Administrative Determination of Full Avoided Costs, Sales of Power To Qualifying Facilities, and Interconnection Facilities; Order Terminating Proceeding

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

[Docket No. RM88-6-000]

Administrative Determination of Full Avoided Costs, Sales of

Power To Qualifying Facilities, and Interconnection Facilities; Order

Terminating Proceeding

Issued September 21, 1998.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Order Terminating Proceeding.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is

terminating this proceeding because the matters at issue in this

proceeding have since been overtaken by events.

DATES: This order is withdrawn September 25, 1998.

FOR FURTHER INFORMATION CONTACT: Kimberly D. Bose, Federal Energy

Regulatory Commission, Office of the General Counsel, 888 First Street,

N.E., Washington, D.C. 20426, (202) 208-2284.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of

this document in the Federal Register, the Commission also provides all

interested persons an opportunity to inspect or copy the contents of

this document during normal business hours in the Public Reference Room

at 888 First Street, N.E., Room 2A, Washington, D.C. 20426.

The Commission Issuance Posting System (CIPS) provides access to

the texts of formal documents issued by the Commission. CIPS can be

accessed via Internet through FERC's Homepage (http://www.ferc.fed.us)

using the CIPS Link or the Energy Information Online icon. The full

text of this document will be available on CIPS in ASCII and

WordPerfect 6.1 format. CIPS is also available through the Commission's

electronic bulletin board service at no charge to the user and may be

accessed using a personal computer with a modem by dialing 202-208-

1397, if dialing locally, or 1-800-856-3920, if dialing long distance.

To access CIPS, set your communications software to 19200, 14400,

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data bits and 1 stop bit

through the Commission's

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accessed using a personal computer with a modem by dialing 202-208-

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To access CIPS, set your communications software to 19200, 14400,

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This document is also available through the Commission's Records

and

Information Management System (RIMS), an electronic storage and

retrieval system of documents submitted to and issued by the Commission

after November 16, 1981. Documents from November 1995 to the present

can be viewed and printed. RIMS is available in the Public Reference

Room or remotely via Internet through FERC's Homepage using the RIMS

link or the Energy Information Online icon. User assistance is

available at 202-208-2222, or by E-mail to RimsMaster@FERC. fed.us.

Finally, the complete text on diskette in WordPerfect format may be

purchased from the Commission's copy contractor, RVJ International,

Inc. RVJ International, Inc., is located in the Public Reference Room

at 888 First Street, N.E., Washington, D.C. 20426.

Before Commissioners: James J. Hoecker, Chairman; Vicky A.

Bailey, William L. Massey, Linda Breathitt, and Curt Hebert, Jr.

In 1988, the Commission issued a Notice of Proposed Rulemaking in

this proceeding.1 For the reasons given below, we are

exercising our discretion to terminate this proceeding.

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\1\ Administrative Determination of Full Avoided Costs, Sales to

Qualifying Facilities, and Interconnection Facilities, 53 FR 9331

bert, Jr.

In 1988, the Commission issued a Notice of Proposed Rulemaking in

this proceeding.1 For the reasons given below, we are

exercising our discretion to terminate this proceeding.

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\1\ Administrative Determination of Full Avoided Costs, Sales to

Qualifying Facilities, and Interconnection Facilities, 53 FR 9331

(1988), FERC Stats. & Regs. para. 32,457 (1988) (ADFAC NOPR).

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Background

In 1980, the Commission implemented rules regarding, among other

things, rates for purchases from qualifying cogeneration and small

power production facilities (QF) pursuant to sections 201 2

and 210 3 of the Public Utility Regulatory Policies Act of

1978 (PURPA).4

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\2\ See 16 U.S.C. Sec. 796.

\3\ See 16 U.S.C. Sec. 824a-3.

\4\ See Small Power Production and Cogeneration Facilities;

Regulations Implementing Section 210 of the Public Utility

Regulatory Policies Act of 1978, Order No. 69, 45 FR 12214 (1980),

FERC Stats. & Regs., Regulations Preambles 1977-1981 para. 30,128

(1980) and Small Power Production and Cogeneration Facilities--

Qualifying Status, Order No. 70, 45 FR 17,959 (1980), FERC Stats. &

Regs., Regulations Preambles 1977-1981 para. 30,134 (1980), order on

reh'g, Order Nos. 69-A and 70-A, 45 FR 33958 (1980), FERC Stat. &

Regs., Regulations Preambles 1977-1981 para. 30,160 (1980), aff'd in

part and vacated in part, American Electric Power Service

Corporation v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), rev'd in part,

American Paper Institute, Inc. v. American Electric Power Service

Corporation, 461 U.S. 402 (1983).

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958 (1980), FERC Stat. &

Regs., Regulations Preambles 1977-1981 para. 30,160 (1980), aff'd in

part and vacated in part, American Electric Power Service

Corporation v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), rev'd in part,

American Paper Institute, Inc. v. American Electric Power Service

Corporation, 461 U.S. 402 (1983).

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In 1987, the Commission held a series of regional conferences and

solicited written comments concerning the Commission's QF program. The

Commission sought input concerning, inter alia, the so-called avoided

cost rule and the implementation of that rule by state commissions and

others.5 After reviewing the information received in the

regional conferences and in the written comments, the Commission issued

the ADFAC NOPR.6

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\5\See FERC Stats. & Regs. at 32,158; accord, Cogeneration;

Small Power Production--Notice of Pubic Conference and Request for

Comments, 64 FERC para. 61,364 at 63,489-90 n.2 (1993).

\6\ The Commission also issued three other notices of proposed

rulemakings. Regulations Governing Independent Power Producers, 53

FR 9327 (1988), FERC Stats. & Regs. para. 32,456 (1988); Regulations

Governing Bidding Program, 53 FR 9324 (1988), FERC Stats. & Regs.

para. 32,455 (1988); Regulations Governing the Public Utility

Regulatory Policies Act of 1978, 53 FR 31021 (1988), FERC Stats. &

Reg. para. 32,465 (1988). On September 29, 1993, these proceedings

were terminated because the matters at issue had been overtaken by

events. 64 FERC at 63,491-92.

All four of the proceedings, including the ADFAC NOPR, arose out

of concerns expressed to the Commission that the Commission's QF

regulations required revision and also that the Commission draft

regulations to deal with newly-developing independent power

producers. See generally id. at 63,490.

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s. 64 FERC at 63,491-92.

All four of the proceedings, including the ADFAC NOPR, arose out

of concerns expressed to the Commission that the Commission's QF

regulations required revision and also that the Commission draft

regulations to deal with newly-developing independent power

producers. See generally id. at 63,490.

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The ADFAC NOPR

The Commission's regulations define avoided cost as the incremental

cost to an electric utility of electric capacity or energy, or both,

which but for the purchase from the QF the utility would generate

itself or purchase from another source.7 The regulations

also provide that, if the rate paid by an electric utility to a QF for

power and energy is equal to avoided cost, the rate is considered just

and reasonable, non-discriminatory, and in the public

interest.8 Finally, the regulations further provide a list

of factors that, to the extent practicable, must be taken into account

in determining avoided cost.9

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\7\ 18 CFR 292.101(b)(6).

\8\ 18 CFR 292.304(a)(1), 292.304(b)(2).

\9\ 18 CFR 292.304(e).

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The ADFAC NOPR, among other things, proposed amending the

Commission's regulations to more precisely define the guidelines and

criteria to be used by state commissions and others in administratively

determining avoided cost.10 The ADFAC NOPR also acknowledged

the difficulty of administratively determining avoided cost and setting

avoided cost rates, and noted particularly that bidding was an

alternative that promised greater efficiency in setting avoided cost

rates.11

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\10\ FERC Stats. & Regs. at 32,157, 32,162-74.

\11\ FERC Stats. & Regs. at 32,164, 32,167.

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nd setting

avoided cost rates, and noted particularly that bidding was an

alternative that promised greater efficiency in setting avoided cost

rates.11

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\10\ FERC Stats. & Regs. at 32,157, 32,162-74.

\11\ FERC Stats. & Regs. at 32,164, 32,167.

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Comments were filed in May 1988, reply comments were filed in July

1988, and a public hearing was held on July 21-22, 1988. A number of

commenters supported the proposed rules, but often with qualifications

and proposed changes. Many commenters, however, including public

utilities and state commissions, opposed the proposed rules. Some urged

the issuance of a policy statement rather than a rulemaking. Many state

commissions, in particular, deemed the proposed rules an intrusion on

state authority, unnecessary or impractical. Representatives of the QF

industry urged major revisions of various particular proposals. Various

parties representing consumer and utility interests also opposed the

proposed rules.

Discussion

Over a decade has passed since the ADFAC NOPR was issued. During

those ten years, conditions which directly or indirectly affect QFs

have changed significantly. One significant development was the passage

of the Energy Policy Act of 1992, Pub L. No. 102-486, 106 Stat. 2776

(1992) (codified in, among other places, 16 U.S.C.), which, among other

things, created a new category of non-traditional power producers,

exempt wholesale generators (EWGs), that, like most QFs, are exempt

from the requirements of the Public Utility Holding Company Act of 1935

(PUHCA).12 In fact, many of the entities that could qualify

as QFs can also meet the criteria for EWG status and so need not be QFs

in order to obtain exemption from PUHCA. Likewise, other non-

traditional power producers that may be competitors of QFs, but may

themselves not be QFs, can also qualify as EWGs

s, are exempt

from the requirements of the Public Utility Holding Company Act of 1935

(PUHCA).12 In fact, many of the entities that could qualify

as QFs can also meet the criteria for EWG status and so need not be QFs

in order to obtain exemption from PUHCA. Likewise, other non-

traditional power producers that may be competitors of QFs, but may

themselves not be QFs, can also qualify as EWGs.

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\12\ 15 U.S.C. Secs. 79a et seq.; compare 15 U.S.C. Sec. 79z-

5a(e) with 18 CFR 292.601-02.

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The Energy Policy Act also expanded the Commission's authority to

order transmission for, among others, QFs as well as certain

EWGs.13 Additionally in this regard, the Commission in 1996

issued Order No. 888,14 in which the Commission directed

that all public utilities that own, control or operate facilities used

for the transmission of electric energy in interstate commerce file

open access, non-discriminatory transmission tariffs with minimum terms

and conditions of non-

discriminatory service.15 The sellers eligible for such

service expressly include QFs.16

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\13 \See 16 U.S.C. Secs. 824j, 824k.

\14 \Promoting Wholesale Competition Through Open Access Non-

discriminatory Transmission Services by Public Utilities; Recovery

of Stranded Costs by Public Utilities and Transmitting Utilities,

Order No. 888, 61 FR 21540 (1996), FERC Stats. & Regs. para. 31,036

sly include QFs.16

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\13 \See 16 U.S.C. Secs. 824j, 824k.

\14 \Promoting Wholesale Competition Through Open Access Non-

discriminatory Transmission Services by Public Utilities; Recovery

of Stranded Costs by Public Utilities and Transmitting Utilities,

Order No. 888, 61 FR 21540 (1996), FERC Stats. & Regs. para. 31,036

(1996), order on reh'g, Order No. 888-A, 62 FR 12274 (1997), FERC

Stats. & Regs. para. 31,048, order on reh'g, Order No. 888-B, 81

FERC para. 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC

para. 61,046 (1998), accord, Public Service Company of New Hampshire

v. New Hampshire Electric Cooperative, Inc., 83 FERC para. 61,224 at

61,999 (1998)(``The regulatory context is now quite different from

that which existed'' when the QF regulations first were promulgated,

with the requirement that public utilities now provide open access

transmission service to, among other entities, QFs), reh'g pending

(PSNH).

\15 \E.g., Order No. 888, FERC Stats. & Regs. at 31,635-36.

\16 \E.g., id. at 31,688.

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In addition, as stated above, the ADFAC NOPR acknowledged the

difficulty of administratively setting avoided cost rates, and

particularly recognized that competitive bidding was a viable

alternative to determining avoided cost. Since 1988, in fact,

substantial experience has been gained by state commissions, electric

utilities and QFs themselves regarding competitive bidding

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In addition, as stated above, the ADFAC NOPR acknowledged the

difficulty of administratively setting avoided cost rates, and

particularly recognized that competitive bidding was a viable

alternative to determining avoided cost. Since 1988, in fact,

substantial experience has been gained by state commissions, electric

utilities and QFs themselves regarding competitive bidding. While few

states allowed competitive bidding at the time of the ADFAC NOPR, well

over half the states now use competitive bidding to one degree or

another in setting avoided cost rates.17 Indeed, in a number

of cases, the Commission itself has considered rates resulting from

competitive bidding and negotiation in which QFs were active

participants.18 Accordingly, the industry itself appears to

have made substantial progress regarding the determination of avoided

cost and the setting of avoided cost rates.

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\17 \64 FERC at 63,491; accord, Order No. 888, FERC Stats. &

Regs. at 31,651; National Independent Energy Producers, Competing

for Power: A Survey on Competitive Procurement Systems and Blueprint

for the Future 5-6 (July 1991).

\18 \E.g., PSNH, 83 FERC at 62,000-01 (``parties to QF purchases

are free to negotiate purchase rates'' and a ``more competitive

environment is expected to foster such outcomes''); accord, id. at

61,995-96, 62,001 n.20 (noting the use of competitive bidding by the

applicant to establish an avoided cost rate); Enron Power Enterprise

Corporation, 52 FERC para. 61,193 (1990) (involving multi-source,

including QF, competitive bidding); Doswell Limited Partnership, 50

FERC para. 61,251 (1990) (involving QF competitive bidding); see

also Southern California Edison Company, 70 FERC para. 61,215 at

61,675-76, 61,677, order on reconsid. 71 FERC para. 61,269 at

62,078-80 (1995); cf. Jersey Central Power & Light Company, 73 FERC

para. 61,092 at 61,297 & n.5, reh'g denied, 73 FERC para. 61,333

including QF, competitive bidding); Doswell Limited Partnership, 50

FERC para. 61,251 (1990) (involving QF competitive bidding); see

also Southern California Edison Company, 70 FERC para. 61,215 at

61,675-76, 61,677, order on reconsid. 71 FERC para. 61,269 at

62,078-80 (1995); cf. Jersey Central Power & Light Company, 73 FERC

para. 61,092 at 61,297 & n.5, reh'g denied, 73 FERC para. 61,333

(1995); Metropolitan Edison Company, 72 FERC para. 61,015 at 61,049

& n.6, reh'g denied, 72 FERC para. 61,269 at 62,184 (1995).

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Given these facts, as well as the continuing development of

competitive power markets generally,19 the Commission does

not believe it appropriate to adopt revisions proposed a decade ago.

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\19\ See Order No. 888, FERC Stats. & Regs. at 31,639-52;

accord, Order No. 888-A, FERC Stats. & Regs. at 30,183-85; see also

70 FERC at 61,675-76.

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Additionally, we note that certain of the issues addressed in the

ADFAC NOPR were the subject of other proceedings: for example, allowing

QFs to construct and own transmission lines and interconnection

equipment.20 Likewise, the issue of whether states can

require that rates for QF sales at wholesale be set above avoided cost,

which was added to the ADFAC NOPR proceeding after the ADFAC NOPR was

originally issued,21 has since been addressed in another

proceeding.22

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\20\ See Streamlining of Regulations Pertaining to Parts II and

III of the Federal Power Act and the Public Utility Regulatory

Policies Act of 1978, Notice of Proposed Rulemaking, 57 FR 55176

(1992), FERC Stats. & Regs. para. 32,489 at 32,643-44, 32,647

lly issued,21 has since been addressed in another

proceeding.22

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\20\ See Streamlining of Regulations Pertaining to Parts II and

III of the Federal Power Act and the Public Utility Regulatory

Policies Act of 1978, Notice of Proposed Rulemaking, 57 FR 55176

(1992), FERC Stats. & Regs. para. 32,489 at 32,643-44, 32,647

(1992), regulation adopted, Order No. 575, 60 FR 4831 (1995), FERC

Stats. & Regs. para. 30,014 at 31,279-81 (1995), order on reh'g, 71

FERC para. 61,121 (1995).

\21\ See Administrative Determination of Full Avoided Costs, 53

FR 24099 (1988), FERC Stats. & Regs. para. 32,462 (1988); cf. Orange

and Rockland Utilities, Inc., 70 FERC para. 61,014, reconsideration

denied, 71 FERC para. 61,034 (1995).

\22\ See Connecticut Light & Power Company, 70 FERC para.

61,012, reconsideration denied, 71 FERC para. 61,035 (1995).

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Accordingly, because the revisions to the Commission's regulations

proposed in the ADFAC NOPR have been overtaken by subsequent events,

the Commission will exercise its discretion to terminate this

proceeding.23

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\23\ See, e.g., Professional Drivers Council v. Bureau of Motor

Safety, 706 F.2d 1216, 1220-21 (D.C. Cir. 1983) (discussing agency's

decision not to promulgate new rules in an area already subject to

agency regulation).

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Administrative Findings and Effective Date

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\23\ See, e.g., Professional Drivers Council v. Bureau of Motor

Safety, 706 F.2d 1216, 1220-21 (D.C. Cir. 1983) (discussing agency's

decision not to promulgate new rules in an area already subject to

agency regulation).

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Administrative Findings and Effective Date

The Administrative Procedure Act (APA) 24 requires a

notice of proposed rulemaking to be published in the Federal Register.

The APA also mandates that an opportunity for comments be provided when

an agency proposes to promulgate regulations. The Commission finds that

notice and comment are unnecessary when terminating this proceeding.

The express language of the APA requires such notice and comment only

when promulgating new regulations and not when the agency is, as in

this case, terminating a proceeding that proposed amending pre-existing

regulations.25 Moreover, notice and comment are not required

under the APA when the agency for good cause finds that notice and

public procedure thereon are impracticable, unnecessary, or contrary to

the public interest.26 As explained above, this order merely

removes from consideration proposed regulations that were never adopted

and have since been overtaken by events, and thus are no longer

necessary.

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\24\ 5 U.S.C. 553(b), (c).

\25\ See, e.g., Kennecott Utah Copper Corporation v. United

States Department of Interior, 88 F.3d 1191, 1207-09 (D.C. Cir.

1996) (discussing challenges to withdrawal of draft final

regulations without notice and comment); accord, ICORE, Inc. V. FCC,

985 F.2d 1075, 1082 (D.C. Cir. 1993) (not modifying a rule is not

same as rulemaking).

\26\ 5 U.S.C. 553(b).

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The Commission will make the termination of this proceeding

effective on September 25, 1998.