# Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-15902 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** September 2, 2020 - **Citation:** 85 FR 54638 ## Text DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Parts 292 and 375 [Docket Nos. RM19-15-000 and AD16-16-000; Order No. 872] Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978 AGENCY: Federal Energy Regulatory Commission. ACTION: Final rule. SUMMARY: In this Order, the Federal Energy Regulatory Commission issues its final rule approving certain 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 December 31, 2020. 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, 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: Table of Contents Paragraph Nos. I. Introduction 1 II. Overview 5 A. The Commission's PURPA Regulations, as Revised by This Final Rule, Continue To Encourage the Development of QFs Within the Requirements of PURPA's Statutory Limitations 6 1. Avoided Cost Cap on QF Rates 13 2. Limitation on Small Power Production Facilities Located at the Same “Site” 17 3. Termination of Purchase Obligation for QFs With Nondiscriminatory Access to Certain Competitive Markets 18 4. Final Rule's Updating of the PURPA Regulations 20 B. The Final Rule Ensures That the Commission's Implementation of PURPA Continues To Benefit QFs, Purchasing Electric Utilities, and Electric Consumers 28 C. The Commission Is Not Eliminating Fixed Rate Pricing for QFs, But Rather Is Giving States the Flexibility To Require the Same Variable Energy Rate/Fixed Capacity Rate Construct That Applies Throughout the Electric Industry 35 D. The Rate Changes Implemented by This Final Rule Put QF Rates on the Same Footing as Electric Utility Rates and Are Not Discriminatory 39 E. The PURPA Compliance Issues Raised by Some Commenters Are Outside the Scope of This Rulemaking Proceeding 42 III. Background 47 A. Passage of PURPA in 1978 and the Commission's Promulgation of Its PURPA Regulations in 1980 47 B. Circumstances Leading to the Commission's Re-evaluation of the PURPA Regulations and the Issuance of the NOPR 51 C. Summary of Changes to the PURPA Regulations Implemented by This Final Rule 56 IV. Discussion 67 A. General Legal Standards Under PURPA 67 1. Encouragement of QFs 68 a. Comments 68 b. Commission Determination 70 2. Discrimination 79 a. Comments 79 b. Commission Determination 82 3. Unlawful Delegation and the Role of Nonregulated Electric Utilities 89 a. Comments 89 b. Commission Determination 93 B. QF Rates 96 1. Overview 96 2. Use of Competitive Market Prices To Set As-Available Avoided Cost Rates 103 a. NOPR Proposal 104 b. Comments 107 c. Commission Determination 114 3. LMP as a Permissible Rate for Certain As-Available Avoided Cost Rates 124 a. NOPR Proposal 124 b. Comments 129 i. Comments in Opposition 129 (a) Utilizing Western EIM To Establish Avoided Costs 137 ii. Comments in Support 138 (a) Utilizing Western EIM To Establish Avoided Costs 145 iii. Comments in Support With Requested Modifications/Clarifications 146 c. Commission Determination 151 i. Arguments Against the NOPR Proposal 155 ii. Requests for Modification or Clarification of the NOPR 173 iii. Western EIM 177 4. Use of Market Hub Prices as a Permissible Rate for Certain As-Available QF Energy Sales 180 a. NOPR Proposal 180 b. Comments 182 i. Comments in Support 182 ii. Comments in Opposition 184 iii. Commission Determination 189 c. Proposed Modifications 195 i. Comments 195 ii. Commission Determination 200 5. Use of Formulas Based on Natural Gas Prices To Establish a Permissible Rate for Certain As-Available QF Energy Sales 203 a. NOPR Proposal 203 b. Comments 206 c. Commission Determination 211 6. Permitting the Energy Rate Component of a Contract To Be Fixed at the Time of the LEO Using Forecasted Values of the Estimated Stream of Market Revenues 217 a. Comments 219 b. Commission Determination 227 7. Providing for Variable Energy Rates in QF Contracts 232 a. Background 232 b. NOPR Proposal 234 c. General Comments on the NOPR Proposal 245 i. Comments in Support of NOPR Proposal 245 ii. Comments in Opposition to NOPR Proposal 248 iii. Commission Determination 253 d. Whether the Current Approach Has Resulted in Payments to QFs in Excess of Avoided Costs 265 i. Comments in Support of NOPR Proposal 265 ii. Comments in Opposition to NOPR Proposal 272 iii. Commission Determination 283 e. Whether the Proposed Change Would Violate the Statutory Requirement That the PURPA Regulations Encourage QFs 294 i. Comments 294 i. Commission Determination 295 f. Discrimination 297 i. Comments in Support of NOPR Proposal 297 ii. Comments in Opposition to NOPR Proposal 298 iii. Commission Determination 302 g. Effect of Variable Energy Rates on Financing 304 i. Comments in Support of the NOPR Proposal 304 ii. Comments in Opposition to the NOPR Proposal 312 iii. Commission Determination 335 h. Other Claimed Benefits of Fixed Avoided Cost Energy Rates 350 i. Comments 350 ii. Commission Determination 351 i. Potential Modifications to NOPR Proposal 354 i. Comments 354 ii. Commission Determination 357 8. Consideration of Competitive Solicitations To Determine Avoided Costs 361 a. NOPR Proposal 361 b. Comments 368 i. Comments in Opposition 368 ii. Comments in Support 375 iii. Comments Requesting Modifications/Clarifications 383 (a) Requests for Clarification and/or Separate Proceedings 383 (b) Requests Regarding Proposed Criteria 390 (c) Other Requests 400 c. Commission Determination 411 i. Requests for Clarification and/or Separate Proceedings 415 ii. Proposed Criteria 420 iii. Other Requests 439 C. Relief from Purchase Obligation in Competitive Retail Markets 442 1. NOPR Proposal 442 2. Comments 444 3. Commission Determination 456 D. Evaluation of Whether QFs Are at Separate Sites 458 1. Rebuttable Presumption of Separate Sites 458 a. NOPR Proposal 458 b. Commission Determination 466 c. Need for Reform 470 i. Comments 470 ii. Commission Determination 472 d. Site Definition 473 i. Comments 473 ii. Commission Determination 476 e. Distance Between Facilities 482 i. Comments 482 ii. Commission Determination 490 f. Factors 497 i. Comments 497 ii. Commission Determination 508 g. Exemptions 512 i. Comments 512 ii. Commission Determination 514 2. Electrical Generating Equipment 515 a. NOPR Proposal 515 b. Comments 518 c. Commission Determination 521 E. QF Certification Process 525 1. NOPR Proposal 525 2. Comments 530 3. Commission Determination 547 F. Corresponding Changes to the FERC Form No. 556 570 1. NOPR Proposal 570 2. Comments 577 3. Commission Determination 584 G. PURPA Section 210(m) Rebuttable Presumption of Nondiscriminatory Access to Markets 597 1. PURPA Section 210(m) Implementation 597 a. NOPR Proposal 597 b. Comments in Opposition 602 i. Insufficient Evidentiary Support 603 ii. Administrative Burden and Complex Market Rules 611 c. Comments in Support 614 d. Comments Requesting Modifications/Clarifications 617 e. Commission Determination 624 2. Reliance on RFPs and Liquid Market Hubs To Terminate Purchase Obligation Under PURPA Section 210(m) 648 a. NOPR Discussion 648 b. Comments 651 i. Comments in Opposition 651 ii. Comments in Support 655 c. Commission Determination 659 H. Legally Enforceable Obligation 663 1. NOPR Proposal 663 2. Comments 666 a. Comments in Opposition 666 b. Comments in Support 673 c. Comments Requesting Modification 676 i. Studies 677 ii. Commercial Viability 679 iii. Financial Viability 681 iv. Rejecting QF Purchases and Expanded Curtailment Rights 683 3. Commission Determination 684 V. Information Collection Statement 697 VI. Environmental Analysis 702 A. Comments 703 B. Commission Determination 710 1. No EIS or EA is Required 712 a. There Is No Project That Defines the Scope and Limits of QF Development 712 b. A Categorical Exclusion Applies 720 i. Changes That Are Clarifying in Nature 721 ii. Changes That Are Corrective in Nature 722 iii. Changes That Are Procedural in Nature 727 2. The NEPA Analysis for Promulgation of the Original PURPA Regulations in 1980 Cannot Be Replicated Here 728 3. This Proceeding Does Not Trigger Any ESA Consultation Requirement 737 VII. Regulatory Flexibility Act Certification 743 VIII. Document Availability 750 IX. Effective Dates and Congressional Notification 753 I. Introduction 1. In this Order, the Federal Energy Regulatory Commission (Commission) issues its final rule approving certain revisions to its regulations (PURPA Regulations) 1 implementing sections 201 and 210 of the Public Utility Regulatory Policies Act of 1978 (PURPA). 2 1 18 CFR part 292 (2019). In connection with the revisions to the PURPA Regulations, the Commission also is revising its delegation of authority to Commission staff in 18 CFR pt. 375. 2 16 U.S.C. 796(17)-(18), 824a-3. 2. On September 19, 2019, the Commission issued a notice of proposed rulemaking (NOPR) proposing to modify its PURPA Regulations. 3 Those regulations were promulgated in 1980 and have been modified in only specific respects since then. Approximately 130 separate comments were submitted in response to the NOPR, 4 several of which were submitted on behalf of multiple parties. In total, over 1,600 pages of comments were submitted, and in addition thousands of pages of exhibits were attached to the comments. The entities that filed comments are listed in Appendix A. This final rule addresses comments received in response to the NOPR. 3 Qualifying Facility Rates and Requirements Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, 168 FERC ¶ 61184 (2019) (NOPR). 4 See Appendix for list of commenters. 3. We largely adopt the NOPR proposals. However, this final rule makes certain modifications to the NOPR proposals, as further discussed below. 4. Given the Commission's expressed intent in the NOPR to propose revisions to the PURPA Regulations that more closely adhere to the goals and terms of PURPA, 5 we considered comments regarding whether these proposals are consistent with the requirements of PURPA. Based on that review and further consideration, we adopt the following changes to the proposals in the NOPR, among certain others described below: 5 NOPR, 168 FERC ¶ 61,184 at P 31. • We establish a rebuttable presumption, rather than a per se rule, that locational marginal prices (LMPs) may reflect a purchasing electric utility's avoided energy costs; • We provide that any competitive solicitations used to establish avoided capacity costs must adhere to the Commission's Allegheny 6 standard for evaluating competitive solicitations; 6 Allegheny Energy Supply Co., LLC, 108 FERC ¶ 61,082, at P 18 (2004) ( Allegheny ). • We do not adopt the proposed rule permitting states with retail competition to allow relief from the purchase obligation but instead clarify that the Commission's existing PURPA Regulations already require that states, to the extent practicable, must account for reduced loads in setting QF capacity rates; • We clarify terminology we used in the NOPR relating to the determination of whether small power production facilities are separate facilities to focus not on whether they are separate facilities, but rather to mirror the statutory language and thus focus on whether they are at “ the same site”; • We clarify in the regulations that protests may be made to initial self-certifications and applications for Commission certification, but only to self-recertifications and applications for Commission recertification making substantive changes to the existing certification; • We identify additional factors that can be considered for small power production qualifying facilities (QFs) located more than one but less than 10 miles apart, such as evidence of shared control systems, common permitting and land leasing, and shared step-up transformers; • We revise the regulations to lower the rebuttable presumption of small power production QFs' nondiscriminatory access to 5 MW, rather than 1 MW as proposed in the NOPR, and include factors that a small power production QF sized greater than 5 MW could rely on to rebut the presumption that it has nondiscriminatory access to markets defined in PURPA sections 210(m)(1); and • We revise the proposed requirements to establish a legally enforceable obligation (LEO) to provide that with regard to the issue of obtaining permits, QFs need only have applied for all required permits, instead of being required to have already obtained those permits. II. Overview 5. Before discussing each of the individual changes to the PURPA Regulations adopted herein, this final rule first addresses certain overall themes raised in the comments on the NOPR, both those supporting the NOPR and those opposing. A. The Commission's PURPA Regulations, as Revised by This Final Rule, Continue To Encourage the Development of QFs Within the Requirements of PURPA's Statutory Limitations 6. 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. 7. The bulk of the criticism of the Commission's proposed rule changes is based on a widespread misunderstanding, as reflected in the comments on the NOPR, that PURPA and the PURPA Regulations were intended to encourage QF development without any limit, and that the rule changes proposed in the NOPR improperly reduce or even eliminate encouragement in contravention of the statute. Those commenters opposing the NOPR proposals argue that the Commission has determined, in contravention of the statute, that there no longer is a need to encourage QFs, or eliminated any provision that provides such encouragement. 7 Many of the commenters supporting the changes proposed in the NOPR applaud the Commission for eliminating what they argue amounts to an improper subsidy of QFs. 8 7 See, e.g., Biological Diversity Comments at 14; ConEd Development Comments at 2; Harvard Electricity Law Comments at 4; New England Small Hydro Comments at 4; NIPPC, CREIA, REC, and OSEIA Comments at 3, 21, 28; Public Interest Organizations Comments at 9, 39; Solar Energy Industries Comments at 4; Southeast Public Interest Organizations Comments at 17. 8 See Competitive Enterprise Institute Comments at 3; Progressive Policy Institute Comments at 1-2; SBE Council Comments at 2; Mr. Moore Comments at 1-2. 8. Neither side is correct about either what PURPA and the current PURPA Regulations require, or the basis for the changes to the PURPA Regulations proposed in the NOPR. 9. As an initial matter, PURPA was not a directive to the Commission to encourage QF development without limitation. Indeed, as explained below, Congress included several limitations in PURPA. By reading the statute as a whole, and the PURPA Regulations as a whole as revised by this final rule, it is clear that the PURPA Regulations continue to encourage the development of QFs consistent with PURPA. 9 9 16 U.S.C. 824a-3(a). 10. We also emphasize that we do not by this final rule change other elements to the Commission's existing PURPA Regulations that continue to encourage QF development. These elements include, but are not limited to, rules that: (1) Require electric utilities to provide backup electric energy to QFs on a non-discriminatory basis and at just and reasonable rates; (2) require electric utilities to interconnect with QFs; and (3) provide exemptions to QFs from many provisions of the Federal Power Act (FPA) and state laws governing utility rates and financial organization. 10 These provisions encourage the development of QFs by relieving them of certain regulatory burdens otherwise imposed on sellers of power and ensure they can operate their facilities. Moreover, we stress that, besides the changes to the PURPA Regulations regarding applications to terminate a purchasing electric utility's mandatory purchase obligation under PURPA section 210(m) (see infra section IV.G), nothing in this final rule eliminates QFs' rights to sell electric energy or capacity as provided under PURPA. 10 See 18 CFR 292.303(c), 292.305, 292.601-02. 11. As discussed in greater detail below, while PURPA provided for the encouragement of cogeneration and small power production, PURPA also provided that the Commission could not prescribe a rule that provided for “a rate which exceeds the incremental cost to the electric utility of alternative electric energy.” 11 Furthermore, PURPA requires the Commission to “insure” that the resulting rates “shall be just and reasonable to the electric consumers of the electric utility and in the public interest[.]” 12 Likewise, while PURPA provided for the encouragement of small power production, PURPA also limited the facilities which could be encouraged to those facilities with no more than 80 MW power production capacity at the same site. 13 11 Compare id. with 16 U.S.C. 824a-3(b). 12 16 U.S.C. 824a-3(b)(1). 13 Compare 16 U.S.C. 824a-3(a) with 16 U.S.C. 796(17)(A)(ii). 12. Nothing in the text of PURPA requires the establishment of a subsidy for QFs. This point was confirmed in the Conference Report accompanying PURPA's passage: “The provisions of this section are not intended to require the rate payers of a utility to subsidize cogenerators or small power producers.” 14 Congress thus structured PURPA both specifically to give effect to its intent that QFs not be subsidized and also to impose other mandatory limits on the Commission's ability to encourage QFs that are relevant to this final rule, as briefly summarized below. 14 H.R. Rep. No. 95-1750, at 98 (1978) (Conf. Rep.). 1. Avoided Cost Cap on QF Rates 13. PURPA section 210(b) sets out the standards governing the rates purchasing utilities must pay to QFs. 15 Sections 210(b)(1) and (b)(2) provide that QF rates “shall 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.” 16 After establishing these standards, Congress then placed, in the final sentence of section 210(b), 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.” 17 As the Conference Report for PURPA explains: 15 16 U.S.C. 824a-3(b). 16 Id. 17 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. 18 18 Conf. Rep. at 98 (emphasis added). 14. This upper limit on QF rates established in section 210(b), equal to a purchasing utility's incremental costs, commonly called “avoided costs,” implements Congress's intent that QFs not be subsidized. It ensures that the purchasing utility cannot be required to pay more for power purchased from a QF than it would otherwise pay to generate the power itself or to purchase power from a third party. 15. Consistent with the statutory standard, when the Commission issued its PURPA Regulations in 1980, it set the rates for QFs at, but not above, the statutorily defined incremental or avoided cost of alternative electric energy. 19 The PURPA Regulations applied this limitation generally to QF rates, without distinguishing between as-available energy 20 and the fixed energy and capacity rate option applicable to long-term contracts or other legally enforceable obligations. 21 In either case, though, the PURPA Regulations essentially capped the rate paid to QFs at the purchasing electric utility's avoided costs. 22 19 Compare 16 U.S.C. 824a-3(b) & (d) with 18 CFR 292.101(b)(6), 292.304(a)(2) & (b)(2). 20 18 CFR 292.304(d)(1). 21 18 CFR 292.304(d)(2) (providing QFs the right to elect avoided costs calculated at the time of delivery or avoided costs calculated at the time the obligation is incurred). In this final rule, we refer to the QF's option for avoided costs calculated at the time the obligation is incurred as the fixed energy and capacity rate option. 18 CFR 292.304(d)(2). 22 The regulations, however, also allowed both for negotiated rates that differed from the rates that would otherwise be applicable, see 18 CFR 292.301(b), and for rates to be set based on estimates of avoided costs even though such rates might differ from avoided costs at the time of delivery. See 18 CFR 292.304(b)(5). 16. Order No. 69, in which the Commission promulgated the PURPA Regulations, 23 makes clear that the Commission also recognized that allowing the option for a fixed energy and capacity rate option for long-term contracts or other legally enforceable obligations could result in a rate that, at times, exceeded incremental or avoided cost of alternative electric energy. The Commission acknowledged in this regard that some commenters had asserted that, “if the avoided cost of energy at the time it is supplied is less than the price provided in the contract or obligation, the purchasing utility would be required to pay a rate for purchases that would subsidize the qualifying facility at the expense of the utility's other ratepayers.” 24 In response, the Commission stated that it “recognize[d] this possibility, but is cognizant that in other cases, the required rate will turn out to be lower than the avoided cost at the time of purchase.” 25 The Commission concluded that any over- and under-recoveries compared to avoided cost “will balance out” and, based on this conclusion, found that the fixed energy and capacity rate option applicable to long-term contracts or other legally enforceable obligations did not violate the statutory cap. 26 But, to be clear, the option the Commission implemented in 1980 was not based on any determination by the Commission that the rates in QF contracts may routinely exceed avoided costs in the ordinary course of events in order to encourage QFs. 23 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 (cross-referenced 10 FERC ¶ 61,150), order on reh'g, Order No. 69-A, 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 ). 24 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. 25 Id. 26 Id. 2. Limitation on Small Power Production Facilities Located at the Same “Site” 17. 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 under the statute is to be encouraged. The 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.” 27 In order to comply with this statutory requirement that the capacity of all small power production facilities “located at the same site” cannot exceed 80 MW, the Commission is required to define what constitutes a “site.” The Commission determined in 1980 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.” 28 This definition, known as the “one-mile rule,” interpreted Congress's limitation of 80 MW located at the same site to apply to just those affiliated small power production qualifying facilities located within one mile of each other. 27 16 U.S.C. 796(17)(A)(ii). 28 18 CFR 292.204(a)(ii). 3. Termination of Purchase Obligation for QFs With Nondiscriminatory Access to Certain Competitive Markets 18. Finally, Congress amended PURPA in 2005 to further limit the statute. Congress amended PURPA section 210 to 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 if the QF has nondiscriminatory access to certain defined types of markets. 29 This amendment reflected Congress's judgment that non-discriminatory access to these markets provided adequate encouragement for those QFs. 29 See 16 U.S.C. 824a-3(m). 19. Congress directed the Commission to implement this requirement, which it did in Order No. 688. In that order, the Commission identified certain markets in which utilities would no longer be subject to the PURPA mandatory purchase obligation under PURPA section 210(m) because certain QFs have nondiscriminatory access to such markets. 30 Although not required in the new PURPA section 210(m), the Commission established a rebuttable presumption that a QF with a net power production capacity at or below 20 MW does not have nondiscriminatory access to such markets. 31 In creating this rebuttable presumption, the Commission found persuasive arguments that some QFs may not have nondiscriminatory access to markets in light of their small size. 30 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). 31 18 CFR 292.309(d)(1). 4. Final Rule's Updating of the PURPA Regulations 20. In this final rule, we are amending the PURPA Regulations, principally with regard to the three statutory provisions described above, i.e.: (1) The avoided cost cap on QF rates; (2) the 80 MW limitation applicable to the combined capacity of affiliated small power production QFs located at the same site; and (3) the termination of the mandatory purchase obligation for QFs with nondiscriminatory access to certain markets. Contrary to commenters' assertions that the Commission has determined that it no longer is necessary to encourage QFs and therefore that the Commission is making these changes in an impermissible attempt to undo PURPA, 32 we are modifying the PURPA Regulations based on demonstrated changes in circumstances since the current PURPA Regulations were first adopted to ensure that the regulations continue to comply with PURPA's statutory requirements established by Congress. 32 Biomass Power Comments at 2; Biological Diversity at 12; EPSA Comments at 6 (“[T]he NOPR changes `would effectively gut' PURPA.”); NIPPC, CREA, REC, and OSEIA Comments at 28-29; Public Interest Groups Comments at 25 (“[T]he changes proposed in the NOPR will gut PURPA-mandated measures to encourage QF development.”); Solar Energy Industries Comments at 8-14. 21. For example, as explained in more detail below, the Commission's expectation expressed in 1980 that over- and under-recovery in rates compared to avoided cost “will balance out” 33 was critical to the Commission's determination in 1980 that the fixed energy and capacity rate option applicable to long-term contracts or other legally enforceable obligations did not violate the statutory avoided cost cap on QF rates. However, record evidence now demonstrates that this expectation no longer is necessarily accurate. The Commission's change to the PURPA Regulations adopted in this final rule, giving states the ability to require variable energy rates in long-term contracts or other legally enforceable obligations, allows the states to better ensure that QF rates are at, but do not exceed, the statutory maximum rate established by Congress. 33 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. 22. This change is important for purposes of compliance with PURPA's statutory mandates. As explained below, setting QF rates at avoided costs allows the Commission to comply with the statutory goals of encouraging QFs and providing for nondiscriminatory rates while at the same time ensuring that such rates are just and reasonable to consumers and do not subsidize QFs. The record shows that on some occasions long-term fixed QF rates were well above actual avoided costs, thereby causing consumers to subsidize those QFs in contravention of PURPA and the Commission's expectations. 23. Similarly, the changes implemented by the Commission in this final rule to the one-mile rule are intended to better ensure compliance with the statutory requirement that small power production facilities located at the same site cannot exceed 80 MW. And, 15 years after Congress added PURPA section 210(m), because the Commission can now make the determination, described below, that smaller QFs have non-discriminatory access to RTO/ISO markets, an update to the rebuttable presumption regarding non-discriminatory access to those markets is appropriate to better ensure compliance with the statute. 24. Some commenters incorrectly assert that the final rule impermissibly revises the PURPA Regulations in a way that no longer encourages QFs. PURPA section 210(a) provides not simply that the Commission is to prescribe rules that encourage QFs, but rather that the Commission is to “prescribe, and from time to time thereafter revise, such rules as it determines necessary to encourage” QFs. Carrying out Congress's directive to “from time to time thereafter revise” the rules is at the heart of what the Commission is doing in this final rule. Consistent with this directive, the Commission is considering revisions to “such rules as it determines necessary to” encourage QFs in light of current industry circumstances. 34 34 We view the revisions to our rules implementing PURPA that we adopt in this final rule as consistent with Congress's explicit directive that the Commission “from time to time thereafter [to] revise” the rules. We do not view Congress as intending that the Commission only ever consider the circumstances that existed in the late 1970s and not current circumstances, 40 years later. 25. The changes adopted in this final rule result from the need for the PURPA Regulations to continue to comply with the directives Congress established when it enacted PURPA in 1978, and then again when Congress amended PURPA in 2005. These changes are not based on any determination by the Commission that the encouragement directed by PURPA is no longer needed. The question of whether QFs should continue to be encouraged or not remains a question for Congress. 26. Moreover, PURPA also requires the Commission to insure that the rates for QF purchases be “just and reasonable to the electric consumers of the electric utility and in the public interest[.]” 35 The obligation to encourage is also limited by the requirement that, “No such rule prescribed under subsection (a) [the encouragement provision] shall provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy.” 36 35 16 U.S.C. 824a-3(b). 36 16 U.S.C. 824a-3(b). 27. We recognize that some of the comments opposing the NOPR may have been influenced by the Commission's recitation in the Background section of the NOPR of the broad changes in circumstances since the PURPA Regulations were first promulgated 40 years ago, including the discovery of significant new natural gas reserves, the evolution of the electric industry to include a significant independent power presence, the establishment of organized competitive markets, and the advances in renewable energy technologies. 37 We clarify that the Commission referenced this general background information in the NOPR primarily to explain why it decided to re-evaluate its PURPA Regulations at all and as Congress said we should, and not necessarily to support the individual proposals included in the NOPR. The facts we rely on to propose specific changes, which include some, but not all, of those background facts, were cited in the specific sections of the NOPR describing those proposed changes. And the facts on which we rely to promulgate the specific changes in this final rule again are cited in the specific sections describing those changes. 37 NOPR, 168 FERC ¶ 61,184, at PP 15-27. B. The Final Rule Ensures That the Commission's Implementation of PURPA Continues To Benefit QFs, Purchasing Electric Utilities, and Electric Consumers 28. The final rule implements additional changes consistent with PURPA that also are designed to benefit QFs, purchasing utilities, and electric consumers. The changes to the PURPA Regulations adopted in this final rule will enable the Commission to continue satisfying the statutory requirement that the Commission promulgate rules to encourage QF development consistent with PURPA's requirements. Claims to the contrary by commenters to the effect that the “proposals are uniformly biased against QF development” 38 have no merit. 38 Harvard Electricity Law Comments at 1. 29. As an initial matter, we are not changing the determination in the PURPA Regulations that QF rates must equal a purchasing electric utility's full avoided costs. 39 As the Supreme Court noted in API, the full avoided cost rate requirement represents the maximum rate permitted under PURPA, and thereby provides important encouragement to QFs. 40 The Court explained that the full avoided cost rate requirement encourages QF development because QFs “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.” 41 39 See 18 CFR 292.304(b)(2); NOPR, 168 FERC ¶ 61,184 at P 34. 40 API, 461 U.S. at 413. PURPA does not use the terms “avoided cost” or “full avoided cost”; rather, PURPA uses the term “incremental cost of alternative electric energy.” The Commission's regulations and subsequent decisions have used the term “avoided cost” to explain the Commission's application of the “incremental cost” standard. The API decision and early Commission precedents referred to “full” avoided costs to distinguish between the Commission's decision to set QF rates at avoided costs and proposals from certain parties that rates be set at something less than avoided costs. We continue to use the terms avoided costs and full avoided costs as being consistent with the statutory term incremental cost. 41 Id. at 416. 30. In addition, several of the changes to the current PURPA Regulations implemented by this final rule are based expressly on a finding that they are beneficial to QFs as well as to purchasing utilities and ratepayers. For example, the provisions of the final rule allowing for energy rates to be based on transparent, competitive market prices—in appropriate circumstances—are supported by comments submitted at the Technical Conference, where representatives of QFs and utilities both expressed a preference for transparent prices for QFs. 42 This conclusion is supported by the Fitch Report, cited by NIPPC, CREA, REC, and OSEIA, explaining how Fitch evaluates the financial strength of renewable energy projects. In this report, Fitch states that it gives a “stronger” evaluation to projects with power sales contract prices that are “indexed using simple, broad-based publicly available indexation formulas.” 43 42 See American Forest & Paper Association, Comments, Docket No. AD16-16-000, at 8 (filed June 8, 2016) (“To the extent possible, these determinations [of avoided costs] should not be made in a `black box', but rather, as part of an open and transparent method and process.”); Edison Electric Institute (EEI) Comments, Docket No. AD16-16-000, at 3 (filed June 30, 2016) (“Where transparent competitive markets with day ahead prices exist, there is no reason to adhere to second-best avoided cost pricing mechanisms.”). 43 NIPPC, CREA, REC, and OSEIA Comments at 37-38 (citing FitchRatings, Global Infrastructure & Project Finance, Renewable Energy Project Rating Criteria,” at 3 (Feb. 26, 2019), https://www.fitchratings.com/site/re/10061770 ). 31. Setting prices that are indexed using simple, broad-based publicly available formulas is precisely what the Commission's changes permitting reference to competitive market prices will achieve. Such prices reflect avoided costs in a simpler, more transparent, and predictable manner than through an administrative process, which should encourage the development of QFs while at the same time providing benefits to utilities and consumers. Using transparent market prices to establish as-available avoided cost rates also allows QFs, utilities, and the states to avoid the expenditure of the time and resources involved in litigating administratively-set avoided cost rates, and allows those rates to automatically adjust—up and down—as avoided costs change. 32. Similarly, the provisions regarding competitive solicitations adopted herein were added at the suggestion of both NARUC and certain developers of renewable resource QFs, such as Solar Energy Industries. These competitive solicitations can provide a fair and transparent method for QFs to establish full avoided cost rates. As Solar Energy Industries stated in its comments, “[c]ompetitive solicitations, with adequate safeguards, can deliver substantial value.” 44 Competitive solicitations may be an especially appropriate tool in those regions outside of Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) where there are no organized competitive markets where QFs can make sales. 44 Solar Energy Industries Comments at 38. Solar Energy Industries agreed that the competitive solicitation provisions proposed in the NOPR “set forth many important safeguards,” but recommended that additional safeguards be implemented. Those comments are discussed below, and we have specifically adopted Solar Energy Industries request made earlier in this proceeding that all competitive solicitations must be conducted pursuant to the Commission's Allegheny standard. See Solar Energy Industries Supplemental Comments, Docket No. AD16-16-000, at 32-34 (filed Aug. 28, 2019). 33. Likewise, the LEO provisions adopted herein provide important benefits to QFs. Under the current PURPA Regulations, a LEO gives QFs the enforceable right to require utilities to purchase the QFs' power at avoided cost rates. 45 This is an important right that contributes to a QF owner's ability to obtain financing, especially the development financing needed to engage in the activities necessary to subsequently obtain construction and permanent financing. However, the PURPA Regulations are silent as to when and how a LEO is established, which can leave QFs uncertain as to when this key right has been established. By providing more specific guidance as to when a LEO is established, the new rule creates greater certainty for QFs (and utilities) on this important element of QF development. 45 See 18 CFR 292.304(d)(2). Although the final rule gives states the flexibility to require that energy rates vary over the term of the LEO and be calculated at the time of delivery, the final rule retains the QF's option to choose a fixed capacity rate calculated at the time the LEO is established. 34. Some commenters assert that the guidance provided by the Commission may make it more difficult to obtain a LEO. 46 Their specific concerns are discussed in detail below. But what those commenters ignore is that, by establishing objective and reasonable state-determined criteria limited to demonstrating commercial viability and financial commitment, we also are protecting QFs against onerous requirements for a LEO that hinder financing, such as a requirement for a utility's execution of an interconnection agreement 47 or power purchase agreement, 48 or requiring that QFs file a formal complaint with the state commission, 49 or limiting LEOs to only those QFs capable of supplying firm power, 50 or requiring the QF to be able to deliver power in 90 days. 51 By making clear in the PURPA Regulations that such conditions are not permitted, but describing which prerequisites a state may impose to establish a LEO to determine which QFs are commercially viable and financially committed, we are providing objective criteria to clarify when a LEO commences, which we find will encourage the development of QFs. 46 See NIPPC, CREA, REC, and OSEIA Comments at 81 (“[A]ny requirement to demonstrate financing to create a LEO violates the fundamental rule that the utility's actions should not be allowed to deny the QF a LEO because the utility could prevent creation of a LEO simply by refusing to sign the PPA needed to secure such financing.”); Public Interest Organizations Comments at 98 (“[T]he Commission's proposal to require QFs to demonstrate commercial viability in order to obtain a LEO will prevent many QFs from ever attaining commercial viability at all. Creating a new administrative obstacle to QF financing in this way flies in the face of PURPA's mandate to reduce barriers to QF development.”); Solar Energy Industries Comments at 41 (“Establishing higher barriers to a determination of `commercial viability' will only lead QF developers to invest additional development capital and will simply weed out those smaller companies that choose not to, or are unable to, invest heavily in early-stage development activity before an avoided cost rate is known. It is unjust and unreasonable to cause QFs to invest tens of millions of dollars in site control, permit acquisition, interconnection, and other development costs simply to secure the opportunity to negotiate with the purchasing utility for a contractual commitment.”); Southeast Public Interest Organizations Comments at 41 (describing proposal as “discourag[ing] QF development since achieving some of the indicia suggested by the Commission often circularly requires that QF developers have already obtained financing”). 47 See, e.g., FLS Energy, Inc., 157 FERC ¶ 61,211, at P 26 (2016) ( FLS ) (stating that requiring signed interconnection agreement as prerequisite to LEO is inconsistent with PURPA Regulations). 48 See, e.g., 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. 49 See, e.g., Grouse Creek Wind Park, LLC, 142 FERC ¶ 61,187, at P 40 (2013). 50 Exelon Wind 1, L.L.C. v. Nelson, 766 F.3d 380, 400 (5th Cir. 2014). 51 Power Resource Group, Inc. v. Public Utility Comm'n of Texas, 422 F.3d 231, (5th Cir. 2005). C. The Commission Is Not Eliminating Fixed Rate Pricing for QFs, But Rather Is Giving States the Flexibility To Require the Same Variable Energy Rate/Fixed Capacity Rate Construct That Applies Throughout the Electric Industry 35. Another misconception reflected in several comments is that the Commission proposed in the NOPR to eliminate fixed rate pricing for QFs. Commenters argue that QFs cannot obtain financing without fixed rates, and from this they claim that the proposal to give states the flexibility to require variable energy rates would have a devastating effect on future QF development. 52 52 See, e.g., Public Interest Organizations Comments at 35-38 (allowing variable rates will further discourage wind and solar QF development); Allco Comments at 9-11 (without the ability to obtain a fixed long-term forecasted rate, QF solar energy development will not exist). 36. This assertion that the Commission has eliminated fixed rates for QFs is not correct. The NOPR proposal (which we adopt in this final rule) gave states the flexibility, should they choose to take advantage of this flexibility, to require that the avoided cost energy rates in QF contracts must vary depending on avoided costs at the time of delivery (rather than being fixed at the time a LEO is incurred). 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.” 53 We are retaining in this final rule the option granted to QFs to fix their capacity rates for the term of their contracts at the time the LEO is incurred. 53 See NOPR, 168 FERC ¶ 61,184 at P 66. 37. The fact that we are giving states the flexibility to either require QF contracts to have fixed capacity and variable energy rates or to continue as before to provide QFs the option of fixed capacity and fixed energy rates—has important consequences for the ability of QF owners to finance their projects. The energy rates of purchasing electric utilities, upon which avoided cost energy rates would be based, typically reflect mainly the variable costs of producing energy, such as the cost of fuel and variable operations and maintenance (O&M), especially for a fossil fuel generator. Meanwhile, a purchasing electric utility's capacity rates, upon which avoided cost capacity rates would be based, tend to reflect fixed costs, including the financing costs of facilities ( i.e., debt repayment and a return on the equity invested in the facility). 54 Consequently, a fixed capacity rate in a QF contract based on a purchasing electric utility's capacity rates should typically be sufficient to recover the QF's financing costs and should therefore continue to facilitate QF financing. We recognize that a QF's financing costs may be different from the purchasing electric utility's avoided costs and, therefore, the full avoided cost rate that the QF receives may not support the financing of a QF. But this is a consequence of how Congress structured PURPA, which sets rates based on the avoided costs of the purchasing utility rather than on the actual costs the QF incurs producing the power being sold. 55 54 See Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,865. 55 See API, 461 U.S. at 414, 415 (stating that “Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities” and 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”). 38. Another important aspect of the variable energy rate/fixed capacity rate construct is that this is the standard rate structure used throughout the electric industry for power sales agreements that include the sale of capacity. 56 That states will be allowed to require QF contracts to be structured similarly to the contract structure used in the rest of the electric industry has important implications. In particular, this provides flexibility to states to ensure that the avoided cost rate will be closer to the actual rate the purchasing electric utility and its customers would have paid if the purchasing electric utility had generated this electric energy itself or purchased such electric energy from another source. Furthermore, the record evidence demonstrating significant amounts of non-QF generation facilities in operation today shows that the owners of such facilities are able to obtain financing based on this same variable energy rate/fixed capacity rate construct. 57 This represents important evidence that QFs likewise should be able to obtain financing under the same rate construct, especially considering that QFs benefit from the statutory right to sell pursuant to a mandatory purchase obligation while non-QFs do not have that right. 58 56 Cf. Town of Norwood v. FERC, 962 F.2d 20, 21, 24 (D.C. Cir. 1992) (“The rate design before us, like most wholesale electric rates, consists of separate monthly demand and energy charges. The demand component is calculated to recover NEPCO's fixed (or capacity-related) costs, such as construction and debt service, which it incurs regardless of how much electricity it produces. The energy charge is designed to recover the company's variable costs, which it incurs only in the course of actually producing electricity; fuel is a prime example. . . . With the cost outlook constantly in flux due to changing economic conditions, some degree of volatility is necessary if prices are to signal the market accurately—as accurately, that is, as current prices can anticipate future costs. Price volatility alone, therefore, cannot provide a ground for overturning a marginal cost rate structure.”). 57 EIA, Form EIA-860 detailed data with previous form data Early Release (EIA-860A/860B) (June 2, 2020), https://www.eia.gov/electricity/data/eia860/ shows 77.6 GW of operational QF nameplate capacity and 450.453.5 GW of operational non-QF independent power producer nameplate capacity as of end 2019. 58 Some commenters raise concerns with the Commission's reliance on the financing of non-QF generation facilities to support the conclusion that QFs could obtain financing with variable energy rate contracts, pointing out that the Commission has not identified any QFs that have obtained financing under this structure. The reason for this, however, is that QFs typically do not employ this structure because currently they are entitled to a fixed energy rate/fixed capacity rate construct. Accordingly, evidence regarding the financing of similar types of independently owned generation projects by non-QFs using such a construct constitutes the best and most relevant evidence of how it would affect QF financing. D. The Rate Changes Implemented by This Final Rule Put QF Rates on the Same Footing as Electric Utility Rates and Are Not Discriminatory 39. The fact that variable energy rate/fixed capacity rate contracts are standard in the electric industry also explains why, contrary to assertions made by a number of commenters, allowing states to require such contracts for QFs is not discriminatory. 59 QFs selling at wholesale pursuant to such contracts will be selling under the same rate structure employed in the power sales contracts typically used elsewhere in the electric industry, including by public utilities when they make sales at wholesale to each other, and QFs will be doing so at full avoided cost rates—the highest rates permitted under PURPA. 59 See, e.g., EPSA Comments at 9 (“The NOPR avoided rate proposal must therefore be rejected because it puts QFs at a disadvantage to utility-owned generation, in violation of the non-discrimination mandate under PURPA.”); 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.”). 40. It is true that electric utilities with franchised service territories that make sales at retail are often effectively guaranteed the recovery of their energy costs in their retail rates by their state regulatory authorities—provided that such costs are prudently incurred. But the electric utilities' retail rates are cost-based, such that their rates are set based on costs they actually incur to produce electricity for their customers. Importantly, moreover, the incremental energy costs that an electric utility will recover from its retail customers at an incremental level 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. 41. Thus, QF variable energy rate/fixed capacity rate contracts not only would be structured similarly to the standard wholesale power sales agreements used in the electric industry, but application of traditional cost-based ratemaking principles to sales by QFs is exactly what would be required in order to provide QFs with the same guaranteed cost recovery that applies to electric utilities. Guaranteeing QFs cost recovery is fundamentally inconsistent with PURPA, which sets the rate the QF is paid at the purchasing electric utility's avoided cost, not at the QF's cost. Such a rate structure is not discriminatory. E. The PURPA Compliance Issues Raised by Some Commenters Are Outside the Scope of This Rulemaking Proceeding 42. Finally, several commenters assert that certain states located outside of RTO/ISO markets are dominated by large integrated public utilities whose state commissions do not implement PURPA correctly. 60 They argue that, as a consequence, there is little development of independent generation—QFs or otherwise—in those states. They assert that the proposals in the NOPR might be appropriate in states with RTO/ISO markets that are subject to significant competition, but would only make matters worse outside of the RTO/ISO markets. 60 American Dams Comments at 5-6; Biological Diversity Comments at 13; CA Cogeneration Comments at 6-7; Con Edison Comments at 2; ELCON Comments at 7-8; EPSA Comments at 1-2; IdaHydro Comments at 5; NIPPC, CREA, REC, and OSEIA Comments at 14-15; Solar Energy Industries Comments at 15-20, 24; SC Solar Alliance Comments at 3-4; Two Dot Wind Comments at 14-19. 43. As explained above, several changes implemented by this final rule ensure that the PURPA Regulations will continue to encourage QF development. Other changes, such as allowing variable energy rates in QF contracts, not only ensure the PURPA Regulations are consistent with PURPA but also address some states' primary concern with the current PURPA Regulations, i.e., the Commission's now allowing states the flexibility to set variable energy rates could mitigate the states' reluctance to implement PURPA in a way that better encourages development of QFs. For example, the Idaho Commission has indicated that its current policy of limiting QF contracts to two years is based on its concern about fixed QF rates, and that the ability to require variable energy rates could lead to longer contract terms. 61 We expect that these changes could facilitate QF development in states where little QF capacity has been added to date. 61 See Idaho Commission Comments at 4 (stating that an energy rate established at the time of contract formation that provides for “revisions to the energy rate at regular intervals, consistent with, for example, a purchasing electric utility's [integrated resource plan] to reflect updated avoided cost calculations” would allow states to consider longer term contracts without putting ratepayers at risk). 44. Further, commenters' claims about lack of QF development outside of the RTO/ISO markets appear to be overstated. For example, the most recent data from the U.S. Energy Information Administration (EIA) on the total amount of wind and solar QF capacity in each state shows that 9 of the 20 states with the greatest combined wind and solar QF capacity are located outside of the RTO/ISO markets. 62 Of these 9 states, three are located in the Southeast—the region asserted by commenters to be the most hostile to PURPA—including North Carolina, which has the highest total amount of wind and solar QF capacity in the country. 63 Other states in the top 20 include Idaho—with the fourth most wind and solar QF capacity—and Oregon, 64 two states that have been criticized as being hostile to PURPA. EIA data also shows that five of the top 10 states in terms of renewable QF capacity additions from 2008-17 are located outside of the RTO/ISO markets, including North Carolina (with the most renewable QF capacity additions), Idaho, Georgia, and Oregon, 65 each of which commenters have identified as being hostile to PURPA. 62 EIA, Form EIA-860 detailed data with previous form data (EIA-860A/860B) Release date (June 2, 2020), https://www.eia.gov/electricity/data/eia860/. The top 20 states with combined QF solar and wind nameplate capacity in 2018 were: (1) California, Texas, Minnesota, Oklahoma, Massachusetts, New Mexico, Nebraska, New Jersey, Michigan, New York, Illinois (all fully or partially inside RTOs/ISOs); and (2) North Carolina, Idaho, Utah, South Carolina, Georgia, Oregon, Colorado, Arizona, Wyoming(outside of RTOs/ISOs). We note that some of these states are located in both RTO/ISO and non-RTO/ISO regions. 63 Id. We note that five of the 20 states with the most solar capacity—perhaps a better measure of the Southeast Region's PURPA compliance given the lack of wind resources in this region—are located in the Southeast. 64 Id. 65 See EIA, PURPA-qualifying capacity increases, but it's still a small portion of added renewables (Aug. 16, 2018), https://www.eia.gov/todayinenergy/detail.php?id=36912. 45. But whether any individual state has or has not failed to implement the PURPA Regulations properly is not an issue for this final rule, which implements changes to the PURPA Regulations but does not modify Commission's rules for addressing claims that states are not complying with the Commission's existing PURPA Regulations. We promulgate this final rule based on the expectation that the states will fulfill their legal obligation to implement the Commission's PURPA Regulations as revised. 66 66 16 U.S.C. 824a-3(f)(1). The same obligation to implement the Commission's PURPA Regulations as revised, we note, is imposed on nonregulated electric utilities. 16 U.S.C. 824-3(f)(2). 46. Further, although Congress required the Commission to establish the general parameters for establishing QF rates, Congress delegated to the states—not the Commission—the role to set QF rates. 67 To the extent that any entity believes a state is failing to implement the Commission's PURPA Regulations, PURPA section 210(h) provides that entity an avenue to seek relief. 68 67 See 16 U.S.C. 824a-3(f)(1) (“[E]ach State regulatory authority shall, after notice and opportunity for public hearing, implement such rule (or revised rule) for each electric utility for which it has ratemaking authority.”). 68 If the Commission, in response to a petition for enforcement under PURPA section 210(h) against a state regulatory authority, chooses not to initiate an enforcement action within 60 days of the filing of the petition, the statute authorizes the petitioning electric utility or QF to itself initiate a suit directly against the state in U.S. District Court. 16 U.S.C. 824a-3(h)(2)(B). The same statutory provision similarly governs petitions for enforcement against nonregulated electric utilities. Id. PURPA section 210(g) also provides for review of state regulatory authorities and nonregulated electric utilities in state fora. 16 U.S.C. 824a-3(g). The Commission's policies with respect to PURPA enforcement are more fully set out in its 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). III. Background A. Passage of PURPA in 1978 and the Commission's Promulgation of Its PURPA Regulations in 1980 47. PURPA was enacted in 1978 as part of a package of legislative proposals intended to reduce the country's dependence on oil and natural gas, which at the time were in short supply and subject to dramatic price increases. PURPA sets forth a framework to encourage the development of alternative generation resources that do not rely on traditional fossil fuels ( i.e., oil, natural gas and coal) and cogeneration facilities that make more efficient use of the heat produced from the fossil fuels that were then commonly used in the production of electricity. 48. To accomplish this goal, PURPA section 210(a) directs that the Commission “prescribe, and from time to time thereafter revise, such rules as [the Commission] determines necessary to encourage cogeneration and small power production,” 69 including rules requiring electric utilities to offer to sell electricity to, and purchase electricity from, QFs. PURPA section 210(f) required each state regulatory authority and nonregulated electric utility (together, states) to implement the Commission's rules. 69 16 U.S.C. 824a-3(a). 49. In 1980, the Commission issued Order Nos. 69 and 70, which promulgated the required rules that, with limited exceptions, remain in effect today. 70 The Commission explained that, at the time of the passage of PURPA, cogenerators and small power producers faced three major obstacles: (1) Electric utilities were not required to purchase these generators' electric output or to make purchases at an appropriate rate; (2) electric utilities sometimes charged discriminatorily high rates for backup services; and (3) cogenerators and small power producers ran the risk of being considered public utilities themselves and thus being subject to state and federal regulation as utilities. 71 Further, at that time, there was no open access transmission and little competition in electric wholesale markets. Electric utilities were vertically-integrated and held dominant market positions. As a result of their control over transmission access, it was virtually impossible for third parties—whether independent power producers or other electric utilities—to compete with them to make sales of electricity. 70 Order No. 69, FERC Stats. & Regs. ¶ 30,128; Small Power Production and Cogeneration Facilities—Qualifying Status, Order No. 70, FERC Stats. & Regs. ¶ 30,134 (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). 71 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,863. See infra P 78 & note 112 (addressing how the PURPA Regulations as revised continue to address these obstacles). 50. Given the Congressional mandate described above, the Commission determined in Order No. 69 to set rates for sales by QFs equal to the purchasing electric utilities' avoided costs. 72 The Commission also directed that electric utilities provide backup electric energy to QFs on a non-discriminatory basis and at just and reasonable rates, 73 and that electric utilities interconnect with QFs. 74 Pursuant to section 210(e) of PURPA, 75 the Commission further provided exemptions from many provisions of the FPA and state laws governing utility rates and financial organization. 76 72 18 CFR 292.304(a)(2); see API, 461 U.S. at 412-18. 73 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,887-90; see also 18 CFR 292.305. 74 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,874; see also 18 CFR 292.303(c). 75 16 U.S.C. 824a-3(e). 76 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,864; accord id. at 30,863, 30,894-96; see also 18 CFR 292.601-.602. B. Circumstances Leading to the Commission's Re-Evaluation of the PURPA Regulations and the Issuance of the NOPR 51. In the NOPR, the Commission described three important changes in the circumstances that had originally prompted Congress to pass PURPA in 1978. First, as the Commission explained, the United States has seen an unprecedented change in the dynamics of the natural gas market and the relevant supply and demand. 77 Led by advancements in production technologies, primarily in accessing shale reserves, natural gas supplies increased dramatically. 78 Further, the EIA forecasted continued supply growth over the next 25 years. 79 In short, as the Commission found in issuing the NOPR, there no longer are shortages of natural gas supply. 77 NOPR, 168 FERC ¶ 61,184 at P 19. 78 Domestic natural gas production, which appeared to peak in the early 1970s at 21.7 Tcf per year, increased from 18.1 Tcf in 2005 to 30.4 Tcf in 2018. EIA, Monthly Energy Review (Aug. 27, 2019) (in table 4.1 see column labeled “Natural Gas Production (Dry)” on the Annual tab of the xls version), https://www.eia.gov/totalenergy/data/monthly/. 79 EIA's forecast showed supplies increasing to nearly 40 Tcf by 2035 and 43 Tcf by 2050. EIA, Annual Energy Outlook 2018, at tbl.13 (Jan. 24, 2019) (in table see row labeled “Dry Gas Production” under the reference case) (Annual Energy Outlook 2019), https://www.eia.gov/outlooks/aeo/data/browser/#/?id=13-AEO2019&cases=ref2018&sourcekey=0. 52. Second, the Commission found that, since 1978, the outlook for the development of alternatives to natural gas and oil-fired generation resources, such as renewable resources, has changed equally dramatically. 80 The once-nascent renewables industry has grown and matured over the past 40 years and has only accelerated subsequent to the Energy Policy Act of 2005's amendment of PURPA. The Commission noted that the cost of building renewable facilities has decreased substantially to the point that the cost of renewable resources is now or is shortly expected to approach the cost of traditional electric generation. 81 The Commission also recognized that renewable resources (including hydro) provide a significant share of the electricity currently generated in the United States, 82 that most renewable resources today are not QFs, 83 and that 65 percent of capacity additions in 2019 were expected to come from renewable resources. 84 80 NOPR, 168 FERC ¶ 61,184 at P 20. 81 Id. (citing EIA, Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants, https://www.eia.gov/analysis/studies/powerplants/capitalcost/; EIA, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019 (Feb. 2019), https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf; Lawrence Berkeley National Lab, Wind Technologies Market Report, https://emp.lbl.gov/wind-technologies-market-report/ ). However, EIA has cautioned against directly comparing the costs of dispatchable and nondispatchable generation: Because load must be continuously balanced, generating units with the capability to vary output to follow demand (dispatchable technologies) generally have more value to a system than less flexible units (nondispatchable technologies) such as those using intermittent resources to operate. The LCOE values for dispatchable and non-dispatchable technologies are listed separately in the tables because comparing them must be done carefully. EIA, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019, at 2 (Feb. 2019), https://www.eia.gov/outlooks/archive/aeo19/pdf/electricity_generation.pdf. 82 NOPR, 168 FERC ¶ 61,184 at P 21 (citing EIA, August 2019 Monthly Energy Review at Figure 7.2a, https://www.eia.gov/totalenergy/data/monthly; Office of Energy Projects, Energy Infrastructure Update For July 2019 at 4 (July 2019), https://www.ferc.gov/legal/staff-reports/2019/july-energy-infrastructure.pdf ). 83 NOPR, 168 FERC ¶ 61,184 at P 22. 84 Id. (citing EIA, Today in Energy, New electric generating capacity in 2019 will come from renewables and natural gas (Jan. 10, 2019), https://www.eia.gov/todayinenergy/detail.php?id=37952 (Form EIA-860M, Preliminary Monthly Electric Generator Inventory). 53. Third, the introduction of QFs as competing sources of electricity to the incumbent electric utilities has led to the development of significant non-QF independent power production. 85 In addition, RTOs and ISOs have developed competitive wholesale electric markets that serve roughly two-thirds of electricity consumers in the United States. 86 85 NOPR, 168 FERC ¶ 61,184 at P 25. The Commission cited to data showing that that net generation of energy by non-utility owned renewable resources in the United States escalated from 51.7 TWh in 2005 when EPAct 2005 was passed, to 340 TWh in 2018. This also included significant growth in non-utility renewable resources in states outside of RTOs. For example, net generation by non-utility renewable resources in the region defined by EIA as the Mountain State region increased from 3.6 TWh in 2005 to 19.5 TWh in 2012, and to 42.5 TWh in 2018. Pacific Northwest (Oregon and Washington) net non-utility generation from renewable resources increased from 1.5 TWh in 2005, to 8.7 TWh in 2012, and to 10.6 TWh in 2018. In the Southeast region of the country, non-utility renewable resources saw a lesser increase from 2.6 TWh in 2005 to 2.7 TWh in 2012, but expanded to 6.5 TWh in 2018. NOPR, 168 FERC ¶ 61,184 at P 27 (citing data taken from EIA's Electricity Data Browser, www.eia.gov/electricity/data/browser (select net generation, other renewables, independent power producers)). 86 ISO/RTO Council, The Role of ISOs and RTOs, https://isorto.org. 54. In PURPA section 210(a), Congress directed not only that the Commission prescribe regulations, but that the Commission revise those regulations “from time to time thereafter.” 87 The Commission determined in the NOPR that, in light of these dramatic changes in circumstances since the passage of PURPA, it was appropriate to review the PURPA Regulations to determine whether changes to those regulations were warranted consistent with our statutory mandate. 88 87 16 U.S.C. 824a-3(a). 88 16 U.S.C. 824a-3(b). 55. After identifying these three important changes in the industry that have taken place since 1980, we further identified evidence demonstrating that overestimations of avoided cost have not been balanced by underestimations, and that this trend may persist with the general decline in the cost of electricity. 89 89 See NOPR, 168 FERC ¶ 61,184 at P 30. Evidence submitted in response to the NOPR shows that, as a result, customers may be paying more than avoided costs. See infra PP 265 (“Duke Energy claims that, among the factors contributing to this overpayment of $2.26 billion for the remainder of these QF contracts, the primary factor has been the requirement to offer fixed avoided cost energy rates during a period of rapidly declining energy prices”), 268 (“Massachusetts DPU argues that a 10-year, fixed energy rate based on current New England wholesale energy market prices is highly likely to diverge from actual energy market prices over the ten-year contract term and could significantly harm ratepayers”). C. Summary of Changes to the PURPA Regulations Implemented by This Final Rule 56. We now are revising our PURPA Regulations based on the record of this proceeding, including comments submitted in the technical conference in Docket No. AD16-16-000 (Technical Conference), 90 the record evidence cited in the NOPR, and the comments submitted in response to the NOPR. These changes, including modifications to the proposals made in the NOPR, are summarized below. 91 90 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 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. 91 In its post-NOPR comments, Bloom Energy requested that the Commission “[u]pdate the definition of `useful thermal energy output' of a topping-cycle cogeneration facility to reflect the commercialization of solid oxide fuel cells that produce heat for the industrial purpose of producing hydrogen, a fuel that the fuel cells use to generate electricity.” Bloom Energy Comments at 2. We do not take action on this request in this proceeding because we do not view this proposal as a logical outgrowth of the NOPR. 57. First, we grant states the flexibility to require that energy rates (but not capacity rates) in QF power sales contracts and other LEOs 92 vary in accordance with changes in the purchasing electric utility's as-available avoided costs at the time the energy is delivered. Under this change, 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. 93 92 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. 93 Moreover, any state—whether located in regions where energy prices are competitively based or whether located in regions where they are not—would be permitted to require that the fixed energy rate established at the time of the contract include provisions, established at the time the contract is established, providing for revisions to the energy rate at regular intervals, consistent with, for example, a purchasing electric utility's integrated resource plan, to reflect updated avoided cost calculations. 58. Second, we grant states additional flexibility to allow QFs to have a fixed energy rate, but to provide 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. 59. Third, we grant states flexibility to set “as-available” QF energy rates as follows: We are establishing a rebuttal presumption, rather than a per se rule as proposed in the NOPR, that the LMP established in the organized electric markets defined in 18 CFR 292.309(e), (f), or (g) represents the as-available avoided costs of electric utilities located in these markets. 94 So long as this presumption is not rebutted, a state can at its option establish as-available energy avoided cost rates for QFs selling to such electric utilities at the LMP. 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), states have the option 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' avoided costs. The states would have 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. 94 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). 60. Fourth, states would have the flexibility to set energy and capacity rates pursuant to a competitive solicitation process conducted pursuant to transparent and non-discriminatory procedures consistent with the Commission's Allegheny standard, described in this final rule. 61. Fifth, we do not adopt the proposed rule permitting states with retail competition to allow relief from the purchase obligation. We instead clarify in this final rule that the Commission's existing PURPA Regulations already require that states, to the extent practicable, must account for reduced loads in setting QF capacity rates. 62. Sixth, we modify the Commission's “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, we allow 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). We also allow 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. We further add a definition of the term “electrical generating equipment” to the PURPA Regulations to clarify how the distance between facilities is to be calculated. 63. Seventh, we allow 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, we clarify in this final rule that such protests may be made to new certifications (both self-certifications and applications for Commission certification) but to only self-recertifications and applications for Commission recertifications making substantive changes to the existing certification. 64. Eighth, we revise the Commission's 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. Currently, there is a rebuttable presumption that QFs with a net capacity at or below 20 MW do not have nondiscriminatory access to such markets. We update the rebuttable presumption for small power production facilities (but not cogeneration facilities) from 20 MW to 5 MW and, in this final rule, revise the regulations to include examples of factors, among others, that QFs may argue show that they lack nondiscriminatory access to such markets. 65. Finally, we clarify 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. States may not impose any requirements for a LEO other than a showing of commercial viability and a financial commitment to construct the facility. We also clarify in this final rule that, to the extent that the permitting factor is relied upon, a QF need only show that it has applied for all required permits and paid all applicable fees, and not that it has obtained such permits. 66. As explained in detail in the relevant sections below, these changes will enable the Commission to continue to fulfill its statutory obligations under sections 201 and 210 of PURPA. We emphasize 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 this final rule; we do not by this final rule permit disturbance of existing contracts or LEOs or existing facility certifications. IV. Discussion A. General Legal Standards Under PURPA 67. Several comments were submitted regarding: (1) The requirement in PURPA section 210(a) that “the Commission shall prescribe, and from time to time thereafter revise, such rules as it determines necessary to encourage cogeneration and small power production”; and (2) the requirement in PURPA section 210(b) that rates paid by purchasing utilities to QFs “shall not discriminate against qualifying cogenerators or qualifying small power producers.” 95 In addition, a claim was made that the Commission has unlawfully delegated its authority to the states. These comments apply to several of the revisions implemented by this final rule and therefore are discussed prior to the discussion of specific revisions implemented herein. 95 16 U.S.C. 824a-3(a), (b). 1. Encouragement of QFs a. Comments 68. Commenters make two general arguments regarding the statutory requirement that the Commission's PURPA Regulations should encourage QFs. First, they note that the statutory requirement that the PURPA Regulations encourage QFs is mandatory and that the Commission has no discretion to determine that such encouragement no longer is necessary. Harvard Electricity Law states that “Congress'[s] mandate to encourage QFs is not contingent on industry conditions and does not expire.” 96 Further, they assert, “[t]he Commission may not overwrite Congress's instruction to issue rules that it `determines necessary to encourage cogeneration and small power production.' ” 97 Public Interest Organizations similarly object to the NOPR as violating the encouragement requirement because, they assert, the NOPR “reflect[s] a belief that the current rules support too much QF development and a desire to reduce the incentives in current rules for QF development.” 98 NIPPC, CREA, REC, and OSEIA assert that “[t]he Commission cannot take it upon itself to change the underlying policy directives to encourage QFs.” 99 96 Harvard Electricity Law Comments at 1. 97 Id. at 4 (quoting PURPA section 210(a)). 98 Public Interest Organizations Comments at 10. 99 NIPPC, CREA, REC, and OSEIA Comments at 29. 69. Public Interest Organizations advance a second general argument based on the encouragement requirement, arguing that “[t]o amend the rules, the Commission must first determine that the actual changes it proposes increase development and utilization of QFs.” 100 Similarly, Allco attacks the NOPR on the grounds that “the proposed changes do not encourage QF generation.” 101 100 Public Interest Organizations Comments at 11. 101 Allco Comments at 8. b. Commission Determination 70. We agree with commenters that PURPA does not provide discretion to the Commission to determine whether QFs should be encouraged. That is a determination left to Congress, and we have not premised this final rule on a belief that QFs should not be encouraged. However, the requirement that the Commission promulgate regulations necessary to encourage QFs is not unbounded. Instead, as noted briefly earlier, there are statutory limitations on the extent that the PURPA Regulations can encourage QFs. 71. First, PURPA section 210(b) sets out standards with which the Commission must comply in setting QF rates. The last sentence of PURPA section 210(b) sets out an upper limit on such rates. “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.” 102 102 Furthermore, PURPA section 210(b)(1) requires that QF rates be “just and reasonable to the electric consumers of the electric utility and in the public interest.” 16 U.S.C. 824a-3(b)(1). Although the exact scope of the “just and reasonable to the electric consumers” criterion has never been addressed explicitly, the Supreme Court held in API that the requirement in the PURPA Regulations that QF rates be set at full avoided costs does not violate this criterion. API, 461 U.S. at 415-16. This “just and reasonable to the electric consumers” criterion likely would be violated if the Commission were to allow a rate above the purchasing electric utility's avoided costs. 72. If there were any doubt from the statutory language that incremental costs (avoided costs) are intended to be a hard cap on QF rates, such doubt is dispelled by the Conference Report to PURPA, which provided: “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.” 103 The Conference Report also described the reason for the avoided cost cap on QF rates. “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.” 104 103 Conf. Rep. at 98 (emphasis added). 104 Id. (emphasis added). 73. Therefore, PURPA section 210(b) imposes an important limit on the Commission's ability to encourage QFs by imposing an upper boundary on the rates at which QFs may require electric utilities to purchase their electric energy. The Commission cannot require QF rates that exceed the avoided costs of the purchasing electric utility. 105 105 16 U.S.C. 824a-3(b)(1). 74. Second, another way in which Congress limited the Commission's ability to encourage QFs was to define small power production facilities, the PURPA category applicable to almost all renewable resources that wish to be QFs, as having “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.” 106 The statutory 80 MW limitation, as well as any definition of “the same site” that may be established by the Commission, will of necessity have an effect on the encouragement of QFs, because it will limit the capacity of QFs both ab initio and also for those located at the same site to 80 MW. 106 16 U.S.C. 796(17)(A)(ii). 75. Third, Congress amended PURPA section 210 to 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 if the QF has nondiscriminatory access to certain defined types of markets. 107 We interpret this amendment as reflecting Congress's judgment that these markets provide adequate encouragement for those QFs having nondiscriminatory access to such markets. To the extent that a party asserts that the termination of the purchase obligation for QFs with nondiscriminatory access to these markets discourages QFs, that party's argument is not with the Commission, but rather with Congress. PURPA section 210(m) obligates the Commission to grant any request to terminate a utility's obligation to purchase from a QF with nondiscriminatory access to the specified markets. 108 107 See 16 U.S.C. 824a-3(m). 108 Id. (“[N]o electric utility shall be required to enter into a new contract or obligation to purchase electric energy from a [QF] if the Commission finds that the [QF] has nondiscriminatory access to [specified markets].”). 76. Finally, we disagree with any suggestion that a rule originally adopted in 1980 cannot be changed once adopted, or that our revised regulations cannot be different in how they encourage QFs than the regulations the Commission issued in 1980. 109 For one thing, as explained above, PURPA itself includes certain limitations on the Commission's ability to encourage QFs, and a provision in the final rule intended to comply with these statutory limitations cannot be found to violate PURPA even if such a provision individually does not affirmatively encourage QFs to the same degree now as in 1980. As explained herein, we do not seek, through this final rule, to cease encouraging the development of QFs. Instead, this final rule is intended to ensure that the Commission is compliant with the statute in how it does encourage the development of QFs. In doing so, the Commission may end up encouraging QF development differently from the current PURPA Regulations, but the Commission's regulations continue to encourage QF development, as contemplated by PURPA. 109 See 18 U.S.C. 824a-3(a). 77. Many of the commenters' assertions seem to be based on a reading of the statute that requires that every individual change made to the PURPA Regulations in isolation must individually encourage QFs notwithstanding the statute's provisions. But, as discussed above, Congress established boundaries in PURPA that must be considered, such as the “cap” on incremental costs; just and reasonable rates for electric customers; the 80 MW limit; and whether QFs have nondiscriminatory access to markets. Furthermore, the statutory requirement to encourage QF development applies to the PURPA Regulations—“such rules as [the Commission] determines necessary”—as a whole. 110 110 See 16 U.S.C. 824a-3(a) (emphasis added). 78. In that regard, we find that the Commission's PURPA Regulations as a whole when modified by this final rule continue to encourage the development of QFs, consistent with PURPA. The PURPA Regulations in particular, continue to require that QF rates be set at full avoided costs, a provision the Supreme Court described as “provid[ing] the maximum incentive for the development of cogeneration and small power production.” 111 In addition, this final rule retains provisions of the PURPA Regulations adopted in 1980 that provide encouragement through other means recognized by the Supreme Court in FERC v. Miss. 112 ( e.g., certain regulatory relief, 113 interconnection provisions, 114 and requirements that utilities sell power to QFs that will enable QFs to continue operations). 115 Moreover, several of the changes implemented by this final rule also provide additional encouragement for QFs as described in more detail below. 111 API, 461 U.S. at 418. 112 456 U.S. 742, 750-51 (1982) (holding that Congress “felt that two problems impeded the development of nontraditional generating facilities: (1) Traditional electricity utilities were reluctant to purchase power from, and to sell power to, the nontraditional facilities, and (2) the regulation of these alternative energy sources by state and federal utility authorities imposed financial burdens upon the nontraditional facilities and thus discouraged their development” (internal citations omitted)). 113 18 CFR 292.601-02. 114 18 CFR 292.303(c). 115 18 CFR 292.305. 2. Discrimination a. Comments 79. Commenters opposing the proposals in the NOPR also cite to the statutory requirement in PURPA section 210(b)(1) that QF rates “shall not discriminate against” QFs. EPSA asserts that “[n]otably, this standard is more restrictive than the [FPA's] prohibition against `unduly discriminatory' rates.” 116 Public Interest Organizations state that “[i]n other statutes, prohibiting price discrimination without the modifiers `unreasonable' or `undue,' means any difference in price for the same commodity.” 117 116 EPSA Comments at 8. 117 Public Interest Organizations Comments at 47 (citing FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 549 (1960)). 80. In discussing the requirement that QF rates not be discriminatory, some commenters compare the treatment afforded to QFs under the NOPR with the rate treatment applicable to public utilities. For example, NIPPC, CREA, REC, and OSEIA point out that “[u]tilities can 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.” 118 By contrast, Harvard Electricity Law asserts, “QFs do not have the same ability that the electric utilities have to `rate base' their facilities and, thereby, guarantee capital recovery.” 119 118 NIPPC, CREA, REC, and OSEIA Comments at 36; see also IdaHydro Comments at 11; Industrial Energy Consumers Comments at 12-13; SC Solar Alliance Comments at 5-10; Solar Energy Industries Comments at 33, 36-38. 119 Harvard Electricity Law Comments at 28. 81. Based on this difference between utilities and QFs, commenters allege that certain aspects of the NOPR are discriminatory, including those provisions of the NOPR regarding the use of LMPs and other competitive rates to set as-available energy rates, 120 to allow for variable energy rates in QF contracts, 121 and to allow avoided costs to be set through competitive solicitations ( i.e., requests for proposals (RFPs)). 122 120 See, e.g., Public Interest Organizations Comments at 64 (stating that the use of competitive prices to set as-available energy avoided cost rates is discriminatory because non-QF generators are not limited to competitive prices and utilities can, and regularly do, pay effective prices for energy that exceed the price determined by competitive prices). 121 See, e.g., EPSA Comments at 9 (“The NOPR avoided rate proposal must therefore be rejected because it puts QFs at a disadvantage to utility-owned generation, in violation of the non-discrimination mandate under PURPA.”); 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.”). 122 See, e.g., Allco Comments at 12 (stating that allowing a state commission to use a competitive solicitation price is simply giving another tool to a state commission to kill QF projects). b. Commission Determination 82. As an initial matter, we agree with EPSA 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. 123 However, the avoided cost cap on QF rates that limits the Commission's ability to encourage QFs, discussed above, also applies to the Commission's ability to address these claims of discrimination under PURPA. PURPA section 210(b) makes clear 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.” 124 123 EPSA Comments at 8. 124 Furthermore, as noted above, PURPA section 210(b)(1) requires that QF rates also be “just and reasonable to the electric consumers of the electric utility and in the public interest.” See supra note 102. 83. We are retaining in this final rule the requirement that QF rates be set at a purchasing utility's full avoided costs. The Supreme Court held in API that “the full-avoided-cost rule plainly satisfies the nondiscrimination requirement.” 125 Although the Court did not provide a detailed explanation for this holding, the reasoning is apparent. If the purchasing utility is paying the same rate to a QF for power that it otherwise would have paid for incremental power, by definition such a rate could not be discriminatory. But even if it were possible to posit a situation where the payment of a full avoided cost rate to a QF somehow were discriminatory, the Commission nevertheless would be prohibited by PURPA section 210(b) from requiring a rate to be paid to the QF that is above the full avoided costs of the purchasing electric utility. 125 API, 461 U.S. at 413. 84. For the same reasons, Public Interest Organizations are mistaken when they assert that, without the modifiers “unreasonable” or “undue,” any difference in price for the same commodity violates PURPA. 126 So long as a QF's rate is set at the purchasing utility's full avoided cost, the QF's rate should be the same as the rate the purchasing utility otherwise would be paying or the cost it would be incurring, and such a rate would not be discriminatory. And, in any event, as noted above, the Commission cannot require a rate that is any higher. 126 Public Interest Organizations Comments at 47 (citing FTC v. Anheuser-Busch, Inc., 363 U.S. at 549). 85. With respect to comparisons between QFs, with no guarantee of cost recovery, and electric utilities, which if they have a franchised service territory and sell at retail in that territory are effectively guaranteed the opportunity to seek to recover prudently-incurred costs in their retail rates, we observe that Congress acknowledged this difference when enacting PURPA. As emphasized in the PURPA Conference Report: 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. 127 127 Conf. Rep. at 97-98 (emphasis added). 86. In recognizing this difference and yet not seeking to eliminate it, Congress also made clear its intent not to treat QFs like electric utilities in this regard: It is not the intention of the conferees that [QFs] become subject . . . to the type of examination that is traditionally given to electric utility rate applications to determine what is the just and reasonable rate that they should receive for their electric power. 128 128 Id. at 97. 87. Based on this legislative history, the Supreme Court concluded in API that, “Congress did not intend to impose traditional ratemaking concepts on sales by qualifying facilities to utilities.” 129 But application of traditional cost-based ratemaking principles to sales by QFs is exactly what would be required in order to provide QFs with the same guaranteed cost recovery that applies to electric utilities. Also, guaranteeing QFs cost recovery is fundamentally inconsistent with PURPA, which sets the rate the QF is paid at the utility's avoided cost, not at the QF's cost. 129 API, 461 U.S. at 414. 88. It therefore is clear that Congress did not intend for the PURPA nondiscrimination criterion to require that QF rates be set in a way that guarantees recovery of a QF's own costs, even as Congress recognized that franchised electric utilities selling at retail typically do have such guarantees for their own costs. Congress thus withheld from the Commission the authority to provide to QFs the same opportunity to recover costs at retail that franchised electric utilities have to recover their costs at retail; it was done by Congress intentionally and cannot be impermissibly discriminatory. 130 130 See 16 U.S.C. 824a-3(a) (rules Commission is directed to prescribe “may not authorize a [QF] to make any sale for purposes other than resale”). 3. Unlawful Delegation and the Role of Nonregulated Electric Utilities a. Comments 89. Allco argues that PURPA section 210(f) requires states to “implement” the Commission's rules, and that those rules cannot redelegate the Commission's authority. Allco claims that the statutory requirement to implement the Commission's rules cannot simply be a façade for delegating broad authority to states to undercut PURPA's directive that QF small power production must be encouraged. Allco concludes that Congress intended for the Commission to adopt actual rules rather than “a menu of factors” that essentially leaves states with all the discretion as to what to implement in order to encourage QF generation. 131 131 Allco Comments at 39-40. 90. Allco also asserts that the NOPR's proposed delegation of authority to nonregulated electric utilities is an unconstitutional delegation. According to Allco, such a delegation would mean that nonregulated electric utilities (some of which are among the largest utilities in the United States) were regulating themselves. Allco argues that a private entity such as a nonregulated electric utility cannot constitutionally be delegated regulatory power. 132 132 Id. at 40 (citing Ass'n of Am. R.R. v. DOT, 721 F.3d 666, 677 (D.C. Cir. 2013), vacated on other grounds, 135 S. Ct. 1225 (2015)). 91. Nebraska Board states that there is no state agency in Nebraska that has ratemaking authority over retail electric suppliers and that all retail electric suppliers are consumer-owned. Nebraska Board states its understanding that each retail electric supplier in Nebraska would have jurisdiction to exercise flexibilities provided to states in the NOPR. 92. Public Interest Organizations argue that the Commission failed to comply with PURPA section 210's requirement to consult with federal and state regulatory agencies with ratemaking authority. 133 133 Public Interest Organizations Comments at 19 (citing 16 U.S.C. 824a-3(a)). b. Commission Determination 93. Allco's unlawful delegation claims are misplaced. By enacting PURPA section 210(f)(1), Congress delegated to the states the obligation to implement the Commission's PURPA rules, and the Commission is acting consistent with that delegation. Congress's delegation to the states was upheld in FERC v. Miss. 134 and we are ensuring that the rules we have imposed abide by all the terms of the statute. Further, the Commission's current PURPA Regulations, promulgated in 1980, set forth a list of factors that the states are to consider, “to the extent practicable,” in setting QF rates. 135 In so doing, the Commission emphasized that states have “great latitude in determining the manner of implementation of the Commission's rules, provided that the manner chosen is reasonably designed to implement the requirements of Subpart C [which includes the pricing rules of 18 CFR 292.304].” 136 This final rule adds factors that must be taken into account to the extent practicable in setting rates, while retaining the “great latitude” the states always have had to implement the PURPA Regulations and which have been an important feature of the Commission's PURPA Regulations since their inception. 134 456 U.S. at 760 (“FERC has declared that state commissions may implement this by, among other things, `an undertaking to resolve disputes between qualifying facilities and electric utilities arising under [PURPA].' ”). 135 18 CFR 292.304(e). 136 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,891-92. The Commission explained that “[s]uch latitude is necessary in order for implementation to accommodate local conditions and concerns, so long as the final plan is consistent with statutory requirements.” Policy Statement Regarding the Commission's Enforcement Role Under Section 210 of the Public Utility Regulatory Policies Act of 1978, 23 FERC ¶ 61,304,at 61,646. 94. With respect to Allco's claim that the NOPR proposed an unconstitutional delegation to nonregulated electric utilities, we note that PURPA section 210(f)(2) specifically provides that “each nonregulated electric utility shall, after notice and opportunity for public hearing, implement” the Commission's rules regarding the rates to be paid to QFs. Consistent with this statutory provision, the PURPA Regulations regarding the setting of QF rates have applied to nonregulated electric utilities since those regulations were promulgated in 1980. 137 The final rule does nothing more than continue to implement this statutory requirement in the same way it always has been implemented. Given PURPA's unique statutory scheme involving state regulatory authorities, nonregulated electric utilities, QFs, and the Commission, we therefore reject Allco's assertion that the rules proposed in the NOPR—and adopted in this final rule—establish an unconstitutional delegation of authority to a private entity. 138 And it is beyond the Commission's purview to consider whether this statutory grant is constitutional. 139 Accordingly, when we refer to states in this final rule, we usually are referring to both state regulatory authorities and nonregulated electric utilities. 137 See Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,864 (“The implementation of these rules is reserved to the State regulatory authorities and nonregulated electric utilities.”). 138 See Allco Comments at 40. 139 Finnerty v. Cowen, 508 F.2d 979, 982 (2d Cir. 1974) (explaining that administrative agencies “have neither the power nor the competence to pass on the constitutionality of administrative or legislative action”) (quoting Murray v. Vaughn, 300 F. Supp. 688, 695 (D. R.I. 1969)); see also Gibas v. Saginaw Mining Co., 748 F.2d 1112, 1117 (6th Cir. 1984) (“[A]dministrative bodies like the Board do not have the authority to adjudicate the validity of legislation which they are charged with administering.”); Spiegel, Inc. v. FTC, 540 F.2d 287, 294 (7th Cir. 1976) (finding that the federal agency erred by making a constitutional determination); Downen v. Warner, 481 F.2d 642, 643 (9th Cir. 1973) (“Resolving a claim founded solely upon a constitutional right is singularly suited to a judicial forum and clearly inappropriate to an administrative board.”); cf. Woodrow v. FERC, 2020 WL 2198050, at *9 (D.D.C. May 6, 2020) (“When Congress creates an intricate statutory-review process that incorporates agency consideration and ultimately an avenue to petition an Article III court, we assume it wants that scheme to control.”). 95. Regarding Public Interest Organizations assertion that the Commission failed to comply with PURPA section 210's requirement to consult with federal and state regulatory agencies with ratemaking authority, we find that the 2016 Technical Conference's invitation to the public (including state regulatory authorities) to speak, as well as the notice and comment process on the NOPR itself, encompasses the required consultation. 140 The notices soliciting comments were open to all state authorities. Indeed, since the Commission first announced that technical conference and up to our receipt of comments on the NOPR, representatives from several states have filed comments expressing their views on how the Commission should implement PURPA. 140 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). B. QF Rates 1. Overview 96. PURPA requires that the Commission promulgate rules, to be implemented by the states, 141 that “shall insure” that the rates electric utilities pay for purchases of electric energy from QFs meet the statutory criteria described above, including that “[n]o such rule . . . shall provide for a rate which exceeds” the purchasing utility's “incremental cost . . . of alternative electric energy.” 142 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; 143 and, as noted above, (3) not exceed “the incremental cost to the electric utility of alternative electric energy,” 144 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.” 145 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,” 146 although the term “avoided cost” itself does not appear in PURPA. 141 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). 142 16 U.S.C. 824a-3(b). 143 16 U.S.C. 824a-3(b)(1)-(2). 144 16 U.S.C. 824a-3(b). 145 16 U.S.C. 824a-3(d) (emphasis added). 146 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.”). 97. In addition, the PURPA Regulations currently provide a QF two options for how to sell its power to an electric utility. The QF may 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 and rate). 147 Alternatively, the QF may choose to sell pursuant to a legally enforceable obligation or LEO (such as a contract) over a specified term. 148 147 18 CFR 292.304(d)(1). 148 18 CFR 292.304(d)(2)(i)-(ii); see also FLS, 157 FERC ¶ 61,211 at P 21 (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. 98. If the QF chooses to sell under the second option, the PURPA Regulations then 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; 149 or (2) the purchasing electric utility's avoided cost calculated and fixed at the time the LEO is incurred. 150 149 18 CFR 292.304(d)(2)(i). 150 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). 99. 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. But the Commission believed 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.” 151 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.” 152 151 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.”). 152 Order No. 69, FERC Stats. & Regs. ¶ 30,128 at 30,880. 100. 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 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 an RFP, with processes designed to ensure that the competitive solicitation is performed in a transparent, non-discriminatory fashion. 153 153 NOPR, 168 FERC ¶ 61,184 at PP 32-33. 101. 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. 102. We adopt these proposals in this final rule, with certain modifications. Each such proposal, and our final determination, is discussed further below. 2. Use of Competitive Market Prices To Set As-Available Avoided Cost Rates 103. In addition to commenting on the specific methods for determining as-available avoided cost rates, several commenters addressed more generally the Commission's proposal in the NOPR that states be given the flexibility to use competitive market prices to set such rates. Before discussing the specific methods proposed in the NOPR, we first discuss the determination that the use of competitive market prices, however determined, can be an appropriate approach to determining as-available avoided cost rates. a. NOPR Proposal 104. In the NOPR, the Commission proposed to give the states the flexibility to use competitive market prices to set as-available avoided cost rates. The Commission stated its belief that consideration of transparent, competitive market prices in appropriate circumstances would help to identify an electric utility's avoided costs in a simpler, more transparent, and more predictable manner that would, in conjunction with the Commission's other existing and proposed PURPA Regulations, act to encourage QFs. 154 154 Id. P 13. 105. For those utilities located in RTO/ISO markets, the NOPR identified LMP as a competitive market price that states could choose to adopt as representing an as-available avoided energy cost. The Commission explained that LMP could provide an accurate measure of the varying actual avoided costs for each receipt point on an electric utility's system where the utility receives power from QFs. 155 In addition to these benefits, the Commission observed that LMPs, in contrast to the administrative pricing methodologies used to set as-available QF rates by many states, could promote the more efficient use of the transmission grid, promote the use of the lowest-cost generation, and provide for transparent price signals. 156 155 Id. P 45. 156 Id. P 48 (citing Cal. Indep. Sys. Operator Corp., 105 FERC ¶ 61,140, at PP 48-50 (2003); Cf. Price Formation in Energy and Ancillary Servs. Mkts Operated by Reg'l Transmission Orgs. and Indep. Sys. Operators, 153 FERC ¶ 61,221, at P 2 (2015)). 106. For utilities located outside of RTO/ISO markets, the NOPR proposed to allow states to use two other potential competitively priced measures of a utility's as-available avoided cost rates: (1) Energy rates established at liquid market hubs; or (2) energy rates determined pursuant to formulas based on natural gas price indices and a proxy heat rate for an efficient natural gas combined-cycle generating facility. In each such case, though, the state would need to find that that price reasonably represents a competitive market price that represents the avoided costs of the purchasing electric utility. 157 157 NOPR, 168 FERC ¶ 61,184 at P 51. b. Comments 107. Allco argues that the only reason for including the use of competitive market prices to set as-available energy rates is to create a menu of prices from which a state regulatory authority or unregulated electric utility can choose the lowest price. Allco claims this proposal would not encourage QF generation, would be inconsistent with the rules of economic dispatch, and would be inconsistent with the language of PURPA. 158 BluEarth makes similar arguments. 159 In contrast, El Paso Electric argues that state regulatory authorities should be able to set avoided cost rates based on the lesser of a market hub price or a combined cycle price. 160 Similarly, the California Commission argues that utilities located in organized markets (not just non-organized markets) should also be expressly permitted to use any competitive price (whether derived from a market hub, competitive solicitation, or a combined cycle price) to set avoided cost rates. The California Commission also argues that states should have the ability to use competitive prices for not just as-available energy pricing, but also for capacity pricing, and proposes minor modifications to the relevant regulation text proposed in the NOPR in order to clarify these points. 161 158 Allco Comments at 8. 159 BluEarth Comments at 2. 160 El P [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-15902. Public record. Not legal advice.