenarios might be the cost of the alternative fossil fuel 
unit that would not be run at that later date,\151\ nothing in the 
section of the PURPA Conference Report quoted by opponents of the 
variable energy rate proposal suggests that Congress intended the 
Commission to require that all avoided cost energy rates be fixed at 
the outset for the life of a QF contract or other LEO. The Commission 
further found that nothing in the revision being implemented in the 
final rule would prohibit a state from calculating a QF's avoided cost 
energy rate for a QF contract or LEO in the manner suggested in the 
PURPA Conference Report or, indeed, in the manner the Commission has 
long allowed, if a state determined that such an approach best reflects 
the purchasing electric utility's avoided costs.\152\
---------------------------------------------------------------------------

    \151\ Under the approach adopted in the final rule, with the 
flexibility granted to states to adopt--but not a mandate directing 
states to adopt--variable avoided cost energy rates for QF contracts 
and other LEOs, the Commission permitted states to adopt a pricing 
approach that best fits their circumstances, including adopting the 
pricing approach described by the PURPA Conference Report to address 
the circumstances described by the PURPA Conference Report. Id. P 
260 n.409.
    \152\ Id. P 260.
---------------------------------------------------------------------------

    81. The Commission described the variable avoided cost energy rate 
provision as not running afoul of the Freehold Cogeneration and Smith 
Cogeneration cases cited by Harvard Electricity Law.\153\ The 
Commission described those decisions, which overturned state avoided 
cost determinations allowing for changes in QF rates, as based on the 
provision in the original PURPA Regulations giving QFs the option to 
select contracts with long-term fixed avoided cost rates.\154\ The 
Commission explained that neither decision suggests that PURPA would 
prevent the Commission from revising its regulations to allow states 
the flexibility to require variable avoided cost energy rates.
---------------------------------------------------------------------------

    \153\ Id. P 261 (citing Harvard Electricity Law Comments, Docket 
No. RM19-15-000, at 29 (Dec. 3, 2019) (citing Freehold Cogeneration 
Ass'n v. Bd. of Regulatory Comm'rs of State of N.J., 44 F.3d 1178, 
1193 (3d Cir. 1995) (Freehold Cogeneration); Smith Cogeneration 
Mgmt. v. Corp. Comm'n, 863 P.2d 1227, 1227 (Okla. 1993) (Smith 
Cogeneration))).
    \154\ Id. (citing Smith Cogeneration, 863 P.2d at 1241 (emphasis 
added) (holding that allowing reconsideration of established avoided 
costs ``makes it impossible to comply with PURPA and FERC 
regulations requiring established rate certainty for the duration of 
long term contracts for qualifying facilities that have incurred an 
obligation to deliver power''); Freehold Cogeneration, 44 F.3d at 
1193 (emphasis added) (relying on Smith Cogeneration analysis that 
``that PURPA and FERC regulations preempted the State Commission 
rule'')).
---------------------------------------------------------------------------

    82. The Commission found that it was not subjecting QFs to the same 
type of examination that is traditionally given to electric utility 
rate applications (e.g., cost-of-service rate regulation).\155\ Indeed, 
the Commission found that the regulation it adopted does not subject QF 
rates to any examination whatsoever of the costs incurred by QFs in 
producing and selling power. Rather, the Commission stated that the 
variable avoided cost energy rate provision applicable to QF contracts 
and other LEOs that the Commission adopted in the final rule sets QF 
rates based on the avoided costs of the purchasing utility. The 
Commission stated that this variable avoided cost energy rate provision 
cannot be characterized as imposing utility-style regulation on the QFs 
themselves.\156\
---------------------------------------------------------------------------

    \155\ Id. P 262.
    \156\ Id. P 263.
---------------------------------------------------------------------------

    83. Finally, the Commission determined that state regulators may 
not change rates in existing QF contracts or other existing LEOs.\157\ 
The Commission explained that, by its terms, the variable avoided cost 
energy rate provision applies only prospectively to new contracts and 
new LEOs entered into after the effective date of the final rule. The 
Commission emphasized that nothing in the final rule should be read as 
sanctioning the modification of existing fixed-rate QF contracts and 
LEOs.\158\
---------------------------------------------------------------------------

    \157\ Id. P 264 (citing Harvard Electricity Law Comments, Docket 
No. RM19-15-000, at 23 (Dec. 3, 2019) (citing API, 461 U.S. at 
414)).
    \158\ Id.
---------------------------------------------------------------------------

a. Whether the Current Approach Has Resulted in Payments to QFs in 
Excess of Avoided Costs
    84. In the final rule, the Commission gave states the flexibility 
to require variable energy pricing in QF contracts and other LEOs, 
instead of providing QFs the right to elect fixed energy prices, based 
on the Commission's concern that, at least in some circumstances, long-
term fixed avoided cost energy rates have been well above the 
purchasing utility's avoided costs for energy and that this was a 
result prohibited by PURPA section 210(b). The Commission found that 
the record evidence demonstrates that QF contract and LEO prices for 
energy can exceed and have exceeded avoided costs for energy without 
any subsequent balancing out. In addition to the examples presented in 
the record of the Technical Conference that were cited in the NOPR, the 
Commission noted that commenters have provided additional examples of 
such overpayments.\159\ The Commission explained that such evidence 
persuaded it that it is necessary to give states the flexibility to 
address QF contract and LEO rates for energy that exceed avoided costs 
for energy, while at the same time still allowing states the 
flexibility to continue requiring long-term fixed avoided cost energy 
rates in QF contracts and other LEOs when such treatment is 
appropriate.\160\
---------------------------------------------------------------------------

    \159\ Id. P 283 (citing Duke Comments, Docket No. RM19-15-000, 
at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19-15-000, 
at 10-11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19-
15-000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ] 61,184 at P 64 n.101).
    \160\ Id.
---------------------------------------------------------------------------

    85. In the final rule, the Commission found, as acknowledged in 
Harvard Electricity Law's NOPR comments, that the examples of QF 
contract rates that exceed avoided costs that are in the record 
illustrate the general proposition that ``energy forecasts have a 
manifest

[[Page 86670]]

record of failure.'' \161\ The Commission explained that it was this 
``manifest record of failure'' including evidence in the record that 
the failure has been at the expense of consumers that motivated the 
Commission to make the change adopted in the final rule.\162\
---------------------------------------------------------------------------

    \161\ Id. P 284 (citing Harvard Electricity Law Comments, Docket 
No. RM19-15-000, at 24 (Dec. 3, 2019) (citing Vaclav Smil, Energy at 
the Crossroads: Global Perspectives and Uncertainties, Mass. Inst. 
Tech., 2003, at 121, 145-49)).
    \162\ Id.
---------------------------------------------------------------------------

    86. The Commission also found that challenges to the idea that 
fixed avoided cost energy rates in QF contracts and other LEOs have 
exceeded actual avoided costs largely either conceded that 
overestimations have occurred while arguing that such overestimations 
impacted purchasing electric utilities just as much as QFs or attempted 
to argue that such overestimations were temporary or unusual.\163\
---------------------------------------------------------------------------

    \163\ Id. P 285.
---------------------------------------------------------------------------

    87. First, the Commission determined that the record evidence 
demonstrates that, contrary to the Commission's finding in 1980, 
overestimations and underestimations of future avoided costs may not 
even out.\164\ Consequently, the Commission found that its 
determination in 1980, based on the record at that time, does not 
preclude the Commission from relying on new record evidence showing a 
change in circumstances since 1980 to revise the 1980 rule.
---------------------------------------------------------------------------

    \164\ Id. P 286 (citing Duke Comments, Docket No. RM19-15-000, 
at 6 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19-15-000, 
at 10-11 (Dec. 3, 2019); Portland General Comments, Docket No. RM19-
15-000, at 5 (Dec. 3, 2019); NOPR, 168 FERC ] 61,184 at 64 n.101).
---------------------------------------------------------------------------

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

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

    89. Similarly, the Commission found that arguments that electric 
utilities also based resource acquisitions on incorrect forecasts of 
natural gas prices \167\ ignore a key distinction between utility rates 
and fixed QF rates. As the Commission explained, electric utilities may 
have relied on incorrect natural gas price forecasts to justify the 
timing and type of their resource acquisitions, as commenters assert. 
However, the Commission found that, once an electric utility resource 
decision was made, electric utilities' cost-based rate regimes 
typically obligated them eventually to pass through to customers any 
energy cost savings realized as a result of declining natural gas and 
other fuel prices, as well as any energy cost savings due to lower 
purchased power rates resulting from the decline in natural gas prices. 
The Commission found that, by contrast, once QF avoided cost energy 
rates were fixed based on now-incorrect (and now-high) natural gas 
price forecasts, those energy rates remained fixed for the term of the 
QFs' contracts and LEOs. Therefore, unlike fixed avoided cost energy 
rates in QF contracts and LEOs, the Commission determined that cost-
based electric utility energy rates declined as the cost of natural gas 
and other fuels and purchased power declined.\168\
---------------------------------------------------------------------------

    \167\ Id. P 288 (citing Electricity Consumers Resource Council, 
American Chemistry Council, and American Forest and Paper 
Association (ELCON) Comments, Docket No. RM19-15-000, at 22 (Dec. 3, 
2019); North Carolina Commission Staff Comments, Docket No. RM19-15-
000, at 2-3 (Dec. 3, 2019); NIPPC, CREA, REC, and OSEIA Comments, 
Docket No. RM19-15-000, at 31 (Dec. 3, 2019); Public Interest 
Organizations Comments, Docket No. RM19-15-000, at 40, 43 (Dec. 3, 
2019); Solar Energy Industries Comments, Docket No. RM19-15-000, at 
36-38 (Dec. 3, 2019)).
    \168\ Id.
---------------------------------------------------------------------------

    90. The Commission also disagreed with Public Interest 
Organizations' assertions that it was improper to have used competitive 
market hub prices to determine whether fixed QF contract and LEO prices 
resulted in overpayments as compared to electric utilities' actual 
avoided costs.\169\ The Commission recognized that the competitive 
market hub prices used in the comparisons may not have precisely 
reflected the avoided energy costs of all electric utilities located in 
the same region as the competitive market hub. However, the Commission 
found that competitive market prices in general should reflect the 
marginal avoided energy costs of utilities with access to such markets 
and that those markets generally reflect the marginal cost of energy in 
the region.\170\ The Commission further found that the magnitude of the 
differences between the market hub prices and the QF contract and LEO 
prices provides solid evidence that the QF contract and LEO prices used 
in the comparison were well above actual avoided energy costs at the 
time the energy was delivered by the QFs, even if the exact magnitude 
is unclear.\171\
---------------------------------------------------------------------------

    \169\ Id. P 289 (citing Public Interest Organizations Comments, 
Docket No. RM19-15-000, at 40-41 (Dec. 3, 2019)).
    \170\ Id. The Commission stated that a review of recent Mid-C 
Hub daily spot prices (from Intercontinental Exchange (ICE) https://www.eia.gov/electricity/wholesale/, indicates that they reflect the 
marginal cost of energy in that area since they are usually the 
result of a significant number of trades (averaging 54 per day), 
counterparties (averaging 16 per day), and trading volume (averaging 
26,714 MWh/day), which usually exceed those of the NP-15 trading 
hub, an active Western trading hub in Northern California in the 
CAISO footprint (averaging 6 trades per day, 4 counterparties per 
day, and 2,756/MWh per day). The Commission described prices for 
Mid-C as ranging between an average of approximately $16/MWh high 
price and $13/MWh low price during the recent spring (Mar 19-Jun 20, 
2020). During this period the index was reported for 65 trading days 
for Mid-C and 9 trading days for NP-15. Id.
    \171\ Id.
---------------------------------------------------------------------------

    91. The Commission acknowledged that energy prices may increase in 
the future but explained that giving states the flexibility to require 
variable avoided cost energy rates in QF contracts and in other LEOs 
will allow states to better ensure that avoided cost energy payments 
made to QFs will more accurately reflect the purchasing utility's 
avoided costs regardless of whether energy prices are increasing or 
declining. The Commission also noted that, if energy prices do in fact 
increase, variable avoided cost energy pricing would protect and even 
benefit the QF itself because it would not be locked into a fixed 
energy rate contract or LEO that would be below the purchasing electric 
utility's avoided energy cost.\172\
---------------------------------------------------------------------------

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

    92. The Commission noted that, although many commenters agreed that 
fixed QF energy rates were higher than actual avoided energy costs in 
at least some instances, challenges were raised against both Duke 
Energy's estimate that its fixed QF contract rates were $2.6 billion 
above market costs and the Concentric Report's comparison of QF fixed 
rates for wind and solar facilities with the cost of wind and solar 
projects with competitive, non-PURPA contracts.\173\
---------------------------------------------------------------------------

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

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

[[Page 86671]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 86672]]

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

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

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

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

    100. EPSA argues that the Commission's regulations and precedent 
contradict reliance on the idea that overestimates and underestimates 
have not balanced out.\193\ EPSA points out that 18 CFR 292.304(b)(5) 
expressly provides that, ``[i]n the case in which the rates for 
purchases are based upon estimates of avoided costs over the specific 
term of the contract or other legally enforceable obligation, the rates 
for such purchases do not violate this subpart if the rates for such 
purchases differ from avoided costs at the time of delivery.'' \194\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

[[Page 86673]]

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

    \201\ See Order No. 872, 172 FERC ] 61,041 at PP 285-92.
    \202\ See id. P 287 (footnote omitted) (``We agree with Public 
Interest Organizations that the recent electricity price 
overestimations were not unique to QFs and can be explained by 
general declines in natural gas prices since the adoption of 
hydraulic fracturing and the 2007-2009 recession. But that is 
precisely why the estimates of avoided costs reflected in the QF 
contracts and LEOs were incorrect and why the resulting fixed 
avoided cost energy rates reflected in such QF contracts and other 
LEOs resulted in QF rates well above utility avoided costs in 
violation of PURPA section 210(b); the precipitous decline in 
natural gas prices caused a corresponding reduction in utilities' 
energy costs, and thus in their energy avoided costs but this 
decline was not reflected in the QFs' fixed contract rates that 
remained at their previous levels'').
    \203\ See, e.g., Public Interest Organizations Request for 
Rehearing at 85.
    \204\ See Order No. 872, 172 FERC ] 61,041 at P 290.
---------------------------------------------------------------------------

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

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

    108. The Commission emphasized that the final rule is prospective, 
thereby protecting existing contracts. We find no merit in EPSA's 
argument that the grant of flexibility to states in the final rule to 
set variable avoided cost energy rates is inconsistent with 18 CFR 
292.304(b)(5), which provides: ``In the case in which the rates for 
purchases are based upon estimates of avoided costs over the specific 
term of the contract or other legally enforceable obligation, the rates 
for such purchases do not violate this subpart if the rates for such 
purchases differ from avoided costs at the time of delivery.'' \207\
---------------------------------------------------------------------------

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

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

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

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

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

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

[[Page 86674]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86675]]

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

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

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

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

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

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

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

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

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

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

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

[[Page 86676]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86677]]

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86678]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86679]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86680]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86681]]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[[Page 86682]]

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

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

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

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

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

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

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

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

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

    \332\ Public Interest Organizations Request for Rehearing at 73-
74.
    \333\ See Policy Statement Regarding the Commission's 
Enforcement Role Under Section 210 of the Public Utility Regulatory 
Policies Act of 1978, 23 FERC ] 61,304.
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d. Requested Clarification of the Final Rule
    178. If the Commission does not grant rehearing, Solar Energy 
Industries request that the Commission clarify that such 
``flexibility'' offered by revised 18 CFR 292.304(d) is not available 
to any state unless the purchasing electric utility (1) has separately-
stated avoided energy and capacity rates on-file and (2) is complying 
with the data reporting requirements of 18 CFR 292.302.\334\
---------------------------------------------------------------------------

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

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

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

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

[[Page 86683]]

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

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

5. Consideration of Competitive Solicitations To Determine Avoided 
Costs
    181. In the NOPR, the Commission proposed to revise the PURPA 
Regulations in 18 CFR 292.304 to add subsection (b)(8). In combination 
with new subsection (e)(1), this subsection would permit a state the 
flexibility to set avoided cost energy and/or capacity rates using 
competitive solicitations (i.e., requests for proposals or RFPs), 
conducted pursuant to appropriate procedures.\340\
---------------------------------------------------------------------------

    \340\ NOPR, 168 FERC ] 61,184 at P 82.
---------------------------------------------------------------------------

    182. The Commission recognized that one way to enable the industry 
to move toward more competitive QF pricing is to allow states to 
establish QF avoided cost rates through a competitive solicitation 
process. The Commission previously has explored this issue. In 1988, 
the Commission issued a notice of proposed rulemaking proposing to 
adopt regulations that would allow bidding procedures to be used in 
establishing rates for purchases from QFs.\341\ That rulemaking 
proceeding, along with several related proceedings, ultimately was 
withdrawn as overtaken by events in the industry.\342\
---------------------------------------------------------------------------

    \341\ Regulations Governing Bidding Programs, 53 FR 9324 
(Mar.22, 1988), FERC Stats. & Regs. ] 32,455 (1988) (cross-
referenced at 42 FERC ] 61,323) (Bidding NOPR); see also 
Administrative Determination of Full Avoided Costs, Sales of Power 
to Qualifying Facilities, and Interconnection Facilities, 53 FR 9331 
(Mar.22, 1988), FERC Stats. & Regs. ] 32,457 (1988) (cross-
referenced at 42 FERC ] 61,324) (ADFAC NOPR).
    \342\ See Regulations Governing Bidding Programs, 64 FERC ] 
61,364 at 63,491-92 (1993) (terminating Bidding NOPR proceeding); 
see also Administrative Determination of Full Avoided Costs, Sales 
of Power to Qualifying Facilities, and Interconnection Facilities, 
84 FERC ] 61,265 (1998) (terminating ADFAC NOPR proceeding).
---------------------------------------------------------------------------

    183. Since then, in 2014, the Commission held, with respect to a 
particular competitive solicitation, that an electric utility's 
obligation to purchase power from a QF under a LEO could not be 
curtailed based on a failure of the QF to win an only occasionally-held 
competitive solicitation.\343\ In a separate proceeding involving a 
different competitive solicitation, the Commission declined to initiate 
an enforcement action where the state competitive solicitation was an 
alternative to a PURPA program.\344\
---------------------------------------------------------------------------

    \343\ See, e.g., Hydrodynamics, Inc., 146 FERC ] 61,193, at PP 
31-35 (2014) (Hydrodynamics). Competitive solicitation processes 
have been used more recently in a number of states, including 
Georgia, North Carolina, and Colorado. Georgia's competitive 
solicitation process is described at Ga. Comp. R. & Regs. 515-3-
4.04(3) (2018). North Carolina's competitive solicitation process is 
described at 4 N.C. Admin. Code 11.R8-71 (2018). Colorado's 
competitive solicitation process is described at sPower Development 
Co., LLC v. Colorado Pub. Utils. Comm'n, 2018 WL 1014142 (D. Colo. 
Feb. 22, 2018).
    \344\ Winding Creek Solar LLC, 151 FERC ] 61,103, 
reconsideration denied, 153 FERC ] 61,027 (2015). But see Winding 
Creek Solar LLC v. Peterman, 932 F.3d 861 (9th Cir. 2019).
---------------------------------------------------------------------------

    184. Given this precedent, in the NOPR, the Commission proposed to 
amend its regulations to clarify that a state could establish QF 
avoided cost rates through an appropriate competitive solicitation 
process. Consistent with its general approach of giving states 
flexibility in the manner in which they determine avoided costs, the 
Commission did not propose in the NOPR to prescribe detailed criteria 
governing the use of competitive solicitations as tools to determine 
rates to be paid to QFs, as well as to determine other contract terms. 
The Commission stated that states arguably may be in the best position 
to consider their particular local circumstances, including questions 
of need, resulting economic impacts, amounts to be purchased through 
auctions, and related issues.\345\
---------------------------------------------------------------------------

    \345\ NOPR, 168 FERC ] 61,184 at P 86.
---------------------------------------------------------------------------

    185. Nevertheless, in considering what constitutes proper design 
and administration of a competitive solicitation, in the NOPR, the 
Commission found it was appropriate to establish certain minimum 
criteria governing the process by which competitive solicitations are 
to be conducted in order for a competitive solicitation to be used to 
set QF rates. In that regard, the Commission noted that it has 
addressed competitive solicitations in prior orders in a number of 
contexts that provide potential guidance to states and others. For 
example, the Commission's policy for the establishment of negotiated 
rates for merchant transmission projects,\346\ the Bidding NOPR, and 
the Hydrodynamics case \347\ all suggest factors that could be 
considered in establishing an appropriate competitive solicitation that 
is conducted in a transparent and non-discriminatory manner.\348\
---------------------------------------------------------------------------

    \346\ Id. P 87 (citing Allocation of Capacity on New Merchant 
Transmission Projects and New Cost-Based, Participant-Funded 
Transmission Projects, 142 FERC ] 61,038 (2013)).
    \347\ Id. (citing Hydrodynamics, 146 FERC ] 61,193 at P 32 n.70 
(citing Bidding NOPR, FERC Stats. & Regs. ] 32,455 at 32,030-42)). 
The Commission noted that, while QFs not awarded a contract pursuant 
to an competitive solicitation would retain their existing PURPA 
right to sell energy as available to the electric utility, if the 
state has concluded that such QF capacity puts tendered after an 
competitive solicitation was held are ``not needed,'' the capacity 
rate may be zero because an electric utility is not required to pay 
a capacity rate for such puts if they are not needed. Id. P 87 n.135 
(citing Hydrodynamics, 146 FERC ] 61,193 at P 35 (referencing City 
of Ketchikan, 94 FERC at 62,061 (``[A]voided cost rates need not 
include the cost for capacity in the event that the utility's demand 
(or need) for capacity is zero. That is, when the demand for 
capacity is zero, the cost for capacity may also be zero.''))).
    \348\ Id.
---------------------------------------------------------------------------

    186. As proposed in the NOPR, these factors included, among others: 
(a) An open and transparent process; (b) solicitations should be open 
to all sources to satisfy the purchasing electric utility's capacity 
needs, taking into account the required operating characteristics of 
the needed capacity; \349\ (c) solicitations conducted at regular 
intervals; (d) oversight by an independent administrator; and (e) 
certification as fulfilling the above criteria by the state regulatory 
authority or nonregulated electric utility. The Commission proposed 
that a state may use a competitive solicitation to set avoided cost 
energy and capacity rates, provided that such competitive solicitation 
process is conducted pursuant to procedures ensuring the solicitation 
is transparent and non-discriminatory. The Commission proposed that 
such a competitive solicitation must be conducted in a process that 
includes, but is not limited to, the factors identified above which 
would be set forth in proposed subsection (b)(8).\350\
---------------------------------------------------------------------------

    \349\ Id. (citing 18 CFR 292.304(e); Windham Solar, 157 FERC ] 
61,134 at PP 5-6).
    \350\ Id.
---------------------------------------------------------------------------

    187. In addition, the Commission sought comment on whether it 
should provide further guidance on whether, and under what 
circumstances, a competitive solicitation can be used as a utility's 
exclusive vehicle for acquiring QF capacity.\351\
---------------------------------------------------------------------------

    \351\ Id. P 88. The Commission proposed that, even if a 
competitive solicitation were used as an exclusive vehicle for an 
electric utility to obtain QF capacity, QFs that do not receive an 
award in the competitive solicitation would be entitled to sell 
energy to the electric utility at an as-available avoided cost 
energy rate. Id. P 88 n.137.
---------------------------------------------------------------------------

    188. In the final rule, the Commission adopted the NOPR proposal to 
revise the PURPA Regulations to explicitly permit a state the 
flexibility to set avoided energy and/or capacity rates using 
competitive solicitations (i.e., RFPs) conducted pursuant to 
appropriate procedures in a transparent and non-discriminatory manner. 
The Commission stated that the primary

[[Page 86684]]

feature of a transparent and non-discriminatory competitive 
solicitation is that a utility's capacity needs are open for bidding to 
all capacity providers, including QF and non-QF resources, on a level 
playing field. The Commission found that this level playing field 
ensures that any QF's capacity rates that result from the competitive 
solicitation are just and reasonable and non-discriminatory avoided 
cost rates.\352\
---------------------------------------------------------------------------

    \352\ Order No. 872, 172 FERC ] 61,041 at P 411.
---------------------------------------------------------------------------

    189. Consistent with its general approach of giving states 
flexibility in the manner in which they determine avoided costs, the 
Commission did not prescribe detailed criteria governing the use of 
competitive solicitations as tools to determine rates to be paid to QFs 
and to determine other contract terms. The Commission found that states 
are in arguably the best position to consider their particular local 
circumstances, including questions of need, resulting economic impacts, 
amounts to be purchased through auctions, and related issues.\353\
---------------------------------------------------------------------------

    \353\ Id. P 412.
---------------------------------------------------------------------------

    190. However, as in the NOPR, the Commission in the final rule 
found it appropriate to establish certain minimum criteria governing 
the process by which competitive solicitations are to be conducted in 
order for a competitive solicitation to be used to set QF rates. The 
Commission found that, in order to use the results of a competitive 
solicitation to set avoided cost rates, the competitive solicitation 
must be conducted in a transparent and non-discriminatory manner. Such 
a competitive solicitation must be conducted in a process that 
includes, but is not limited to, the following factors: (i) The 
solicitation process is an open and transparent process that includes, 
but is not limited to, providing equally to all potential bidders 
substantial and meaningful information regarding transmission 
constraints, levels of congestion, and interconnections, subject to 
appropriate confidentiality safeguards; (ii) solicitations must be open 
to all sources, to satisfy that purchasing electric utility's capacity 
needs, taking into account the required operating characteristics of 
the needed capacity; (iii) solicitations are conducted at regular 
intervals; (iv) solicitations are subject to oversight by an 
independent administrator; and (v) solicitations are certified as 
fulfilling the above criteria by the relevant state regulatory 
authority or nonregulated electric utility through a post-solicitation 
report.\354\
---------------------------------------------------------------------------

    \354\ Id. P 427.
---------------------------------------------------------------------------

    191. The Commission affirmed that such competitive solicitations 
must be conducted in a process that includes, but is not limited to, 
the factors identified above that will be set forth in 18 CFR 
292.304(b)(8). The Commission explained that the final rule does not 
undo any competitive solicitations conducted prior to the effective 
date of the final rule that may not have met these criteria. The 
Commission described the final rule as applying only to competitive 
solicitations conducted after the effective date of the final 
rule.\355\ The Commission also stated that it will presume that any 
future competitive solicitation that does not comply with the factors 
adopted in the final rule does not comply with the Commission's 
regulations implementing PURPA.\356\
---------------------------------------------------------------------------

    \355\ Id. P 414.
    \356\ Id. P 428.
---------------------------------------------------------------------------

    192. The Commission explained that, more generally, it supports the 
use of competitive solicitations as a means to foster competition in 
the procurement of generation and to encourage the development of QFs 
in a way that most accurately reflects a purchasing utility's avoided 
costs. The Commission further explained that allowing QFs to compete to 
provide capacity and energy needs, through a properly administered 
competitive solicitation, may help ensure an accurate determination of 
the purchasing electric utility's avoided cost and therefore result in 
prices meeting the PURPA's statutory requirements. The Commission found 
that it is reasonable for states to choose to require QFs to be 
responsive to price signals as to where and when capacity is needed. 
The Commission expressed its belief that a properly administered 
competitive solicitation can help provide such price signals.\357\
---------------------------------------------------------------------------

    \357\ Id. P 416.
---------------------------------------------------------------------------

    193. The Commission also clarified that, if a utility acquires all 
of its capacity through properly conducted competitive solicitations 
(using the factors described above) and does not add capacity through 
self-building and purchasing power from other sources outside of such 
solicitations, the competitive solicitations could be the exclusive 
vehicle for the purchasing electric utility to pay avoided capacity 
costs from a QF. In this situation, using properly conducted 
competitive solicitations as the exclusive vehicle to determine the 
purchasing electric utility's avoided cost capacity rates would allow 
QFs a chance to compete to provide the utility's capacity needs on a 
level playing field with the utility. The Commission clarified that it 
is up to the states to determine whether to require that a utility's 
total planned self-build and power purchase options must compete in the 
competitive solicitations and declined to direct such a 
requirement.\358\
---------------------------------------------------------------------------

    \358\ Id. P 421.
---------------------------------------------------------------------------

    194. The Commission determined that, if a state decides to require 
utility self-build and power purchase options to participate in 
competitive solicitations, then a QF that does not obtain an award in a 
competitive solicitation would have no right to an avoided cost 
capacity rate more than zero because the utility's full capacity needs 
would have been met by the competitive solicitation.\359\ However, the 
Commission determined that QFs would continue to have the right to put 
energy to the utility at the as-available avoided cost energy rate 
because the purchasing utility will still be able to avoid incurring 
the cost of generating energy even when it does not need new 
capacity.\360\
---------------------------------------------------------------------------

    \359\ The Commission stated that this would be consistent with 
City of Ketchikan, 94 FERC at 62,061 (``[A]voided cost rates need 
not include the cost for capacity in the event that the utility's 
demand (or need) for capacity is zero. That is, when the demand for 
capacity is zero, the cost for capacity may also be zero.'').
    \360\ Order No. 872, 172 FERC ] 61,041 at P 422.
---------------------------------------------------------------------------

    195. The Commission also determined that, if the state does not 
require utility self-build and purchase options to participate in 
competitive solicitations, then QFs that lose in a competitive 
solicitation still may have the right to avoided cost capacity rates 
more than zero if the state determines that the utility still has 
capacity needs after the competitive solicitation that otherwise could 
be met through the utility's self-build or purchase options.\361\
---------------------------------------------------------------------------

    \361\ Id. P 423.
---------------------------------------------------------------------------

    196. The Commission affirmed that, when capacity is not needed, the 
avoided capacity cost rate can be zero.\362\ The Commission described 
how competitive solicitations conducted pursuant to the rules adopted 
in the final rule that are held whenever capacity is needed provide QFs 
a level playing field on which to compete to sell capacity. The 
Commission explained that this approach further shields purchasing 
electric utilities from situations like those explained by Xcel, where 
QFs could simply sit out the competitive solicitation process (or 
participate but not have their bids accepted), but then seek to sell 
capacity

[[Page 86685]]

to the purchasing electric utility and to receive a separate higher 
administratively-determined avoided cost rate including an avoided cost 
capacity rate, and even potentially displace non-QF competitive 
solicitation winners.\363\ The Commission found that this approach 
benefits ratepayers because allowing QFs to compete in properly 
conducted, competitive solicitations that are held whenever capacity is 
needed allows the purchasing utility to obtain needed capacity 
efficiently. The Commission clarified, however, that the competitive 
solicitation is not to be a means to determine a QF's right to put as-
available energy to the utility. Rather, the competitive solicitation 
can be the means to determine what, if any, rate the QF will be paid 
for capacity.\364\
---------------------------------------------------------------------------

    \362\ City of Ketchikan, 94 FERC at 62,061 (``[A]voided cost 
rates need not include the cost for capacity in the event that the 
utility's demand (or need) for capacity is zero. That is, when the 
demand for capacity is zero, the cost for capacity may also be 
zero.'').
    \363\ See Xcel Comments, Docket No. RM19-15-000, at 2-3, 9-10 
(Dec. 3, 2019).
    \364\ Order No. 872, 172 FERC ] 61,041 at P 424.
---------------------------------------------------------------------------

    197. The Commission clarified that competitive solicitations must 
also be conducted in accordance with the Allegheny principles under 
which the Commission evaluates a competitive solicitation: (1) 
Transparency, a requirement that the solicitation process be open and 
fair; (2) definition, a requirement that the product, or products, 
sought through the competitive solicitation be precisely defined; (3) 
evaluation, a requirement that the evaluation criteria be standardized 
and applied equally to all bids and bidders; and (4) oversight, a 
requirement that an independent third party design the solicitation, 
administer bidding, and evaluate bids prior to selection.\365\
---------------------------------------------------------------------------

    \365\ Allegheny Energy, 108 FERC ] 61,082 at P 18.
---------------------------------------------------------------------------

    198. The Commission also revised the proposed language in 18 CFR 
292.304(d)(8)(i) to clarify that participants must be provided with 
substantial and meaningful information regarding transmission 
constraints, levels of congestion, and interconnections, subject to 
appropriate confidentiality safeguards. The Commission found that it is 
important that all participants in the competitive solicitation have 
access to these data as a necessary predicate for a nondiscriminatory 
competitive solicitation process and that requiring that this 
information be provided will help ensure that a competitive 
solicitation is open and transparent.\366\
---------------------------------------------------------------------------

    \366\ Order No. 872, 172 FERC ] 61,041 at P 431.
---------------------------------------------------------------------------

    199. The Commission also clarified that the requirement that the 
competitive solicitation process be open and transparent includes that 
the electric utility provide the state commission, and make available 
for public inspection, a post-solicitation report that: (1) Identifies 
the winning bidders; (2) includes a copy of any reports issued by the 
independent evaluator; and (3) demonstrates that the solicitation 
program was implemented without undue preference for the interests of 
the purchasing utility or its affiliates. The Commission found this 
post-solicitation report requirement to be consistent with the 
requirement that competitive solicitations be open and transparent, not 
only to ensure that utilities are not discriminating against QFs, but 
also to help all stakeholders and the public at large better understand 
the utility's competitive solicitation processes and thus to be 
confident in the fairness of the process and of the results.\367\
---------------------------------------------------------------------------

    \367\ Id. P 432.
---------------------------------------------------------------------------

    200. The Commission declined to be overly prescriptive as to what 
constitutes an ``independent administrator,'' responsible for 
administering the competitive solicitation. The Commission clarified 
that the independent administrator must be an entity independent from 
the purchasing electric utility in order to help ensure fairness. 
Whether called an independent administrator or a third-party 
consultant, the Commission stated that the substantive requirement is 
that the competitive solicitation not be administered by the purchasing 
electric utility itself or its affiliates, but by a separate, unbiased, 
and unaffiliated entity not subject to being influenced by the 
purchasing utility.\368\
---------------------------------------------------------------------------

    \368\ Id. P 435.
---------------------------------------------------------------------------

    201. The Commission declined to add any additional requirements for 
competitive solicitations, given that states may be in the best 
position to consider their particular local circumstances. The 
Commission found that the guidelines adopted in the final rule, in 
conjunction with the Allegheny principles and other clarifications, 
provide an adequate framework for competitive solicitations to be 
conducted efficiently, transparently and in a nondiscriminatory 
manner.\369\
---------------------------------------------------------------------------

    \369\ Id. P 437.
---------------------------------------------------------------------------

    202. Regarding facilities not designed primarily to sell 
electricity to the purchasing electric utility, such as waste-to-power 
small power production facilities and cogeneration facilities, the 
Commission found that an exemption from competitive solicitation 
processes is unnecessary. The Commission did not exempt small power 
production facilities from the competitive solicitation process and was 
not persuaded that such an exemption is appropriate given that 
exempting large classes of small power producers could frustrate the 
price discovery function of the competitive solicitation. The 
Commission clarified, however, that QFs with capacity of 100 kW or less 
already are entitled to standard rates regardless of whether they 
compete in a competitive solicitation, and the final rule did not 
change that regulation.\370\
---------------------------------------------------------------------------

    \370\ See 18 CFR 292.304(c).
---------------------------------------------------------------------------

i. Requests for Rehearing
    203. Northwest Coalition argues that allowing states to use 
competitive solicitations to be the exclusive means of securing a long-
term PPA to sell energy and/or capacity is arbitrary, capricious, and 
not in accordance with law.\371\
---------------------------------------------------------------------------

    \371\ Northwest Coalition Request for Rehearing at 39.
---------------------------------------------------------------------------

    204. Northwest Coalition notes that PURPA section 210(a) requires 
that the Commission's rules must ``encourage'' QFs and must ``require 
electric utilities to offer to . . . purchase electric energy from such 
facilities.'' \372\ Northwest Coalition argues that, while the term 
``electric energy'' is not defined in the statute, the phrase's context 
within the statutory scheme unambiguously confirms that electric energy 
includes both energy and capacity, meaning that the Commission's rules 
must require utilities to purchase energy and capacity made available 
by QFs.\373\ Northwest Coalition asserts that, following the enactment 
of PURPA, the Commission interpreted this language in Order No. 69 to 
mean that the statutory phrase ``electric energy'' must include both 
energy and capacity.\374\ Northwest Coalition contends that the final 
rule does not provide any basis to change the Commission's longstanding 
interpretation of PURPA section 210(a) that requires electric utilities 
to purchase all energy and capacity made available by QFs.\375\
---------------------------------------------------------------------------

    \372\ Id. at 40 (citing 16 U.S.C. 824a-3(a)(2)).
    \373\ Id.
    \374\ Id. at 40-41.
    \375\ Id. at 41.
---------------------------------------------------------------------------

    205. Northwest Coalition relies on the U.S. Court of Appeals for 
the Ninth Circuit's invalidation of the California Commission's Re-Mat 
competitive solicitation program, which found that under the Re-Mat 
program, ``a utility could purchase less energy than a QF makes 
available, an outcome forbidden by PURPA.'' \376\ Northwest Coalition 
argues that, because the same problem exists with the final rule's 
exclusive use of competitive solicitations to offer to buy capacity 
from QFs, allowing states

[[Page 86686]]

to refuse to require electric utilities to offer to purchase capacity 
from QFs violates the statutory requirement that utilities offer to 
purchase all capacity made available from QFs.\377\
---------------------------------------------------------------------------

    \376\ Id. at 41-42 (citing Winding Creek Solar LLC v. Peterman, 
932 F.3d at 865).
    \377\ Id. at 42.
---------------------------------------------------------------------------

    206. Northwest Coalition asserts that PURPA section 210(a) requires 
that the Commission design its rules implementing the statutory must-
purchase obligation in such a manner that those rules will encourage 
the development of QFs, adding that allowing utilities to evade the 
mandatory purchase obligation through the exclusive use of competitive 
solicitations that utility-owned resources commonly win is inconsistent 
with statutory requirements.\378\
---------------------------------------------------------------------------

    \378\ Id.
---------------------------------------------------------------------------

    207. Northwest Coalition contends that the final rule arbitrarily 
fails to acknowledge the Commission's own precedent and therefore does 
not constitute reasoned decision making.\379\ Northwest Coalition 
points to Hydrodynamics, in which the Commission rejected the ``Montana 
Rule,'' which imposed a ``competitive solicitation process as the only 
means by which a QF greater than 10 MW can obtain long-term avoided 
cost rates.'' \380\ Northwest Coalition also points to Windham Solar 
LLC, in which the Commission confirmed that it has held ``a state 
regulation to be inconsistent with PURPA and the PURPA regulations `to 
the extent that it offers the competitive solicitation process as the 
only means by which a QF . . . can obtain long term avoided cost 
rates.' '' \381\ Northwest Coalition argues that, under Commission 
precedent, ``regardless of whether a QF has participated in a request 
for proposal, that QF has the right to obtain a legally enforceable 
obligation.'' \382\ Northwest Coalition claims that the final rule's 
reasoning for allowing states to use competitive solicitations as a 
substitute for long-term PURPA contracts does not acknowledge these 
precedents or explain how the use of competitive solicitations could 
still comply with the statute.\383\ Northwest Coalition argues that, 
aside from generally averring it expects competitive solicitations will 
be fair with the newly adopted criteria, the final rule does not cite 
evidence suggesting that competitive solicitations will provide an 
adequate mechanism for QFs to sell energy and capacity or any other 
basis to overrule Commission precedent and therefore is arbitrary and 
capricious.\384\
---------------------------------------------------------------------------

    \379\ Id.
    \380\ Id. at 43 (citing Hydrodynamics, 146 FERC ] 61,193 at P 
33).
    \381\ Id. (citing Windham Solar, 156 FERC ] 61,042, at P 5 
(2016) (Windham Solar)).
    \382\ Id. (citing Windham Solar, 156 FERC ] 61,042 at P 5).
    \383\ Id. at 43-44.
    \384\ Id. at 44.
---------------------------------------------------------------------------

    208. Northwest Coalition asserts that the final rule relies on 
insufficient evidence to conclude that exclusive use of competitive 
solicitations will encourage QFs.\385\ First, Northwest Coalition 
contends that the Commission's decision fails to address multiple 
commenters' concerns with inherent bias in utility-run competitive 
solicitations and the difficulty and complexity of designing 
competitive solicitations that are fair to independent bidders, 
especially in regions with vertically integrated utility structures 
like the Pacific Northwest.\386\ Northwest Coalition argues that, given 
the evidence submitted concerning competitive solicitations in the 
Northwest, the Commission is required to conduct a more meaningful 
investigation and inquiry into the subject before it could rationally 
conclude that it has now developed bidding criteria that would suffice 
to justify denial of an LEO to any QF.\387\
---------------------------------------------------------------------------

    \385\ Id.
    \386\ Id. (citing NIPPC, CREA, REC, and OSEIA Comments, Docket 
No. RM19-15-000, at 13-25, 66-67 (Dec. 3, 2019)).
    \387\ Id. at 44-45.
---------------------------------------------------------------------------

    209. Northwest Coalition claims that the Commission fails to 
explain why it rejected more restrictive criteria proposed by parties 
but not included in the final rule. As an example, Northwest Coalition 
points to the Commission's failure to discuss in the final rule its 
additional proposed criteria for any RFP process to overcome inherent 
utility-ownership bias: (1) Require that the RFP include no utility-
ownership options; or (2) if utility-owned generation may result, the 
RFP must be (i) administered and scored (not just overseen by an 
independent evaluator) by a qualified independent party, not the 
utility, (ii) any utility or affiliate ownership bid must be capped at 
its bid price and not allowed traditional cost plus ratemaking 
treatment, and (iii) the product sought, minimum bidding criteria, and 
detailed scoring criteria must be made known to all parties at the same 
time, i.e., the utility or affiliate may not have an informational 
advantage in the RFP. Northwest Coalition asserts that, while the final 
rule adopted a requirement for independent third-party design and 
administration of the RFP, it rejected the rest of its proposals 
without discussion.\388\
---------------------------------------------------------------------------

    \388\ Id. at 45.
---------------------------------------------------------------------------

    210. Northwest Coalition contends that the final rule also ignores 
the lack of reasonable enforcement for the proposed exclusive use of 
competitive solicitations.\389\ Northwest Coalition argues that the 
final rule established a process that only allows QF advocates to 
challenge competitive solicitations after the fact, when it is too late 
to correct the harm caused by the utility's reliance on the competitive 
solicitation process as a basis to refuse to contract with QFs in the 
interim.\390\
---------------------------------------------------------------------------

    \389\ Id. at 46.
    \390\ Id.
---------------------------------------------------------------------------

    211. Northwest Coalition asserts that the final rule relies on 
insufficient evidence that small QFs and those primarily engaged in a 
business other than power production (e.g., irrigation districts and 
waste-to-power facilities) can succeed in the type of all-source 
competitive solicitation identified in the final rule.\391\ Northwest 
Coalition contends that the final rule summarily declines to adopt any 
exceptions other than a statement that 100 kW and smaller QFs can still 
obtain standard rates \392\ without a meaningful explanation, which 
fails to encourage such QFs, in contravention of PURPA.\393\
---------------------------------------------------------------------------

    \391\ Id.
    \392\ Id. (citing Order No. 872, 172 FERC ] 61,041 at P 440).
    \393\ Id. at 46-47.
---------------------------------------------------------------------------

    212. Mr. Mattson asserts that a QF should not have to compete in a 
competitive solicitation with coal and natural gas generators where the 
utility is selling their excess energy.\394\ Mr. Mattson alleges that 
requiring a QF to accept the competitive solicitation process to sell 
its capacity is a violation of the ``constitutional law right to 
contract.'' \395\ Mr. Mattson argues that QFs should have the right to 
a capacity payment if a capacity reduction will occur and the right to 
sell their capacity in the market.\396\
---------------------------------------------------------------------------

    \394\ Mr. Mattson Motion for Time, Reconsideration, and Request 
Answers at 1.
    \395\ Id. at 1.
    \396\ Id. at 1.
---------------------------------------------------------------------------

    213. Public Interest Organizations contend that the competitive 
solicitation provisions are arbitrary and capricious, unless the 
Commission clarifies that the solicitation only sets the full avoided 
energy costs for QFs when the utility procures all energy through 
solicitation.\397\ Public Interest Organizations claim that the final 
rule does not require a state or non-regulated utility which uses a 
competitive solicitation process to determine the price for QF energy 
and/or capacity rates to also determine that the price

[[Page 86687]]

reflects the utility's avoided cost.\398\ Public Interest Organizations 
assert that 18 CFR 292.304(b)(8) not only requires that a utility 
procure all capacity through competitive solicitations to satisfy its 
capacity requirement but also assumes that such competitive 
solicitation results reflect the full avoided energy cost without 
similarly requiring the purchasing electric utility to acquire all 
energy requirements through competitive solicitation.\399\ Public 
Interest Organizations allege that QFs are discriminated against in 
circumstances in which the competitive solicitation price is lower than 
the cost of energy produced or acquired by the utility outside the 
solicitation process.\400\ Public Interest Organizations argue that, 
while the final rule appears to agree that out-of-market acquisitions 
preclude competitive solicitation from setting the avoided cost price, 
the regulation only imposes limitations on the use of competitive 
solicitations in the capacity context.\401\
---------------------------------------------------------------------------

    \397\ Public Interest Organizations Rehearing Request at 10.
    \398\ Id. at 100.
    \399\ Id.
    \400\ Id.
    \401\ Id. at 101.
---------------------------------------------------------------------------

ii. Commission Determination
    214. We find no merit in the competitive solicitation arguments on 
rehearing. As an initial matter, we emphasize that the competitive 
solicitation framework adopted in the final rule: (1) Harmonizes the 
Commission's precedent on competitive solicitations; (2) establishes 
transparent and non-discriminatory procedural protections for and 
encourages the development of QFs; and (3) provides price discovery 
that may better determine a purchasing utility's avoided cost rates.
    215. We disagree with Northwest Coalition's arguments that the 
final rule goes against Commission precedent in Hydrodynamics and 
Windham Solar and essentially eliminates the mandatory purchase 
obligation for QF capacity. In those cases, the Commission found the 
states' decisions inconsistent with PURPA because the competitive 
solicitations were not regularly held.\402\ In contrast, the Commission 
in the final rule found that a properly run solicitation must be held 
at regular intervals, in which a utility's capacity needs are open for 
bidding to all capacity providers, including QF and non-QF resources, 
which is a level playing field for QFs to provide capacity.
---------------------------------------------------------------------------

    \402\ In Hydrodynamics, which the Commission quoted in Windham 
Solar, the Commission found relevant the fact that the Montana 
Commission's competitive solicitation were not held at regular 
intervals. See Hydrodynamics, 146 FERC ] 61,193 at P 32 (emphasis 
added) (``[W]e find that requiring a QF to win a competitive 
solicitation as a condition to obtaining a long-term contract 
imposes an unreasonable obstacle to obtaining a legally enforceable 
obligation particularly where, as here, such competitive 
solicitations are not regularly held.''); id. P 33 (emphasis added) 
(``The Montana Rule creates, as well, a practical disincentive to 
amicable contract formation because a utility may refuse to 
negotiate with a QF at all, and yet the Montana Rule precludes any 
eventual contract formation where no competitive solicitation is 
held.''); Windham Solar, 156 FERC ] 61,042 at P 5 (citing 
Hydrodynamics, 146 FERC ] 61,193 at PP 32-33).
---------------------------------------------------------------------------

    216. If a state does not require utility self-build and purchase 
options to participate in competitive solicitations, then QFs that lose 
still may have the right to avoided cost capacity rates more than zero 
if the state determines that the utility still has capacity needs.\403\ 
The Commission has already determined, and affirmed in the final rule, 
that capacity rates can be zero.\404\ The possibility of a zero 
capacity rate does not mean that the Commission has determined that 
utilities have no obligation to purchase capacity from QFs. It just 
means that, under our precedent, if a purchasing utility avoids no 
capacity costs due to the QF purchase, then the avoided cost for 
capacity will be zero. As we mentioned above, Northwest Coalition has 
conflated avoided energy costs with long-term power purchase 
agreements. Long-term avoided costs necessarily represent a utility's 
avoided capacity costs, and the Commission described how competitive 
solicitations could be ``exclusive'' means for obtaining a capacity 
rate, not an energy rate.
---------------------------------------------------------------------------

    \403\ See Order No. 872, 172 FERC ] 61,041 at PP 421-23.
    \404\ See City of Ketchikan, 94 FERC at 62,061.
---------------------------------------------------------------------------

    217. Under the final rule, even if a QF loses a competitive 
solicitation where the state requires utility self-build and purchase 
options to participate, it is still entitled to an energy rate outside 
of the competitive solicitation and would receive a capacity rate of 
zero, which is already permitted under Commission precedent where the 
purchasing utility's avoided cost capacity value is zero.\405\ The 
final rule, which largely adopted the NOPR, also provides procedural 
protections that the Commission has already indicated are prerequisites 
to competitive solicitations while allowing for a competitive 
solicitation, under certain conditions, to be a state's exclusive 
vehicle for setting QF capacity rates.\406\ The final rule therefore 
merely harmonizes, rather than overrules, that prior precedent.
---------------------------------------------------------------------------

    \405\ See supra PP 194-196; see also Order No. 872, 172 FERC ] 
61,041 at P 421 (``The Commission clarifies that, if a utility 
acquires all of its capacity through properly conducted competitive 
solicitations (using the factors described above), and does not add 
capacity through self-building and purchasing power from other 
sources outside of such solicitations, the competitive solicitations 
could be the exclusive vehicle for the purchasing electric utility 
to pay avoided capacity costs from a QF. In this situation, using 
properly conducted competitive solicitations as the exclusive 
vehicle to determine the purchasing electric utility's avoided cost 
capacity rates would allow QFs a chance to compete to provide the 
utility's capacity needs on a level playing field with the 
utility.'').
    \406\ See Order No. 872, 172 FERC ] 61,041 at P 363 (describing 
NOPR as citing Hydrodynamics, 146 FERC ] 61,193 at PP 31-35).
---------------------------------------------------------------------------

    218. We also disagree with Northwest Coalition's argument that the 
final rule does not encourage QFs. Using competitive solicitations 
encourages the development of QFs by providing them a price both 
consistent with a competitive market and more accurately reflecting a 
purchasing utility's avoided costs of capacity. The procedural 
protections the Commission has adopted for conducting competitive 
solicitations protect QFs from auctions that only benefit the utility's 
self-build because the QF is still entitled to a capacity rate that may 
exceed zero if the utility's self-build is not included in the 
competitive solicitation. Furthermore, the competitive solicitation 
regulation helps ensure that states can set QF rates no higher than 
avoided costs while guaranteeing QFs' rights to sell capacity and 
energy.\407\ In addition, while a competitive solicitation may be the 
exclusive forum for establishing avoided cost capacity rates, once a 
state has determined that the competitive solicitation set avoided 
capacity costs (even if they equal zero), there is no infringement on 
QFs' rights, and the rule does not allow a utility to evade its 
purchase obligation.
---------------------------------------------------------------------------

    \407\ See id. P 416.
---------------------------------------------------------------------------

    219. We also disagree with Northwest Coalition's argument that the 
Commission fails to address multiple commenters' concerns about 
inherent bias in utility-run competitive solicitations, especially in 
regions with vertically integrated utility structures like the Pacific 
Northwest. The final rule described practices that cannot be used and 
incorporated into the Commission's regulations a requirement for 
independent administration and review to prevent the exercise of any 
utility bias. The Commission will not assume that failure to hold an 
acceptable competitive solicitation in the past will prevent the 
establishment of an acceptable solicitation in the future given the 
guard rails for independent administration and review the Commission 
has now required through the final rule. Indeed, the new rules are 
designed to ensure that future

[[Page 86688]]

competitive solicitations are not biased in favor of the purchasing 
utility. Northwest Coalition's concerns that this new competitive 
solicitation framework will leave QFs without a contract while they 
challenge the process or results of a competitive solicitation is 
misplaced. This framework is not meaningfully different from 
administrative determinations of avoided costs, wherein a QF might not 
receive a contract until it has exhausted administrative or judicial 
processes.
    220. Northwest Coalition argues that the Commission failed to 
explain why it rejected more restrictive criteria proposed by parties, 
including some of Northwest Coalition's own suggestions. The Commission 
weighed and considered all proposed criteria in determining which 
criteria to adopt. We explain below why the Commission did not adopt 
Northwest Coalition's proposed criteria.
    221. First, Northwest Coalition proposed that the Commission 
require that the competitive solicitation include no utility-ownership 
options. The Commission did not adopt this criterion because precluding 
utility ownership from competitive solicitations or limiting how a 
utility could bid does not provide the price discovery benefit of 
competitive solicitations.
    222. Second, Northwest Coalition proposed that, if utility-owned 
generation may result from the competitive solicitation, the 
competitive solicitation must be (1) administered and scored (not just 
overseen by an independent evaluator) by a qualified independent party, 
not the utility, (2) any utility or affiliate ownership bid must be 
capped at its bid price and not allowed traditional cost plus 
ratemaking treatment, and (3) the product sought, minimum bidding 
criteria, and detailed scoring criteria must be made known to all 
parties at the same time (i.e., the utility or affiliate may not have 
an informational advantage in the RFP).\408\
---------------------------------------------------------------------------

    \408\ Northwest Coalition Request for Rehearing at 45 (citing 
NIPPC, CREA, REC, OSEIA Comments, Docket No. RM19-15-000 at 67 (Dec. 
3, 2019)).
---------------------------------------------------------------------------

    223. With regard to Northwest Coalition's proposed criterion for an 
independent administrator, as noted above, the Commission ``decline[d] 
to be overly prescriptive as to what constitutes an `independent 
administrator.' '' \409\ Although this finding in the final rule had to 
do with whether the Commission required an ``independent 
administrator'' or a ``third party consultant,'' the Commission stated 
that the ``substantive requirement of this factor is that the 
competitive solicitation not be administered by the purchasing electric 
utility itself or its affiliates, but rather by a separate, unbiased, 
and unaffiliated entity not subject to being influenced by the 
purchasing utility.'' \410\ We continue to believe that we should not 
be overly prescriptive, but expect states to design competitive 
solicitations that meet these criteria in a transparent and non-
discriminatory manner. To that end, we grant Northwest Coalition's 
request that a competitive solicitation should be administered and 
scored by an independent entity. We conclude that this requirement is 
consistent with our efforts to ensure a fair competitive solicitation 
and the criteria we established in the final rule pursuant to the 
Allegheny factors.\411\
---------------------------------------------------------------------------

    \409\ Order No. 872, 172 FERC ] 61,041 at P 435.
    \410\ Id.
    \411\ See Allegheny Energy, 108 FERC ] 61,082 at P 22 (``[A]n 
independent third party should design the solicitation, administer 
bidding, and evaluate bids prior to the company's selection.'').
---------------------------------------------------------------------------

    224. Regarding Northwest Coalition's proposal that any utility or 
affiliate ownership bid must be capped at its bid price and not allowed 
traditional cost-plus ratemaking treatment, we decline to adopt this 
criterion on rehearing. The Commission does not have any jurisdiction 
to dictate how electric utility retail rates should be set. Instead, it 
is the responsibility of retail regulators to establish the retail 
rates associated with an award to a utility resulting from a 
competitive solicitation. And to the extent that Northwest Coalition is 
arguing that QFs are entitled to cost plus ratemaking, Congress has 
already determined that QFs are not entitled to the same rate recovery 
as purchasing utilities. With regard to Northwest Coalition's proposal 
that the product sought, minimum bidding criteria, and detailed scoring 
criteria must be made known to all parties at the same time, we find 
that these requests should already be addressed in the factors adopted 
by the Commission here, including the first factor, that the process be 
open and transparent, and the fifth factor, which includes the 
requirement of a post-solicitation report.\412\ We note that our 
inclusion of the Allegheny principles also addresses the concerns 
underlying this proposal.
---------------------------------------------------------------------------

    \412\ See Order No. 872, 172 FERC ] 61,041 at P 432 (stating 
that a report must ``(1) [identify] the winning bidders; (2) 
[include] a copy of any reports issued by the independent evaluator; 
and (3) [demonstrate] that the solicitation program was implemented 
without undue preference for the interests of the purchasing utility 
or its affiliates'').
---------------------------------------------------------------------------

    225. We disagree with Northwest Coalition's argument that the final 
rule ignores the lack of reasonable enforcement. If a QF believes that 
it was improperly excluded from a competitive solicitation or lost a 
competitive solicitation that did not meet the criteria in the final 
rule, the QF may bring an enforcement action to the Commission or other 
appropriate fora. Further, the final rule more clearly establishes how 
states must run their auctions, and we do not presume at this juncture 
that states will fail to follow these new rules. If the Commission or a 
court finds that a competitive solicitation violates these criteria, 
then a remedy may be warranted, for example a court may decide to 
require a state to provide a specific rate to a QF or re-run the 
competitive solicitation pursuant to those criteria.
    226. We also disagree with Northwest Coalition's argument that the 
final rule relies on insufficient evidence that small QFs and those 
primarily engaged in a business other than power production (e.g., 
irrigation districts and waste-to-power facilities) can succeed in the 
type of all-source competitive solicitation identified in the rule. We 
find that it may be difficult to define which entities could qualify 
for this exemption and that this exemption may defeat the price 
discovery benefits of including these entities in competitive 
solicitations. We believe that a fairly administered competitive 
solicitation is a more accurate reflection of a purchasing electric 
utility's avoided energy and capacity costs. Moreover, in addition to 
the requirement to provide standard rates for QFs 100 kW and below, 
states already have discretion to set that standard rate threshold 
above 100 kW. Removing their discretion to determine which entities 
must participate in competitive solicitations may undermine the price 
discovery benefit of competitive solicitations.
    227. We disagree with Public Interest Organizations' claim that the 
final rule does not address its argument that Nevada's competitive 
solicitation process is unfair because it limits to QFs to meet a 
small, segregated portion of the utility's energy and unmet capacity 
requirements. The final rule does not apply to competitive 
solicitations, like the one in Nevada, that occurred prior to the 
effective date of the final rule. For that reason, the Commission did 
not address Public Interest Organizations' concerns with the Nevada 
process in the final rule, nor will we do so here.\413\

[[Page 86689]]

Any future competitive solicitation must meet the criteria outlined in 
the final rule, including the Allegheny principles.\414\ We clarify 
that, if a competitive solicitation is not conducted in accordance with 
the requirements of the final rule guidelines, then an aggrieved entity 
may challenge the competitive solicitation before the Commission or in 
the appropriate fora.
---------------------------------------------------------------------------

    \413\ See id. P 428 (``Without judging the competitive 
solicitations conducted to date, we find that henceforth any 
competitive solicitation that does not comply with these factors 
will be viewed as not transparent and discriminatory, and not a 
basis for either setting the avoided cost capacity rate that a QF 
may charge the purchasing electric utility or limiting which 
generators can receive a capacity rate. Phrased differently, we will 
presume that any future competitive solicitation that does not 
comply with the factors adopted in this final rule does not comply 
with the Commission's regulations implementing PURPA.'').
    \414\ See id. P 430.
---------------------------------------------------------------------------

    228. A state must still ensure that QFs are entitled to an as-
available energy avoided cost rate regardless of whether they win a 
competitive solicitation for capacity.\415\ Such as-available avoided 
cost energy rates could be determined as a result of the competitive 
solicitation, a competitive market price, or the avoided cost 
regulations in 18 CFR 292.304(e) that pre-date the final rule.
---------------------------------------------------------------------------

    \415\ See id. P 422.
---------------------------------------------------------------------------

    229. We reject Mr. Mattson's argument that the competitive 
solicitation framework infringes on a ``constitutional law right to 
contract.'' \416\ Regardless of the outcome of a competitive 
solicitation, the PURPA Regulations continue to permit QFs to negotiate 
agreements with electric utilities that differ from those required by 
PURPA.\417\ Similarly, the Commission's requirement in the final rule 
that a QF may receive a capacity rate of zero if the QF loses a 
competitive solicitation following the framework adopted in the final 
rule and in which a utility's self-build participated is consistent 
with the Commission's precedent.\418\ The final rule only governs the 
maximum rate for a sale made pursuant to the mandatory purchase 
obligation imposed on purchasing utilities by PURPA, but continues to 
permit a QF to contract voluntarily at a different rate with a 
purchasing utility.
---------------------------------------------------------------------------

    \416\ Mr. Mattson Motion for Time, Reconsideration, and Request 
Answers at 1.
    \417\ See 18 CFR 292.301(b)(1).
    \418\ See City of Ketchikan, 94 FERC at 62,061 (``[A]voided cost 
rates need not include the cost for capacity in the event that the 
utility's demand (or need) for capacity is zero. That is, when the 
demand for capacity is zero, the cost for capacity may also be 
zero.'')).
---------------------------------------------------------------------------

    230. We disagree with Public Interest Organizations' assertion that 
the competitive solicitation framework fails to ensure that a 
competitive solicitation pays QFs the full avoided energy costs because 
it does not require a utility to obtain all its energy needs through a 
competitive solicitation.\419\ The primary purpose of a competitive 
solicitation is to determine a utility's capacity needs, not its energy 
needs, which can be purchased separately from capacity. The final rule 
provides that QFs can continue to sell energy to utilities at the 
purchasing utility's avoided energy costs outside of the context of a 
competitive solicitation, even if such solicitations are the exclusive 
vehicle for acquisition of capacity. The new regulatory text in 18 CFR 
292.304(c)(8)(ii) provides that:
---------------------------------------------------------------------------

    \419\ Public Interest Organizations Comments at 99-101.

    To the extent that the electric utility procures all of its 
capacity, including capacity resources constructed or otherwise 
acquired by the electric utility, through a competitive solicitation 
process conducted pursuant to Paragraph (b)(8)(i) of this section, 
the electric utility shall be presumed to have no avoided capacity 
costs unless and until it determines to acquire capacity outside of 
such competitive solicitation process. However, the electric utility 
shall nevertheless be required to purchase energy from qualifying 
small power producers and qualifying cogeneration facilities.\420\
---------------------------------------------------------------------------

    \420\ See new 18 CFR 292.304(c)(8)(iii) (emphasis added); see 
also Order No. 872, 172 FERC ] 61,041 at P 422 (``QFs would continue 
to have the right to put energy to the utility at the as-available 
avoided cost energy rate because the purchasing utility will still 
be able to avoid incurring the cost of generating energy even when 
it does not need new capacity.'').

    231. This regulation provides that the utility presumptively has no 
avoided capacity costs if all the utility's capacity needs are 
satisfied through the competitive solicitation. If the utility's 
avoided energy costs change after a competitive solicitation is 
conducted, the as-available avoided energy rate for a QF selling 
outside such a competitive solicitation would necessarily be different 
than the avoided energy rate determined in the competitive solicitation 
itself. States must continue to use either competitive market prices or 
the traditional factors in 18 CFR 292.304(e) to calculate avoided 
energy costs at the time of delivery for QFs. Under the final rule, 
where the purchasing electric utility procures all of its capacity, 
including capacity resources constructed or otherwise acquired by the 
electric utility, through a competitive solicitation process, the 
electric utility is presumed to have no avoided capacity costs unless 
and until it determines to acquire capacity outside of such competitive 
solicitation process. However, under the final rule, QFs continue to 
have the opportunity, outside of a regularly held competitive 
solicitation, to sell energy at a purchasing utility's avoided cost 
rate.

C. Rebuttable Presumption of Separate Sites

    232. In the final rule, the Commission determined that, if a small 
power production facility seeking QF status is located one mile or less 
from any affiliated small power production QFs that use the same energy 
resource, it will be irrebuttably presumed to be at the same site as 
those affiliated small power production QFs. If a small power 
production facility seeking QF status is located 10 miles or more from 
any affiliated small power production QFs that use the same energy 
resource, it will be irrebuttably presumed to be at a separate site 
from those affiliated small power production QFs. If a small power 
production facility seeking QF status is located more than one mile but 
less than 10 miles from any affiliated small power production QFs that 
use the same energy resource, it will be rebuttably presumed to be at a 
separate site from those affiliated small power production QFs.\421\
---------------------------------------------------------------------------

    \421\ Order No. 872, 172 FERC ] 61,041 at P 466.
---------------------------------------------------------------------------

    233. The Commission adopted the NOPR proposal to allow a small 
power production facility seeking QF status to provide further 
information in its certification (both self-certification and 
application for Commission certification) or recertification (both 
self-certification and application for Commission recertification) to 
preemptively defend against anticipated challenges by identifying 
factors that affirmatively show that its facility is indeed at a 
separate site from affiliated small power production QFs that use the 
same energy resource and that are more than one but less than 10 miles 
from its facility. The Commission stated that it would allow any 
interested person or entity to challenge a QF certification (both self-
certification and application for Commission certification) or 
recertification (both self-recertification and application for 
Commission recertification) that makes substantive changes to the 
existing certification.\422\
---------------------------------------------------------------------------

    \422\ Id. P 467.
---------------------------------------------------------------------------

    234. The Commission also adopted the NOPR's proposed factors, with 
certain additions.\423\
---------------------------------------------------------------------------

    \423\ Id. P 468.
---------------------------------------------------------------------------

1. Need for Reform
    235. In the final rule, the Commission found that, since the 
establishment of the one-mile rule in the PURPA Regulations in 1980, 
the development of large numbers of affiliated renewable resource 
facilities requires a revision of the one-mile rule. The Commission 
found that the final rule will reduce the

[[Page 86690]]

opportunity for developers of small power production facilities to 
circumvent the current one-mile rule by strategically siting small 
power production facilities that use the same energy resource slightly 
more than one mile apart.\424\
---------------------------------------------------------------------------

    \424\ Id. P 472.
---------------------------------------------------------------------------

a. Requests for Rehearing
    236. Public Interest Organizations reiterate that there is little 
or no evidence of circumvention in the record.\425\ Public Interest 
Organizations argue that a theoretical threat that has failed to 
materialize in any significant way during 40 years of small power-
production facility development sufficiently for the Commission to 
consider it more than a possibility does not justify the burden imposed 
by the final rule.\426\ Similarly, Solar Energy Industries assert that 
changing one-mile rule precedent to prevent gaming without any evidence 
of gaming in the record is arbitrary and capricious and will discourage 
QF development.\427\ Solar Energy Industries contend that the 
Commission is seeking to reduce the number of QFs that can be 
constructed in any one territory.\428\
---------------------------------------------------------------------------

    \425\ Public Interest Organizations Request for Rehearing at 128 
(citing Order No. 872, 172 FERC ] 61,041 at P 471).
    \426\ Id. at 128.
    \427\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 5, 26.
    \428\ Id. at 26.
---------------------------------------------------------------------------

    237. Public Interest Organizations argue that, assuming that it is 
true that some QF developers are indeed making siting decisions based 
on the one-mile boundary, it will be just as likely that they will make 
siting decisions based on the ten-mile boundary; therefore, expanding 
the radius from one mile to 10 miles does nothing to address the 
purported problem of gaming boundaries.\429\ Public Interest 
Organizations contend that developers will take the boundary into 
account when making siting decisions, which is not to game the system 
but rather to play by the rules.\430\ Solar Energy Industries agree 
that facilities that are sited more than one mile apart have not 
``gamed'' the one-mile rule; rather, those facilities have complied 
with the one-mile rule.\431\
---------------------------------------------------------------------------

    \429\ Public Interest Organizations Request for Rehearing at 
121.
    \430\ Id. at 122.
    \431\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 26.
---------------------------------------------------------------------------

b. Commission Determination
    238. As the Commission explained in the final rule, the record 
shows that some large facilities were disaggregating into smaller 
facilities and strategically spacing themselves slightly more than one 
mile apart in order to be able to qualify as separate small power 
production facilities.\432\ Because PURPA provides advantages for small 
power production facilities, i.e., no larger than 80 MW, not large 
facilities that exceed that cap and have disaggregated into smaller 
facilities under that cap, and based on evidence and examples of QFs 
separating into several smaller QFs just over one mile apart (in 
efforts to be considered separate QFs for purposes of the one-mile 
rule), the Commission determined that reform of the one-mile rule was 
necessary.
---------------------------------------------------------------------------

    \432\ Order No. 872, 172 FERC ] 61,041 at P 470 (citing APPA 
Comments, Docket No. RM19-15-000, at 21 (Dec. 3, 2019); Center for 
Growth and Opportunity Comments, Docket No. RM19-15-000, at 5-6 
(Dec. 3, 2019); Consumers Energy Comments, Docket No. RM19-15-000, 
at 4 (Dec. 3, 2019); East River Comments, Docket No. RM19-15-000, at 
1-2; EEI Comments, Docket No. RM19-15-000, at 43 (Dec. 3, 2019); 
ELCON Comments, Docket No. RM19-15-000, at 35 (Dec. 3, 2019); 
Governor Brad Little, Idaho Comments, Docket No. RM19-15-000, at 1 
(Dec. 3, 2019); Idaho Commission Comments, Docket No. RM19-15-000, 
at 5-7 (Dec. 3, 2019); Idaho Power Comments, Docket No. RM19-15-000, 
at 13 (Dec. 3, 2019); Missouri River Energy Comments, Docket No. 
RM19-15-000, at 5 (Dec. 3, 2019); Stephen Moore Comments, Docket No. 
RM19-15-000, at 2 (Dec. 3, 2019); Northern Laramie Range Alliance 
Comments, Docket No. RM19-15-000, at 2 (Dec. 3, 2019); NorthWestern 
Comments, Docket No. RM19-15-000, at 9 (Dec. 3, 2019); NRECA 
Comments, Docket No. RM19-15-000, at 14-15 (Dec. 3, 2019); Portland 
General Comments, Docket No. RM19-15-000, at 14 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    239. The following specific examples demonstrate the need for the 
Commission to revise the one-mile rule. The Idaho Commission gave the 
example of a group of five projects that had originally been proposed 
as a single project greater than 80 MW and not eligible for PURPA. This 
project was disaggregated into five smaller projects, each separated by 
one mile, which were then eligible for Idaho's standard published rate 
contracts at that time. The estimated cost impact of these five 
projects disaggregating in order to qualify for more favorable standard 
rate contracts was $10 million per year over the term of the 
contract.\433\ The Idaho Commission also provided a chart showing the 
wind projects brought before the Idaho Commission in 2009 and 2010, 
explaining that the circumstances of these projects suggest that they 
were disaggregated to qualify for the more favorable standard rate or 
to take advantage of PURPA's must-purchase obligation.\434\
---------------------------------------------------------------------------

    \433\ Idaho Commission Comments, Docket No. AD16-16-000, at 8-9 
(Nov. 7, 2016); see also Technical Conference Tr. at 34-35 
(Commissioner Paul Kjellander, Idaho Commission).
    \434\ Idaho Commission Comments, Docket No. AD16-16-000, at 9-11 
(Nov. 7, 2016).
---------------------------------------------------------------------------

    240. Commissioner Paul Kjellander of the Idaho Commission also 
stated that, within Idaho Power's territory, there were 183 MW of power 
from four developers that were broken up into 16 projects. He stated 
that the Oregon Commission approved six PURPA projects that require 
Idaho Power to take 60 MW of power from six solar projects, adding that 
the similarities among these six projects include the same operation 
dates, project size, terms and payment conditions, developer, and solar 
panel manufacturers. He concluded that this looked like a disaggregated 
project that stretched the spirit and intent of PURPA.\435\
---------------------------------------------------------------------------

    \435\ Technical Conference Tr. at 35-36 (Commissioner Paul 
Kjellander, Idaho Commission).
---------------------------------------------------------------------------

    241. EEI and Xcel argued that the one-mile requirement can be 
evaded as resources with common ownership, financing, and even 
operation are located just slightly over one mile from each other to 
qualify for the 80 MW threshold in the statute. EEI and Xcel provided 
the example of Northern Laramie Range Alliance, in which the applicant 
filed for QF self-certification of two 48.6 MW projects that were part 
of a single wind farm with one site permit and that shared a point of 
interconnection. Because the projects were located more than one mile 
apart, each project was certified as an individual QF.\436\
---------------------------------------------------------------------------

    \436\ EEI Comments, Docket No. RM19-15-000, at 43 (Dec. 3, 2019) 
(citing N. Laramie Range All., 138 FERC ] 61,171 (2012)); Xcel 
Comments, Docket No. AD16-16-000, at 11 (Nov. 7, 2016); see also EEI 
Comments, Docket No. RM19-15-000, at 43 (Dec. 3, 2019) (citing 
Beaver Creek II, 160 FERC ] 61,052 (2017)); Xcel Comments, Docket 
No. AD16-16-000, at 11 (Nov. 7, 2016) (citing DeWind Novus, LLC, 139 
FERC ] 61,201 (2012)).
---------------------------------------------------------------------------

    242. Furthermore, large power stations based on modular generation 
technologies like solar photovoltaic (PV) panels and wind turbines can 
relatively easily be presented as subsets of the component generation 
modules in order to appear as multiple smaller generation stations, 
even if they act and operate as one large (i.e., over 80 MW) power 
station in reality.
    243. Based on these concerns and evidence of large facilities 
disaggregating into small facilities in order to circumvent the one-
mile rule and receive QF status, the Commission determined that it 
would be best to address the circumvention of the one-mile rule by 
reforming the one-mile rule, not simply addressing this concern on a 
case-by-case basis.
    244. We agree that QF developers may make siting decisions based on 
the 10-mile boundary just as they may have in the past based on the 
one-mile

[[Page 86691]]

boundary. However, in the final rule, the Commission found that, at 10 
miles or more apart, it can be assumed that affiliated small power 
production facilities are sufficiently far apart that it is reasonable 
to treat them as irrebuttably at separate sites.\437\ In contrast, the 
Commission found that, for affiliated small power production facilities 
using the same resource that are more than one mile but less than 10 
miles apart, the distinction between same site or separate site was not 
as clear and thus provided for a rebuttable presumption of separate 
sites.\438\ In adopting these boundaries and accompanying presumptions, 
the Commission recognized that 10 miles is a more reasonable place to 
draw the line of irrebuttably separate sites than the previous one-mile 
boundary, and provided for the ability to rebut the presumption for 
affiliated small power production facilities in the less clear, grey 
zone where affiliated facilities are more than one mile apart but less 
than 10 miles apart.\439\
---------------------------------------------------------------------------

    \437\ Order No. 872, 172 FERC ] 61,041 at P 491.
    \438\ Id.
    \439\ See id. P 466, 491.
---------------------------------------------------------------------------

    245. We disagree with Public Interest Organizations and Solar 
Energy Industries' contentions that taking the boundary into account 
when making siting decisions is not gaming the system but playing by 
the rules and that the Commission seeks to reduce the number of QFs 
that can be constructed in any one territory. We find that 
disaggregation practices--whereby a facility exceeding the 80 MW cap 
and therefore unable to take advantage of the benefits of PURPA (such 
as mandating that the utility buy its output) disaggregates into 
several smaller facilities for the purpose of fitting within the 
statutory mandate and receiving the benefits of PURPA--contradict the 
spirit and purpose of PURPA. PURPA section 210(a) directs the 
Commission to encourage cogeneration and small power production.\440\ 
PURPA defines a small power production facility as an eligible 
facility, which, together with other facilities located at the same 
site (as determined by the Commission), has a power production capacity 
no greater than 80 MW.\441\ The statute bestows certain advantages on 
small power production, not on large power production facilities that 
masquerade as small power production. Disaggregation practices aim to 
advantage large power production facilities with benefits that they are 
not eligible to receive. The intention of the new same site 
determination framework is not to reduce the number of QFs that can be 
constructed in an area, but to encourage small power production 
facilities as Congress intended under PURPA.
---------------------------------------------------------------------------

    \440\ 16 U.S.C. 824a-3(a).
    \441\ 16 U.S.C. 796(17)(A).
---------------------------------------------------------------------------

2. Distance Between Facilities
    246. In the final rule, the Commission adopted the NOPR proposal 
that an entity can seek to rebut the presumption of separate sites only 
for a small power production facility seeking QF status that have an 
affiliated small power production QF or QFs that are located more than 
one and less than 10 miles from it.\442\ The Commission recognized that 
it is debatable where to set these thresholds. The Commission stated 
that PURPA requires that no small power production facility, together 
with other facilities located ``at the same site,'' exceed 80 MW and 
Congress has tasked the Commission with defining what constitutes 
facilities being at the same site for purposes of PURPA. The Commission 
found that providing set geographic distances will limit unnecessary 
disputes over whether facilities are at the same site; therefore, the 
Commission must choose reasonable distances at which small power 
production facilities will be considered irrebuttably at the same site 
or irrebuttably at separate sites.\443\
---------------------------------------------------------------------------

    \442\ Order No. 872, 172 FERC ] 61,041 at P 490.
    \443\ Id. P 491.
---------------------------------------------------------------------------

    247. The Commission found that there are some affiliated small 
power production facilities using the same energy resource that are so 
close together that it is reasonable to treat them as irrebuttably at 
the same site and that one mile or less is a reasonable distance to 
treat such facilities as irrebuttably at the same site. The Commission 
found that there are some small power production facilities that are 
affiliated and may use the same energy resource but that are 
sufficiently far apart that it is reasonable to treat them as 
irrebuttably at separate sites and found that 10 miles or more is a 
reasonable distance to treat such facilities as irrebuttably at 
separate sites. For affiliated small power production facilities using 
the same resource that are more than one mile but less than 10 miles 
apart, the Commission found that the distinction between the same site 
or separate site is not as clear; therefore, it is reasonable to treat 
them as rebuttably at separate sites but to allow interested parties to 
provide evidence to attempt to rebut that presumption. The Commission 
found that establishing these reasonable distances, and particularly 
establishing the ability to rebut the presumption of separate sites for 
affiliated small power production facilities more than one mile but 
less than 10 miles apart, better allows the Commission to address the 
evolving shape and configuration of resources that are being developed 
as QFs, such as modular solar or wind power plants, and provides for 
improved administration of PURPA. The Commission therefore determined 
that the one-mile and 10-mile limits are reasonable inflection points 
for differentiating between the same site and separate sites.\444\
---------------------------------------------------------------------------

    \444\ Id.
---------------------------------------------------------------------------

    248. In the final rule, the Commission explained that, with respect 
to hydroelectric generating facilities, the regulations currently 
provide that the same energy resources essentially means ``the same 
impoundment for power generation,'' finding that it is unlikely that 
hydroelectric generating facilities located more than one mile apart 
would rely on the same impoundment.\445\ The Commission explained that, 
if that circumstance arises, the applicant could seek waiver, and argue 
that its facilities should not be considered at the same site.\446\
---------------------------------------------------------------------------

    \445\ Id. P 492 n.769 (quoting 18 CFR 292.204(a)(2)(i)).
    \446\ Id. (citing 18 CFR 292.204(a)(3)).
---------------------------------------------------------------------------

    249. The Commission also noted that it was retaining the waiver 
provision in 18 CFR 292.204(a)(3), allowing the Commission to waive the 
method of calculation of the size of the facility for good cause.\447\
---------------------------------------------------------------------------

    \447\ Id. P 492 (citing 18 CFR 292.204(a)(3)).
---------------------------------------------------------------------------

a. Requests for Rehearing
    250. Public Interest Organizations argue that the Commission does 
not connect the one-mile and 10-mile rule to the statutory phrase 
``located at the same site,'' instead relying on policy arguments that 
exceed the statutory text and FERC's authority.\448\ Public Interest 
Organizations assert that the Commission ignored relevant data 
presented by commenters and failed to articulate a satisfactory 
explanation connecting facts to its ``ten-mile rule'' 
determination.\449\ Public Interest Organizations contend that the 
decision was arbitrary and capricious because the Commission ignored 
relevant data and

[[Page 86692]]

failed to articulate a satisfactory explanation connecting the facts 
presented to its determination.\450\ Public Interest Organizations 
further argue that there is nothing in the record to show that 10 miles 
is a rational or appropriate threshold for determining whether QFs are 
at the same site, adding that the record indicates that the new 
approach will cause regulatory uncertainty and substantial burden on an 
industry it is supposed to be encouraging.\451\ Similarly, Solar Energy 
Industries argue that the Commission has not offered any justification 
for the change.\452\
---------------------------------------------------------------------------

    \448\ Public Interest Organizations Request for Rehearing at 
106.
    \449\ Id. at 124 (citing Solar Energy Industries Comments, 
Docket No. RM19-15-000, at 62 (Dec. 3, 2019); North Carolina DOJ 
Comments, Docket No. RM19-15-000, at 3-4 (Dec. 3, 2019); SC Solar 
Alliance Comments, Docket No. RM19-15-000, at 17 (Dec. 3, 2019); 
North Carolina Commission Staff Comments, Docket No. RM19-15-000, at 
6 (Dec. 3, 2019); Borrego Solar Comments, Docket No. RM19-15-000, at 
3-5 (Dec. 3, 2019)).
    \450\ Id. (citing Motor Vehicles Mfrs. Ass'n v. State Farm Mut. 
Auto. Inst. Col, 463 U.S. at 43).
    \451\ Id. at 125.
    \452\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 29.
---------------------------------------------------------------------------

    251. Public Interest Organizations contend that the Commission does 
not explain why there should be any geographic distance at which two 
facilities are irrebuttably considered to be located at the same 
site.\453\
---------------------------------------------------------------------------

    \453\ Public Interest Organizations Request for Rehearing at 
120.
---------------------------------------------------------------------------

    252. Public Interest Organizations question whether the same 
opportunities for waiver provided under the previous bright-line test, 
which the Commission maintained in the final rule, will apply for 
facilities within one mile of each other.\454\ Public Interest 
Organizations argue that, if a facility received a waiver in the past, 
there is no guarantee that they would receive one again under the final 
rule.\455\ Public Interest Organizations assert that the inability for 
an applicant to show that a small power production facility should not 
be treated as located at the same site as other affiliated facilities 
using the same resource within one mile discourages QF 
development.\456\
---------------------------------------------------------------------------

    \454\ Id. at 106-07.
    \455\ Id. at 132.
    \456\ Id. at 107.
---------------------------------------------------------------------------

    253. Public Interest Organizations raise concerns about how the 
final rule will apply to hydroelectric facilities, asserting that the 
previous one-mile rule did not penalize hydroelectric facilities that 
were located in close proximity but should not be deemed to be at the 
same site.\457\ Public Interest Organizations state that, under the 
previous one-mile rule, hydroelectric facilities were considered to be 
located at the same site whenever they use water from the same 
impoundment.\458\ Public Interest Organizations further state that the 
final rule creates a new rule that a hydroelectric facility will be 
considered to be located at the same site as the one for which 
certification is sought if the facility is ``located within one mile of 
the facility for which qualification or recertification is sought and 
use[s] water from the same impoundment for power generation.'' \459\ 
Public Interest Organizations add that a footnote in the final rule 
states that ``[f]or hydroelectric generating facilities, the 
regulations currently provide that the same energy resources 
essentially means ``the same impoundment for power generation.'' \460\ 
Public Interest Organizations state that it appears that the Commission 
in practice would consider a hydroelectric facility to be located at 
the same site whenever it uses the same impoundment as the facility for 
which qualification is sought, is located within one mile, or both, 
which would conflict with the text of the final rule and limit QF 
development.\461\
---------------------------------------------------------------------------

    \457\ Id. at 107-08 & n.312.
    \458\ Id. at 108 n.312.
    \459\ Id. at 107-09 & n.312.
    \460\ Id. at 108-09 n.312 (citing Order No. 872, 172 FERC ] 
61,041 at P 492 n.769).
    \461\ Id.
---------------------------------------------------------------------------

    254. Northwest Coalition, Public Interest Organizations, and Solar 
Energy Industries reiterate NOPR comments that the new rebuttable 
presumption will increase the ``exclusion zone'' around a QF's 
electrical generating equipment from approximately three square miles 
to over 300 square miles--a 100% increase.\462\ Public Interest 
Organizations argue that a 100-fold increase in the area in which a 
party that owns a small power production facility will find it very 
difficult or impossible to develop another facility is the definition 
of discouraging small power production facilities.\463\
---------------------------------------------------------------------------

    \462\ Northwest Coalition Request for Rehearing at 54 (citing 
Order No. 872, 172 FERC ] 61,041 at P 483); Public Interest 
Organizations Request for Rehearing at 109; Solar Energy Industries 
Request for Rehearing and/or Clarification at 27, 29.
    \463\ Public Interest Organizations Request for Rehearing at 
109-10.
---------------------------------------------------------------------------

b. Commission Determination
    255. We disagree with Public Interest Organizations' arguments that 
the Commission did not provide an explanation for the ``10-mile rule'' 
beyond policy arguments and did not adequately connect the ``10-mile 
rule'' to the statutory determination of ``located at the same site.'' 
PURPA requires that no small power production facility, together with 
other facilities located ``at the same site,'' exceed 80 MW, and 
Congress has tasked the Commission with defining what constitutes 
facilities being at the same site for purposes of PURPA.\464\ The 
Commission explained that, just as there are some facilities that may 
be so close that it is reasonable to irrebuttably treat them as a 
single facility (those one mile or less apart), there are some 
facilities that are sufficiently far apart that it is reasonable to 
treat them as irrebuttably separate facilities.\465\ The Commission 
believed that the latter distance is 10 miles or more apart.\466\ The 
statute allows the Commission to determine the meaning of ``same 
site.'' \467\ Pursuant to this discretion, the Commission chose to pick 
a distance as an inflection point beyond which it is safe to 
irrebuttably presume separate sites.
---------------------------------------------------------------------------

    \464\ 16 U.S.C. 796(17)(A)(ii).
    \465\ Order No. 872, 172 FERC ] 61,041 at P 491. See also id. P 
466.
    \466\ Id. P 491. See also id. P 466.
    \467\ 16 U.S.C. 796(17)(A)(ii).
---------------------------------------------------------------------------

    256. In response to arguments that the 10-mile demarcation is 
arbitrary and that nothing in the record supports it as a rational or 
appropriate threshold,\468\ we note that PURPA requires that no small 
power production facility, together with other facilities located ``at 
the same site,'' exceed 80 MW. In the final rule, the Commission aimed 
to protect that statutory requirement by ensuring that facilities that, 
together with other affiliated facilities located ``at the same site,'' 
exceeded 80 MW did not receive the benefits that Congress intended only 
small facilities 80 MW and under to receive. The Commission therefore 
found that 10 miles is qualitatively a large enough distance to serve 
as the inflection point beyond which it is safe to irrebuttably presume 
separate sites, while allowing entities to seek to rebut such 
presumption between one mile and 10 miles.\469\ Ten miles need not be 
the only possible choice under the statute in order for it to be 
considered reasonable; what matters is that the choice made in the 
exercise of the Commission's discretion does not run afoul of the 
statue and is reasonable rather than arbitrary and capricious.\470\
---------------------------------------------------------------------------

    \468\ Public Interest Organizations state that ``[t]here is 
nothing in the record to show that [10] miles is a rational or 
appropriate threshold for determining whether QFs are at the `same 
site.' '' We correct Public Interest Organizations' statement by 
noting that affiliated small power production facilities 10 miles or 
more apart are irrebuttably presumed to be at separate sites and 
facilities between one mile and 10 miles are rebuttably presumed to 
also be separate sites. Order No. 872, 172 FERC ] 61,041 at P 466.
    \469\ Id. P 491.
    \470\ See CP Kelco Oy v. United States, 37 ITRD 1093 (Ct. Int'l 
Trade 2015) (``[T]his threshold is a line in the sand: Commerce 
might have picked a different number to effectuate the statute's 
purpose, with reasonable results . . . Yet because the agency's 
choice does not run afoul of the statute and is not arbitrary, the 
court will defer to Commerce despite the possibility of 
alternatives.''). See also U.S. Steel Grp. v. United States, 96 F.3d 
1352, 1362 (Fed. Cir. 1996) (``So long as the Commission's analysis 
does not violate any statute and is not otherwise arbitrary and 
capricious, the Commission may perform its duties in the way it 
believes most suitable.''); Mid Continent Nail Corp. v. United 
States, 34 C.I.T. 512, 520-21 (2010) (finding, in response to 
contentions that the Commission's definitions of statutory terms 
were ``seemingly random values,'' that the numbers in the 
Commission's definitions did not violate the statute and were not 
otherwise arbitrary and capricious where the they are applied 
reasonably). Cf. Int'l Soc. for Krishna Consciousness, Inc. v. 
McAvey, 450 F. Supp. 1265, 1269 (S.D.N.Y. 1978) (``choosing any 
fixed number would seem arbitrary, yet necessary in order to strike 
a balance between the competing interests.''); AFPA v. FERC, 550 
F.3d at 1183 (permitting Commission to establish rebuttable 
presumption via rulemaking rather than case-by-case adjudication in 
PURPA section 210(m) context).

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

[[Page 86693]]

    257. We find no merit in Public Interest Organizations' arguments 
that the final rule does not explain why there should be any geographic 
distance at which two facilities are irrebuttably considered located at 
the same site. PURPA requires that no small power production facility, 
together with other facilities located ``at the same site,'' exceed 80 
MW. As the Commission explained in the final rule, there are some 
affiliated small power production facilities using the same energy 
resource that are so close together that it is reasonable to treat them 
as irrebuttably at the same site. Consistent with long standing 
practice, the Commission has found that one mile or less is a 
reasonable distance to treat such affiliated facilities as irrebuttably 
at the same site.\471\ Additionally, in response to Public Interest 
Organizations, we reiterate that the final rule retains the waiver 
provision in 18 CFR 292.204(a)(3), which allow the Commission to waive 
the method of calculation of the size of the facility for good 
cause.\472\
---------------------------------------------------------------------------

    \471\ Order No. 872, 172 FERC ] 61,041 at P 491.
    \472\ Id. P 492 (citing 18 CFR 292.204(a)(3)).
---------------------------------------------------------------------------

    258. In response to Public Interest Organizations' concerns that it 
is unclear what the waiver provision will mean now that the one-mile 
rule is irrebuttable, or whether those who previously obtained a waiver 
will get it again if they recertify, we note that the Commission has 
always determined whether to grant waivers on a case-by-case basis. The 
Commission will continue to apply the waiver provision consistent with 
the Commission's waiver precedent. For example, in Windfarms, Ltd., the 
Commission granted waiver of the one-mile rule, finding that three 
clusters of wind turbine generators were at three separate and distinct 
sites when they ``had sufficiently distinct and identifiable 
topographical and energy resource-related characteristics.'' \473\ In 
contrast, in Pinellas County, the Commission declined to grant waiver 
of the one-mile rule because a new generator was within 600 to 700 feet 
of the existing generator.\474\
---------------------------------------------------------------------------

    \473\ Windfarms, Ltd., 13 FERC ] 61,017 (1980).
    \474\ Pinellas County, Florida, 50 FERC ] 61,269 (1990).
---------------------------------------------------------------------------

    259. We disagree with Public Interest Organizations that the final 
rule establishes a new rule that hydroelectric facilities are at the 
same site if they are located within one mile of the facility for which 
qualification is sought and at the same impoundment. The final rule did 
not change the prior requirement that hydroelectric facilities are at 
the same site if they are located within one mile of the facility for 
which qualification is sought and at the same impoundment.\475\ The 
only change that the Commission made in the final rule was to create a 
rebuttable presumption of separate sites for affiliated small power 
production facilities located more than one mile but less than 10 miles 
apart. Footnote 769 of the final rule, noted by Public Interest 
Organizations, explains that it is unlikely that hydroelectric 
generating facilities located more than one mile apart would be located 
on the same impoundment. We clarify that, if a hydroelectric generating 
facility is more than a mile apart (but less than 10 miles apart) from 
an affiliated facility, yet on the same impoundment, the rebuttable 
presumption would be that they are at separate sites. We further 
clarify that, although the second sentence of footnote 769 suggested 
that a hydroelectric generating facility in this circumstance was free 
to seek waiver (most likely in order to eliminate any uncertainty as to 
its status), it would be unlikely that any such a facility would, in 
practice, need to request such waiver.
---------------------------------------------------------------------------

    \475\ See El Dorado Cty. Water Agency, 24 FERC ] 61,280, at 
61,577 (1983) (El Dorado) (``Under the rule, hydroelectric 
facilities using the same impoundment as a water source and located 
within one mile of each other are considered part of the same 
site.''); Small Power Production and Cogeneration Facilities--
Qualifying Status, Order No. 70, 45 FR 17995 (Mar. 20, 1980), FERC 
Stats. & Regs. ] 30,134, at 30,943 (1980) (cross-referenced at 10 
FERC ] 61,230) (``Hydroelectric facilities . . . are considered to 
be located at the same site only if the facilities use water from 
the same impoundment for power generation. The Commission views this 
additional provision for hydroelectric facilities as necessary 
because use of the one-mile rule alone might discourage the 
development of facilities on separate waterways which are within one 
mile of each other.'') (cross-referenced at 10 FERC ] 61,230), 
orders on reh'g, Order No. 70-A, FERC Stats. & Regs. ] 30,159 
(cross-referenced at 11 FERC ] 61,119) and FERC Stats. & Regs. ] 
30,160 (cross-referenced at 11 FERC ] 61,166), order on reh'g, Order 
No. 70-B, FERC Stats. & Regs. ] 30,176 (cross-referenced at 12 FERC 
] 61,128), order on reh'g, FERC Stats. & Regs. ] 30,192 (1980) 
(cross-referenced at 12 FERC ] 61,306), amending regulations, Order 
No. 70-D, FERC Stats. & Regs. ] 30,234 (cross-referenced at 14 FERC 
] 61,076), amending regulations, Order No. 70-E, FERC Stats. & Regs. 
] 30,274 (1981) (cross-referenced at 15 FERC ] 61,281) (emphasis 
added).
---------------------------------------------------------------------------

    260. In the final rule, the Commission addressed Northwest 
Coalition, Public Interest Organizations, and Solar Energy Industries' 
contention that the new rule causes a 100-times increase to the 
``exclusion zone'' around a QF's electrical generating equipment and a 
100-fold increase in the area in which a party who owns a small power 
production facility will find it very difficult or impossible to 
develop another facility is almost the definition of discouraging small 
power production facilities.\476\ We reiterate that the rule providing 
for a rebuttable presumption for affiliated small power production QFs 
located more than one but less than 10 miles apart is necessary to 
address allegations of improper circumvention of the one-mile rule that 
had been presented to the Commission.\477\ Furthermore, we disagree 
with characterizing a rebuttable presumption of separate sites between 
one mile and 10 miles as an ``exclusion'' zone for development 
purposes. While QF developers understandably may prefer that any 
attempts to rebut be prohibited, our disagreement with their preference 
(and our establishment of a presumption of separate sites between one 
mile and 10 miles, albeit a rebuttable presumption) can hardly be 
equated with enacting a development exclusion zone.
---------------------------------------------------------------------------

    \476\ See Order No. 872, 172 FERC ] 61,041 at P 495.
    \477\ Id.
---------------------------------------------------------------------------

3. Factors
    261. In the final rule, the Commission adopted the physical and 
ownership factors proposed in the NOPR with a few modifications. First, 
the Commission modified the NOPR proposal by changing terminology 
relating to the determination of whether facilities are separate 
facilities to focus not on whether they are separate facilities, but 
rather to mirror the statutory language referring to ``the same site.'' 
Accordingly, the Commission adopted these factors as relevant indicia 
of whether affiliated small power production facilities are ``at the 
same site.'' Second, the Commission modified the NOPR proposal to 
identify the following additional physical factors as indicia that 
small power production facilities should be considered located at the 
same site: (1) Evidence of shared control systems; (2) common 
permitting and land leasing; and (3) shared step-up transformers.\478\
---------------------------------------------------------------------------

    \478\ Id. P 508.

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

[[Page 86694]]

    262. Specifically, the Commission adopted the following factors as 
examples of the factors the Commission may consider in deciding whether 
small power production facilities that are owned by the same person(s) 
or its affiliates are located ``at the same site'': (1) Physical 
characteristics, including such common characteristics as 
infrastructure, property ownership, property leases, control 
facilities, access and easements, interconnection agreements, 
interconnection facilities up to the point of interconnection to the 
distribution or transmission system, collector systems or facilities, 
points of interconnection, motive force or fuel source, off-take 
arrangements, connections to the electrical grid, evidence of shared 
control systems, common permitting and land leasing, and shared step-up 
transformers; and (2) ownership/other characteristics, including such 
characteristics as whether the facilities in question are owned or 
controlled by the same person(s) or affiliated persons(s), operated and 
maintained by the same or affiliated entity(ies), selling to the same 
electric utility, using common debt or equity financing, constructed by 
the same entity within 12 months, managing a power sales agreement 
executed within 12 months of a similar and affiliated small power 
production qualifying facility in the same location, placed into 
service within 12 months of an affiliated small power production QF 
project's commercial operation date as specified in the power sales 
agreement, or sharing engineering or procurement contracts.\479\
---------------------------------------------------------------------------

    \479\ Id. P 509.
---------------------------------------------------------------------------

    263. The Commission adopted the NOPR proposal to allow a small 
power production facility seeking QF status to provide further 
information in its certification (both self-certification and 
application for Commission certification) or recertification (both 
self-recertification and application for Commission recertification) to 
preemptively defend against rebuttal by identifying factors that 
affirmatively show that its facility is indeed at a separate site from 
affiliated small power production QFs more than one but less than 10 
miles away from it. The Commission stated that any party challenging a 
QF certification (both self-certification and application for 
Commission certification) or recertification (both self-recertification 
and application for Commission recertification) that makes substantive 
changes to the existing certification would, in its protest, be allowed 
to correspondingly identify factors to show that the small power 
production facility seeking QF status and affiliated small power 
production QFs more than one but less than 10 miles from that facility 
are actually at the same site.\480\
---------------------------------------------------------------------------

    \480\ Id. P 510.
---------------------------------------------------------------------------

    264. The Commission emphasized that, as a general matter, no one 
factor is dispositive. The Commission stated that it will conduct a 
case-by-case analysis, weighing the evidence for and against, and the 
more compelling the showing that affiliated small power production QFs 
should be considered to be at the same site as the small power 
production facility seeking QF status in a specific case, the more 
likely the Commission will be to find that the facilities involved in 
that case are indeed located ``at the same site.'' \481\
---------------------------------------------------------------------------

    \481\ Id. P 511.
---------------------------------------------------------------------------

a. Requests for Rehearing
    265. Solar Energy Industries assert that in adopting the physical 
and ownership characteristics as proposed in the NOPR, the Commission 
stepped beyond the statutory bounds that limit the Commission to 
determining whether a facility is located ``at the same site'' as any 
other facilities,\482\ instead imposing a separate facilities analysis. 
Solar Energy Industries argue that the Commission has previously 
recognized that ``[t]he critical test under PURPA relates to whether 
the facilities are located at one site rather than whether they are 
integrated as a project.'' \483\ Solar Energy Industries contend that 
the Commission erred in concluding that ownership and other 
characteristics are germane to the ``same site'' determination.\484\ 
Solar Energy Industries claim that Congress did not authorize the 
Commission to analyze factors that have nothing to do with physical 
commonality or surrounding geographical terrain as part of the same 
site determination.\485\
---------------------------------------------------------------------------

    \482\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 30.
    \483\ Id. at 26, 31-32 (citing El Dorado, 24 FERC at 61,578).
    \484\ Id. at 31.
    \485\ Id. at 30-31.
---------------------------------------------------------------------------

    266. Similarly, Public Interest Organizations assert that the 
Commission's definition of ``at the same site'' is ``beyond the meaning 
that the statute can bear.'' \486\ Public Interest Organizations argue 
that the American Heritage Dictionary defines ``site'' as ``[t]he place 
where a structure or group of structures was, is, or is to be 
located.'' \487\ Public Interest Organizations contend that the statute 
limits multiple QF facilities to the 80 MW cap only if those facilities 
are located at the same physical place.\488\ Public Interest 
Organizations claim that whether affiliated generators using the same 
energy resource and which are located between one mile and 10 miles are 
located at separate sites depends on various non-exclusive and non-
dispositive factors, many of which have no relationship to whether the 
two facilities are located in the same physical place.\489\
---------------------------------------------------------------------------

    \486\ Public Interest Organizations Request for Rehearing at 103 
(citing MCI Telecommunications Corp. v. Am. Tel. & Tel. Co., 512 
U.S. 218, 229 (1994)).
    \487\ Id. (citing The American Heritage Dictionary of the 
English Language 55 (3d ed. 1992)).
    \488\ Id. at 103-04.
    \489\ Id. at 105.
---------------------------------------------------------------------------

    267. Public Interest Organizations argue that the reasonable 
meaning of the phrase does not permit the Commission's definition that 
introduces numerous extraneous factors, such as corporate structure, 
financing, offtake entities, number of energy sources or ``motive 
forces,'' shared use of offsite engineering services or maintenance 
contractors, or construction timelines.\490\ Solar Energy Industries 
assert that the employment of common contractors, such as grading and 
electrical contractors, has nothing to do with whether two otherwise 
distinct generation facilities are located at the ``same site,'' 
instead having more to do with the availability of experienced, 
qualified contractors in a given region.\491\ Solar Energy Industries 
contend that many QFs are developed in rural regions where there are 
often a limited number of qualified maintenance providers and a 
commonality of such engagement should not be a factor in the 
Commission's ``same site'' analysis. Solar Energy Industries add that 
the fact that two facilities are constructed by the same entity within 
a period of 12 months is also irrelevant for a ``same site'' 
determination given that there are a limited number of qualified 
construction firms within each region.\492\ Solar Energy Industries 
claim that portfolios of QFs in multiple states (and which thus are 
unquestionably at separate sites) are frequently financed (and re-
financed) as part of a common investment portfolio for passive 
investment vehicles that do not exercise day-to-day control over the 
QF; therefore, they should not determine whether two facilities with 
separate ownership structures should not be

[[Page 86695]]

consolidated for purposes of the 80 MW size limitation.\493\
---------------------------------------------------------------------------

    \490\ Id. at 104 (citing Summit Petroleum Corp. v. U.S. EPA, 690 
F.3d 733, 742 (6th Cir. 2012)).
    \491\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 31.
    \492\ Id.
    \493\ Id.
---------------------------------------------------------------------------

    268. Public Interest Organizations argue that there are significant 
problems with the factors list that render the factors unreasonable, 
arbitrary, and capricious.\494\ Public Interest Organizations assert 
that the failed to respond to the flaws raised regarding the factors 
identified by the Commission for consideration under the rebuttable 
presumption, instead summarily adopting these factors.\495\ Public 
Interest Organizations state that commenters identified the list of 
``physical characteristics,'' particularly ``control facilities,'' 
``access and easements,'' ``collector systems or facilities,'' and 
``property leases,'' as ``far too broad and unclear,'' and subject to 
varying interpretations.\496\ Public Interest Organizations contend 
that factors listed under ``ownership and other characteristics,'' such 
as control and maintenance, are even more problematic.\497\ Public 
Interest Organizations argue that, in certain geographic regions, there 
are often a limited number of solar maintenance companies, creating the 
opportunity for frivolous challenges to QF certifications and 
recertifications.\498\ Public Interest Organizations point to Southeast 
Public Interest Organizations' comments that
---------------------------------------------------------------------------

    \494\ Public Interest Organizations Request for Rehearing at 
111.
    \495\ Id. at 124-25 (citing Order No. 872, 172 FERC ] 61,041 at 
PP 501-09).
    \496\ Id. at 126 (citing Southeast Public Interest Organizations 
Comments, Docket No. RM19-15-000, at 34 (Dec. 3, 2019); SC Solar 
Alliance Comments, Docket No. RM19-15-000, at 17 (Dec. 3, 2019)).
    \497\ Id. (citing Southeast Public Interest Organizations 
Comments, Docket No. RM19-15-000, at 34 (Dec. 3, 2019); SC Solar 
Alliance Comments, Docket No. RM19-15-000, at 17-18 (Dec. 3, 2019)).
    \498\ Id. (citing Southeast Public Interest Organizations 
Comments, Docket No. RM19-15-000, at 35 (Dec. 3, 2019); SC Solar 
Alliance Comments, Docket No. RM19-15-000, at 18 (Dec. 3, 2019); 
North Carolina DOJ Comments, Docket No. RM19-15-000, at 7-8 (Dec. 3, 
2019)).

``[l]ikewise, the sale of electricity to a common utility, the 
financing of a project through a mutual lender, the construction of 
a facility through a mutual contractor, the timing of contract 
execution, and the timing of facilities being placed into service 
are all factors listed in the NOPR which do not provide relevant 
evidence as to common ownership requiring facilities to be 
considered a single unit. The use of these factors will likely 
prejudice solar facilities constructed nearby each other that used 
common associates, contractors, or partnering organizations or 
entities.'' \499\
---------------------------------------------------------------------------

    \499\ Id. at 127 (citing Southeast Public Interest Organizations 
Comments, Docket No. RM19-15-000, at 35 (Dec. 3, 2019)).

    269. Public Interest Organizations assert that, rather than 
grappling with the data and information presented by commenters on 
these factors, the final rule simply summarizes the critiques and then 
summarily concludes that these factors shall be adopted in the final 
rule.\500\ Public Interest Organizations argue that the lack of 
response to these criticisms and failure to articulate a rationale for 
why the factors are appropriate for making a same site determination 
render the Commission's determination arbitrary and capricious.\501\
---------------------------------------------------------------------------

    \500\ Id.
    \501\ Id.
---------------------------------------------------------------------------

    270. Solar Energy Industries contend that, by going beyond the same 
site limitation, the Commission is discouraging the development of 
these resources.\502\ Solar Energy Industries assert that the 
Commission's failure to provide support for the expansion of its 
authority beyond that granted by Congress is arbitrary, capricious, and 
not consistent with reasoned decision-making.\503\
---------------------------------------------------------------------------

    \502\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 26.
    \503\ Id. at 27, 30 (citing Windfarms, Ltd., 13 FERC at 61,032).
---------------------------------------------------------------------------

    271. Solar Energy Industries seek rehearing of the Commission's 
determination in Paragraph 508 and ask the Commission to rescind dicta 
and associated regulations allowing for review, evaluation, or 
consideration of physical and operational characteristics that are not 
germane to whether a facility, ``together with any other facilities 
located at the same site,'' has a power production capacity greater 
than 80 MW.\504\ Solar Energy Industries argue that, if the Commission 
does not grant reconsideration, a QF could be subject to challenge 
throughout the facility's entire useful life based on overly broad 
factors that are not related to preventing a QF from ``gaming'' the 
same-site determination and development of other QFs long after a QF 
starts operation.\505\
---------------------------------------------------------------------------

    \504\ Id. at 27.
    \505\ Id. at 34.
---------------------------------------------------------------------------

    272. Public Interest Organizations add that, although the final 
rule allows applicants to ``preemptively defend against rebuttal by 
identifying factors that affirmatively show that its facility is indeed 
at a separate site,'' it does not provide guidance on what these 
factors are, which creates uncertainty.\506\
---------------------------------------------------------------------------

    \506\ Public Interest Organizations Request for Rehearing at 110 
(citing Order No. 872, 172 FERC ] 61,041 at PP 480, 510).
---------------------------------------------------------------------------

b. Commission Determination
    273. PURPA defines small power production facilities as those 
facilities that have ``a power production capacity which, together with 
any other facilities located at the same site (as determined by the 
Commission), is not greater than 80 megawatts.'' \507\ Congress notably 
did not specify that ``site'' may only encompass consideration of 
physical or geographic factors; in fact, Congress expressly delegated 
the determination of ``site'' to the Commission.\508\ When the 
Commission adopted the PURPA Regulations in 1980, it determined that 
the capacity of all facilities within one mile of each other and which 
use the same energy resource and are owned by the same person, be added 
together.\509\ Thus, for 40 years the PURPA Regulations implementing 
``same site'' have included examination not only of geography or 
distance, but also ownership and resource. The final rule's inclusion 
of physical and ownership factors is a continuation of the Commission's 
past practice and is not, as Solar Energy Industries contend, an 
expansion of the Commission's authority. We therefore decline to 
rescind the list of example factors, as requested by Solar Energy 
Industries.
---------------------------------------------------------------------------

    \507\ 16 U.S.C. 796(17)(A)(ii).
    \508\ Id.
    \509\ Order No. 70, FERC Stats. & Regs. ] 30,134 at 30,939; see 
also 18 CFR 292.204(a)(1).
---------------------------------------------------------------------------

    274. Solar Energy Industries' reliance on El Dorado is misplaced. 
In El Dorado, a protester argued that three hydroelectric facilities 
located more than one mile from each other should nevertheless be 
treated as a single hydroelectric project, noting that the three 
facilities were aggregated together as a single project for the 
purposes of receiving a hydroelectric license. The Commission found 
that, because the three facilities were located more than a mile from 
each other, under the then-current regulations, the facilities were 
located at three distinct sites, despite having been aggregated 
together for the purpose of receiving a hydroelectric license. The 
sentence Solar Energy Industries quotes, ``the critical test under 
PURPA relates to whether the facilities are located at one site rather 
than whether they are integrated as a project,'' explains that the 
requirements for certification as a small power production facility are 
not the same requirements to receive a hydroelectric license.\510\ The 
Commission did not address which kind of considerations may go into the 
same site determination; it merely applied the same site analysis

[[Page 86696]]

that existed at the time, distinct from other requirements.
---------------------------------------------------------------------------

    \510\ El Dorado, 24 FERC at 61,577-78.
---------------------------------------------------------------------------

    275. We disagree with Solar Energy Industries' contention that, if 
the Commission does not grant reconsideration of the list of example 
factors, a QF could be subject to challenge throughout the facility's 
entire useful life. We note that, prior to the final rule, an 
interested party could file a petition for declaratory order 
challenging the QF certification at any time and on any grounds. An 
interested party may still file a petition for declaratory order with 
the accompanying filing fee, just as they could prior to the effective 
date of the final rule. The final rule merely added what already exists 
for essentially every Commission proceeding, ``no fee'' protests, which 
will not subject a QF to challenges throughout the facility's entire 
useful life because any such protest must be filed with 30 days from 
the date of the filing of the Form No. 556 at the Commission.\511\
---------------------------------------------------------------------------

    \511\ Order No. 872, 172 FERC ] 61,041 at P 554.
---------------------------------------------------------------------------

    276. Moreover, we reiterate that the final rule provided that such 
protests (and hence, consideration of the factors) may only be filed in 
response to an initial certification or to a recertification that makes 
substantive changes to the existing certification,\512\ which limits 
the time periods during which such a protest may be filed. 
Additionally, once the Commission has affirmatively certified an 
applicant's QF status in response to a protest opposing a self-
certification or self-recertification, or in response to an application 
for Commission certification or recertification, any later protest to a 
recertification (self-recertification or application for Commission 
recertification) making substantive changes to a QF's existing 
certification must demonstrate changed circumstances from the facts 
upon which the Commission acted on the certification filing that call 
into question the continued validity of the earlier certification.\513\
---------------------------------------------------------------------------

    \512\ Id. P 550.
    \513\ Id. P 469.
---------------------------------------------------------------------------

    277. We also disagree with Public Interest Organizations' assertion 
that the Commission failed to respond to the flaws raised regarding the 
factors, including that the list of ``physical characteristics,'' 
particularly ``control facilities,'' ``access and easements,'' 
``collector systems or facilities,'' and ``property leases,'' was far 
too broad, unclear, and subject to varying interpretations.\514\ In the 
final rule, the Commission explained that these are examples of factors 
the Commission may consider on a case-by-case basis. The factors are 
not further defined because their application will depend on the 
context of the individual certification. Likewise, we disagree with 
Public Interest Organizations' contentions that ``ownership and other 
characteristics'' is a problematic factor and ``the sale of electricity 
to a common utility, the financing of a project through a mutual 
lender, the construction of a facility through a mutual contractor, the 
timing of contract execution, and the timing of facilities being placed 
into service'' do not provide relevant evidence of common ownership 
that requires facilities to be considered a single unit.\515\ We 
reiterate that no single factor is dispositive and the factors are 
included as examples of facts that the Commission may consider on a 
case-by-case basis.\516\ For example, Public Interest Organizations 
state that, in certain geographic regions, there are a limited number 
of solar maintenance companies, and Southeast Public Interest 
Organizations NOPR Comments stated that, because of the costs and 
complexity of financing the construction of QFs, developers frequently 
secure financing for a portfolio of distinct projects that may be 
hundreds of miles apart, at clearly separate facilities.\517\ A 
protester could indeed assert common maintenance or common financing as 
evidence that a facility is at the same site as another facility, but 
the Commission could choose to dismiss a protest based on those factors 
if the protestor's claims are not sufficient to warrant a ``same site'' 
finding, particularly if there are no other factors indicating that the 
facilities are at the same site.
---------------------------------------------------------------------------

    \514\ Public Interest Organizations Request for Rehearing at 126 
(citing Southeast Public Interest Organizations Comments, Docket No. 
RM19-15-000, at 34 (Dec. 3, 2019); SC Solar Alliance Comments, 
Docket No. RM19-15-000, at 17 (Dec. 3, 2019)). See also Order No. 
872, 172 FERC ] 61,041 at P 501.
    \515\ Public Interest Organizations Request for Rehearing at 127 
(citing Southeast Public Interest Organizations Comments, Docket No. 
RM19-15-000, at 35 (Dec. 3, 2019)).
    \516\ Order No. 872, 172 FERC ] 61,041 at P 511.
    \517\ Southeast Public Interest Organizations Comments, Docket 
No. RM19-15-000, at 35 (Dec. 3, 2019).
---------------------------------------------------------------------------

    278. Similarly, Public Interest Organizations argues that the 
Commission must articulate a rationale for why the factors are 
appropriate for making a same site determination. We believe that, when 
affiliated facilities are located more than one mile but less than 10 
miles from each other and demonstrate these factors, then they may 
reasonably be considered to be located at the same site. We again 
stress that, in the final rule, the Commission stated that the factors 
in the list were merely ``examples of the factors the Commission may 
consider.'' \518\ The Commission will conduct a case-by-case analysis, 
weighing the evidence for and against determining whether small power 
production facilities that are owned by the same person(s) or its 
affiliates are located ``at the same site.'' The Commission included 
the example factors in the final rule to provide a guide for the kinds 
of facts that an applicant seeking QF status or that a protester may 
assert, and that the Commission may consider in making its 
determination.
---------------------------------------------------------------------------

    \518\ Order No. 872, 172 FERC ] 61,041 at P 509.
---------------------------------------------------------------------------

    279. In response to Public Interest Organizations' concern that the 
Commission allows applicants to ``preemptively defend against rebuttal 
by identifying factors that affirmatively show that its facility is 
indeed at a separate site'' without identifying these factors, we 
clarify that the factors that may be used by an applicant to 
preemptively defend against rebuttal include the example factors 
identified in that same Paragraph 509 of the final rule which is the 
subject of the discussion above.\519\
---------------------------------------------------------------------------

    \519\ See id.
---------------------------------------------------------------------------

D. QF Certification Process

    280. In the final rule, the Commission adopted the NOPR proposal to 
revise 18 CFR 292.207(a) to allow an interested person or entity to 
seek to intervene and to file a protest of a self-certification or 
self-recertification of a QF and not have to file a petition for 
declaratory order and pay the filing fee for petitions. The Commission 
found that any increased administrative burden or litigation risk 
imposed by the new rule is justified by the need to ensure that QFs 
meet the statutory criteria for QF status.\520\ The Commission stated 
that the ability to intervene and to file a protest of a self-
certification or self-recertification of a QF without having to file a 
petition for declaratory order and pay the filing fee for petitions is 
effective as of the effective date of the final rule.\521\
---------------------------------------------------------------------------

    \520\ Id. P 547.
    \521\ Id. P 548.
---------------------------------------------------------------------------

    281. The Commission agreed with commenters that QF recertifications 
to implement or address non-substantive changes should not be subject 
to the new protest rule in order to respect QFs' settled expectations. 
The Commission therefore found that protests may be filed to an initial 
certification (both self-certification and application for Commission 
certification) filed on or after the effective date of the final rule,

[[Page 86697]]

but only to a recertification (both self-recertification and 
application for Commission recertification) that makes substantive 
changes to the existing certification and that are filed on or after 
the effective date of the final rule. The Commission explained that 
substantive changes that may be subject to a protest may include, for 
example, a change in electrical generating equipment that increases 
power production capacity by the greater of 1 MW or five percent of the 
previously certified capacity of the QF or a change in ownership in 
which an owner increases its equity interest by at least 10% from the 
equity interest previously reported. The Commission found that 
recertifications (both self-recertifications and applications for 
Commission recertifications) making ``administrative only'' changes 
should not be subject to a protest pursuant to the final rule.\522\
---------------------------------------------------------------------------

    \522\ Id. P 550.
---------------------------------------------------------------------------

    282. The Commission disagreed with Solar Energy Industries' 
estimates that compliance with these new requirements would require an 
additional approximately 90 to 120 hours per year. The Commission noted 
that 18 CFR 292.207(d) already stated that, if a QF fails to conform 
with any material facts or representations presented in the 
certification, the QF status of the facility may no longer be relied 
upon; hence, it is long-standing practice that a QF must recertify when 
material facts or representations in the Form No. 556 change.\523\
---------------------------------------------------------------------------

    \523\ Id. P 552.
---------------------------------------------------------------------------

    283. The Commission explained that certifications and 
recertifications are already subject to protests, albeit in the form of 
petitions for declaratory order; therefore, dealing with objections to 
a certification or recertification is not new. The Commission stated 
that, although the new procedures may result in more protests being 
filed than the number of petitions that had been filed, the Commission 
believed that the conditions imposed in the final rule will limit the 
number of protests filed. The Commission anticipated that most, though 
not all, of the protests filed pursuant to the new 18 CFR 292.207(a) 
will relate to the new more-than-one-but-less-than-10-miles rebuttable 
presumption. The Commission reasoned that such protests will 
necessarily be limited because not all certifications and 
recertifications will be subject to the new more-than-one-but-less-
than-10-miles rebuttable presumption. The Commission stated that only a 
small power production facility seeking QF status that has an 
affiliated small power production QF more than one but less than 10 
miles away and that uses the same energy resource would be subject to 
the rebuttable presumption. The Commission stated that small power 
production facilities that do not have affiliated small power 
production facilities will not be affected by the new rebuttable 
presumption, nor will cogeneration QFs be affected by the new 
rebuttable presumption. The Commission reiterated that protests may 
only be made to an initial certification (both self-certification and 
application for Commission certification) filed on or after the 
effective date of the final rule, and only to a recertification (self-
recertification or application for Commission recertification) that 
makes substantive changes to the existing certification that is filed 
on or after the effective date of the final rule.\524\
---------------------------------------------------------------------------

    \524\ Id. P 553.
---------------------------------------------------------------------------

    284. The Commission instituted time limits on protests that may be 
filed under the final rule. The Commission adopted the NOPR proposal 
that interested parties will have 30 days from the date of the filing 
of the Form No. 556 (both initial self-certification and self-
recertification) at the Commission to file a protest (without paying a 
fee).\525\
---------------------------------------------------------------------------

    \525\ Id. P 554.
---------------------------------------------------------------------------

    285. The Commission also stated that, even if it indeed takes some 
small power production facilities an additional 90 to 120 hours to 
comply with the new requirements (which the Commission thought was 
unlikely), that was not an unreasonable burden to impose to ensure that 
a generating facility that seeks to be a QF is, in fact, entitled to QF 
status and is complying with PURPA.\526\
---------------------------------------------------------------------------

    \526\ Id. P 556.
---------------------------------------------------------------------------

    286. The Commission found that, due to the unique nature of rooftop 
solar PV developers, the recertification requirement for PV developers 
could be unduly burdensome. Therefore, to lessen the burden on such 
developers when recertifying, the Commission permitted rooftop solar PV 
developers an alternative option to file their recertification 
applications. Rather than require the developer to file for 
recertification each time the developer adds or removes a rooftop 
facility, the Commission allowed a rooftop solar PV developer to 
recertify on a quarterly basis. The Commission stated that the 
recertification filing would be due within 45 days after the end of the 
calendar quarter. However, if in any quarter a rooftop solar PV 
developer either has no changes or only has changes of power production 
capacity of 1 MW or less, the Commission stated that the rooftop solar 
PV developer would not be required to recertify until it has 
accumulated changes greater than 1 MW total over the quarters since its 
last filing. Additionally, the Commission stated that rooftop solar PV 
developers, like all small power production facilities, will not be 
subject to protests when they file recertifications that are 
``administrative only'' in nature but would be subject to such protests 
when they make substantive changes to the existing certification, as 
detailed above.\527\
---------------------------------------------------------------------------

    \527\ Id. P 560.
---------------------------------------------------------------------------

    287. The Commission limited the ability to file a protest (rather 
than a petition for declaratory order, with the accompanying filing 
fee) to within 30 days of the date of the filing of the self-
certification or self-recertification. The Commission stated that, if 
an interested party would like to contest a self-certification or self-
recertification later than 30 days after the date of its filing, then 
the interested party may file a petition for declaratory order with the 
accompanying filing fee, just as they could prior to the effective date 
of the final rule.\528\
---------------------------------------------------------------------------

    \528\ Id. P 563.
---------------------------------------------------------------------------

    288. The Commission declined to impose a 60-day deadline after 
which a failure of the Commission to rule on the protest would result 
in the protest being denied by operation of law. The Commission stated 
that self-certification will be effective upon filing and will remain 
effective after a protest has been filed, until such time as the 
Commission issues an order revoking certification. The Commission 
clarified that self-recertifications will likewise remain effective 
after a protest has been filed, until such time as the Commission 
issues an order revoking recertification.\529\
---------------------------------------------------------------------------

    \529\ Id. P 565.
---------------------------------------------------------------------------

    289. The Commission noted that the presumption continues to be that 
a small power production facility seeking QF status that is located 
more than one but less than 10 miles from any affiliated small power 
production QFs is at a separate site from those affiliated small power 
production QFs, explaining that the Commission was simply making this 
presumption rebuttable.\530\
---------------------------------------------------------------------------

    \530\ Id. P 567.
---------------------------------------------------------------------------

1. Requests for Rehearing
    290. Solar Energy Industries state that the self-certification 
process was intended to be ``quick and not unduly burdensome'' \531\ to 
avoid the

[[Page 86698]]

``complexity, delays, and uncertainties created by a case-by-case 
qualification procedure'' that ``would act as an economic disincentive 
to owners of smaller facilities.'' \532\ Solar Energy Industries argue 
that the new ``[10]-mile rule'' adds unnecessary regulatory burdens on 
QFs which will have a chilling effect on the development of QFs that is 
directly counter to PURPA's mandate to encourage QF development. Solar 
Energy Industries assert that, if the Commission does not reconsider 
the rebuttable presumption framework, the self-certification process 
will no longer be quick and will become unduly burdensome for all 
parties, including the Commission and its staff.\533\
---------------------------------------------------------------------------

    \531\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 33 (citing Revisions to Form, Procedures, and 
Criteria for Certification of Qualifying Facility Status for a Small 
Power Production or Cogeneration Facility, Order No. 732, 130 FERC ] 
61,214, at P 8 (2010)).
    \532\ Id. at 28 (citing Revised Regulations Governing Small 
Power Production and Cogeneration Facilities, Order No. 671, 114 
FERC ] 61,102, at P 83, order on reh'g, Order No. 671-A, 115 FERC ] 
61,225 (2006)).
    \533\ Id. at 34.
---------------------------------------------------------------------------

    291. Public Interest Organizations state that one of the ways that 
PURPA directs the Commission to encourage development of small power 
production facilities is to prescribe rules exempting them from the 
FPA, PUHCA, and state laws and regulations, as necessary to encourage 
development.\534\ Public Interest Organizations argue that the final 
rule does the opposite by requiring applicants to list in Form No. 556 
all ``affiliated small power production QFs using the same energy 
resource within one mile,'' as well as ``all affiliated small power 
production QFs using the same energy resource whose nearest electrical 
generating equipment is less than 10 miles from the electrical 
generating equipment of the entity seeking small power production QF 
status.\535\ Public Interest Organizations note that multiple 
commenters argued that this proposal would impose a significant 
burden,\536\ and that the burden is substantial.\537\ Public Interest 
Organizations contend that the basis for the Commission's estimate that 
the final rule would impose 62 hours of administrative work on every 
small power production facility over 1 MW with affiliated facilities 
between one and 10 miles away is not clear.\538\ Public Interest 
Organizations note that Solar Energy Industries extensively raised and 
documented the expected regulatory burden of the new rule, and refer to 
Solar Energy Industries' estimate that the new rule would require an 
additional 90 to 120 hours per year to comply.\539\
---------------------------------------------------------------------------

    \534\ Public Interest Organizations Request for Rehearing at 
116.
    \535\ Id.
    \536\ Id. (citing Order No. 872, 172 FERC ] 61,041 at PP 485, 
539-42, 577-83).
    \537\ Id. at 127-29.
    \538\ Id. at 117 (citing Order No. 872, 172 FERC ] 61,041 at P 
587).
    \539\ Id. at 129 (citing Solar Energy Industries Comments, 
Docket No. RM19-15-000, at 52 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    292. Public Interest Organizations assert that the Commission's 
explanation for establishing its new protest procedure is unreasonable 
and unsupported by the record.\540\ Public Interest Organizations note 
that the new procedures make it far easier and more likely that an 
interested party will challenge certification. Both Public Interest 
Organizations and Solar Energy Industries contend that there is no need 
for this new procedure because any interested person could file a 
petition for declaratory order challenging certification.\541\ Public 
Interest Organizations and Solar Energy Industries claim that, if 
petitions for declaratory orders have been standing in for protests 
until now, they should be able to continue to do so without increasing 
the regulatory burden on small power production facilities by adding a 
protest option.\542\ Solar Energy Industries add that, while the 
current $30,000 \543\ filing fee for petitions for declaratory order is 
substantial, it is not nearly as substantial as the increased legal 
fees that QFs will now have to bear to seek and defend 
certification.\544\
---------------------------------------------------------------------------

    \540\ Id. at 122.
    \541\ Id. at 122-23; Solar Energy Industries Request for 
Rehearing and/or Clarification at 28.
    \542\ Public Interest Organizations Request for Rehearing at 
123.
    \543\ We note that the current filing fee for a petition for 
declaratory order is $30,060.
    \544\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 28.
---------------------------------------------------------------------------

    293. Public Interest Organizations assert that the Commission's new 
same site determination is contrary to the congressional intent of 
PURPA because it will discourage small power production 
facilities.\545\ Public Interest Organizations argue that the 
litigation risk created by the possibility that various interested 
parties will protest the facility owners' certifications throughout the 
life of the project any time there is a change in circumstance will 
effectively establish a 10-mile exclusion zone for a developer around 
each small power production facility.\546\
---------------------------------------------------------------------------

    \545\ Public Interest Organizations Request for Rehearing at 
106.
    \546\ Id. at 107, 112.
---------------------------------------------------------------------------

    294. Solar Energy Industries claim that the rebuttable presumption 
process and procedure will discourage investment in QFs because it 
brings a substantially increased litigation risk in each certification 
and recertification.\547\ Solar Energy Industries argue that Congress 
did not give the Commission authority to undertake a detailed case-
specific review to determine if the facility meets the maximum size 
requirements set forth in the statute.\548\ Solar Energy Industries 
assert that, by authorizing the Commission to determine whether 
facilities are considered to be located at ``the same site,'' Congress 
did not intend for the Commission to promulgate regulations that would 
stymie the development of QFs by discouraging potential financiers, 
investors, and owners from backing such resources.\549\
---------------------------------------------------------------------------

    \547\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 33.
    \548\ Id.
    \549\ Id. at 26.
---------------------------------------------------------------------------

    295. Northwest Coalition asserts that the application of the final 
rule's same site determination to existing facilities is arbitrary, 
capricious, and not in accordance with law.\550\ Northwest Coalition 
argues that the Commission erred by failing to exempt existing 
facilities from applicability of the new same site determination for 
determining eligibility as a small power production facility.\551\ 
Northwest Coalition contends that the Commission arbitrarily applied 
the new rule to any existing facility that makes any substantive change 
to its certification documents with the Commission, causing owners of 
facilities financed and constructed in reliance on the former one-mile 
rule now to face the risk of decertification almost any time a non-
ministerial change is made, including sale of a relatively minor stake 
in ownership of the facility.\552\
---------------------------------------------------------------------------

    \550\ Northwest Coalition Request for Rehearing at 6.
    \551\ Id. at 53.
    \552\ Id. at 53-55; see also Public Interest Organizations 
Request for Rehearing at 132.
---------------------------------------------------------------------------

    296. Northwest Coalition argues that the new rule decreases the 
marketability of such facilities and upsets investment-backed 
expectations of their owners, who often invest in a portfolio of 
resources with the expectation that it can eventually be sold to 
another owner.\553\ Northwest Coalition argues that the new rule will 
effectively bar the transfer or sale of existing assets that were 
lawfully qualified under the one-mile rule but cannot qualify under the 
new same site determination because they consist of more than 80 MW of 
aggregate capacity within 10 miles.\554\ It asserts that this new 
precedent of the Commission upsetting settled

[[Page 86699]]

expectations undermines the predictability needed for long-term 
investments in generation assets.\555\
---------------------------------------------------------------------------

    \553\ Northwest Coalition Request for Rehearing at 55.
    \554\ Id. at 55.
    \555\ Id. at 55.
---------------------------------------------------------------------------

    297. Public Interest Organizations argue that the final rule could 
lock in old technology because owners of existing facilities will have 
an enormous incentive to avoid making changes to their facility to 
avoid needing to recertify.\556\ Public Interest Organizations add that 
the final rule discourages development of new small power production 
facilities within 10 miles of existing facilities because the new 
facilities could potentially trigger revocation of certification for 
one or more existing facilities.\557\
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    \556\ Public Interest Organizations Request for Rehearing at 
115.
    \557\ Id.
---------------------------------------------------------------------------

    298. Northwest Coalition and Public Interest Organizations note 
that, since 1980, facilities located more than one mile apart enjoyed 
certainty that the rules would not result in them being located at the 
same site.\558\ Public Interest Organizations argue that the Commission 
arbitrarily and unlawfully ignored serious reliance interests because 
the Commission did not fully consider it or failed to provide a ``more 
detailed justification'' for its decision to not respect acknowledged, 
settled expectations in all cases, despite commenters' lengthy 
discussion of reliance interest.\559\
---------------------------------------------------------------------------

    \558\ Northwest Coalition Request for Rehearing at 53; Public 
Interest Organizations Request for Rehearing at 132.
    \559\ Public Interest Organizations Request for Rehearing at 133 
(citing FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009)).
---------------------------------------------------------------------------

    299. Public Interest Organizations assert that the Commission's 
decision not to grant more extensive legacy treatment for existing 
facilities whose owners have reasonably relied on the longstanding one-
mile rule sets a precedent of dramatic regulatory uncertainty that will 
have a chilling effect on the market.\560\ Public Interest 
Organizations contend that, going forward, entrepreneurs will question 
whether the Commission will further change the regulatory structure, 
despite longstanding precedent and reliance interests.\561\
---------------------------------------------------------------------------

    \560\ Id. at 115.
    \561\ Id.
---------------------------------------------------------------------------

    300. Northwest Coalition claims that, the Administrative Procedures 
Act (APA), pursuant to which the Commission acted, does not authorize 
retroactive rules; however, the new rebuttable presumption will have 
the retroactive effect of applying to existing facilities seeking 
recertification.\562\ Northwest Coalition asserts that the failure to 
exempt existing facilities is a significant change from the 
Commission's past practice of applying new certification criteria only 
to new facilities, not existing facilities seeking 
recertification.\563\ Northwest Coalition notes that, when the 
Commission revised section 292.205(d) of its regulations regarding the 
new operation and efficiency certification criteria required by the 
Energy Policy Act of 2005 (EPAct 2005) for cogeneration facilities, 
those new criteria applied only to ``any cogeneration facility that was 
either not a qualifying cogeneration facility on or before August 8, 
2005, or that had not filed a notice of self-certification or an 
application for Commission certification as a qualifying cogeneration 
facility under [18 CFR] 292.207 of this chapter prior to February 2, 
2006. . . .'' \564\ Northwest Coalition further notes that the 
Commission clarified ``that there is a rebuttable presumption that an 
existing QF does not become a `new cogeneration facility' for purposes 
of the requirements of newly added section 210(n) of PURPA merely 
because it files for recertification.'' \565\ Northwest Coalition also 
points out that, in Order No. 671, the Commission found that only 
changes to the facility that lead it to be a whole new facility, ``such 
as an increase in capacity from 50 MW to 350 MW,'' could trigger the 
applicability of the new qualification criteria.\566\
---------------------------------------------------------------------------

    \562\ Northwest Coalition Request for Rehearing at 55 (citing 
Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208-09 (1988)).
    \563\ Id.
    \564\ Id. at 55-56 (citing 18 CFR 292.205(d)).
    \565\ Id. at 56 (citing Order No. 671, 114 FERC ] 61,102 at P 
115).
    \566\ Id. (citing Order No. 671, 114 FERC ] 61,102 at P 115).
---------------------------------------------------------------------------

    301. Northwest Coalition argues that the Commission did not respond 
to the precedent on this issue that NIPPC, CREA, REC, and Solar Energy 
Industries provided in their NOPR comments.\567\ Northwest Coalition 
asserts that the Commission's failure to respond to legitimate 
objections renders its decision arbitrary and capricious.\568\
---------------------------------------------------------------------------

    \567\ Id. (citing NIPPC, CREA, REC, and OSEIA Comments, Docket 
No. RM19-15-000, at 76 (Dec. 3, 2019)).
    \568\ Id. (citing PPL Wallingford, 419 F.3d at 1198).
---------------------------------------------------------------------------

    302. Public Interest Organizations state that several commenters 
provided data, maps, and information to show that the application of 
the new ``[10]-mile rule'' to existing projects has potentially 
widespread implications for states with significant QF 
development.\569\ For example, Public Interest Organizations point out 
Southeast Public Interest Organizations' comment that the change to the 
one-mile rule would have implications for nearly every existing QF in 
North Carolina and map that shows that facilities in compliance with 
the original one-mile rule are within 10 miles from other QFs and could 
trigger the new rule on recertification.\570\
---------------------------------------------------------------------------

    \569\ Public Interest Organizations Request for Rehearing at 130 
(citing Southeast Public Interest Organizations Comments, Docket No. 
RM19-15-000, at 29-33 (Dec. 3, 2019); SC Solar Alliance Comments, 
Docket No. RM19-15-000, at 18 (Dec. 3, 2019); North Carolina DOJ 
Comments, Docket No. RM19-15-000, at 8 (Dec. 3, 2019)).
    \570\ Id. at 130-31 (citing Southeast Public Interest 
Organizations Comments, Docket No. RM19-15-000, at 31 (Dec. 3, 
2019)).
---------------------------------------------------------------------------

    303. Public Interest Organizations complain that, although the 
Commission responded to these concerns by limiting protests to 
recertifications to instances in which a substantive change is made to 
an existing certification, it provided no further explanation or 
rationale as to how the ``substantive change'' limitation would 
specifically address the concerns raised.\571\ Public Interest 
Organizations add that the Commission failed to consider the valid 
concerns because the term ``substantive changes'' is vague and 
undefined and is unlikely to meaningfully limit protests.\572\
---------------------------------------------------------------------------

    \571\ Id. at 131.
    \572\ Id. at 131-32.
---------------------------------------------------------------------------

    304. Solar Energy Industries argue that, if the Commission does not 
grant rehearing of the ``10-mile rule,'' then the Commission must 
establish a grandfathering provision for facilities that are already 
installed.\573\ Solar Energy Industries ask the Commission to clarify 
that all existing facilities will retain their QF status unless a 
recertification filing is made that changes the maximum net output or 
qualifying technologies of the QF.\574\ Solar Energy Industries assert 
that, unless there is a change in the output of the facilities or 
another change in circumstance that has economic consequences to the 
utility-purchaser, then the facility's status should be beyond 
challenge.\575\ Solar Energy Industries contend that failing to offer 
grandfathering to existing facilities is arbitrary, capricious, 
inconsistent with Commission precedent that preserves contractual 
expectations between parties in the event of regulatory

[[Page 86700]]

change, and does not encourage QFs as the statute requires.\576\
---------------------------------------------------------------------------

    \573\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 34.
    \574\ Id. at 35.
    \575\ Id.
    \576\ Id.
---------------------------------------------------------------------------

    305. Solar Energy Industries state that, if the Commission does not 
grant rehearing and grandfather existing facilities, then they seek 
clarification that challenges to recertification filings can only be 
brought ``in circumstance that has economic consequences to the 
utility-purchaser and its ratepayers.'' \577\ Solar Energy Industries 
argue that, by limiting challenges to existing facilities to situations 
where there is a change in output of the facilities or other change in 
circumstances that has economic consequences to the utility-purchaser 
and its ratepayers, the final rule will more closely align with the 
direction of the statute.\578\
---------------------------------------------------------------------------

    \577\ Id. (citing Zond-PanAero Windsystem Partners I, 76 FERC ] 
61,137 (1996)).
    \578\ Id. at 36.
---------------------------------------------------------------------------

2. Commission Determination
    306. As explained in the final rule (and also above), the record 
shows that large facilities were disaggregating into smaller facilities 
and spacing themselves at a distance sufficient to be able to qualify 
as QFs. PURPA provides advantages for small power production 
facilities, and the final rule, consistent with the statute, limits 
those advantages to small power production facilities. To that end, the 
purpose of the new rules regarding the same site determination is to 
ensure compliance with PURPA.
    307. We disagree with Solar Energy Industries' arguments that the 
``[10]-mile rule'' adds unnecessary regulatory burdens, making the 
self-certification process no longer ``quick and not unduly 
burdensome.'' The changes to the one-mile rule and the corresponding 
changes to the Form No. 556 are necessary to provide the Commission the 
information it needs to determine whether a facility qualifies to be a 
QF, consistent with the standards laid out in the statute. In 
particular, the new requirement to list affiliated small power 
production QFs using the same energy resource whose nearest electrical 
generating equipment is less than 10 miles from the electrical 
generating equipment of the entity seeking small power production QF 
status, both on initial certification and recertification, is needed to 
assess whether the applicant facility and other affiliated facilities 
using the same energy resource are located at the same site and 
ultimately whether they meet the statutory 80 MW limit. Moreover, the 
requirement is to list affiliated small power production QFs; thus, 
only facilities with affiliates will be affected by this information 
requirement--single, unaffiliated QFs will face no additional burden. 
Similarly, for QF applicants with few affiliated facilities less than 
10 miles from the applicant facility, this listing requirement should 
be only minimally burdensome. The requirement to list affiliates less 
than 10 miles from the applicant facility would likely require more 
time when a project owner owns many QFs less than 10 miles from the 
applicant facility, which will likely be a larger, more sophisticated 
QF developer that has resources to prepare the form. Even then, it is a 
necessary burden in order to ensure compliance with PURPA.
    308. Additionally, in response to Solar Energy Industries' argument 
that the final rule adds unnecessary regulatory burden ``on QFs,'' 
\579\ the final rule was responsive to comments on the burden of the 
proposed rule and, as an example of the Commission taking care to 
ascertain that the rules are not unduly burdensome, specifically 
lessened the burden on rooftop solar PV developers.\580\
---------------------------------------------------------------------------

    \579\ Solar Energy Industries Comments, Docket No. RM19-15-000, 
at 51 (Dec. 3, 2019).
    \580\ See Order No. 872, 172 FERC ] 61,041 at P 560.
---------------------------------------------------------------------------

    309. However, in light of Public Interest Organizations' and Solar 
Energy Industries' renewed assertion that the regulatory burden on QFs 
is substantial,\581\ we modify and clarify our requirements regarding 
the identification of affiliated small power production QFs, in order 
to further ensure that the regulatory burden on small power production 
facilities is within reasonable limits. The new Form No. 556, as 
revised by the final rule, requires that a facility filing a 
certification or recertification after the effective date of the final 
rule identify, in item 8a of the Form No. 556, any affiliated small 
power production QFs that use the same energy resource and are located 
less than 10 miles from the electrical generating equipment of the 
applicant facility, by including in the Form No. 556 each affiliated 
facility's: (1) Location, including geographic coordinates; (2) root 
docket number, if any; (3) maximum net power production capacity; and 
(4) common owners. Section 292.207(d) of the Commission's regulations, 
which the final rule renumbered to 18 CFR 292.207(f), states that if a 
QF fails to conform with any material facts or representations 
presented in the certification the QF status of the facility may no 
longer be relied upon.\582\
---------------------------------------------------------------------------

    \581\ Public Interest Organizations Request for Rehearing at 
127-29; see Solar Energy Industries Request for Rehearing and/or 
Clarification at 34.
    \582\ 18 CFR 292.207(d), which the final rule renumbered to 18 
CFR 292.207(f).
---------------------------------------------------------------------------

    310. As a result, when any of a small power production QF's 
affiliated facilities less than 10 miles away changes any of the items 
listed above, the final rule would require a small power production QF 
to recertify its own Form No. 556 to reflect its affiliated facility's 
updated information. This represents an expansion from the requirement 
prior to the final rule that a small power production QF reflect the 
updated information of its affiliated small power production facilities 
one mile or less away.\583\ Moreover, in order to maintain an up-to-
date Form No. 556 and recertify with the correct affiliated facility 
information, under the final rule a small power production QF would 
need to monitor continually all of its affiliated small power 
production QFs that are less than 10 miles away for changes. This also 
is an expansion from the requirement, prior to the final rule, that a 
small power production QF monitor its affiliated small power production 
QFs one mile or less away for changes.\584\ We conclude that it may be 
overly burdensome that a small power production QF monitor continually 
all of its affiliated facilities less than 10 miles away for changes, 
and that the small power production QF recertify its own facility 
whenever an affiliated small power production QF less than 10 miles 
away changes.
---------------------------------------------------------------------------

    \583\ Item 8a of the Form No. 556 effective prior to the final 
rule required an applicant to ``[i]dentify any facilities with 
electrical generating equipment located within 1 mile of the 
electrical generating equipment of the instant facility . . .'' 
Section 292.207(d) of the Commission's regulations, which the final 
rule renumbered to 18 CFR 292.207(f), states that if a QF fails to 
conform with any material facts or representations presented in the 
certification the QF status of the facility may no longer be relied 
upon. While the requirement, prior to the final rule, that a small 
power production QF update its Form No. 556 with the updated 
information of its affiliated small power production facilities one 
mile or less away, is not explicit, we believe that this requirement 
is the logical result of the intersection of the above.
    \584\ See supra note 583.
---------------------------------------------------------------------------

    311. We therefore modify the final rule to state that a small power 
production QF evaluating whether it needs to recertify does not need to 
recertify due to a change in the information it has previously reported 
regarding its affiliated small power production QFs that are more than 
one mile but less than 10 miles from its electrical generating 
equipment, including adding or removing an affiliated small power 
production QF more than one mile but less than 10 miles away, or if an 
affiliated small

[[Page 86701]]

power production QF more than one mile but less than 10 miles away and 
previously reported in item 8a makes a modification, unless that change 
also impacts any other entries on the evaluating small power production 
QF's Form No. 556.
    312. We will continue to require that a small power production QF, 
as it was prior to the final rule, recertify its Form No. 556 to update 
item 8a due to a change at any of its affiliated small power production 
facilities that use the same energy resource and are located one mile 
or less from its electrical generating equipment.\585\ We will also 
still require that a small power production QF recertify due to a 
change in material fact or representation to its own facility.
---------------------------------------------------------------------------

    \585\ See supra note 583.
---------------------------------------------------------------------------

    313. At such time as the small power production QF makes a 
recertification due to a change in material fact or representation to 
its own facility or at any of its affiliated small power production 
facilities that use the same energy resource and are located one mile 
or less from its electrical generating equipment, we will require that 
the small power production QF update item 8a for all of its affiliated 
small power production QFs within 10 miles, including adding or 
deleting affiliated small power production QFs, and recording changes 
to previously listed small power production QFs, so that the 
information in its Form No. 556 is complete, accurate, and up-to-
date.\586\
---------------------------------------------------------------------------

    \586\ If a small power production QF that was certified prior to 
the effective date of this final rule is required to recertify due 
to a material change to its own facility, then at that time it will 
be required to identify affiliates less than 10 miles from the 
applicant facility.
---------------------------------------------------------------------------

    314. We believe that this modification reduces the burden on small 
power production QFs because they will not be required to continually 
monitor their affiliated small power production QFs more than one mile 
but less than 10 miles away for changes, nor will we require a small 
power production QF that is evaluating whether it must recertify its 
facility to recertify to update item 8a due to a change at its 
affiliated small power production facilities more than one mile but 
less than 10 miles from the evaluating facility's electrical generating 
equipment.\587\ However, the affiliated QF of that evaluating small 
power production QF will need to recertify if the affiliated QF makes a 
material change to its information in its Form No. 556. In providing 
this modification, we reiterate that the rule providing for a 
rebuttable presumption for affiliated small power production QFs 
located more than one but less than 10 miles apart is necessary to 
address allegations of improper circumvention of the one-mile rule that 
had been presented to the Commission.\588\ We emphasize that 
identifying affiliated facilities, and updating affiliated facility 
information, are necessary for the Commission to assess whether small 
power production facilities located more than one but less than 10 
miles apart should be considered to be at the same site. However, we 
note that for affiliated small powder production QFs more than one mile 
but less than 10 miles apart, the presumption is that they are at 
separate sites. Therefore, we modify the recertification requirement as 
to a small power production QF's affiliated small power production QFs 
more than one mile but less than 10 miles away, because we believe this 
modification strikes an appropriate balance between the need to address 
improper circumvention and the need to avoid unduly burdening small 
power production QFs consistent with the presumption that QFs more than 
one mile but less than 10 miles apart are located at separate sites.
---------------------------------------------------------------------------

    \587\ We note that we are maintaining the final rule's 
alternative option for rooftop solar PV developers to file their 
recertification applications. See Order No. 872, 172 FERC ] 61,041 
at P 560.
    \588\ Id. P 495.
---------------------------------------------------------------------------

    315. We note that, when a small power production QF makes a 
material change to its own facility, or when any of its affiliated 
small power production facilities that use the same energy resource and 
are one mile or less from of its electrical generating equipment makes 
a material change, it needs to recertify, at which point it would also 
be required to update item 8a for all of its affiliated small power 
production QFs within 10 miles. If any of the changes made are 
substantive, including substantive changes at any of its affiliates 
less than 10 miles away, the recertification will be subject to 
protests.\589\
---------------------------------------------------------------------------

    \589\ Id. P 550.
---------------------------------------------------------------------------

    316. In response to Public Interest Organizations' concerns that 
existing facilities will lose their certification any time they make a 
change requiring a recertification, we note that protests may only be 
made to recertification making substantive changes, and if a 
substantive change is made, both the entity filing the QF certification 
and any protesters will be allowed to present evidence supporting their 
respective positions. The Commission will examine any such evidence 
presented on a case-by-case basis to determine whether the facility in 
question does not actually meet the qualifications for QF status under 
PURPA. For a same site determination, the Commission will examine the 
relevant factors as discussed above. The Commission will decertify only 
if, after a review of the evidence, the Commission determines that the 
facility in question should be considered at the same site with 
affiliated facilities and their combined power production capacity 
exceeds 80 MW. The Commission's decision will be based on the evidence 
of whether the entity continues to comply with PURPA.
    317. In response to Public Interest Organizations' assertion that 
several commenters provided data, maps, and information showing that 
the application of the new ``[10]-mile rule'' to existing projects has 
potentially widespread implications for states with significant QF 
development \590\ and argument that litigation risk will effectively 
establish a 10-mile exclusion zone for a developer around each small 
power production facility,\591\ we note that the Commission anticipated 
that most protests filed pursuant to the new 18 CFR 292.207(a) will 
relate to the new more-than-one-but-less-than-10-miles rebuttable 
presumption.\592\ If two facilities are not owned by the same person(s) 
or its affiliates, then the facilities are definitionally not located 
at the same site.\593\ Thus, protests cannot assert that two facilities 
are at the same site, unless those facilities are affiliates using the 
same energy resource (and more than one mile but less than 10 miles 
apart). Conversely only entities that have affiliates will be subject 
to protests regarding the same site determination. Single, unaffiliated 
facilities will not be subject to protests on the new same site 
determination.\594\ Furthermore, facilities with nearby affiliates 
whose combined capacity does not exceed 80 MW also will not be 
decertified because of the new same site determination. The only 
facilities that will have concerns under the new same site 
determination are those that are affiliated with other facilities using 
the same energy resource, are relatively near each other, have a total 
combined capacity with such affiliated facilities exceeding 80 MW, and 
are considered at

[[Page 86702]]

the same site by the Commission after a consideration of the evidence.
---------------------------------------------------------------------------

    \590\ Public Interest Organizations Request for Rehearing at 130 
(citing Southeast Public Interest Organizations Comments, Docket No. 
RM19-15-000, at 29-33 (Dec. 3, 2019); SC Solar Alliance Comments, 
Docket No. RM19-15-000, at 18 (Dec. 3, 2019); North Carolina DOJ 
Comments, Docket No. RM19-15-000, at 8 (Dec. 3, 2019)).
    \591\ Id. at 107, 112.
    \592\ Order No. 872, 172 FERC ] 61,041 at P 533 & n.877.
    \593\ Id. P 286 n.797.
    \594\ See id. P 553.
---------------------------------------------------------------------------

    318. Therefore, assertions that existing QFs risk decertification 
almost any time they recertify and that the new rule decreases 
marketability or discourages QF development are overstated. To the 
extent that the new same site determination decertifies particular QFs, 
decreases their marketability, or discourages their development, it 
only does so because such entities do not comply with PURPA. To the 
extent that large facilities disaggregated in order to qualify as small 
power production facilities, or strategically built facilities just 
over one mile apart, in reliance on the old one-mile rule, we note that 
rules can and do change. In fact, Congress specifically directed the 
Commission to revise its PURPA rules from time to time.\595\ Moreover, 
we note that the new regulations do not apply to an existing facility 
unless and until it makes substantive changes. When the existing QF 
makes a substantive change, it is no longer the same facility it was 
before, and it is only then that the new regulations should apply. 
Additionally, we note that the facilities more than one but less than 
10 miles from affiliated facilities continue to enjoy the presumption 
that they are at separate sites; only now the presumption is 
rebuttable.
---------------------------------------------------------------------------

    \595\ See 16 U.S.C. 824a-3(a).
---------------------------------------------------------------------------

    319. The Commission provided examples of factors it may consider 
when determining whether affiliated facilities using the same resource 
and more than one mile but less than 10 miles apart should be 
considered to be at the same site, and stated that it will make a case-
by-case determination on whether such facilities are indeed at the same 
site.\596\ In response to Solar Energy Industries' argument that 
Congress did not give the Commission authority to undertake a detailed 
case-specific review, we find that Congress delegated to the Commission 
the authority to determine the ``same site'' and did not limit the way 
in which the Commission can do so, nor did Congress specify that the 
Commission cannot conduct a case-by-case analysis.\597\
---------------------------------------------------------------------------

    \596\ Order No. 872, 172 FERC ] 61,041 at P 511.
    \597\ 16 U.S.C. 796(17)(A).
---------------------------------------------------------------------------

    320. Regarding Public Interest Organizations and Solar Energy 
Industries' arguments that there is no need for the new protest 
procedure because any interested person could file a petition for 
declaratory order to challenge a certification, we further explain the 
rationale for implementing the new protest structure. First, allowing 
protests will bring the certification process more in line with other 
Commission procedures, where protests to filings do not require a 
petition for a declaratory order and associated filing fee. Second, 
while self-certifications themselves are free, prior to the final rule, 
the only way to protest a self-certification was via paying the fee for 
a declaratory order, which today is $30,060. Consequently, it was 
possible for a facility owner to file multiple certifications with 
minor changes effectively shutting out a protester who could not afford 
to repeatedly pay the declaratory order fee for every QF submission. 
Allowing protests equalizes the opportunity for both facility owners 
and opponents to weigh in on the certification of a facility as a 
QF.\598\
---------------------------------------------------------------------------

    \598\ The Commission notes that if the Commission issues an 
order in response to a self-certification that is protested, or in 
response to an application for Commission certification, the order 
issued by the Commission will continue to be a declaratory order 
which determines whether or not a project, as described by the 
applicant and protester, meets the technical and ownership standards 
for QFs, and serves only to establish eligibility for benefits of 
PURPA.
---------------------------------------------------------------------------

    321. While petitioners are correct that purchasing electric 
utilities, competitors, and local project opponents now may file 
protests, we believe that a more robust protest system encourages 
transparency and allows for better oversight by the Commission, as well 
as by states and other stakeholders. To the extent that petitioners 
imply that such entities may file frivolous protests for the purposes 
of delaying or otherwise hindering QF development or certification, the 
Commission has limited protests to within 30 days of the date of the 
filing of an initial certification or of a recertification making a 
substantive change.\599\ For a facility that meets the standards to 
qualify as a QF, the only effect is the potential for an exchange of 
filings immediately after the certification is filed and some limited 
uncertainty while awaiting the Commission's decision. Additionally, we 
note that quite often QF developers file for certification even before 
construction of the facility has commenced; in such a case, the 
potential for some limited uncertainty during the exchange of filings 
will have minimal impact. The Commission also has determined that self-
certifications will be effective upon filing and will remain effective 
after a protest has been filed, until such time as the Commission 
issues an order revoking the certification.\600\
---------------------------------------------------------------------------

    \599\ Order No. 872, 172 FERC ] 61,041 at P 554.
    \600\ Id. P 527.
---------------------------------------------------------------------------

    322. In response to Public Interest Organizations' argument that 
the final rule does the opposite of exempting QFs from the FPA, PUHCA, 
and state laws and regulations, the Commission is not removing or 
amending the exemptions provided by the regulations implementing PURPA 
section 210(e).\601\
---------------------------------------------------------------------------

    \601\ Id. P 514.
---------------------------------------------------------------------------

    323. We also disagree with Public Interest Organizations' arguments 
that ``substantive change'' is vague and does not limit challenges. In 
the final rule, the Commission explained that ``substantive changes 
that may be subject to a protest may include, for example, a change in 
electrical generating equipment that increases power production 
capacity by the greater of 1 MW or 5 percent of the previously 
certified capacity of the QF, or a change in ownership in which an 
owner increases its equity interest by at least 10% from the equity 
interest previously reported.'' \602\ The Commission provided examples 
of what it may consider to be a substantive change because it intends 
to make a case-by-case determination. The Commission will be able to 
reject a protest to a recertification that the Commission does not 
believe rises to the level of a substantive change.
---------------------------------------------------------------------------

    \602\ Id. P 550.
---------------------------------------------------------------------------

    324. Regarding Northwest Coalition's argument that the APA does not 
authorize retroactive rules, we disagree with Northwest Coalition's 
premise that the new rebuttable presumption for affiliated facilities 
more than one mile but less than 10 miles apart will have retroactive 
effect when applied to existing facilities seeking recertification. The 
new regulations do not apply to an existing facility unless and until 
it must recertify because of changes to the material facts and 
representations at its facility or that of an affiliated facility one 
mile or less away. When the existing QF makes a change to the material 
facts and circumstances of its certification, it very well may no 
longer be the same facility it was when originally certified. Due to 
the change in material facts, the new regulations should apply. Thus, 
the rule is prospective, and applied only if and when new facts have 
prompted a recertification.\603\
---------------------------------------------------------------------------

    \603\ Furthermore, no commenter has explained how and why 
applying the new rules to new recertifications make them retroactive 
rules.
---------------------------------------------------------------------------

    325. Northwest Coalition argues that the Commission's past practice 
in developing new certification criteria is to apply the new criteria 
only to new facilities, not existing facilities seeking

[[Page 86703]]

recertification.\604\ We disagree. Northwest Coalition relies on 
Commission Order No. 671, which implemented section 210(n) following 
EPAct 2005. However, Northwest Coalition overlooks that section 210(n) 
of PURPA required the Commission to issue a rule revising the criteria 
for new cogeneration facilities, and therefore the Commission in Order 
No. 671 focused on defining what is a new facility.\605\ In contrast, 
here the Commission was not implementing 210(n) and therefore was not 
revising the criteria solely for new facilities.
---------------------------------------------------------------------------

    \604\ Northwest Coalition Request for Rehearing at 55.
    \605\ 16 U.S.C. 824a-3(n).
---------------------------------------------------------------------------

    326. For the foregoing reasons, we decline to establish further 
legacy treatment for existing facilities, as requested. Existing QFs 
that seek to recertify due to substantive changes will be subject to 
protests. The Commission can determine, on a case-by-case basis, 
whether the evidence presented represents a substantive change or 
whether the change is non-substantive and thus not subject to protests, 
in which case the Commission will dismiss any protests submitted. We 
decline to specify, as Solar Energy Industries request, that only 
changes to the maximum net output or the qualifying technology, or in 
circumstances that have economic consequences to the utility-purchaser 
and its ratepayers, will make an existing QF's recertification subject 
to challenge. We likewise disagree with Solar Energy Industries' 
contention that failing to offer grandfathering to existing facilities 
is arbitrary, capricious, and inconsistent with Commission precedent. 
We continue to believe that conducting a case-by-case analysis is the 
best way to determine whether the change that prompted recertification 
is substantive, will avoid arbitrary outcomes, and is necessary to 
comply with the intent of PURPA to provide advantages only to small 
power production facilities.

E. Corresponding Changes to the FERC Form No. 556

    327. In the final rule, the Commission adopted the NOPR proposals 
regarding changes to the Form No. 556, with some further clarifications 
and additions. The Commission found that the added information 
collected through these changes was necessary to implement the changes 
made to the regulations in the final rule and thus justified the 
increase in reporting burden.\606\
---------------------------------------------------------------------------

    \606\ See Order No. 872, 172 FERC ] 61,041 at P 584.
---------------------------------------------------------------------------

    328. The final rule revised the ``Who Must File'' section to 
include a ``Recertification'' section which provides the text of 
revised 18 CFR 292.207(f) (previously 18 CFR 292.207(d)), which states 
that a QF must file for recertification whenever the QF ``fails to 
conform with any material facts or representations presented . . . in 
its submittals to the Commission.'' \607\ The Commission stated that 
this addition does not alter our recertification requirements, and the 
Commission included it on the Form No. 556 simply to make the Form No. 
556 clearer in its application.\608\
---------------------------------------------------------------------------

    \607\ 18 CFR 292.207(d), which the final rule renumbered to 
292.207(f).
    \608\ Order No. 872, 172 FERC ] 61,041 at P 586.
---------------------------------------------------------------------------

    329. The Commission stated that the total burden estimates in the 
``Paperwork Reduction Act Notice'' section of Form No. 556 would be 
updated based on the changes in the final rule, to provide the 
following estimates: 1.5 hours for self-certifications of facilities of 
1 MW or less; 1.5 hours for self-certifications of a cogeneration 
facility over 1 MW; 50 hours for applications for Commission 
certification of a cogeneration facility; 3.5 hours for self-
certifications of small power producers over 1 MW and less than a mile 
or more than 10 miles from affiliated small power production QFs that 
use the same energy resource; 56 hours for an application for 
Commission certification of a small power production facility over 1 MW 
and less than a mile or more than 10 miles from affiliated small power 
production QFs that use the same energy resource; 9.5 hours for self-
certifications of small power producers over 1 MW with affiliated small 
power production QFs more than one but less than 10 miles that use the 
same energy resource; 62 hours for an application for Commission 
certification of a small power production facility over 1 MW with 
affiliated small power production QFs more than one but less than 10 
miles that use the same energy resource.\609\
---------------------------------------------------------------------------

    \609\ See Order No. 872, 172 FERC ] 61,041 at P 587.
---------------------------------------------------------------------------

1. Requests for Rehearing
    330. Public Interest Organizations state that the final rule would 
impose 62 hours of administrative work on every small power production 
facility over 1 MW with affiliated facilities between one and 10 miles 
away and the basis for this calculation is not clear.\610\
---------------------------------------------------------------------------

    \610\ Public Interest Organizations Request for Rehearing at 117 
(citing Order No. 872, 172 FERC ] 61,041 at P 587).
---------------------------------------------------------------------------

2. Commission Determination
    331. Public Interest Organizations misread the final rule on this 
point. The final rule provided a total burden estimate of 9.5 hours for 
self-certifications of small power producers over 1 MW with affiliated 
small power production QFs more than one but less than 10 miles apart 
that use the same energy resource, but 62 hours for an application for 
Commission certification of a small power production facility over 1 MW 
with affiliated small power production QFs more than one but less than 
10 miles that use the same energy resource.\611\ The estimate is not 
that every small power production facility over 1 MW with affiliated 
facilities between one and 10 miles away will have a total burden of 62 
hours, but only those who chose to apply for Commission certification 
(as opposed to use the self-certification process). For those who self-
certify, the burden estimate is 9.5 hours.
---------------------------------------------------------------------------

    \611\ See Order No. 872, 172 FERC ] 61,041 at P 587. The 
majority of QFs choose the less burdensome option to self-certify 
pursuant to 18 CFR 292.207(a), by filing a Form No. 556. An 
application for Commission certification pursuant to 18 CFR 
292.207(b) also requires filing the Form No. 556, but applicants for 
Commission certification typically additionally prepare a written 
petition arguing why the Commission should grant QF status.
---------------------------------------------------------------------------

    332. In response to Public Interest Organizations' assertion that 
the basis for the calculation is not clear, below we explain the 
calculation. Prior to the final rule, ``[t]he estimated burden for 
completing the Form No. 556, including gathering and reporting 
information, [was] as follows: 1.5 hours for self-certification of a 
small power production facility . . . 50 hours for an application for 
Commission certification of a small power production facility. . . .'' 
\612\ The Information Collection Section of the final rule showed 
changes due to the final rule and estimated an additional 8 hours for 
the category ``self-certifications'' and 12 hours for the category 
``applications for Commission certification'' of small power production 
facilities greater than 1 MW that are more than one but less than 10 
miles from affiliated small power production QFs. Therefore, the total 
burden estimate as provided in the final rule is as follows: 1.5 hours 
plus 8 hours for a total of 9.5 hours for self-certifications and 50 
hours plus 12 hours for a total of 62 hours for applications for 
Commission certification.
---------------------------------------------------------------------------

    \612\ Commission Information Collection Activities (FERC-556); 
Comment Request; Extension, Docket No. IC19-16-000, at 5 (issued May 
15, 2019).
---------------------------------------------------------------------------

    333. In light of the modification to the final rule described in 
section III.D, we

[[Page 86704]]

further modify the ``Recertification'' section in page one of the 
instructions of the Form No. 556, which was added by the final rule. 
The ``Recertification'' section currently reads ``A QF must file a 
recertification whenever the qualifying facility `fails to conform with 
any material facts or representations presented . . . in its submittals 
to the Commission.' 18 CFR 292.207(f).'' To this, we will add ``Among 
other possible changes in material facts that would necessitate 
recertification, a small power production QF is required to recertify 
to update item 8a due to a change at an affiliated facility(ies) one 
mile or less from its electrical generating equipment. A small power 
production QF is not required to recertify due to a change at an 
affiliated facility(ies) listed in item 8a that is more than one mile 
but less than 10 miles away from its electrical generating equipment, 
unless that change also impacts any other entries on the Form 556.''

F. PURPA Section 210(m) Rebuttable Presumption of Nondiscriminatory 
Access to Markets

    334. In the final rule, the Commission acknowledged that, when 
Order Nos. 688 and 688-A were issued, the Commission decided that small 
QFs may not have nondiscriminatory access to markets.\613\ In Order 
Nos. 688 and 688-A, based on factors present at that time, the 
Commission decided to draw the line for small entities at 20 MW.\614\ 
However, as stated in the final rule, energy markets have matured and 
market participants have gained a better understanding of the mechanics 
of such markets.\615\ In the final rule, the Commission stated that, 
since Order Nos. 688 and 688-A, the Commission recognized multiple 
examples of small power production facilities under 20 MW participating 
in RTO/ISO energy markets.\616\ The Commission stated that it had found 
that the electric utilities in those proceedings rebutted the 
presumption of no market access and therefore terminated the mandatory 
purchase obligation.\617\
---------------------------------------------------------------------------

    \613\ Order No. 688, 117 FERC ] 61,078 at P 72; Order No. 688-A, 
119 FERC ] 61,305 at PP 94-96; N. States Power Co., 151 FERC ] 
61,110, at PP 31-36 (2015); PPL Elec. Utilities Corp., 145 FERC ] 
61,053, at PP 21-24 (2013).
    \614\ Order No. 688, 117 FERC ] 61,078 at PP 74, 76; Order No. 
688-A, 119 FERC ] 61,305 at P 103.
    \615\ Order No. 872, 172 FERC ] 61,041 at P 629.
    \616\ Id. P 624.
    \617\ Id. (citing Fitchburg Gas and Elec. Light Co., 146 FERC ] 
61,186, at P 33 (2014); City of Burlington, Vt., 145 FERC ] 61,121, 
at P 33 (2013)).
---------------------------------------------------------------------------

    335. The Commission adopted the proposal to revise 18 CFR 
292.309(d) to update the net power production capacity level at which 
the presumption of nondiscriminatory access to a market attaches for 
small power production facilities, but not for cogeneration facilities. 
After reviewing commenters' concerns, the Commission updated the 
rebuttable presumption from 20 MW to 5 MW, rather than from 20 MW to 1 
MW as originally proposed in the NOPR. The Commission explained that 
small power production facilities with a net power production capacity 
at or below 5 MW will be presumed not to have nondiscriminatory access 
to markets and, conversely, small power production facilities with a 
net power production capacity over 5 MW will be presumed to have 
nondiscriminatory access to markets.
    336. The Commission disagreed with commenters who argued that a 
lack of record evidence existed to support the proposed reduction below 
20 MW. The Commission explained that, in Order Nos. 688 and 688-A, the 
Commission had determined that small QFs may not have nondiscriminatory 
access to wholesale markets and, therefore, it was reasonable to 
establish a presumption for small QFs. The Commission explained that, 
at that time, the Commission had found that it was ``reasonable and 
administratively workable'' to define ``small'' for purposes of this 
regulation to be QFs below 20 MW.\618\ The Commission noted that a 
number of commenters, including state entities which are charged with 
applying PURPA in their jurisdictions, supported revising the 
definition of small QFs eligible for the presumption in reducing the 20 
MW threshold.
---------------------------------------------------------------------------

    \618\ Id. PP 626-29 (citing Order No. 688, 117 FERC ] 61,078 at 
PP 74-78 (establishing rebuttable presumption); Order No. 688-A, 119 
FERC ] 61,305 at P 95 (``There is no perfect bright line that can be 
drawn and we have reasonably exercised our discretion in adopting a 
20 MW or below demarcation for purposes of determining which QFs are 
unlikely to have nondiscriminatory access to markets.'')).
---------------------------------------------------------------------------

    337. The Commission again acknowledged that there is no unique 
number to draw a line for determining what is a small entity.\619\ The 
Commission explained that, in establishing the 20 MW presumption as the 
line between large and small QFs for purposes of section 210(m), the 
Commission had looked at other non-QF rulemaking orders in which it had 
considered what constituted a small entity and those orders showed 20 
MW was a reasonable number at which to draw the line.\620\ The 
Commission explained that it had since determined, based on changed 
circumstances since the issuance of Order Nos. 688 and 688-A, that 
entities with capacity lower than 20 MW have nondiscriminatory access 
to the markets and, therefore, a capacity level of 20 MW may no longer 
be a reasonable place to establish the presumption on what constitutes 
a smaller entity under our regulations.
---------------------------------------------------------------------------

    \619\ Order No. 872, 172 FERC ] 61,041 at P 627 (citing Order 
No. 688-A, 119 FERC ] 61,305 at P 97 (``Although there is no unique 
and distinct megawatt size that uniquely determines if a generator 
is small, in other contexts the Commission has used 20 MW, based on 
similar considerations to those presented here, to determine the 
applicability of its rules and policies.'')).
    \620\ Id. PP 628-29 (citing Order No. 688, 117 FERC ] 61,078 at 
P 76; Order No. 688-A, 119 FERC ] 61,305 at PP 96-97).
---------------------------------------------------------------------------

    338. The Commission explained that it was updating the rebuttable 
presumption based on industry changes since Order No. 688. The 
Commission stated that it was reasonable to update the rebuttable 
presumption as the markets defined in PURPA section 210(m)(1)(A), (B), 
and (C) evolve because the statute itself does not establish a 
presumption and the statue requires the Commission to update the rules 
from time to time to ensure it complies with PURPA.
    339. The Commission explained that, over the last 15 years, the 
RTO/ISO markets have matured and market participants have gained a 
better understanding of the mechanics of such markets. As a result, the 
Commission found that it is reasonable to presume that access to the 
RTO/ISO markets has improved and that it is appropriate to update the 
presumption for smaller production facilities. The Commission further 
explained that, as in Order No. 688, it looked to indicia in other 
orders to determine where the presumption should be set.\621\
---------------------------------------------------------------------------

    \621\ Id. P 629.
---------------------------------------------------------------------------

    340. The Commission found that market rules are inclusive of power 
producers below 20 MW participating in markets. The Commission 
explained that, for example, since the issuance of Order No. 688, the 
Commission has required public utilities to increase the availability 
of a Fast-Track interconnection process for projects up to 5 MW.\622\
---------------------------------------------------------------------------

    \622\ Id. P 630 (citing Small Generator Interconnection 
Agreements and Procedures, Order No. 792, 78 FR 73240 (Dec. 5, 
2013), 145 FERC ] 61,159, at P 103 (2013), clarifying, Order No. 
792-A, 146 FERC ] 61,214 (2014)).
---------------------------------------------------------------------------

    341. The Commission found that, while the existence of Fast-Track 
interconnection processes does not on its own demonstrate 
nondiscriminatory access for resources under 20 MW, it does indicate 
that entities smaller than 20 MW have access to the market. The 
Commission found that presuming that QFs above 5 MW have such access is

[[Page 86705]]

therefore a reasonable approach to identifying a capacity level at 
which to update the rebuttable presumption of nondiscriminatory market 
access.\623\
---------------------------------------------------------------------------

    \623\ Id. P 631.
---------------------------------------------------------------------------

    342. The Commission explained that, since the issuance of Order No. 
688 the Commission has required each RTO/ISO to update its tariff to 
include a participation model for electric storage resources that 
established a minimum size requirement for participation in the RTO/ISO 
markets that does not exceed 100 kW.\624\ The Commission explained that 
these proposals require RTO/ISOs to revise their tariffs to provide 
easier access for smaller resources. The Commission determined that 
requiring markets to accommodate storage resources as low as 100 kW 
also supports this finding that resources smaller than 20 MW have 
nondiscriminatory access to those RTO/ISO markets. The Commission 
stated that it believed that these developments support updating the 20 
MW presumption to a lower number.
---------------------------------------------------------------------------

    \624\ Id. P 632 (citing Elec. Storage Participation in Mkts. 
Operated by Reg'l Transmission Orgs. and Indep. Sys. Operators, 83 
FR 9580 (Mar. 6, 2018), Order No. 841, 162 FERC ] 61,127, at P 265 
(2018)).
---------------------------------------------------------------------------

    343. The Commission found that, when these changes are viewed 
together, their cumulative effect demonstrates that it is reasonable 
for the Commission to maintain a small entity presumption but update 
its determination of what is a small entity under this presumption 
under the PURPA Regulations. The Commission found that the prospect of 
increased participation of distributed energy resources in energy 
markets further supports the proposition that wholesale markets are 
accommodating resources with smaller capacities.\625\
---------------------------------------------------------------------------

    \625\ Id. P 633 (citing Elec. Participation in Mkts Operated by 
Reg'l Transmission Orgs and Indep. Sys. Operators, 157 FERC ] 
61,121, at P 129 (2016) (footnote omitted) (``The costs of 
distributed energy resources have decreased significantly, which 
when paired with alternative revenue streams and innovative 
financing solutions, is increasing these resources' potential to 
compete in and deliver value to the organized wholesale electric 
markets.'')).
---------------------------------------------------------------------------

    344. The Commission recognized that certain of these precedents 
would support reducing the presumption below 5 MW and perhaps even 
lower than 1 MW. The Commission explained that it carefully considered 
the comments detailing the problems that QFs have had in participating 
in RTO/ISO markets, problems that necessarily are more acute for 
smaller QFs at or near the 1 MW threshold proposed in the NOPR.\626\ 
The Commission therefore determined that 5 MW is a more reasonable 
threshold of non-discriminatory access to RTO/ISO markets.
---------------------------------------------------------------------------

    \626\ Id. P 634 (referencing Allco Comments, Docket No. RM19-15-
000, at 17-19 (Dec. 3, 2019); Advanced Energy Economy Comments, 
Docket No. RM19-15-000, at 10-11 (Dec. 3, 2019); DC Commission 
Comments, Docket No. RM19-15-000, at 5 (Dec. 3, 2019); Public 
Interest Organizations Comments, Docket No. RM19-15-000, at 89-90 
(Dec. 3, 2019); Solar Energy Industries Comments, Docket No. RM19-
15-000, at 45-49 (Dec. 3, 2019)).
---------------------------------------------------------------------------

    345. The Commission therefore found it reasonable to update the 
presumption under these regulations as to what constitutes a small 
entity that is presumed to have non-discriminatory access to RTO/ISO 
markets and markets of comparable competitive quality below 20 MW, and 
that 5 MW represents a reasonable new threshold that accounts for the 
change of circumstances indicating that 20 MW no longer is appropriate 
but also accommodates commenters' concerns that a 1 MW threshold would 
be too low. The Commission acknowledged that ``there is no unique and 
distinct megawatt size that uniquely determines if a generator is 
small.'' \627\ The Commission found that a 5 MW threshold accords with 
PURPA's mandate to encourage small power production facilities, 
recognizes the progress made in wholesale markets as discussed above, 
and balances the competing claims of those seeking a lower threshold 
and those seeking a higher threshold.\628\
---------------------------------------------------------------------------

    \627\ Order No. 688-A, 119 FERC ] 61,305 at P 97.
    \628\ Order No. 872, 172 FERC ] 61,041 at P 635.
---------------------------------------------------------------------------

    346. The Commission explained that individual small power 
production QFs that are over 5 MW and less than 20 MW can seek to make 
the case; however, they do not truly have nondiscriminatory access to a 
market and should still be entitled to a mandatory purchase 
obligation.\629\
---------------------------------------------------------------------------

    \629\ Id. P 636.
---------------------------------------------------------------------------

    347. The Commission disagreed with Advanced Energy Economy's 
argument that the Commission failed to sufficiently justify its change 
in policy.\630\ The Commission noted that, in FCC v. Fox Television, 
the court stated that, when an agency makes a change in policy, the 
agency must show that there are good reasons for the change, ``[b]ut it 
need not demonstrate to a court's satisfaction that the reasons for the 
new policy are better than the reasons for the old one; it suffices 
that the new policy is permissible under the statute, that there are 
good reasons for it, and that the agency believes it to be better, 
which the conscious change of course adequately indicates.'' \631\
---------------------------------------------------------------------------

    \630\ Id. P 639 (referencing Advanced Energy Economy Comments, 
Docket No. RM19-15-000, at 6 (Dec. 3, 2019) (citing FCC v. Fox 
Television, 556 U.S. at 515)).
    \631\ FCC v. Fox Television, 556 U.S. at 515.
---------------------------------------------------------------------------

    348. The Commission clarified that it was maintaining its 
determination from Order No. 688 that small entities potentially may 
not have non-discriminatory access for purposes of PURPA section 
210(m). The Commission explained that it had determined that using 20 
MW as an indicator of what constitutes a small entity is no longer 
valid. The Commission found that entities below 20 MW increasingly have 
access to the markets and become familiar with practices and procedures 
and that markets have since implemented changes to provide easier 
access to smaller facilities, including small power production QFs, 
storage facilities, and distributed energy resources. The Commission 
found that these changes demonstrate a change in facts since the time 
it issued Order No. 688, which supports updating what constitutes a 
small entity for purposes of PURPA section 210(m).\632\
---------------------------------------------------------------------------

    \632\ Order No. 872, 172 FERC ] 61,041 at P 638.
---------------------------------------------------------------------------

    349. The Commission explained that, while it found that it is 
reasonable to update the rebuttable presumption from 20 MW to 5 MW, it 
recognized commenters' concerns regarding specific barriers to 
participation in RTO markets that may affect the nondiscriminatory 
access to those markets of some individual small power production 
facilities between 5 MW and 20 MW. The Commission explained that, to 
address these concerns, it was revising 18 CFR 292.309(c)(2)(i)-(vi) to 
include factors that small power production facilities between 5 MW and 
20 MW can point to in seeking to rebut the presumption that they have 
nondiscriminatory access. The Commission clarified that these factors 
are in addition to the existing ability, pursuant to 18 CFR 292.309(c), 
to rebut the presumption of access to the market by demonstrating, 
inter alia, operational characteristics or transmission 
constraints.\633\
---------------------------------------------------------------------------

    \633\ Id. P 640.
---------------------------------------------------------------------------

    350. The Commission added to 18 CFR 292.309(c) the following 
factors: (1) Specific barriers to connecting to the interstate 
transmission grid, such as excessively high costs and pancaked delivery 
rates; (2) the unique circumstances impacting the time/length of 
interconnection studies/queue to process small power QF interconnection 
requests; (3) a lack of affiliation with entities that participate in 
RTO/ISO markets; (4) a predominant purpose other than selling 
electricity which would warrant the small power QF being treated 
similarly to cogenerators (e.g., municipal solid waste

[[Page 86706]]

facilities, biogas facilities, run-of-river hydro facilities, and non-
powered dams); (5) the QF has certain operational characteristics that 
effectively prevent the QF's participation in a market; and (6) the QF 
lacks access to markets due to transmission constraints, including 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. The 
Commission explained that this list was not intended to be an 
exhaustive list of the factors that a QF could rely upon in seeking to 
rebut the presumption. The Commission further explained that these 
factors, among other indicia of lack of nondiscriminatory access, would 
be assessed by the Commission on a case-by-case basis when considering 
a claim that the presumption of nondiscriminatory access to the defined 
markets should be considered rebutted for a specific QF.\634\
---------------------------------------------------------------------------

    \634\ Id. P 641.
---------------------------------------------------------------------------

    351. The Commission found that the addition of these factors 
addressed commenters' concern that not all small power production 
facilities between 5 and 20 MW may have nondiscriminatory access to 
competitive markets and facilitates the ability of small power 
production facilities facing barriers to participation in RTO markets 
to demonstrate their lack of access.\635\ The Commission explained, for 
example, that, while a small power production facility between 5 MW and 
20 MW does not need to be physically interconnected to transmission 
facilities to be considered as having access to the statutorily-defined 
wholesale electricity markets, there are some small power production 
facilities between 5 MW and 20 MW that may face additional barriers, 
such as excessively high costs and pancaked delivery rates, to access 
wholesale markets.\636\
---------------------------------------------------------------------------

    \635\ Id. P 642.
    \636\ Id.
---------------------------------------------------------------------------

    352. The Commission further explained that, for example, several 
commenters expressed concern over the resources or administrative 
burden for some small power QFs that lack the necessary experience or 
expertise to participate in energy markets. Recognizing these concerns, 
the Commission added consideration of both the fact that some small 
power production facilities will face additional difficulties due to 
costs, administrative burdens, length of the interconnection study 
process and the size of the queues and the fact that some small power 
production QFs do not have access to the expertise of affiliated 
entities.\637\
---------------------------------------------------------------------------

    \637\ Id. P 643.
---------------------------------------------------------------------------

    353. The Commission agreed with commenters that some small power 
production facilities are similar to cogeneration facilities because 
their predominant purpose is not power production. The Commission found 
that, like cogeneration facilities, the sale of electricity from these 
small power production facilities is a byproduct of another purpose and 
these facilities might not be as familiar with energy markets and the 
technical requirements for such sales. The Commission therefore allowed 
the small subset of small power production facilities that are between 
20 MW and 5 MW to rebut the presumption of access to markets when the 
predominant purpose of the facility is other than selling electricity, 
and the sale of electricity is simply a byproduct of that purpose. The 
Commission recognized that, like all QFs over 20 MW, there may be 
particular small power production facilities with certain operational 
characteristics or that are 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.\638\
---------------------------------------------------------------------------

    \638\ Id. P 644.
---------------------------------------------------------------------------

1. Requests for Rehearing and Clarification
    354. Northwest Coalition, Public Interest Organizations, and Solar 
Energy Industries contend that the Commission erred in revising the 
rebuttable presumption for QFs between 5 MW and 20 MW, arguing that the 
Commission failed to demonstrate that QFs between 5 MW and 20 MW have 
nondiscriminatory access to markets prior to shifting the burden from 
requiring utilities to demonstrate QFs 20 MW and under have non-
discriminatory access to markets to requiring QFs between 5 MW and 20 
MW to prove that they do not have access.\639\ Public Interest 
Organizations, Northwest Coalition and Solar Energy Industries argue 
that, under the terms of section 210(m), a utility must ``set forth the 
factual basis'' showing that QFs have non-discriminatory access to the 
market, and the Commission is statutorily required to determine if the 
record sufficiently demonstrates that QFs have non-discriminatory 
access to the market before terminating the mandatory purchase 
obligation.\640\ Public Interest Organizations argue that general 
presumptions that conditions are improving for small QFs to access 
competitive markets is insufficient justification.\641\
---------------------------------------------------------------------------

    \639\ Public Interest Organizations Request for Rehearing and 
Clarification at 136-37 (citing 5 U.S.C. 556(d); Nat'l Min. Ass'n v. 
Babbitt, 172 F.3d 906, 910 (D.C. Cir. 1999); United Scenic Artists 
v. NLRB, 762 F.2d 1027, 1034 (D.C. Cir. 1985)); Northwest Coalition 
Request for Rehearing at 47-48; Solar Energy Industries Request for 
Rehearing and/or Clarification at 38-41.
    \640\ Public Interest Organizations Request for Rehearing at 136 
(citing 16 U.S.C. 824a-3(m)(3)).
    \641\ Solar Energy Industries Request for Rehearing and/or 
Clarification at 38-39; Public Interest Organizations Request for 
Rehearing and Clarification at 40.
---------------------------------------------------------------------------

    355. Northwest Coalition and Public Interest Organizations assert 
that there is no evidence that circumstances have changed since Order 
No. 688, arguing that most QFs 20 MW and under (1) are still connected 
to lower-voltage distribution facilities that are subject to state 
regulations instead of Commission-regulated interconnection procedures; 
and (2) require technical enhancements, face pancaked rates, and 
additional administrative burdens.\642\ Public Interest Organizations 
contend that the Commission has repeatedly concluded that QFs below 20 
MW face obstacles to transmission access in RTO/ISO regions that 
prevent them from participating in competitive markets.\643\ Northwest 
Coalition and Public Interest Organizations claim that the only two 
examples of small QFs selling into wholesale markets that the 
Commission included in the final rule did so with a larger, more 
experienced company acting on their behalf.\644\ Public Interest 
Organizations and Northwest Coalition contend that there is no evidence 
that small QFs are actually participating in regional markets, 
therefore, it is impossible to conclude that small QFs do so 
regularly.\645\
---------------------------------------------------------------------------

    \642\ Public Interest Organizations Request for Rehearing at 
138-140.
    \643\ Id. at 138-39.
    \644\ Id. at 140.
    \645\ Id. at 139; Northwest Coalition Request for Rehearing at 
49-50.
---------------------------------------------------------------------------

    356. Northwestern Coalition and Public Interest Organizations 
dispute the Commission's claims that (1) small QFs have gained a better 
understanding of the markets; (2) changes to interconnection rules 
indirectly support small QFs' access to markets; and (3) changes in 
RTO/ISO market rules to accommodate energy storage resources support 
the Commission's finding that QFs between 5 and 20 MW have non-
discriminatory access to markets.\646\ Northwestern Coalition and 
Public Interest Organizations argue that the Commission provided no 
evidence that

[[Page 86707]]

small QFs have gained a better understanding or how that understanding 
helped them overcome the obstacles small QFs face in accessing 
markets.\647\ Northwestern Coalition and Public Interest Organizations 
assert that the adoption of fast-track procedures for facilities under 
5 MW or accommodations for energy storage resources do nothing to 
support access by QFs between 5 and 20 MW to markets.\648\ Northwest 
Coalition contends that the Commission also ignored evidence that 
smaller resources face unique barriers to accessing competitive 
markets, such as that the standard trading block in wholesale markets 
is 25 MW, or that requiring transmission be scheduled in 1 MW blocks 
place a disproportionate burden on small generators.\649\
---------------------------------------------------------------------------

    \646\ Northwest Coalition Request for Rehearing at 50; Public 
Interest Organizations Request for Rehearing at 137-140.
    \647\ Northwest Coalition Request for Rehearing at 49; Public 
Interest Organizations Request for Rehearing at 139.
    \648\ Northwest Coalition Request for Rehearing at 51-52; Public 
Interest Organizations Request for Rehearing at 140.
    \649\ Northwest Coalition Request for Rehearing at 52-53.
---------------------------------------------------------------------------

    357. One Energy claims that behind-the-meter distributed energy 
resources (DERs) are more like cogeneration than small power production 
because their primary purpose is to directly power homes and business 
and not to sell energy at wholesale.\650\ Therefore, One Energy argues 
that the final rule was ``unduly discriminatory'' in finding that 
behind-the-meter DERs between 5 and 20 MW have non-discriminatory 
access to markets. One Energy asserts that behind-the-meter resources 
should be exempted from the reduction like cogeneration facilities. 
Further, One Energy contends that the Commission cited QFs that are 
similar to cogeneration facilities, such as solid waste facilities and 
biogas facilities, but did not specifically include behind-the-meter 
DERs. One Energy argues that at a minimum the Commission should list 
behind-the-meter DERs like other categories of small power production 
facilities that are entitled to rebut the presumption of 
nondiscriminatory market access.\651\
---------------------------------------------------------------------------

    \650\ One Energy Request for Rehearing and Clarification at 5-7.
    \651\ Id. at 7.
---------------------------------------------------------------------------

    358. One Energy also seeks clarification as to how the new same 
site determination rules will affect the PURPA section 210(m) 
presumption that small power production facilities with a net power 
production capacity at or below 5 MW do not have nondiscriminatory 
access to markets. One Energy states that it has three behind-the-meter 
wind projects with three separate off-takers, within one mile of each 
other. One Energy is concerned that, if one of the off-takers no longer 
takes service, the Commission would aggregate the formerly behind-the-
meter facility with the other facilities within one mile, find that the 
three together are 15 MW and consequently find that the formerly 
behind-the-meter facility is not eligible for the below 5 MW 
presumption.\652\
---------------------------------------------------------------------------

    \652\ Id. at 8-9.
---------------------------------------------------------------------------

    359. Public Interest Organizations assert that the rebuttable list 
of factors is only included in 18 CFR 292.309(c) and was not added to 
18 CFR 292.309(e) that applies to QFs in ISO-NE, MISO, NYISO and PJM 
nor in 18 CFR 292.309(f) that applies to QFs in ERCOT. Public Interest 
Organizations request that, to prevent unnecessary confusion, the 
Commission incorporate the factors listed in 18 CFR 292.309(c) into 
both (e) and (f).\653\
---------------------------------------------------------------------------

    \653\ Public Interest Organizations Request for Rehearing at 
143-44.
---------------------------------------------------------------------------

2. Commission Determination
    360. We disagree with parties' arguments and reaffirm the finding 
that market conditions have changed since the issuance of Order No. 
688. In establishing the original rebuttable presumption of 20 MW in 
Order No. 688, the Commission relied on the market conditions at that 
time. As the Commission stated, markets have matured and the markets 
have provided, and continue to provide, increased access to smaller 
resources demonstrating the need for the Commission to reconsider its 
definition of small power production QFs. In the final rule, the 
Commission updated the relevant definition of a small power production 
facility for purposes of 292.309 to be 5 MW and, despite the arguments 
on rehearing, we affirm that finding here.\654\
---------------------------------------------------------------------------

    \654\ Order No. 872, 172 FERC ] 61,041 at PP 629-633.
---------------------------------------------------------------------------

    361. We disagree with arguments that the Commission did not provide 
sufficient support for its finding that QFs between 5 and 20 MW can be 
presumed to have non-discriminatory access competitive markets. 
Specifically, the Commission explained that, since the issuance of 
Order No. 688, the Commission has required each RTO/ISO to update its 
tariff to include a participation model for electric storage resources 
that established a minimum size requirement for participation in the 
RTO/ISO markets that does not exceed 100 kW.\655\ The Commission 
explained that these proposals require RTO/ISOs to revise their tariffs 
to provide easier access for smaller resources. The Commission 
determined that requiring markets to accommodate storage resources as 
low as 100 kW also supports this finding that resources smaller than 20 
MW have nondiscriminatory access to those RTO/ISO markets. Further, 
that the Commission chose a 5 MW cut-off for eligibility for the fast-
track procedures represents an implicit judgment by the Commission that 
facilities larger than 5 MW do not need such procedures to be able to 
interconnect to the grid.\656\ The Commission stated that it believed 
that these developments support updating the 20 MW presumption to a 
lower number.\657\
---------------------------------------------------------------------------

    \655\ Id. P 632 (citing Order No. 841, 162 FERC ] 61,127 at P 
265).
    \656\ Id. PP 630-31.
    \657\ Id. P 632.
---------------------------------------------------------------------------

    362. While these factors were a sufficient basis to support the 
Commission's action, they were by no means an exhaustive recitation of 
relevant developments in competitive markets since Order Nos. 688. For 
example, as the Commission noted in another recent rulemaking, all of 
the RTOs/ISOs have at least one participation model that allows 
resources as small as 100 kW to participate in their markets.\658\ 
Indeed, even since the final rule, the Commission has continued to 
provide greater opportunities for small power production facilities to 
participate in wholesale organized markets.\659\
---------------------------------------------------------------------------

    \658\ Order No. 841, 162 FERC ] 61,127 at P 272.
    \659\ See Participation of Distributed Energy Resource 
Aggregations in Markets Operated by Regional Transmission 
Organizations and Independent System Operators, Order No. 2222, 172 
FERC ] 61,247 (2020). While Order No. 2222 will not become effective 
until after the effective date of the rulemaking in the instant 
proceeding and applies only to Commission-jurisdictional RTOs/ISOs, 
we find it appropriate to mention it here to provide another example 
of the greater opportunities for small power producer participation 
in organized electric markets.
---------------------------------------------------------------------------

    363. Regarding arguments from Public Interest Organizations and 
Northwest Coalition that the final rule failed to consider that smaller 
resources face unique barriers to accessing competitive markets, we 
disagree. In the final rule, the Commission carefully considered such 
concerns and amended 18 CFR 292.309(c) to include factors that small 
power production QFs between 5 and 20 MW can use to rebut the 
presumption of non-discriminatory access to markets.\660\ These factors 
include (1) specific barriers to connecting to the interstate 
transmission grid, such as excessively high costs and pancaked delivery 
rates; (2) unique circumstances impacting the time/

[[Page 86708]]

length of interconnection studies/queue to process small power QF 
interconnection requests; (3) lack of affiliation with entities that 
participate in RTO/ISO markets; (4) predominant purpose other than 
selling electricity which would warrant the small power QF being 
treated similarly to cogenerators (e.g., municipal solid waste 
facilities, biogas facilities, run-of-river hydro facilities, and non-
powered dams); (5) having certain operational characteristics that 
effectively prevent the qualifying facility's participation in a 
market; and (6) lack of access to markets due to transmission 
constraints, including 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.\661\ The Commission adopted the first four of these factors 
recognizing that some small power production facilities between 5 and 
20 MW may lack nondiscriminatory access to markets.\662\ The first four 
factors address concerns that a small power production QF may lack 
expertise, either directly or within its corporate family, to access 
markets defined in PURPA section 210(m)(1) or has operational 
characteristics or is remotely located such that it faces additional 
transmission obstacles to reach such markets. Additionally, the 
Commission applied the last two factors on the list, i.e., 
``operational characteristics'' and ``transmission constraints,'' which 
were originally adopted in Order No. 688 for QFs between 20 and 80 MW, 
to permit QFs between 5 and 20 MW to rebut the presumption that they 
have non-discriminatory access to markets. This list of factors, we 
stress, is not exclusive but was adopted in the final rule to address 
the specific concerns commenters raised in responding to the NOPR.
---------------------------------------------------------------------------

    \660\ Order No. 872, 172 FERC ] 61,041 at P 640.
    \661\ Id. P 641.
    \662\ Id. PP 640, 642.
---------------------------------------------------------------------------

    364. Like the initial regulations implementing PURPA section 
210(m), the final rule's revision to the rebuttable presumption merely 
provides a framework for evaluating whether individual small power 
production facilities have nondiscriminatory access to the markets 
defined in PURPA section 210(m); it does not decide that every small 
power producer QF between 5 MW and 20 MW in fact has nondiscriminatory 
access. The D.C. Circuit has held that ``[t]he fact that FERC chose to 
adopt certain rebuttable presumptions via rulemaking, rather than by 
case-by-case adjudication, does not violate any of the statute's 
requirements.'' \663\ Contrary to Public Interest Organizations' 
argument,\664\ the rebuttable presumption, if applicable, provides the 
requisite ``factual basis'' for a utility to invoke. Conversely, the 
corresponding factors for rebutting this presumption, if applicable, 
provide a ``factual basis'' that a QF may invoke to rebut that 
presumption.
---------------------------------------------------------------------------

    \663\ AFPA v. FERC, 550 F.3d at 1183.
    \664\ Public Interest Organizations Request for Rehearing at 136 
(citing 16 U.S.C. 824a-3(m)(3)).
---------------------------------------------------------------------------

    365. In undertaking this rulemaking, the Commission stated its 
intent to modify PURPA in light of changed circumstances since it first 
implemented PURPA section 210(m).\665\ During the rulemaking process, 
the Commission appropriately reviewed the MW level at which to set a 
presumption of nondiscriminatory market access for small power 
production qualifying facilities. As discussed above, a variety of 
factors have led to the increased ability to access wholesale markets 
by small power production qualifying facilities, and in supporting this 
trend of an increased ability to access the energy market, the 
Commission has established policies and procedures such as the fast-
track interconnection process, among others, to accommodate and 
encourage smaller energy resources' participation in organized 
electricity markets.\666\ Thus, as the Commission stated in the final 
rule, 20 MW is no longer the appropriate threshold to presume 
nondiscriminatory access to markets for small power production QFs 
under PURPA section 210(m).\667\
---------------------------------------------------------------------------

    \665\ See NOPR, 168 FERC ] 61,184 at P 127.
    \666\ See Order No. 872, 172 FERC ] 61,041 at PP 628-33.
    \667\ See id. P 627.
---------------------------------------------------------------------------

    366. In the final rule, as noted above, the Commission addressed 
commenters' concerns by establishing a list of established specific 
factors that QFs between 5 and 20 MW can utilize, among others, to 
rebut nondiscriminatory access.\668\ Commenters stated that small power 
production QFs 20 MW and less are often located on local distribution 
systems and have additional hurdles to gain transmission access to 
energy markets. To address this concern, the Commission established the 
first factor: Specific barriers to connecting to the interstate 
transmission grid, such as excessively high costs and pancaked delivery 
rates.\669\
---------------------------------------------------------------------------

    \668\ Id. PP 641-42.
    \669\ Id.
---------------------------------------------------------------------------

    367. In response to commenters' concerns over the potential 
disproportionate high costs and delays a small power production QF 
between 5 and 20 MW could face, the Commission added the second factor: 
The unique circumstances impacting the time or length of 
interconnection studies or queue to process small power producer QF 
interconnection requests.\670\
---------------------------------------------------------------------------

    \670\ Id. PP 641, 643.
---------------------------------------------------------------------------

    368. Commenters asserted that those QFs between 5 and 20 MW that 
have larger energy affiliates could access the knowledge and expertise 
needed to participate in such markets, whereas other QFs could not, 
which led the Commission to adopt the third factor: A lack of 
affiliation with entities that participate in RTO/ISO markets.\671\
---------------------------------------------------------------------------

    \671\ Id.
---------------------------------------------------------------------------

    369. Commenters representing solid waste, biogas, and hydro 
facilities claimed that some small power production QFs between 5 and 
20 MW were more similar to cogeneration QFs than small power production 
QFs in that their primary purpose was not the sale of electricity. In 
response, the Commission included the fourth factor: A predominant 
purpose other than selling electricity, which would warrant the small 
power QF being treated similarly to cogenerators (e.g., municipal solid 
waste facilities, biogas facilities, run-of-river hydro facilities, and 
non-powered dams).\672\
---------------------------------------------------------------------------

    \672\ Id. PP 641, 644.
---------------------------------------------------------------------------

    370. As the Commission explained in the final rule (and reiterated 
above), this is not intended to be an exhaustive list but is intended 
to provide a framework for the Commission to evaluate small power 
producer QFs between 5 and 20 MW who wish to rebut the presumption of 
nondiscriminatory access.\673\ Any small power producer QF may use 
these factors (or other evidence) to rebut the presumption that a 
specific QF between 5 MW and 20 MW has non-discriminatory access to 
markets, and the Commission will review each request on a case-by-case 
basis.
---------------------------------------------------------------------------

    \673\ Id. P 641.
---------------------------------------------------------------------------

    371. One Energy argues that a behind-the-meter DER's primary 
purpose is to generate electricity for its host and any potential sale 
is secondary like cogeneration facilities. While not ruling on the 
validity of this argument with respect to any behind-the-meter DER, we 
clarify that small power production QFs that are behind-the-meter DERs 
are permitted to argue that the fourth factor which states ``a 
predominant purpose other than selling electricity which would warrant 
the small power QF being treated similarly to cogenerators (e.g., 
municipal solid waste facilities, biogas facilities, run-of-river hydro 
facilities, and non-power dams)'' supports their argument that they 
lack

[[Page 86709]]

nondiscriminatory access to markets.\674\ We will rule on any such 
arguments on a case-by-case basis taking into account the specific 
facts of the DER making the argument.
---------------------------------------------------------------------------

    \674\ Id.
---------------------------------------------------------------------------

    372. We grant Public Interest Organizations request for 
clarification that the list of factors in section 18 CFR 292.309(c) 
that small power production facilities between 5 MW and 20 MW can point 
to in seeking to rebut the presumption that they have nondiscriminatory 
access was not--but should be--added to 18 CFR 292.309(e) that applies 
to QFs in ISO-NE, MISO, NYISO, and PJM, and also to 18 CFR 292.309(f) 
that applies to QFs in ERCOT. In order to avoid confusion, we hereby 
incorporate the factors listed in 18 CFR 292.309(c) into both (e) and 
(f).
    373. In response to One Energy's request for clarification as to 
how the new same site determination rules will affect the PURPA section 
210(m) presumption, in determining whether a QF is eligible for the 
rebuttable presumption that a qualifying small power production 
facility with a capacity at or below 5 MW does not have 
nondiscriminatory access to the market, the Commission will look 
primarily at the net certified capacity of each QF. We note that the 
regulations state that, for the purposes of implementing the rebuttable 
presumption of nondiscriminatory access, the Commission will not be 
bound by the standards (i.e., the new ten-mile rule) of section 
292.204(a)(2). The Commission will review, on a case-by-case basis, any 
question that involves applying both 18 CFR 292.309 and 292.204 to the 
same entity. We further note that, while we will look primarily at the 
net certified capacity of each QF, we may consider, inter alia, the new 
``ten-mile rule.''

G. Legally Enforceable Obligation

    374. In the final rule, the Commission adopted the NOPR proposal to 
require QFs to demonstrate that a proposed project is commercially 
viable and that the QF has a financial commitment to construct the 
proposed project, pursuant to objective, reasonable, state-determined 
criteria in order to be eligible for a LEO.\675\ The Commission 
affirmed that the states have flexibility in determining what 
constitutes an acceptable showing of commercial viability and financial 
commitment, albeit subject to the criteria being objective and 
reasonable. The Commission found that requiring a showing of commercial 
viability and financial commitment, based on objective and reasonable 
criteria, would ensure that no electric utility obligation is triggered 
for those QF projects that are not sufficiently advanced in their 
development and, therefore, for which it would be unreasonable for a 
utility to include in its resource planning. At the same time, the 
Commission found, the criteria also ensure that the purchasing utility 
does not unilaterally and unreasonably decide when its obligation 
arises. The Commission believed that this struck the right balance for 
QF developers and purchasing utilities and should encourage development 
of QFs.\676\
---------------------------------------------------------------------------

    \675\ Id. P 684.
    \676\ Id.
---------------------------------------------------------------------------

    375. The Commission explained that examples of factors a state 
could reasonably require are that a QF demonstrate that it is in the 
process of at least some of the following prerequisites: (1) Taking 
meaningful steps to obtain site control adequate to commence 
construction of the project at the proposed location and (2) filing an 
interconnection application with the appropriate entity. The Commission 
found that the state could also require that the QF show that it has 
submitted all applications, including filing fees, to obtain all 
necessary local permitting and zoning approvals. The Commission also 
clarified that it is appropriate for states to require a QF to 
demonstrate that it is in the process of obtaining site control or has 
applied for all local permitting and zoning approvals, rather than 
requiring a QF to show that it has obtained site control or secured 
local permitting and zoning. Moreover, the Commission noted that the 
factors that the state requires must be factors that are within the 
control of the QF.\677\
---------------------------------------------------------------------------

    \677\ Id. P 685.
---------------------------------------------------------------------------

    376. The Commission clarified that demonstrating the required 
financial commitment does not require a demonstration of having 
obtained financing. The Commission explained that requiring QFs to, for 
example, apply for all relevant permits, take meaningful steps to seek 
site control, or meet other objective and reasonable milestones in the 
QF's development can sufficiently demonstrate QF developers' financial 
commitment to the QFs' development and allows utilities to reasonably 
rely on the LEO in planning for system resource adequacy.\678\
---------------------------------------------------------------------------

    \678\ Id. P 687.
---------------------------------------------------------------------------

    377. The Commission explained that the intent of these factors is 
to provide a reasonable balance between providing QFs with objective 
and transparent milestones up front that are needed to obtain a LEO, 
allowing states the flexibility to establish factors that address the 
individual circumstances of each state, and increasing utilities' 
ability to accurately plan their systems.\679\ The Commission further 
explained that establishing objective and reasonable factors is 
intended to limit the number of unviable QFs obtaining LEOs and 
unnecessarily burdening utilities that currently have to plan for QFs 
that obtain a LEO very early in the process but ultimately are never 
developed.\680\ The Commission explained that, in adopting this 
provision, the Commission was raising the bar to prevent speculative 
QFs from obtaining LEOs, with an associated burden on purchasing 
utilities, but was not establishing a barrier for financially committed 
developers seeking to develop commercially viable QFs.
---------------------------------------------------------------------------

    \679\ Id. P 688.
    \680\ Id.
---------------------------------------------------------------------------

    378. The Commission disagreed that establishing reasonable, 
transparent factors is an onerous barrier or will cause a substantial 
reduction in QFs. The Commission found that the objective and 
reasonable criteria it had established would protect QFs against 
onerous requirements for LEOs that hinder financing, such as a 
requirement for a utility's execution of an interconnection agreement 
\681\ or power purchase agreement,\682\ requiring that QFs file a 
formal complaint with the state commission,\683\ limiting LEOs to only 
those QFs capable of supplying firm power,\684\ or requiring the QF to 
be able to deliver power in 90 days.\685\ The Commission found that, by 
making clear that such conditions are not permitted, and by instead 
providing objective criteria to clarify when a LEO commences, the LEO 
provisions it adopted would encourage the development of QFs.
---------------------------------------------------------------------------

    \681\ Id. P 689 (citing FLS, 157 FERC ] 61,211 at P 26 (stating 
that requiring signed interconnection agreement as prerequisite to 
LEO is inconsistent with PURPA Regulations)).
    \682\ Id. (citing Murphy Flat Power, LLC, 141 FERC ] 61,145, at 
P 24 (2012) (finding that requiring a signed and executed contract 
with an electric utility as a prerequisite to a LEO is inconsistent 
with PURPA Regulations)).
    \683\ Id. (citing Grouse Creek Wind Park, LLC, 142 FERC ] 
61,187, at P 40 (2013)).
    \684\ Id. (citing Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d at 
400).
    \685\ Id. (citing Power Resource Group, Inc. v. Public Utility 
Comm'n of Texas, 422 F.3d 231 (5th Cir. 2005)).
---------------------------------------------------------------------------

    379. The Commission, however, declined to establish specific 
factors for the states to adopt, to establish a baseline for eligible 
factors, or to otherwise limit states' flexibility. The Commission 
found that states are in the best position to determine, in the first 
instance, what specific factors would

[[Page 86710]]

best suit the specific circumstances of each state so long as they are 
objective and reasonable and provided the suggested prerequisites above 
as examples of objective and reasonable factors.\686\
---------------------------------------------------------------------------

    \686\ Id. P 690.
---------------------------------------------------------------------------

    380. The Commission explained that the concept of a LEO was 
specifically adopted to prevent utilities from circumventing the 
mandatory purchase requirement under PURPA by refusing to enter into 
contracts.\687\ The Commission stated that it had found that requiring 
a QF to have a utility-executed contract or interconnection agreement 
or requiring the completion of a utility-controlled study places too 
much control over the LEO in the hands of the utility and defeats the 
purpose of a LEO and is inconsistent with PURPA.\688\ The Commission 
stated that, when reviewing factors to demonstrate commercial viability 
and financial commitment, states thus should place emphasis on those 
factors that show that the QF has taken meaningful steps to develop the 
QF that are within the QF's control to complete, and not on those 
factors that a utility controls. The Commission explained, for example, 
that requiring a QF to make a deposit or whether the QF has applied for 
system impact, interconnection or other needed studies are the types of 
factors that may show that the QF has taken meaningful steps to develop 
the QF that are within the QF's control and the type of objective and 
reasonable standards that states can consider in their 
implementation.\689\
---------------------------------------------------------------------------

    \687\ Id. P 695 (citing JD Wind 1, LLC, 129 FERC ] 61,148 at P 
25, reh'g denied, 130 FERC ] 61,127 (citing Order No. 69, FERC 
Stats. & Regs. ] 30,128 at 30,880); see also Midwest Renewable 
Energy Projects, LLC, 116 FERC ] 61,017 (2006)).
    \688\ Id. (citing FLS, 157 FERC ] 61,211 at P 23 (finding such 
requirements ``allows a utility to control whether and when a 
legally enforceable obligation exists--e.g., by delaying the 
facilities study'')).
    \689\ Id.
---------------------------------------------------------------------------

1. Requests for Rehearing
    381. Public Interest Organizations argue that the final rule's 
provision allowing states to require a showing of commercial viability 
and financially commitment results in additional barriers to QFs 
without sufficient safeguards to protect QFs from states' abuses. 
Public Interest Organizations contend that the Commission erred in 
failing to justify how these factors are consistent with PURPA's 
purpose of encouraging QFs. Public Interest Organizations assert that 
the Commission ignored the evidence that utilities adopt requirements 
to avoid their mandatory purchase obligation and states often 
acquiesce. Public Interest Organizations contend that the requirement 
that the factors be reasonable and objective are insufficient to 
protect QFs in seeking to establish a LEO and reiterate their request 
that the Commission establish specific limits on the kind of showing 
that is required before a LEO is established.\690\
---------------------------------------------------------------------------

    \690\ Public Interest Organizations Request for Rehearing at 
145.
---------------------------------------------------------------------------

    382. Public Interest Organizations argue that the Commission has 
repeatedly issued declaratory orders showing the unlawfulness of 
several LEO restrictions adopted by states but has repeatedly declined 
to initiate enforcement actions. They add that state regulators and 
courts have dismissed the Commission's declaratory orders as advisory 
and states have supported utilities' efforts to restrict LEOs. Public 
Interest Organizations assert that the Commission erred in considering 
the potential benefits to the utility's planning process of imposing 
new burdens on QFs. Instead, they contend that Congress directed the 
Commission to develop rules that would encourage QFs, not impose new 
burdens on QFs to benefit a utility's planning process.\691\
---------------------------------------------------------------------------

    \691\ Id. at 147-49.
---------------------------------------------------------------------------

    383. Mr. Mattson argues that requiring financing as a factor to 
obtain a LEO is problematic because a LEO is needed to obtain 
financing.\692\
---------------------------------------------------------------------------

    \692\ Mr. Mattson Motion for Time, Reconsideration, and Request 
Answers at 2.
---------------------------------------------------------------------------

2. Commission Determination
    384. We disagree with the arguments raised on rehearing. The 
Commission created the LEO concept in Order No. 69 and has the 
authority to refine its contours in a way that continues to encourage 
QF development. The final rule achieves that result. Therefore, we 
reaffirm the Commission's finding in the final rule that requiring a 
showing of commercial viability and financial commitment based on 
objective and reasonable criteria encourages the development of 
QFs.\693\ It also strikes an appropriate balance between the needs of 
the QFs and the needs of the purchasing utilities.
---------------------------------------------------------------------------

    \693\ Order No. 872, 172 FERC ] 61,041 at P 684.
---------------------------------------------------------------------------

    385. That the revisions to the LEO eligibility requirements 
encourage the development of QFs is clear. In the past, purchasing 
utilities impeded the development of QFs by unilaterally erecting 
barriers to QFs establishing an obligation, such as by requiring a QF 
to have entered into an interconnection agreement or a power purchase 
agreement with the purchasing utility. It would then be up to the 
purchasing utility to decide whether and when to enter into such an 
agreement. The Commission changed that dynamic in the final rule by 
adopting regulations formalizing Commission precedent that takes away 
from the purchasing utility the unilateral ability to determine when 
the purchasing utility's obligation arises. Under the final rule, 
state-established objective and reasonable criteria would clarify when 
an obligation arises, rather than leave it to the purchasing 
utility.\694\ What is more, the criteria should be such that the 
ability to meet the criteria is in the hands of the QF and not in the 
hands of the purchasing utility. For example, it is the QF, and not the 
purchasing utility, that decides when it will apply for necessary 
permits or when it will apply for an interconnection agreement.\695\ 
Therefore, providing guidelines for establishing reasonable and 
objective criteria will prevent purchasing utilities from unilaterally 
and unreasonably deciding when its obligation to purchase arises and 
provides guidance to QFs seeking to establish a LEO. Moreover, to meet 
the needs of the purchasing utility, requiring a showing of commercial 
viability and financial commitment will ensure that no electric utility 
obligation is triggered for those QF projects that are not sufficiently 
advanced in their development and, therefore, for which it would be 
unreasonable for a utility to include in its resource planning.
---------------------------------------------------------------------------

    \694\ Id. P 690.
    \695\ Id. P 694.

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

[[Page 86711]]

    386. The criteria the Commission provided under the final rule are 
different from the prerequisites that the Commission in the past has 
found inconsistent with PURPA or that courts have permitted despite 
such Commission precedent.\696\ Objective and reasonable criteria for 
demonstrating commercial viability and financial commitment to proceed 
give a better sense to a state and a purchasing utility that a QF is 
more likely to be built. In comparison, requiring that a utility 
execute an interconnection agreement \697\ or power purchase 
agreement,\698\ a QF file a formal complaint with the state 
commission,\699\ a QF be capable of supplying firm power,\700\ or a QF 
be able to deliver power in 90 days \701\ are likely beyond the control 
of a QF or procedural requirements that do not reveal the likelihood 
that a QF will be developed and are therefore inappropriate obstacles 
to QF development.
---------------------------------------------------------------------------

    \696\ See id. P 34 (citing examples of state-established 
prerequisites to obtaining LEOs that are inconsistent with PURPA 
Regulations because they hinder QF financing).
    \697\ Id. P 689 (citing FLS, 157 FERC ] 61,211 at P 26 (stating 
that requiring signed interconnection agreement as prerequisite to 
LEO is inconsistent with PURPA Regulations)).
    \698\ Id. (citing Murphy Flat Power, LLC, 141 FERC ] 61,145 at P 
24 (finding that requiring a signed and executed contract with an 
electric utility as a prerequisite to a LEO is inconsistent with 
PURPA Regulations)).
    \699\ Id. (citing Grouse Creek Wind Park, LLC, 142 FERC ] 61,187 
at P 40).
    \700\ Id. (citing Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d at 
400 (requiring that only QFs capable of providing firm power are 
entitled to an LEO)).
    \701\ Id. (citing Power Resource Group, Inc. v. Pub. Util. 
Comm'n of Texas, 422 F.3d 231, 237-39 (5th Cir. 2005) (requiring 
that only QFs capable of delivering power within 90 days are 
entitled to an LEO)).
---------------------------------------------------------------------------

    387. Allowing states to require a showing of commercial viability 
and financial commitment from QFs will enable utilities and states to 
know which QFs are more likely to be built, thus enabling them to 
better plan their systems and accommodate all sources of QF power, and 
are just and reasonable to the consumers of the electric utility. 
States are not required to adopt specific criteria, but, as with other 
PURPA Regulations, the Commission has established the boundaries within 
which each state can adopt appropriate criteria that address each 
states' unique characteristics. As explained in the final rule, 
providing guidance as to how QFs can establish commercial viability and 
a financial commitment will provide certainty that QF developers can 
rely upon, thereby encouraging QF development.\702\ We believe that 
providing clear, objective, and reasonable guidelines for establishing 
a LEO will also reduce disputes between state commissions, utilities, 
and QF developers.
---------------------------------------------------------------------------

    \702\ Id. P 684.
---------------------------------------------------------------------------

    388. Finally, the final rule explicitly provided that ``obtaining a 
PPA or financing cannot be required to show proof of financial 
commitment.'' \703\
---------------------------------------------------------------------------

    \703\ Id. P 687 (emphasis added).
---------------------------------------------------------------------------

III. Information Collection Statement

    389. The Paperwork Reduction Act \704\ requires each federal agency 
to seek and obtain the Office of Management and Budget's (OMB) approval 
before undertaking a collection of information (including reporting, 
record keeping, and public disclosure requirements) directed to 10 or 
more persons or contained in a rule of general applicability. OMB 
regulations require approval of certain information collection 
requirements contained in rulemakings (including deletion, revision, or 
implementation of new requirements).\705\ Upon approval of a collection 
of information, OMB will assign an OMB control number and an expiration 
date. Respondents subject to the information collection of a rule will 
not be penalized for failing to respond to the collection of 
information unless the collection of information displays a valid OMB 
control number.
---------------------------------------------------------------------------

    \704\ 44 U.S.C. 3501-21.
    \705\ See 5 CFR 1320.11.
---------------------------------------------------------------------------

    390. With respect to the Form No. 556 information collection 
(Certification of Qualifying Facility (QF) Status for a Small Power 
Production or Cogeneration Facility, OMB Control No. 1902-0075), in the 
final rule, the Commission affirmed that the relevant burdens derive 
from the change from the Commission's current ``one-mile rule'' for 
determining whether generation facilities should be considered to be at 
the same site for purposes of determining qualification as a qualifying 
small power production facility, to allowing an interested person or 
other entity challenging a QF certification the opportunity to file a 
protest, without a fee, to rebut the presumption that affiliated small 
power production QFs using the same energy resource and located more 
than one mile and less than 10 miles from the applicant facility are 
considered to be at separate sites. The Commission stated that it was 
making the following changes to the Form No. 556 which affect the 
burden of the information collection:
     Allow an interested person or other entity challenging a 
QF certification the opportunity to file a protest, without a fee, to 
an initial certification (both self-certification and application for 
Commission certification) filed on or after the effective date of the 
final rule, or to a recertification (self-recertification or 
application for Commission recertification) that makes substantive 
changes to the existing certification that is filed on or after the 
effective date of the final rule.
     Require all applicants to report the applicant facility's 
geographic coordinates, rather than only for applications where there 
is no street address.
     Change the current requirement to identify any affiliated 
facilities with electrical generating equipment within one mile of the 
applicant facility's electrical generating equipment to instead require 
applicants to list only affiliated small power production QFs using the 
same energy resource one mile or less from the applicant facility.
     Additionally require applicants to list affiliated small 
power production QFs using the same energy resource whose nearest 
electrical generating equipment is greater than one mile and less than 
10 miles from the electrical generating equipment of the applicant 
facility.
     Require the applicant to list the geographic coordinates 
of the nearest ``electrical generating equipment'' of both its own 
facility and the affiliated small power production QF in question based 
on the definitions adopted in the final rule.
     Provide space for the applicant to explain, if it chooses 
to do so, why the affiliated small power production QFs using the same 
energy resource, that are more than one mile and less than 10 miles 
from the electrical generating equipment of the applicant facility, 
should be considered to be at separate sites from the applicant's 
facility, considering the relevant physical and ownership factors 
identified in the final rule.
    The Commission stated that these changes in burden are appropriate 
because they are necessary to meet the statutory requirements contained 
in PURPA.

[[Page 86712]]

    391. The Commission included the following table (shown below) 
which provided estimated changes to the burden and cost of the Form No. 
556 due to the final rule.\706\ (The estimates have not changed from 
the final rule.)
---------------------------------------------------------------------------

    \706\ There were no rehearing requests related to the estimated 
burden changes for the FERC-912 (PURPA Section 210(m) Notification 
Requirements Applicable to Cogeneration and Small Power Production 
Facilities; OMB Control No. 1902-0237), so it is not addressed 
further.

                                   FERC-556, Changes Due to Final Rule in Docket Nos. RM19-15-000 and AD16-16-000 \707\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                         Increased total
                                                                    Annual  number                         Increased      annual burden      Increased
        Facility type             Filing type        Number of       of  responses    Total number of   average  burden   hours & total    annual  cost
                                                    respondents     per  respondent      responses     hours & cost per    annual cost          per
                                                                                                         response  ($)         ($)        respondent ($)
                                                 (1).............  (2).............  (1) * (2) = (3).  (4).............  (3) * (4) = (5)     (5) / (1) =
                                                                                                                                                     (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cogeneration and Small Power   Self-             no change (692).  no change (1.25)  no change (865).  no change (1.5    no change                    $0
 Production Facility <=1 MW     certification.                                                          hrs.); $0.        (1,297.5
 \708\.                                                                                                                   hrs.); $0.
Cogeneration Facility >1 MW..  Self-             no change (63)..  no change (1.25)  no change         no change (1.5    no change                     0
                                certification.                                        (78.75).          hrs.); $0.        (118.125
                                                                                                                          hrs.); $0.
Cogeneration Facility >1 MW..  Application for   no change (1)...  no change (1.25)  no change (1.25)  no change (50     no change (62.5               0
                                FERC                                                                    hrs.); $0.        hrs.); $0.
                                certification.
Small Power Production         Self-             no change (899)   no change (1.25)  no change         2 hrs.; $166....  2,247.5 hrs.;             207.5
 Facility >1 MW, <=1 Mile       certification.    \709\.                              (1,123.75).                         $186,542.5.
 from Affiliated Small Power
 Production QF.
Small Power Production         Application for   no change (0)...  no change (1.25)  no change (0)...  6 hrs.; $498....  no change (0                  0
 Facility >1 MW, <=1 Mile       FERC                                                                                      hrs.); $0.
 from Affiliated Small Power    certification.
 Production QF.
Small Power Production         Self-             no change (900).  no change (1.25)  no change         8 hrs.; $664....  9,000 hrs.;                 830
 Facility >1 MW, >1 Mile, <10   certification.                                        (1,125).                            $747,000.
 Miles from Affiliated Small
 Power Production QF.
Small Power Production         Application for   no change (0)...  no change (1.25)  no change (0)...  12 hrs.; $996...  no change (0                  0
 Facility >1 MW, >1 Mile, <10   FERC                                                                                      hrs.); $0.
 Miles from Affiliated Small    certification.
 Power Production QF.
Small Power Production         Self-             no change (899).  no change (1.25)  no change         2 hrs.; $166....  2,247.5 hrs.;             207.5
 Facility >1 MW, >=10 Miles     certification.                                        (1,123.75).                         $186,542.5.
 from Affiliated Small Power
 Production QF.
Small Power Production         Application for   no change (0)...  no change (1.25)  no change (0)...  6 hrs.; $498....  no change (0                  0
 Facility >1 MW, >=10 Miles     FERC                                                                                      hrs.); $0.
 from Affiliated Small Power    certification.
 Production QF.
                                                --------------------------------------------------------------------------------------------------------
    FERC-556, Total            ................  no change         ................  no change         ................  13,495 hrs.;     ..............
     Additional Burden and                        (3,454).                            (4,317.5).                          $1,120,085.
     Cost Due to Final Rule.
--------------------------------------------------------------------------------------------------------------------------------------------------------

A. Request for Rehearing
---------------------------------------------------------------------------

    \707\ The figures in this table reflect estimated changes to the 
current OMB-approved inventory for the Form No. 556 (approved by the 
Office of Management and Budget (OMB) on November 18, 2019). As of 
October 21, 2020, the Paperwork Reduction Act (PRA) packages for the 
reporting requirements in the final rule in Docket Nos. RM19-15 and 
AD16-16 are still pending review at OMB.
    Where ``no change'' is indicated, the current figure is included 
parenthetically for information only. Those parenthetical figures 
are not included in the final total for column 5.
    Commission staff believes that the industry is similarly 
situated in terms of wages and benefits. Therefore, cost estimates 
are based on FERC's 2020 average hourly wage (and benefits) of 
$83.00/hour. (The submittal to and approval of OMB in 2019 for Form 
No. 556 was based on FERC's 2018 average annual wage hourly rate of 
$79.00/hour. Because the change from the $79.00 hourly rate to the 
current $83.00 hourly rate was not due to the final rule, this chart 
does not depict this increase.)
    \708\ Not required to file.
    \709\ In the Form No. 556 approved by OMB in 2019, for the 
category ``Small Power Production Facility > 1 MW, Self-
certification,'' we estimated the number of respondents at 2,698. We 
have now divided that category into three categories: ``Small Power 
Production Facility >1 MW, <=1 Mile from Affiliated Small Power 
Production QF,'' ``Small Power Production Facility >1 MW, >1 Mile, 
<10 Miles from Affiliated Small Power Production QF,'' ``Small Power 
Production Facility >1 MW, >=10 Miles from Affiliated Small Power 
Production QF.'' In this column, the numbers 899, 900, and 899 are a 
distribution of those same estimated 2,698 respondents across the 
three categories.
---------------------------------------------------------------------------

    392. Public Interest Organizations state that Solar Energy 
Industries questioned the Commission's burden estimate in the NOPR, 
anticipating that the actual burden will be far higher.\710\ Public 
Interest Organizations assert that the Commission dismissed Solar 
Energy Industries' estimates that the new rule would require an 
additional 90 to 120 hours per year to comply \711\ without providing 
additional justification or explanation for the Commission's time and 
expense estimates, which is arbitrary and capricious.\712\
---------------------------------------------------------------------------

    \710\ Public Interest Organizations Request for Rehearing at 
129.
    \711\ Id. (citing Solar Energy Industries Comments, Docket No. 
RM19-15-000, at 52 (Dec. 3, 2019)).
    \712\ Id. at 129-30.
---------------------------------------------------------------------------

B. Commission Determination

    393. The Commission in the final rule directly addressed Solar 
Energy Industries comments and explained why it did not agree with 
Solar Energy Industries' estimates.\713\ Additionally, we note that 
while other commenters agreed that the NOPR's proposals would result in 
increased administrative

[[Page 86713]]

burden and expense,\714\ Solar Energy Industries was the only commenter 
to provide a numerical estimate to challenge the Commission's proposed 
estimates. The Commission nevertheless increased its burden estimates 
in the final rule in response to the comments received.\715\ We also 
note that Solar Energy Industries did not independently support its 
estimate of increased burden of 90 to 120 hours. Rather, Solar Energy 
Industries relied on a separate rulemaking proceeding for a different 
regulatory program administered by the Commission,\716\ and stated, 
without justification, that it believed the estimates for an ultimately 
withdrawn portion of that rulemaking (the proposed Connected Entity 
Information requirement) are a reasonable approximation of the burden 
that QFs would face in complying with the new requirements in the final 
rule.\717\ While both rulemakings require the disclosure of affiliate 
information, the withdrawn Connected Entity Information proposal would 
have also required reporting of certain employee information.\718\ 
Furthermore, the final rule limits the information geographically to 
require the listing of only those affiliated entities that are less 
than 10 miles away, whereas the withdrawn Connected Entity Information 
requirement from the other proceeding would not have limited its 
information collection geographically.
---------------------------------------------------------------------------

    \713\ Order No. 872, 172 FERC ] 61,041 at PP 552-56.
    \714\ Ares EIF Management, LLC Comments, Docket No. RM19-15-000, 
at 6 (Dec. 2, 2019); Borrego Solar Systems, Inc. Comments, Docket 
No. RM19-15-000, at 4 (Dec. 3, 2019); Consolidated Edison 
Development, Inc. Comments, Docket No. RM19-15-000, at 5 (Nov. 15, 
2019); Public Interest Organizations Comments, Docket No. RM19-15-
000, at 97-98 (Dec. 3, 2019); Solar Energy Industries Comments, 
Docket No. RM19-15-000, at 51-52, 54, 57-58 (Dec. 3, 2019); South 
Carolina Solar Business Alliance Comments, Docket No. RM19-15-000, 
at 15-18 (Dec. 3, 2019); Southern Environmental Law Center, et al. 
Comments, Docket No. RM19-15-000, at 29, 35 (Dec. 3, 2019); sPower 
Development Company, LLC Comments, Docket No. RM19-15-000, at 14 
(Dec. 3, 2019).
    \715\ For example, in the NOPR, the Commission estimated that a 
small power production facility greater than 1 MW, but less than one 
mile from an affiliated facility, that submits a self-certification 
would not change the annual burden or cost. However, the Commission 
in the final rule estimated that such a small power production 
facility would need two additional hours to complete the Form No. 
556; thus, the total annual burden hours and cost per response for 
this category would increase by two hours and by $166. Moreover, in 
the NOPR, the Commission estimated that a small power production 
facility greater than 1 MW, and greater than 10 miles from an 
affiliated facility, that submits an application for Commission 
certification would not change the annual burden or cost. However, 
Commission in the final rule estimated that such a small power 
production facility would need six additional hours to complete the 
Form No. 556; thus, the total annual burden hours and cost per 
response for this category would increase by six hours and by $498.
    \716\ See Data Collection for Analytics and Surveillance and 
Market-Based Rate Purposes, Order No. 860, 168 FERC ] 61,039 (2019) 
(adopting rules concerning data collection for public utilities with 
market-based rates).
    \717\ Solar Energy Industries Comments, Docket No. RM19-15-000, 
at 57-58 (Dec. 3, 2019).
    \718\ See Data Collection for Analytics and Surveillance and 
Market-Based Rate Purposes, Notice of Proposed Rulemaking, 156 FERC 
] 61,045, at P 52 (2016).
---------------------------------------------------------------------------

    394. Moreover, we believe that Solar Energy Industries' estimate 
vastly overstates the regulatory burden. First, the Commission 
explained in the final rule that 18 CFR 292.207(d) (which the 
Commission did not alter in the final rule except to renumber as 18 CFR 
292.207(f)) already states that if a QF fails to conform with any 
material facts or representations presented in the certification, the 
QF status of the facility may no longer be relied upon,\719\ and hence 
it is long-standing practice that a QF must recertify when material 
facts or representations in the Form No. 556 change.
---------------------------------------------------------------------------

    \719\ 18 CFR 292.207(d), which the final rule renumbered to 18 
CFR 292.207(f).
---------------------------------------------------------------------------

    395. Second, with regard to the new Form No. 556 requirement to 
identify all affiliated small power production QFs using the same 
energy resource that are less than 10 miles from the electrical 
generating equipment of the certifying facility, we note that the final 
rule expanded the requirement to identify such facilities to less than 
10 miles away, but the requirement to identify such facilities less 
than one mile already existed.
    396. Third, we note that not all QFs will be affected by this 
expanded requirement. Only small power production QFs that have an 
affiliated small power production QF more than one but less than 10 
miles away that uses the same energy resource will be subject to the 
new requirement to list the affiliated small power production QF. QFs 
that have no affiliated small power production QFs will not be 
affected, nor will those whose only affiliates are more than 10 miles 
away. Moreover, those QFs that have only a few affiliated small power 
production QFs more than one but less than 10 miles away will only 
suffer a small increase in burden to list these affiliated facilities. 
The only facilities that may suffer a more significant burden--from the 
new requirement to identify affiliated facilities that use the same 
energy resource more than one and less than 10 miles away--are 
facilities with multiple facilities close together, and it is precisely 
this group of facilities from whom the Commission needs this 
information, in order to determine whether those facilities should be 
considered to be at the same site.
    397. However, in light of Public Interest Organizations' and Solar 
Energy Industries' renewed assertion that the regulatory burden on QFs 
is substantial,\720\ we modify and clarify our requirements regarding 
the identification of affiliated small power production QFs, in order 
to further ensure that the regulatory burden on small power production 
facilities is within reasonable limits as described in section III.D. 
Specifically, as explained more fully in section III.D above, we modify 
the final rule to state that a small power production QF evaluating 
whether it needs to recertify does not need to recertify due to a 
change in the information it has previously reported regarding its 
affiliated small power production QFs that are more than one mile but 
less than 10 miles from its electrical generating equipment, including 
adding or removing an affiliated small power production QF more than 
one mile but less than 10 miles away, or if an affiliated small power 
production QF more than one mile but less than 10 miles away and 
previously reported in item 8a makes a modification, unless that change 
also impacts any other entries on the evaluating small power production 
QF's Form No. 556.
---------------------------------------------------------------------------

    \720\ Public Interest Organizations Request for Rehearing at 
127-29; see Solar Energy Industries Request for Rehearing and/or 
Clarification at 34.
---------------------------------------------------------------------------

    398. We will continue to require that a small power production QF, 
as it was prior to the final rule, recertify its Form No. 556 to update 
item 8a due to a change at any of its affiliated small power production 
facilities located one mile or less from of its electrical generating 
equipment.\721\ We will also still require that a small power 
production QF recertify due to a change in material fact or 
representation to its own facility.
---------------------------------------------------------------------------

    \721\ See supra note 583.
---------------------------------------------------------------------------

    399. At such time as the small power production QF makes a 
recertification due to a change in material fact or representation to 
its own facility or at any of its affiliated small power production 
facilities that use the same energy resource and are located one mile 
or less from its electrical generating equipment, we will require that 
the small power production QF update item 8a for all of its affiliated 
small power production QFs within 10 miles, including adding or 
deleting affiliated small power production QFs, and recording changes 
to previously listed small power production QFs, so that the

[[Page 86714]]

information in its Form No. 556 is complete, accurate, and up-to-
date.\722\
---------------------------------------------------------------------------

    \722\ If a small power production QF that was certified prior to 
the effective date of this final rule is required to recertify due 
to a material change to its own facility, then at that time it will 
be required to identify affiliates less than 10 miles from the 
applicant facility.
---------------------------------------------------------------------------

    400. We believe that this modification reduces the burden on small 
power production QFs because we will not require them to monitor 
continually their affiliated small power production QFs more than one 
mile but less than 10 miles away for changes nor will we require a 
small power production QF that is evaluating whether it must recertify 
its facility to recertify to update item 8a due to a change at its 
affiliated small power production facilities more than one mile but 
less than 10 miles from the evaluating facility's electrical generating 
equipment.\723\ However, the affiliated QF of that evaluating small 
power production QF will need to recertify if the affiliated QF makes a 
material change to its information in its Form No. 556. After reviewing 
the rehearing requests, and implementing the modification described 
above, we conclude that this requirement strikes an appropriate balance 
between the need to address improper circumvention and the need to 
avoid unduly burdening small power production QFs. With the 
modification described above, we find that our burden estimates, as 
reported in the final rule, continue to be reasonable, especially now 
that we have lessened the burden as compared to the final rule by 
making this change on rehearing. We do not believe that the change we 
have made today to the Form No. 556 to implement the above modification 
adds any additional burden to the information collection. We also note 
that, in retaining the pre-final rule requirement that a small power 
production recertify information on affiliate small power production 
facilities one mile or less away,\724\ we are not adding any additional 
burden.
---------------------------------------------------------------------------

    \723\ We note that we are maintaining the final rule's 
alternative option for rooftop solar PV developers to file their 
recertification applications. See Order No. 872, 172 FERC ] 61,041 
at P 560.
    \724\ See supra note 583.
---------------------------------------------------------------------------

    401. Though Public Interest Organizations and Solar Energy 
Industries questioned the Commission's estimates, the Commission 
provided ample justification for why the burden and cost estimates 
would increase as a result of the final rule. In the final rule, the 
Commission estimated that the annual burden hours and costs for the 
information collection for the Form No. 556 would increase as a result 
of the changes to the ``one-mile rule'' in the final rule.\725\ The 
Commission explained that it was implementing new requirements for 
applicants to report the QF's geographic coordinates, list affiliated 
small power production QFs using the same energy resource one mile or 
less from the applicant facility, list affiliated small power 
production QFs using the same energy resource whose nearest electrical 
generating equipment is greater than one mile and less than 10 miles 
from the electrical generating equipment of the applicant facility, and 
list the geographic coordinates of the nearest ``electrical generating 
equipment'' of both its own facility and the affiliated small power 
production QF in question.\726\ The Commission also suggested that if 
applicants anticipate a protest to their certifications, they could 
provide explanations as to why the affiliated small power production 
QFs using the same energy resource that are more than one mile and less 
than 10 miles from the electrical generating equipment of the applicant 
facility should be considered at separate sites from the applicant's 
facility.\727\
---------------------------------------------------------------------------

    \725\ Order No. 872, 172 FERC ] 61,041 at P 699.
    \726\ Id. P 698.
    \727\ Id.
---------------------------------------------------------------------------

    402. Additionally, the Commission noted that, as a result of the 
changes to the PURPA Regulations made in the final rule, small power 
production QFs will have to spend more time identifying any affiliated 
small power production QFs that are less than one mile, between one and 
10 miles, and more than 10 miles, apart. The Commission further 
expected that there will be an increase in the burden hours and cost 
due to the new ability of entities to protest without a fee, which will 
affect initial self-certifications, applications for Commission 
certification, or recertifications that make substantive changes to an 
existing certification after the effective date of the final rule.\728\
---------------------------------------------------------------------------

    \728\ Id. P 699.
---------------------------------------------------------------------------

1. QFs Submitting Self-Certifications
    403. Prior to the final rule, the estimated burden for a small 
power production facility greater than 1 MW filing a self-certification 
was 1.5 hours.\729\
---------------------------------------------------------------------------

    \729\ Commission Information Collection Activities (FERC-556); 
Comment Request; Extension, Docket No. IC19-16-000 (issued May 15, 
2019).
---------------------------------------------------------------------------

a. Small Power Production Facility Greater Than 1 MW, and Less Than One 
Mile From an Affiliated Small Power Production QF
    404. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW, and less than one mile from an 
affiliated facility, two hours in addition to the prior estimated 1.5 
hours to fill out the new version of the Form No. 556 for a self-
certification.\730\ In making this estimate of two additional hours, 
the Commission took into consideration that the applicant would now be 
required to additionally provide its geographic coordinates.\731\ While 
it would also be required to identify and provide the geographic 
coordinates for any small power production QFs located less than 10 
miles from the applicant facility, the current Form No. 556 already 
required identifying any facilities located within one mile of the 
applicant facility. The Commission reasoned that the applicant may need 
to take some additional time to ascertain that there were no additional 
facilities located more than one mile from the applicant facility. The 
Commission therefore reasoned that, for this category, it may take an 
applicant facility an additional two hours to complete the Form No. 
556.\732\
---------------------------------------------------------------------------

    \730\ Order No. 872, 172 FERC ] 61,041 at P 699.
    \731\ Id. P 698.
    \732\ Id. P 699.
---------------------------------------------------------------------------

b. Small Power Production Facility Greater Than 1 MW, and More Than One 
Mile but Less Than 10 Miles From an Affiliated Small Power Production 
QF
    405. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW, and more than one mile but less 
than 10 miles from an affiliated facility, eight hours in addition to 
the prior estimated 1.5 hours to fill out the new version of the Form 
No. 556 for a self-certification.\733\ In making this estimate of eight 
additional hours, the Commission took into consideration that the 
applicant would now be required to additionally provide its geographic 
coordinates and to identify and provide the geographic coordinates for 
any small power production QFs located less than 10 miles from the 
applicant facility. If the applicant chose, it could provide 
explanations as to why the affiliated small power production QFs using 
the same energy resource that are more than one mile and less than 10 
miles from the electrical generating equipment of the applicant 
facility should be considered to be at separate sites from the 
applicant's facility.\734\ The Commission

[[Page 86715]]

therefore reasoned that, for this category, it may take an applicant 
facility an additional eight hours to complete the Form No. 556.\735\
---------------------------------------------------------------------------

    \733\ Id.
    \734\ Id. P 698.
    \735\ Id. P 699.
---------------------------------------------------------------------------

c. Small Power Production Facility Greater Than 1 MW and 10 Miles or 
More From an Affiliated Small Power Production QF
    406. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW and 10 miles or more from an 
affiliated facility two hours in addition to the prior estimated 1.5 
hours to fill out the new version of the Form No. 556 for a self-
certification.\736\ In making this estimate of two additional hours, 
the Commission took into consideration that the applicant would now be 
required to additionally provide its geographic coordinates but would 
not be required to identify and provide the geographic coordinates for 
any small power production QFs located more than 10 miles from the 
applicant facility. The Commission reasoned that the applicant may need 
to take some additional time to ascertain that there were no additional 
facilities located less than 10 miles from the applicant facility. The 
Commission therefore reasoned that, for this category, it may take an 
applicant facility an additional two hours to complete the Form No. 
556.\737\
---------------------------------------------------------------------------

    \736\ Id.
    \737\ Id.
---------------------------------------------------------------------------

2. QFs Submitting Applications for Commission Certification
    407. Prior to the final rule, the estimated burden for a small 
power production facility greater than 1 MW filing an application for 
Commission certification was 50 hours.\738\
---------------------------------------------------------------------------

    \738\ Commission Information Collection Activities (FERC-556); 
Comment Request; Extension, Docket No. IC19-16-000 (issued May 15, 
2019).
---------------------------------------------------------------------------

a. Small Power Production Facility Greater Than 1 MW, and Less Than One 
Mile From an Affiliated Small Power Production QF
    408. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW, and less than one mile from an 
affiliated facility, six hours in addition to the prior estimated 50 
hours to fill out the new version of the Form No. 556 as part of an 
application for Commission certification.\739\ In making this estimate 
of six additional hours, the Commission took into consideration that 
the applicant would now be required to additionally provide its 
geographic coordinates. Also, while the applicant would also be 
required to identify and provide the geographic coordinates for any 
small power production QFs located less than 10 miles from the 
applicant facility, the current Form No. 556 already required 
identifying any facilities located within one mile of the applicant 
facility. The Commission reasoned that the applicant may need to take 
some additional time to ascertain that there were no additional 
facilities located more than one mile from the applicant facility. 
Unlike a self-certification, the application for Commission 
certification also requires the applicant to pay a filing fee, and 
applicants for a Commission certification generally provide more 
explanation and a narrative filing. The Commission therefore reasoned 
that, for this category, it may take an applicant facility an 
additional six hours to complete the Form No. 556.\740\
---------------------------------------------------------------------------

    \739\ Order No. 872, 172 FERC ] 61,041 at P 699.
    \740\ Id.
---------------------------------------------------------------------------

b. Small Power Production Facility Greater Than 1 MW, and More Than One 
Mile but Less Than 10 Miles From an Affiliated Small Power Production 
QF
    409. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW, and more than one mile but less 
than 10 miles from an affiliated facility, 12 hours in addition to the 
prior estimated 50 hours to fill out the new version of the Form No. 
556 for an application for Commission certification.\741\ In making 
this estimate of 12 additional hours, the Commission took into 
consideration that the applicant would now be required to additionally 
provide its geographic coordinates and to identify and provide the 
geographic coordinates for any small power production QFs located less 
than 10 miles from the applicant facility. If the applicant chose, it 
could also provide explanations as to why the affiliated small power 
production QFs using the same energy resource, that are more than one 
mile and less than 10 miles from the electrical generating equipment of 
the applicant facility, should be considered to be at separate sites 
from the applicant's facility.\742\ Unlike a self-certification, the 
application for Commission certification also requires the applicant to 
pay a filing fee, and applicants for a Commission certification 
generally provide more explanation and a narrative filing. Therefore, 
the Commission reasoned that, for this category, it may take an 
applicant facility an additional 12 hours to complete the Form No. 
556.\743\
---------------------------------------------------------------------------

    \741\ Id.
    \742\ Id. P 698.
    \743\ Id. P 699.
---------------------------------------------------------------------------

c. Small Power Production Facility Greater Than 1 MW and 10 Miles or 
More From an Affiliated Small Power Production QF
    410. In the final rule, given the implementation of the new 10-mile 
rule, the Commission estimated that it would take a small power 
production facility greater than 1 MW and 10 miles or more from an 
affiliated facility six hours in addition to the prior estimated 50 
hours to fill out the new version of the Form No. 556 for an 
application for Commission certification.\744\ In making this estimate 
of six additional hours, the Commission took into consideration that 
the applicant would now be required to additionally provide its 
geographic coordinates, but the applicant would not be required to 
identify and provide the geographic coordinates for any small power 
production QFs located more than 10 miles from the applicant facility. 
The Commission reasoned that the applicant may need to take some 
additional time to ascertain that there were no additional facilities 
located less than 10 miles from the applicant facility. Unlike a self-
certification, the application for Commission certification also 
requires the applicant to pay a filing fee, and applicants for a 
Commission certification generally provide more explanation and a 
narrative filing. The Commission reasoned that, for this category, it 
may take an applicant facility an additional six hours to complete the 
Form No. 556.\745\
---------------------------------------------------------------------------

    \744\ Id.
    \745\ Id.
---------------------------------------------------------------------------

3. Calculations for Additional Burden and Cost
    411. Lastly, the Commission explained that it believed that the 
industry is similarly situated in terms of wages and benefits. 
Therefore, estimates for the annual cost of additional burden are based 
on FERC's 2020 average hourly wage (and benefits) of $83.00 per 
hour.\746\ In order to determine the cost per response in the column 
titled ``Increased Average Burden Hours & Cost Per Response ($) (4),'' 
the Commission multiplied the number of additional burden hours by the 
average hourly wage of $83.00 per hour. For

[[Page 86716]]

example, for small power production facilities greater than 1 MW 
located less than one mile from affiliated small power production QFs, 
the Commission determined that the increased average burden hours as a 
result of the final rule was two hours. The two-hour increase in the 
average burden hours, multiplied by an average hourly wage of $83.00 
per hour, equals $166 cost per response.\747\ In order to determine the 
increased total annual burden hours and total annual cost in the column 
titled ``Increased Total Annual Burden Hours & Total Annual Cost ($) 
(3) * (4) = (5),'' the Commission multiplied the numbers in the column 
titled ``Total Number of Responses (1) * (2) = (3)'' by the numbers in 
the column titled ``Increased Average Burden Hours & Cost Per Response 
($) (4).'' For example, for small power production facilities greater 
than 1 MW located less than one mile from affiliated small power 
production QFs, the Commission multiplied the increased average burden 
hours of two hours by the total number of responses of 1,123.75 for 
increased total annual burden hours of 2,247.5 hours. The Commission 
then multiplied the increased cost per response of $166 by the total 
number of responses of 1,123.75 for an increased total annual cost of 
$186,542.50.\748\
---------------------------------------------------------------------------

    \746\ Id. P 699 n.1050.
    \747\ Id. P 699.
    \748\ Id.
---------------------------------------------------------------------------

IV. Environmental Analysis

A. No EIS or EA Is Required

    412. In the final rule, the Commission noted that NEPA requires 
federal agencies to prepare a detailed statement on the environmental 
impact for ``major Federal actions significantly affecting the quality 
of the human environment.'' \749\ The Council on Environmental 
Quality's (CEQ) regulations implementing NEPA provide that federal 
agencies can comply with NEPA by preparing: (a) An Environmental Impact 
Statement (EIS) for a proposed action significantly affecting the 
quality of the human environment; \750\ or (b) an Environmental 
Assessment (EA) to determine whether an EIS is required.\751\ The CEQ 
regulations also provide that agencies are not obligated to prepare 
either an EIS or an EA if they find that a categorical exclusion 
applies.\752\
---------------------------------------------------------------------------

    \749\ Id. P 710 (citing 42 U.S.C. 4332(C)); see also Regulations 
Implementing the National Environmental Policy Act, Order No. 486, 
FERC Stats. & Regs. ] 30,783 (1987) (cross-referenced at 41 FERC ] 
61,284)).
    \750\ 40 CFR 1502.4 (2019).
    \751\ 40 CFR 1508.9.
    \752\ 40 CFR 1508.4.
---------------------------------------------------------------------------

    413. The Commission found that no EA or EIS was required for the 
final rule because the rule does not involve a particular project that 
``define[s] fairly precisely the scope and limits of the proposed 
development'' and any potential environmental impacts from the final 
rule are not reasonably foreseeable.\753\ In response to comments on 
the NOPR that although an EA and later an EIS was prepared for the 1980 
initial rules implementing PURPA (Order No. 70), the Commission 
explained, based on a number of factual differences between the initial 
rules and the final rule, that a meaningful NEPA analysis could not be 
prepared for the final rule.\754\ The Commission also found that, as a 
separate and independent alternative ground, that a categorical 
exclusion applied to the final rule so that an EA or EIS need not be 
prepared.\755\
---------------------------------------------------------------------------

    \753\ Order No. 872, 172 FERC ] 61,041 at PP 710, 715.
    \754\ Id. PP 728-36.
    \755\ Id. P 720.
---------------------------------------------------------------------------

1. NEPA Analysis Is Not Required Where Environmental Impacts Are Not 
Reasonably Foreseeable
    414. The Commission explained that the final rule does not propose 
or authorize, much less define, the scope and limits of any potential 
energy infrastructure and, as a result, there is no way to determine 
whether issuance of the rule will significantly affect the quality of 
the human environment.\756\ The Commission also explained that, while 
courts have held that NEPA requires ``reasonable forecasting,'' ``NEPA 
does not require a `crystal ball' inquiry.'' \757\ The Commission added 
that an agency ``is not required to engage in speculative analysis'' or 
``to do the impractical, if not enough information is available to 
permit meaningful consideration'' \758\ or to ``foresee the 
unforeseeable.'' \759\ and ``[i]n determining what effects are 
`reasonably foreseeable,' an agency must engage in `reasonable 
forecasting and speculation,' . . . with reasonable being the operative 
word.'' \760\ The Commission explained that environmental impacts are 
not reasonably foreseeable if the impacts would result only through a 
lengthy causal chain of highly uncertain or unknowable events.\761\
---------------------------------------------------------------------------

    \756\ Id. P 711.
    \757\ Id. P 716 (citing Vt. Yankee Nuclear Power Corp. v. Nat. 
Res. Def. Council, Inc., 435 U.S. 519, 534 (1978)).
    \758\ Id. (citing N. Plains Res. Council v. Surface Transp. 
Board, 668 F.3d 1067, 1078-79 (9th Cir. 2011) (citation omitted)).
    \759\ Id. (citing Concerned About Trident v. Rumsfeld, 555 F.2d 
817, 830 (D.C. Cir. 1976) (citation omitted)).
    \760\ Id. (citing Sierra Club v. U.S. Dep't of Energy, 867 F.3d 
189, 198 (D.C. Cir. 2017) (emphasis in original) (citation 
omitted)).
    \761\ Id. (citing Dep't of Transp. v. Pub. Citizen, 541 U.S. 
752, 767 (2004) (``NEPA requires a `reasonably close causal 
relationship' between the environmental effect and the alleged 
cause.''); Metro. Edison Co. v. People Against Nuclear Energy, 460 
U.S. 766, 774 (1983) (noting effects may not fall within section 102 
of NEPA because ``the causal chain is too attenuated'')).
---------------------------------------------------------------------------

    415. The Commission found that any consideration of whether the 
revised rules could potentially result in significant new environmental 
impacts due to less QF development and increased development of coal, 
nuclear, and combined cycle natural gas plants, would be unduly 
speculative, based on the difficulty in determining which, if any, of 
the additional flexibilities the final rule provides to the states will 
be adopted by each state, how state rules would impact QF development 
going forward and whether any reduction in QF renewables would be 
replaced by an increased amount of non-QF renewable resources with 
similar environmental characteristics.\762\
---------------------------------------------------------------------------

    \762\ Id. P 717.
---------------------------------------------------------------------------

    416. The Commission pointed to Center for Biological Diversity v. 
Ilano,\763\ in which the court held that no NEPA review was required 
for United States Forest Service designations, pursuant to the Healthy 
Forests Restoration Act (HFRA), of certain forests as ``landscape-scale 
areas.'' The Commission explained that the court held that no NEPA 
review was required for the designations, noting that no specific 
projects were proposed for any of the landscape-scale areas and that 
``[i]n such circumstances, `any attempt to produce an [EIS] would be 
little more than a study . . . containing estimates of potential 
development and attendant environmental consequences.' '' \764\ The 
Commission further explained that the court concluded that ``unless 
there is a particular project that `define[s] fairly precisely the 
scope and limits of the proposed development of the region,' there can 
be `no factual predicate for the production of an [EIS] of the type 
envisioned by NEPA.' '' \765\
---------------------------------------------------------------------------

    \763\ Id. P 712 (citing Ctr. for Biological Diversity v. Ilano, 
928 F.3d 774 at 780) (9th Cir. 2019).
    \764\ Id.
    \765\ Id. See also Northcoast Ent. Ctr. v. Glickman, 136 F.3d 
660, 668 (9th Cir. 1998) (citing Kleppe v. Sierra Club, 427 U.S. 390 
(1976) (explaining that NEPA does not require agency to complete 
environmental analysis where environmental effects are speculative 
or hypothetical)).

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

[[Page 86717]]

    417. The Commission found that the final rule does not fund any 
particular QFs or issue permits for their construction or operation 
(neither of which the Commission has jurisdiction to do) and neither 
the Commission's regulation nor the final rule authorize or prohibit 
the use of any particular technology or fuel, or mandate or prohibit 
where QFs should be or are built.\766\
---------------------------------------------------------------------------

    \766\ Id. P 713.
---------------------------------------------------------------------------

    418. The Commission found that the final rule continues to give 
states wide discretion and that it is impossible to know what the 
states may choose to do in response to the final rule, whether they 
will make changes in their current practices or not, and how those 
state choices would impact QF development and the environment in any 
particular state, let in any particular locale.\767\
---------------------------------------------------------------------------

    \767\ Id. P 714.
---------------------------------------------------------------------------

    419. The Commission found that the scope of the final rule is even 
less defined than the landscape-scale area designations at issue in 
Center for Biological Diversity v. Ilano, explaining that PURPA applies 
throughout the entire United States and the revisions implemented by 
the final rule theoretically could affect future QF development 
anywhere in the country.\768\ The Commission reasoned that, as was the 
case in Center for Biological Diversity v. Ilano, any attempt to 
evaluate the environmental effects of the final rule by necessity would 
involve hypothesizing the potential development of QFs and the 
resultant environmental consequences.\769\ The Commission found that 
any attempt by the Commission to estimate the potential environmental 
effects of the final rule would be considerably more speculative than 
the estimates of potential development and attendant environmental 
consequences that the court in Center for Biological Diversity held are 
not required under NEPA. The Commission found that it was not possible 
to provide any reasonable forecast of the effects of the final rule on 
future QF development, whether any affected potential QF would be a 
renewable resource (such as solar or wind) or employ carbon-emitting 
technology (such as a fossil-fuel-burning cogenerator or a waste-coal-
burning small power production facility). The Commission further found 
that environmental effects on land use, vegetation, water quality, etc. 
are all dependent on location, which is unknown and could be anywhere 
in the United States.\770\ The Commission therefore concluded that any 
the potential effects of the final rule on future QF development are so 
speculative as to render meaningless any environmental analysis of 
these impacts.\771\
---------------------------------------------------------------------------

    \768\ Id. P 715.
    \769\ Id. P 718.
    \770\ Id.
    \771\ Id. P 719.
---------------------------------------------------------------------------

a. Requests for Rehearing
    420. Northwest Coalition and Public Interest Organizations allege 
that the Commission erred in determining that there is no need to 
prepare an EA or EIS.\772\ With respect to the discussion in the final 
rule of why potential environmental impacts are too speculative, 
Northwest Coalition asserts, with no explanation, that the Commission 
provided ``out-of-context quotations from a number of cases.'' \773\ 
Northwest Coalition and Public Interest Organizations argue that the 
impacts are not too speculative or uncertain for a NEPA analysis 
because the Commission used the wrong standard to determine impact, 
asserting that the ``question is whether the proposed rules may have a 
significant impact on the human environment,'' not whether it will have 
an impact.\774\ They claim that, because states were prohibited from 
lawfully denying fixed-price contracts to QFs under previous rules, the 
Commission must assume that under the new rules the states will 
eliminate the right to fixed-price contracts and that the development 
of new QFs will halt, which is the type of analysis that must be done 
in a NEPA document.\775\ Northwest Coalition claims that the final rule 
does not appear to seriously dispute that the new rules may have a 
significant effect; instead, it appears to merely conclude the precise 
impact would be too difficult to pinpoint.
---------------------------------------------------------------------------

    \772\ Northwest Coalition Request for Rehearing at 56-57; Public 
Interest Organizations Request for Rehearing at 15-16.
    \773\ Northwest Coalition Request for Rehearing at 61 n.222.
    \774\ Id. at 58.
    \775\ Id. at 58-59.
---------------------------------------------------------------------------

    421. Public Interest Organizations similarly argue that the 
Commission cannot avoid NEPA review by making unsupported claims that 
environmental impacts are unforeseeable, prior to any NEPA analysis, as 
the role of NEPA itself is to ``indicate the extent to which 
environmental effects are uncertain or unknown.'' \776\ Public Interest 
Organizations assert that the Commission mistakenly found that any 
environmental analysis of the final rule would be speculative and would 
not meaningfully inform the Commission or the public.\777\ Public 
Interest Organizations add that NEPA requires agencies to examine all 
foreseeable impacts, including cumulative and indirect impacts, when 
undertaking rule changes that grant states new regulatory authority, 
which ``plainly includes changes to allow new ways and options for 
states when exercising their authority.'' \778\ Public Interest 
Organizations contend that NEPA may apply when the agency makes a 
decision that permits actions by other parties that will have an impact 
on the environment.\779\ Northwest Coalition adds that courts have 
required a NEPA analysis in cases where the agency proposes rules that 
will have an impact on future development, even for widespread 
regulatory changes that do not themselves authorize any discrete 
project.\780\
---------------------------------------------------------------------------

    \776\ Public Interest Organizations Request for Rehearing at 20, 
26 (emphasis added) (citing Sierra Club v. Froehlke, 534 F.2d 1289, 
1296 (8th Cir. 1976); Scientists' Institute for Public Information, 
Inc. v. AEC, 481 F.2d 1079, 1092, 1098 (D.C. Cir. 1973); Jicarilla 
Apache Tribe of Indians v. Morton, 471 F.2d 1275, 1280 n.11 (9th 
Cir. 1973); Citizens Against Toxic Sprays, Inc. v. Bergland, 428 F. 
Supp. 908, 922 (D. Or. 1977)).
    \777\ Id. at 21 (citing NOPR, 168 FERC ] 61,184 at P 155).
    \778\ Id.
    \779\ Id. at 22 (citing Mid States Coal. for Progress v. Surface 
Transp. Bd., 345 F.3d 520, 549-50 (8th Cir. 2003); Scientists' Inst. 
For Public Info., Inc. v. AEC, 481 F.2d at 1088-89).
    \780\ Northwest Coalition Request for Rehearing at 60-61 (citing 
American Bird Conservancy, Inc. v. FCC, 516 F.3d 1027, 1033-34 (D.C. 
Cir. 2008)).
---------------------------------------------------------------------------

    422. Public Interest Organizations assert that a NEPA analysis is 
required when uncertainty may be resolved by collecting further data or 
the collection of such data may prevent speculation on potential 
environmental effects.\781\ Public Interest Organizations add that the 
Commission's position that collecting data and analyzing it would be 
too difficult is an impermissible basis for foregoing an EA or 
EIS.\782\ Public Interest Organizations contend that, when an agency is 
faced with incomplete or unavailable information, the CEQ regulations 
require an EIS to include a summary of existing credible scientific 
evidence that is relevant to evaluating the reasonably foreseeable 
impacts of a proposed action.\783\
---------------------------------------------------------------------------

    \781\ Public Interest Organizations Request for Rehearing at 24 
(citing National Parks & Conservation Ass'n v. Babbitt, 241 F.3d 
722, 732 (9th Cir. 2001)).
    \782\ Id. (citing Seattle Audubon Soc'y v. Mosley, 798 F. Supp. 
1494, 1497 (W.D. Wash. 1992)).
    \783\ Id. at 24-25 (citing 40 CFR 1502.22(b)(3)-(b)(4)).
---------------------------------------------------------------------------

    423. Northwest Coalition and Public Interest Organizations argue 
the Commission is required to prepare an EIS because courts have found 
an EIS is required where ``substantial questions''

[[Page 86718]]

have been raised as to whether an agency action ``may cause significant 
degradation of some human environmental factor,'' adding that parties 
are not required to show that significant effects will occur, but only 
raise substantial questions that they may occur.\784\
---------------------------------------------------------------------------

    \784\ Northwest Coalition Request for Rehearing at 57 (citing 
LaFlamme v. FERC, 852 F.2d 389, 397 (9th Cir. 1988)); Public 
Interest Organizations Request for Rehearing at 17 (citing 
Greenpeace Action v. Franklin, 14 F.3d 1324, 1332 (9th Cir. 1992)).
---------------------------------------------------------------------------

    424. Northwest Coalition and Public Interest Organizations allege 
that the Commission improperly relied on Center for Biological 
Diversity v. Ilano to determine that the rulemaking's impacts were too 
speculative for NEPA analysis.\785\ Public Interest Organizations 
assert that the court found that the action would not change the 
``status quo,'' in contrast to here, where they claim the final rule 
legally alters the status quo.\786\ Public Interest Organizations claim 
that ``significantly'' reduced QF development is foreseeable based on 
experience in states that have undermined the prior rules, regardless 
of the fact that the proposed changes do not mandate or prohibit the 
construction of any specific QF's, and the environmental impacts of 
removing major incentives for emissions-free renewable resources will 
be significant and far-reaching.\787\ Northwest Coalition asserts that 
the Center for Biological Diversity v. Ilano court ``relied on its 
finding that the designation did not authorize any discrete projects 
and would only potentially lead to such projects, making the exercise 
of an EIS too speculative.'' \788\ Northwest Coalition claims that this 
reasoning does not apply to the final rule because the Commission has 
demonstrated it has the capability to conduct detailed market analysis 
on the impact of its proposed rules and their likely environmental 
impacts.\789\
---------------------------------------------------------------------------

    \785\ Northwest Coalition Request for Rehearing at 59-60; Public 
Interest Organizations Request for Rehearing at 30.
    \786\ Public Interest Organizations Request for Rehearing at 31 
(citing Ctr. for Biological Diversity v. Ilano, 928 F.3d at 781).
    \787\ Id. at 34.
    \788\ Northwest Coalition Request for Rehearing at 60.
    \789\ Id.
---------------------------------------------------------------------------

b. Commission Determination
    425. As an initial matter, Northwest Coalition errs in suggesting 
that the Commission does not dispute that the final rule may have 
significant impacts on the environment and that the precise impact 
would be too difficult to pinpoint. Rather, the Commission found that 
any consideration of whether the final rule could potentially have 
significant environmental impacts would be so speculative as to render 
meaningless any environmental analysis of these hypothetical 
impacts.\790\
---------------------------------------------------------------------------

    \790\ Order No. 872, 172 FERC ] 61,041 at PP 717-719. We note 
that CEQ issued a final rule, Update to the Regulations Implementing 
the Procedural Provisions of the National Environmental Policy Act, 
85 FR 43,304 (July 16, 2020) (to be codified at 40 CFR pts. 1500-08, 
1515-18), which became effective as of September 14, 2020. The final 
rule replaces the requirement for agency consideration of ``direct, 
indirect, and cumulative effects'' of a proposed action, with agency 
consideration of environmental effects ``that are reasonably 
foreseeable and have a reasonably close causal relationship.'' 40 
CFR 1508.1(g). CEQ explains that agencies should not consider 
effects that are ``remote in time, geographically remote, or the 
result of a lengthy causal chain.'' Under this standard, the mere 
fact that an effect might not occur ``but for'' the project is not 
sufficient to trigger a NEPA analysis; rather, there must be a 
``reasonably close causal relationship'' between the proposed action 
and the effect, ``analogous to proximate cause in tort law.'' Update 
to the Regulations Implementing the Procedural Provisions of the 
National Environmental Policy Act, 85 FR at 43,343.
---------------------------------------------------------------------------

    426. Moreover, the Commission did not reach this conclusion based 
on an inability to ``pinpoint'' precise impacts. Rather the Commission 
made this determination based on, among other things, the inability to 
provide any reasonable forecast of the effects of the final rule on the 
environment. This is the case not only because it is not possible to 
predict how the states will exercise the increased flexibilities 
provided by the final rule and whether the effects, if any, of such 
state actions will encourage or discourage renewable resources as 
opposed to fossil-fueled resources, but also because any environmental 
effects on resources such as land use, vegetation, and water quality 
are all dependent on location, which is unknown at this time and could 
be anywhere in the United States.\791\
---------------------------------------------------------------------------

    \791\ Id.
---------------------------------------------------------------------------

    427. We also reject Northwest Coalition's argument that in making 
an impact determination, the Commission erroneously considered whether 
the final rule ``will,'' rather than ``may,'' have a significant impact 
on the environment. In explaining why no EA or EIS was required, the 
Commission stated that any consideration of whether the final rule 
could potentially result in significant new environmental impacts due 
to less QF development and increased development of coal, nuclear, and 
combined cycle natural gas plants, would be highly speculative, based 
on the difficulty in determining which additional flexibilities the 
final rule provides to the states that each state will adopt, if any; 
how such state rules would impact QF development going forward; and 
whether any reduction in QF renewables would be replaced by the much 
greater amount of non-QF renewable resources with similar environmental 
characteristics.\792\
---------------------------------------------------------------------------

    \792\ Id. P 717. (emphasis added).
---------------------------------------------------------------------------

    428. Public Interest Organizations' reliance on Mid States Coal. 
for Progress v. Surface Transp. Bd \793\ to support its claim that NEPA 
applies when an agency makes decisions which permit actions by other 
parties that will impact the environment is misplaced. In that case, 
parties challenged the permitting of a railroad extension that would 
transport coal to the Midwest, resulting in an increased availability 
of coal at reduced rates. The court found that the EIS prepared for the 
railroad extension had failed to address the indirect impacts of air 
emissions resulting from the consumption of this coal when it was used 
to generate electricity, even though the railroad had not yet signed 
any contracts to haul this coal. The court noted that ``if the nature 
of the effect is reasonably foreseeable but its extent is not . . . the 
agency may not simply ignore the effects.'' \794\ In contrast to this 
proceeding, in Mid States Coal. for Progress v. Surface Transp. Bd, it 
was undisputed that the proposed rail line would increase the use of 
coal for power generation; the Surface Transportation Board itself had 
concluded that its action would lead to increased mining and air 
emissions but then failed to address those impacts in the EIS. Here, 
the Commission did not conclude that the final rule would have 
identifiable environmental impacts; on the contrary, it explained in 
detail why any potential impacts from the final rule are not reasonably 
foreseeable.
---------------------------------------------------------------------------

    \793\ Mid States Coal. for Progress v. Surface Transp. Bd., 345 
F.3d 520.
    \794\ Id. (emphasis in original).
---------------------------------------------------------------------------

    429. Public Interest Organizations' reliance on Scientists' 
Institute for Public Information, Inc., v. AEC \795\ is equally 
misplaced. There, the D.C. Circuit faulted the Atomic Energy Commission 
(AEC) for failing to prepare a NEPA analysis for its proposed liquid 
metal fast breeder reactor program. The D.C. Circuit noted that AEC had 
prepared a complex cost/benefit analysis in attempting to justify the 
proposed program but failed to include a consideration of the 
environmental costs and benefits associated with the proposed program. 
The court was persuaded that a NEPA analysis should have been prepared 
because AEC had existing detailed estimates on the

[[Page 86719]]

amount of waste and the amount of land area necessary for storage of 
the waste, as well as ``much information on alternatives to the program 
and their environmental effects.'' \796\ In contrast here, for the 
reasons discussed in the final rule and herein, the Commission has no 
existing detailed or quantifiable information, nor is such information 
attainable, with respect to future actions that might or might not 
occur as a result of the final rule that would assist us in a 
meaningful analysis.\797\
---------------------------------------------------------------------------

    \795\ Scientists' Institute for Public Information, Inc. v. AEC, 
481 F.2d 1079.
    \796\ Id.
    \797\ Order No. 872, 172 FERC ] 61,041 at PP 718-19.
---------------------------------------------------------------------------

    430. We also disagree with Public Interest Organizations' arguments 
that ``substantial questions'' have been raised with respect to 
potential significant environmental impacts such that the Commission 
must prepare an EA or EIS for the final rule.\798\ Courts have found 
that the applicable standard for determining whether substantial 
questions have been raised is whether the ``alleged facts if true, show 
that the proposed project may significantly degrade some human 
environmental factor.'' \799\ Public Interest Organizations' arguments 
are based not on alleged facts, but on speculative assumptions which 
the Commission considered and addressed in the final rule.\800\ Public 
Interest Organizations' reliance on LaFlamme v. FERC \801\ is without 
merit. There, the Commission approved the construction of a new 
hydroelectric project without benefit of an EA or an EIS. The court 
found that substantial questions had been raised regarding identifiable 
potential impacts from site specific activities.\802\ In contrast, the 
final rule does not authorize any site-specific activities for which 
there are identifiable potential impacts; as discussed above, the final 
rule does not authorize any specific projects.
---------------------------------------------------------------------------

    \798\ Northwest Coalition Request for Rehearing at 57 (citing 
LaFlamme v. FERC, 852 F.2d at 397); Public Interest Organizations 
Request for Rehearing at 17 (citing Greenpeace Action v. Franklin, 
14 F.3d at 1332).
    \799\ Foundation for N. Am. Wild Sheep v. USDA, 681 F.2d 1172, 
1177-78 (9th Cir. 1982).
    \800\ Order No. 872, 172 FERC ] 61,041 at PP 717-19, 731-36.
    \801\ LaFlamme v. FERC, 852 F.2d at 389.
    \802\ Id. at 397 (finding that substantial questions were raised 
about potential ``significant environmental degradation [of a 
hydropower project] due to both its site-specific impact on 
recreational use and visual quality and its cumulative impact[s]'').
---------------------------------------------------------------------------

    431. Greenpeace Action v. Franklin \803\ is similarly inapposite. 
There, the National Marine Fisheries Service prepared an EA for 
proposed fishery harvest specifications for pollock that concluded in a 
finding of no significant impacts on the Stellar sea lion, whose diet 
included a significant amount of pollock.\804\ The National Marine 
Fisheries Service determined that, while it was uncertain there would 
be adverse impacts on the Stellar sea lion, it would take precautions 
and impose management measures to provide an adequate buffer against 
any adverse impacts. The court rejected plaintiff's claim that the 
National Marine Fisheries Service should have prepared an EIS based on 
plaintiff's competing affidavits with respect to National Marine 
Fisheries Service's findings. While the court cited the general 
principle that an agency must prepare an EIS if substantial questions 
are raised as to environmental impacts, the court found that 
petitioner's affidavits did not set forth facts demonstrating there 
would be significant impacts on the Stellar sea lion; rather they only 
demonstrated ``uncertainty as to how pollock fishing affects the sea 
lion, which is undisputed.'' \805\ The court declined to set aside the 
National Marine Fisheries Service's findings because there was no 
disagreement over whether the proposed action impact may have a 
significant impact on the environment but rather ``represent[ed] a 
difference of scientific opinion'' over the extent of potential 
impacts.\806\
---------------------------------------------------------------------------

    \803\ Greenpeace Action v. Franklin, 14 F.3d 1324.
    \804\ Id. at 1327.
    \805\ Id. at 1333.
    \806\ Id. (emphasis added). Plaintiffs in this case also cited 
several cases to support its claim that the very existence of 
uncertainty mandates the preparation of an EIS. However, the court 
noted that because the cases cited ``deal not with whether an impact 
statement should be prepared, but with what information should be 
included in an impact statement after it has been judged necessary, 
they do not stand for the proposition that the existence of 
uncertainty mandates the preparation of an impact statement.'' Id. 
at 1334 n.11.
---------------------------------------------------------------------------

    432. We also reject Northwest Coalition's claim that the Commission 
must consider the impacts of reasonably foreseeable future actions even 
if there is no specific proposal, asserting there are previous 
experiences on how states have allegedly reacted to prior PURPA 
Regulations. Specifically, Northwest Coalition argues the Commission 
must assume that under the new rules the states will eliminate the 
right to fixed-price contracts and, therefore, the development of new 
QFs will halt.\807\ Public Interest Organizations allege that the 
environmental impacts of removing major incentives for emissions-free 
renewable resources will be significant and far-reaching \808\ 
Northwest Coalition's and Public Interest Organizations' arguments 
would require the Commission first to make highly speculative and 
hypothetical assumptions about future state action on QFs and that all 
QFs are renewables, as well as unrealistic and unsupported assumptions 
as to whether such actions would impact renewable QFs more than 
emitting QFs.
---------------------------------------------------------------------------

    \807\ Northwest Coalition Request for Rehearing at 59.
    \808\ Public Interest Organizations Request for Rehearing at 34.
---------------------------------------------------------------------------

    433. As discussed in the final rule, an agency ``is not required to 
engage in speculative analysis'' or ``to do the impractical, if not 
enough information is available to permit meaningful consideration'' or 
to ``foresee the unforeseeable.'' \809\ Further, the Commission 
explained that the final rule ``continues to give states wide 
discretion and it is impossible to know what the states may choose to 
do in response to [the final rule], whether they will make changes in 
their current practices or not, and how those state choices would 
impact QF development and the environment in any particular state, let 
alone any particular locale.'' \810\
---------------------------------------------------------------------------

    \809\ See Order No. 872, 172 FERC ] 61,041 at P 716 (citing N. 
Plains Res. Council v. Surface Transp. Board, 668 F.3d at 1078-79; 
Concerned About Trident v. Rumsfeld, 555 F.2d at 830).
    \810\ Id. P 714.
---------------------------------------------------------------------------

    434. Public Interest Organizations cite National Parks & 
Conservation Ass'n v. Babbitt for the proposition that an EA or EIS is 
required ``where uncertainty may be resolved by further collection of 
data.\811\ Here, attempting to collect further data or information 
would not resolve uncertainty; the Commission has explained that it is 
not possible to collect detailed or quantifiable information regarding 
future QF development.\812\ This contrasts with National Parks & 
Conservation Ass'n v. Babbitt, where the National Park Service issued 
an EA finding that a substantial increase in cruise ship traffic 
entering Glacier Bay National Park and Preserve would have no 
significant impact on the environment. In requiring the National

[[Page 86720]]

Park Service to prepare an EIS, the court explained that scientific 
evidence provided by the National Park Service's own studies ``revealed 
very definite environmental effects,'' and the National Park Service's 
EA established that information was ``obtainable and that it would be 
of substantial assistance'' in considering the environmental impacts of 
the increased cruise ship traffic.\813\
---------------------------------------------------------------------------

    \811\ National Parks & Conservation Ass'n v. Babbitt, 241 F.3d 
722, 732 (9th Cir. 2001) (emphasis added).
    \812\ We also disagree with Public Interest Organizations' 
assertion that because the Commission is faced with incomplete or 
unavailable information, the CEQ regulations state the Commission 
must include in an EIS a summary of existing credible scientific 
evidence that is relevant to evaluating the reasonably foreseeable 
impacts of a proposed action. Public Interest Organizations Request 
for Rehearing at 23-24 (citing 40 CFR 1502.22(b)(3)-(b)(4)). This 
regulation is inapplicable to the final rule, as it contemplates 
that an EIS has been prepared, and that there are reasonably 
foreseeable impacts for which existing credible scientific evidence 
may be relevant (emphasis added). The Commission did not prepare an 
EIS because there are no reasonably foreseeable impacts for the 
reasons discussed in the final rule and herein.
    \813\ National Parks & Conservation Ass'n v. Babbitt, 241 F.3d 
732.
---------------------------------------------------------------------------

    435. We also reject Northwest Coalition's and Public Interest 
Organizations' claims that the Commission improperly relied on Center 
for Biological Diversity v. Ilano, because, they assert, the final rule 
legally alters the ``status quo.'' The court in Center for Biological 
Diversity held that an EIS is not required where a proposed action does 
not change the status quo, and defined changes in the status quo as 
those ``alter[ing] future land use or otherwise foreseeably impact[ing] 
the environment.'' \814\ The court further explained that `` `[l]ong-
range aims are quite different from concrete plans,' and `NEPA does not 
require an agency to consider the environmental effects that 
speculative or hypothetical projects might have . . . .' '' \815\ While 
the final rule results in changes to the implementation of the original 
PURPA Regulations, the final rule does not change the status quo as 
contemplated by NEPA. It does not direct or preclude the development of 
any project or otherwise require entities to take actions that 
foreseeably alter future land use or otherwise result in foreseeable 
environmental impacts. As discussed in the final rule, it is not 
possible to make simplifying assumptions that the mere implementation 
of the revised regulations necessarily would result in specific changes 
in the development of particular generation technologies compared to 
the status quo.\816\ The final rule is premised on a finding that, even 
after the revisions, the PURPA Regulations will continue to encourage 
QF development while addressing concerns about how PURPA works in 
today's electric markets; therefore, there it cannot be presumed that 
the rule will result in a reduction in QF development or a change in 
the type of QFs that are built. The impact, if any, of the final rule 
on QF development is both uncertain or unknowable.\817\ As the court 
found in Center for Biological Diversity, such speculative 
environmental consequences are not required to be analyzed under 
NEPA.\818\ Thus, the Commission cannot analyze environmental impacts in 
this case, when such an analysis could only be done if multiple, 
unlikely, and unreasonable assumptions are made as to the variables 
above.\819\
---------------------------------------------------------------------------

    \814\ Ctr. for Biological Diversity v. Ilano, 928 F.3d at 781.
    \815\ Id. at 780 (quoting Northcoast Envtl. Ctr. v. Glickman, 
136 F.3d at 668).
    \816\ Order No. 872, 172 FERC ] 61,041 at P 733.
    \817\ Id. P 716 (citing Dep't of Transp. v. Pub. Citizen, 541 
U.S. at 767; Metro. Edison Co. v. People Against Nuclear Energy, 460 
U.S. at 774).
    \818\ Ctr. for Biological Diversity, 928 F.3d at 781 (citing 
Northcoast Envtl. Ctr. v. Glickman, 136 F.3d at 668).
    \819\ See Order No. 872, 172 FERC ] 61,041 at PP 733-35.
---------------------------------------------------------------------------

2. A Categorical Exclusion Applies
    436. The Commission found as a separate and independent alternative 
basis for concluding that no environmental analysis is warranted that 
the final rule falls within the categorical exclusion for rules that, 
as relevant here: (1) Are clarifying in nature; (2) are corrective in 
nature; or (3) are procedural in nature.\820\
---------------------------------------------------------------------------

    \820\ Id. P 720 (citing 18 CFR 380.4(a)(2)(ii)). The exclusion 
applies to a fourth type of rule, the promulgation of regulations 
``that do not substantially change the effect of . . . regulations 
being amended.'' Further, although not challenged on rehearing, the 
final rule noted two revisions that are procedural in nature: The 
revision to procedures that apply to QF certification and the 
revision to the Commission's Form No. 556, used by QFs seeking 
certification. Id. P 727.
---------------------------------------------------------------------------

    437. The Commission explained that clarifying changes include those 
that clarify how market prices can be used to set as-available energy 
rates, the changes clarifying how fixed energy rates in contracts or 
LEOs may be determined, and the changes clarifying how competitive 
solicitations can be used to set avoided cost rates.\821\
---------------------------------------------------------------------------

    \821\ Id. P 721.
---------------------------------------------------------------------------

    438. The Commission stated that corrective changes include those 
needed in order to ensure that a regulation conforms to the 
requirements of the statutory provisions being implemented by the 
regulation. The Commission noted that it does not find that its 
existing PURPA Regulations were inconsistent with the statutory 
requirements of PURPA when promulgated. The Commission found instead 
that the changes adopted in the final rule are required to ensure 
continued future compliance of the PURPA Regulations with PURPA, based 
on the changed circumstances found by the Commission in the final 
rule.\822\
---------------------------------------------------------------------------

    \822\ Id. P 722.
---------------------------------------------------------------------------

    439. The Commission found that three aspects of the final rule are 
corrective in nature. The first is the change allowing states to 
require variable energy rates in QF contracts. The Commission explained 
this change is required based on the Commission's finding that, 
contrary to the Commission's expectation in 1980, there have been 
numerous instances where overestimates and underestimates of energy 
avoided costs used in fixed energy rate contracts have not balanced 
out, causing the contract rate to violate the statutory avoided cost 
rate cap. The Commission explained that giving states the ability to 
require energy rates in QF contracts to vary based on the purchasing 
utility's avoided cost of energy at the time of delivery ensures that 
QF rates do not exceed the avoided cost rate cap imposed by PURPA.\823\
---------------------------------------------------------------------------

    \823\ Id. P 723.
---------------------------------------------------------------------------

    440. The second corrective aspect is the change in the PURPA 
Regulations regarding the determination of what facilities are located 
at the same site for purposes of complying with the statutory 80 MW 
limit on small power production facilities located at the same 
site.\824\ The Commission explained that it found, based on changed 
circumstances, that the current one-mile rule is inadequate to 
determine which facilities are located at the same site. The Commission 
determined that, based on this finding, the Commission was obligated by 
PURPA to revise its definition of when facilities are located at the 
same site.\825\
---------------------------------------------------------------------------

    \824\ Id. P 724.
    \825\ Id.
---------------------------------------------------------------------------

    441. The third corrective aspect relates to the implementation of 
PURPA section 210(m). The Commission explained that this statutory 
provision allows purchasing utilities to terminate their obligation to 
purchase from QFs that have nondiscriminatory access to certain 
statutorily-defined markets, which the Commission has determined to be 
the RTO/ISO markets.\826\ The Commission explained that the final rule 
updates the presumption in the PURPA Regulations that QFs with a 
capacity of 20 MW or less do not have non-discriminatory access to such 
markets, reducing the threshold for such presumption to 5 MW.\827\
---------------------------------------------------------------------------

    \826\ Id. P 725.
    \827\ Id.
---------------------------------------------------------------------------

    442. The Commission explained that, since the 20-MW threshold was 
established in 2005, the RTO/ISO markets have matured and the industry 
has developed a better understanding of the mechanics of market 
participation.\828\ The Commission added that this determination 
rendered inaccurate the presumption currently

[[Page 86721]]

reflected in the PURPA Regulations that QFs of 20 MW and below do not 
have non-discriminatory access to the relevant markets.\829\ The 
Commission explained that, once the Commission made this determination, 
it was appropriate for the Commission to update the 20 MW threshold to 
comply with the requirements of PURPA section 210(m).\830\
---------------------------------------------------------------------------

    \828\ Id. P 726.
    \829\ Id.
    \830\ Id.
---------------------------------------------------------------------------

a. Exception to Categorical Exclusion
i. Requests for Rehearing
    443. Northwest Coalition and Public Interest Organizations assert 
that, as a threshold matter, the final rule does not qualify for a 
categorical exclusion because the Commission's regulations provide 
that, ``[w]here circumstances indicate that an action may be a major 
Federal action significantly affecting the quality of the human 
environment,'' the Commission will prepare either an EA or an EIS.\831\ 
They add that the Commission's regulations provide that an exception to 
a categorical exclusion may exist ``[w]here the environmental effects 
are uncertain.'' \832\
---------------------------------------------------------------------------

    \831\ Northwest Coalition Request for Rehearing at 62; Public 
Interest Organizations Request for Rehearing at 36 (citing 18 CFR 
380.4(b)(1)).
    \832\ Northwest Coalition Request for Rehearing at 62; Public 
Interest Organizations Request for Rehearing at 36 (citing 18 CFR 
380.4(b)(1)).
---------------------------------------------------------------------------

ii. Commission Determination
    444. We disagree that the Commission's exceptions to categorical 
exclusions preclude the application of a categorical exclusion to the 
final rule. The CEQ regulations state that a categorical exclusion 
applies to an action that does not individually or cumulatively have a 
significant effect on the environment and an agency's categorical 
exclusion procedures should provide for limitations on the use of a 
categorical exclusion where ``extraordinary circumstances'' indicate 
that a normally excluded action may have a significant environmental 
effect.\833\ The Commission's regulations provide a list of these 
extraordinary circumstances, which are effects on Indian lands; 
Wilderness areas; Wild and Scenic rivers; Wetlands; Units of the 
National Park System, National Refuges, or National Fish Hatcheries; 
Anadromous fish or endangered species; or where environmental effects 
are uncertain.\834\ None of these extraordinary circumstances are 
present here except to the extent the environmental effects are 
uncertain. The final rule explained in detail why any potential 
environmental impacts are uncertain and unknown as they are too 
speculative to provide an EA or EIS that would meaningfully inform the 
Commission.\835\ In any case, the Commission's regulations state that 
the presence of one or more of the extraordinary circumstances ``will 
not automatically require . . . the preparation of an environmental 
assessment or an environmental impact statement.'' \836\
---------------------------------------------------------------------------

    \833\ 40 CFR 1508.4.
    \834\ 18 CFR 380.4(b)(ii).
    \835\ Order No. 872, 172 FERC ] 61,041 at P 716.
    \836\ 18 CFR 380.4.
---------------------------------------------------------------------------

b. Applying a Categorical Exclusion for Clarifying and Corrective 
Actions Is Appropriate
i. Requests for Rehearing
    445. Northwest Coalition and Public Interest Organizations also 
dispute that the final rule falls under the categorical exclusion for 
actions that are clarifying or corrective in nature.\837\ Northwest 
Coalition argues that the final rule is not merely clarifying in nature 
but rather a major change in policy.\838\ Northwest Coalition 
highlights what it deems the Commission's decision to change its long-
standing precedent by allowing use of RFPs as the exclusive means for 
all QFs to obtain a long-term contract to sell energy and 
capacity.\839\ Northwest Coalition further argues that overruling 
existing precedent is not clarifying and the new policy will result in 
loss of existing QF capacity.\840\
---------------------------------------------------------------------------

    \837\ Northwest Coalition Request for Rehearing at 62-63; Public 
Interest Organizations Request for Rehearing at 35.
    \838\ Northwest Coalition Request for Rehearing at 63.
    \839\ Id. We address in section III.B.5 above Northwest 
Coalition's challenge to the competitive solicitation framework 
itself.
    \840\ Id.
---------------------------------------------------------------------------

    446. Northwest Coalition asserts that the Commission's reliance on 
the `corrective' exclusion fails because it is contrary to what 
Northwest Coalition deems the ``obvious intent'' of the categorical 
exclusion for corrective changes to regulations.'' \841\ Northwest 
Coalition opines that the categorical exclusion applies only to an 
action ``to correct an error, such as a misplaced word or mis-numbered 
section.'' \842\ Northwest Coalition also contends that the Commission 
cites no authority to find that changes that are corrective in nature 
include ``changes needed in order to ensure that a regulation conforms 
to the requirements of the statutory provisions being implemented by 
the regulation.'' \843\ Northwest Coalition asserts that, as noted in 
Commissioner Glick's dissent, this interpretation would exempt from 
NEPA analysis virtually any action the Commission takes under any of 
its enabling statutes.\844\
---------------------------------------------------------------------------

    \841\ Id. at 63-64.
    \842\ Id. at 64.
    \843\ Id. at 63 (quoting Order No. 872, 172 FERC ] 61,041 at P 
722).
    \844\ Id. at 63-64 (citing Order No. 872, 172 FERC ] 61,041, 
Glick, Comm'r, dissenting in part at P 26).
---------------------------------------------------------------------------

    447. Public Interest Organizations assert that the Commission fails 
to cite precedent for using multiple exclusionary categories for ``such 
an impactful rulemaking.'' \845\ Public Interest Organizations suggest 
that doing so is a red flag that what they deem sweeping changes in the 
final rule are not suited for a categorical exclusion.\846\
---------------------------------------------------------------------------

    \845\ Public Interest Organizations Request for Rehearing at 35-
36.
    \846\ Id. at 35.
---------------------------------------------------------------------------

    448. Finally, Public Interest Organizations argue the Commission 
failed to engage in the appropriate scoping in determining that a 
categorical exclusion was appropriate. Public Interest Organizations 
assert that CEQ regulations require a federal agency to engage in 
scoping, which is defined in relevant part: ``There shall be an early 
and open process for determining the scope of issues to be addressed 
and for identifying the significant issues related to a proposed 
action.'' \847\ Public Interest Organizations note that the CEQ 
regulations define ``NEPA process'' to mean ``all measures necessary 
for compliance with the requirements of section 2 and Title 1 of 
NEPA.'' \848\ Public Interest Organizations conclude that taken 
together, these two regulations require the application of scoping to 
the entire NEPA process, including the application of a categorical 
exclusion.\849\
---------------------------------------------------------------------------

    \847\ Id. at 41 (citing 40 CFR 1501.7).
    \848\ Id. (citing 40 CFR 1508.21).
    \849\ Id.
---------------------------------------------------------------------------

ii. Commission Determination
    449. We affirm the alternative finding that the final rule was 
properly categorically excluded because it is clarifying and corrective 
in nature. Northwest Coalition's arguments are based primarily on what 
they deem to be the appropriate interpretation of the Commission's 
categorical exclusion regulation, rather than providing supporting 
precedent.\850\
---------------------------------------------------------------------------

    \850\ Northwest Coalition Request for Rehearing at 62-64.
---------------------------------------------------------------------------

    450. Northwest Coalition specifically challenges the use of the 
clarifying categorical exclusion for the changes to the competitive 
solicitation process (allowing the use of RFPs as the means for QFs to 
obtain long-term

[[Page 86722]]

contracts).\851\ We affirm that the final rule's treatment of 
competitive solicitations is clarifying in nature because competitive 
solicitations are already often used by industry to set capacity rates 
in both PURPA and non-PURPA contexts. Additionally, by including the 
standards discussed in the Allegheny Principles and elaborating on how 
states may conduct competitive solicitations as the Commission 
explained in prior precedent,\852\ the Commission clarified, 
formalized, and consolidated existing policy.\853\ Finally, the final 
rule clarifies and follows logically from Commission precedent by 
requiring that, if a utility places its own capacity in competitive 
solicitations held at regular intervals and satisfies its capacity 
needs only through competitive solicitations following the procedural 
requirements formalized in the final rule, then that utility need not 
have an alternative avoided cost capacity rate for QFs because it no 
longer has any avoided capacity costs.
---------------------------------------------------------------------------

    \851\ Id. at 63. We address in section III.B.5 above Northwest 
Coalition's challenge to the competitive solicitation framework 
itself.
    \852\ E.g., Hydrodynamics, 146 FERC ] 61,193 at PP 31-35; City 
of Ketchikan, 94 FERC ] 61,293 at 62,061; Bidding NOPR, FERC Stats. 
& Regs. ] 32,455 at 32,030-42.
    \853\ See Order No. 872, 172 FERC ] 61,041 at P 430 (citing 
Allegheny Energy, 108 FERC ] 61,082 at P 18).
---------------------------------------------------------------------------

    451. We also affirm that the final rule was corrective in nature. 
With respect to the challenge to variable energy rates in the QF 
contracts or LEOs, the Commission found that, contrary to expectations 
in 1980, there are numerous instances where overestimates and 
underestimates of energy avoided costs used in fixed energy rates did 
not balance-out over the long term.\854\ Such an imbalance resulted in 
long-term fixed avoided cost energy rates well above the purchasing 
utility's avoided costs for energy.\855\ This result is prohibited by 
PURPA section 210(b).\856\ The Commission's actions to adjust the QF 
rate framework are necessary to harmonize the Commission's regulations 
with this underlying finding and to comply with the statutory 
provisions of PURPA section 210(b).
---------------------------------------------------------------------------

    \854\ Id. PP 283, 723.
    \855\ Id. P 283.
    \856\ Id.
---------------------------------------------------------------------------

    452. We also find that the Commission's interpretation that 
corrective actions include those that ensure that a regulation conforms 
to the requirements of the statutory provisions being implemented by 
the final rule is appropriate. We disagree that such an interpretation 
sets a precedent for evading NEPA analysis for future Commission 
actions. The Commission considers all matters before it, including 
rulemakings, on a case-by-case basis to determine whether an EIS, EA or 
a categorical exclusion is appropriate based on the facts and 
circumstances of each matter. Further, in this case the Commission is 
not relying on general statutory standards, such as the just and 
reasonable standard under the FPA, but specific statutory requirements 
that the Commission may not require above avoided cost rates, that 
small power production facilities located at a single site may not 
exceed 80 MW, and that the mandatory purchase obligation may be 
terminated with respect to QFs with nondiscriminatory access to certain 
markets.
    453. We also disagree with Public Interest Organizations' claim 
that the Commission inappropriately relied on multiple exclusionary 
categories in determining that the final rule was subject to a 
categorical exclusion. As an alternative to its explanation that the 
effect of the final rule are so speculative as to preclude the 
preparation of an environmental analysis, the Commission applied a 
single categorical exclusion that provides four possible bases for its 
application, including, as relevant here, that the rulemaking is 
clarifying, corrective, or procedural in nature. The categorical 
exclusion does not limit the Commission to invoking only one of these 
bases, nor do Public Interest Organizations elaborate on why the 
Commission is precluded from doing so.
    454. Finally, contrary to Public Interest Organizations' claim, the 
Commission was not required to initiate a scoping process for the 
application of the categorical exclusion to the final rule. Public 
Interest Organizations appear to erroneously conflate the definition of 
``scoping process'' with the definition of ``NEPA process.'' The CEQ 
regulations address requirements for scoping only when an EIS is 
prepared.\857\ Notwithstanding that there is no requirement to provide 
for scoping for a categorical exclusion, all commenters, including 
Public Interest Organizations, now have had ample opportunity to 
provide comments on the application of the categorical exclusion, which 
they have presented in their rehearing requests.
---------------------------------------------------------------------------

    \857\ 40 CFR 1501.7 (``As soon as practicable after its decision 
to prepare an environmental impact statement and before the scoping 
process the lead agency shall publish a notice of intent'' to 
prepare an EIS). Moreover, CEQ guidance addressing whether scoping 
applies to EAs, states that where an EA is being prepared, ``useful 
information might result from early participation . . . in a scoping 
process'' CEQ, Forty Most Asked Questions Concerning CEQ's National 
Environmental Policy Act Regulations, 46 FR 18,026, Q. 13 (Mar. 17, 
1981) (emphasis added).
---------------------------------------------------------------------------

3. That the Commission Prepared NEPA Analyses for the Promulgation of 
the Original PURPA Rule and Other Prior Rulemakings Does Not Mean That 
Such Analysis Was Possible or Required Here
    455. As discussed in the final rule, the Commission prepared an EA 
and EIS for its initial rules implementing PURPA in 1980.\858\ The 
Commission explained that the EA for Order No. 70 was based on a market 
penetration study and that, to carry out the market penetration study, 
the EA had to make the simplifying assumption that the mere 
implementation of PURPA would necessarily result in the development and 
operation of certain types of generation facilities that would not 
otherwise be developed.\859\ The Commission stated that, based on these 
types of facilities, the EA conducted in 1980 identified specific 
resource conflicts related to each type of facility, which were nothing 
more than a generalized listing of potential impacts.\860\
---------------------------------------------------------------------------

    \858\ Order No. 872, 172 FERC ] 61,041 at P 728.
    \859\ Id. P 729 (citing Order No. 70-E, 46 FR 33,025, 33,026 
(June 18, 1981); Small Power Production and Cogeneration 
Facilities--Environmental Findings; No Significant Impact and Notice 
of Intent To Prepare Environmental Impact Statement, 45 FR 23,661, 
23,664 (Apr. 8, 1980) (Original PURPA EA)).
    \860\ Original PURPA EA, 45 FR at 23,664.
---------------------------------------------------------------------------

    456. The Commission addressed comments on the NOPR that asserted 
that a NEPA analysis similarly should be possible for this rulemaking. 
The Commission explained that the assertions are undermined by the fact 
that circumstances have changed significantly since the promulgation of 
the original PURPA Regulations in 1980.\861\ The Commission explained 
that, prior to 1980, essentially no QF generation technologies or other 
independent generation facilities (other than those used to supply the 
loads of the owners rather than to sell at wholesale) had been 
constructed. The Commission explained that by contrast, today QF 
generation technologies and other independent generation facilities are 
common, and they are predominantly built and operated outside of PURPA.
---------------------------------------------------------------------------

    \861\ Order No. 872, 172 FERC ] 61,041 at P 731.
---------------------------------------------------------------------------

    457. The Commission further explained that, because there was 
virtually no QF or independent power development in 1980, the original 
PURPA EA could reasonably project that the incentives created by PURPA 
and the original PURPA Regulations would lead to increased development 
of

[[Page 86723]]

power generated by QF technologies.\862\ The Commission stated that its 
market penetration study was based on these projections.
---------------------------------------------------------------------------

    \862\ Id. P 732.
---------------------------------------------------------------------------

    458. The Commission noted that, by contrast, it is not possible 
here to make simplifying assumptions that the mere implementation of 
the revised regulations necessarily would result in specific changes in 
the development of particular generation technologies compared to the 
status quo.\863\ The Commission explained that the revisions to the 
PURPA Regulations are premised on a finding that, even after the 
revisions, the PURPA Regulations will continue to encourage QFs. The 
Commission found that, consequently, there is no way to estimate 
whether any reduction in QF development, as opposed to the status quo, 
will be focused on one or more of the many different types of QF 
technologies, some of which are renewable resources and some of which 
are fueled by fossil fuels \864\ and have emissions comparable to non-
QF fossil fueled generators. The Commission explained that, because the 
rule primarily increases state flexibility in setting QF rates, 
including giving states the option of not changing their current rate-
setting approaches, there is no way to develop any estimate of the 
location or size of any hypothetical reduction in QF development.
---------------------------------------------------------------------------

    \863\ Id. P 733.
    \864\ This would include both cogeneration, which typically is 
fossil fueled, and those small power production facilities that are 
fueled by waste, which would include a range of fossil fuel-based 
waste. See 18 CFR 292.202(b), 292.204(b)(1).
---------------------------------------------------------------------------

    459. The Commission stated that renewable generation technologies 
today are commonly, and even predominantly, built and operated outside 
of PURPA.\865\ The Commission explained that current projections show 
that most new generation construction will be of renewable resources 
\866\ and cost of renewables has declined so much that in some regions 
renewables are the most cost effective new generation technology 
available.\867\ The Commission found that, even if the final rule were 
to result in reduced renewable QF development, there is little 
likelihood today that hypothetical, unbuilt QFs necessarily would be 
replaced by new conventional fossil fuel generation.
---------------------------------------------------------------------------

    \865\ Order No. 872, 172 FERC ] 61,041 at P 734.
    \866\ EIA, Annual Energy Outlook 2020, at tbl. 9 (Jan. 29, 2020) 
(in table see rows labeled Cumulative Planned Additions and 
Cumulative Unplanned Additions in the reference case) (Annual Energy 
Outlook 2020), https://www.eia.gov/outlooks/aeo/.
    \867\ Order No. 872, 172 FERC ] 61,041 at P 734.
---------------------------------------------------------------------------

    460. The Commission found that, alternatively, in the absence of 
these hypothetical, unbuilt QFs, existing generation units--whose 
current emissions, if any, would already be part of the baseline for 
any environmental analysis of the impacts of the final rule--might 
continue to operate without any change in their emissions; in sum, in 
the absence of these hypothetical, unbuilt QFs, emissions would remain 
at the baseline and might not increase at all.\868\ The Commission 
explained that, in the current environment where stagnant load growth 
has prevailed in recent years, this would seem to be a more likely 
scenario than an alternative where these hypothetical, unbuilt QFs are 
replaced by brand new fossil fuel generation that would increase 
emissions over the baseline.
---------------------------------------------------------------------------

    \868\ Id. P 735.
---------------------------------------------------------------------------

    461. The Commission explained that, given these facts, it would not 
be possible to perform a market penetration study of the effects of the 
final rule that would not be wholly speculative.\869\ The Commission 
found that, without such a study, there could be no analysis defining 
the types and geographic location of facilities that could serve as the 
basis for any NEPA analysis similar to that performed in 1980.
---------------------------------------------------------------------------

    \869\ Id. P 736.
---------------------------------------------------------------------------

a. Requests for Rehearing
    462. Northwest Coalition and Public Interest Organizations assert 
that, in addition to the NEPA analysis for Order No. 70, the Commission 
has conducted a NEPA analysis for prior rulemakings, which they argue 
undermines the Commission's claim that the impacts here are too 
speculative and uncertain to prepare an EA or EIS.\870\ Specifically, 
Northwest Coalition and Public Interest Organizations point to the 
competitive bidding NOPR under section 210 of PURPA \871\ and Order No. 
888.\872\
---------------------------------------------------------------------------

    \870\ Northwest Coalition Request for Rehearing at 59; Public 
Interest Organizations Request for Rehearing at 26-30.
    \871\ Northwest Coalition Request for Rehearing at 59; Public 
Interest Organizations Request for Rehearing at 28 (citing Bidding 
NOPR, FERC Stats. & Regs. ] 32,455 at 32,047).
    \872\ Northwest Coalition Request for Rehearing at 59; Public 
Interest Organizations Request for Rehearing at 29 (citing Promoting 
Wholesale Competition Through Open Access Non-Discriminatory 
Transmission Services by Public Utilities; Recovery of Stranded 
Costs by Public Utilities and Transmitting Utilities, Order No. 888, 
FERC Stats. & Regs. ] 31,036 (1996) (cross-referenced at 75 FERC ] 
61,080 and 61 FR 21,540 (May 10, 1996)), order on reh'g, Order No. 
888-A, FERC Stats. & Regs. ] 31,048 (cross-referenced at 78 FERC ] 
61,220 and 62 FR 12,274 (Mar. 14, 1997)), order on reh'g, Order No. 
888-B, 81 FERC ] 61,248 (1997) (cross-referenced at 62 FR 64,688 
(Dec. 9, 1997), order on reh'g, Order No. 888-C, 82 FERC ] 61,046 
(1998), aff'd in relevant part sub nom. Transmission Access Pol'y 
Study Grp. v. FERC, 225 F.3d 667, aff'd sub nom. N.Y. v. FERC, 535 
U.S. 1 (2002)).
---------------------------------------------------------------------------

    463. Public Interest Organizations argue that, because an EA was 
prepared for Order No. 70, the Commission ``has experience doing the 
very thing it alleges is so impossibly burdensome.'' \873\ Public 
Interest Organizations add that, with respect to Order No. 70, the 
Commission acknowledged that its NEPA analysis contains uncertainties 
but is nevertheless required to assess the environmental effects to the 
fullest extent possible.\874\ They add that Order No. 70 states that 
the proposed rules did not authorize or fund a particular project or 
forbid or authorize the use of certain fuels, but the Commission 
nevertheless prepared a NEPA analysis.\875\ Public Interest 
Organizations also argue that, in Order No. 70, the Commission was able 
to develop a specific methodology for predicting its effects on QF 
development and should be able to do so here as well.\876\
---------------------------------------------------------------------------

    \873\ Public Interest Organizations Request for Rehearing at 26.
    \874\ Id. at 26-27 (citing Order No. 70, FERC Stats. & Regs. ] 
30,134).
    \875\ Id. at 27.
    \876\ Id.
---------------------------------------------------------------------------

    464. Northwest Coalition asserts that that the Commission's 
statement in the final rule that the NEPA analysis for Order No. 70 was 
simpler (because very few renewable cogeneration facilities were online 
prior to the rule) fails to address how the Commission was able to 
conduct NEPA analyses for later rulemakings with equal or greater 
magnitude and complexity than the current case.\877\ Similarly, Public 
Interest Organizations claim that the Commission cannot underplay its 
past modeling efforts and could use similar methodology, or 
advancements in modern modeling software that has significantly 
improved over the last 40 years, to model the final rule's potential 
impacts.\878\ As an example, Northwest Coalition and Public Interest 
Organizations point to the Commission's environmental analysis for the 
competitive bidding NOPR and Order No. 888, which they claim involved 
uncertainties and more complex market changes than the final rule.\879\ 
Related to Order No. 888 specifically, Public Interest Organizations 
argue that the

[[Page 86724]]

Commission was able to conduct complex modeling to forecast emissions 
based on simulations of power generation patterns and should be able to 
reverse the modeling here to forecast the effects of the final 
rule.\880\
---------------------------------------------------------------------------

    \877\ Northwest Coalition Request for Rehearing at 59.
    \878\ Public Interest Organizations Request for Rehearing at 29.
    \879\ Northwest Coalition Request for Rehearing at 59; Public 
Interest Organizations Request for Rehearing at 28-29.
    \880\ Public Interest Organizations Request for Rehearing at 29-
30.
---------------------------------------------------------------------------

b. Commission Determination
    465. We reiterate that the Commission considers all matters before 
it, including rulemakings, on a case-by-case basis as to whether an 
EIS, EA, or a categorical exclusion is appropriate. As the Commission 
stated in the final rule, the basis for its NEPA analysis for Order No. 
70 was the ability to conduct a market penetration study.\881\ However, 
circumstances since the promulgation of Order No. 70 have changed 
significantly, making it impossible to perform a market penetration 
study of the effects of the final rule that would not be wholly 
speculative. This is due in large part to the fact that renewable 
technologies that are commonly adopted by QFs are also commonly adopted 
by non-QF generation developers today.\882\ In contrast, in 1980, 
essentially no QF technologies, renewable or otherwise, were being 
built by non-QFs.\883\ Thus, it was possible in 1980 to assume that 
certain generation technologies would only be deployed if the PURPA 
Regulations were issued, and that assumption enabled a market 
penetration study that could underpin an analysis of the environmental 
impact of deploying those technologies.\884\ These same assumptions 
cannot be made today. Renewable technology, for example, is being 
widely deployed without PURPA support; thus, it is impossible to assume 
that any potential impact of this rule change will necessarily reduce 
the deployment of renewables because PURPA is no longer the only route, 
or even the predominant route, to such development.\885\ To the 
contrary, as much as 90 percent of all renewable capacity placed in 
service today was developed outside of PURPA.\886\
---------------------------------------------------------------------------

    \881\ Order No. 872, 172 FERC ] 61,041 at P 729.
    \882\ Id. P 731.
    \883\ Id.
    \884\ Id. PP 731-32.
    \885\ Id. PP 731-34.
    \886\ See id. P 240.
---------------------------------------------------------------------------

    466. We also disagree with Northwest Coalition's and Public 
Interest Organizations' arguments that the Commission should be able to 
prepare a NEPA analysis similar to those for the competitive bidding 
NOPR and Order No. 888, using similar methodology and advancements in 
modern modeling software. Contrary to Northwest Coalition's and Public 
Interest Organizations' assertions, the Commission's ability to prepare 
NEPA analyses in these prior rulemakings does not facilitate our 
ability to prepare an EA or EIS for this rulemaking. While we agree 
that modelling technology has advanced since the Commission conducted a 
NEPA analysis in these prior rulemakings, the Commission would be 
required to make too many unsupported assumptions to undertake an 
analysis in this case, which would result in a speculative and 
meaningless analysis.
    467. For example, the Commission would need to assume that all 
affected QFs would be renewables and all replacement utility generation 
would be conventional emitting resources, which as previously explained 
would not necessarily be true in either case.\887\ Similar to the 
original PURPA rulemaking, the technologies that could qualify for QF 
status and independent generation more broadly were not widely used 
outside of the PURPA context when studies were conducted for the 
competitive bidding NOPR, so the Commission could make basic 
assumptions about the effects the competitive bidding NOPR would have 
on QF development.\888\ The same assumptions cannot be made about the 
final rule as the technologies that renewable QFs use are now 
widespread and developed outside of PURPA, making any market 
penetration study wholly speculative.
---------------------------------------------------------------------------

    \887\ Id. P 734.
    \888\ Id. PP 731-32.
---------------------------------------------------------------------------

    468. Finally, we disagree that the Commission could reverse 
engineer the modeling used to forecast emissions based on simulations 
of power generation patterns in Order No. 888 to forecast the effects 
of the final rule in a NEPA analysis. The modeling from prior 
rulemakings is not applicable here. Order No. 888 involved the direct 
regulation of entities under the Commission's jurisdiction to impose 
open access requirements, and it was possible to estimate potential 
changes in conventional generation (gas and coal) development and 
dispatch in light of the advent of open access to the transmission 
grid.\889\ In contrast, under the final rule, and PURPA more generally, 
the Commission sets rules for states and nonregulated electric 
utilities to implement. The Commission cannot predict how the states 
will choose to implement the final rule--if at all--and what effect 
that will have on QF development, whether renewable QFs will be 
impacted more than non-renewable QFs or whether non-QFs will develop 
renewables or conventional generation.
---------------------------------------------------------------------------

    \889\ See Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,861-
96.
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Certification

    469. The Regulatory Flexibility Act of 1980 (RFA) \890\ generally 
requires a description and analysis of rules that will have significant 
economic impact on a substantial number of small entities. No comments 
on the Regulatory Flexibility Act were filed on rehearing, and the 
comments on rehearing regarding burden and cost estimates are addressed 
in the Information Collection Statement section.
---------------------------------------------------------------------------

    \890\ 5 U.S.C. 601-12.
---------------------------------------------------------------------------

    470. As discussed in the final rule, we estimate that annual 
additional compliance costs on industry (detailed above) will be 
approximately $1,149,965 (or an average additional burden and cost per 
response, of 3.187 hrs. and the corresponding $264.51) to comply with 
these requirements.\891\ Therefore, pursuant to section 605(b) of the 
RFA, we still conclude that this rule will not have a significant 
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \891\ Order No. 872, 172 FERC ] 61,041 at P 748.
---------------------------------------------------------------------------

VI. Document Availability

    471. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (https://www.ferc.gov). At 
this time, the Commission has suspended access to the Commission's 
Public Reference Room due to the President's March 13, 2020 
proclamation declaring a National Emergency concerning the Novel 
Coronavirus Disease (COVID-19).
    472. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    473. User assistance is available for eLibrary and the Commission's 
website during normal business hours from the Commission's Online 
Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

[[Page 86725]]

VII. Effective Dates and Congressional Notification

    474. The further revised regulation in this order is effective 
February 16, 2021. No other changes to the Commission's regulations 
have been made on rehearing to the final rule, however we modify the 
instructions to the Form No. 556. Out of an abundance of caution, this 
order addressing arguments raised on rehearing is being submitted to 
the Administrator of the Office of Information and Regulatory Affairs 
of OMB, Senate, House, and Government Accountability Office.

List of Subjects in 18 CFR Part 292

    Electric power plants; Electric utilities, Reporting and 
recordkeeping requirements.

    By the Commission. Commissioner Glick is dissenting in part with 
a separate statement attached.

    Issued: November 19, 2020.
Kimberly D. Bose,
Secretary.
    In consideration of the foregoing, the Commission amends part 292, 
chapter I, title 18, Code of Federal Regulations, as follows.

SUBCHAPTER K--REGULATIONS UNDER THE PUBLIC UTILITY REGULATORY 
POLICIES ACT OF 1978

* * * * *

PART 292--REGULATIONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC 
UTILITY REGULATORY POLICIES ACT OF 1978 WITH REGARD TO SMALL POWER 
PRODUCTION AND COGENERATION

0
1. The authority citation for part 292 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.


0
2. Amend Sec.  292.309 by revising paragraphs (c), (d), (e), and (f) to 
read as follows:


Sec.  292.309  Termination of obligation to purchase from qualifying 
facilities.

* * * * *
    (c) For purposes of paragraphs (a)(1), (2) and (3) of this section, 
with the exception of paragraph (d) of this section, there is a 
rebuttable presumption that a qualifying facility has nondiscriminatory 
access to the market if it is eligible for service under a Commission-
approved open access transmission tariff or Commission-filed 
reciprocity tariff, and Commission-approved interconnection rules.
    (1) If the Commission determines that a market meets the criteria 
of paragraphs (a)(1), (2) or (3) of this section, and if a qualifying 
facility in the relevant market is eligible for service under a 
Commission-approved open access transmission tariff or Commission-filed 
reciprocity tariff, a qualifying facility may seek to rebut the 
presumption of access to the market by demonstrating, inter alia, that 
it does not have access to the market because of operational 
characteristics or transmission constraints.
    (2) For purposes of paragraphs (a)(1), (2), and (3) of this 
section, a qualifying small power production facility with a capacity 
between 5 megawatts and 20 megawatts may additionally seek to rebut the 
presumption of access to the market by demonstrating that it does not 
have access to the market in light of consideration of other factors, 
including, but not limited to:
    (i) Specific barriers to connecting to the interstate transmission 
grid, such as excessively high costs and pancaked delivery rates;
    (ii) Unique circumstances impacting the time or length of 
interconnection studies or queues to process the small power production 
facility's interconnection request;
    (iii) A lack of affiliation with entities that participate in the 
markets in paragraphs (a)(1), (2), and (3) of this section;
    (iv) The qualifying small power production facility has a 
predominant purpose other than selling electricity and should be 
treated similarly to qualifying cogeneration facilities;
    (v) The qualifying small power production facility has certain 
operational characteristics that effectively prevent the qualifying 
facility's participation in a market; or
    (vi) The qualifying small power production facility lacks access to 
markets due to transmission constraints. The qualifying small power 
production facility may show that it is located in an area where 
persistent transmission constraints in effect cause the qualifying 
facility not to have access to markets outside a persistently congested 
area to sell the qualifying facility output or capacity.
    (d)(1) For purposes of paragraphs (a)(1), (2), and (3) of this 
section, there is a rebuttable presumption that a qualifying 
cogeneration facility with a capacity at or below 20 megawatts does not 
have nondiscriminatory access to the market.
    (2) For purposes of paragraphs (a)(1), (2), and (3) of this 
section, there is a rebuttable presumption that a qualifying small 
power production facility with a capacity at or below 5 megawatts does 
not have nondiscriminatory access to the market.
    (3) Nothing in paragraphs (d)(1) through (3) affects the rights the 
rights or remedies of any party under any contract or obligation, in 
effect or pending approval before the appropriate State regulatory 
authority or non-regulated electric utility on or before February 16, 
2021, to purchase electric energy or capacity from or to sell electric 
energy or capacity to a small power production facility between 5 
megawatts and 20 megawatts under this Act (including the right to 
recover costs of purchasing electric energy or capacity).
    (4) For purposes of implementing paragraphs (d)(1) and (2) of this 
section, the Commission will not be bound by the standards set forth in 
Sec.  292.204(a)(2).
    (e) Midcontinent Independent System Operator, Inc. (MISO), PJM 
Interconnection, L.L.C. (PJM), ISO New England Inc. (ISO-NE), and New 
York Independent System Operator, Inc. (NYISO) qualify as markets 
described in paragraphs (a)(1)(i) and (ii) of this section, and there 
is a rebuttable presumption that small power production facilities with 
a capacity greater than 5 megawatts and cogeneration facilities with a 
capacity greater than 20 megawatts have nondiscriminatory access to 
those markets through Commission-approved open access transmission 
tariffs and interconnection rules, and that electric utilities that are 
members of such regional transmission organizations or independent 
system operators should be relieved of the obligation to purchase 
electric energy from the qualifying facilities.
    (1) A qualifying facility above 20 MW may seek to rebut this 
presumption by demonstrating, inter alia, that:
    (i) The qualifying facility has certain operational characteristics 
that effectively prevent the qualifying facility's participation in a 
market; or
    (ii) The qualifying facility lacks access to markets due to 
transmission constraints. The qualifying facility may show that it is 
located in an area where persistent transmission constraints in effect 
cause the qualifying facility not to have access to markets outside a 
persistently congested area to sell the qualifying facility output or 
capacity.
    (2) A small power producer qualifying facility between 5 megawatts 
and 20 megawatts may show it does not have access to the market in 
light of consideration of other factors, including, but not limited to:
    (i) Specific barriers to connecting to the interstate transmission 
grid, such as excessively high costs and pancaked delivery rates;

[[Page 86726]]

    (ii) Unique circumstances impacting the time or length of 
interconnection studies or queues to process the small power production 
facility's interconnection request;
    (iii) A lack of affiliation with entities that participate in the 
markets in section Sec.  292.309(a)(1), (2), and (3);
    (iv) The qualifying small power production facility has a 
predominant purpose other than selling electricity and should be 
treated similarly to qualifying cogeneration facilities;
    (v) The qualifying small power production facility has certain 
operational characteristics that effectively prevent the qualifying 
facility's participation in a market; or
    (vi) The qualifying small power production facility lacks access to 
markets due to transmission constraints. The qualifying small power 
production facility may show that it is located in an area where 
persistent transmission constraints in effect cause the qualifying 
facility not to have access to markets outside a persistently congested 
area to sell the qualifying facility output or capacity.
    (f) The Electric Reliability Council of Texas (ERCOT) qualifies as 
a market described in paragraph (a)(3) of this section, and there is a 
rebuttable presumption that small power production facilities with a 
capacity greater than five megawatts and cogeneration facilities with a 
capacity greater than 20 megawatts have nondiscriminatory access to 
that market through Public Utility Commission of Texas (PUCT) approved 
open access protocols, and that electric utilities that operate within 
ERCOT should be relieved of the obligation to purchase electric energy 
from the qualifying facilities.
    (1) A qualifying facility above 20 MW may seek to rebut this 
presumption by demonstrating, inter alia, that:
    (i) The qualifying facility has certain operational characteristics 
that effectively prevent the qualifying facility's participation in a 
market; or
    (ii) The qualifying facility lacks access to markets due to 
transmission constraints. The qualifying facility may show that it is 
located in an area where persistent transmission constraints in effect 
cause the qualifying facility not to have access to markets outside a 
persistently congested area to sell the qualifying facility output or 
capacity.
    (2) A small power producer qualifying facility between 5 megawatts 
and 20 megawatts may show it does not have access to the market in 
light of consideration of other factors, including, but not limited to:
    (i) Specific barriers to connecting to the interstate transmission 
grid, such as excessively high costs and pancaked delivery rates;
    (ii) Unique circumstances impacting the time or length of 
interconnection studies or queues to process the small power production 
facility's interconnection request;
    (iii) A lack of affiliation with entities that participate in the 
markets in section Sec.  292.309(a)(1), (2), and (3);
    (iv) The qualifying small power production facility has a 
predominant purpose other than selling electricity and should be 
treated similarly to qualifying cogeneration facilities;
    (v) The qualifying small power production facility has certain 
operational characteristics that effectively prevent the qualifying 
facility's participation in a market; or
    (vi) The qualifying small power production facility lacks access to 
markets due to transmission constraints. The qualifying small power 
production facility may show that it is located in an area where 
persistent transmission constraints in effect cause the qualifying 
facility not to have access to markets outside a persistently congested 
area to sell the qualifying facility output or capacity.
* * * * *

    Note:  The following appendix will not appear in the Code of 
Federal Regulations.

Appendix B

Revised Form No. 556

BILLING CODE 6717-01-P

[[Page 86727]]

[GRAPHIC] [TIFF OMITTED] TR30DE20.000


[[Page 86728]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.001


[[Page 86729]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.002


[[Page 86730]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.003


[[Page 86731]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.004


[[Page 86732]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.005


[[Page 86733]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.006


[[Page 86734]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.007


[[Page 86735]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.008


[[Page 86736]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.009


[[Page 86737]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.010


[[Page 86738]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.011


[[Page 86739]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.012


[[Page 86740]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.013


[[Page 86741]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.014


[[Page 86742]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.015


[[Page 86743]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.016


[[Page 86744]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.017


[[Page 86745]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.018


[[Page 86746]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.019


[[Page 86747]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.020


[[Page 86748]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.021


[[Page 86749]]


[GRAPHIC] [TIFF OMITTED] TR30DE20.022

[GRAPHIC] [TIFF OMITTED] TR30DE20.023


[[Page 86750]]


BILLING CODE 6717-01-C

United States of America

Federal Energy Regulatory Commission

------------------------------------------------------------------------
                                                            Docket Nos.
------------------------------------------------------------------------
Qualifying Facility Rates and Requirements..............     RM19-15-001
Implementation Issues Under the Public Utility               AD16-16-001
 Regulatory Policies Act of 1978........................
------------------------------------------------------------------------

(Issued November 19, 2020)

    GLICK, Commissioner, dissenting in part:
    1. I dissent in part from today's order on rehearing (Rehearing 
Order \1\) because it upholds the overwhelming majority of Order No. 
872,\2\ which effectively gutted the Commission's implementation of 
the Public Utility Regulatory Policies Act (PURPA).\3\ The 
Commission's basic responsibilities under PURPA are three-fold: (1) 
To encourage the development of qualifying facilities (QFs); (2) to 
prevent discrimination against QFs by incumbent utilities; and (3) 
to ensure that the resulting rates paid by electricity customers 
remain just and reasonable, in the public interest, and do not 
exceed the incremental costs to the utility of alternative 
energy.\4\ I do not believe that Order No. 872 satisfies those 
responsibilities.
---------------------------------------------------------------------------

    \1\ Qualifying Facility Rates and Requirements Implementation 
Issues Under the Public Utility Regulatory Policies Act of 1978, 
Order No. 872-A, 173 FERC ] 61,158 (2020).
    \2\ Qualifying Facility Rates and Requirements Implementation 
Issues Under the Public Utility Regulatory Policies Act of 1978, 
Order No. 872, 172 FERC ] 61,041 (2020).
    \3\ Public Law 95-617, 92 Stat. 3117 (1978).
    \4\ See 16 U.S.C. 824a-3(a)-(b) (2018).
---------------------------------------------------------------------------

    2. Although I have concerns about many of the individual changes 
imposed by the Order No. 872,\5\ I remain, on a broader level, 
dismayed that the Commission is attempting to accomplish via 
administrative fiat what Congress has repeatedly declined to do via 
legislation. I am especially disappointed because Congress expressly 
provided the Commission with a different avenue for ``modernizing'' 
our administration of PURPA. The Energy Policy Act of 2005 gave the 
Commission the authority to excuse utilities from their obligations 
under PURPA where QFs have non-discriminatory access to competitive 
wholesale markets.\6\ Had we pursued reforms based on those 
provisions, rather than gutting our longstanding regulations, I 
believe we could have reached a durable, consensus solution that 
would ultimately have done more for all interested parties.
---------------------------------------------------------------------------

    \5\ Those concerns notwithstanding, I supported certain aspects 
of Order No. 872, including the revisions to the ``one-mile'' rule, 
requiring that QFs demonstrate commercial viability before securing 
a legally enforceable obligation, and allowing stakeholders to 
protest a QF's self-certification. See Order No. 872, 172 FERC ] 
61,041 (Glick, Comm'r, dissenting in part at n.4).
    \6\ Public Law 109-58, 1253, 119 Stat. 594 (2005).
---------------------------------------------------------------------------

 PURPA's Continuing Relevance Is an Issue for Congress To 
Decide

    3. This proceeding began with a bang. The Commission championed 
its NOPR as a ``truly significant'' action that would fundamentally 
overhaul the Commission's implementation of PURPA.\7\ And so it was. 
The NOPR suggested altering almost every significant aspect of the 
Commission's PURPA regulations, thereby transforming the foundation 
on which the Commission had carried out its statutory responsibility 
to ``encourage'' the development of QFs for over four decades. 
Although Order No. 872 walked back some of the NOPR's most extreme 
proposals, it adopted the overwhelming majority of the NOPR, 
including all of its tenets. In so doing, the Commission upended the 
regulatory regime that has formed the basis of its implementation of 
PURPA almost since the day the statute was enacted.
---------------------------------------------------------------------------

    \7\ Sept. 2019 Commission Meeting Tr. at 8.
---------------------------------------------------------------------------

    4. I partially dissented from both the NOPR and Order No. 872 in 
large part because I believe that it is not the Commission's role to 
sit in judgment of a duly enacted statute and determine whether it 
has outlived its usefulness. As I explained, ``almost from the 
moment PURPA was passed, Congress began to hear many of the 
arguments being used today to justify scaling the law back.'' \8\ 
Congress, however, has seen fit to significantly amend PURPA only 
once in its more-than-forty-year lifespan. As part of the Energy 
Policy Act of 2005, Congress amended PURPA, leaving in place the 
law's basic framework, while adding a series of provisions that 
allowed the Commission to excuse utilities from its requirements in 
regions of the country with sufficiently competitive wholesale 
energy markets.\9\ And while Congress considered numerous proposals 
to further reform the law, it never saw fit to act on them.\10\ 
Against that background, I could not support my colleagues' 
willingness to ``remove[ ] an important debate from the halls of 
Congress and isolate[ ] it within the Commission.'' \11\ Whatever 
your position on PURPA--and I recognize views vary widely--``what 
should concern all of us is that resolving these sorts of questions 
by regulatory edict rather than congressional legislation is neither 
a durable nor desirable approach for developing energy policy.'' 
\12\
---------------------------------------------------------------------------

    \8\ Qualifying Facility Rates and Requirements Implementation 
Issues Under the Public Utility Regulatory Policies Act of 1978, 
Notice of Proposed Rulemaking, 168 FERC ] 61,184 (2019) (NOPR) 
(Glick, Comm'r, dissenting in part at P 3).
    \9\ Supra note 6.
    \10\ See Solar Energy Industries Association (SEIA) Comments at 
11.
    \11\ NOPR, 168 FERC ] 61,184 (Glick, Comm'r, dissenting in part 
at P 4).
    \12\ Id.
---------------------------------------------------------------------------

    5. Order No. 872 and today's order on rehearing retreat from 
much of the original rationale used to support the NOPR, but the 
effect is the same: The Commission is administratively gutting 
PURPA. Make no mistake, although the Commission has dropped much of 
the NOPR preamble's opening screed against PURPA's continuing 
relevance, Order No. 872 is a full-throated endorsement of the 
conclusion that PURPA has outlived its usefulness. And while walking 
back the argument that PURPA is antiquated may reduce the risk that 
Order No. 872 is overturned on appeal, that does not change the fact 
that the rule usurps what should be Congress's proper role.
    6. Throughout this proceeding, the Commission has been quick to 
point to Congress's directive to from time to time amend our 
regulations implementing PURPA.\13\ Order No. 872, however, is a 
wholesale overhaul of the Commission's PURPA regulations that 
reflects a deep skepticism of the need for the law we are charged 
with implementing. I continue to doubt that is what Congress had in 
mind when it gave us responsibility for periodically updating our 
implementing regulations.
---------------------------------------------------------------------------

    \13\ Order No. 872-A, 173 FERC ] 61,158 at P 115; Order No. 872, 
172 FERC ] 61,041 at PP 24, 48, 54, 67, 296, 628; NOPR, 168 FERC ] 
61,184 at PP 4, 16, 29, 155.
---------------------------------------------------------------------------

 The Commission's Proposed Reforms Are Inconsistent With Our 
Statutory Mandate

    7. PURPA directs the Commission to adopt such regulations as are 
``necessary to encourage'' QFs,\14\ including by establishing rates 
for sales by QFs that are just and reasonable and by ensuring that 
such rates ``shall not discriminate'' against QFs.\15\ The changes 
adopted by the Commission in Order No. 872 fail to meet that 
standard. In addition, many of the reforms are unsupported--and, in 
many cases, contradicted--by the evidence in the record.\16\ 
Accordingly, I believe Order No. 872 is not just poor public policy, 
but also arbitrary and capricious agency action.
---------------------------------------------------------------------------

    \14\ A QF is a cogeneration facility or a small power production 
facility. See 18 CFR 292.101(b)(1) (2019).
    \15\ 16 U.S.C. 824a-3(a)-(b).
    \16\ Genuine Parts Co. v. EPA, 890 F.3d 304, 312 (D.C. Cir. 
2018) (``[A]n agency cannot ignore evidence that undercuts its 
judgment; and it may not minimize such evidence without adequate 
explanation.'') (citations omitted); id. (``Conclusory explanations 
for matters involving a central factual dispute where there is 
considerable evidence in conflict do not suffice to meet the 
deferential standards of our review.'' (quoting Int'l Union, United 
Mine Workers v. Mine Safety & Health Admin., 626 F.3d 84, 94 (D.C. 
Cir. 2010)).
---------------------------------------------------------------------------

A. Avoided Cost

    8. The Final Rule adopted two fundamental changes to how QF 
rates are determined. First, and most importantly, it eliminated the 
requirement that a utility must afford a QF the option to enter a 
contract at a rate for energy that is either fixed for the duration 
of the contract or determined at the outset--e.g., based on a 
forward curve reflecting estimated prices over the term of the 
contract.\17\ Second, it presumptively allows states to set the rate 
for as-available energy at the relevant locational marginal price 
(LMP).\18\ The record in this proceeding does not support either of 
those changes.
---------------------------------------------------------------------------

    \17\ Order No. 872, 172 FERC ] 61,041 at P 253.
    \18\ Id. P 151.
---------------------------------------------------------------------------

i. Elimination of Fixed Energy Rate

    9. Prior to Order No. 872, a QF generally had two options for 
selling its output to a utility. Under the first option, the QF 
could sell its energy on an as-available basis and

[[Page 86751]]

receive an avoided cost rate calculated at the time of delivery. 
This is generally known as the as-available option. Under the second 
option, a QF could enter into a fixed-duration contract at an 
avoided cost rate that was fixed either at the time the QF 
established a legally enforceable obligation (LEO) or at the time of 
delivery. This is generally known as the contract option. The 
ability to choose between the two options played an important role 
in fostering the development of a variety of QFs. For example, the 
as-available option provided a way for QFs whose principal business 
was not generating electricity, such as industrial cogeneration 
facilities, to monetize their excess electricity generation. The 
contract option, by contrast, provided QFs who were principally in 
the business of generating electricity, such as small renewable 
electricity generators, a stable option that would allow them to 
secure financing. Together, the presence of these two options 
allowed the Commission to satisfy its statutory mandate to encourage 
the development of QFs and ensured that the rates they received were 
non-discriminatory.
    10. Order No. 872 eliminated the requirement that states provide 
a contract option that includes a fixed energy rate.\19\ Prior to 
this proceeding, the Commission recognized time and again that 
fixed-price contracts play an essential role in financing QF 
facilities, making them a necessary element of any effort to 
encourage QF development, at least in certain regions of the 
country.\20\ In addition, fixed-price contracts have helped prevent 
discrimination against QFs by ensuring that they are not 
structurally disadvantaged relative to vertically integrated 
utilities that are guaranteed to recover the costs of their 
prudently incurred investments through retail rates.\21\
---------------------------------------------------------------------------

    \19\ Id. P 253.
    \20\ See, e.g., Small Power Production and Cogeneration 
Facilities; Regulations Implementing Section 210 of the Public 
Utility Regulatory Policies Act of 1978, Order No. 69, FERC Stats. & 
Regs. ] 30,128, at 30,880, order on reh'g sub nom. Order No. 69-A, 
FERC Stats. & Regs. ] 30,160 (1980), aff'd in part vacated in part, 
Am. Elec. Power Serv. Corp. v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), 
rev'd in part sub nom. Am. Paper Inst. v. Am. Elec. Power Serv. 
Corp., 461 U.S. 402 (1983) (justifying the rule on the basis of 
``the need for certainty with regard to return on investment in new 
technologies''); NOPR, 168 FERC ] 61,184 at P 63 (``The Commission's 
justification for allowing QFs to fix their rate at the time of the 
LEO for the entire term of a contract was that fixing the rate 
provides certainty necessary for the QF to obtain financing.''); 
Windham Solar LLC, 157 FERC ] 61,134, at P 8 (2016).
    \21\ See, e.g., ELCON Comments at 21-22 (``More variable avoided 
cost rates will result in unintended consequences that result in 
less competitive conditions and may leave consumers worse off, as 
utility self-builds do not face the same market risk exposure. 
Pushing more market risk to QFs while utility assets remain 
insulated from markets creates an investment risk asymmetry. This 
puts QFs at a competitive disadvantage.''); South Carolina Solar 
Business Association Comments at 8 (``[A]s-available rates for QFs 
in vertically-integrated states therefore discriminate against QFs 
by requiring QFs to enter into contracts at substantially and 
unjustifiably different terms than incumbent utilities.''); Southern 
Environmental Law Center Supplement Comments, Docket No. AD16-16-
000, at 6-8 (Oct. 17, 2018) (explaining that vertically integrated 
utilities in Indiana, Alabama, Virginia and Tennessee only offer 
short-term rates to QFs); sPower Comments at 13; see also Statement 
of Travis Kavulla, Docket No. AD16-16-000, at 2 (June 29, 2016).
---------------------------------------------------------------------------

    11. The record before us confirms the continuing importance of 
the fixed-price contract option for QFs. Numerous entities with 
experience in financing and developing QFs explain that a fixed 
revenue stream of some sort is necessary to obtain the financing 
needed to develop a new QF.\22\ In both Order No. 872 and today's 
order on rehearing, the Commission responds to that evidence with a 
reference to the general track record of independent power 
producers, and renewables developers in particular, that develop new 
resources without a regulatory guarantee of a fixed revenue 
stream.\23\ But the overwhelming majority of the Commission's 
statistics reflect development in RTO/ISO markets, where developers 
generally can rely on financing arrangements, such as commodity 
hedges, to lock-in the revenue needed to secure financing.\24\
---------------------------------------------------------------------------

    \22\ See, e.g., Public Interest Organizations Rehearing Request 
at 73-76; SEIA Comments at 29; North Carolina Attorney General's 
Office Comments at 5; ConEd Development Comments at 3; South 
Carolina Solar Business Association Comments at 6; sPower Comments 
at 11; Resources for the Future Comments at 6-7; Southeast Public 
Interest Organizations Comments at 9.
    \23\ Order No. 872-A, 173 FERC ] 61,158 at PP 150-151 (citing 
Order No. 872, 172 FERC ] 61,041 at P 340).
    \24\ See, e.g., EEI Comments at 36; sPower Comments at 12; 
Public Interest Organization Comments at n. 87 (fixed price 
contracts for non-QF generation); SEIA Rehearing Request at 14-15.
---------------------------------------------------------------------------

    12. Those products are far less ubiquitous--if they are 
available at all--outside of RTO/ISO markets.\25\ Accordingly, the 
success of relatively large independent power producers in the 
organized markets does not constitute substantial evidence 
suggesting that QFs will be able to finance new development outside 
RTO/ISO markets where PURPA plays a larger role.\26\ Indeed, the 
Commission's deliberate blurring of the lines between RTO/ISO 
markets and the rest of the country is the equivalent of arguing 
that Tommie and Hank Aaron ought to both be hall-of-famers because, 
together, they hit 768 home runs, while ignoring the fact that Hank 
was responsible for 755 of the brothers' 768 home runs.\27\
---------------------------------------------------------------------------

    \25\ See, e.g., SEIA Comments at 29-30 (``As both Mr. Shem and 
Mr. McConnell explain, financial hedge products are not available 
outside of ISO/RTO markets.''); Resources for the Future Comments at 
6-7 (``[W]hile hedge products do support wind and solar project 
financing, they would not be suited for most QF projects. To hedge 
energy prices, wind projects have used three products: Bank hedges, 
synthetic power purchase agreements (synthetic PPAs), and proxy 
revenue swaps. . . . From US project data for 2017 and 2018, the 
smallest wind project securing such a hedge was 78 MW, and most 
projects were well over 100 MW. Additionally, as hedges rely on 
wholesale market access and liquid electricity trading, all of the 
projects were in ISO regions.''); SEIA Rehearing Request at 18.
    \26\ See, e.g., Public Interest Organizations Rehearing Request 
at 74-78; Northwest Coalition Rehearing Request at 28.
    \27\ Compare https://en.wikipedia.org/wiki/Hank_Aaron with 
https://en.wikipedia.org/wiki/Tommie_Aaron. The Commission also 
points to the rate structure discussed in Town of Norwood v. FERC, 
962 F.2d 20, 21, 24 (D.C. Cir. 1992), ``variable energy rate/fixed 
capacity rate construct is the standard rate structure used 
throughout the electric industry.'' Order No. 872, 172 FERC ] 61,041 
at P 38; see also Order No. 872-A, 173 FERC ] 61,158 at P 143. I do 
not believe that the discussion of a single contract in a single 
case, decided roughly thirty years ago, is substantial evidence 
regarding the typical financing and contractual requirements of a QF 
in the contemporary electricity sector.
---------------------------------------------------------------------------

    13. The Commission next responds that PURPA does not require 
that QFs be financeable.\28\ That is true in a literal sense; 
nothing in PURPA directs the Commission to ensure that at least some 
QFs be financeable. But it does require the Commission to encourage 
their development, which we have previously equated with 
financeability.\29\ If the Commission is going to abandon that 
standard, it must then explain why what is left of its regulations 
provides the requisite encouragement--an explanation that is lacking 
from this order, notwithstanding the Commission's repeated 
assertions to the contrary.\30\
---------------------------------------------------------------------------

    \28\ See, e.g., Order No. 872-A, 173 FERC ] 61,158 at PP 145-
146, 172.
    \29\ See, e.g., Order No. 69, FERC Stats. & Regs. ] 30,128 at 
30,880 (finding that ``legally enforceable obligations are intended 
to reconcile the requirement that the rates for purchases equal to 
the utilities avoided cost with the need for qualifying facilities 
to be able to enter into contractual commitments, by necessity, on 
estimates of future avoided costs'' and ``the need for certainty 
with regard to return on investment in new technologies''); NOPR, 
168 FERC ] 61,184 at P 63 (``The Commission's justification for 
allowing QFs to fix their rate at the time of the LEO for the entire 
term of a contract was that fixing the rate provides certainty 
necessary for the QF to obtain financing.''). The Commission 
responds that ``[i]t is not necessary to prove that all potential 
QFs would be able to raise useful financing.'' Order No. 872-A, 173 
FERC ] 61,158 at P 175. Talk about moving the goal posts. No one has 
argued that this is the Commission's burden. Rather, the argument is 
that the Commission's reforms may render it impossible, or nearly 
so, for QFs outside the organized markets to obtain the necessary 
financing. Order No. 872, 172 FERC ] 61,041 (Comm'r, Glick, 
dissenting in part at PP 11-12); Public Interest Organizations at 
79-84. The Commission cannot skirt that point by knocking down a 
strawman, especially given the weight it is has historically given 
to the importance of financeability for QFs.
    \30\ See, e.g., Order No. 872-A, 173 FERC ] 61,158 at P 43.
---------------------------------------------------------------------------

    14. In addition, much of the Commission's justification for 
eliminating the fixed-price contract option for energy rests on the 
availability of a fixed-price contract option for capacity.\31\ 
Commission precedent, however, permits utilities to offer a capacity 
rate of zero to QFs when the utility does not

[[Page 86752]]

need incremental capacity.\32\ That means that, after Order No. 872, 
QF developers now face the very real prospect of not receiving any 
fixed revenue stream, whether for energy or capacity, on top the 
fact at they also may not be able to secure hedging products or 
other mechanisms needed to finance a new QF.\33\ It is hard for me 
to understand how the Commission can, with a straight face, claim to 
be encouraging QF development while at the same time eliminating the 
conditions necessary to develop QFs in the regions where they are 
being built.\34\
---------------------------------------------------------------------------

    \31\ See id. P 174; Order No. 872, 172 FERC ] 61,041 at P 36 
(``This assertion that the Commission has eliminated fixed rates for 
QFs is not correct. . . . The NOPR thus made clear: under the 
proposed revisions to 292.304(d), a QF would continue to be entitled 
to a contract with avoided capacity costs calculated and fixed at 
the time the LEO is incurred.'') (internal quotation marks omitted); 
id. P 237 (``The Commission stated that these fixed capacity and 
variable energy payments have been sufficient to permit the 
financing of significant amounts of new capacity in the RTOs and 
ISOs.'').
    \32\ See, e.g., Order No. 872, 172 FERC ] 61,041 at P 422 
(citing to City of Ketchikan, Alaska, 94 FERC ] 61,293, at 62,061 
(2001)).
    \33\ See, e.g., Electric Power Supply Association (EPSA) 
Rehearing Request at 13-14; Resources for the Future Comments at 6; 
SEIA Comments at 30; Southeast Public Interest Organizations 
Comments at 12.
    \34\ See Public Interest Organizations Comments at 10-11 
(``Obviously, rules that have an effect of discouraging QFs cannot 
be `necessary to' encouraging them.''); see also Massachusetts 
Attorney General Maura Healey Comments at 6 (``This action may 
reduce investor confidence and discourage future development. That 
outcome is a negative one for the Commonwealth and its 
ratepayers.'').
---------------------------------------------------------------------------

    15. The Commission also does not sufficiently explain how 
eliminating the fixed-price contract requirement is consistent with 
PURPA's requirement that rates ``shall not discriminate against'' 
QFs.\35\ Vertically integrated utilities effectively receive 
guaranteed fixed-price contracts through their rights to recover 
prudently incurred investments.\36\ QFs' equivalent right to receive 
fixed-price contracts for energy has to date proved an integral 
element of the Commission's ability to prevent discrimination 
against QFs.\37\ Neither Order No. 872 nor today's order on 
rehearing adequately explain how eliminating the fixed-price option 
is consistent with that prohibition or, moreover, how permitting QFs 
to receive variable rates for energy while any vertically integrated 
utility to which they sell electricity receives fixed rates is 
consistent with the Commission's obligation to encourage QF 
development.\38\
---------------------------------------------------------------------------

    \35\ 16 U.S. Code 824a-3(b)(2). Unlike provisions of the Federal 
Power Act, PURPA prohibits any discrimination against QFs, not just 
undue discrimination. See Order No. 872, 172 FERC ] 61,041 at P 82; 
see also EPSA Rehearing Request at 6; ELCON Comments at 21-22; South 
Carolina Solar Business Alliance Comments at 7-8; sPower Comments at 
13.
    \36\ Order No. 872, 172 FERC ] 61,041 at P 40.
    \37\ See supra note 20; Commissioner Slaughter Comments at 4.
    \38\ EPSA Rehearing Request at 8-9; Public Interest 
Organizations Comments at 51 (``[L]imiting QFs to contracts 
providing no price certainty for energy values, while non-QF 
generation regularly obtains fixed price contracts and utility-owned 
generation receives guaranteed cost recovery from captive 
ratepayers, constitutes discrimination.'').
---------------------------------------------------------------------------

    16. On rehearing, the Commission argues that both Congress and 
the Supreme Court ``recognize that PURPA treats QFs differently from 
purchasing utilities, rendering QFs not similarly situated to non-QF 
resources.'' \39\ As an initial matter, the question of whether 
entities are similarly situated is one that is relevant to 
evaluating whether any discrimination is undue.\40\ PURPA, however, 
prohibits any discrimination against QFs, not just undue 
discrimination.\41\ In any case, the congressional language cited by 
the Commission,\42\ which the Court reiterated, stands only for the 
proposition that Congress did not intend to apply traditional 
utility ratemaking concepts, such as guaranteed cost recovery, to 
QFs. But while Congress clearly envisioned different cost-recovery 
regimes for incumbent utilities and QFs, PURPA's prohibition on 
discrimination against QFs indicates that the ratemaking regime 
applicable to QFs can be no less favorable than that applied to 
incumbent purchasing utilities. Permitting QFs to receive only 
variable-rate contracts while incumbent utilities simultaneously 
receive what are functionally decades-long fixed price contracts 
through their retail rates plainly falls short of the standard.
---------------------------------------------------------------------------

    \39\ Order No. 872-A, 173 FERC ] 61,158 at P 142.
    \40\ See Public Interest Organizations Rehearing Request at 94-
95; Northwest Coalition Rehearing Request at 11-12.
    \41\ See supra note 35.
    \42\ Order No. 872-A, 173 FERC ] 61,158 at P 142 n.275.
---------------------------------------------------------------------------

    17. Finally, the Commission fails to explain why certain 
allegations of QF rates exceeding a utility's actual avoided cost 
require us to abandon fixed-price contracts.\43\ The Commission has 
long recognized that QF rates may exceed actual avoided costs, but, 
at the same time, that avoided cost rates might also turn out to be 
lower than the electric utility's avoided costs over the course of 
the contract. The Commission has reasoned that, ``in the long run, 
`overestimations' and `underestimations' of avoided costs will 
balance out.'' \44\ Today's order on rehearing takes the position 
that variable-price contracts are necessary to ensure that QF rates 
do not exceed utility avoided costs.\45\ The Commission, however, 
both fails to adequately explain that new interpretation of PURPA 
\46\ and justify the avulsive change of course that it 
represents.\47\
---------------------------------------------------------------------------

    \43\ Id. PP 76-78.
    \44\ Order No. 69, FERC Stats. & Regs. ] 30,128 at 30,880.
    \45\ Order No. 872-A, 173 FERC ] 61,158 at PP 84, 175.
    \46\ EPSA Rehearing Request at 15-16 (citing Order No. 69, FERC 
Stats. & Regs. ] 30,128 at 30,880).
    \47\ Order No. 872 was quick to point to ``the precipitous 
decline in natural gas prices'' starting in 2008 that may have 
caused QF contracts fixed prior to that period to underestimate the 
actual cost of energy. See, e.g., Order No. 872, 172 FERC ] 61,041 
at P 287. However, PURPA has been in place for forty years, and the 
Commission does not wrestle with the magnitude of potential savings 
conveyed to consumers from the fixed-price energy contracts that 
locked-in low rates for consumers during the decades prior when 
natural gas prices were several times higher. See Energy Information 
Administration Total Energy, tbl. 9.10, https://www.eia.gov/totalenergy/data/browser/ (last viewed November 18, 2020).
---------------------------------------------------------------------------

ii. Setting Avoided Cost at LMP

    18. I also do not support the Commission's decision to treat LMP 
as a presumptively reasonable measure of a utility's as-available 
avoided cost for energy.\48\ The short-term marginal cost of 
production represented by LMP can be a useful and transparent input 
and ought to be considered in calculating an appropriate avoided-
cost for as-available energy. But considering LMP in setting avoided 
cost is not the same thing as presuming that LMP is a sufficient 
measure to establish the avoided cost rate for energy. And, as the 
Public Interest Organizations explain, the record is replete with 
evidence indicating that vertically integrated utilities' costs are 
often well above LMP.\49\ Where there is good reason to believe that 
LMP may not actually reflect the avoided cost of the purchasing 
utility, it makes no sense to put the burden on QFs to prove the 
point.
---------------------------------------------------------------------------

    \48\ Order No. 872, 172 FERC ] 61,041 at PP 151, 189, 211.
    \49\ See, e.g., Public Interest Organizations Rehearing Request 
at 69-71. These points have also been raised throughout this 
proceeding. Public Interest Organizations Comments at 47-49 
(explaining that numerous power plants incur marginal production 
costs that exceed the LMP); id at 50-51 (discussing analysis from 
Bloomberg New Energy Finance that compares marginal production costs 
with LMP and finds that many vertically integrated utilities 
regularly incur production costs that exceed LMP); id. at 51-52 
(showing that a Springfield Illinois coal-fired power plant's 
marginal dispatch costs exceeds LMP); id. at 52-53 (explaining that 
many utilities' per-net-kWh costs exceed LMP); id. at 53-54 
(contending that the cost associated with long-term fixed-price 
contracts for nuclear plants exceed LMP even net of capacity value).
---------------------------------------------------------------------------

    19. On rehearing, the Commission responds that its rebuttable 
presumption has not changed the burden of proof, only the burden of 
production.\50\ That's an argument that only a lawyer's mother could 
love. It discounts the very real concerns about whether LMP is an 
accurate reflection of a purchasing utility's avoided energy costs. 
In any case, as the precedent cited by the Commission makes clear, 
an administrative agency cannot defend an irrational presumption 
simply by labeling it a shift in the burden of production.\51\ 
Because the presumption does not makes sense in its own right, the 
Commission cannot rehabilitate that presumption by labeling it 
merely a shift in the burden of production rather than 
persuasion.\52\
---------------------------------------------------------------------------

    \50\ Order No. 872-A, 173 FERC ] 61,158 at PP 63-64 (citing 
Cablevision Sys. Corp. v. FCC, 649 F.3d 695, 716 (D.C. Cir. 2011)).
    \51\ Cablevision, 649 F.3d at 716 (```[A]n evidentiary 
presumption is only permissible if there is a sound and rational 
connection between the proved and inferred facts, and when proof of 
one fact renders the existence of another fact so probable that it 
is sensible and timesaving to assume the truth of the inferred 
fact.' '' (quoting Nat'l Mining Ass'n v. Dep't of Interior, 177 F.3d 
1, 6 (D.C. Cir. 1999))).
    \52\ It is also unclear from this record whether that 
presumption is best characterized as a shift in the burden of 
production rather than the burden of persuasion. To the extent that 
a QF or other entity must show that LMP is not an adequate measure 
of avoided cost in order to rebut the presumption, then the 
Commission has, for all intents and purposes, shifted the burden of 
persuasion to those entities no matter how the Commission describes 
its presumption.
---------------------------------------------------------------------------

    20. Finally, the presumption that LMP is an adequate measure of 
a utility's full avoided energy cost is even more problematic when 
combined with the decision to eliminate the fixed-price contract 
option. Because the Commission has removed the

[[Page 86753]]

requirement that utilities offer a fixed-price contract option for 
energy, it is entirely possible that a QF will be eligible to 
receive only LMP both on a short-term basis and a long-term basis as 
a result of the variable cost structure now permitted under the 
long-term contract.\53\ Given this reality, QFs may be reduced to 
relying solely on some highly variable measure of the spot market 
price for energy, all while the utilities whose costs the QF is 
avoiding potentially recover an effectively guaranteed rate well 
above that spot market price, particularly in RTO/ISO markets that 
remain vertically integrated.\54\ I am not persuaded that this 
approach will satisfy our obligation to encourage QFs and do so 
using rates that are non-discriminatory across all regions of the 
country.
---------------------------------------------------------------------------

    \53\ Public Interest Organizations Rehearing Request at P 61.
    \54\ EPSA Rehearing Request at 13-14; Public Interest 
Organizations Rehearing Request at 98-99.
---------------------------------------------------------------------------

B. Rebuttable Presumption 20 MW to 5 MW

    21. Following the Energy Policy Act of 2005, the Commission 
established a rebuttable presumption that QFs with a capacity 
greater than 20 MW operating in RTOs and ISOs have non-
discriminatory access to competitive markets, eliminating utilities' 
must-purchase obligation from those resources.\55\ Order No. 872 
reduced the threshold for that presumption from 20 MW to 5 MW.\56\ 
That was an improvement over the NOPR, which--without any support 
whatsoever--proposed to lower that threshold to 1 MW.\57\ But, even 
so, the reduced 5-MW threshold is unsupported by the record and 
inadequately justified on rehearing.
---------------------------------------------------------------------------

    \55\ New PURPA Section 210(m) Regulations Applicable to Small 
Power Production and Cogeneration Facilities, Order No. 688, 117 
FERC ] 61,078, at P 72 (2006), order on reh'g, Order No. 688-A, 119 
FERC ] 61,305 (2007), aff'd sub nom. Am. Forest & Paper Ass'n v. 
FERC, 550 F.3d 1179 (D.C. Cir. 2008); see 16 U.S.C. 824a-3(m).
    \56\ Order No. 872, 172 FERC ] 61,041 at P 625.
    \57\ NOPR, 168 FERC ] 61,184 at P 126.
---------------------------------------------------------------------------

    22. When it originally established the 20-MW threshold, the 
Commission pointed to an array of barriers that prevented resources 
below that level from having truly non-discriminatory access to RTO/
ISO markets. Those barriers included complications associated with 
accessing the transmission system through the distribution system (a 
common occurrence for such small resources), challenges with 
reaching distant off-takers, as well as ``jurisdictional 
differences, pancaked delivery rates, and additional administrative 
procedures'' that complicate those resources' ability to participate 
in those markets on a level playing field.\58\ In just the last few 
years, the Commission has recognized the persistence of those 
barriers ``that gave rise to the rebuttable presumption that smaller 
QFs lack nondiscriminatory access to markets.'' \59\
---------------------------------------------------------------------------

    \58\ Order No. 688-A, 119 FERC ] 61,305 at PP 96, 103.
    \59\ E.g., N. States Power Co., 151 FERC ] 61,110, at P 34 
(2015).
---------------------------------------------------------------------------

    23. Nevertheless, Order No. 872 abandoned the 20 MW threshold 
based on the conclusory assertion that ``it is reasonable to presume 
that access to RTO/ISO markets has improved,'' making it 
``appropriate to update the presumption.'' \60\ No doubt markets 
have improved. But a borderline-truism about maturing markets does 
not explain how the barriers arrayed against small resources have 
dissipated, why it is reasonable to ``presume'' that the remaining 
barriers do not still significantly inhibit non-discriminatory 
access, or why 5 MW is an appropriate new threshold for that 
presumption.\61\
---------------------------------------------------------------------------

    \60\ Order No. 872, 172 FERC ] 61,041 at P 629 (``Over the last 
15 years, the RTO/ISO markets have matured, market participants have 
gained a better understanding of the mechanics of such markets and, 
as a result, we find that it is reasonable to presume that access to 
the RTO/ISO markets has improved and that it is appropriate to 
update the presumption for smaller production facilities.''); see 
Order No. 872-A, 173 FERC ] 61,158 at P 361.
    \61\ See Public Interest Organizations Rehearing Request at 135.
---------------------------------------------------------------------------

    24. Instead of any such evidence, Order No. 872 noted that the 
Commission uses the 5-MW level as a demarcating line for other rules 
applying to small resources. It points in particular to the fact 
that resources below 5 MW can use a ``fast-track'' interconnection 
process, whereas larger ones must use the large generator 
interconnection procedures.\62\ But the fact that the Commission 
used 5 MW as the cut off in another context hardly shows that it is 
the right cut off to use in this context. Specifically, the 5 MW cut 
off in the Commission's interconnection rule is based on the impacts 
that projects below 5 MW are likely to have on system safety and 
reliability, not on whether they have non-discriminatory market 
access.\63\ In addition, the Commission points to the fact that 
```all of the RTOs/ISOs have at least one participation model that 
allows resources as small as 100 kW to participate in their 
markets.' '' \64\ Be that as it may, that fact that all RTOs do not 
prohibit certain small resources from accessing their markets does 
not support the proposition that QFs below 5 MW now have non-
discriminatory access to those markets.
---------------------------------------------------------------------------

    \62\ Order No. 872, 172 FERC ] 61,041 at P 630; Order No. 872-A, 
173 FERC ] 61,158 at P 361.
    \63\ Order No. 792, 145 FERC ] 61,159, at P 103 (2013) (``The 
Commission finds that the modifications . . . are just and 
reasonable and strike a balance between allowing larger projects to 
use the Fast Track Process while ensuring safety and 
reliability.''); see also SEIA Rehearing Request at 39-40.
    \64\ Order No. 872-A, 173 FERC ] 61,158 at P 362 (citing 
Electric Storage Participation in Markets Operated by Regional 
Transmission Organizations and Independent System Operators, Order 
No. 841, 162 FERC ] 61,127 (2018), at P 272).
---------------------------------------------------------------------------

    25. Lacking substantial evidence to support the 5 MW threshold, 
Order No. 872 made a great deal out the deferential standard of 
review applied to the Commission's rulemakings.\65\ But while 
judicial review of agency policymaking is deferential, it is not 
toothless. The cases on which the Commission relied still require 
that, when an agency's policy reversal ``rests upon factual findings 
that contradict those which underlay its prior policy,'' the agency 
must ``provide a more detailed justification than what would suffice 
for a new policy created on a blank slate.'' \66\ That is because 
reasoned decisionmaking requires that, when an agency changes 
course, it must provide ``a reasoned explanation . . . for 
disregarding facts and circumstances that underlay or were 
engendered by the prior policy.'' \67\ For the foregoing reasons, 
the Commission has failed to produce any such explanation, making 
its change of course arbitrary and capricious.
---------------------------------------------------------------------------

    \65\ Order No. 872, 172 FERC ] 61,041 at P 637 (citing FCC v. 
Fox Television, 556 U.S. 502, 515 (2009), for the proposition that 
an agency ``need not demonstrate to a court's satisfaction that the 
reasons for the new policy are better than the reasons for the old 
one; it suffices that the new policy is permissible under the 
statute, that there are good reasons for it, and that the agency 
believes it to be better, which the conscious change of course 
adequately indicates.''); see Order No. 872-A, 173 FERC ] 61,158 at 
P 347.
    \66\ Fox Television, 556 U.S. at 515; Advanced Energy Economy 
Comments at 6.
    \67\ Fox Television, 556 U.S. at 516; Advanced Energy Economy 
Comments at 6-7.
---------------------------------------------------------------------------

 Environmental Review Under the National Environmental Policy 
Act

    26. Today's order also doubles down on the Commission's refusal 
to conduct any environmental review whatsoever of the likely 
consequences of Order No. 872's reforms. Whatever one may think of 
the questionable merits of those reforms, no one can seriously argue 
that they are anything short of a significant and sweeping overhaul 
of the Commission's forty-year-old framework for implementing PURPA. 
And yet, at the same time that the Commission has championed the 
scope of its sweeping reforms, it simultaneously insists that no 
environmental review is necessary both because it cannot venture any 
guess as to the effects of those reforms and because they somehow 
fit into a categorical exception from NEPA review. Neither 
justification holds water.
    27. As an initial matter, the Commission's assertion that Order 
No. 872's effects are overly speculative is tough to square with the 
fact that it has not undertaken any effort whatsoever to assess 
those effects. For example, instead of performing any modeling 
exercises, as the Commission did in the environmental assessment it 
issued along with its PURPA regulations in 1980,\68\ the Commission 
peremptorily rejects the possibility that it could glean anything 
useful from such an exercise. I have a hard time believing that our 
modeling capabilities have not improved dramatically over the course 
of the last four decades or that we cannot use those capabilities to 
perform an analysis that is quite a bit more detailed and reliable 
than that which was previously good enough for the Commission. In 
any case, NEPA does not require complete certainty or exacting 
precision. Instead, it recognizes that administrative agencies will 
often have to rely `` `reasonable forecasting' '' aided by `` 
`educated assumptions.' '' \69\ Nothing in

[[Page 86754]]

Order No. 872 or today's order on rehearing adequately explains why 
those techniques could not have formed the basis for a useful 
environmental review of the likely consequences of this proceeding.
---------------------------------------------------------------------------

    \68\ Small Power Production and Cogeneration Facilities--
Environmental Findings; No Significant Impact and Notice of Intent 
To Prepare Environmental Impact Statement, 45 FR 23,661 (Apr. 8, 
1980).
    \69\ Sierra Club v. FERC, 867 F.3d 1357, 1374 (D.C. Cir. 2018) 
(quoting Del. Riverkeeper Network v. FERC, 753 F.3d 1304, 1310 (D.C. 
Cir. 2014)).
---------------------------------------------------------------------------

    28. In addition, in a head-spinning contrast to the Commission's 
crowing over the significance of its PURPA overhaul, the Commission 
describes the changes adopted as merely corrective and clarifying in 
nature for the purposes of avoiding its environmental review.\70\ In 
particular, the Commission contends that ``the changes adopted in 
this final rule are required to ensure continued future compliance 
of the PURPA Regulations with PURPA, based on the changed 
circumstances found by the Commission in this final rule.'' \71\ In 
other words, because the Commission believes that the changes 
adopted are necessary to conform with the statute, they are mere 
corrective changes, which, in turn, qualifies them for the 
categorical exemption from any environmental review under NEPA, or 
so the argument goes.
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    \70\ Order No. 872-A, 173 FERC ] 61,158 at P 449.
    \71\ Order No. 872, 172 FERC ] 61,041 at P 722; Order No. 872-A, 
173 FERC ] 61,158 at P 438.
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    29. But by that logic, any Commission action needed to comply 
with our various statutory mandates--whether ``just and reasonable'' 
or the ``public interest''--would be deemed corrective in nature 
and, therefore, excluded from environmental review. That would seem 
to exempt any future Commission action under PUPRA or Title II of 
the FPA from NEPA, at least absent a major congressional revision of 
those statutes. The Commission, however, fails to point to any 
evidence suggesting that is what the Council on Environmental 
Quality contemplated when it allowed for categorical exemptions. 
Accordingly, I do not believe that the Commission has demonstrated 
that the significant changes made in Order No. 872 qualify for any 
of the existing categorical exclusions, meaning that this 
significant revision of our PURPA regulations requires an 
environmental review under NEPA.

 The Way To Revise PURPA Is To Create More Competition, Not 
Less

    30. It didn't have to be this way. When Congress reformed PURPA 
in the 2005 Energy Policy Act amendments, it indicated an 
unmistakable preference for using market competition as the off-ramp 
for utilities seeking relief from their PURPA obligations.\72\ Those 
reforms directed the Commission to excuse utilities from those 
obligations where QFs had non-discriminatory access to RTO/ISO 
markets or other sufficiently competitive constructs.\73\
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    \72\ 16 U.S.C. 824a-3(m).
    \73\ See Order No. 688, 117 FERC ] 61,078 at P 8.
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    31. This record contains numerous comments explaining how the 
Commission could use those amendments as a way to ``modernize'' 
PURPA in a manner that both promotes actual competition and reflects 
Congress's unambiguous intent.\74\ For example, in a white paper 
released prior to the NOPR, the National Association of Regulatory 
Utility Commissioners (NARUC) urged the Commission to give meaning 
to the 2005 amendments by establishing criteria by which a 
vertically integrated utility outside of an RTO or ISO could apply 
to terminate the must-purchase obligation if it conducts 
sufficiently competitive solicitations for energy and capacity.\75\ 
Other groups, including representatives of QF interests, submitted 
additional comments on how an approach along those lines might 
work.\76\ Several parties commented on those proposals.\77\
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    \74\ See Advanced Energy Economy Comments at 13; Industrial 
Energy Consumers Comments at 13-14; EPSA Comments at 16.
    \75\ National Association of Regulatory Utility Commissioners 
Supplemental Comments, Docket No. AD16-16-00, Attach. A, at 8 (Oct. 
17, 2018); id. (proposing the Commission's Edgar-Allegheny criteria 
as a basis for evaluating whether a proposal was adequately 
competitive).
    \76\ See, e.g., SEIA Supplemental Comments, Docket No. AD16-16-
000 (Aug. 28, 2019).
    \77\ See, e.g., Advanced Energy Economy Comments at 12; APPA 
Comments at 29; Colorado Independent Energy Comments at 7; ELCON 
Comments at 19; Public Interest Organizations Comments at 90; SEIA 
Comments at 24; Xcel Comments at 11.
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    32. It is a shame that the Commission has elected to 
administratively gut its long-standing PURPA implementation regime, 
rather than pursuing reform rooted in PURPA section 210(m), such as 
the NARUC proposal. Although the Commission can still consider 
proposals along the lines of the NARUC approach,\78\ making that 
approach the center of our reforms could have produced a durable, 
consensus solution to the issues before us. I continue to believe 
that the way to modernize PURPA is to promote real competition, not 
to simply dismantle the provisions that the Commission has relied on 
for decades out of frustration that Congress has repeatedly failed 
to repeal the statute itself.
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    \78\ Order No. 872, 172 FERC ] 61,041 at P 662.
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    For these reasons, I respectfully dissent in part.

Richard Glick,
Commissioner.

[FR Doc. 2020-26106 Filed 12-29-20; 8:45 am]
BILLING CODE 6717-01-P

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