APPELLANT S FIRST BRIEF ON CROSS-APPEAL

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1 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 1 of 111 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT WINDING CREEK SOLAR LLC, v. Plaintiff-Appellant, CARLA PETERMAN; MARTHA GUZMAN ACEVES; LIANE RANDOLPH; CLIFFORD RECHTSCHAFFEN; MICHAEL PICKER, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellees. WINDING CREEK SOLAR LLC, v. Plaintiff-Appellee, CARLA PETERMAN; MARTHA GUZMAN ACEVES; LIANE RANDOLPH; CLIFFORD RECHTSCHAFFEN; MICHAEL PICKER, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellants. Case No On Appeal from the United States District Court for the Northern District of California No. 3:13-cv JD Hon. James Donato Case No On Appeal from the United States District Court for the Northern District of California No. 3:13-cv JD Hon. James Donato APPELLANT S FIRST BRIEF ON CROSS-APPEAL Thomas Melone ALLCO RENEWABLE ENERGY LTD Broadway, 15 th Floor New York, NY Telephone: (212) Thomas.Melone@AllcoUS.com Attorneys for Appellant WINDING CREEK SOLAR LLC

2 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 2 of 111 CORPORATE DISCLOSURE STATEMENT Winding Creek Solar LLC is 100% owned by Allco Finance Limited, which is a privately held company in the business of developing solar energy projects. Allco Finance Limited has no parent companies, and no publicly held company owns 10 percent or more of its stock. /s/ Thomas Melone i

3 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 3 of 111 TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT... i TABLE OF AUTHORITIES... iv TABLE OF ACRONYMS... vii INTRODUCTION... 1 JURISDICTIONAL STATEMENT... 3 STATUTORY AND REGULATORY AUTHORITIES... 4 STATEMENT OF ISSUES... 4 STATEMENT OF THE CASE... 5 A. The Parties... 5 B. Federal Statutory and Regulatory Background... 5 C. State Implementation of PURPA D. PURPA s Enforcement Mechanisms E. California s Implementation of PURPA and the Re-MAT Program California s Implementation of PURPA The Re-MAT Program a. The Queue b. Quantity Caps c. Re-MAT Pricing F. Winding Creek s Participation in the Re-MAT G. PURPA s Key Role In Reducing Greenhouse Gas Emissions H. Proceedings Below SUMMARY OF ARGUMENT ARGUMENT I. Standard Of Review II. The District Court Correctly Invalidated the Caps and Pricing Adjustments of the Re-MAT A. The District Court Correctly Concluded That The Re-MAT Caps Flatly Violate PURPA s Must-Take Obligation B. The District Court Correctly Concluded That Pricing ii

4 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 4 of 111 Adjustments Under Re-MAT Are Not Based On A Utility s Avoided Costs And Thus Are Void Avoided Costs For Purposes Of 18 C.F.R (d)(2) Are The Costs A Utility Would Incur For Purchasing Energy And Capacity From A Non-QF Source The Re-MAT Pricing Adjustment Bears No Relation To Avoided Costs C. The District Court Correctly Held That The Standard Contract Program Does Not Comply With 18 C.F.R (d)(2)(ii)) III. The District Court Has The Authority To Order, And Should Have Ordered, That Winding Creek Be Placed In The Position It Would Have Been In But For The Unlawful Re-MAT Bi-Monthly Cap A. The District Court Has The Power To Order Relief To Eliminate The Ongoing Irreparable Harm To Winding Creek B. The District Court s Justification For Failing To Exercise Its Remedial Powers Do Not Withstand Scrutiny CONCLUSION STATEMENT OF RELATED CASES CERTIFICATE OF COMPLIANCE ADDENDUM iii

5 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 5 of 111 TABLE OF AUTHORITIES CASES Allco Renewable Energy Ltd., v. MA Elec. Co., 875 F.3d 64 (1 st Cir. 2017)... 50, 58, 59 Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402 (1983)...7, 8, 10, 32, 38 BCPeabody Constr. Servs., Inc. v. United States, 112 Fed. Cl. 502 (2013) City of Redding v. FERC, 693 F.3d 828 (9th Cir. 2012) Delta Data Sys. Corp. v. Webster, 744 F.2d 197 (D.C. Cir. 1984)... 52, 53 FERC v. Mississippi, 456 U.S. 742 (1982)... 6 Husain v. Olympic Airways, 316 F.3d 829 (9th Cir. 2002) aff d 540 U.S. 644 (2004) Indep. Energy Prods. Ass n v. Cal. Pub. Utils. Comm n, 36 F.3d 848 (9th Cir. 1994)... 12, 13, 15, 32, 33, 38 Juliana v. United States, 217 F. Supp (D. Ore. 2016) Leboeuf v. Abraham, 347 F.3d 315 (D.C. Cir. 2004)... 52, 53 Mid. Atl. Storage Sys. v. City of Milton, 903 F. Supp. 995 (S.D. W. Va. 1995) Nat'l Mall Tours of Wash., Inc. v. United States DOI, 862 F.3d 35 (D.C. Cir. 2017) Portland General Elec. Co. v. FERC, 854 F.3d 692 (D.C. Cir. 2017)... 57, 58 Semancik v. United Mine Workers, 466 F.2d 144 (3d Cir. 1972) Solutions for Utilities, Inc v. Cal. Pub. Util. Comm n, No. CV , 2016 U.S. Dist. LEXIS 17998, 2016 WL (C.D. Cal. 2016) Szajer v. City of Los Angeles, 632 F.3d 607 (9th Cir. 2011) Ulstein Maritime, Ltd. v. United States, 833 F.2d 1052 (1 st Cir. 1987) Wheelabrator Lisbon, Inc. v. Conn. DPUC, 53 F.3d 183 (2d Cir. 2008) STATUTES Public Utility Regulatory Policies Act, Pub. L. No , 92 Stat U.S.C. 791a U.S.C. 796(17)(C) (FPA Section 3(17)(C)) U.S.C. 824d (FPA Section 205) iv

6 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 6 of U.S.C. 824e (FPA Section 206) U.S.C. 824a-3 (PURPA Section 210)... 5, 6 16 U.S.C. 824a-3(a) (PURPA Section 210(a))... 7, 10, U.S.C. 824a-3(b) (PURPA Section 210(b))... 7, U.S.C. 824a-3(f)(1) (PURPA Section 210(f))... 10, U.S.C. 824a-3(g) (PURPA Section 210(g))... 11, 55, 56, U.S.C. 824a-3(h) (PURPA Section 210(h))... 11, 55, U.S.C. 824a-3(h)(2) (PURPA Section 210(h)(2))... 3, U.S.C. 824a-3(h)(2)(A) (PURPA Section 210(h)(2)(A))... 3, 11, U.S.C. 824a-3(h)(2)(B) (PURPA Section 210(h)(2)(B))... 2,3, 51, 54, U.S.C. 824a-3(m)(1) U.S.C. 824(f) U.S.C. 825m (FPA 314) U.S.C. 825m(b) (FPA 314(b)) U.S.C. 825o (FPA 316) U.S.C. 825p (FPA 317)... 3, U.S.C U.S.C U.S.C LEGISLATIVE MATERIALS H.R. Rep. No (IV) (1978)... 6, 37 OTHER AUTHORITIES 18 C.F.R (b)(6)... 30, 32, 34, C.F.R C.F.R (a)(1)... 7, 27, 28, C.F.R (b)(2)... 7, 30, 32, C.F.R (d)(1)...passim 18 C.F.R (d)(2)...passim 18 C.F.R (e) Am. Ref-Fuel Co., 107 FERC 61,016 (2004) v

7 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 7 of 111 Decision Adopting Proposed Settlement, CPUC D (2010) Decision Adopting The Renewable Auction Mechanism, CPUC D (2010) Decision Revising Feed-In Tariff Program, CPUC D (2012)...passim Decision Adopting Joint Standard Contract For Section Feed-In Tariff Program, CPUC D (2013)...17, 18, 19, 26, 27 Ferrey, Steven et al., Fire and Ice: World Renewable Energy and Carbon Control Mechanisms Confront Constitutional Barriers, 20 Duke Envtl. L. & Pol y F. 125 (2010) FLS Energy, Inc., 157 FERC 61,211 (2016)...27, 28, 29, 41, 42 JD Wind 1 LLC, 130 FERC 61,127 (2010)... 7, 9, 27, 41, 42, 43 Hydrodynamics, Inc., 146 FERC 61,193 (2014)... 37, 41, 47 Order 69, Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed. Reg. 12,214 (Feb. 25, 1980)...passim Order Modifying Decision (D.) , CPUC D (2013)... 19, 37 The American Heritage Dictionary of the English Language 263 (5th ed. 2011) USGCRP, 2017: Climate Science Special Report: Fourth National Climate Assessment, Volume I [Wuebbles, D.J., D.W. Fahey, K.A. Hibbard, D.J. Dokken, B.C. Stewart, and T.K. Maycock (eds.)]. U.S. Global Change Research Program, Washington, DC, USA Windham Solar LLC, 157 FERC 61,134 (2016)... 37, 42, 47, 48 Winding Creek Solar LLC, 144 FERC 61,122 (2013)... 3 Winding Creek Solar LLC, 151 FERC 61,103 (2015)... 3 Winding Creek Solar LLC, 153 FERC 61,027 (2015)... 3 vi

8 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 8 of 111 TABLE OF ACRONYMS CPUC FERC FPA kw kwh MW MWh PG&E PURPA QFs Re-MAT California Public Utilities Commission Federal Energy Regulatory Commission Federal Power Act Kilowatts, a measure of generation capacity equal to one one-thousandth of a megawatt. Kilowatt-hours, a measure of generator electric energy output. One kilowatt-hour is equal to one one-thousandth of a megawatt-hour. Megawatts, a measure of generation capacity equal to 1,000 kilowatts. Megawatt-hours, a measure of the energy output of a generator. A generator operating at one MW of capacity for one hour produces one megawatt-hour of electricity. Pacific Gas & Electric Company, the investorowned utility that serves northern California, including the area around Lodi. Public Utility Regulatory Policies Act, 16 U.S.C. 824a-3. Qualifying Facilities, cogeneration and small power production that are eligible to receive benefits under PURPA. See 18 C.F.R Renewable Market Adjusting Tariff vii

9 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 9 of 111 INTRODUCTION As the District Court concluded, [d]espite the complex regulatory and factual background here, the key legal issues turned out to be straightforward, and the scope of the parties actual dispute quite narrow. See, ER13. The Public Utility Regulatory Policies Act, Pub. L. No , 92 Stat ( PURPA ), see 16 U.S.C. 824a-3, requires a utility to purchase all energy offered by a QF. 1 The California Public Utilities Commission s PURPA program, the Renewable Market Adjusting Tariff ( Re-MAT ), violates this requirement because it imposes a cap on PURPA purchases, and Winding Creek Solar LLC ( Winding Creek ) was denied a PURPA contract solely because of the cap. As the District Court correctly held, [t]he plain meaning of [PURPA s must-purchase obligation] is that utilities must buy all of the energy and capacity offered by QFs. It does not require significant legal analysis to conclude that CPUC s imposition of caps in the Re- MAT program violates the must-take obligation. See, ER13. The District Court was likewise correct when it concluded that Re-MAT s price adjustment mechanism, which automatically adjusts Re-MAT prices based on arbitrary factors that are unrelated to a utility s avoided costs, violates PURPA s 1 [Q]ualifying small power production facilit[ies] under the statute and Qualifying Facilities or QFs under regulations of the Federal Energy Regulatory Commission (the FERC ), see 16 U.S.C. 796(17)(C); 18 C.F.R

10 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 10 of 111 requirement that avoided cost rates must be set based on the utility s avoided costs, not a QF s cost of production. In light of these obvious violations, Winding Creek asked the District Court to restore it to where it would have been but for the illegal cap and order the Defendant Commissioners of the California Public Utilities Commission (collectively, the CPUC ) to provide to Winding Creek the contract Winding Creek should have received in 2013, the standard remedy in a situation like this. Although the plain language of PURPA empowers the District Court to require [the CPUC] to comply with [PURPA s] requirements and to issue such injunctive or other relief as may be appropriate, 16 U.S.C. 824a-3(h)(2)(B), the District Court refused, incorrectly concluding that it lacked power to order an effective remedy. If Winding Creek cannot obtain the contract that it was legally entitled to in 2013 in a timely manner, PURPA becomes an empty shell, defeating the entire purpose of the law. 2

11 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 11 of 111 JURISDICTIONAL STATEMENT Plaintiff-Appellant Winding Creek brought an enforcement action against the CPUC under section 210(h)(2)(B) of PURPA. 16 U.S.C. 824a-3(h)(2)(B). The District Court had jurisdiction under 16 U.S.C. 824a-3(h)(2) of PURPA, 28 U.S.C. 1331, and sections 314 and 317 of the Federal Power Act ( FPA ), 16 U.S.C. 791a et seq. 2 Following a bench trial, the District Court granted summary judgment for Winding Creek against the CPUC [ER1], but the District Court refused to provide an effective remedy. 3 Final judgment was entered on December 7, 2017 [ER23]. Winding Creek timely filed a notice of appeal on December 22, 2017 [ER21]. The CPUC timely filed a cross-appeal on December 22, This Court has jurisdiction over the appeal under 28 U.S.C Winding Creek satisfied the administrative exhaustion requirement of 16 U.S.C. 824a-3(h)(2)(A). See, ER169, 13; Winding Creek Solar LLC, 144 FERC 61,122 (2013); ER169, 15; Winding Creek Solar LLC, 151 FERC 61,103 (2015); Winding Creek Solar LLC, 153 FERC 61,027 (2015). 3 ER cites to Excerpts of Record. 3

12 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 12 of 111 STATUTORY AND REGULATORY AUTHORITIES All relevant statutory and regulatory authorities appear in the Addendum to this brief. STATEMENT OF ISSUES 1. Whether the District Court correctly concluded that California s Re- MAT program violates PURPA because: (a) Re-MAT s quantitative caps violate PURPA s must-purchase requirement because they allow utilities to refuse purchases of any QF output above the cap, (b) whether Re-MAT s price adjustment scheme, which relies on arbitrary reduction unrelated to utility avoided cost, violates PURPA s requirement that rates for QF sales be set at the utility s avoided cost. (c) whether CPUC s Standard Contract provides an alternative path for PURPA compliance even though it lacks a rate that is set at the time of contracting, as PURPA requires. 2. Whether the District Court had the statutory authority to provide, and should have provided, full relief to Winding Creek by putting Winding Creek in the position it would have enjoyed but for the unlawful features of the Re-MAT program. 4

13 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 13 of 111 STATEMENT OF THE CASE A. The Parties. Cross-Appellant/Appellee Winding Creek is a developer of solar generating facilities. It is currently seeking to develop a 1 MW solar generating facility in Lodi, California ( the Lodi facility ). ER11, 30. The Lodi facility is a QF pursuant to FERC s regulations. ER2. Appellees/Cross-Appellants are the Commissioners of the California Public Utilities Commission, a California state agency. Under PURPA, it is the agency charged with implementing PURPA in the State of California. The CPUC s Re- MAT program, which it promulgated to carry out its enforcement obligations under PURPA, is at issue in this appeal. Pacific Gas & Electric Company ( PG&E ) is the electric utility serving the area around Lodi. It is not a party to this case. It would purchase Winding Creek s output if the Lodi facility is built. B. Federal Statutory and Regulatory Background. In 1978, as part of a package of legislation intended to address the energy crises of the 1970s, Congress enacted PURPA. Section 210 of PURPA, the provision relevant here, was intended to accelerate the development of renewable and inexhaustible energy sources and convert the national economy to alternative fuel resources in order to protect this country from the problems that would 5

14 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 14 of 111 otherwise occur. H.R. Rep. No (IV), at 14 (1977), reprinted in 1978 U.S.C.C.A.N. 8454, To achieve this goal, section 210 created a class of Qualifying Facilities also known as QFs small, renewable power production and cogeneration facilities and conferred several specific benefits on those facilities, including reducing regulatory barriers to their entry into the energy markets and imposing a must-purchase obligation to overcome the reluctance of vertically integrated monopoly utilities to purchase power from alternative suppliers. See FERC v. Mississippi, 456 U.S. 742, 750 (1982). The must-purchase obligation arises when a QF establishes a legally enforceable obligation to sell its output, which is created when the qualifying facility has agreed to obligate itself to deliver at a future date energy and capacity to the electric utility. Order No. 69, 45 Fed. Reg. 12,214, 12, The mustpurchase obligation has three key attributes. First, under PURPA, electric utilities must purchase any electricity produced by QFs. Congress directed that [FERC] shall prescribe... such rules as it determines necessary to encourage small power production... which rules require electric utilities to offer to (2) purchase electric energy from 4 See Order 69, Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed. Reg. 12,214 (Feb. 25, 1980) ( Order 69 or PURPA Rulemaking ). Available at 69-and-erratum.pdf. 6

15 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 15 of 111 [qualifying] facilities. 16 U.S.C. 824a-3(a) (emphasis added). FERC subsequently adopted rules providing that [e]ach electric utility shall purchase... any energy and capacity which is made available from a qualifying facility... [d]irectly to the electric utility. 18 C.F.R (a)(1) (emphasis added). This regulation creates a legally enforceable obligation on the utility to purchase the electricity generated by a QF, typically through a contract. See 18 C.F.R (d)(2); JD Wind 1 LLC, 130 FERC 61,127, at 7 (2010). Second, Congress specified that the rate that utilities are required to pay QFs shall not exceed[] the incremental cost to the electric utility of alternative electric energy. 16 U.S.C. 824a-3(b). FERC subsequently adopted rules providing that, for facilities constructed after PURPA s passage, the rate for purchases from QFs must equal[] the avoided costs of the utility. 18 C.F.R (b)(2) (emphasis added); see also Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 417 (1983) (upholding FERC regulation requiring PURPA rates to be set at the maximum rate authorized by PURPA a utility s full avoided cost). As FERC explained in Order No. 69, where it promulgated its PURPA rules, avoided costs [are] the costs to an electric utility of energy or capacity or both which, but for the purchase from a qualifying facility, the electric utility would generate or construct itself or purchase from another source. Order No. 69, 45 7

16 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 16 of 111 Fed. Reg. at 12, Recognizing that requiring a utility to pay its full avoided costs would not directly provide any rate savings to electric utility consumers, FERC nevertheless deemed it more important [to] provide a significant incentive for a higher growth rate of QF power production, because the nation as a whole will benefit from the decreased reliance on scarce fossil fuels and the more efficient use of energy. Am. Paper Inst., 461 U.S. at 415 (quoting 45 Fed. Reg. at 12,222). Third, FERC adopted a rule allowing QFs to choose different ways of calculating a utility s avoided costs. See 18 C.F.R (d). As relevant here, when a QF is selling to a utility under a legally enforceable obligation for a specified term, FERC provided that the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either: (i) The avoided costs calculated at the time of delivery; or (ii) The avoided costs calculated at the time the [QF s] obligation [to sell] is incurred. 18 C.F.R (d)(2) (emphasis added). In other words, a QF can elect to have the utility s avoided costs (and thus its rate) determined on an ongoing basis, calculated when electricity is physically 5 Energy costs are the variable costs associated with the production of electric energy, e.g., the cost of fuel, and some operating and maintenance expenses. Capacity costs are associated with providing the capability to deliver energy, e.g., the capital costs of facilities. Order No. 69, 45 Fed. Reg. at 12,216. 8

17 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 17 of 111 delivered to the utility; or the QF can instead elect to have the utility s avoided costs calculated when the contract is entered, so that it can establish a fixed contract price for its energy and capacity at the outset of its obligation. Order No. 69, 45 Fed. Reg. at 12,224. FERC understood that in order to be able to evaluate the financial feasibility of a [QF], an investor needs to be able to estimate, with reasonable certainty, the expected return on a potential investment before construction of a facility. Id. at 12,218. Avoided costs calculated at the time the obligation is incurred, 18 C.F.R (d)(2)(ii), provides this reasonable certainty. FERC recognized that the utility s avoided costs calculated at the time the obligation is incurred may turn out to be quite different than the utility s avoided costs at the time the power is actually delivered. Order No. 69, 45 Fed. Reg. at 12,224. But FERC believed that in the long run, overestimations and underestimations of avoided costs will balance out, and it emphasized the need for certainty with regard to return on investment in new technologies. Id. (emphasis added.); see also JD Wind, 130 FERC 61,127, at 23 ( [FERC] has consistently affirmed the right of QFs to long-term avoided cost contracts with rates determined at the time the obligation is incurred, even if the avoided costs at the time of delivery ultimately differ from those calculated at the time the obligation is originally incurred. ). Thus, if a QF is able to sell at a profit because its costs are less than the utility s avoided cost, that furthers the purpose of the 9

18 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 18 of 111 statute: it creates economic incentives for further investment in renewable energy, while leaving ratepayers no worse off. See Am. Paper Inst., 461 U.S. at 417 (affirming FERC s decision to require utilities to pay a rate equal to their avoided costs, which provides the maximum incentive for the development of cogeneration and small power production ); Order No. 69, 45 Fed. Reg. at 12,222. C. State Implementation of PURPA. PURPA directed state regulatory agencies, such as the CPUC, to implement the FERC s regulations governing sales to QFs (a retail transaction section 210(a)(1)) and purchases from QFs (a wholesale transaction section 210(a)(2)). See 16 U.S.C. 824a-3(f)(1); see also Order No. 69, 45 Fed. Reg. at 12,216 ( each State regulatory authority must implement these rules. ). Under PURPA, the FERC still maintains the ultimate authority to regulate wholesale rates. See FPA 205, 206, see also, Wheelabrator Lisbon, Inc. v. Conn. DPUC, 53 F.3d 183, 188 (2d Cir. 2008) ( under the PURPA regulatory regime, FERC and not state agencies [are] responsible for regulating the rates charged by qualifying facilities in power purchase agreements. ) But States have the authority, subject to FERC s review, to calculate avoided costs in accordance with FERC s rules, including compelling the entry into long-term contracts. In these respects, PURPA reflects a limited exception to FERC s otherwise exclusive authority over wholesale electricity sales. 10

19 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 19 of 111 D. PURPA s Enforcement Mechanisms. PURPA QF purchase obligations are enforced primarily, though not exclusively, through sections 210(g) and (h). See 16 U.S.C. 824a-3(g) and (h). Section 210(g) provides for actions against electric utilities 6 to enforce any requirement established by a State regulatory authority or nonregulated electric utility pursuant to [section 210(f)]. Jurisdiction for those suits is allocated between state and federal courts under 16 U.S.C Important to this case is the fact that section 210(h)(1) specifically excludes from section 210(g) jurisdiction such operations of an electric utility or a qualifying small power production facility as are subject to the jurisdiction of the FERC under part II of the FPA. Winding Creek s wholesale electric sales are subject to the FERC s jurisdiction under part II of the FPA. Section 210(h) provides for actions against state regulatory authorities like the CPUC to enforce PURPA s requirements. 7 This case is an action under section 210(h). In a section 210(h) action, (i) the requirements of section 210(f) are treated as a rule enforceable under the FPA, see section 210(h)(2)(A), (ii) a State 6 FERC regulates public utilities, which are, in fact, private, investor-owned utilities like PG&E. City of Redding v. FERC, 693 F.3d 828, 831 n.5 (9 th Cir. 2012). 7 Section 210(h) also provides for actions against non-regulated electric utilities, such as municipally-owned utilities or rural electric cooperatives. See 16 U.S.C. 824(f) (generally exempting governmental and cooperative utilities from FERC regulation). 11

20 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 20 of 111 regulatory authority is treated as a person under the FPA, see id., and (iii) the FERC s PURPA regulations under section 210(a) are treated as rules under the FPA to the extent they relate to any operations of an electric utility or a qualifying small power production facility subject to FPA part II jurisdiction. Winding Creek s proposed wholesale electric sales from the Lodi Facility are subject to Part II jurisdiction.. E. California s Implementation of PURPA and the Re-MAT Program. 1. California s Implementation of PURPA. In order to implement PURPA, the CPUC in the early 1980s developed various Standard Offer contracts to be offered by utilities to QFs. Indep. Energy Prods. Ass n v. Cal. Pub. Utils. Comm n, 36 F.3d 848, 852 (9th Cir. 1994). Such contracts contained terms and conditions pre-approved by the CPUC, and utilities were required to make them available to all QFs. ER143, Lesser Decl. 18. In accordance with federal regulations, the standard offer contracts provide[d] the QFs a choice to receive avoided cost rates which are calculated at the time of energy delivery or which are fixed at the time the contract is signed. Indep. Energy Prods., 36 F.3d at 852. Some of these contracts had durations as long as 30 years. ER143, Lesser Decl. 18. When PURPA was enacted, utilities generally built and owned their own generating plants or procured power through contracts with other utilities. Thus, in 12

21 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 21 of 111 determining an avoided cost rate to be fixed at the time a PURPA contract was signed, utilities developed long-term forecasting models that predicted the costs they would incur in building new generation plants or procuring electricity from another utility, but for the electricity provided by QFs. ER143-4, Lesser Decl. 19; Indep. Energy Prods., 36 F.3d at 852 ( In projecting future avoided costs at the time the contracts were executed, the CPUC had considered the anticipated cost to the utility of its own fuel sources. ). As FERC explained in Order No. 69, 45 Fed. Reg. at 12,216: If, by purchasing electric energy from a [QF], a utility can reduce its energy costs or can avoid purchasing energy from another utility, the rate for a purchase from a [QF] is to be based on those energy costs which the utility can thereby avoid. Beginning in 1992, competitive wholesale power markets began to emerge, in which power producers independent of utilities compete to sell their electricity to utilities. ER 144, Lesser Decl. 22. The development of competitive wholesale power markets and, in particular, the development of a real-time spot market for electricity changed the way utilities determined their avoided costs. As Winding Creek s expert economist Dr. Jonathan Lesser explained at trial, in a competitive market, the avoided cost at any given moment is the market price of electricity at that moment. ER144-5, Lesser Decl Such real-time calculation of avoided costs is appropriate for a QF that has chosen to have its rate based on the 13

22 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 22 of 111 utility s avoided costs calculated at the time of delivery. 18 C.F.R (d)(2)(i). However, for a QF that chooses to have its rate based on the utility s avoided costs calculated at the time the obligation is incurred, id (d)(2)(ii), it is necessary to forecast future market prices for electricity. To do so, utilities generally rely on published long-term forward prices for competitive wholesale markets, together with computer models that determine the break-even price point for a hypothetical new power plant. ER145-6, Lesser Decl For example, in 2004, using these techniques, the CPUC developed an approach called the Market Price Referent based on the break-even price point for a hypothetical new natural gas-fired power plant to determine a utility s avoided costs over 10, 15, and 20 years. ER147-8, Lesser Decl ; ER129, CPUC D (May 24, 2012) ( CPUC May 2012 Order ) at 7 ( The [Market Price Referent] was designed by the Commission to reflect the long-term ownership, operating, and fixed-price fuel costs for a new 500 MW natural gasfired combined cycle gas turbine. ). In 2011, the Market Price Referent would have paid a generator that intended to come on-line in 2013 a base price of $93.75/MWh for 20 years. ER180, CPUC May 2012 Order at 8. The CPUC subsequently replaced the Market Price Referent approach with Re-MAT. ER186, CPUC May 2012 Order at 33. The CPUC also discontinued the 14

23 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 23 of 111 availability of the Standard Offer contracts that it had originally approved in the 1980s (though already-existing contracts remained in effect). Indep. Energy Prods., 36 F.3d at 852. Today, the only Standard Offer contract available for QFs of 20 MW or less was approved in CPUC Decision D (Dec. 16, 2010). That Standard Offer contract, discussed further infra at II.C, pays an avoided cost rate based on a complex pricing formula. Crucially, the formula includes variables whose values cannot be determined in advance of the actual delivery of electricity, such as the price of natural gas when the QF s electricity is delivered. 8 See ER159-60, Lesser Decl The Re-MAT Program. In 2012, the CPUC created the Re-MAT program as part of its implementation of PURPA and as a replacement of the long-term contracting program that was previously available to certain QFs. ER174, CPUC May 2012 Order at 2. The CPUC recognized that the Re-MAT program needed to comply with PURPA, ER184, id. at 12, and that PURPA required that the rate for purchases be an avoided cost for utilities wholesale purchases from Qualifying Facilities. ER183, id. at 11; ER187, id. at 39. Eligibility to participate in the Re- MAT program is limited to certain QFs. ER184, id. at 12; ER226, id. at 105. The 8 Generators fired with natural gas often set the market-clearing price for electricity in California. Electricity price forecast models therefore often incorporate natural gas prices as an important variable. 15

24 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 24 of 111 Re-MAT program is structured as follows: a. The Queue. In order for a QF to participate in the Re-MAT program, it must submit an application demonstrating that it meets certain project viability criteria, including that it will commit to being online within 24 months of the contract date (with the possibility of one six-month extension). ER194, CPUC May 2012 Order at 46; ER213, id. at 72. A QF whose application is accepted is then assigned to a queue established on a first-come-first-served basis. ER194, id. at 46. Every two months, the utility will offer generators a contract at that two-month Re-MAT price in order of the Re-MAT queue. A generator can accept or reject the price. If a generator accepts the price, [and if the program is not yet oversubscribed, as described below,] it enters into a contract. The price is fixed for the term of contract. If the generator declines a contract at that price, it maintains its position in the queue until the next two-month period. Id. b. Quantity Caps. Utilities are obligated to contract for only a certain limited quantity of QF generation under the Re-MAT program. State-wide, the program cap [is] 750 MW. ER217, CPUC May 2012 Order at 76; ER8, 14. That 750 MW total is allocated among the state s investor-owned utilities proportionate to their customers share of state-wide peak electricity demand. ER220, id. at 79; ER9, 16

25 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 25 of The obligation of PG&E, the electric utility that serves the territory in which Winding Creek is located, is limited to MW. ER220-1, id. at 79-80; ER9, 16. Further, the utilities subtract from their obligation the amount of any generation already under contract under a prior CPUC program. In the case of PG&E, that subtraction leaves the utility with the obligation to purchase MW under Re-MAT. ER243. Each utility s remaining obligation is then divided into three equal categories: one for baseload generation, such as biogas and geothermal facilities; one for peaking, as-available generation, such as solar photovoltaic facilities; and one for non-peaking, as-available generation, such as wind facilities. ER191-2, CPUC May 2012 Order at 43-44, ER9, 16. Thus, PG&E is obligated to purchase only one-third of MW total Re-MAT obligation that is, 49.9 MW from solar facilities. ER243; ER9, 16. PG&E s remaining capacity as of the last reporting period is MW. 9 Finally, the Re-MAT program further limits the utility s obligation to purchase from QFs at any given time. Specifically, in any two-month program period, PG&E is obligated to purchase only up to 5 MW from each of the three categories of facilities, no matter how many QFs are willing to sell at the offer price for that program period. ER232, CPUC D (May 23, 2013)

26 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 26 of 111 ( CPUC May 2013 Order ) at 12; ER9, 17. Thus, when PG&E makes offers in order of the queue every two months, it stops once it has contracted for 5 MW. Indeed, PG&E may stop even before it has contracted for 5 MW. If the capacity of the next project in the queue is greater than the remaining available capacity (for example, if the next project is 1.5 MW, but PG&E has already contracted for 3.75 MW during that program period), no contract will be offered to the next project in the queue, and the 5 MW allocation will be deemed fully subscribed. ER240-1, id. at c. Re-MAT Pricing. The CPUC set a starting offer price for the Re-MAT program at $89.23/MWh. ER8, 12. The price adjusts upwards or downwards every two months based on the willingness of QFs to accept the previous offer price. If QFs are unwilling to supply at least 1 MW to PG&E at the offer price, and there are at least 5 unaffiliated bidders in the queue, then the offer price will adjust upward for the next procurement, to be held two months later. ER233, CPUC May 2013 Order at 13; ER195, CPUC May 2012 Order at 47. If QFs are willing to supply at least 5 MW to PG&E at the offer price, then the offer price will adjust downward for the next 5 MW procurement. ER233, CPUC May 2013 Order at 13. If QFs are willing to supply at least 1 MW but fewer than 5 MW to PG&E at the offer price, or if there are fewer than 5 unaffiliated bidders in the queue, then the offer price 18

27 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 27 of 111 will remain the same for the next 5 MW procurement. Id.; ER195-7, CPUC May 2012 Order at 47. The price adjustments are made according to a CPUC-directed formula. ER195-7, CPUC May 2012 Order at 47-49; ER195, CPUC May 2013 Order at 13. The CPUC s rationale for its price-adjustment mechanism was to identify the lowest price at which QFs would be willing to supply the desired quantity of electricity to the utilities, based on the costs faced by the QFs. The CPUC elaborated: [T]he rationale for a market-based price is that all of the generator's costs are included in the price because a generator would not bid something lower than its costs. In a market-based process, the seller determines the price it wishes to seek based on its understanding of the underlying project costs, and changes in those costs. ER228, CPUC D (Jan. 24, 2013) ( CPUC January 2013 Order ) at 6. The Re-MAT s initial starting price of $89.23/MWh. ER254, CPUC Answer 58. Solar QFs were willing to supply more than the 5 MW cap at that price, so the 5 MW allocation was deemed to be fully subscribed. Thus, the price for peaking, as-available facilities, such as solar facilities, adjusted downward to $85.23/MWh for the next program period. ER253-4, 57, 59. During that next program period, beginning January 1, 2014, solar QFs were again willing to supply more than 5 MW, and the allocation was deemed fully subscribed. Thus, the offer 19

28 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 28 of 111 price adjusted downward again, to $77.23/MWh for the next program period. ER253-4; 57, 60. During that program period, beginning March 1, 2014, solar QFs were again willing to supply more than 5 MW, and the allocation was deemed fully subscribed. Accordingly, the offer price adjusted downward yet again, to $65.23/MWh, for the next program period. ER253-4, 57, 61. The latest offer price is $61.23/MWh. 10 The other two categories, baseload and non-peaking, as available have remained at $89.23/MWh. 11 F. Winding Creek s Participation in the Re-MAT Program. On October 4, 2013, Winding Creek submitted a Re-MAT application. That application was accepted on November 12, 2013, and Winding Creek s 1 MW Lodi solar facility was placed in PG&E s queue for peaking, as-available resources. ER168, 7. Winding Creek accepted the Re-MAT terms for the Lodi facility at a rate of $89.23/MWh with the then existing PG&E time-of-use ( TOU ) factors, which was the initial price for the program offered in the twomonth period beginning November 1, ER168, 8. However, because of the 5 MW cap for each program period and Winding Creek s randomly assigned place in the queue, Winding Creek was never given a contract at $89.23/MWh. ER168, 9; ER11, Id. 20

29 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 29 of 111 By the time PG&E reached Winding Creek s place in the queue, which was the program period beginning March 1, 2014, the Re-MAT price had fallen to $77.23/MWh. ER11, 32. Subsequently, Winding Creek has received offers from PG&E at prices of $65.23/MWh and lower. ER168, 10. These rates are too low to allow Winding Creek to move forward with development, so Winding Creek refused these offers and retained its place in the queue. Id.; see also, ER11, 32. The Lodi facility currently occupies the top spot in PG&E s queue for peaking, asavailable facilities. ER168, 11, ER11, 32. G. PURPA s Key Role In Reducing Greenhouse Gas Emissions. PURPA is still the only federal law mandating that utilities purchase renewable energy. Hence, PURPA was and remains a primary incentive for renewable power development. Steven Ferrey et al., Fire and Ice: World Renewable Energy and Carbon Control Mechanisms Confront Constitutional Barriers, 20 Duke Envtl. L. & Pol y F. 125, 140 (2010). PURPA is therefore a critical tool for reducing greenhouse gas emissions and the need for action is urgent. As CPUC acknowledges, we are at a tipping point to address anthropogenic climate change. ECF 165 at 23, and delay in deploying renewable energy generation from facilities such as Winding Creek s causes Californians irreparable harm. Id. ( Ultimately, those suffering the most irreversible harm would be 21

30 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 30 of 111 Californians and the broader public. ) Climate impacts from global warming are already being felt in California through increased fires, floods, severe storms and heat waves, and will only become more frequent and more costly. Recently, the U.S. Administration released a dire report on the prospects for the climate. See USGCRP, 2017: Climate Science Special Report: Fourth National Climate Assessment, Volume I [Wuebbles, D.J., D.W. Fahey, K.A. Hibbard, D.J. Dokken, B.C. Stewart, and T.K. Maycock (eds.)]. U.S. Global Change Research Program, Washington, DC, USA, 470 pp, doi: /J0J964J6. 12 The report concludes that [s]ea level rise will be higher than the global average on the East and Gulf Coasts of the United States. Id. Stronger storms will be more frequent raising the costs to recover from such storms. The east coast in particular will see more frequent and stronger storms and hurricanes. Id. at Chapter See also, id. at Fig In contrast to California s robust efforts to reduce greenhouse gases, many other states have done little or nothing. Many states now have laws mandating that utilities purchase at least some renewable energy, although generally far below California standards, while other states have no such laws, or have only a voluntary program. Thus, for much of the country, PURPA remains the nation s most important weapon to battle climate change. CPUC s actions here undermine

31 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 31 of 111 PURPA by attempting to change the core understanding of avoided cost and by severely constraining the effectiveness of remedies for PURPA violations. Despite California s otherwise laudable efforts to reduce greenhouse gas emissions, a win for CPUC here would really be loss because it would limit the effectiveness of greenhouse gas reduction efforts across the rest of the nation, ultimately undermining California s own efforts in this area. H. Proceedings Below. The District Court held a bench trial to resolve disputed issues of fact. Then, on December 6, 2017, the District Court issued summary judgment in Winding Creek s favor, concluding that the Re-MAT program does not comply with PURPA because the program caps are inconsistent with PURPA s must-purchase obligation and because the arbitrary rules governing Re-MAT s price adjustment mechanism stray[] too far from basing prices on a utility s but-for cost, which the statutes and regulations require. ER14. But the Court refused to order the CPUC to award Winding Creek the contract it would have had in the absence of these violations. ER20. This appeal followed. 23

32 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 32 of 111 SUMMARY OF THE ARGUMENT The District Court correctly invalidated the unlawful bi-monthly cap in the Re-MAT. Because it prevents QFs which are ready and willing to sell their power from obtaining a PURPA contract, the cap flatly violates PURPA s must-purchase requirement. Re-MAT s price adjustment mechanism is also invalid because it adjusts QF rates based on factors having nothing to do with utility avoided costs, and the District Court therefore properly concluded that the price adjustment mechanism violates PURPA. The District Court also correctly rejected the CPUC s claim that its Standard Contract program creates an option for Winding Creek that is permissible under PURPA. The Standard Contract contains pricing variables, particularly highly volatile natural gas spot market prices, that cannot be predicted at the outset of the contract, and the Standard Contract program therefore plainly violates the requirement that Winding Creek have the option of entering into a QF contract with avoided cost rates fixed at the time of contracting. The invalid pricing cap was the sole reason Winding Creek did not receive a PURPA contract in Winding Creek asked the District Court to put it in the position it would have occupied but for the illegal cap, which has long been accepted as the standard remedy for bidders who were denied a contract award because of an improper process. 24

33 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 33 of 111 Ignoring PURPA s plain language empowering it to issue such injunctive or other relief as may be appropriate, the District Court found that Winding Creek must file yet another lawsuit, this one in state court, to obtain relief from CPUC s violations. The Court s conclusion is contrary to the plain language of the statute and relies on cases which have no application here. This Court should therefore order the District Court to require the CPUC to apply the Re-MAT without the unlawful caps and pricing adjustment. The result would be that Winding Creek will receive the contract it should have received in 2013, and which it was denied solely because of Re-MAT s illegal bi-monthly quantity cap. ARGUMENT I. Standard Of Review. This Court reviews de novo orders granting summary judgment. See Szajer v. City of Los Angeles, 632 F.3d 607, 610 (9th Cir. 2011). However, the District Court s findings of fact following the bench trial are subject to the clearly erroneous standard of review. Husain v. Olympic Airways, 316 F.3d 829, 835 (9th Cir. 2002) aff d 540 U.S. 644 (2004) ( if the district court's findings are plausible in light of the record viewed in its entirety, the appellate court cannot reverse even if it is convinced it would have found differently. ) 25

34 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 34 of 111 II. The District Court Correctly Invalidated The Caps And Pricing Adjustments of the Re-MAT. A. The District Court Correctly Concluded That The Re-MAT Caps Flatly Violate PURPA s Must-Take Obligation. As the District Court reasoned, [t]he plain meaning of [the must-take] requirement is that utilities must buy all of the energy and capacity offered by QFs. It does not require significant legal analysis to conclude that CPUC s imposition of caps in the Re-MAT program violates the must-take obligation. ER13. Re-MAT arbitrarily imposes a 5 MW monthly limit on the obligation for PG&E (and other utilities participating in the program). See ER232, 240, CPUC May 2013 Order at 12, 20; ER130-1 Lee Report 8-9, Specifically, CPUC directed PG&E... to offer 5MW for each of the three product types for each bimonthly program period until the available megawatts for that product type falls below 5MW. ER232, CPUC May 2013 Order at 12; see also ER240, id. at 20 ( Today, we adopt a limit on the amount of megawatts available in a product type during a bi-monthly period. ). Indeed, the bimonthly cap can, in practice, be even lower than 5 MW. This is because PG&E is not required to contract for more than 5 MW, and thus if the next project in the queue would push PG&E over the 5 MW limit (say, for example if it had already contracted for 2.1 MW and the next project is 3.0 MW), then no further contracts will be offered and PG&E will deem the 5 26

35 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 35 of 111 MW allocation fully subscribed. See ER240, CPUC May 2013 Order at 20. Even the CPUC s expert witness testimony makes clear that the 5 MW cap is a concrete limitation on the ability of QFs to sell to utilities in any one program period: Q. Now, if more than five megawatts of solar QFs want to sell to PG&E in any particular program period at the Re-MAT price for that period, they can t all sell, right? A. Correct. ER73, Trial Tr. at 175: This cap flatly violates FERC s must-take rule, adopted under PURPA, that [e]ach electric utility shall purchase... any energy and capacity which is made available from a qualifying facility... [d]irectly to the electric utility. 18 C.F.R (a)(1) (emphasis added). FERC has emphasized that this requirement means that if a QF wants to sell to a utility at the utility s avoided cost rate, the utility must purchase from the QF. A utility may not delay that purchase, nor may a state create a scheme that places hurdles in the path of a QF that desires to sell electricity to a utility. See FLS Energy, Inc., 157 FERC 61,211 at P.24 ( The Commission has explained that the term legally enforceable obligation; is broader than simply a contract between an electric utility and a QF, and that a state may not limit the methods through which a legally enforceable obligation may be created to only a fully executed contract... The Commission explained in JD Wind 1 LLC [cited above] that the establishment of a legally enforceable obligation turns on the QF s commitment, and not the utility s actions. (emphasis added) (footnote 27

36 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 36 of 111 omitted)). The Re-MAT s cap plainly violates the must-take rule set forth in 18 C.F.R (a). If a QF makes available energy and capacity to PG&E, but PG&E has already been deemed to satisfy the 5 MW of generation from QFs within a two-month period, the Re-MAT cap means that PG&E is not obligated to purchase the QF s available energy and capacity. And this limitation is not theoretical: Winding Creek s injury in this case arises directly from the fact that it was randomly placed behind more than 5MW of QFs in the first program period, despite having timely applied prior to the inception of the Re-MAT program. ER168; ER73-4, Trial Tr. 175:23-176:4. Because of this random placement, Winding Creek was not allowed to obtain a contract at the $89.23 per MWh price offered to the first group of QFs. ER168, 8, 9. By the time Winding Creek was offered a contract, for the period beginning on March 1, 2014, the Re-MAT price had fallen to $77.23 per MWh, a rate insufficient for Winding Creek to move forward with development. ER168, 9. That violates FERC s rule, under which the establishment of a legally enforceable obligations turns on the QF s commitment, and not the utility s actions. FLS Energy, Inc., 157 FERC 61,211 at P.24. Because the Re-MAT program imposes a 5 MW bi-monthly cap on PG&E s procurement obligation, Winding Creek was unable to sell energy and capacity it had available and wished to commit for the posted avoided-cost rate of 28

37 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 37 of 111 $89.23 per MWh. Compounding this illegality, the Re-MAT program uses the 5 MW caps to drive the arbitrary Re-MAT price adjustment mechanism. FERC has made clear, in this exact context, that the use of the term legally enforceable obligation is intended to prevent the utility from delaying the signing of a contract, so that a later and lower avoided cost is applicable. FLS Energy, Inc., et al., 157 FERC 61,211 at P25. Yet, by imposing an illegal cap and using that cap to force price reductions, that is precisely what CPUC has done here. B. The District Court Correctly Concluded That Pricing Adjustments Under Re-MAT Are Not Based On A Utility s Avoided Costs, And Thus Are Void. After the first Re-MAT program period, the Re-MAT price in the solar category dropped by $4/MWh. By the time Winding Creek was offered a contract by PG&E the price had adjusted to $77.23/MWh, a price too low for Winding Creek to build its facility. The District Court correctly held that the pricing adjustments under Re-MAT, which continued to prevent Winding Creek from obtaining the contract to which it was entitled, are not based on a utility s avoided costs, and thus void. 1. Avoided Costs For Purposes Of 18 C.F.R (d)(2) Are The Costs A Utility Would Incur For Purchasing Energy And Capacity From A Non-QF Source. In PURPA, Congress specified that the rate utilities are required to pay QFs 29

38 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 38 of 111 shall not exceed[] the incremental cost to the electric utility of alternative electric energy. 16 U.S.C. 824a-3(b). Implementing that directive, FERC adopted a rule providing that the required rate for a utility s purchase of electricity from a QF must equal the avoided costs of the utility. 18 C.F.R (b)(2). As FERC has held, [a]voided costs is defined as the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source. Am. Ref-Fuel Co., 107 FERC 61,016, P13 (2004) (quoting 18 C.F.R (b)(6) (2003)); see also Order No. 69, 45 Fed. Reg. at 12,216 (avoided costs are the costs to an electric utility of energy or capacity or both which, but for the purchase from a qualifying facility, the electric utility would generate or construct itself or purchase from another source ). As Dr. Lesser testified at trial: An avoided cost is defined as a cost that the utility would otherwise incur if it had to buy power from a non-qf source. ER38, Trial Tr. at 33:6-7; see ER143, Lesser Direct 17 ( Thus, an avoided cost is a but for price: but for purchasing electricity from QFs, an electric utility would be required to pay to obtain that electricity from another source. ); ER38, Trial Tr. 33:6-7. Provided that a calculation is consistent with the above definition, there are multiple ways an avoided cost can be determined. 18 C.F.R (e) lists various factors that to the extent practicable should be taken into account when 30

39 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 39 of 111 determining a utility s avoided cost. And, as Dr. Lesser explains, the actual methodology of calculating an avoided cost can vary. One way of calculating an avoided cost is to ask what the utility would have paid to buy the same quantity of electricity on the spot market. Under this approach, if the price of electricity during the three o clock hour of the afternoon is $100 per megawatt-hour ( $/MWh ), that is the utility s avoided cost in that hour. ER Another approach might be to use a formula, like the SRAC rate (i.e., short-run avoided cost rate) in the Standard Contract, that uses variables whose values are contemporaneous with delivery and thus result in a weekly or monthly as-delivered price. Both of these would be permissible methods of calculating avoided costs under subsection (d)(2)(i). Yet another approach would be to use forecasting methods to ask what the utility would need to pay to enter a long-term contract of similar length with a non-qf resource or to build such a resource itself. ER145 24, 25. This is the approach described in subsection (d)(2)(ii). The key point here, however, is that whatever methodology a state uses, PURPA requires that QFs be paid based on the utility s avoided costs. For all the reasons stated herein, after the first program period, the Re-MAT program fails to provide such a rate. 31

40 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 40 of The Re-MAT Pricing Adjustment Bears No Relation To Avoided Costs. Subsequent to passage of PURPA, FERC promulgated 18 C.F.R (b)(2), providing that the required rate for purchase of energy and capacity from QFs must equal[] the avoided costs of the utility. See also Am. Paper Inst., Inc. v. Am. Elec. Power Serv. Corp., 461 U.S. 402, 417 (1983) (upholding FERC regulation requiring utilities to purchase electricity from qualifying facilities at the maximum rate authorized by PURPA, namely a utility s full avoided cost). FERC defined [a]voided costs to mean the incremental costs to an electric utility of electric energy or capacity or both which, but for the purchase from the qualifying facility or qualifying facilities, such utility would generate itself or purchase from another source. 18 C.F.R (b)(6) (emphasis added). The Re-MAT program does not comply with PURPA, because, as explained below, the price it offers is not based on the costs the utility would incur but for its purchase from QFs. Instead, the Re-MAT price is based on the price at which QFs are willing to sell. PURPA explicitly rejects this approach. As FERC has stated, the basis for the determination of rates for purchases should be the utility s avoided costs and should not vary on the basis of the costs of the particular qualifying facility. Order No. 69, 45 Fed. Reg. at 12,222; Indep. Energy Prods., 36 F.3d at 857 ( [FERC s] regulations are clear that the rate to be paid by utilities for electric energy be determined according to the avoided cost to 32

41 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 41 of 111 the utility of generating that energy or purchasing it elsewhere, and not according to the QF s efficiency ). The pricing under Re-MAT is best understood in two parts: the initial price offered under the program at its inception, and subsequent price adjustments that have occurred since that time. The initial Re-MAT price, for the first two-month program period beginning on November 1, 2013, was $89.23 per MWh. ER254, CPUC Answer 58. That price was based on the result of a competitive solicitation for renewable power held in 2011 under CPUC s auspices. ER192-3, CPUC May 2012 Order at That competitive solicitation known as the Renewable Auction Mechanism was open to all renewable generators of less than 20 MW, regardless of whether they were QFs. Id.; CPUC Decision D at 73 (Dec. 16, 2010) ( [The Renewable Auction Mechanism] is not a QF program. A project may certify as a QF if it wants, but it need not do so to be eligible... ). 14 Winding Creek does not dispute that this initial rate was a proper avoided cost rate, for among other reasons, because that resulting rate was close to the Market Price Referent. However, the subsequent price adjustments that have occurred since the initial $89.23 per MWh rate have absolutely nothing to do with the costs that the 14 PDF. 33

42 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 42 of 111 utility would incur but for the purchase from the qualifying facility or qualifying facilities. 18 C.F.R (b)(6). ER8, 10. Thus, they do not reflect avoided costs. As explained in CPUC s May 2012 Order establishing the Re-MAT program, after the initial program period the price in the next period can adjust either up or down by $4 increments depending on the extent to which QFs in the queue accept the price offered in the first period. ER195, CPUC May 2012 Order at 47. As CPUC s expert witness Ms. Cheryl Lee testified under questioning from the District Court, those administratively set $4 per MWh increments were arbitrarily selected, and have absolutely nothing to do with changes in utilities avoided costs. ER77, Trial Tr. 179: That testimony is confirmed by the text of the relevant CPUC decisions, in which CPUC explains that the rationale for the price-adjustment mechanism was to identify the lowest price at which a QF would be willing to supply the desired quantity of electricity to utilities based on the costs faced by the QF generators: [Re-MAT] allows generators to set the market price through the bidding process, which theoretically will ensure the price is neither too high nor too low but, instead, will be reasonable to cover the generator s costs and encourage broad participation in the market. ER211, CPUC May 2012 Decision at 63 (emphasis added); see also ER77, Trial Tr. at 179:13-19 (noting that the basis for a $4 adjustment was the knowledge of what QF generators were willing to 34

43 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 43 of 111 accept as a price in the previous program period). But a rate adjustment mechanism based on a QF s willingness to accept a certain price based on its own costs says nothing about the costs a utility would avoid by purchasing electricity from a generator other than a QF. It is undisputed that the Re-MAT program does not even attempt to model the costs the utility would incur but for its purchase from QFs. For that simple reason, pricing adjustments under Re-MAT are not based on avoided costs as required by 18 C.F.R (b)(2) and (d)(2). It is no answer for CPUC to claim that the Re-MAT price reflects the costs that a utility avoids by purchasing from one QF instead of another QF. That is so for two reasons. First, FERC has defined avoided costs to mean the costs the utility would incur but for the purchase from the qualifying facility or qualifying facilities. 18 C.F.R (b)(6) (emphasis added). That but for price is the costs of buying from a non-qf. And as the FERC explained in its PURPA Rulemaking, it is the highest marginal cost that the QF displaces, whether existing or in the future. See Order No. 69, 45 Fed. Reg. at 12,216 : The Commission has added the term incremental to modify the costs which an electric utility would avoid as a result of making a purchase from a qualifying facility. Under the principles of economic dispatch, utilities generally turn on last and turn off first their generating units with the highest running cost. At any given time, an economically dispatched utility can avoid operating its highest-cost units as a result of making a purchase from a qualifying facility. The utility s avoided incremental costs (and 35

44 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 44 of 111 not average system costs) should be used to calculate avoided costs. Second, a utility is not permitted to avoid purchasing electricity from a QF. FERC s rules direct that [e]ach electric utility shall purchase... any energy and capacity which is made available from a qualifying facility... [d]irectly to the electric utility. 18 C.F.R (a)(1) (emphasis added). This regulation the must take requirement requires the utility to purchase all electricity generated by a QF. 15 It makes no sense to define the utility s avoided costs in reference to the costs of purchasing electricity from another QF, when the utility is required to purchase from that QF too. See ER49, Trial Tr. at 55: CPUC has not attempted to hide the reason it designed the Re-MAT program in the way that it did. In CPUC Decision , which promulgated the Re-MAT program, CPUC stated that it adopted a market-based approach by which it meant an approach that required one QF to bid against another because such an approach was in the best interest of California electricity customers by identifying the lowest price at which QFs were willing to sell. ER210-11, CPUC May 2012 Order at CPUC s rationale for its adjusting price mechanism is to have the price vary on the basis of the costs of the particular 15 FERC may permit states to suspend the must-take obligation under 16 U.S.C. 824a-3(m)(1), but, as Mr. Colvin testified, the must-take obligation in California has not been suspended for QFs of 20 megawatts or less. See ER72, Trial Tr. 131:4-6, ER116-7, Colvin Dep. 13:23-14:1. 36

45 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 45 of 111 QFs that participate In a market-based process, the seller determines the price it wishes to seek based on its understanding of the underlying project costs, and changes in those costs. ER228, CPUC January 2013 Order at 6; see also id. ( [B]ecause the Re-MAT is a market-based price, it should include all of the generator s costs ). The CPUC s policy goal getting QF power at the lowest possible rate through a competitive process may be laudable, but Congress chose a different policy goal when it enacted PURPA: to accelerate the development of renewable energy sources and convert the national economy to alternative fuel resources. H.R. Rep. No (IV), at 14 (1977), reprinted in 1978 U.S.C.C.A.N. 8454, Indeed, FERC has specifically held that requiring a QF to win a competitive solicitation as a condition to obtaining a long-term contract imposes an unreasonable obstacle to obtaining a legally enforceable obligation. Hydrodynamics Inc., 146 FERC 61,193, P.32 (2014); see also Windham Solar LLC, 156 FERC 61,042, P.5 (2016) ( The Commission likewise has determined a state regulation to be inconsistent with PURPA and the Commission s PURPA regulations to the extent that it offers the competitive solicitation process as the only means by which a QF... can obtain long-term avoided cost rates (internal quotation marks omitted)). Yet the Re-MAT program is, unabashedly, exactly that. 37

46 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 46 of 111 Congress and FERC have instructed states to take a different route. FERC believes that the basis for the determination of rates for purchases should be the utility s avoided costs and should not vary on the basis of the costs of the particular qualifying facility. PURPA Rulemaking, 45 Fed. Reg. at 12,222; Indep. Energy Prods., 36 F.3d at 857 ( [FERC s] regulations are clear that the rate to be paid by utilities for electric energy be determined according to the avoided cost to the utility of generating that energy or purchasing it elsewhere, and not according to the QF s efficiency. ). This approach leaves ratepayers indifferent between buying from QFs and non-qfs so they are no worse off than they otherwise would have been while simultaneously providing strong incentives for QF generators to enter the market. See Am. Paper Inst., 461 U.S. at 417 (affirming FERC s decision to require utilities to pay a rate equal to their avoided costs, which provides the maximum incentive for the development of cogeneration and small power production ); Order No. 69, 45 Fed. Reg. at 12,222 ( [I]n most instances, if part of the savings from cogeneration and small power production were allocated among the utilities ratepayers, any rate reductions will be insignificant for any individual consumer. On the other hand, if these savings are allocated to the relatively small class of qualifying cogenerators and small power producers, they may provide a significant incentive for a higher growth rate of these technologies. ). Here, CPUC has wrongly elevated its goal of saving ratepayers money despite Congress s 38

47 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 47 of 111 clear instruction that ratepayers should merely be kept indifferent as to the source of generation and in the process has frustrated Congress s clear intention to provide strong financial incentives for small renewable generators. Because the Re-MAT price adjusting mechanism is not based on the costs a utility would incur but for its purchase from QFs, the resulting price is not an avoided cost rate under PURPA. The adjusting mechanism is therefore void. C. The District Court Correctly Held That The Standard Contract Program Does Not Comply With 18 C.F.R (d)(2)(ii). The CPUC attempted to rescue Re-MAT by pointing to its remaining Standard Contract program as a PURPA-compliant alternative Winding Creek could pursue. The District Court properly rejected CPUC s claim because the Standard Contract does not contain a rate that can be determined at the time a QF contract is consummated, and therefore fails to provide for the fixed avoided cost rate option required by PURPA. Under the plain language of 18 C.F.R (d)(2), the QF has two choices when it decides to sell its output to a utility: it may sell on an as-delivered basis, receiving whatever the utility s avoided cost may be at the time of delivery, or it may sell over a specified term at an avoided cost rate that is fixed at the time the QF enters into a legally enforceable obligation (such as a contract) to sell its output: 39

48 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 48 of 111 Purchases as available or pursuant to a legally enforceable obligation. Each qualifying facility shall have the option either: (2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term, in which case the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either: (i) (ii) The avoided costs calculated at the time of delivery; or The avoided costs calculated at the time the obligation is incurred. 18 C.F.R (d)(2) (emphasis added). As the regulatory text makes clear, FERC understood these to be two separate and distinct methods of calculating avoided costs. A rate under (d)(2)(i) is calculated based on the utility s avoided costs at the time the QF actually delivers the electricity to the utility. For example, a (d)(2)(i) rate might be equal to the spot market price for electricity at a given moment; or, it might be a formula (like the Standard Contract formula) that uses inputs such as the prevailing gas price at the time of delivery to calculate the utility s avoided cost. Meanwhile, a rate under (d)(2)(ii) is calculated based on the utility s avoided costs calculated at the time the QF and the utility enter a contract. As Dr. Lesser explains, a (d)(2)(ii) rate will typically involve a projection or forecast of the costs that the utility will avoid over the contract term by purchasing from the QF. See ER87 (Lesser Direct) at 4:

49 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 49 of 111 FERC understood that these two methods may well yield different results, because a projection of the utility s avoided costs, made at the time the contract is entered, may (and indeed almost certainly will) differ from what the utility s avoided costs actually turn out to be when electricity is delivered. For example, when the contract is entered, the utility may anticipate that gas prices will remain low for the duration of the contract term, and its calculation of avoided costs under (d)(2)(ii) will reflect that expectation. But it may turn out over the life of the contract that gas prices rise. A rate under (d)(2)(i) would reflect that increase, because it is based on the avoided costs calculated at the time of delivery. FERC has emphasized, consistent with the plain language of its regulations, that a QF gets to choose which of these two methods are used in calculating its rate. See JD Wind, 130 FERC 61,127, P23 (2010) ( [FERC] has consistently affirmed the right of QFs to rates determined at the time the obligation is incurred, even if the avoided costs at the time of delivery ultimately differ from those calculated at the time the obligation is originally incurred. ); Hydrodynamics, Inc., 146 FERC 61,193, P31 (2014) ( Under section (d) of the Commission s regulations, a QF also has the unconditional right to choose whether to sell its power at a forecasted avoided cost rate. ); FLS Energy, Inc., 157 FERC 61,211, P.21 (2016) ( Under section (d) of the Commission s regulations, a QF also has the unconditional right to choose whether to sell its 41

50 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 50 of 111 power as available or pursuant to a legally enforceable obligation at a forecasted avoided cost rate determined, at the QF s option, either at the time of delivery or at the time that the obligation is incurred. (emphasis added)); Windham Solar LLC, 157 FERC 61,134, P4 (2016) (noting that 18 C.F.R (d)(2) provides (at the QF s option) for pricing based on either avoided costs calculated at the time of delivery or at the time the obligation is incurred. Thus, regardless of whether a QF can provide firm output, that QF has the option to sell its output pursuant to a legally enforceable obligation with a forecasted avoided cost rate. (emphasis added) (footnote omitted)). FERC has explained that allowing a QF to choose between these two different methods for calculating its avoided-cost rate is important to achieving Congress s goal of encouraging renewable generation. A rate under (d)(2)(ii) enables a QF developer to establish a fixed contract price for its energy and capacity at the outset of its obligation. Order No. 69, 45 Fed. Reg. at 12,224. A potential investor in a QF can thereby determine the financial feasibility of a project before beginning construction and can have reasonable certainty [of] the expected return on a potential investment before the construction of a facility. Id. at 12,218; see also JD Wind 1 LLC, 130 FERC 61,127, P23 ( [F]rom the beginning, [FERC s regulations] have given QFs the option to choose to have rates calculated at the time the obligation is incurred, because an investor needs to be 42

51 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 51 of 111 able to estimate, with reasonable certainty, the expected return on a potential investment before construction of a facility. (quoting 45 Fed. Reg. at 12,218) (emphasis added))). In the PURPA Rulemaking, FERC explained its view that, over the long run, ratepayers should be indifferent between the two distinct methods of calculating avoided costs, because, in the long run, overestimations and underestimations of avoided costs will balance out. 45 Fed. Reg. at 12,224. Under the Re-MAT program, CPUC calculated the 20-year rate effective in November 2013 for Winding Creek s facility at $89.23 per MWh with the then TOU factors. That is the rate which Winding Creek accepted, resulting in its legally enforceable obligation. The CPUC argued that it was entitled to cap participation in the Re-MAT as it saw fit because QFs had an alternative option, called the Standard Contract program, which was uncapped and, according to the CPUC, provided to QFs the full range of options required by the FERC s PURPA regulations. The CPUC s argument suffers from two fatal flaws. First, once the CPUC determined, as it did, that the $89.23 per MWh rate with the TOU adjustments was the long-term forecasted avoided cost rate for 20 years from solar facilities, Winding Creek was entitled to choose that rate. Second, as the District Court correctly found after a bench trial, the Standard Offer contract does not provide the forecasted fixed rate 43

52 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 52 of 111 required by (d)(2)(ii). During trial, CPUC s expert witness Michael Colvin conceded that the Standard Contract does not offer QFs a choice between two different rates: THE COURT: Okay. So in your mind, in your view, there is no meaningful difference between (d)(2)(i) and (d)(2)(ii) in the way that the price paid to the QF would be calculated, is that right? THE WITNESS: Correct. For the purposes of this contract. ER62, Trial Tr. 121: That concession conclusively establishes that the Standard Contract violates 18 C.F.R (d)(2). The Standard Contract likewise does not comply with (d)(2)(ii), which is the type of rate elected by Winding Creek. Under the Standard Contract, the rate at which a QF is paid for the electricity it sells to a utility is based on the utility s avoided costs calculated at the time of delivery i.e., it is a rate under (d)(2)(i) and not on the utility s avoided costs calculated at the time the obligation is incurred, as required by (d)(2)(ii). The Standard Contract rate for energy is the Short Run Avoided Cost rate or SRAC. See ER51, Trial Tr. 66: That is the only rate contained in the Standard Contract for the price of energy supplied by a QF to a utility. See id. The SRAC formula is as follows: Energy Price = ((Market Heat Rate x Gas Price) + Variable Operations & Maintenance) x Time of Use Factors + Greenhouse Gas Compliance Costs + Location Adjustment Factors 44

53 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 53 of 111 ER112, Colvin Direct 45. It is undisputed that three of the elements of the SRAC formula are variable and cannot be calculated at the time the contract is entered, ER110-2, Colvin Direct 44, ER90, Lesser Direct at 7:7-8:4: The market heat rate, which is a measure of the efficiency of the marginal natural gas generator operating at any particular moment, varies monthly and that input to the SRAC formula is updated on the 5th business day of each month. ER110, Colvin Direct 44(A), ER90, Lesser Direct at 7:4-5. The burner tip gas price, which is the monthly market-based price for natural gas, varies monthly and that input to the SRAC formula is updated on the first business day of each month. ER111, Colvin Direct 44(B), ER90, Lesser Direct at 7:7-8. The location adjustment factor, which is a site-specific factor that varies to reflect the fact that the costs of energy from a particular location varies due to changes in the local energy markets, varies monthly and is identified 30 days after generation occurs and is then applied to the prior month s SRAC payment. ER112, Colvin Direct 44(F), ER91, Lesser Direct at 8:

54 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 54 of 111 These three elements change month by month, and are calculated each month to yield an avoided cost rate that is applied to electricity delivered during that month. ER120-22, Colvin Dep. 62:24-63:5, 66:22-67:3; see also Colvin Dep. 66:22-67:1 ( Qualifying facilities are paid for the gas price on the month that they have just experienced. So you are not paid for your energy until the end of the month. So you will know what the March 2017 short run avoided cost payment is at the end of March ). Thus, the rate under the Standard Contract cannot be calculated at the time the obligation is incurred, as required by (d)(2)(ii). Instead, it is a rate calculated at the time the energy is delivered. Indeed, CPUC s expert Mr. Colvin conceded that the SRAC rate is a (d)(2)(i) rate (based on avoided costs calculated at the time of delivery): I think it is correct to say that the commission has determined that the short run avoided costs, the costs that the qualifying facility would be paid, should be best represented by what the individual generator unit would have been paid that a utility would have procured but for the QF at the time that the energy is delivered. ER120-1, Colvin Dep. 62:24-63:5 (emphasis added); ER122, id. at 66:22-67:3 ( Qualifying facilities are paid for the gas price on the month that they have just experienced. So you are not paid for your energy until the end of the month. So you will know what the March 2017 short run avoided cost payment is at the end of March Q[uestion:] And not before that? A[nswer:] Correct. ). 46

55 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 55 of 111 As the District Court correctly held, the CPUC cannot argue that the SRAC rate complies with (d)(2)(ii), even though the rate changes from month to month, on the theory that the formula nevertheless provides sufficient certainty to qualify as a (d)(2)(ii) rate, and there is voluminous record evidence supporting this finding. For one thing, the plain language of the regulation makes clear that a (d)(2)(ii) must be calculated at the time the contract is entered. A formula containing variables whose values cannot be known does not comply with the plain meaning of the regulation, because the rate cannot be ascertained. See The American Heritage Dictionary of the English Language 263 (5th ed. 2011) (defining the term to calculate to mean [t]o ascertain by computation ). For another, while FERC s intention in giving QFs the option of a (d)(2)(ii) rate was to ensure that they have reasonable certainty of their return before commencing construction, a rate still must satisfy the express terms of (d)(2)(ii). And FERC interprets (d)(2)(ii) as requiring a forecasted rate i.e., one that is known at the time the contract is entered, not a formula with variables that fluctuate and that can be known only at the time of delivery. Hydrodynamics, Inc., 146 FERC 61,193, P31 (2014) ( Under section (d) of the Commission s regulations, a QF also has the unconditional right to choose whether to sell its power at a forecasted avoided cost rate. ); Windham Solar LLC, 157 FERC 61,134, P4 (2016) (noting 47

56 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 56 of 111 that a QF has the option to sell its output pursuant to a legally enforceable obligation with a forecasted avoided cost rate. (emphasis added)). In any event, there is no evidence in the record that remotely supports the proposition that that the SRAC formula provides reasonable certainty to a developer regarding the rate it will receive over the term of its contract. Mr. Colvin agreed that the PUC cannot say what price will be at any given time in [a] 12-year [contract] period until those variables are filled in by actual market data. ER57, Trial Tr. 116: And, as demonstrated in the below graph, the actual historic data confirm that natural gas prices, and thus SRAC prices, are highly volatile and vary widely over time without any discernible pattern. 48

57 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 57 of 111 Source: ER82-3, Trial Ex. 3 at WC (Jan March 2017 rates); (April 2017 rate). Indeed, there is not even any seasonal predictability in the SRAC rate. For example, in January 2010, the SRAC rate for electricity was cents/kwh, a figure that dropped by almost 50% to cents/kwh in January Likewise, in March 2012, the SRAC rate was cents/kwh, by March 2014 the rate had almost doubled to cents/kwh. See ER82-3, Trial Ex. 3 at WC These examples, and others like them, led Winding Creek s expert Dr. Lesser to conclude in something of an understatement that the SRAC price contained a high degree of volatility. ER32, Trial Tr. 27:23-25, ER36, Trial Tr. 31:21. It should therefore not be surprising that, in the seven years since the Standard Contract was promulgated, not a single solar new solar QF in the PG&E service territory has been constructed under the Standard Contract rate. ER109, Colvin Direct 38. In short, the Standard Contract rate does not satisfy (d)(2)(ii). It is not a rate based on avoided costs calculated at the time the obligation is incurred. That conclusion accords not only with the plain language of the regulation as applied to the facts of this case, but also with the decision of the District Court of 49

58 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 58 of 111 Massachusetts in Allco Renewable Energy Ltd. v. Massachusetts Electric Co., 208 F. Supp. 3d 390 (D. Mass. 2016), aff d 875 F.3d 64 (1 st Cir. 2017). In that case, the court invalidated a state procurement program under PURPA for precisely the same reason that Winding Creek argues that the Standard Contract is illegal, namely that the program only provided QFs with an as-delivered rate under (d)(2)(i) and not an as incurred rate under (d)(2)(ii). See id. at 398 ( [U]nder FERC s regulations, if a QF chooses to provide electric energy pursuant to a legally enforceable obligation, the QF must have the option to receive the avoided costs calculated at the time of delivery or calculated at the time the obligation is incurred. The [Massachusetts] rule, by providing only the spot market rate, eliminates the QF s ability to choose the latter pricing option. As such, the [Massachusetts] rule fails to properly implement FERC s regulations, as mandated by PURPA section 210(f)(1). ). The District Court s conclusion that the Re-MAT s arbitrary caps and price adjustment mechanisms are inconsistent with PURPA is fully supported by both the applicable law and reams of record evidence. There is no reason for the Court to overturn that decision. III. The District Court Has The Authority To Order, And Should Have Ordered, That Winding Creek Be Placed In The Position It Would Have Been in But For The Unlawful Re-MAT Bi-Monthly Cap. Once the District Court enjoined the Re-MAT caps and pricing adjustment 50

59 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 59 of 111 mechanism, the District Court had the jurisdiction to, and should have, ordered the CPUC to process Winding Creek s Re-MAT application stripped of the illegal caps and pricing adjustment mechanism. The District Court was plainly empowered to grant this relief under PURPA, which authorizes District Courts to require... State regulatory authorit[ies] like CPUC to comply with the FERC s PURPA rules, and, in doing to, to issue such injunctive or other relief as may be appropriate. PURPA section 210(h)(2)(B), 16 U.S.C. 824a-3(h)(2)(B). In light of this language, the District Court s conclusion that Winding Creek s request for relief does not belong in this forum is clear legal error. And, without the relief it seeks, Winding Creek suffers irreparable harm from the CPUC s illegal actions properly identified by the District Court. A. The District Court Has The Power To Order Relief To Eliminate The Ongoing Irreparable Harm To Winding Creek. Under PURPA section 210(h)(2)(B), Congress expressly authorized the District Court to order the CPUC to comply with FERC s regulations, and to issue such injunctive or other relief as may be appropriate. 16 U.S.C. 824a- 3(h)(2)(B). To restore Winding Creek to the position it would have occupied but for the CPUC s violations, the District Court needed only to order the CPUC to process Winding Creek s Re-MAT application as of the date it applied, stripped of the caps and pricing adjustment mechanism. But, rather than exercising this power, the District Court directed Winding Creek to file yet another lawsuit, this 51

60 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 60 of 111 one in a state forum, to obtain relief for the CPUC s violations. The District Court s conclusion cannot be squared with the plain language of the statute. Nor can it be squared with PURPA s core purpose of promoting renewable energy generation. Almost four months after the District Court s order invalidating the CPUC s caps, and five years after the contract should have been awarded by the CPUC in 2013, the CPUC has taken no action to place Winding Creek in the position it would have been in but for the Re-MAT s illegal provisions. Winding Creek continues to suffer irreparable harm, and its investment in its solar project, which is nearing $1 million, remains stranded. There was nothing exotic in Winding Creek s request for relief. On the contrary, putting Winding Creek in the position it would have occupied but for the CPUC s violations is a standard remedy. A disappointed bidder has the right to a legally valid procurement process, the deprivation of which constitutes a cognizable injury. Nat'l Mall Tours of Wash., Inc. v. United States DOI, 862 F.3d 35, 44 (D.C. Cir. 2017). As then Judge (later Justice) Scalia explained, a plaintiff could obtain its original expectations in the form of injunctive relief: the disappointed bidder [should be put] in the economic position it would have occupied but for the error. Delta Data Sys. Corp. v. Webster, 744 F.2d 197, (D.C. Cir. 1984). See also, Leboeuf v. Abraham, 347 F.3d 315, 325 (D.C. Cir. 52

61 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 61 of ); BCPeabody Constr. Servs., Inc. v. United States, 112 Fed. Cl. 502, 514 (2013) (ordering agency to restore disappointed bidder to place it would have occupied); See also, Ulstein Maritime, Ltd. v. United States, 833 F.2d 1052, 1058 (1 st Cir. 1987) (a contract should be awarded to the disappointed bidder when it is clear that, but for the improper behavior, the contract would have been awarded to the party asking the court to order the award. ); Mid. Atl. Storage Sys. v. City of Milton, 903 F. Supp. 995, 998 (S.D. W. Va. 1995) ( the Court in this case believes that the proper remedy is to put [the disappointed bidder] in the same economic position it would have occupied but for the [] error. ) Further, even when alternative relief is considered, it takes the form of a nunc pro tunc reselection. See, Leboeuf v. Abraham, 347 F.3d at 325 (explaining that in lieu of a direct contract award, because considerable time had passed alternative relief may be appropriate, such as that suggested in Delta Systems, 744 F.2d at 198, namely, affording [plaintiff] the right to require the Department to make a nunc pro tunc reselection. ) In this case, that remedy would also result in Winding Creek receiving the contract it should have received in Here it is guaranteed that Winding Creek would have received the contract in 2013 but for the unlawful cap. It is also clear that Winding Creek was entitled to that avoided cost contract under PURPA. The District Court erred by not acting to limit the ongoing irreparable harm suffered by Winding Creek, and relying on 53

62 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 62 of 111 the slim possibility that the CPUC or state courts might provide some future prophylactic relief. Semancik v. United Mine Workers, 466 F.2d 144, (3d Cir. 1972). ( [W]hen there is proof of present irreparable harm, the court [should] act promptly rather than rely on the possibility of future prophylactic measures. ); see also, Juliana v. United States, 217 F. Supp. 1224, 1262 (D. Ore. 2016) ( Federal courts too often have been cautious and overly deferential in the arena of environmental law, and the world has suffered for it. ) It is also easy to see how the failure to either provide a direct award or order a nunc pro tunc re-selection, hinders, rather than furthers, the purposes of the statute. It has already been nearly 5 years since the unlawful caps were imposed, resulting in no ability for Winding Creek to obtain the long-term contract to which is entitled under federal law. A QF, such as Winding Creek, would have little incentive in the future to enforce the provisions of PURPA if at the end of the federal court process it receives a hollow victory. PURPA remains the nation s bare minimum renewable energy mandate. But if the judiciary is unwilling to provide a remedy that Congress authorized it to provide, PURPA is merely an empty shell. Section 210(h)(2)(B) expressed authorizes the District Court to impose these standard remedies on the CPUC. Had it done so, Winding Creek s ongoing irreparable harm would have been alleviated. The District Court s refusal to take 54

63 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 63 of 111 action limiting the irreparable harm to Winding Creek was clear legal error and hindered, rather than furthered, the purposes of the statute. B. The District Court s Justifications For Failing To Exercise Its Remedial Powers Do Not Withstand Scrutiny. The District Court concluded that Winding Creek s request for an effective remedy goes too far because it should have been brought as an as-applied challenge in state court rather than as implementation claim in federal court. But as-applied and implementation are merely loose labels courts have developed over time to distinguish between claims against regulated utilities if they do not properly apply state-mandated PURPA requirements, which are brought under PURPA section 210(g), and claims against state regulatory agencies for improperly implementing PURPA and FERC s rules, which are brought under section 210(h). By relying on these labels rather than the actual statutory language, the District Court simply overlooked the plain language in section 210(h)(2)(B) authorizing it to impose the remedy requested by Winding Creek on the CPUC. Further, the as-applied and implementation labels elide statutory language making clear that the course selected by the District Court an as-applied challenge under Section 210(g) -- does not apply in the circumstances of this case. By its plain terms, section 210(g) is limited to two circumstances: (1) judicial review of a proceeding conducted by a State agency to implement FERC s PURPA rules, section 210(g)(1), 16 U.S.C. 824a-3(g)(1); and, (2) an action 55

64 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 64 of 111 against a electric utility to enforce any requirement established by a State regulatory authority under PURPA. Section 210(g)(2), 16 U.S.C. 824a-3(g)(2). Neither circumstance applies here. The remedy Winding Creek seeks simply applies the Re-MAT program to place Winding Creek in the position it would have occupied if the illegal cap and price adjustments are eliminated. No CPUC proceeding is necessary to achieve this result. Nor is there any need to seek enforcement of the CPUC s rules against a regulated utility. Hence, an asapplied action under section 210(g) would not apply. In addition, the District Court ignores language making clear that certain challenges to private utility action those involving wholesale power sales and interstate transmission subject to FERC s FPA jurisdiction are excluded from the as-applied mechanism of section 210(g). Specifically, PURPA section 210(h)(1) provides that [n]othing in Section 210(g) shall apply to so much of the operations of an electric utility like PG&E or a qualifying small power production facility like Winding Creek as are subject to FERC s jurisdiction under Part II of the FPA. FERC s exclusive jurisdiction under that statute extends to interstate transmission and to wholesale electric sales, like Winding Creek s wholesale sale of electricity to PG&E at issue here. Further, section 210(h)(1) mandates that the operations of regulated utilities and QFs that are subject to FERC s FPA jurisdiction are to be treated as a rule 56

65 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 65 of 111 under the FPA. Similarly, in a PURPA section 210(h)(2) enforcement action such as this one, the CPUC is a person under the FPA and PURPA s rules are FPA rules. 16 U.S.C. 824a-3(h)(2). And the FPA provides the District Court with jurisdiction to correct violations of FERC s rules. Section 317 of the FPA, provides the district courts with exclusive jurisdiction over violations of this Act or the rules, regulations, and orders thereunder and authorizes the district courts to enforce any liability or duty created by, or to enjoin any violation of, this Act or any rule, regulation, or order thereunder. 16 U.S.C. 825p. FPA section 314(b) also expressly provides the District Court with jurisdiction to command any person to comply with the provision of this Act or any rule, regulation, or order of the Commission thereunder, see 16 U.S.C. 825m(b). The District Court also may assess a fine against the CPUC up to $1,000,000, see FPA section 316. The jurisdiction of the District Court to order the relief requested by Winding Creek is simply without doubt. The District Court s reliance on the as applied and implementation labels, rather than on the statutory language, is clear error because it cannot be squared with this statutory language providing that a challenge involving wholesale electric rates cannot be brought as an as applied challenge and clearly conferring on the District Court the authority to implement the relief requested by Winding Creek. See Portland General Elec. Co. v. FERC, 854 F.3d 692,

66 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 66 of 111 (D.C. Cir. 2017). Nor can it be squared with the incorporation of the FERC s PURPA rules as FPA rules through section 210(h)(2)(A), and making them expressly enforceable against the CPUC. In reaching its erroneous conclusion, the District Court relied on two cases, both of which are inapposite. The passage the Court cited in Solutions for Utilities, Inc v. Cal. Pub. Util. Comm n, No. CV , 2016 U.S. Dist. LEXIS 17998, 2016 WL , at *15 (C.D. Cal. Dec. 28, 2016) ( SUI ), which is on appeal to this Court in docket , repeats the as-applied and implementation labels with little elaboration. But the opinion makes clear that the plaintiffs there could assert an as-applied challenge under section 210(g) against PG&E only if it is separate and apart from regulations implemented by the CPUC WL at *15. But Winding Creek s challenges in this case are not separate and apart from CPUC s implementation regulations, but a direct challenge to those regulations. Full relief can be provided by ordering the CPUC to follow its own Re-MAT regulations stripped of the illegal cap and price adjustment mechanisms. PG&E is not a party to this case and has no involvement in the requested remedy other than the fact that it would have to comply with any resulting CPUC order. Allco Renewable Energy Ltd. v. Mass. Elec. Co., 208 F. Supp. 3d 390, 397 (D. Mass. 2016) aff d 875 F.3d 64 (1 st Cir. 2017) ( Allco ), is also inapposite. In that case, the state regulatory agency had not set an avoided cost rate and the First 58

67 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 67 of 111 Circuit therefore concluded that granting relief would require the District Court itself [to] undertak[e] calculating the utility s avoided cost rate. 875 F.3d at 74. In this case, however, CPUC has already established the applicable avoided cost Winding Creek was entitled to absent CPUC s errors $89.23 per MWh. Accordingly, awarding this relief to Winding Creek does not call on the District Court to engage in fact-finding to determine the proper avoided cost and Winding Creek can be granted full relief without requiring CPUC to engage in a new rulemaking to establish the avoided cost rate Winding Creek is entitled to. Id. For these reasons, the District Court erred in refusing to provide Winding Creek with an effective remedy. This Court should therefore reverse the District Court s findings in this regard and order it to provide what Winding Creek would have been entitled to absent CPUC s errors a Re-MAT contract award with an avoided cost rate of $89.23 per MWh with the TOU adjustments in effect at that time. CONCLUSION For the foregoing reasons, this Court should order the District Court to act to limit the ongoing irreparable harm to Winding Creek by either directing a contract be provided to Winding Creek, or ordering the CPUC to process Winding Creek s Re-MAT application and the applications of others similarly situated as of the date 59

68 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 68 of 111 those QFs applied, stripped of the caps and pricing adjustment mechanism. In all other respects, the District Court should be affirmed. Respectfully submitted this 2 nd day of April /s/ Thomas Melone Thomas Melone Allco Renewable Energy Limited 1740 Broadway, 15th floor New York, New York (212) Thomas.Melone@AllcoUS.com ATTORNEY FOR WINDING CREEK SOLAR LLC 60

69 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 69 of 111 STATEMENT OF RELATED CASES The case of CALIFORNIANS FOR RENEWABLE ENERGY, INC., et al. v. CALIFORNIA PUBLIC UTILITIES COMMISSION, et al., No , is a related case pending in the Ninth Circuit because that case raises closely related issues as it addresses the CPUC s Standard Contract and its relationship to PURPA. Date: April 2, 2018 /s/ Thomas Melone Thomas Melone ATTORNEY FOR WINDING CREEK SOLAR LLC

70 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 70 of 111 CERTIFICATE OF COMPLIANCE Pursuant to Fed. R. App. P. 32, I hereby certify that this brief complies with the type-volume limitations set forth in Fed. R. App. P. 32(a)(7)(B)(i) because this brief contains 13,918 words, as counted by Microsoft Word, excluding the items that may be excluded under Federal Rule 32(a)(7)(B)(iii). This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) because this brief has been prepared in 14-point, Times New Roman font using Microsoft Word. /s/ Thomas Melone Thomas Melone ATTORNEY FOR WINDING CREEK SOLAR LLC

71 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 71 of 111 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT WINDING CREEK SOLAR LLC, v. Plaintiff-Appellant, CARLA PETERMAN; MARTHA GUZMAN ACEVES; LIANE RANDOLPH; CLIFFORD RECHTSCHAFFEN; MICHAEL PICKER, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellees. WINDING CREEK SOLAR LLC, v. Plaintiff-Appellee, CARLA PETERMAN; MARTHA GUZMAN ACEVES; LIANE RANDOLPH; CLIFFORD RECHTSCHAFFEN; MICHAEL PICKER, in their official capacities as Commissioners of the California Public Utilities Commission, Defendants-Appellants. Case No On Appeal from the United States District Court for the Northern District of California No. 3:13-cv JD Hon. James Donato Case No On Appeal from the United States District Court for the Northern District of California No. 3:13-cv JD Hon. James Donato ADDENDUM TO APPELLANT S FIRST BRIEF ON CROSS-APPEAL Thomas Melone ALLCO RENEWABLE ENERGY LTD Broadway, 15 th Floor New York, NY Telephone: (212) Thomas.Melone@AllcoUS.com Attorneys for Appellant WINDING CREEK SOLAR LLC

72 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 72 of 111 ADDENDUM TO APPELLANT S FIRST BRIEF ON CROSS-APPEAL and TABLE OF CONTENTS AD. Page Statutory and Regulatory Provisions... AD1 Section 210 of the Public Utility Regulatory Policies Act... AD 1 Excerpts of 18 C.F.R : Definitions... AD C.F.R : Electric utility obligations under this subpart... AD C.F.R : Rates for purchases... AD C.F.R : Exemption to qualifying facilities from the Federal Power Act... AD 15 Small Power Production and Cogeneration Facilities; Regulations Implementing Section 210 of the Public Utility Regulatory Policies Act of 1978, 45 Fed. Reg. 12,214 (Feb. 25, 1980) ( Order 69 or PURPA Rulemaking )... AD 16

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87 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 87 of 111 Applicability. Exclusion. General rule. et seq., et seq., et seq., et seq.; AD 15

88 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 88 of 111 =14 UZlt Fod... Rexlsl.. I Vol. '5o No. 311 Monday. Mond.y. February febn.ry , 1980 \980 DEPAATMEHT D PARTUEHT OF ENERGY (HEAGY Federal Feet.,... En.,vy EnltVY Regulatory Regul~tory COl'nl'Tlla.wn Comml.ww. " ti CFR efr PIr1 Part e. IDoca.c No. RM7t-55. AMn--.!i5. Order No.nl Itl Sman sinn Power Pow., Producllon and Cogeneration Facilities; Facllltl..; Regulillions Regulations Implementing ImplementIng Section S.cUon ' the Public Ullllty Utility Regulatory Regulalory Policies Acl Act of 1978 AOINCY: AOINCY! federal Federal Energy EnersY Resulato',l' ReauluIO'r)' Commission. ACTION: Fln.lrult. Flnat rule. SUMMA"'f':.."\,: The Federlll Pederilill Eneray Energy ReBut, RelulllOry tory Commission Commlulon hereby hereb), ijdopt. ildopis regul.tlons regul.,lon. Ihallmplemenl th.llmplemenl section' seclian' n of or the Public Ulliny Utl lil)' Re8ulflllory Relulatory Policies Policfes Act or of 1m t97a (PURPA). The rules require electric.iectric utilities utllltle. 10 purchase eleclric electric power from rrom and leu JeU el«lric electric power 10 to quam)'ln, quallfyl". costnetauon cogeneration.nd and small Im.1l power producllon production f,cilllle facilities. and provide for ror Ihe the uempuon exemption at or quillf); qualifyinb ", (.cilities facilities (nnn rrom «rtain cert.ln feder.1 fedenl.nd and Stile Stale '.8uI8,ion. r.,ut'lion. Implementation of thell! Ihe rules ruletls Is reservfl! reserved 10 to Siale regul.tory rqullllol),.uthoritlu authorit," and nonreaul.ted nonrerut.'ed electric eleclric ulllities uillities 1I'l"IECfIVI lr'letjvi DATI.: DAn: March , "Oft '0" FU'''tfE'' "U"rtU" ',..'O"MATION IN'OAMATION CONTACT: CON'fA~ RoM... Aln. ornel Offic. or the u.. CeneuII Cenet,1 Coun,cl. llsel. Fedenll Fede,.1 nefl)' EnefJ)' Re,ul'lory Rqul.tol'l' Commlnion, Comml"ion, us W Nonh North C.pllol C.pll~ Street. Sireef, N.E.. N... W" W.. ttlnllftll. hinlloll D.C. 20Ue. 204Ze. 20% ';8. 2OZ...J"...fM-Ia. )1,111" J llhn O Sullivan. 0 '511111VII\, OHic. Ornell of or Ihe the Ctn Cen~ra ~ f1il l Counnl, Counlel. fedcnl Pedtt. 1 EnerllY En"tlY Reaulalor:t Reaul" o,), Commihion. CorruniulQn..l2.S au North NGrUl Capitol c:..pilol Slrt~1. SlIe1lt1. N.E.. W-shInll'lon. W.shJnl1QI\, D.C. zo.t:6. zo.c.ft..:o:-:., :O:-.1S.. ;-~;-; ~;;, "d.m "dim Wenner, Wennrr. Omee Office or lb. Ihl Cenenl C t'nillt~ 1 Counu.l. Counsel. ffeder.1 ederal Ene'1)' E/'Ie'1)' RelUI.tol'l' Recul.lory Cornlllln Coll'Ltlllnlon.l%!t lon. 1Z5 Norlh North C.pliol pilol Slrul'" SI~o:I. N E.. w W.Mli"lton....'"ltOft. D,C. D.C , 204:e. 2OZ--l:l7...acJ33. l57-a0:j3. AD 16

89 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 89 of 111 Federal Regisler RegI,ter I Vol , No. 38 I Monday, February 25, 1980 I Rules ond Regulation Beman! Clew, orne. omca or Dr Plectric Powar Repletion. RepJ.tion. Fede,al Energy Regulator)' Comrnlulon, W North Capitol Street, NE.. W.. h1naton, D D.C..C, 204Z6, 204Z8, 2OW16-82& auppllmenta,ii'v MENTA"y lh'o"ma,11om: lh'oftma11oh: I Itlued.. February IG1,ISI8O. ISI8O. Section %10 o( of the Public Utility Reaulatory Pollclel Policies Act of 1918 {PURPAJ (PURPA) requirel requires the Federal Energy Regulatory Commilslon Commilalon (Commlaslon) (Commlulon) to prelcribe rujel rujes al the Commillion CommilliOD detenninel detennlnel necellary nec2l1ary 10 to encourage cogeneration and Imall power pow!!r production. producllon, lnc1udlng including rulel requirina electric ulilities utilitiel to purchaae purchue electric power from and leu electric power to cogeneration and small Imall power production (acilities. facilities. Additionally. AddltionaUy. seclion lection 210 of PURPA authorizel authorizea the Commlulon 10 exempt qualifying facilitiel (acilitiel from certain Federal and Stele State law and regulatiqd. regulatiqd, Under.ectlon lectlon 201 of PURPA. cogeneration (acilities facilitiel and end small power production (acilitie. (acilities which meet certain.tandard..iandard. and which ere are not nol owned by perbons penona primarily engaged In in the generation or sale tale of electric power can become qualifying facilities, facllities, and thus thu9 become eligible for the ratea ratel and exemptlona exempllona aet forth under.ection aection 210 of PURPA. Cogeneration facilities.lmultaneou8ly simultaneously produce Iwo fonn. fonna of useful energy. auch.a aa electric power and ateam. Cogeneration facilities use.ignificantly leas Ie.. fuel 10 to produce electricity and Iteam (or other forma form. of energy) than would be needed 10 produce the two separately. Thus. by using fuels fuell more erficiently, erficiently. cogeneration facilities facilitiea cad can make 8 a significant lignificant contribution 10 the Natlon'a Nation', elforllo conserve II. energy resourcel. reaourcea. SmaU power production facilities uae use biomaas, biomaaa, waste, or III renewable resources, including includin8 wind. wind,.olar aolar amd water, to produce electric pllwer. power. Reliance on these sources of energy can reduce the need to consume traditional fossil fuels to generate electric power. PrIor to the enactment of PURPA. a cogenerator or small power producer seeking to establish interconnected operation with a utility faced three major obstacles. Fir.t.. Firs\., a utility was waa not s:enerally Benerally required to purchaae pun::ha.e the electric output. at an appropriate rate. Secondly.. aome utilities tie. charged di.criminatorlly diacriminalorlly hlbh high rates for back-up.ervice to cogenerator. and amall power producera. Thirdly, a cogenerator or small 'mall power producer which provided electricity to 8 uulity'l grid ran the risk of being con.idered sidered an electric utility.ind oind thua thus being.ubjected aubjected to State and Federal regulation an electric utility. Section. Sectiona 201 and 210 of or PURPA are de.lgned to remove theae obltacle ob.taclea.. each Each electric utiuty utility I. required under.ectlon lectlon to ofter orrer to purchase purchaae available electric energy from cogeneration and.mall amall power production facilltie. whlch wh1ch obtain qualifying.talui under.ectlon aectlon 201 o( of PURPA. PVRPA. Por For.ueb.uch purchasea. purchasea, electric utili tie. are required 10 pay rate. which are ami 'uel 'u81 and teuonable reuonable to the ralepayera or of the uullty, utility. in In the pubuc pubtjc Interest. lntereat. and which do not di.criminala di.criminate against agalnat coseneratora cogeneratora or.mau Imall power producera.. Section 210 alao require. requires electric utllitlel uulitiel 10 to provide el~ctrlc.ervice tervlce 10 qualifying facilltiea racilltie. at al rate. which are Ju.t and teblonable, teaeonable, In the public lnte.re.i, lnteresl. and which which do not diacrimlnale discriminate agalna! cogeneratora and.mau small power producers. Section 21O{e) o( of PURPA providea providel thai the Commillion Commiaaion can exempt qualifying faclliue. faclljtie. from Stale State reaujation reauiation regardinb utility rate. ratel and financial oraanizatjon, organization. from From Federal' regulation under the Federal Power Act (other than IIcenaing Iicen8ing under Part 1]. and from the Public Utility Holding Company Act. I. Proc:edural Procedural Hillery On June , in Docket No. RM~ RM7~ , I the Commi88ion Commiaaion iaaued issued propo.ed rulea rule. to detennine which cogeneration and small power production producllon facilities may become "qualifying" cogeneration or small power production facilitie. under aection lection 201 PURPA. Such qualifying facilitie. iuea are entitled to avail themselvea themaelvea of the fate late and exemption provillona provialon. under.ecuon section 210 ofpurpa; orpurpa; and qualifying cogeneration facilitie. facilltie. are eligible for exemption from Incremental pricing under Title 0 of the Natural Ga. Gaa Policy Act of 1978.'Tbe 1978.'The Commiaaion Commiasion will loon lasue Issue a rmal rloai rule In Docket No. NQ. RM Aa As part of the rulemaldng process proce.s in this docket. the Commiaslon Commission '"ued '.8ued a SlaftDisculsion SlaffDiaculSion Paper' on June , addres.lngl.sues addresalnglaauea arising ariaing under.ection section 2l00fPURPA. 2.l00fPURPA. Public hearings on RM79-54 and the Staff Dlscuuion DlscUBSion Paper (RM'79-55) were held in San Franciaco Franci.co on July 23, 1979, Chicago on July 27, and Wa.hington. Washington, D.C. on July 30, Written commenta were also received. On OctoberlB , 1979, the Commiaalon Commiaslon luued illued a Nolice Notice of Proposed Propoeed Rulemaking under Section 210 o( of PlTRPA In Docket No, No. RM On October , the Commlaslon.. lon made available ita its preliminary Environmental Aueasment Aaaessment (EA) of the propo.ed propoaed rule. rules In Docket Nos. RM79-54 and RM In a I... FR S&II?3. $&II?3. hlly 3. tm. '... FR November t i. '44... fr $1163. Jllly July , fr e1111o. October 24. 1m Reque.al Requesl (or for Further Comments.' the Comml CommJllion.. lon reque.ted requelted further public comment commenl on both propoaed propo.ed rulel, rules, and on the findingl.et rorth In in the prelimjnary EA. In order to obtain oblald the data. data, view., and argumentl argument. of intete.ted mlere.ted partlel, the Commission Comm1a810n Staff held public bearingl ld Sealtle Seattle on November 19, 1979, 19'19, In ID New York on November 28, 1979, in ld Denver on November , and in Wathlngton. Washington. D.C. on December f and 5, The Commlaslon CommlllloD,lao alao received written commenl CODlDleDL After conllderation consideration of the comments, the Comml.eion Commlaaion StafT Starr made available avauable a final dralt draii rule on January 29, Slate State public utility com.mjllllionen commlaaionen WHe wej'e invited to comment on the draft at a public meeting held on February 5, RepreaenlaUvea RepreuntaUvea o( of electric utlliliea utilltiea were invited 10 to comment at 8 a public meeting beld on February 8. B The Comml.aioo CommJ"lon Staff alao allo made it.elf Itself avauable evauable to any other intereated interested partiea partie. who wished wi.hed to comment. All of the commenta were considered in the formulation ofthia this final nnal rule. In the Staff Diacuu!on Di.cuaalon Paper and the Request Requea, (or for Further Comment.,. It waa.tated atated that any environmenlal environmental effecta altributable 10 thia program would resull from the combined effect erfecl.of theee two rulemaking rulemak.ing proceeding8. proceedings. All A. DOted noted prevloully. prevloualy. Ihe the CommiuiOIl Commiuion intends to il8ue issue final tules rule. in Docket No. RM79-54 RM79-S4 in the near future. At that time, the Commls.lon Commlaalon will al.o alao make available ite its final Environmental Assesament. AlII8easment. ILS_ ItS...". The.e Theil! rule. rules provide that thai electric ulilitial utili tiel muat purchaae purcha.e electric energy and capacity made available by qualifying cogenerators cogeneratora and.mall power producer. producerl at a rele rale reflecting the cost cosl that thai the purchaatns purchaaing utility can avoid aa a relult of obtaining energy and capacity from these aourcl!s, eoutcllts, rather than generating an equivalent amount of energy It.elf Itself or pun:hll.lng purehllslng the energy eneray or capacity from From other suppliers. auppliera. To enable potential cogeneralors cogeneralora and.mall small power producers 10 be able to estimate Ihese avoided coata, coata. the tules rulea require electric utili tiel to furnish furnl8h data concerning preaenl preaent and (uture future CO.tl coata of energy and capacity on their.ystema. 'y.tems. These The.e rulea al80 also provide that electric utllitiea utililiea must mull furnish fumisb electric eneray energy to 10 qualifying facilhies facilhie. on a nondiacriminelory nondiacriml.nalory beale. beal8. and at a fate rate that i. ie Jusland reasonable and in the public interest; intereat; and Ihat that they must provide certain types of service aervlce which may be requested by qualifying facililies facilities to lupplemenl or back up those (acilities' (achitlea' own 8eneralion. generation,...,.., Fa Inm. October:N. October:N, llrni1 AD 17

90 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 90 of 111 1ZZ1. Federal Repler I Vol. 4" No. 38 I Monday, February 25. Z I Rule nd Regulation. The rul. rule exempt, exempt.,u au qu.ufytng coae-nenuon f,ciulie. 'lclulie and certalo cert.in quajl~ Imall power production 'ldutiel r,dliti hom eertaln certain provi,lona provillon. or the Federal Power Act. from.n an of the pfoyi.lon. provi.lon, of the Public Utility Holdtna Company Act ofl related to electrie electric ulmltet... and from Stat. I law.... replauna resulellna electric utility rate. rates and finandal financial ol'janlu lion. 'The Implement.Hon Implementation of the.. 1"0.'" rolet I, II ruerved reterved to the State Slate regulatory luthoritlet and nonngulated electric.. utftju tftjthtl... Within on" onlj year of th. the f"llanee f.. uanoe of the CommlSlloo',.. lon', rule... each dt St.te State resulatory re,ui.tory authority or nonresujeted nonresujated utility multlmplem.nt mu.llmplement the.. nalh, nalet. Thai Implementation ImplementaUon may be accompli.hed b, the 'Sluance I.. of regulation., on I, ca c:llte-by-c..... " baat.. but., or by any other meen. meem reatonably realon,bty designed 10 fa stve give effect to the Commlnion', rw. ruj_ OL til 8edfaa a.ctfoa by-sedlolll by-sedloa Ana.ly.iI AMiy.- Subpart Subport A--.(AnllraJ A-lAnttruJ Provj,iorI. t m.ioi DefiniUoM. DefiniUoll6. Thb MCtion contain. definltiona dennltion. applicable IIppUca.ble to thi. this part of the Commie.lon', loo'. rule... Paragraph ra} (a) provide. providee thatlerm. tennl defined in In PURPA blve b.ve tbe...ame melllling 81 as they have in PURPA. unle unl.1i.. further denned defined In' tbl. rbl. p..rt 01 th. the Commiaslon', Commilslon', regulaliona. tiona. The definitlonlln definition, PURPA are found In tlecllon, of that Act. Subparagrapb (1) deflllel deflne, a qualifying f,cillty fat;iuty a. a, cogeneration or tlmad power produt;uon roducuon facility facuity which 15 a qualifying r. f.dlity.duty WIder under Subpart B of oc the CommiSllon'... lon', regulalions, regulationa. Thate reaulatlonl reaulatlon. Implement.eetion leetion PURPA. PURPA, and Ire the lubled lubject of Docket No, No. RM7t-M. RM7t-M, Subp.ragraph Subparagraph (2) deflnel defines "purchale"" purc::hale" ii' ii. the purch.ae purdam of elet;trle electric energy or capadty capacity or both &om a qualtryfn, quallryfn, 'acillty' by 111 an electric utility. Subpangraph Subparagraph (3) denn.,. definet -.. Ia" Ie".a at the.. " 0'.Iectric alectric energy or capacity t;apadty 0' both by.n an elklric elkiric utility utlilly to qualifying quahfyins f.elllty. r,cliity. In tha the proposed rule,.ubparesraph lubpangraph f4) denned ".y.tem "'Yltem emergency".. a eondltlon condition on a utility', utility'l syslem Iyalem ''which Is likely Ukely to nlult ~.ult in dl,ruptlon disruption of aemca MMce to a Ilgnlflcant number of or cuatomers customers or I. likely to and.nger endanser life Iile or property," property." In responae re,ponte to cornmenu cornment, nollng 1M dlmcuhy in determining whal conatllvtee constilute. "llgnlficanl "'Ignlficaal number"' of cultome,.. cu.lomera, the Commiliion CommiSllon h.. amended Ibe tbe definition to "a ". concution condition on.n an el.ctrlc el.clrlc utility" utility'. 'Yltem aystem which 1. likely Ukely to,..iult re.ult in imminent Imminent.igniticanl signiticanl disruption dlsrupllon of lervice tervice to CUllome"" cu.lome,., Of or I, Imminently likely to endanger endanser 1If. lit. or property." property," The,mph"l. emphasl. I. placed on Ih' the alanlficance II",tRcane. or of the disrupllon diaruptlon of aemce, Mmce, rather thad thld on Oft the number 01 of cu.lomen custome,.. aft'.ded. Subparagnpb (5) define. deflnea "rat." "rala".. any an~ price, rate. rate, charge, ch.rge, or cl,"illcetiod cleslillcauod made. demanded. ob.erved observed or received rece1ved with l'elpecc I'HpecC to lha th.ii 1.1. or pun:hase pun:hue of electric en.erv enerv or capacity, or any rule. regwalion. regulation. or prac:ttce practtce re.pec!ing re.pecting aoj'.uch rate. W,.., WI'8I. or d... i.ficatjon. LficatJon. and any contract perliildinl perlaldinl to the tha.. lala I, at putchue 01 electric enerv tnet'8)' or eapadtj, eapadtj. In the propoaed nde, aubparagnph ubparagtlpb (8) defined "avoided "8Yoided amb" cotb"...a the to.te to.t. 10 to an electric QtiUtJ utiutj of or tnetj)' or capacity or both which. lnt 'or ror the purchase pwthaee from qualifyiq faduty, laduty, the electric utility would senerata generata or conltruct con.truct ilseu Itaelf or purch.m purcham from another,ouree, source. Thit Thia definitiod denrutiod.. II derived from &om the concept of "the "th. incremectal i.ocremental mit m.tto to the electric utijlly utility of a1lem.uv. a1lem,uve.iectric electric enef'8)'" edergy".at aet fol'lb forth In. illsecuoa.ecuoa %lo(d) %Ul(d) of PURPA.II PlIRPA.1t lndlldes both the flxed fixed and the runnjna co81lon co51. on an electric utilii)'.yalem system which can be.vold!d avoided by obta\.ning obtalnlns energy Of capadty capacity &om from qu.ufyln, quaufyln, f.cultie fa... The cosll co.la which an electric utility can avoid by maldna.uch such purchase putehaaet.. seaerally generajly can. be cla... lned med.. aa "energy" eoatl coat. or "capadty" COltl. co.i., Energy costl cost. are the variabl. variable cosu cosla... "Iodated oeiated with the productiod producuod of ot electric eoerp energy (kilowau-bow'l). (kilowatt-hour.), They reprelent represent the co.t COlt of fuel and some tome operating operadog and maintenance expenl".... Capacity coal. cost. a,.. are the cosu co.la "loclated a"oclaled wilh providing the capabillty capability to deliver energy: they coul.t CODll,t primaril~ primarily of or the capital costa of facilities. facilities, If. U. by purc::bulna purcbulna electric energy from a quaufylni quaufylt\a flcllity. Caclllty a utility can reduce Ita fta enersy COlt. co.t. or can avoid Ivoid purc::ha'ina purchal m, energy from another utility. Ihe the rale rate (or a purchase purc::haae from. Crom a Qualifytll8 quali(y{ng fecilily facility Is fl to be bued 00 on tho.e eneray energy costs costl which' ' the utility can thereby.vold. avoid. If a qualifying racillty faci1l1y ofterl energy of.ufficient aufficient reuabuliy nllabully and with sufficient legauy enforceable enforceabl. parante", paranleea or of deliverabillty 10 to pennit permit the putehaslng putehaalng electric utility to.void avoid the need to coa.trucl coa.truct a seneratlng seneratlns unit, to buijd a 8 ImaDer, lell Ie.. expen.lv, expen.lv. pllnt, plant, or to reduce firm power purdlale. purch"e. from another anolher utultr' then the ratel ralea for such luch it purchaae purchue wil be bued all on the avoided capacity cap,cil,..nd and energy CO.tl co.t.. The Conuo1ta.1oa Comm1M1on. b.. added the term "lnt:rementaj" to D'lodJry modify the COil, colta which 8.Il alectric: utolty woald avoid a. a ""lull re.ult of or mak1llla rnaklna a putehase pun:h.le &om hom 8 a qualifying qualic,.ing 'acluty. r.cluty. Un.der Under the principle. principle. or of ecooomjc ecouomje dispatch, di.p.tch, utllltjee uullue. generall,. genuau,. tum on lut and tum hull off fint finllheir their 8eneratina Beneraling unilj1 unila wllh with the hlghett blghe.1 runnin, runnin. cost. coat. At any given 11m., time. u economically econonuclllly dispatched dl'patched utility ean can avoid Ivold operalina tina lu its highe.i-colt bighe.i-cost unit. units as II a,..iult re.ult of making makins a pu.rcha.e pu.rch"e from hom a qualifying 'adlit,. 'acilil,. 'I1!.e ne utllit"'l ullli!(. avoided Inc:reme:otal Inaeme:olal COlt. (and notave,..ge.vera fy1item Jf1ItelD coaljl) co.li) ahould abould be used to calculate calculat. avoided COlta. co.ta, With regard to capacjty,lf. capadly,lf a purchase purchue from a qualifying qualliying facility J*alItI pennjte the tha utility 10 to avoid th. the addition addluoa of new capacity. capliclty, then th, the 1V0ided avoided c:om tom 01 the DeW capacity and not the.neap ancap embedded.y.tem ay.tem co.t COlt of capa~ty cap&~ty.bou1d,bou1d be uaed.. Manr Maar c:.ommenu c:ommenla DOted noted that the d.flo1uon deflnluoa 01 of-avoided "'.volde'd coal" COII'"ln In the propoeed propoeerl rum falled raued to link the capacity capat1ly coati COItI wldcb. wldch a utility mjaht mtaht.vold avoid a. aa a mull mult or pw'cha.tn, pun:huln.a electrlt; electric enel'ly eneflll at or capadty or both from a qu.lifylna qualifying (adllty fadllty wttb. the.derv edef8)' coat. co.11.. associated sodated with the new capacity. capadty, U the Commlulon required electric electrlc ut!uuel uuulie. 10 to baae!belt their ratea.. lot fot pu.rc.halel... from a quall~ faduty on tu hlab capital or cap.clt)' capaat)' coat of. bue baaeload unu unjl.nd. and. In.ddJUoa. addjuoa. provlt;led provlc;led that the rale rate (or for the.voided avoided energy.hould be based on Ihe tht high eneru enerp COlt "Ioclated "8oclated wuh wuh pealdna pealdng u.nit. unit, the electric utilities' purchaaed POW8l' powu expen.e. expenses would exceed the incrtlmental co.t coat of altemauve altemadve electric energy. energy, contrary 10 to the limitation set aet forth in In the 1asl lasl.entence lenience of.ectlon lectloa 21O(b). 210(b). One w.y way of determlnlna the avoided co.t II I. to calculate c.lculate the total (capacity (capacit~ and enetsy) enet"fy) coata C08t8 tbat would be incwftd InCWTed by utilily ily to 10 meet. lpeclned peclntd demand In in comparison oomparilon to the co.t COlt thai the utility utusty would Incur if It purchased purehaaed energy or capacity or both from. a quaufyfna 'aduty fadllty to meet part pan of III Ita demand. demaad. and.uppued l It. III remaining remalnlna needl need. from ill Ib own nwd 'acililie lacilitiel, The difference dirrerence between betweed theae thele two figure. flsure. would represent repre.ent the utility'a utility'. netllvolded nelllvolded eo.1. coat. In thll thl. cue. case, the avoided co.ls coals are Ihe the extel. of the total capacity and energy co.t co,t of the system developed In accordance accordanca with the utility's utility'. optimal Cllpacity capacity expansion expanalon plan, plan.' I excluding the qualtfylna qualifylfta faciury. faciliry. over the lolal total eaplclly upachy and energy coat cost 0' of the 8}'ltem '}'sfem (berore (before paymenllo Ibe tbe qualifyins ' facility) acllit}l) developed In ID.ccordance accordance wltb the utilit}l'l utility'. optimal c.paclty capacity expen810n expan.lon pla.o Inc/lldi", Includi", the qualifyins quelifyin8 facility.' SubparaStaph (1) (7) define... "inlerc::omectlon "intercomection coau" coats" a. al the roealonlbl. raaloll.bl, coau coate 0' of connettlol1. connectloo..wltch"", Iwltchlns. meterina. mctmna. trammillfon. b'ansnuli{on. dl.tributlon. dl,tributlon... fety provl.fon. provl.fonl end and AD 18

91 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 91 of 111 Federal RegialV I Vol. 45. No. 38 I Monday, Pebruary February 25, 1980 I Rule. and Regulation. Rqulation. J.Z217 1Z%17 8dmlnf,lr.!lve edmlnl.trauve co.t.lncurred co.talnc\jlnd by the el~tric: utully \ltu!!y direc:t1,nl.led direct1,relaled to the In.lIll1allon In.lullatlon and maintenance maintenanc:e olth. oflh. phy.ieal phylical f,c:wue. facwuea neceuary to penni! inlercojuleded inlerconnec:ted operauofll oper.tiodi with. quaurying qu.lirying,.cility, facility, to the extent web co.t,.re are in exce uce.. of the corresponding coltespondlna COltl which whlc:h lbe electric utility would have inc:urr-.d incw'l'8d U If it had Dot t.n8ased t.n8aged In interconnected operationl. but inlle.d inslud aenereted aenerated 8ft an equivalent.mount amount of energy lltell or pu.rch purchased.n an equlnlenl equlnjenl amounl limounl of elecbic energy or capac;u)' capacity from other 1OW"Ctt lource Interconnection eo.l, co.t, do not nollnclude Include any COlt. inc1ucfed inducted In in the calculation of avoided COIU. The Commiasion haa clarified this definition 10 to Include di.tribu1ion distribution and.,dmlniltratlve.,dmlnillratlve COltl costl "Iocialed alsociated with Ihe the interconnected interconnecled operllltion, in In relponae to commenl' comment. indicating that thai the propo.ed rule wal waa vague in these re.pect&. re.pecla. Thil Tbil definilion i, ia dellgned dealgned to provide the Sillte regw.tory regulatory.utboritiel autboritiel.nd and oonregulated nonregul.ted electric uliliue. utilitiel with the nexibillty to ensure that all costa COSIl which.. re shown to be reasonably incurred by the electric utility utilily as a fe.ult relult of Inlf:rconnectlon Int~rconnectlon with the quallfy1ll8 qualuy1ll8 fl+cilily f~cilily will be considered as a5 part I'If tht: e: obliglltion obuglltion of the qualifying fa cility cilily under t The.e These cost. costl may include, but are not limited 10, to, operating Itnd maintenance maootenance expenses. the costa cosla of inttallatioc Intlallation of equipment elsewhere on the utility's ullllty',.ystem sy,tem necessitated neceasilated by Ihc Ihe Interconnection. Interconnection, and reuonable reasonable in.urance expec.e expen.e. However. Ihe the Comml,.lon does not expecl expect thai thai liliaauon litigation expenlea expenlellncurred incurred by the ulllll)' utility Involving this aection lection will be. considered a legitimale Interconnection InterconnectIon cost 10 to be bome by the qualifying facility. Certain interconnection COSIIi mit)' mlty be: Incurred It 81 a reault resull of sale. sales from II utility to. a qualifying facility, The Commission noles that the Joint Explanatory Statement of the Commlttl!l! Commlltl!l! of Conference (Conference Report) prohibits prohibita the Ute ule of "unreasonable fiile ntle slruclure struclure impediments, tmpedimenls, luch a. unreaeonabl. unrealonable hook Up up chargel charg" or oth." oth~t dilcrlmlnatory dilcrimlnalory practices... ~ IThis IThil prohibition prohlbiuon II renected renecled in, 292.S06{a) 292.S06fa) of thele these rule8, rulee, which provid811 providell Ihal interconnection co.t, Co.ls mult be... altelted e.ted on a I nondllcrimlnatory baail basil with resptet to other olher CUllomers CUltomers wilh wllh similur almilltf load chareeteriatica. reeterilucs. A qualifylna qualirylna facuity racllity wbich il is alreljdy alrelldy Interconnected with an ele<:trlc electric utility for purpoae. purpose. of.. sales Ies may seek let!. to estabulh eslabulh interconnection for the purpose of utility uulity purchases rrom Ih,. th,., ConferellCll Conf~... 1\CII Repon Rcpon on HJI.. toll. PuLHt. PuLUt. UlIlill UlIlhj ft'1lilimlory fii'1iiiimlory PoUcI Polldn.. kl of 1"" IW" H. Rrp. N" 17."6 I'ti. loti 11.; II.;,,,,-.. Con... 1d SIt". [1"IJ. [IW.j. qualilylns qualilyid.s facuily. f.cuily_ 1D ld lhll thll cue. <:ale, the quallfytna qualifytna facility f.cluly may have compenl.ted compen.ated the utwtylor utwlylor ill III iatef'connection co.t. co.1a wilh with respect to aales nles to the quillifyina qualify!", facility, I.cillty, either.. part of the UIUlIy'1 utulty'. dem.nd demand or energy chsrsea, charaea, or tbtolt8h aeparate aeparilte (;\Islome, customer charse. charae. H this I. Js Ihe the c..",." the inletcomecuoo co,t co.t ajodated toei.ted wilh the purchaln! purchaae jndude only oruy thole additional interconnection expe11u. exptt11m. incwted Incl1l'T8d by the electric utility utillt)' 8' as a resuh reluh of the purchase, purchale, and do noi not include any ad)' portion 01 the Interc:oMectJon InterconnectJon COlts lor for which the qualiryln.g facility lacility he. haa already paid throubh throush iu rel.u rel.li rales. rates. One commenl recommended Ulilt Utilt the definition decinition be revlaed revlln!d 10 cover "all identifiable Identifiable COl'S, COlt., Including bui but nol not limited 10. to. the cost. costa 01 of interconnection... resulting!tom [rom Inlerconnected Interconnected operation". The Commillioc Comml.. lon tejecla tejecli!.his.ugge.tiod SUggealiOD in order to malntain maintain consistencj consistency with It. InltJal InItJal detennlnalion detennlnation 10 to.eparale separate the utility'l uulil)". avoided co.1t costa with regard to purchases from rrom quaulyinb quaufyinb facilities, facilities.. from the cosl6 cosll; incurred inculted II a. a re.ult result of Interconnection Interconneclion with a qualifying facility. Accordingly, legitimate legitimale COlli co.11 Clot not recovered pursuant 10 [0 this.ection lection can be nelled netted oul in the calcullttion of avoided avoided costs. Thil This definition alao lncorporate. incorporate. the th~ concept!tom from the propoled rule. a& clarilied clarified in an erra elta tum notlce,t nollce,t thai Ihese these COlts costs are limited led to the nel incleased increaled JnterconnecHon COlts co.l. imposed on an electric utility compared to those interconnection COltS coati It would have bave IncUfTed IncWTed had Ilaenerated It generated the energy HuM itaelf or purchased an equlvalenl equivalent amount of energy or capacity cepacily lrom from another source. Thi. This section of the rule coolaln6 contain6 definitions of "Iupplementary "supplementary power", "back up "back-up power", "interruptible power". 8nd and "maintenance power" wblch which did nol not appear in the proposed propoaed rule. Subparagraph IS} defines defules "Iuppleme:ntary "Iupplementary power" as electric energy or cap.ciiy. lupplied by an electric utility, regularly used by a qualifyil18 qu8lifyil18 facility facilily In addition 10 thai which the facility senerates ilseh. IlleH. Subparagraph (Q) (e) defines define. "back-up power" a. as electric energy or capacity.upplied lupplied by an electric utility to replace energy ordinarily generated led by a fa cility'. own generation equlpmenl equipment during an I.lOscheduled unscheduled outage of the tbe ((lcilily. f(l cillty. Subparagrapb (10) flo) definel "interruptible" power" a, at electric energ.\' 01 capacily supplied aupplied by an electric utility.ubject subject 10 to inlerrupllon interruption by the electric utility under apedlied apedfied conditions. Subparagraph (11) definc. "maintenance power".. eleclrit: electric eaerv eoerv or capacity supplled supplied by an eleclrlc electric utility utillt)' dur1ns scheduled tcheduled oulag81 OUI.g88 of the qualifying facmty. ladilly. Subport C-Armngements C-A.rmnsements Between ll!cfric /l!cfric Utilities and Qualifying Cogeneration and Smoll Small Power Productian Facilities Focilities Under Section Stlction 110 ZlD 0/ of the Public Utility &gu/alory &gulatory Policitn Acto/1m Acta/1m I Scope. Section mu01{a} ZUZ.301(a} de.cribe. the ~pe of Subpart C of Part or the Comroil.lon'. Commi.. lon'l rules. Subpart C applies appllea to 10.ales I8le. end purehases purohses of electric energy or capacity between qualifying cogeneralion or small power production facilities facilltlet and electric utilities, and.cuon. acuonl rel.ted related to such sales lales and purchase puran"e. Section (b}{1) provides provide. th.t that thi. \hi subpart doel does nol preclude negotiated agreemenl. agreement. between qualifying cogeneratol'l cogeneratotl or amall power producen produce,..nd and electric uulitie. uulitiet which differ from &'Om rate,. ratel, or terms or conditions condition. which would otherwae otherwise be required under the subpart. Paragraph (b)(z) (b)(z).t.tel Itates that thai thlssubparl this lubpart does nol affect the validity of any contract entered Into between a qualifying facilit), facility and an electric utility for any purchase purch.ae. t Paragraph (b)(1) (bul) renects renecls the Commi Commls.iOD',.. ioo's view that the rale rate provislonl provision. of section lection 210 of PURPA apply 001)' only if. a qualifyin.g qualifyi.ng cogeneralor Of 01.mall amau power production. productioa.racility facility choose. chooses 10 availlueu of that.ection. section. Agteemenll A8reementa between an electric utility and a qualifying qualuyina cogeoerator coaeneralor or small Imall power producer for purchases al rales rates dllferent different than rates required by theae thele rules, or under terms or conditiont dmerenllroin dmerent!rain thou those "I set forth in lhele theae rules, do oot not violate the CommIssion', rule. rules under section 1~lIon 210 of or PURPA. Tht The Commission Commis.lon recogni%ea recogni%es thai that the.buii)' abilil)' of a qualif)'i118 qualiryil18 COEeneralor or.mall small power producer to negotiate negotiale with lh an electric utiul)' utility 11 is buttrebbed buttressed by Ihe the exillence existence 01 the rights righls and protections of these rulu. rules. Some commenla comments.tated Ita ted that thai paragrllph parog.rllph (b)(2) (bj(2) would unfairly penalize cogenerelorl cogeneretor1l.nd and sman small power producen who, priol to the promwgation promulgation of thele these regulation regulallon.. ent~d ent~ed into binding conlrac~ contrac~ with wllb electric utilities under lesa Ie.. favor.ble ravorable Wm:J tenn. than might be obtalnabie obwlnable under lhele thele rules.. The CommIssion Commission interprets its mandate mandale under techon tectlon ZIO(a) 10 prescribe "such rulet rutel a. it determines detenninet necessary necelsaty to encour.ge encourage cogeneration and Bnd.mall small 'OTho ' Innn I~nn -,litchue" -,\ll'dlne" I. II delintd deline-d In '" (11) AD 19

92 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 92 of Z218 Federal Regi.le, Register I Vol. 45, No. 38 I Monday, February 25, 1980 I Rules and Regulatfons Regulations power producllon mean that Ih. lota1 coata to Ihe the utility and the rale. to II. II, other olher customer' customeu.haujd should not be greater thar they would have been bad the utility utillt), not made the pu.rc.hue puj't.hue from the quauryins quauryina faculty or qualifying faclulle. That a cogeneration or small power production facility entered inlo entered'inlo 8 a binding contractual 8tt8118emenl 8tt8Il8emenl with ao electric utility uujuy indicate. that It i. likely that.uificlenllnceotlvlt lnceotive exl&ted. exi&ted.. and that the further encouragement provided by these rulea rule. W8I not neca.. st)'. A result. relult. the CommillioD Commil,loD h.. nol reviled thl. this provision A vol/ability of electric ulillty 'Y"em cost dolo. doto. M ~ the Conunl.. lon observed In in the NoUea NoUce of Propo.ed Rulemak.lns. RuiemakJng. La order to be.bl.to.ble evaluate eveluate the financial (Halbllity tnalbllity of a cos,neration cogeneration or.mall power production l.duty, an In (nveator laveatot needt to be able to 10 e.timete, eatimate, with re.. onable certainty. certainty, the expected return 00 OD a potential inveltment inveatment before COnttructlon or. I facility, facility. nu. return win wlu be determined in part by thlt the price at al wblch which the qualifying facility Facility can aeu leu Ita electric output. Under' 2m.304 Z of the.e rulel. rulel, the rate al which. ululty ulility mull pu.rc.hase pu.rc.halle that output il baaed baled on the uullty', utillty'1 avoided cos collll. Is. laklns laklng into Into account accounl the facton sel let forth in to paragraph (e) fe) of lhallection. thallection. Section SecUon of tbese these rulel la II intended by the Comml"lon to atli.1 thole tho.e needing data from wblch which avoided COltl COlli can be derived. derived, It II requirel electric utlllue. ulliitlel to make lvallable 10 cogeneratorl cogeneratorl and,mau smau power producer! data concemlng concerning the pretent and anticipated future fulure COstl colltl or of energy and capacity on the utility'. utility',,y.tem. sy.tem. In the preamble 10 the propoaed propo.ed rule. the CommilSlon Commillion.tsted.tated thai that mo.t electric utilities utilltlea will have bave prepared data contalnlog colualning some aome of thi. this InfonnaUon InformaUon in compliance with the Commission'. CommlSllon'l rule. rules Implementing.ecUon secuon 133 of or PURPA. Several commenten observed oblerved that the marginal l cost coat data required 10 to be provided provided putluant putluanl 10 to.ection section 133 cannot be directly translated Into a rale rate for purchuea. purchue., The Commission baa b.. clarified paragraph (b]to (b) empballze that these data ani are not nol intended to represent a rate rale ror purchalel from qualifying 'acilltlee. faculuel. Rather, thele theee data ara to be con.ldered the nr.t nrat.tep Itep in the determination of.lith IUth a rate. rale. 'The Conimiulon bal bat alia allo revised this thil section 10.0 that the 'aill' taill. for purcha.el purcba'lt' can be more readily calculated from the dat' data produced. The Commission has bas changed paragraph bu3l 10 provide tbal a uullty uulity.hau.bau.ubmlt the auoclaled enel'8y co.1 COil of each planned unll unit expreaeed uprellaed In tn kilowalt kilowatt hourl hour. (kwh) along with the eltlmlted eltlmaled capacity capecity co,t of planned capacity additioni'. addilion. Thl. Thll change I. II intended to ensure that the calculation of avoided cost. COSt8 include. include, Ibe the lower enerzy enef'sy COlli COlts that thai might be associated with the new capacuy. The Cornmiliion Commis.lon point. oulthat out the delennlnation determination of a rate rale for purchase. purcha.e. from a qualifying facility which enables a utiljty utlljty to defer or avoid the addition of a new unit mult allo alto reneet reneel the houts of or expected use u.e of the decerred or avoided capacity addition. addjlion. The coverage under paragrapb paragraph (a) of thl,.ectlon ecuod II I. the.ame,amlt as that provided puuu8nt puuuant to.ectlon.ection 133 of PURPA and the Commiliion', Commillion', rule... implementing Implementing that thallection. secuon. 11 ' 1 A. AI noted in the Notice of Propo.ed Propoled RulemaJdng Rulemaklns. aection eetion 133 of or PURPA appllel to each ucb electric utility ulilhy who.e whole total.. sales Ies of or electric energy for pulp018' purpo.e. other than rellale resale exceeded 500 million kwb kwh during any calendar year beginning after December and befote berote the fmmedlalely Immedlstely preceding calendar year. Paragraph {b] (b) providea providel that each regulated electric utility meeting the requirement. requlrementl of paragraph (al (8) mu.1 mult fuml.h fuml8b 10 to It. III Siale Slate regulatory authority, autbority. and malotain maintaia for ror public inspection. data related to the costs of energy and capacity on the electric utility'a.y.lem. 'Y'lem. Each nonregulated electric utility utilily allo must maintain such data dala for public Inspection. 10 responje reapon.. 10 to commentll received. the Commission Commisllion ha. hal exlended the date dala by which the.e dala mu.1 mull be nrst provided to November 1. 1, 1980, and changed the 18cond.econd date dete to May , to conform conlorm to the datu.. required by the CommJ8Ilon'. CommJ8IIon'. regulauollllmplementing regujauollllmplementlng.tction.ectlon 133 of or PURPA. The Commlulon hal added paregraph patagraph (d] (dj to allow a State regulatory authority or nonregulated utility to UI8 uae a different approach than that provided In in paragraph (b). (bj. As part of that.ubltitute sub.tllute program, program. a State regulatory aulhorlly authority or 110nregulated electric utility could provide provide th.t that COlt data be updated mote more frequently than every two year. Subparagrapb Subparagraph (1) of paragraph paragrapb (b) requires each electric utility to provide the estimated ted avoided cost COlt of or energy on It. H. ' Iy.tem f.tem for vartolll varlouilevel. level. of urchase. urchaaea from qualifying facillue" faeiliua. The r. evel. evell of purehalel purchaae. are to be.lated etated In blocks of not more than 100 megawatt. meg.watta for.y.leml ay.lem. with peak demand of 1000 megawaui or more:, more, and in blocka equivalent eqwv81enllo to not mof9 more than ten percent of syltem 'yalem peak demand for Iy.lemllel. Iy.temllell than 1000 megawath. megawattl, Thll l'h11!nform,uoq WormaUoo 1.10 I. to be liated on a cenl, cenll per kilow4tt kilowa hour bout basi., basis. for ror daily and leuonal leason41 peak ".. fr S/l&81. &11&81. October n. 1"'" 1""- and off-peek orf-peak periods. periods, for the tbe currenl current calendar year and for each of or Ihe the next five yeatl. years. Subparagraph {2] (2) of paragraph (hj (b) requlrel require. each electric utilily utility to pro\'ide II. lia ac:hedule for tor the additlod additioil of capacity. capacity, plamed pl'med pureba18s purcha.es of firm eners,y and capacity. and planned capacity cepaclty retirements reure:ments fot for each of the next ten yeart. Subparagraph (3) of paragraph (b] (b) has hall been revised. revilled. II 81 di.cusaed di8cusaed prevtously, previously, 10 so that thai the co,ts COlts of planned capacity addition. additlona Include the assoclaled asaoclaled energy COltl. The Commiliion Commlliion received commeat commenl noung.thal nollng.that lome Statet Stal.. have. implemented or are an! planning to Implement alternative methods by wbjch electric utilities' 'f.tem I),.tem cost data would be made available. In (ltder order to prevent the preparation or of duplicative data where the alternative altemative method sub.lantially lubltanhally devlales devlalel from rrom the Commillioo Comminion approacb, approach. the Commission b ba,.. added paragraph (d). This Tbll paragraph provide. provld81 that any Slate State regulatory authority or nonregulated electric utility may. arter after providing public notice nouce 10 In the area Brea served by the utlllly utility and arter actet opportunity (or for public comment. require r~ulre data differentlban than thai which are otherwise required by thl thil.ection if It II delennineltbat detenninea tha t avoideu avoidmj co.t. CO.I. can be derived from. IUch uch data.. Any State regulatory authority or [lonregwaled nonregulaled uillily ulllily shall lihall notify noiuy the Commilaion Commission wilhin with in 30 days of any determination to.u.thule IU8titute data requirements. requirementa. II. I1a qualifying facility facilily linds thai thallhe the alternative requirement. do nol not provide.ufficfenl lufflcfent data from which avoided costs collla may be derived, derived. the lhe qualifying facility may aeek leek court review of the tke matter mailer as it can with regard 10 to any other otber aspect 0of 1 the State', State'l implementation of or Ihis program. A qualifying quelirying facility may wi.h wiah to sell energy enellly or capacily ty 10 an elec eleclric tric utilily ty whjcb whlcb I. nol not.ubject aubject 10 to the reporting requirement. requirementl ofpar8grapb paragraph (b). (b), In that t event, paragraph (c) provides providea that, i, upon Hque.t HqU8lt of 8 a qualifying fa culty. an electric utility not nol otherwiae otherwi.e covered by paragrapb (b) must musl provide data dala.ufficient luificlent to enable the cogenerator or small Iman power producer to eslimate &JUmate the uullty. utility', avoided co,t Co.ll.. U Jf auch luch utility doe... nol,uppl), not.upply the requested reque.ted data. dala. the quallrying qualifying faculty facility may apply to the State SIaie regulatory authority which has bas ratemaking authority over nver the utility or to thl, thl. Commillion for an order «Quiring HQulring that the Information be.upplled. supplied. The conlideratioo con.ideration of luch applicationl appllcatlone sbould ahould take into inlo account the burden impoled impo.ed on the.mall amall uulltie ulilltle.. AD 20

93 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 93 of t9 Federal Regi!:ter I Vol. 45. No. 38 I Monday, February 25, ~, 1980 I Ruff::. Ruh::. and Regulation An elec;1ric utility which I, 1.lIy lerelly oljligated to obtain all ofil' ofil. requirement. for electric energy and capacity from anolher utilily may pro\'ide the data provided by U, It, supplying utility ulilhy and the rate. ratel at al which II It currently purchases such energy and captcity C8P1city for ror any period durlll8 which thl. obligauon will continue. The... wholesale.. ralel rale. may requ.lre require adlullmenl adjulunenl In order to renect renecl properly lht.voided... cosll, COlta. Thfa Thll I. II dl.cusaed dlscusaed later [0 W. preamble under' , In the cate of s mall. non-generaling non-generating utilities, the requirement. of or this secuon will be cunsldered to have been satisfied ulisfied If Ihese these cosl co. 1 data dal. are readily available avajlable (rom from the supplying utility. utility, Numerou. comments mentioned IhMt thltl the propoled propo.ed rule did not noladdre sddrell.. the issue of \'IUdalion \'audation of or the data dala to be provided pureuanl pufluanl 10 this seclion, section, As II., rcsul" resull. the Cornmia.elon Cornmia.slon has added p parflgtaph...r&8raph (e) whicb which provide. provides thai tbat any d.,18 submitted by an electric ulllily under Ihil thi.ection.hall be subject to re,'lew rth'lew by It I Stale State regula N!sulalory lory authorily, aulhorily, Pitrasraph Paragraph (el(2) (eli2) places the burden or pro\'iding pro"iding support for the data on th e l!' ulni!y ulnily supplyil\b the data. ""t,... b9irt. C 292.J lO3 Eltclrk: utmly uillily obllg.tlonl obligation. under ",I,... b9irt. Section 210(s) 210(a} of or PURPA provides IhlJl the' Commiuion prescribe rule. rules (,.qulrlns rl1qolrlns electric utilities 10 to offer 10 to flut'cha,e put'cha,e electric energy from quallfyin.g quallf)'in.s fa radlhies. dlhiel. The Commission interprels lerprets this provision to Impose on electric ulilhies utilities an obligation to purchase all e.jer-tnc e.teelnc energy and capacily capacity made ;4vall81.1le ~vaihtble trom qualifyins qualifying fadlitle. ciliues with which the electric utility is directly or indirectly Interconnected. Interconnected, except durifl8 periods described in or during system aystem emergencies. emergencies, 1\ qualifying facility cilily may seek leek to ha\lt! have II uulity utllit), purchase purcha.e more energy or capacity capacfty than the-ulility the-utility require. 10 met't meet Us total tolal.y.tem load, In.uch IUch a case, while the utility illegally i.legally obligated obligaled 10 purchase liny energy or capacity capacit)' provided by a qualifying fa racillly. cili ty, tht' purchase purchrse rate rale.hould only Include paymellt paymelll for eneray enel'x)' or espacity capacity which the ut.llily utility can use to meet ita ils 10lal total system load. load, Thete Theae rules impose nu requirement on the purchasins purchasing utility uillity to ucji,er dcli~er unusable unuuble energy or cap8cit.v cap8cil.v 10 IU "ntlther "n(jther utility utilily for.ubsequent 'Ale '1'I1e. f 192,303(') H2.303(') ObIIiPUon 10 purch'jit purchan 'rom qu.tifymg qullifymg fectllu. factllu... 1.lt2.3i13(d).lt2,3i)3(d) Transmlaslon Tran.mlulon 10 0"",' ouwr electrlc electric utmu ulill1... "II-Requlremanl AlI-Requirement CORlreell. Con1r~II. Sel'eral Se~' e,al COmmenlers commenlers noled thai the 1.lth,iltlon u1thgilllon 10 to purchase from qualifyins qualifying r"cllll r"c1l1lies under,hi. this 'eclion lection mlgh! might!:tln q lnnlct nlcl with contraclual contractual commilmunt,; commltmunl'; into..-hich which they the), h.d had entered enll!ted requiring requ.irin.& them 10 to pu.rcb8le purchua.u au of thelt thell requirementa requiremenll from a wholenle wholeule supplier. aupplier. One commenter noted that. with regard 10 all-l'equjremenli al1-requlremenll rural electric cooperalivej. cooperalive., any Iny impairment Impairment of or the obligalion 10 to obtain.u au of. a cooperative'a requirement. from a I seneratioo generatioo and trln'mlllion tranlml.. cooperalive cooperative might misht affect the fmanclng abiuty 01 the generatioo generalion.nd and Inn.mInion tnniminion cooperative. The Commlllion.. lon observes obaef'\les that thal in genertil ge:nertll 11 lilt it pe.nnllted permuted.uch contractual provlslora provl.fora to override the obusalion obligalion 10 to purchase purchue &om qusufytng quaufytng facililies, facilities, these contractual devices might be ",eed uled to hinder the development of cogeneration and.mall power production. production, The Comml.sion believes that the mandale of PURPA 10 to encourage coseneration cogeneration and.mall power production requitel requ.lte. thai that obligations 10 to purchase under thls thlj pro\'ision provision.upersede aupers«le contractual contraclual restrictions restriclion. on a utility'. utility', ability 10 to oblain obtain energy or capacily capacity rom 8 a qualif)ing qualif)in.g facility. The CommlSllon hu, has, however,... pro\'ided an alternate means by which any electric utility can meet thi, this obligation. obligation, Under paragraph (dj. IdJ. if Ihe the qualifying quali yina fa cility coneent., consents,.n en all requirements requiremenls uullly utility which would olherwise be obligated 10 purchase purchue energy or capacity (rom rom the quajifylng facility ""ould \Oo'ould be permitted to tranlmil transmit the energy or capacity capsclty to fls its.upplyins.upplying ulllity, utility. In moat most inltance inatencel,. this tran.actio" transactio" would.ctually actually take the form of the displacement of energy or Of capacity thai would bave been provided under the all requirements au requirements obligation, obligation. In tbi! thi9 case, the supplying Ilupplylng utility i. il deemed to have made the purchase purch8le and, al as a result the au-requlremenla au-requirements obligation Is not affected. In addition, if If compliance wllh with the purchue obligation would impose a apeciaj apedal hardship h.rd.hip on an.1i requ[rements all requ[remenls cu9tomer, cu,tomel", the Comtni Commillion.. ion may consider con.ider waivins waiving such 9ucb pun::hue purchue obligation pursuant to the proceduru sel set forlh forth in Traflsmission Trollsmission 10 Other Facilities FacUlties There are several clrcumatance. circumstances in which a qualif)'lng quahr)'lns facility fachlty might mishl desire thai thai the electric ulility utility with which it It is Interconnected not bt the pw'cha.er pw'chuer of the qualifying fadlhy'. facilhy's energy add capacity, but bul would prefer instead instesd that thai.n an electric utility with wllh which the purclias.ina purcbas.ina utility i.lnterconnected Is Interconnected make such a purchase, purchase. If, for ror example. Ihe the purchasing ulility utility i, is non generaling non gener.tins utility. its avoided co.ts colta... will 111 he be the price of bulk purcbased purchased power ordinarily based on the average embedded cost of capacity and averase energy coat on its ils,upplylna lupplylna uullt,', uulity'. s)'"ilem. syslem. A. A a relult. re:.ull, the nle rate to the qua.lifyinj faculty would be baaed co 00 thohaverage those COIle. COIIta, fl. «however, tm quallmnl qll8lljyina facuity's r.culty's output were purchlled purchued by the IlUpplyina IlUpptyina uttlit)!, uttlity. It. Itl output OUlpUI ordinarily will replace the highest hlghett cosl cost energy on OD the tluppjylng tlupplylns ulillty. utility',,y.tem sy.tem at al that thai time, and ita Ita cap.city capacity mjght might enable the.upplyina,upplyina utillr, to avoid the.ddition of new capacity, Tbu Thu,.. the avoided co.ta co.ts of the.upplylng.upplylna utility ul1l1ly may m.y be higher that); than the avoided coat QOIt of the non-generating non-gener.ting utility, utillly. 'I'hl. Thll would nolappear not to be the Clif calif if Ihe the qu.lifying quaufying facility offen offert to.uppl)!,upply capacity and energy in a,ituatfon altuation in In which Ihe the.upplying supplying utiuty i. ia In 8n an excell excels c:apaclty capacity.fluation.. auuation.. Sfnce Srnce the.upplyinb aupplyinb uuuty haa has exceas excess capacity, III evolded avoided costa would include ani)! only enerp energy cosll. costs. On the other hand, if the avoided cosl wn-e wne baaed bued on OD the wbolesale wholelale rate fete 10 to the.u requlrements au requlremenll uullly, utility, the avoided cott co.t would include the demand charse charge lncluded included In to the wholesale 1ele.,ate, which would woujd u.ually usually reneel reneet a.n allocation of. a portion of the fixea fixei:f charges charge. a.aodated a.. oclated with exceas capacity. capacity, Use of the unadjusled unadjusted wholeaale wholesale rale (ail. fail. 10 to take lata lalo account the effect of or reduced revenue to the.upplylna utili'y, ulilil)" as IS a fe.ull re.ujt ollhe or the.ubatltute sub.tltuta of the qualifying facllit)". facility'. output lor energy prevlously prevjously.uppued b)' by the.upplying supplying utility. AI A. the le,'el le\'el of or purchase by the.n requjremenli.1l requjrementa utiuty decreuel. decreues, Ihe the.upplyina supplyina ullllly's ulluty's fixed co.t. CO.tl will have 10 to be allocated over a smaller number or of unit. units of outpul In etrect, effect, the 1081 lost in In revenue to the.upplylns.uppl)!lng utility will cau8e cauae the demand charge. chargea to the,upplylna uuljly'. utwty'. cu.tomera cuatometl [includ.in8 [ineludins the ad requiremeall au requlremeall CUltome,. CUltomen intercomecled inlercome~led with the quajiiying qualifying facility) 10 (0 Incre8le. lncre.. e. Under the derulltion derinllion of "avoided co.t." cost." in In thi. section, the purch8ling purch.sing uulity uulhy mual musl be in the.ame same financial po.ition po.itlon It II would have beed had bad It it nol purcb8led purcba.ed the qualilying (acilily" facility'. Dulpul. Dutpul..A. A.. a te.ult te.ull, tether rather lban wan allocating auocatins III 1011 in revenue among ell all of II. It, cu.lomert, cultolne.rs, in thia this.ituation the supplying ulility utility.hould.. 88sign all or of theee 10llel 10sle. to the all-requirements ulillty, utility, 'ThaI That uu1lty uullty.hould, ahould, in In tum, tum. deduct them tbehloue. lou81 from rrom it. il. previously calculated talculaled... avoided ooat., costs, and pay the qualicyina qualifying faciljly fac:l.1jl}'.ccordingly, accordin.&ly. Under thate these rulet. Met., certain small amall electric utilities utilltie. are not requited required to provide sy.tem syltem COlli d.ta, data. except upon request of. a qualirying qualifying facuity. facility. If, Ir, with the consent of the qualifying fa cility,. a.mall.mau electric utility choose, 10 to Iranlml! transmit energy eoergy from the qualifying facility to a second aecond electric utility,!.he the.mall Imall ulllily utility AD 21

94 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 94 of 111 Federal Register I Vol. 45. No. 38 I Monday. February 25, I Rules and Regulations ca.d ca.n avoid the otherwise applicable requirement. thai it provide the.ystem cost eost data for the qualifying (acility racillty and that It purchase th. energy Uselr. However. the ability to tran,mlt transmit a purchaee to another utility I. not limited to the.e theee.maller tmaller.yeteme: Iy.tem.: It applle. appllee 10 to any utility. Accordingly, paragraph (d) provldu that a utility which fecejves recdve, energy or capacity from a qualifying facility may, with the con.ent of the qualifying faculty, faculty. transrnitsuch energy to another electric utility. However. However, If the fir.t firsl facility racuity doe. nol not agree to tranamit tranlmit Ih. the purchaled energy or capacity. It II retain. retalna lbe purchale purchase obligation, 10 In addition, If th. thlt qualifying facility doe. not consent to tran.mlllion tranaml88ion to another utility, Iha the nnl nnt utility retains the p~a.e p~.se obllgal1on. obllgauon. Any electric utility to which.ueb energy or capaclly capacity fa delivered liiu.t musl purchase thia this energy under Ihe the obligation. set forth in In these rule. rules as If lb, th. purcha.e purchase were made directly from lba the qualifying facility. On. commenter.tated elated that this provi.lon provi.lod could result In energy being tran.mllled tran.mltled to a utility which hils liltle little or no Information Informalion regarding th. the reliability of the qualifying facility, The CoMmililon.. lon believe. believes that, prior to theae thesa transacuon. tran.acuon. occljrtinb, occurrinb, it will be In lbe the intere.t of the qualifying facility 10 Worm any utility to which 'energy 'enefsy or ctpaclty ctpacity It I. delivered. delivered, of the nature 01 thou deliveries. deliveries, so that thai such energy or c.paclty capacity can be usefu.lly integrated into th., thai Utilit," power.upply. Severa other commenlere commenlen believed that thai W. thi. provilion provision went beyond the authority of or.ection. 210 of n.mely, n.maly, lbat that the Comminlon Commi811ion cannot eannot requite tha the fint first utility 10 wheel the power nor the.econd eeeond utility 10 to buy Ihe the power. Flnt. Flnt, the Commll8lon Commilfion notes nole. that PURPA 1lI1. thl. transmlllion tran.mlfflon can only occur with lb. cod.enl COD.ent of the utility to which energy or capadty from the quajii)'lng qualifying f.duty 'aduty " til made anilable. anllable, Thut, Thu., no no utility I. forced to wheel. Secondly..tetlon.ectlon 210 doe. doet not limit the obligation to purdla.e pwcllsse to ady partlcular particular utility: nthar. nther. III. a generally.ppllcable applicable requltement. nqultement, Puagraph Paragraph (d) provide. provides that oharge. charge. for lrad.mllllon trad.mlfflon are not a part of Ihe the rate r.ta which an electric utility 10 to which wbfcb snersy energy It " tran.mltled transmitted i. I. obligated to pay the qualifying facility, facility. In the ca88 of or elec:tric electric uulitiel uulitie. not.ubjectto lubject 10 the Juri.dicllon Juritdlcllon of thl. this Commillion, Corontiffion, theta the.e chars" charse.hould be drtennined detennined under applicable Slate State law or regulation whlcb which luy permit agreement between Ihe the qu.ufylng qualifying 'aciuty laciuty and.ny electric uullty utility which wblch transmits tran.mlta energy or CJpaclly capacity with lb, lbe con.ent of the qualifying fa cility, cillty, For utilltie. lubjecl ubject to the Commlfflon'" Commlulon'" jurbdiction under Part II or the Federal Power Act. thete the.e charge. will be delenn/ned determined pursuant pur.uanlto Part n. II. The electric utility to which the electric energy i. Is tranaml transmitted tted has the obligation to pun::hase purchase Ihe the energy al at a rate rale which reflects reflecta Ihe the costa co.la thai that it can avoid as a result of making such sugh 8 purchase. In cases casea In which electricity electrlcity actually travel' travels aero.. the ttansmitting tranamitting utility'lly.tem. utility'. sy.tem. the amount of energy delivered will be 1e.a leas than that tran.milled, ttan.milled. due to line lone,. lone" When thlt thi, occura, OUUta, the rate (or fo r purchase can renect reflecl the.e these lone. In other ca.el. caaes, the energy.upplied by the qualifying facility will displace dilplace energy that would have been supplied luppued by the purchasing utility utilily to the transmitting tran.mlttlng utility, In those cases, a unit of energy.upplled aupplled (rom from the qualifying facility may replace a greater amount of enefsy energy from th. the purchasing porchaelng utility. In thll that caee. c.. e. the fate rate for purchale purchase ahould Ihould be increued Increased to renect the net gain. These provl.iona provi.ion. are al.o set fotlh forth In in paragrapb (d), (d) (b) 1292,303(bj Obligotion to sell sel/to qaalifying/aci/fti(f8. qaalifyinglaci/lti(f$, Paragraph (b).el. set. (orth rorth the.tatutory statutory requ.lrement requirement of section 210(a) of PURPA that each electric Ulillty utility offer to.ell sell electric energy 10 qualifying facilities, (aclliues. The Commission on observed oblerved In the Notice NoUce of Proposed Rulemaking Ruiemaking tbat State law ordinarily.el1 sels oul the obligation of an electric utility to provide.ervice lervice 10 to customen cuslomerslocated localed within Its service aervice area. In molt mostlnstancet, Inatances, therefore. therefore, this rule will notlmpo.e Impose additional addluonal obligations on electric utilltle utillties,. It is II possible that 8 a qualifying (acility facility located outside the.ervtce eervice area 01 of an electric utility might require back-up, maintenance, or other types of power. power, The Commis.lon Commission belleve. belleves that the instructions of section aectlon 210(a) 210(e) of PURPA that it [uue luue rule. rules "u "8111 II detennlne, delennlnes neceual")' necellary 10 encourage: cogeneration and amall ImaU power production 0" mandate that it as.ure u,ure that thet.uch IUch faeilitie. lacllities are able to fulfill fulfin their needs need. for service. lervice. However, the Commluion Commiuion.1so al.o recogni2es that thai State Slate and local law limits the authority of.ome some electric eleclric utilities tiel 10 to conslnc! conltrucl line. out.ide outaide of their.ervlce service area, Accordingly, Accordingly. Ihe the Commission Commiuion requlree require. electric utilities utilltie, 10.erve any qualifying fa cility, and. 8ubjectto subject to the re.trlction contained therein, to Interconnect. with any.uch such facility facilit;y ae as required In in paragrapb (c). However, an electric utility I. II only required ~uired 10 to con.lruct construct line. linea 0' or other faciliu fadlitiulo.. 10 the extent aulhorized authorized or requited required by State Slate or local law. Aa.a Ae,a re.ult, reault, a qualifying facility facillly oulsldll! the eervice aerviee srea erea or o( a Utility utility may be required to build ill ils line into the,ervice area of the utility, ullilly. '292,303{cj 1292,303{c) Obligation to interco"nf!t'i inlerco" nf!n tn the Noliee of Proposed Rulemak lng. ing. the Commiulon Commission used uaed the Interpretation set forth In the Staff Discussion Discuaslon Paper, thatlhe the obligalion obligation to interconnect with 8 a qualltylng qualuylng facility is sub.umed subaumed within the requirement of section 210(althol 210(a) electric utilities offer to sell aell electric energy 10 to and pun::hase purchase electric energy from qualifying facilities. The CommJuloo CommJssloll obaerved oblerved that 10 hold olherwlae would mean that thai Congress Intended to require Ihat that qualifying fadlitles fachlt le. 80 go Ihrough through the complex procedurea.imply imply to gain interconnection, contrary to the mandate of.ection section 210 of PURPA to encourage cogeneration and small amall power production. production, During the comment period, chis Ihls quellion queation Wit W81 further explored. explored, and It Wat was. lugge.ted that the Commission hus ample authority under the general mandate o( or.ection seclion 210{a) 210{a} of PURPAnamely, that it pre.cribe prescribe rule. neceutlry to encourage cogeneration and.mtlll smtl power production-to production-io require interconnection. While Wbile these interpretations received.ub.tantlal.ubltanual support in the comments submitted. lubmltted, Ihey they were at the same lime crltlcited crhlcb:ed on the theory thatsectian lection 210(e)(3) of PURPA does not providc provide that thai a qualifying facillty Cacillly may be exempted f,om from.ection lection 210 of or lbe the Federal Power Act (added by section 202 of PURPA and providing certain Interconnection authority) and lhatthls thai this Interconnection section speclrically speclricajly include. Include. qualliying qualifying cogenerators cogeneralors and.mall amall power producers In ita its applicability, These commenteu commenters contended Ihatsince that section 210 of the Federal Power Act deals expucllly expucltly with the.ublect lublect of Interconnections between qualifying facilities and electric utilities. utilities, no other.ection or o( that Act can be interpreted at also 8fa.nllng gra.nllng authority on thal.ubject. that as such an interpretation Interpretation would ~nder the expreu express provilion provision ".urplu.,ge"_.. Whh With regard 10 to these criticisms, criticisml, the Commluion obaerve. observe. that Ihis this argument t might be tenabla tenable In the aituatlon tituatlon in In which the aectlon aecllon of the legislation which deal. explicitly with the.ublcct sublcct doe... nol not contain an exprellll expre81 provision provla lon that thai II I, I. nolto not 10 be considered con.ldered the exclu.lve ex.clu.lve authority on the sublect. subject. The Commlfflon Commltllon note. that thai aection of the Federal Feder.1 Power Act (as (aa.dded added by.ectlon of PURPA).el..et. forth certain determinations that thai Ihe the Commluion mu.1 make before It can iuue ialue an order under elther:.ectlon elther:tectlon 210 or 211 or of the Pederal Powar Acl Act AD 22

95 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 95 of 111 Federal Register I Vol. 45. ND. 38 I Monday. February , 1980 I Rulea and Regulations Secllon 212(0) slales slates that no provision o f section 210 of the federal Power Act shall bo treated "(I) "(1) al requiring any p 'Nlon to utilize the authority of lucta luch section 210 or 211 in lieu of any other authori1y authority of law. or (2) al limiting, Iimitin8. impairing. or otherwise affecting any olher other authority of the Commiulon under any other provision of law." Thul. the Federal Power Act. as amended. expressly provides that the edltence edltente of authority under aection 210 of the Federal Power ActIo to require interconnection i. not to be Interpreted 8S as excluding any other interconnection authority availa'ble availiible under any IIny other law. The Commission emphasizel thai that the limitation is not relltricted to the Federal Power Act, Act. but rather extendl to Include other authority of law,.uch 81 the authority contained in Ihe the Public Utility Regulatol)' Regulatory Policies Act of of which section leelion 210 ill 8 a part. Clearly. the existence of this provision refutes the contention Ihat that.ectlon section 210 of the Fedeeal Federal Power Acl representl represents the exclusive method by which interconnection can be obtained. As a result the comment commenlthat thai the direction contained in section 210(e)13) 210{e)13) of PURPA that no qualifying facility can be exempted e.lc.empted from section 210 or 212 of the federal Federal Power Act i. not persuasive. persua.ive. The Commiuion Commission find. Ihalto that require qualifying facilities to go through the complex procedures set forlb forth in.ection.eclion 210 of the Federal Power Act to gain interconnection would. in most mo.t circumstance aignilicantly fmatrate frustrate tbe achievement of the benelita benefilll of this program. The Commiasion does doea not feel that the legallnterprelatjon le8alinterprelatjon let forth In the Starr Discussion Paper and the Notice of Propo.ed Rulemaklng i. il the exclusive theory by which il it may require interconnectiona interconnectlonb under this program without reaori resort to.ectlons lections 210 and 212 of the Federal Power Act. The Tbe In terpretation brought out oul during the comment period-that lectlon 210(a) 210(8) of PURPA provide. providel a gcneral general mandale for the Commisaion Commi8l!l10n to prescribe rules rule. necessary nccessary to encourage cogeneration and amall power productlon-provldea. production-provldes, in the Commis.ion s Commission's view. sufficient Burnclent authority to require interconnection. The Tbe Commission believe. believel thai a balic babic purpose of section 210 of PURPA II Is to provide a market for the electricity generated by small power producers and cogenerators. The CommlSlion believe. thai that accomplishment of this purpose would be greatly greauy hindered If it were to require qualifying facilities facililles to utilize section 210 of the Federal Power Act as the exclusive meana meane of obtaining interconnection. IIlherefore concludea concludel that such. restrictive Interpeelation Interpretation of Ihe the law Is not nol supportable. Paragraph (c)(i) (c)(1) thui thu. provides that 8n an electric utility must make an)' Interconnections with a qualifying facility which ma)' may be necessary 10 to pennit purchases from or.ale. lale. 10 to the qualifying facility. A State regula to.., authority or nontegulaled nontegulated electric utility mult enforce thia this requirement RB part of ita illlimplementation implementation of the CommiBlion's Commission's rulea. rulel. In addition. leveral leverel commenten commenters contended that, that. If 1 the obligation to interconnect is I, required under.ectlon lecuon 210(a} tlo(a} PVRPA. PURPA, the limitation provided 10 in.ection aection 212 of the Federal Power Act would not be available. That limitation provide. that an electric utility whlcb which compliea wltb an interconnection order under section aection 210 of the Federal Power Act would not be,ubject subject to the jurisdiction of the Federal Energy Regulatory Commission for any purposes purpose, other than those "Peclfied 'Pecined in the Interconnection order. After consideration of thl. this concern. the Commission bal baa added paragraph paragrapb (c)(2) (C)(2)to provide that no electric utility i. required to interconnect with any qualifyiil8 fa cili ty, ty. if. aolely lolely by teason of purchases or 88lel aalea over the Interconnection. the efectric utilily utility would become subject lubject 10 regulauon regulation 88 as a public utility under Part n U of the Federal Power Act. This Tbia exception II provided becaule the Commislion notel nolel that. In in balance. balance, the encouragement of cogeneration and amatl power production would not be furthered If. If, by "Irtue "irtue of interconnection with a qualifying facility. facility, a previously previoujly nonjuriadicuonal nonlurisdicuonal utility were reluctantly to become.ubject aubject to federal utility regillatioo. regwatioo {e) (8) Paralleloperation. Poralleloperation. In the Notice of Propo.ed Propoaed RulemaJdng. Rwemaldng, the Comml.lio'l Commlssioll provided thai that each eacb electric utility musl must offer to operate in parallel whh with a qualifying facility. provided that the qualifying facility facllily complie. complies with standardl Itandardl e,tablilhed established by the Slate State regillatory regulatory authority or nonregulaled nonregulated electric utility with regard to the protection of 'yatem aystem reliability pursuant By operating in parallel, parallel. qualifying quaufylna raciliuel raciutiel are enabled to export automatically any electric energy which il is not cod.umed consumed by It. own load. The commentl comments.ubmilled lubmllted have not nolaet.el forth any convincing convincins realqn. reasqn. for changing the propo,ed proposed rule. Paragraph (e) thus thui continue, contlnu88 to require each electric:; utwty utwt), to offer orrer to operate In parallel with a qualify-ins qualifying facility. I Rates Rotes for purr:hases. Section 210(b) of PURPA provides thai In requiring requiting any electric utility to purchase electric energy from a qualifying facility. the Commlulon mw! mwt ensure that the rates for the purchase be fuat IU8t and reasonable to the electric consumers of the purchasing utility. in the public Inlerest. Interest. and nondiscriminatory 10 qualifying fa oilities, ties. but that they not exceed the incremental COllts of alternative electric energy (the cost. costs of energy 10 to the utility. utility, which, which. but for tor the purchase, purchase. the utilit), utility would generate itself or purchase from another.ouree). source). Relotion Jo Stote State Programs The Commission Conuniuion has become eware aware that leveral Slates States have enacted legislation leglalal10n requiring electric utilities in In that State to purcha.e the electrical output of or facilities which may be qualifying fa cilities under the Commission's rule. rulel at fales tates which may differ from the rates rales required under the Commilsion', Commiallion. rules implementing sectlon lecllon 210 of PURPA. This Commission has 8el aet the rate rale for purchases at a level which it believes appropriate to encourage cogeneration and small power production. as required by section 210 of PURPA. While the rules prescribed pretcribed under section 210 of PURPA are subject to the statutory slatutory parameters. the States Stales are free. under their own authority. to enact laws or regulation. regulationa providing for fates rates which would result In even grealer greater encouragement of the.e technologies. However. Stale State law. laws or regulatiool regulationl which would provide rates lower than lbe the federal.tandardl federalltandardl would fail to provide the requisite encouragement ~r ~f thesa technologiel. and must yield to federal law. If a State program pro8ram were to provide that thai electric utllitiea utilities must purchase purchue power from certain types of facilities. among which are a~ included "qualifying "qualifylna facilities." facilities," al at 8 a rate hl8her higher than that pro"lded provided by these thelle rulea, rules. a quauryin8 qualifying facility raclllty might.eek leek to obtain the benefits benefit. of that State program. In.uch a case. however, the bigher bi8her rates would be based on State authority to establish such luch role., rale and not on the Commission'. Commission', rules. A facility which provides energy or capacity to. utility ulllily under State Slate authority may nevertpeless seek 10 to obtain exemption from the Federal Power Act, Act. the Public Utility Ulility Holding Company Act. and Slale Stale re8ulation regulation of electric utilities tie. 88 aa available under section lectlon 21O(e) 210(e) or PURPA. The Commllslon Commla.lon note. that the Statellack Slatel lack the authority to exempt e a facility racility from AD 23

96 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 96 of 111 Federal Register I Vol. 45, No. :J8 S8 I Monday, February 25, 1980 I Rules and Regulations Ihe Federal Power Act br PubUc P\lbUc Utility Holding Company Act The Commla.lon CommJa.lon rtnd. rind. no inconalatency In a facility'a takjng advantage adv&nlllge or of 'ecliod teclioll 210 in order to obtain one of II. benefia, beneda, whjle whije relying on other authority under whlch wblch to buy from or.fill or.~ to a utlluy. utility. t (o)!ltJw (o)!lDw /otpurclase$. Paragraph. (a).et. leta forth the.tatutory Ita tutory requirement that tate. rate. (or purchasel purchase. be jus I and reasonable (0 to the electric consumen: consumers of the electric utility and 1D the public interhl inlerhl.ud and not dilcrimlnate diacrimlnate against againsl qualiiytng qualifytng cogenerahon and amall power production facilities. In the propo.ed rule, the Commission.tated that there I II. rebultable preaumption that the tha rate for purchasea purchuea Is acceptable If lilt it renect. the avoided cost cosl relwting re.u1ting from &om a purchase OD the baall bull of Iy.tem IYltem co.t COlt data ael aet forth lorth puniuant punuanl 10 to '291:30% '292:30% (h} or (c), Many of the commenta commeota received atated thai that thla thli aeeuon leelion wal we. amblguoua. I1 The Commission has therefore provided thai that the rate for purcbs.es purcbaaes meeta the atatutory reqwremena requjrementa If it equals equala avoided costa, cosla, and hueliminated the reference 10 to the "rebultable "rebuttable presumption". Some comment. recommended that. aa a matter matler of policy, thla gection be reviled revised to provide Ihat. State Slate regulatory authority or nonregulated nonregulaled utility has discretion diacretlon 10 establish the relationship betwem between the.voided avoided cou cost and the rate rale for purehases. Other commenlen contended conlended that the Commission 'howd.pectfy. peclfy that the rate for purchase must mull equal the avoided COil COlt resulting from.ucb IUch a purchase. In addition, several.uggeated suggested that the Commission Commiasion adopt a ".piihhe-savinga" ".piihhe-savlng,".pproach,.pproach. It i. ie possible Ih.t th.t develope", developera of technologie. technologiee which may be Included lncluded II qualifying ra cilitle. may produce and add make avail.ble available power to electric facilities even though thelt cost of producing Ihls this power I. greater Ihan than the ulilily'l ulillly. avoided costs. coete. In most Instances. Inslances, however. however, purchases of energy or capacity from Clua1ifylng facililiet will onjy occur when the cost 10 to the qualilying qualifying cogeneralor cogenerator or small power powi!!' producer of producing the energy or capacity is lower than n the utiliry'a utiliry's avoided costa. cosla. Only U tblsl. Is the case will payment by the utility of ils its avoided coete provide economic benefit for the th" cogenerator or.mall amall power producer. producer, When one electr1c electric utility can provide energy more mon! cheaply cheapl)' Ihan than could cowd another electric utiliry. ulilily. the two ulililiel uluiliel win onen "Th. "The ",lalloluhrp I'IIlallOlUhrp ~I"'ffil ~IWffi l I~ Ih~ ulllity.)',1.111 '1' coif COIf dal ut nd lfie tfie rail' ra\f 101 lor pun:to h u u" Ia dl'c'ci.hd diic1l.hd lind".. nd.,. :blz.3oillud' fn302' 'lid' D'l.304lb). t:l'l304lb). exchange power on a "split-th.,.aving." "sput-the laving." basis. balls. In thallype of tranaacuon. the two utilitiea uuliuea.pllt Ipllt the difference between the incremental Incremental costa incutr'1!d inc1jtt1!d and end the incremenlal Incremental co.t. coat. that the purchulng utility would have inc\llnd incult'fd bad It generated generaled the power Uself. Ueell. Several commentera commenters 8raued argued thai that ratea for purebaee. purchasea from qualifying (acillue. (acllluea sboujd Ibowd be based upon thle thl. same eame 8eneral general principle, principle. The effect 01 of auch pricing mech.nlam mech.nl.m would be to trenefer transfer to the utility'a ratepayer1l ratepayerj a portion of tbe savinaa Ilvin8' repreaenled by the coet coal differential between the quaulying qualifying facility and th. the purchasing electric utility. Several utilltlee utilities contend thai that by so eo allocating theae these savings. eevinga. the Commiaafon Commil8fon would provide an incentive for the electric utility 10 to enter into inlo purchaee purch.ue tranjlctiona transactlona with qualifylng coseneralion cogeneration and lman lmall power production,.cuhie f.duliel. These commenlers commenlej1l.llo alia noted that tbey bad pn!vlousty prevlou,jy engaged enaaged In purchasea purchue. from facllitiea lacilitiea which might become qualifying facilitiel racilitie. under the Commill.ion 1 Commiseion's rulea, and they had paid pricea (or for these purchases purcbases based baaed on " a "aput-the-.avings" "aplit-the-llvings" methodology. Theae commenters commentera obeerved obaerved that thai If the Commission'a Commission', rule. rules now require the payment 01 of full.volded cost for fot theee types typea of purchases, purchases. the purchased purch8led power expensel expenses of o( the electric utility would increase. increase, Moreover,.everal leveral utllitiea utilities commented that. for the foraeeable future, they.,...,.. Inextricably tied to the un Ute of ou to produce electricity. They contepd cont.epd thlt that unless they are permitted permitted 10 purcha.e purcllale energy end and capaclty from quallryfns qu.lirytns facilities at al rate.omewhere eomewhere between the qualifylns f.cillties facilities' cosll coati and their own COstl, COSII, they.nd their ratepaye,.. ratepayera will be eublecl lubject to the continuau)' continuauy increaeing Increaaing world price of oil Commenler. Commenter. oppoaina this thla allocation 01 of savinsa laving' 10 to partiea p.rtiea other th.n than the qualifyina qualifying f.cility f.cuity noted that fbi. thia.ection section of PURPA i. II lotended lntended 10 encourage the develo",ment of coseneratlon cogeneratlon and aman power production. They noted thalm that in providing fot for W. thil encouragement, the CommiaaioD Commissioo may notaef set ratel for purebases purebasea at III a level which wbich exceed. the incremental COlt coat of alttrnative altt.mative eoergy. Therefore, they obaerved ob.erved th.t, thai, under the full fuji avoided coatllandard, cosl standard, the utihtiea' ulijitie.' cultomera custome,...te' are kepi kept whole nd pay p.y the aame lame rate rale,... they would have paid had the utiliry utility not purchaaed purchaled eneray energy and capacity cepacity from the qu.lifyina f.cillt,_ fa cillty_ AlLbough use or of the fuil full avojded avoided cott standard atandard will wiu not produce any rate rale savings 10 the utility', cultomen, co,fomers,.ever.1 aeveral commentel'1 at.ted at.led th.t that thesa.. ratepayera and the oauon nation as. a., whole will benefit from the decreased decn=ated reliance 01 of ecarce ecij'ce (olin.. n fuela,. such euch a, al oil and gal, gas. and the more efficient use of energy. The Commission Commlasion notes nolea that. in m091 most instancea, i pan of the savings from cogeneration and.mall amall power production were.1i0cated.liocated amona among the utilitlea' ratepayera, any IIny rate reductions will be in.ignificant Inaignlficant for any individual Individual customer, On the other hand, If these savings saving' an!.~ allocated to the relatively relatlvely small clall cllili of qualifying coge.netatore cogert!.rators and small power producera, producers, they may provide a algnificaotincenuve algnificanlincenlive for. (or a higher growth rale of tbese technologies. Another concern with the ule 01. of a splil the savings sphi-the-savings rate for purchases i!l that it woujd wowd require a determination of the costs of production of the qubllrtlng llf)oing facility. A major portion porlion of thl. thl, legislation ia intended 10 to exempt qualifying facilities racililiee!'ram from the co.t o! coat'of service: regulation by which electric utiliities traditionally traditjonally have been tabulated. rerulated. The Conference Report noted that. It II ta nolthl not the Intlnllon of Ihe Confeteea thai cosideralorl coglderllorl Ind smau power producert.. ce,.. becxl1nl.ubj ' ubjpcl PCI,.,, 10 the type of eumlnalion ex.mlnilion Ullt I. ttadllionltly ttadllioni lly liven 10 elec1r1c.. u'1ii11 (1111), tate rile spptlcalion.lo sppllcation.lo determine dc!(ermlne what whlll I. t. Ih' JUII Ju.1 and Ind reuooable nue rale Ihalther that Ihey.hawd should receive for their electric power. IJ Thu., Thue, SlecHon section 210(e) of PURPA provides Ihal that the Commission Commil9ion shall exempt qualirying qualifying 'acuiues facili ties from the PubUc Utility UHllty Holding Holdina Comp.ny Company Ac!. Act. from (rom the federal federaj Power Act and hom State law and rqulation resulalion respecting utility rates te, or Onanda! Inanciai organization. organization, 10 the extenl extent that Ihe the Commllsion Commission determlnea Ihalluch thai such exemption is necesssty necessary 10 to encourage cogenerl'fion cogeneration or.mall power production. Several commenlers commenlera have conlended contended thai a determination delenninatlon of the qualifying facilit)", facility', coeta co.ta can be made without the detail required by cost-of-.ervicfj cost-ol-lervicfl regulation. However: the Commission belie~es that the basi. basil for the: determination of rates rales for purchases ehoujd ahowd be the utility's avoided costs and abowd not vary on the basie basis of the cosll costs of the particular partial!ar qualifying qualify!ns facility, cility. Several commentera recommended that rather than using uling a apllt aplit. the,savings t11e.savings 'pproach, approach, the Commission should.et sel ralea ratea tor purcbaaes at a fixed rlxed percentage peruotage of avoided coall~ co.ta~tbe The Commiulon notes noles that, in mo.t molt situ.tiont, situations. a qualifying cogeneralor or amall power producer will wiu only produce energy if illts Its marsinaj marsina! coat cost of production Is leis tess than the price he receives ~celves for ror It, It. output. If some nxed percentage percent.ge I, la uled. a qualifying fa racility "Conrerene. "Conrtrenc. It,port R,por1 011 H.R..m&. H.R..o\&. Public Publ'ie: UllIlt)l UIJUt)' Rt8u.l.lory Rt8ul.lGr)' PoUcJn PoUcJu At t olle?a, olle?a. H. Rep. Rtp. No. l~$o. l ~so. 11. Q5tl1 Q51l1 Con,... 2<\. 2<1. s.....(1818). (11178). AD 24

97 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 97 of 111 Federal Register I Vol. 45. No. 38 I Monday. February 25, 1980 I Rules and Regu1atlons RegWations may ceue to produce additional unllt of energy when II. co.lt co.t. exceed the price fo fa be paid by the utility. U lhl. thl. occun, the utility will be forced to operate generating generatins wtit. which either are Ie efficient efficienllhan than those which would have been used by the qualifying faciuty, faciuly, or which consume follil f08.illuel fuel rather than the allemative allemauve fuel which would have been consumed by the qualifying facillty facility had the price been.et at full run avoided COIls. costs. I (b) {b) Relationship to Gvoided ovoided CDs18. costs. "New CapacIty" Capacity" The proposed role rule differentiated between belween "old" and "new" production in connection with simultaneou. simultaneous purchases and salea. The propoaed rule required an electric utility to pw'chase at Ita avoided coat coal the lolal total output of. a facility, 'acility, conatruction construction of o( which Wal wu commenced after the date of Ilfuance Inuance o( of these rules, rulea, even if i( the utility simultaneously sells energy to the fa cility allis its retail rste. rste, The effect of this s proposed rule was to separate separale the production aspect of 8 a qualifying facility from its consumption function. Under this thie approach. approach, the electrical outpul of o( a 'acility fa I. Is viewed independently of it. electrical needs. Thua, Thus, if, If. cogeneration facility fe produces five megawaus, megawatt., and consumes three megawatte,lt megaw,tla, 1t ia treated Ihe the same 88 as another qualifying facility faeility that thai produces five megawatts, megawalls, and that thai Is located nexi next 10 to a factory that usea usu three megawatt., megawatt.. The Commiaslon Commission continues conunue. to believe that i permitting.imultaneous limultaneous purchase and ssle sale is neceuary neceusry and appropriate 10 to encourage cogeneration and.mall small power production. The limitalion limitation contained in the proposed rule W88 wae intended Intended 10 to prevent a cogenerator or small power producer, which had found (ound It economical to produce power for its own consumption prior to the luuance of tbese rules. Cram Crom receiving the economic rent renl that might result from Ihe purchase of Its entire output ala at a utility's utility', full avoided cost COal after that date without new investment on the part or of the qualifying facility. 'The same reasoning epplies applies 10 to any fa cility which WBS W88 In existence prior to the enactment of PURPA, whether or nol not it seeks to purchase and aell simultaneously. That con.truction construction of the facuity facility wal was commenced prior 10 to that thai dste dsle may lndicate Indicate thai appropriale appropriate economic returns were available without Ihe the further Incentives Incentive. provided by section aection 210. The Commisalon I. II aware thai In 80me Instances. In.tances, ir if a previously exl.lins existing qualifying facility were not nol permitted to receive full avoided cosls for It. enure output. oulput.lt It would no longer have sufficient incentive Incentive to continue to ptoduce produce electric power, power. The co.t coat of or production may have rj.en rjaen 80 ao 81 U 10 render the previoull rate!n.ufficlent!naumc!enl to cover the cost. COlta of production, or permh an appropriate appropriale return. ThUI, Thus, with regard. to (acnitie., facuitiel, construction of whjch commenced on or after the date dale of enectment enactment of PURPA (November G, ii, 1978], the Commillion Commission hal h.. detennlned It appropriate appropriale to provide thai rates for purcha.es purchaaes.ball shau equal fud avoided costs. cosls. For faciutiea, faeilitie., construction of which commenced before the enactment of oc PURPA, the Commil8lon Commi.slon will pennll pennil the State regulatory authorities and nonregulated nonregulaled electric utilitiea utilities to establish rates rate. for purchases at full avoided co.ls, COlts, or at a lower rate, If the State regv.lalory regv.latory authority or nonrtgulaled nonrtgulated electric utijlty determine. determines that the lower rate will provide.ufficlent lufticlent encouragemenl encouragement of oc cogeneration cogeneretion and.mall Imall power production. Thus, If. if a previously exiating existing faclljty Cacllity shows shawl that It II requires fates ratea for purchases purchalea based on full (ull avoided COata coats to remain viable, or to lnctease mcre88e ita output. oulput. the Stale State regulatory authority or nonregulated electric utlliry utdiry Is I. required to establish such tates. rate. Thi. This distinction Is intended to renect reflect the need for further incentivea and the reasonable expectations of peraon. perlons lnvestlng lnvealing In to cogeneration or small power production facilitie. facilities prior to or.ubsequent subsequent to the enactment enaclment of thjslaw, tbialaw. Paragraph (b)(l) (bl(ll define. definel "new capacity" 88 as any purchaae purchase of capacity hom a qualifying facility. facility, construction of which W81 wae commenced on or after November 9, Subparagraph (2) provides providea that (or for new capacity. uulities utilities must mu. t pay a rate which equat. equal.. their avoided cost. A utility must musl therefore purchase purchaae all of the oulput output from a qualifying facility. However, as explalned explained above, for (or any por!jon por!-ion of that thai output whicb which Is nol not ''new capacity," the State Stale regulatory authorily authority or nonregulated electric utility, as provided in paragraph (b)(3), may provide for Cor a lower rale, rate, if it delennlnes determines that the lower rate will provide sufficient aufficlent incentive incentlve for cosenerauon. co8eneration. Paragraph (b)(4) requires requirel electric utilities utilitiea 10 to pay (ull full avoided co.t. COlts for (or purchasel purchases from new capacity capac::lty made available from a qualifying quelifyins facility, regardle regerdleas 88 of whether the electric utility Is simultaneously elmultaneoualy makins making sale. sales to the qualifying qualifyins 'acill!y. fa t (C) {C) Standard rotes for purchases, purchases. The Notice of Proposed Rulemaking Rulemakins required electric utilitie. utiliuel on request of a qualifying quaufylns facility to e.tabliah establish a tariff or other method for 8stabll.blng establlsblns rate. rates for purchale purchase from Crom qualifying faeiliue. (aciliuel of 10 kw or lesa. lela. Upon consideration of the comments comment. received, the Commlilion Commlliion ha. h determ1ned determined that the concept of requlrlng requlrins a.tandaro Ilandard tate rate for purchase. purchalea should ahould be retalned. retained. Several comments slated Iated that this requirement could similarly be applied to fadlitie. facilities of up to 100 kw or lell. Ie... The Commission Commllllion I. Is aware thai the.upply aupply characteristic. characteristics of a partlcu1a: parucu1a: facility facilily may vary in value from the averag~ rale. ratea set forth in the utwty'. utwty's.tandard standard rate requited required by Uti. Util paragraph. U the CommJsslon CommJlslon were to I1lquire I1lQuite individualized rate., ratel, however. the tranaaction tranlaction cosls costs associated with administration of the program would likely Ukely render the program UDeconomlc uneconomic for thia Utis.Ize aize of qualifying facuity. 1.4 A4 a result, the CommJlllion CommJaslon will require that.tandardized atandardized tariffa be implemented {or for faciliues of 100 kw or lea less.. In addition, some aome commenlers commenlel'8 pointed out that standard atandard lariff. tariffa can be used on a lechnology technology.pecific Ipecific bills, bali., to renect reflect the supply characteristics characteristica of the particular technology. Some commenters also observed that thel the proposed rule did not nol require that standard ratea rates for purcbase. purchases from theae these amall facilitiea facilitie. be baaed on the purchasins purchasing utility'. utility's avoided cost cosl This oml88ion omlsaion might bave permitted permhled a uulity utility to pay le88 leas than thsn that rate for purchases. purchases, The Commission has accordinsly accordingly revised reviaed paragraph (cl (c) to require each State Slate regulatory re$ulatory authority or nonregwated nodregu1ated electric utility to cau'e cause to be put into Into effect standard atandard ratea for purchaees purchases from qualifying facilities facnnles with 8 e design capacity o( of 100 kilowattl kilowalla or less. The revised rule requi(e. requi(es that standard slandard rate. ratea for purchase. equal the purchllina purchulna utility'. utility's avoided cost punuant to paragrapha psragraphs (a), (h). (b). and end (e). Ie). Several commentere commenter. noted noled fhat.tandard standard ratea rates for purchases can alao &Jao be usefully applied to larger facilities, facililies. The Commission believes that the e9tablisbmenl establishment of standard atandard ratel rates for purchases can significantly encourage cogeneration and small amall power production, provided that thai these.tandard atandard rates accurately reflect the coat. co,ts thai that the utility can avoid as 8 a result of.uch auch purchases, Accordingly, the Comm188lon Commlsalon hu has added.ubparagraph subparagraph (2) which pennit., but doea does not require, Stale State regulatory authorities and nonregulated nonregulaled electric utilitiea utilities to putlnto loto effect a standard rale rate lor for purchases hom qualifying facilities with a design capacity greater grealer than 100 kllowalls. kilowatts. These rate. nles must equal avoided COlt cost pw1luant pl111luant 10 to paragraphs (a), (h). end ond (ej. AD 25

98 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 98 of 111 Federal RegUtar Regfeter I Vol. 45, 4S, No. S8 38 I Monday, February , 1980 I Rule. and RegulaUon' RegulaUon. Man, Many commentel"l cornmenters at a t the Comml'lion'. CommJ.sfon'. pllbuc public hurinp hearinp and In written commenta comments rac:ommended NCOmmendsd th., thai the CommiuioD CommiliioD.hould should require th, etlabli,runenl e.labu.hmenl of "nel "net enll1'81 met81 billlnr" bullns" for.mall qualifying quaufying faclliue r.cluuea... Under thj. thji blulns method. the output outpui from I a quallfytn. quall!ytn. facility f.cility ",venti. revene, the electric meier u.ed used 10 to me81w'e meafw'e.ale. Ie, from. the electric otility utility to the qualilyins quallfyids (acillty. raciuty. The Commiliion.. lon believel beueve, th.t th,1 thi. blulna bllllns method m.y ma, be an.ppropri,te appropriate way o( of approximauns approximatma avoided lvolded coello coll1d lome tome circumllance drcum,lances,.. but doel doea not belleva belleve thai that this thle II I,the lbe only practical practjca1 or appropriate method to elt.bu,b eat.bu,h rate. rale. for ror.mall Imall quaufyins qualifying facilllfe fadutfa.. The Commi Commlnlon.. lon observet obaerve. that Ibal Ret nat energy billing biu1ns I. II likely to be appropriate when the tbe relail retail rates rate. are mattina) mal'jinal colt ba.ed. coat ba.ed. time-of-day tlme-of-day rain rales. Accordingly, Accordingly. the ConunJ Comml.sion.. fod wlu ww leave 10 the Slate State regulatory autboritie. aulboriue. and the tha nonregulated el!!chic electric utilitfe. utijltl.. the determination delennlnation.s as to whether to inlltltute Imtitute net nel energy billing. Paragraph (cj(3)(i) provide... thai that.iandard tandard rates rate. (or for purcba.se purcbaaa.bould.hould lake taie Inlo account I!ccount the factonl faciol'1l set lei forth in paragraph (e). These Theae 'actors laetors relate 10 to the quality of power from trom the qualifying quallfyins faculty. and Il1Id Its ability to fit into the putc.baslng puj"ch8.llng utility'a utility'. generating mix. mlx. Paragrapb Paragraph (e)(vi)is (e)(vij la ofpartlcujar partfcular.lgnlrcance IlgniRcance for (acillties facilltle. o( of 100 too)(w kw or leu. Thll Thla paragraph providet providea lhat thai ralel for purchase shall Ihalltake Into tnlo account "the" Individual and aggregate value of energy and capacity capecily from qualifylna: qualifyins faculuel facillues on the electric utility', utility'. sy!lem system. ~ ".". Several commenletl commentert presented preaented pertu8llive persuasive evidence.howing showing that an effectlva effective amount of capacity may be provided by di.per8ed di.pereed amall.y.tema, IYllems, even in the cale case where wbere delivery of o( energy from any aoy parucular particular (acujty (acluty I. I, Itochaltic. Itochaatic. Similarly, Similarly. quajify ns qualicylna facilluel facilities may be able 10 to enter enler into Into operating tina agreements with each other by which wbich they are able to increase incree.e the allured asaured 8vailabUity availability or of capacity to the utility by coordinaung coordinating.cheduled maintenance and providlng providing mutual back-up back up service. lervlce. To tha the extent ext~t thai that this aggregate capacity value can be reasonably eatimated. eltimated, It must musii be reflected in.tandard rates (or for purcha.6j. purchaa6l. Several commenters commentera observed that the patternl paltems of avauability availability of parucular particular energy.ourus.ourees can and. Ibould hould be reneeted reflecled in atandard ratel. lel. An example of thi, this phenomenon is II the availability avallabillty of wind end and photovoltaic energy on a.ummer lummer peaking.y.tem. ay.tem. If U II It can be.howo,howd that Iy.lem IYltem peak occura OCCUJ'1. when there I. II bright sun aun and no wind, ralea ratel for purchase purchlle could provida provide. a higher capacity payment (or for photoyolt.lc photoyoh.lc cell. celli than for wind energy energ)' conyerslon conyl!j"ilod aystelm. Iyltema. Par Por 'Y.tems Iflteml peaking on 0'0 dade windy day'. day". the feverae tevette mlghl mjght be true. we. Subparagraph (3)(U) (3)(11) thad proyidet provide. that.tandard.tandatd ratel rates fot for 'purchases 'purchalet may differentiate amana among quaufytnc quaufytoc (.cilltln. f.cilltfn, on the b.111 basis of the.uppl, luppl,. characleri.tic. characterlstiet oc of lbe the particular plll'lic:ujar technology. II 1129Z3M =-(b)(s) and (d) u,aljy!.<golly anforr::nbl.obli'0tidfll. enforceabl.objilatiom. Paragraph. (b}(5) (b)(s) and (d) ant ani intended to recoocue reconcue the requirement requ1remenlthat the rates ratea for puich... equallhe the utujuet' u\ujtiel' avoided co.t cost with the Deed need (or Cor qualicyins quajifyins faclude. faclutie. to be abla able 10 to mter into contracnal contractual commitments oommjtmeoli baled. bued. by necelaity, nece.alty, OD eltimetes estimates of oc future l'utura avoided COltl. co.ta. Some of the commeolt comment. received resarding reaarding thi. thja lection.ection Itated ted thal, thai.. if the avoided co.t COil of oc anergy energy at the time It ia auppued lupplied it la Ie.. lha.n than the pri~ price provided In the contract cootract or obligauon. obllgahon. the purchasijl8 purchasin.s utility utuity would be required requind to pay a rate (or for purcba.ea purcb.let lhat thai would sub.idize lublidize the qualifying qualliyiog fadlily facility al at the upen.e ex~.e of the utility', uuuty'1 other ratepayera. The Commilsloo Com.m.iasloD reoogni:j.es recognb.e. thi. thl. polaibwty. po.aibwty. but I. la cogniunt cognizant that thai in other caaea, casel. the Ute requlre{l require" rate rale willium williurn out to be lower than the avoided celt co.t at the tha time of o( purchase, purcha". The Commfslloo Commlslion don doe. Dot not believe that thai the reference In the. Ilatute telute to the incremental co.t of o( alternative eoergy energy waalntended intended to require II a m.[nule-by mfnute mj.nute-by-mlnute evaluation of co.ts costa which would be checked agaiost ratel rales establilhed in In leng long term contracts between qualifying quallfying (aclutiea facilihea and electric utilihes. uuhue. Many commente,. commenterl have atrelled Itresaed the need for ror certainty certaint}l with regard to retwn on inveatment investment in new technologies, technologiel. The Commiaslon Commlaslon agreel agree. with thele theae lalter latter argumenta. arguments. and believe. believl!i that. that, in the long Ions run. "overeltimation," "overeatimation.' and "undere.umationl" ''uodere.umation.'' of avoided costa CO!!lI will balanca balance out oul Pvagrapb Paragrapb (b){s) (b){5).ddrellea addreuea the tha.ltuatjon 'ltuatjod in which. a quaufyins quaufyin,s facility hat bas entered Into. inlo II contract with ao 8n ' electric utility, or where the quaufying quaufylna faci1jt}i ractuty haa baa agreed 10 to obligate ItaeU hseh 10 to deliver at a future date data eoergy energy and capacity 10 the electlic elecbic utujty. uliljty. The Import of thla thl. section secuoo la l.t 10 to ensure that a qualifying (acuity (acillty wb.lch which hal ha. obtained the certainty of an &n'angement artal1jlement il is nol deprived of the benedta benefiia ef of Ita its commitment III 81 a relult reluli cf of changed clrcum.tancel. clrcwnatancel. Thil This provialon provia\oo can also. alao work to preaerve the bargalo bargain entered into by the electric utility; utujty; ahould Ihowd the actual aclual avoided co.t be higher thad than thoi. tho.. contracted for, for. the electric electrie utility l.t I, nevertheleal neverthelell entjtled entitled 10 to relaln retain the benefit of It. I.. contracled contracted for, rnf, or otherwla.legally otherwise legally enforceable, enforceable. low«lower price (orpun:ha.e. fer purchelel from the quallfylns quaufyfns f,duty. facujty. Th.J, TbJ,ubparagt'apb ubparagrapb will thul thu. en.ure enlure the certainty of ratel rale. for ror purchaael purchue. (rom from a qualifying qualilyina facuuy faculty which which entel'linto enlarainto a commitment cornmjtment 10 to dehver deliver energy or caplicity caplllclty 10 to a utility. Parqraph Psragrlllph (d)(l) provides that a qualllyina qulllllyina facility may provide enersy enel'8y or capacity clllpaclty en on an "as "u available" balla. ba.l.. I.e., without legal obligation. The propoaed propo.ed rule provided that ratel rate. for,ucb sueb purch8lel purchases should ahould be based baaed on "actual" avoided co.ta. COlt. Many cornmentl comment. noted that thai b8llng bllln8 ratel ratet (or for purchasel purchase. In.ucb luch clles calel on OD the utility'l utility', "actual "acluaj avoided costa" co.ia" la I, milleading mi.leadlng.nd and could require retroactive ratemaking. ratemajd.na. l.n In light IIghl of theae these comment C()mm~nt.. the Commi.lloll Commia.IOIl hat hal reviled the rule to provide that the rales (or purchase. purchalel are to be baaed based 00 on the purchal1ng purcha.lng utility', utillty'a avoided coltl COlts e.timated eltimllted at the time Ume of delivery." It Paragraph {d)(%} (d)(%) permits permlta a qualifying facility to enter into a contract or other legally enforceable obligation 10 provide energy or capacity over a Ipecmed Ipeclned tenn. Ule Use of the term "legally "legauy enforceable obligation" obu,gation" I. i.lntended intended to prevent a utility from circumvenling circumventing Ihe the requirement requlrement thai provides provides capacity credit for an eligible qualifying qualifylng facility facillly merely mert!ly by refusing 10 to enter Into III a contract with the qualifying facllily. facility. Many commenters commenlers noted the.ame problema problem. for eltablishing e.labushing falea ralea for Cor purchaael.. e. under subparagraph (2) as In aubpatagrapb aubpafagraph (1). The Ccmmlaalon Commission intend. inlends that rate. (or for purchases be baled. at the option of the qualifying faculty, facility. 00 either the avoided cosll coati at a l the time of delivery or the avoided costs coals calculated at the time the obligation obligatjon is incujted, InCUJ'T1!d.l1da Thla change enables a I! qualifying quaucytng facility to establish a anxed contract contracl price for fof its ita energy and capacity capaclt}lat at the outset of it. its obligation or to receive the avoided coati cosla detennined at the time Urne of delivery. A facility f.c:ility whicb enlers enters Into a e long term tenn contract to provide energy or capacity to a utility may wl.h wish to receive re~eive a grealer greater percentage percenlage of Ihe the lolal total purcbase purchase price during the beginning o( of the obligation, obligation. For Por example. a level payment.chedule Ichedule from the utility 10 the qualifying facility may be used to match more clo.ely cloaely the achedule of debt aervlce lervlce of the facility. So long 8J a, Ihe the total payment over ovar the duration of the th,. contract cootract lenn tenn does doe, not exceed the eltimaled estimated avoided coata. coal8. nolhlng In thete the.a rulel would prohibit a Slate Stale regulatory authority a or non regulated electric electrlc utility from approving approvina such IUch an.'tbnaement. arrangemenl.. "II!.dd!dOfl to,ii, til. 'V1Itded 1:11.11 ca.t. 01 en,,,,,. ene'ld'. IIIC!I' 1fI~.. cveu WIiUI mll molt.. lndud, Indud, It.. ttl. JII'OI',t-<t PI'Ol"'i'd.11,,..1'1... of,ii. til, ', c.t~ell)' c.t~cltr ",Ju. ",I... DIINd! of INdI,.ciUUy, r.ci IWea. AD 26

99 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 99 of 111 Federal Regtater Regiater I Vol. 45, No. 38 I Monday, February 25, 1980 I RuJea and Regulation. I (c) FoctOl"loffecting FoctOl"lo/fectina rol5 roll!s for purchase&. Capacity Volutl An i.sue ilsue bsslc 10 to this paragrapb Is the question of recognition of the capacity v81ue of qualifying (.ciliuel, raclliuel. In the propo.ed rule, the CommissIon adopted the argument set let forth in the Staff Discussion Paper that thai the proper interpretation of section aeetion 21O(bJ of or PURPA requirea require. that the rattl' rattla for ror purchasea purchases include recognition of o( the capacity \palue provided by qualifyins cogeneration and Imall power production facilitiel.. The Commission noled noted that language uaed used in seclion lection %10 ZlO o( of PURPA and the Conference RepOJ1 as well 8S as In the Federal Power Act supports this propoliuon. propolitlon. In the propo::led rule, the Commlasion Commlaeion cited the final flnal paragraph of the Conference Report with regard to seelion section 210 of PURPA: The confer«' conferee. expect that thai the Commlilion. Commiliion. in ~n judging whether the electric power supplied by the cogenerator or.mall,mall power producer will replace future power wbleb wblch tbe utility would otherwi.e hs\'e ha\'e 10 to generllte ilstm either through existins capacity cepagity or additionl additions to capacity or purchne from other sourt:e,. sourt:es. ""ill tske take Into account the reliability uf ur 'he power.upplied lupplied by the cogenerator cogenilrator or smdli smdll power producer by rell.on reliion of any legally enforceable obugation of,ud!.ud! c;o/!tmeralor c;08tmeriltor or.mllll Imllll power producer IQ I Q 5upply ~ u finn power 10 to the utility." In addition to that citation, the Commission CDmmlssion notell that the Conference Report slate. states that: In interpreting tha term 'lncnme.nlai "Inaemental Cosl~ CO"~ of al'ernatlve energy", the conferee. conlereel expect thill the Commluion Commlnion and the Slates may loo~ beyond the cosl. of ahemative alternative sources.outces which ~ ~re instanl,ni!ou8!,y instantaneou8!,y availlble avail,ble to the uujuy Ulity. ' ~ Several commenters commenter. contended that. since.ectlon section 210{a}{2} 210{a){2} of or PURPA provides thai electric utilities must "purchase electric energy" from qualirying q facilities, the rate for such purchases should nol not include payment!. for capacity. The Commisaion observes Ihal that the statu lory language langua8e used in The federll l Power Act Acluses uees the term "t:lectric energy" to describe the ra le.s te.s for sales s&les for ror resale in interslate Interstate commerce. Demand or capacity capacit)' ptlymenls p&ymenls are a traditional par! of such rates. The term "electric energy" is u!led u!led Ihrou8hout Ihroughout Ihe the Acl Actio to refer rerer both 10 to electric energy and capacity, The Commission does not find any evidence Ihat that the lenn term "electric energy" in section 210 of PURPA was Intended to refer onl)' 10 fuel and operating operatin8 and maintenancf! maintensncf! "Conteren "Conferen... Rt!pOrt on H,R, H,R Publir. UUtil) uut,,) ito;j(uh,.oty ito;j(uh'ioty Potic!e. Pollcle. Acl Act of tva. H. H, R"p N No:.,.., 1':"110. '~IIO. ~ 'Hlh C:Dn8 ~ Zli. 20. Sell. (l117si.,. 1(1., pp upenael, upensel, inalead inltead of.u all of the COlLI associated Bssoclated with the provi,lon provillon of electric Ileclric aervice. lenrice. In Iddition. the Commi.. ion lon notes lhatld tbatld interpret interprel WI Wa phrille phrue 10 include onjy onj)/ energy would lead to &he Ibe conclusion that thai the rate. ratel for qualirying qualirytng facuitiel facumea could only include the energy component of the rate since flection 210 ZlO al.o also refers reftl'l to "elecbic ene'lly" energy" wuh with regard 10 to.uch such aale,. aalel. It I, I. the Commi.alon'a Commisllon', belief that thl, thll was not nol the intended re,ull reaull TbI, ThI. provide, provide. an additiooal additional rea.on reason to interpret lnterpret the phrase phrue "electric enel'fly" enel'8y" 10 to include Lnclude both energy and capacity, In implementip8 implementinslhi, thi. Ilatutory Itatulory standard. slandard. it i, i. belpful to review lndu8try lndustry practice respecting sales sale. between utilities. utilltie. Sale. of electric alectric power are Clrdlnarily ordinarily clsl8ified classified a. either firm "Ies.ales... where the.eller aeller provides provide. power at the cuslomer'. customer'. requeat, request, or non-firm non firm power salu, sales, where the.eller eeller and not the buyer makes make. the decision wbether whether or not power ia to be.vailable. available. Rate. Rates for rum power purchaseslnclude purch8aeslnclude payments for the cosl of fuel and operating Clperating expenses, and also for the fixed cosll costs usocibted usociated with the construction of generating generatin8 units needed to provide power at the purchaser'. discretion. The degree of certainty or of deliverability required to constitute "firm power" can ordinerily ordinarily be obtained only if a utility has several levera) 8eneratlng generating units unita and adequate tesel'\'e capacity. capacity, The capacity payment, payment. or demand charge, will reflect the cosl cost or the utilily', utility's 8enerating generating units. unita. In contrasl, the ability to provide electric power al at the.euing selling utility's utility', discretion ijnposes imposes. no requirement that the seller construct or re.erye re.erve capacity, In order to provide power to customers at the seller', seller'l discrelion. discretion. the.elling aellitl8 utility need only chal'je for ror the cost of operating operatin8 its Hs 8eneratin8 generating units and administration, administration. These costs, called "energy" costa. costs. ordinarily are ate the one5 one, associated with non finn non-finn salea aales of power Purchasel Purchases of or power from_ &om_ quahrylng qualifying facilitiea cilities will fall lomewhere on the continuum between these two types of electric.ervice. lenlee. ThUI, for example, example. wind machinel machines that thai fumi.b furnisb pclwer power only when wind velocity exceed. twelve mile. per hour may be so uncertain in availability of output that thai they would only permit a utility 10 to avoid 8enerating genera ling an equivalent amount of energy. In that thai.ituation, Iiluation, the utility must continue 10 to provide capacity that is ia available 10 to meet the needs of Its customers. Since there ate no avoided evoided capacity c~p~cit y costs, costl, rates for ror.uch such sporadic purchl:lses should thus be based on the utility system's avoided incremental cost of energy. ener8y. On the other hand, tesllmony at the Commis8ion's Commission's public herrings hearin8s indicated that errective erfeclive amount. amounts of fum capacity emt tor dispersed wind sy,tema, 'Yllema. even thouab each machine, considered con.!dered uparatdy, could not provide capacll)' capaclly value, The esgregete aggregate capacity Yalue orluch ol,~ faciliuel faciliue. must be conaldered coneldered In the calculation of rate. ratel for purcha.e.. and the payment dlatributed to the cla.. provtdina providina the qpaclty, Cflpaclty, Some technologiel. technologie.,,uch such i. if photovoltalc photovo!ta!c celli, cells, although.ubject lublect to some lome uncertainty In power output. hava have the generaiadvantag8 generaladvanta88 of providlna their maximum power coincident with the.ystem peak when used on a.wruner Iwruner peaking.yslem.. system, The value of.uch power is greeter greater to the utiuty than power delivered dejivej't!d during off~peak perioda... Since the need for capacity i, il ba.ed. bued. in part, part. on.y.tem system peaks, peab, the qualifying facility', (acility's coincidence coincldance with the Iy,tern IYltern peak should be reflected renected in the allowance of.ome some capacity \palue end an energy component componenl that thai renecls renecla the tha avoided enargy energy costs at the time of the peak. A facility burning mu.nicipal waste or bloma88 biomas. may be able to operate more predictably and reliably than.olar lolar or wind systems. It can schedule its outages during times when demand on the utility's utility', system is low. U.uch e a unit demonstrate. demonstrates a de8ree degree of rel;,abilily reli,ability that would permit pennit the tbe utility to defer or avoid construction of 8 a generatms generatins unit or the purchase of fum pclwsr power from another utility, then the rate rale for fot lucb a purchase should be baled based on the avoidance of both energy and capacity co.ts. costs. In order to defer or cancel the construclion conslruclion of new generating units, a utility must obtain a coaunitmenl commitment (rom from a qualifying facility that provides contractual or other legally le8al1y enforceable assurances that capacity from alternative sources aoureel will be available sufficiently ahaad ahead o( of the date on wblch the utility would otherwise othetwi.e have bave 10 to commit itself to the construction or purchase of new capacuy.lf 8 a qualifying facility provides such.. surances, aufances, it is entitled ta tn receive tates ratel based on the capacity costa costs that thai the utility can evold avoid 8S as 8 a result of or its obtaining capacity from the qualifying facility. Other cornment. comments with regard to the requirement to include capacuy ptlyments in avoided costs generally track those set forth in the Staff Oiacussion Discussion Paper and the proposed rule, The thrust tbrust of o( these commentl comment. it: is that. In order to receive credit for capacity and 10 to comply with the requ.ltement requirement that thai rates for r purchases purchase. Dot exceed the incremental COlt cost of alternative energy. capacity payments can only be required when the availability of capacity from a qualifying facility or facilitie. racilitie. actually permits the purchasin3 pu:chaaing utility to reduce AD 27

100 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 100 of Federal Register I Vol. 45, No. 38 I Monday, February I RuJes and Regulations It. need to pro,,;de capacily by derarrlng dererrlng the construction of new plant or commitment. to firm power purch81e contracts. In the Ute proposed rule. rule, the Commi"iOQ ataled alaled that it. qualifying facility offers OrreM! energy of sufficient lufficlent reliability reli.bility and with.ufficient legslly enforceable guaranteee guaranlee, of deliverabllity to perml! permit the putch8llng putch8ling electric utility 10 to avoid the need to con. true! a generating Benefating plant. 10 enable 1110 build. amalier. amaller. len Ie.. expensive plant. or to purchs8e purchaae len lell firm power from another utility than it would otherwise have purchased. then the tslea rales for purchases from the qualifying facility muat Include the avoided capacity and energy colta. cost. A. A, Indicated by the preceding diacunlon, diaeunlon. the Commission Cornminlon continues to beueve thai thue princlplu prioclplu ate valid and appropriate. and thallhey properly MOll Ihe mandate of the.iatute..ialute. The ConunJ"lon ConunilSlon also conllnues to believe. beueve. 8S stated In the proposed rule. that this rulemaklng repre.enl. represents an errorl effort to evolve concept. concept' in a ne$tly ne~ly developins arn area whhin within cerlaln certain. tatutory tatulory con.trainls. The Commission recognize. thet that the tran.latlon translation of the principle principle of avoided capacity costs from theory into practice I, II an exlt1!mely extremely dlfficull duficuh txerd.e. txerdlt!. and la I. one which. by definition. dennltlon. il is based on estimation and foreca.ling forecalling of future occurrences. Accordingly. the Commission supports supportll Ihe recommendallon recommendalion made in the Stail StaIf OiacussloR Olscusslon Paper that it.hould leave to the Stale. Stales and nonregulated utilities "nelllbility "nell.lbllity for experimentation and accommodation of special drcumllances" dtcumltances" with regard 10 to Implementation of rates rales for purehases. purehase,. Therefore, 10 to the extent that 8 method of calculating Ihe the value of capacity from qualifying facilltlu facilluu reasonably account, accounts for the utility', avoided COltl, and doel not f.u fau to provide the required required tncoutagement of cogenerauon cogeneralion and Imall power production. It II will be eon.ldered conlldered a. as leuicacton)y tali.cactorily ImpJemenling Implemenling the Commission'l Commiuion's rules. ' (e) Factors affecting rates lor purchases. A. noted prevlciusly, previously, several eommenters commentera observed that the utility.y.tem.y.lem COl' COlt data dala required under ' cannot be directly applied 10 to r,let rat" for fot purchase. purchue. The Commiulon...cknowledges this thl. point and,... dllculled pf'f'vlou.ly, pnv1oully, haa has provided that thai!hue thhe dala are to be used... starting ltatting point for lor Ihe the calculation of an appropriate rate rale for puroha.es purcha.es equal 10 to the utility'. utility's avoided co.t. COlt. Accordingly. lb, the Commission hu removed the "f nf... nce Jo the utili ty.yslem syltem cost data from the definition or of rale. for purcha.ea. and hal ta.. lnaerted inlerted Ihe the reference to these data in paragraph (e). alone as factor to be considered In calculating calculatlng rales ralet for purchasel, purchases. Subparagraph (1) (lj Ilates tlates tbal t!l.allhese these dala shau. IbaU. to the extent practicable, be taken Into account In the calculation of. a rate for purchases. purchabel. Subparagraph Subpara8raph (21 deale deal. with the availability of capacity (rom 8 a qualifying Cacilily Cacillty during system daily dany and seatonal leasonal peak periods. U a qualifying facility can provide energy 10 to a utility during peak period. when the electric utilhy utilily il Is running ii. ill most mosl expen.ive expensive 8eneratlns senerating unla, unit.,!btl Ihl. energy haa has a higher bigher value to the ulilily utility than energy supplied luppued durin8 during orr peak periods. during which only units with lower running co.18 costa ate are operating. The preamble 10 tbe proposed rule provided that, to the extenl ~x le nt thai melerlng melerins equipment equipmenl fsavailable. II lbe the State regulatory authority aulhorily or nonregulated electric utility.hould,hould take into account the time or season l8ason in which the purcha.e pun:hale from the qualifyin8 qualifying acllity occurs, occura. Several commentera commenlera interpreted this statemenl Iatemenl al implying Implyins that, that. by refullng rdullng to 1o.tall Install metering equipment. an electric electrlc utility could avoid the obligation 10 to consider the lime time at which purchase. purchajei occur. This Thl. Is r. not the Intenl Inlenl of this provision. provision. Clearly, the more preciaely predaely the time of purchase III Is recorded the more exactlhe exacllhe calculauon of the avoided costs,. and thus thu. the rate for purchases, purcblles, can be. be, Ratber Rather then specifying Ipecifylng that thai exact time-or-day time of day or nal.eSllonal ratel for purchases 8re are requlrt!d. requirt!d, however. the Comml"iOIl Commillsion believes believ8llhal that the selection I8leclion of a methodology I. Is best bell left telt to the Stat. State regulatory authoriliel Buthoritle. and nonregulated electric eleclric utilities utiuue. charged with the implementation Implementation of!hele these provisionl.. Clausel Clausee (i) (il througb through (v) concern vanoul.specl. variouialpeet, of 01 the reliability reliabiuty of. qualifying facility, fecility, When an electrlc electric utility ~rovldes ~rovldel power from II. lis own aeneratins generatins unjli unjta or from rom Ihose those or o( another electric utility. It normally nonnally controll control. the production of such power from a cenlral central location. localion. The ability to 10 so control power production enhancel enhance. a utility', utillty's ability 10 to relpond respond 10 to changes in demand. and thereby enhance. the value of that thai power to the utility. A qualifying facility may be able to enter enler Into an anangement lutangement with the utility utilily which 81vel glvea the utiluy the advantage advantagl of elilpatchlng dispatching the facility. By 10 '0 dotng. dotna. il it lnere lncre8les.. e. It. lt, value to the utility. Conversely, if. utility cennot cannot dispatch. di.palch a qualifying facility. facilily. that faculty CacUlty may be 01 lell lese value valua 10 to the utility. uullty. Clu.e C1au.e (II) refe,.. 10 to the expecled expected or demon.strated demonatraled reliability reljablllty or a qualifying factlity, factlity. A utility cannot avoid the construction or purchase of capacity IF It 'sukely I. likely thai that the qualifylns qualifying facility which would claim 10 to replace such capacity capacily may ao go oul out of service lervlce durin8 during Ihe the period when Ihe the utility needs it. Its power to meet.ystem Iystem dema nd. Based on the etlimated estimated or demonstrated reliability of a qualifying facuity. facility. Ihe the rate for purchates ses from 8 qualifying facility should be adjusted to renectits lis value 10 the utility. Clause (iii) referl to the length of time during which the qualifying quali ylng faciiity raciiity has hat contractually contraclually or otherwise guaranteed that It \I will supply energy or capacity to the electric utility. A utillty-owned utrlity-owned generatins unit normally will supply lupply power power for the life lire of Ih th e plant. or until II i. is replaced by more efficient capacity, In contrast, a cogeneration or small power production unit might cea.e e 10 to produce power a. as a retult result of change, changes in In the Industry or in In the industrial processes utilized. Accordingly, Accordingly. Ihe the value of the.arvice.ervice from Lhe the qualiryln8 qualirylng facility to Ihe eleclric ejeclric utility may be affected by the degree de8ree to which the quallrylng quaurylng fa cility ensure. ensures by contract or other legally enforceable obll8ation obligation that It II will continue 10 to provide power. Included In thla th18 determine determinalion. amon8 among other factors. are Ihe the term of Ihe the commitment, Ihe the requirement tor notice pmor 10 to tenninatlon termination of the commitment. and any penalty provisions for breach of nf Ihe the obligation. 1n In order to provide capacity value 10 to an electric utility a qualifying facility need not necelsarily neceatarily agree a8ree 10 to provide power for the life of the plant. A ulliity's utillty's 8eneration genera lion expansion plans plant o rten Include purchases of firm Orm power from other utilitlel utilit\81ln In yearl yeat8 immediately Immediately preceding the addition of a major generation unit. If a qualifying facility racilily contracllio contracts to deliver power. for example. for a one year yeaf period. it may enable the purcha9ing purchasing utility to avoid enlering entering into a bulk power purchase e.rransemenl arrangement with another uulily. utility. The rale for such a purchase should thus be based on Ihe the price at which.uch such power Is purchased, purch8led. or can be expected 10 be purchased. bued bated upon bona fide lide offerl orrers from.nother another uullty. utility. Clause C1aule [Iv) (Iv) addresses periods durin8 which a quaufy'ng quamyl", facilily facility 1& la unable to provide power. Electric Electrtc utilities schedule maintenance outag" outa8e. lor for their own gener.uns generaung unit. unltl durin8 during periodt perioda when demand I. low. Jow.lf If a qualifying quallfyln8 facility can almilarily schedule schedula fill Its maintenance outages oulages during period, perio(h of low demand, demand. or during periodl period. in which a utiluy'1 utillty'1 own capacily capacity will be adequate to handle exl.tln.s exlltln.s demand. It will enable the utility 10 to avoid the expenlel expense... associated soda with providing an equivalent amount amounl of AD 28

101 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 101 of 111 Federal Register Regi.ler I Vol. 45. No. No, 38 I Monday, Monday. February 25, 1980 I Rules Rule. anc;t Regulations capacity, Thue These Hvings.hould bto be reflecled reoecled In the tbe rale fot purcbuu pul1:buu Clau.e (v) refe... to. a quallfyida (liclllly', (liclllly'. ability abilily and willinsne wt.ilingne.. to provide capacity and energy dlu"injl dl1f"inb syslem emersencie., emelllencie. Seclion 29%,301 29%.301 0' of Ihe.e the.e regulation. concemsthe concerns provilion provision of electric.erviu.ervice during.y.lem Iy.lem em(!:raenciea. em(!:raenciel, 11 'provide. lhit. that. 10 the e"lent e"lenl that a qualifying facility 11 Willing to forego II. Its own use of energy dloltinj dloltina 1)'.lem 1).lem emergencie. and provide power 10. to a ulility' ystem. y.lem. the rate lor for ploirchase. ploir"che.e. from the quaufyina qualilyinfj faculty.hould renect the value of thai.eme....ervie.., Small power production and cogeneration facililiel facilitiel could provide "gnircant 'lgnlrcant back-up capability to electric!i}"!i)'slems lem. during emergencies, One benefit of lhe encouragement of interconnected cogeneralion cogeneration and.mall,mall power production may be to IncreaJt. In~alt. Qverall.y.tem overall.y.tem reliability durlng.uch d uring such e.nlergenq conditions. Any.uch benefit benefil should be renecled renected in the rale fot for purchaae... from.uch IUch qua(jfying qualifyinr 'tu:uitje,. t~cuitie. "nother "nolher related faclor factor which,rlecl. arleel' the cap. cit)' cit)" value of a qualifying racllityl.11i ability to 8eparate separate lis II. load rrom lis generation during syslem system t:mergencle. During luch emergencilllll emergcncillll an electric quiity qlillty may inlutute lnautute load.hedding shedding procedure. wblcb which moy, amofl8 other thins.. require that industrial customenl or other large loads s top receivina recehina power. AI a result. resull. 10 to provide provide optimsl beneot benefit to. utility In an emergency.ltuauon, l!lusuon. a qualifying faclllly faclllly mlgt'll mlghl be required to continue operation iii III a seneraling generating plant, plant. while.lmuhaneou.jy slmultaneou. ly ce8ling ceaaill.8 operation lion as a load on the utility'. utility'a.yslem, Iyatem. To Ihe the ulenl thal thai a (acuity facility il unable 10 separate separste fli fl. load from Crom It. genera lion. ii& Its value to the purchasing utility decressea decres.ea during.ystem.yslem emergenciel.. To renecl renect IUch a I posllbllity, elault (v) provides provid" Ihlll that the.,urcba.ing vurc.basjng utility utllity may con.lde con,lde' r the qual~ qu81~g f.dllty'. faculty'. abilily a bilil)' 10 separate II. load from &-om itl genera lion during.y.tem Iy.tem emergencies In determining delermining the value of the qualirying qualifying facility 'acility 10 the electric uullty. uulity. Clause (vi) refen 10 the aggregate aggregale ClIpabllity of capacity!rom from qualifying quaufylns fllcilltle. 10 to ell.plar:e c'uaplar:e planned utility uullty capacity. In.ome,ome lnatancu.the injlancea. the.mall small amounll IImounll of o( capacity provided from Irom qusufylna qualifylng faciliuelluen faeiliu"1 luen individually indlvlduall), m1aht ml8ht not enable a purchasing utility 10 to dder ot or avoid scheduled acheduled capacity IIddllion., The qgregale qgregate capabillty capabuli)' or such purchaae. purchaael,may,,lray, however. however, be sulficlenlto sufficlenlto pennit the deferral Ot or a\'oldance of a capacity addition, addition. Moreover, while an individual qualifying '"dlily fllc:l1ily may 1'101 not provide the equivalent equlvalenl 01 of firm power to the electric utility, lhl!! Ihl!! diversity divenity of these thefe faculties facllttle. may collectively comdrlte comdrlaa the equivalent of capedty. capadty, Clause ClaUia (vl!j (vu) refers refera to the fact thai tbe the lead time a8loclatec! 888oclate~ with the addition of capacity hom qu"lifylng qu"hfylng facilitie' facilities may be Ie.. than tho the lead time Urne thai that would have bave been required If lithe purchasing uulity uullty bad con.l.rucled conltrucled its ita own genetltlng g1!nettltlng unit. Such reduced leed lead time might mighl produce.avtng.ln.avtng.in the utility', u lil.i ty ~ tolal power producllon productlon costs. costs, by pennl1tin8 pennlttins utllhie. ut1ljuea to avoid the "lumpineaa." "Iumpineaa." and temporary excesi capacity a"ociated allociated therewhh, therewith, which nonnally occur when wben vlililiell:ltinj utililielbrlng on tine large generating unit. In addition, addition. reduced lead time providoa dol the utility with greater nexibllity with which wbich It can accommodate changes change. In in forecasts of peak demand. Subparagrapb Subparagraph (3l (3) concern, concern. the relationship of energy or capacity from. a qualifying fa cility 10 to the purehaaids purebaatng electric utility', need (or for.uch energy or capacity. If an electric utility uullty has sufficient capacity 10 to meet Its III demana. aoc.lls not pjannl1'l8 planning 10 to add any new capacity to ill.ystem, ita then lbe 8vailubility evailubility of or capacity from rom qualifying frcilities frcililies will notlmmeruately Immediately enable the utility to a\'old any capacity cosls. ts. However, an electric: utility ayslem aystem with excess capacity may nevertheless plan to edd add new, more efficient emelent capadty to ita fls system. U purchase... tom from quajifyina facilitle8 racilities enable a utility to defer or avoid these new planned capaclt)' capae!ty additiollll, additione, the r.le rate lor for such IUch purcha.e& purchaee, should renect the avoided co.ts cosls of these addition!!. However, 8. noted by.everal,everal commentera, the deferral or avoidance of such a unit will aleo alao prevent the substitutinn of the lower energy costs COstli thai would have accompanied the new capacity, A. I relult. result. the price (or for the purchase of energy.nd and capacity capae!ty. should howd renect the. e lower avoided eneru energy cost& C09t15 thai the \itility \itiuty would have Incurred had bad Ihe the new capacity been added. Thi. Tbi.1t 11 not to say lay that eleclrit. electrk utilitie& utilities which have bave excelt axcell capacity need not nol make purchase. purchale. from qualifying facilities: facilitie.: quallfyina qualilyina faelliuel faclliuel may obta..in obt.a..in payment paymenl ba8ed baud 01'1 the avoided energy COlts on a pw"chastng purcha.ing utility's utility', Iystem. IYltem. Many utility.ystems IYlteaa with axcen exce.. capacity ):lave lntennedlate or peaking units unila which ute use blgb-cc.t blgh-co.t fo"n fo.ln fuel. AI As relu1t, result during peak houn. the energy costl coste on the.ystems Iyltern. are high. bjgh. and thull thus the rate rale to a qualifyl", utility ulillty Crom which the electric utijlly utijlty pw"cha,ea purcha.es energy should.imilarl)' l[mllarl), be high, blah. Subparagraph (4) eddreues addreuee the tbe co. coati IS or lavlngs livings reluillng resultlng from line loins. lo.. e. All appropriate rale for ror purchase, purchase. from a qualirying racillty should Ihould renecllhl!! renecllhe c081 C08\.avlng, actually accruing to the electric utility. utilily. If energy produced from rrom a qualifylna qualify1na facility facinty undergoel undergoes line los.e... ea.ucb such thel thallhe the delivered power Is II not equivalent 10 to the power thel would have been delivered from the source lource or of power It replac81. replace., then the qualifying fa cility ciluy.hould Ihould not be teimburled reimbursed for the difference dlicetence In in 10lles.1 10"8.. 1 the load.erved by the qualifying: raciutl' is ls do.er closer 10 to the qualifying quejifylng facuhy than thad It I. to the utility. utility, II il possible that thet there may be Det net savings savinss,etulung retulung from reduced (jne line lanes. losle. 1o In.uch such case., cases. the rate. should Ihould be adjulted adjuated upward ,3f)3tn 1292,3fJ3tn Periods during which purcha.e ore not required. The proposed propo.ed rule provided that an electric utility will not be required to purchase enel'8y eoersy and capacity from qualllym, quaufym, facilitje. faciliuea dwina periods in In which IUcb IUch purchase. purchaaea will result In nel Increased operaung operating costa to.the electric eleclrlt uillll)'. utilll)'. ThI ection eclion was wa. intended inlended 10 to de.1 deal with a I certain condjuon which can occur during ligblloading light loading periods. If a uulity utjlil)' operatlna only base load units unit. during dwing these the.e periods were forced 10 to cut cui back output rrom from the unite unita in ordet order to accommodate purchases from quallfyln8 qualifying faclliues, faclliuea, thele these bad'e load units might not nol be able to increase their output level rapidly when the.ystem 'Yltem demand later lotteased, lneteaaed, Aa I result. the utility would be requjred to utilize uulize less lesa emden\. higher higher cotl until unjta with falter lalter.tart-up slart-up 10 fo meet meel the demand that would have bave been beed supplied by the lell le81 expensive base load unit had bad It been permitted to operate at al a constant conslant output. oulploll The relult reswt or of.uch a tranl8ctjon transactjon would be Ihat that rather than.voidjns avoldjri cost, costa 81a aa a relult of the purcha.e purchabe from a qualifying facility, facuity, the purchaeing purcha.ing electric utility would incur Incur greater costa than it would have bave had It not pw"chased purchaeed energy or capacity from the qualifyins facility. A.met.trict appllcauon appllcatjon of the avoided cost principle.et set forth In this thl.ecuon ection would usets useas the.e these additional co.ta costs as negative.voided avoided costa COltl which mu.t mu.1 be relmbw'sed by the qualifying qualifymg facility. lacilily. In order to avoid nofc:1 the anomalous result re.ult of forcing rorclna a qualilylns quau(ylns uulity 10 to pay an electric uullly uuiuy for purcbssins purchasirl It. lis output oulput the Comml"lon.. lon propoled proposed that an electric utlllty utility be required requl.red 10 to Id~nUfy periods periodl du.ring du.rina wblch thi, thi,.ituation.liuation would occur,.0 ao that the qualifying,.cllily 'aclilly could cowd e cease.. te delivery dellwry or electricity durlna dwtna ilion thole period. Many 01 of th. the commenll commenlt received recelved reflected a.u.plc:loo lu.plclon that electrlt: electric utili ulluuel tiel would.buta abu.ae thi. this paragraph 10 to cin::umvent cl.n::umvent their obligation obllaatlon to purcha,, purchase from quajjfying quallfyina facl';t!ea. r.cll;ua. In order to minimize thai that poa'ibluty,.. the Commlstlon Comml8llon ha. haa reviled revised this paragraph AD 29

102 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 102 of 111 Federal Register J Vol. 45, No. 38 I Monday. February I Rules and ReguJatJon. RegulatJon. to provide that thai any electric uullty..wblch uuuty..wblch,eeks,eeka to ceale cease pun::.baal.ng pun::.b8l1ng from qualifyina qualifying f.ciuliu faciuliu mutt mull notify eacb.flected.frected qualifying facility prior to the occ\l.lt1!nce occ\l.l11!nce of luch a period. In lime time for the qualifying (aclllty (acuity to cule ce"l1 delivl!i')' of energy or capacity to the electric: ulility. ullllty. Thl. notification can be accompli.hed accompliahed In.ny any re8lonable rea.onable mamer detej"iiijned determined by the Stale State regulatory authority. Any claim by an electric utlllty Ihat. uch alight aught loading pertod will occur or bat bae occ\l.l11!d occ\l.lt1!d la II lubje<:t lubje<:1 to aucb IUch... verification ertfication by Ita Ila Sta le regulalol'}' lory authority al aa the Stale State authority delermlnea determines necessary neces.ary or appropriale appropriate ellber either before or atter alter Ita occunence. MOreQver.... er. any electric utility which faila faill 10 provide adequate notice or whjch incomctly Idenllflel Idenllflea such auch a period wid be required to relmblu'le reimburse the quallfy1ns quallfylll8 facility for energy or capacity lupplled ulf eat( auch luch a light loading period had bad nol.,...".d. occuned. The laction lection hat has abo allo been modified to clarify that luch perioda periods mu.1 be due to operational operallonal clrcum.lancea, circumstances, The Commission Commisaion doe. not Intend that thla thl. paragraph override contractual or other legally enjorceable obligatlona obugatlona IncutTed IncurTed by the electric utility to purcha.e purchau from a qualifyins qualifying facility.fn.uch.ucb artansementa. arrangementa. the e.labushed eatabushed rate I. ba.ed bued on the recognition that the value of the purcha.e will vary with the changel chansel In Ihe the util ullllty'. ity's operating Cosis. costa. These variation, variation. ordinarily are taken Inla Inro account. accounl. and the resulting rale representa representl the averase average value oflbe oflhe purcha.e purchase o over... Ihe duration of the obligation. obl/gauon. The OCCUJTence of.ucb aucb periodl periods may similarly be taken into account.~unt in determining rates rales (or ror purcha.e. Toxlssues The Conference Report.tales.tates Ihal; Ihat: the,x.aminjtlon Ix.aminatlon of the level of rallll rales whleb.bould sbould 'pply Ipply to the purchase by lbl I/.UIlIy bu1i1y of or the cagenrretor'1 cagenrrator'1 or the ImeU Imllll power producer', producer'. power.bould.bauld not nol b, bl/.rdened burdened by lbl the.ime lime ",.min.tlon e:llimlnatlon II Ira utility rate appllcatlonl Ippllcatlon. to detumlne wblt wbat,. I. the ju'tllrtd ju.tllrtd tellonable reuanabl. rate that thlt they.bawd, bowd receive fot fat their electric power. powe,." If The Tbit Commission Commlaalon note. that.actlon.ectlon 301(b){2) of the Energy EI'Iergy Tn Tax Act of make. certain tertain enel'8y energy properly ellglbla eliglbla for Incl'881ed Increued bualneas bualnell,"vestment (nve.tment lax tax oredil o:red.il Some of thl. thil property ia I, common1y uted uaed In cogeneration and amall am,1i power production. However,.ecUon 3Ol(bJ(2)(B) 3Ol(b)(2)(B) excludea exclude. from.ucb such eljaibillty property "which is II publlo "ConI_nee Report on oti H.R..m1. H.R..m1l Public: Utillt, "eaui.1gr)' _eaulttory PoUd Polld.. Act or IV7&. H. Rep. No. 1715Q,,, ",ill ili ec... ad Seu.... (1m). '"Pub. L No. twill. ze u.s.c. 1I..e.... No.nI.t.ll utility property (within t.l)e meaning o( of aectlon lectlon 46(1)(5) 46(f)(5) 01 the totemal Revenue Code or 1954)." 19M)." If "AI A. a re.ult, if the property 01 ot a qualifying (acll racll ity which was otherwi.e otherwise eligible eusible (or the cndh cndll were to bit b. clallifled clallifled 81 at public utllily utility property under.ection tectfon 48(1')(5) 48(r)(S) of Ihe Ih. InternaJ Intern.J Revenue Code, It would not nol be eligible for the Increased lnvestmenllax Investment tax Ch!di\. tr1!dit. The Commlatlon note, note. thai the Treuury Department', Department'. regulationl regulations provide that thai the definillod definition or oc"publlc "public utility property" doe' doe. nollnclude property uled used In the busine81 buaine88 or of the fum!shl.ng lum!shlng or.ale of electric energy if the rate, rale. are Dol not.ubject lubject 10 to n!gulatlon n!gulallon that thai fixe. a rate of relurn return on investment.-on Investmenl.-On thl. ba,i" ba.i., the Commlatlon beueve. believe. thai that property of o( a quallfying qualljytng facillty f,cluty that would wnuld otherwl.e be ba eligible for the energy lax credit credll would not be excluded from Ibat thai e.llgibility eligibility under the pubuc utility property exclusion. Fira\. Firat. thle thia Commltalon Commlllion I. la exempting property of quaufytrts quallfyirts facilities facultie. from regwalion regulation under Part U of Ibe the Federal Power Acl, and from trom similar Ilmilsr Slale Stale and local law. and regulatory regulalory program Secondly. the Comml.slon CommJssloD observea thai that the ra\8. rawls a qualifying fa cility will receive for.ale..ale, of power 10 to utilitle. uthilie. are Bre not ba.ed based on a regulatory.cheme whicb which 8.xea fixea a rate rale of return on Investment of the qualifying facility, N a relull, re.ull, the Comminlon Commlnlon believes believe. that energy property of qualifying (aciliue. (aciutie should not nol be barred from eligibility ellgibilily for the lax tax credit by reason reaaon of the public utility property exclusion. exclu.lon. The CommtSllon Commt5l10n wi.he. wi.hel to expres. express II. III opinion on lhla thll matter In an effort 10 to further encourage ancourage cogeneration and.mau power production by mean. ot of,hi. thl, Nlemaldng procesl. proce5l. ' Rates for soles. sales. Section 21O(c) ZlO(c) of PURPA provide. that the rules rule. requiring utllitie. uulitie. 10 to.ell electric elecbic energy ta to qualifying facilities.hall emul'e emw'8 that the rate. rale. for.uch such sale. are Just Jutl and rea.onabie, reasonable, In in the public intere.t. intere.1. and nondiscriminatory nondlscrlmlnalory with relpeet re.peel to qualifying cogenerator. cogeneratofl or.mall power producers. Tbl This.eclion actlon contemplate. formulation o( or rates rales on the baafa ba.i. of traditional ratemald ralemald ng (i.e" Clo.I-of.ervlee) Clost-of servlce) concept., Paragraph Paragrapb (a) exptes.es expresses the.lahllory ItatutOry requirement thet thai.uch rate. be lust Just and reasonable realonable and In Ihe the public Interett. Interelt. Paragraph [a) (a) el,o also provide. that rale. for.alel tale. from electric utilltiea uliluiea 10 to qualifying fa cilitie. cilltie. not be.. ze u.s.c.'te(.){3)(b). usc., ".){3)(b). -TTe -TreI.1II)' Rea. 1~" l~")(zi. T.O. 71m 7tI02 (Mudl (M1IrdI u.1m~ di.crimlnalory dl.crimlnatory agalnal agalnlt auch luch facilities facllitie. in comparl.on 10 to rate. ratea to other customers cuslomers.erved by.the by_the electric utllily. utility. A quallfylng (acility la II entitled 10 to purch8le back up or.tandby standby power a t a ~ nondi.crtminatory nondilcrtminatory rale rate whicb which renects the probability that the qualifying faclljly faclllty wtll or will not contribute contribule to the need for and che u.e ule of o( utility capacity. Thua. Thus. where the utllily utility must mult reserve capacity to provide.ervlce lervice to a qualilylna qualilytna facility. the co.t. COlt. allociated allocialed with that thai teserv,hod relervauon are properly recoverable... erable from the quallrying qualifying facility. If lithe utility would.imilarly imilariy allell assesa these co.tlto co.ta to nodlieneratini nonlleneratins cu.lomera. customers. In the proposed propo.ed rule. paragraph (b) required electric utluuea utilities to provide... lde energy ene18y and capacity and other.ervices services to any qualifyins qualifying facility at a rale rate at al leul a. as favorable as would be provided to a cu.lomer cu.tomer who doe, doe. not have hi. own seneration. generation. The comment. received concerning concemins thl. thia peragraph paragraph noted thai Ibis thi. provillon mlaht be interpreted as requiring requirins an electric utility 10 to provide.ervlce service to a quattrying qualifying facll1ty facuity at Its most fevorable favorable rate, even if the qualifying (acility would not be eligible for.uch such a rate if It did nol not have h... e lia Ua own generation. generauon. It Is not the Commlasion'... intention Intention thal, for example, an industrial indu.trial cogenerator cogeneralor receive.emce.ervlce at a fate rate applicable 10 to re.identlal re.idenllal CU5tomera; CU5tomers; rather. such. a cu.tomet CUltomer.hould be charged al at a rale rate applicable 10 to a non'generating Indu.trial Indultrial cu.tomer CUllomer unless Ihe the electric utility. showl how. thst that a diuerent different rate la Is Justified on the basi. bula of aumclentload lumdent load or other cost related data, dala, Accordingly. this secllon now provldel provide. that for Jor quaufying quahfying facllilie. faellitie. which do not simultaneously 111 lell 11 and purchase pun:haae (rom from the electric utility, the rate (or tor.ales,ales.hall be the rale that thai would be ch8j1ed to cha.raed,to Ihe the cia" clan to wblch which the qualifying facurty fscurty would be alligned If It II did nol not have II, Ita own, generation eneratlon. Subparagrapb Subparagraph (2) provldee providu thall(, on Ihe the basi. of accurate' dala and consistenl.y.tem wlde conslslentlystem wlde co.llng cosllng principlea,the prlnciples, utility demonslrates demonstrates that the rate rale thai that would be charged 10 a comparable cu. customer without ils its own seneration generation I. la nol approprlale. appropriate. the ullllty may base Ita rain tates tor far sale. asle. upon Ihose those data dala and principles.. The ulility utility may only charge. ueb uch rale. rate. on a nondiscriminatory nondiscriminatory basis, hawever. however. so that a colenualor coaenulilor ww will nol not be Singled sinsled oul to lou late any interclasl Interela" or Intra class.ubsidlel.ubsidle. 10 to which it might have been entitled had it II not aeneraled lenerated pari part o(it. otil. electric enel'ly energy need. itself. it.elf. In.lIuallon..ituatlons where 8 a qualifying facllhy facility. Imultaneou.ly Imultaneoully.ell.lta.eUllts oulput oulpulto an eleclrlc electric utility utilily and purchase. purchases It, requiremenl. requirement. &om rom that electric utility.... II bookkeeping matter. malter. the Caclllty'. taclllly'. AD 30

103 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 103 of 111 Federal Vol. 45. No. 38 I 25, 1980 I Rule. and t=!ec;trical t=iktrical output will not.erve lerve It. Itl own load, but ralht=r will be.upplifll lupplifll to the AI A I nlult n.ult the faduty'a electric lactric r.: d. oad I, I. likely Ukely 10 have hive the.am. I.m. characleriitici charactari.lic... III the load of other non BeneraUng Bener.Ung CUllomeri CUltOJneri of oc the ullljly. ullljty. lf the utility doel doe. not provide dala.howing Ihowing otherwil8, otherwit8, the appropriate rata for (or.ale. lale. 10.ucb auch a facilily facility II I. the rale rate thai would be charpd 10 to a comparable cu.lomer cu.tomer without wlthoullt. It. own generauon. generation. Paragraph (b}(2j (bj(2j of the rule Nle.et. aetl (orth forth certa.in type. of.ervice lervice which electric uliliui!i uulltie. an required to provide qualifying facililie, (atilitiel upon reque.t requeat of the 'acwty. faculty. These Thele typea type. of.emee.ervice are upplementary power, back-up power. In terruptible power and maintenance power. In responee reaponee 10 to comment., these lerm. terma are deftned in the text of the rulel, Nln, a. well.. a. in thll thl. preamble. Back up or maintenance.ervlce lervlce provided by an electric eleclric utility replacel replace. energy or capatity capacity which a qualifying qu.lifylns (acluty ordinarily.upplle. luppllel tet Hull. Thele The.e rulel rule. autboriu authorize alrtaln certain facilities facllitie. 10 to purchase and.ell.imultaneou.ly. lelllimultaneoully. The amowli amowlt of energy or capacity provided by an electric utility to meel the load of a 'acuity faculty which simultaneously simultaneou.ly purchasea purchase, and sella seus will vary only In accordance wilh with changee in the 'acilhy'l facilhy', load: interruptions Interruptions in the facilit)l'. facilit)". generation will be manifested manirested al a. variations In putt:hase. (rom rrom the facility. racility. In.uch a case. salea lalea 10 to the qualifyins quallfyins (acility racility will wiu not be back up or maintenance.ervice. lervice, but will be.lmuar almuar to the full requil'ementa ful] aervlce thai that would be provided if the facility Cacmly were a non generaung non seneratins cu.tomer. customer. Supplementary power II I, electric energy or capacity uled used by 8 a facility facll/ly In addluon to that which It ordinarily generlte' generates on It. Ita own. Thul.. a cogenerauon cogeneration facility facilily with a capacity of or len ten megawau. m.ight might requite five more megawatt. from rrom a utility on a conunuina continuing buis basis 10 to meet It. Ita electric load of or Ofteen ncteen. megawau" megawau., The five Dve MegawaUa megawaus,upplied lupplied by the electric utility would nomany nonnally be provided... aupplementary power. Back-up Back up power II it electric energy or capacjly available to replace repllce energy generated by a facility', racility. own generation equlpmenl equipment during an un.chedu.led outage. In Ihe the example provided above. above, a e cogeneration facility might contract with an dectric utility (or for the utillty utility 10 to have lvauable lyauable len ten megawatts.. ahould the cogenerator'. cogenerator', units unitt experience an oulage. outage. Maintenance power II it electrfc energy or capacity.upplied lupplied during.cheduled acheduled outase. outaae. of the qualirying qualifying (acllily. raclllty. 8y arrangement, arrangement. a uulity qn agree to provide.uch energy during periodl period. when the uouly'. uuuty'l other load la I, low, low. thereby avoiding the imposition of o( large pre demand. demands on the ullllt)' ullllty during durina peak period,. periods. Inlerruptible Interruptible power I. electric energy or capklty capkily.upplled to a qualifying qualifyins (acility racility.ubject aubject let to lnterruplion Interruption by the electric utility uwity under.peclned condition. Many uullue. uuliue, h.ve have utilized InterrupUble Interruptible lervice 10 to avoid expen.lve Investment In new capacity that thai would otherwlle otherwlsa be necetallry necellllry 10 to "lure allure adequale adequate reeervual retervuat Ume time o( or peak demand. Under thl. approach utultju utilltiea auure assure the adequacy of or re.e.rve. re.erve. by 8fTanging artanglng to reduce peak demand, demand. rather than by adding addil\g capacity. capaclly.lnterruptible Interruptible.etvice lervice II I. therefore notmall)l nonnally provided al at a lower rate than non lnlerruptjble.ervice. aervice. During the Commltalon', Commlulon', public hearings on thl. thl' rulemaldng. rulemald.ng. one commenter.iated,tated that utjutiet utjiltle. which have excet. excels capacity do not aave any cost. by providing IntemlpUble Intemlptible.ervlce. aervlce. The commenter contended conte.nded that the Commission.hould aot not require a utility with exces... capadty capacity to orrer InlelTUptible Interruptible.ervice. aervlce. 1f a utilily utility I. Is not adding capacity (whether by construction or purcha.ej purch8lej to meet anticipated IncrealI!J Increalet in peak demand. the ratea charged for letr lnterruptible IntelTUptible service mighlapproprialely might appropriately be the 8ame same as a' for non interruptible non tnteltuptible.emce.emce The Commillion Commluion believea believe. lbat theae these mallen mailers Involving Involvlns the provljion provliion or of inleltuptible inlertuptible rate. ratel are bell be.t handled bandl~ through the pricing mechanism. mechanilm. However, II a. dl.cu dj,culled...bove, above, Interruptible cultomera cultomeri provide. DO IlO.avlngs saving. to the. electrlc eleclrlc utility. utjllty. the rate for lnteltuptible lnleltuplibje.ervlce need not be lower than the rate rale for Rnn nrm lervlce. I8rvlce. In.uch.ucb a ca.e, case, the Commltsion Commission would con.lder conlider granung granting a waiver from tbl. paragraph. under the provi.lons provillon. of 29%.4P3. 29%.~. Some commenta comment. noted noled that certain electric utilities utilltie. do not have any generating capacity, capacily. and 10 to require the.emces.ervlces Ii.led Ii.ted in In.ubparagrapb lubp.ragrapb (1) mlaht mlahl place an undue burden on the elecbic utility. ulility. 1n In light of the.e comment the Stale Slate regulatory authoritiea authoritie. or the tha Commillion. Commission. 81 the case m.y may be, wul wuj allow a waiver of these nquirements requirements upon a findlng finding after a.howins showing by the utility 10 to the Siale S~ate regulatory authority or Commission,... the cue c8le may be, be. thai that provision of thele lervice. will impair the utility'l utility', ablllly ability to render adequate.ervlce lervice to It. cu.tomett cu.tomerl or place an undue burden on the electric utility. Notice mu.t be given In the area aerved.erv~ by the electric utility, opportunity (or for public comment must be provided. and an application mu.t be.ubmllled to the Slate Stale regulatory authority with respect respact to any electric utility utllity over which it It haa h81 ratemaking aulhorlly authority or the Commission with te.pect re.pect to any nonregulated electric utjljt)'. utjljty. Parsgrapb Paragraph (c)(l) providl!8 providd thai that rll.;, rate. (or.alel.ale. of b.ck up back up or maintenance power.hall ahall not be ba.ed. wltho ~ factual data, on the 8IIumplion assumption that forced outagea outage. or other reduction. In output b)l by each qualifying facility on an electric electrie utility'a Iy.lem ystem will occur oc::cur either tither.imu!taneously,imullaneoualy or during the.y.tem ayatem peak.. Uke other cultomeri. cu.tomerl. quaufyula fa raeiliue. cilitiea may m.y wed have lntndlll lntraclall dlvetllty. dlvertfty. 10 In addition. addition, becsule beeau.e of the variations variauons In in.ize alze and load requlremenla requlrem~'" among variou. various types or quaufying quaucying (acillliel. racilluea,.uch auch facilities faciliue. may well wall hava have 'nlercla inlerela.. d1varalt)' djvartlty The effect eitecl o( of. l uch diveraity dlveraity ia Is that an electric utility aupplying.upplying back-up or maintenance power 10 to qualifying f.ciilue. facilities will nol not bave to plan for ror reserve capacity 10 to.erve aerve.ucb faeillu facuiue. ea on the ataumpuon a.. that every facllily racllily will use power at the.. tame moment. 'the ne CommJtalon CommJulon believe. beueve, that probabwiuc probabuj.uc analy.e. of or the demand of qualifying (actlltjea ractlltiet will wlu.bow ebow thai a utility wuj probably not need 10 to teserve reserve capacity on a one to-one basi. basis to meet back up requirements. requirement., Paragraph {C)(l] (C)(1] prohlbitl prohibit. utilities utlutie. from ba.lng be.lng ralea rales on the alsumptlon assumption that qualifying faciliue. raciliue. will Impoee Impo.e demand. aimujtaneoualy imujlaneously and al.y.tem ayltem peak unle., unless supported by (aclual raclual data. The rule provides that utilitiet utilitiu may rerute refute the.e these assumption. assumptions on the basil basi. or of factual rectual data. dela. Thele The.a data need not be in In the fonn of empirical load data. dal... lt It rni8ht be the ca.e cate thai that within certain geograpbjc geographjc area., weather data and performance data dala would comtitute constitute a.umcient lumcient basi. 10 refute the assumption as.umption relating relaung to the coincidence or of the demandt demancla impoaed. for example, exampla, b)l by wlndmiui wlndmiu. or photovoltalca, with reapect re.pect to their need for (or back-up power. Paragraph \C](2) \C)(2) providea provides that ratel ratet ror.aln nlet.hal Ihal take Into account the extent 10 to which whjch a qu.ajifylng qu.alify1ns (acluty faeluiy cad can usefuuy u.eruuy coordinate periods of or.ch~uled sch~u l maintenance with an electric utjlity. utility. If 1f a qualifylna quaufy{ns (acillty lacillty.tay. Itay. on line when Ibe the utility will need its It. capacity, cepacity, and.chedule. Ichedulel maintenance when the utllity'a utuily'. other unit. unltl are operative, the qualifying quallfyi", (acllity racllity 'I il moreyaluable more,valuable 10 to the utility, a, a. It II can tan reduce Itl Ita capacit)l capacity requirementl.. 'ZB2.3OfJ 'ZB2,3OfJ lnltl/'coluj(lclion cosu. tostl. Par_STaph Paragraph (a) (e).iale. atale. thai that each quelicylnj quallfylnj facility mu.1 must teimburae reimburle eny any electric utility wblch which purchases purchalles "apedt1 capacitj or energy (rom from the qualifying facuity faellily for ror.ny any Interconnection IntereonnecUon costs, cost., on 8 a nondilcrimlnatory nondilcrlmlnatory basi. with rupect re.pect to other cu.lomer. cultomera with.imilar similar load cbaracteriauc charecteri.llc. The Commlsaion Commltlion nndl nnd, AD 31

104 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 104 of 111 Federal Vol. 45, No. 38 Rules and merit in those comments commentl whlcb su88ested IU88elled that the bashl ba,la of 01 comparison compariaon for nondl.criminatol') nondl.criminato!,) practice. in the proposed propoaed rule to "any other CUltomer" Wei w.. too broad, broad. and that the correct reference for nondiscrimination Is 18 the practice of th. the utility In relallon to CI.Istomert CUltome" in Ihe.. me das. cjass who do oat not senerate seoerale electricity. As A. noted pravloua!y. prevlou81y. the Interconnection Interconnecllon co.t. co,ts of a facllhy facility which I. 18 already ldterconnected with the utility for purposes purposet of 88le. I8les are limited to any additional expens expenlet.. incurred by Ihe utlilly utility to permit purchasel. purchase8. Several commentera commentere expreued their concern that.ome lome protection should be provided to qualjtying tacllitles rat:ilitlel from potential haraument by utilities tie. in In the form of ot requiring unnecessary safety equipment. A. discu8led discussed above, the State Mgulatory Mgutatory authorities {wilh respect to electric ulilltles utilities over which they have ratemaklns authority) and oonngulated oonregulated electric uullti.es utlllti.es have the re.ponsibility and authority 10 to ensure enlure that the IntercoMection requirement. ate teaaonable. reslon,ble, and that associated co.tj COlt. ate legitimately incu1ted. incujted. For qualifying facilities with wllh a design upaclty of 100 kw or less. less, the Commiaslon Commi.slon noted lbot lhatinterconnect.ion Interconllection co.t. could be assesled assessed on a cla51 class bui and the.tandard stsndard tales rate. for purchases e"lablished established for cianes c1sues of or fscill facilllies ties of this.ize size pw'suanllo pursuanllo (cJ( (c](1) ) miaht incorporate Incorporate tbeee theee costs. State tesul8tory tesulatory aut.horihe. aulhorihes (with respect resp~ct to electric utilities over which they have raternaking ralemaking authority) or Ilonregulated Ilonreguialed electric uulltie. utilities may. abo determine determloe inten::onnectlon Interconnection costs cosi8 for ror qualiiylnb facilities facilluea with a design capachy capacity of more thad 100 kw on eilher either a dass clasa average or Individual IndJvidual basis. Numerou. comments commenta raised raised the point that the proposed rule did nol address the manner in which electric utilities would be reimbursed. Potential ownert.nd developers developer. of ot quautying qualitying facilities tacuities recommended that thai the coats be amortized on a reasonable basla, because payina a large lump swn payment would be a considerable ob.tacle ob.lacle to Ihe the program. Electric utilities generally preferred payment up [ront. althougb although several commenter. commenten lndicated indicated thtt that amortization might be acceptable forcredlt-worthy forcredlt-worlhy facilitie,. facilities. The Commlaaloo Commlsalon believes that lhe the manner of or reimbursements (which U'1ay U"Iay include amortization amortizauon over a reasonable ~od p6iod of or tlme) time) I. la bestleh be.tleh to the th. State Stale regulatory authoriliuand authoriliet and nonregulaled nonregulated utilities. In lb. liie deleanlnation deteaninalion oj any standard rates.. fg, far purchase. purchale. establi.hed estabu.hed purauantlo pursuant to t f (cJ(I).1f (c)(l). if the Stale.pprove. approve. 1Ol'U soma manner of.mortij.uon, IJDortiJatlon, it II might consider con8ider assignment of uncouected unconected Interconnection co.t, costs to the class for tor whicb which the rate i. is e.lablished. e.tablilhed System Syatem emef8encie8. Paragraph {a} provides thai. that. exceptaa.. provided under.ectlon 202{c) of the Federal Power Act. no qualifying qualifyins facility shall ahall be compelled to provide energy or capacity to the electric utility utilii}' during durin8 an emergency beyond the extenlprovided by agreement agfl!ement between the qualifying Facility and the utility. The Commis.lon Conuniaslon find. finds that thai a qualifying 'acility facility.hould should not be required to make available all of ita it.senerallon aeneratlon to the utility during a.y.tem.ystem emergency_ emergency. Such a requirement might interrupt Inlerrupt Indu.trlal Industrial proce"es procease. with resulting damage to equipment and manufactured manufactuted Soods. Soadl, Many industries induatrie. install in,tau their own generating equipment order to en.ute ensure that even during a syslem aystem emergency. their supply aupply or o( power is not nol interrupted. To putln in jeopardy the availability 01 of power to & qualifyin,s qualifying lacility durins durinll a system Iystem emergency emeraency becauea becauee of o( the facility', Cacillty's ability 10 to provide power 10 to the.ystem durins during non-emergency non emergency periods would reault result in the discouragement discoutagement ot of Interconnected operation and a resultant dlscourasement of cogenerauon cogener.uon and small power production. The Commi"lon.. theretore therefore provide. that the qualifying: qualifyins facility'. racillty's obligation obllgatfon 10 to provide energy and end capacity In emergencies be established through contract. In order to teeain recain full rull credit fot lor capacity. a qualifying (acillly racillty must offer energy end capacity during duriog.ystem system emergencies to the.ame 8ame extent thatll thalll has haa agreed to provide provide energy and capacity during non emergency situations. For example. a SO 30 megawatt cogenerator cogeneralor may require 20 ZO mesawatt8 megawatt. for it. ita own indu,trial industrial PW'JIOSe8. PW'JIoeel. and lhu, thus may rney contract to 10 provide provfde 10 megawatts walt. of capacity to the purchasing utility. During ao an emergency, emersency, the cogenerator cogeneralor must provide the 10 mesa watts contracted tor for to the uuijiy. ul1lj ty. II It need not disrupt its ita: indu.trlal Industrial proceues procene. by supplying aupplying its full capability of 30 megawattl. magawatll. Of course, course. If ".hould 10 so desire, desire. a cogenerator cogeneralor could contractually agrh to.upply the full 30 megawalts megawatts during.ystem emergencies. The avauabilil)' avauability of.uch additional addluonal backup capacity.bould sbould incruse incruee utility.yatem.ystem reliability. and should be accounted for In in I.h.e the utility', utility'. rates for ror purchases from lbe the cogenetator. cogenerator. Paragrapb Paragraph (b) provides that an electric. utility may discontinue purcbasea purchases &om a quaufyins facility taeility during a.y.tem Iy.tem emergency 1 U lucb putcbalea purcbajes would contribute 10 to the emergency. In addition.. during.y,tem sy,tem emergencies, qualifying facility must mu.1 be trealed treated Oft. nondiscriminatory ba.ia ba.is in any load sbedding program-j.e., program-i.e., 00 on the same lame basl8 basi. that other customers of 8 a simila slmllitt r cia class.. with similar load characteristics are treated with regard to interruption Interruption of service. Credit for capacity (aa noted noled in 1 m.304(e)(2l{vj) m wiij will also take into accounl account the ability of the qualif)"ing qualif)"ins faculty to separate liepafate Its \tsload loed and lienera!lon Meneratlon during system emergencies. However. the qualifying facility may well be eligible for ror some capacity credil even If lilt It cannot.eparate aeparate it. its load and generation Standards for operoting operotlng reliobility. Section 21O(a) 210(0) of PURPA states Itate, thai the rulea rule. requiring electric utilities 10 to buy from and sell 10 to qualitying qualifying facilities facililics shall Include provision. provisions re.pecting respecting minimum reliability of quajifybg QuaJifybs facilities facilitie. (including reliability of such facliilles facilities during durina emergencies) and rules respecting reliabijity reliability of electric elcctric utilities ulililiu durins during emergencies. emergenciea. The Commission bellevea believes that thot the reliability of qualifying (acllllle. faclllue. can be accounted for through throush price; namely, namely. Ihe the less reliable a quallrying quall ying facility might t be. the less lese It sbould be enutled to receive for purchase. purchases from It it by the utility. As A. a result, result. Ihe the Commission has not Included specific standards relating to lbe the reliability In the sense of the abuity ability of qualifying fa cilities to prol";de energy or capacity. The Commission has determined Ihal tha t aalety ulety equipment exists which which' con n ensure emure!.hat that quautying qualifying fa cilities do no' nol energize utility utilhy lines during utility ty outages. oulages. Thislecllon.ecllon accordingly provides that thai each Stalc State rcgulatory regulatory authority or nonresulaled nonregulaled electdc 1.IIIIIty utility may establish.tandards standards for interconnected operation between electric utiliu8i.. and qualifying fa racilrlics. cilities. These The.a.tandatds 8tandards may be recommenjud by any utility. any qualifyln8 qualifying (a.d ra.dlity. llly, or any other person. These standards must be accompanied by a statement showing the need for the.tandard standard on the basis of.ystem system sarety safely atld and operatins requiremenls. requirements. Subpart D-Implementallon D-Implementollon Summary Summory of o/ihjs tnis Subpot1. Rule. In thb this.ubpart tubpart.l"i8 are intended Intended to cerry carry out the relponsibility responsibility of the Commission Commi.sion 10 encourase encourage cogeneration and.mell.mall power production by clad!ytftb the nalute nature of the obligation to Implemut the Commiuion. Commluloo' s rules under sechon aechon 210. The Thull.. rulu.flord sfford Ihe the S'lle Sl\le regulatory authorilie. authorities end and nonregulated nonreguillted electric utilltle. utilities 8featlatltude sreat latllude In determining Ihe the manner mannar of implementation implemenlatlon of the th" AD 32

105 Federal Regl.ter Regi.ter I Vol. 45. No. sa I Monday. February 25, 1980 I Rules and Regulations Commlulon'. rule. provided th.t that the Reyiew ond and Enforcement, Implementation by stats manner cholen i. il re8lonably de.igned de.lgned to Implement Implemenllhe the requirement' of subpart C. The Commission Commisiion recognize. recognhr:e. thai many Sialel and aod Individual nonregulaled nonregulsted electric utilltie. have ongoing program. to encourage.mall power production and cogeneration. The CommIt.lon.110 recognize. th.t that economic and regulatory clrcum.tancel clrcum.tancea vary from State to State Stale and utility to utility. II il within this thll context-ln context-in recognition of the work already begun and of the variety of local condjtlorwthat the Commiu.. lon promulgate. promulgates it, it_ condjtlo~ regulations regulationl requiring Implementation or of rulel b.ued blued under seclion 210. Because of the Commission', Commission'. delire delrre nollo create creale unnecelaary burden. at the St.te State level theae njle. provide rule. provide a procedure whereby a I State regulltol'}' regulatory luthority or nonregullted nonregulated electric utility may apply to the Commlilion Commll.ion for a waiver if If it It can demonltrate1hat demon.trate that compliance with certain requirement. of ot Subpart C i. la nol neceslary necel.al'}' to encourage cogeneration or Imall power production Ind II IJ not otherwl.e otherwi.e required under I8ction nction 210. Several commenters commenter. exprelled expre8led their COllcem concem th.t that State Siale regulatory authoritie. authorities would nol be able adequately to Implemenllhe Implemanllhe Commil8ion'a rules, rulel, and therefore, recommended that the CommlaaloD Commillion I"ue Illue Ipecific rulel rule. which the Stale t8gulalory ragulatol'}' authorities authoritlel would adopt without change. The Commi.,fon does doe. nol flad thi. thll propolalto propo.allo be ~ appropriate.t at thll time, and believe. that providing an opportunity for experimantation by the Stltelll States Is more conducive 10 development of thele the.e dlmcult tale principles.. Implementation Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 105 of 111 Section 21o(r) of PURPA require. that within one year after the date that thi. this CommI"lon Commlilion prelcribe. pre.cribel It. Itl nde. under.ubsection subaection (a), (e), and Ind within one year of the date any Iny of theae these rules ii ia t8vised. ravlsed. each Stale regulalol'}' regulatory authority and each nonregulated electric utility, utility. after notice and opportunity opporlunity for bearing. beering, mutt mull implement the rulel rule. or revtalotll rev:lalotll thereof. II Is the cue clle may be. The obligation obllaalion to lmplemenl Implemenl.ectiOD lectiod :no 210 rule. II a contlnuing continuing obligation which beglnt begint within ona yellj' year alter promulaation of luch rulel. The requirement to implement Implement may be fulfilled either (1) through the enactment ouaw. oflawl or,.."wattons replatlon. It the Siale level, level. (2) by appljcltion IpplJettJOD on a I ca.e-by-c8le case-by-c8ie balil bui. by the Stata State regulatory authority. authorily. or nonregulated uullt)', uullty, of the rules rulea adopted by the Commission. Commiltlon. or (3) by any Iny other action IcUon telaooably reasonably dellgned de.lgned to implemenl implemem the Conunlslton's Comml'lton'. rulel.. ~ction ~clion 210(g) of PURPA provldel provide. one of or the means meanl of obtaln1ns Judicial review of a proceeding conducted by a Siale State regulatory regulato~ authority or nonregulaled nonregulated ulilily utility for purposel of implementing Implementing the Commillion'. Commillion'l rule. rulea under.ection aection , Under.ubsection subsection (g), (g). review may be obtained purauant pursuant to procedure. procedures let forth in In.ectlon lectlon 123 of PURPA. Section 123jc)(1) 123!c)(l) conlain. contain. provisions concerning JudiCial t(lvlew review and enforcement of determlnatlonl determinations made by State reguletory regulatory euthorltiu authorltiu and nontesulated nonresulated utililiel utilitie. under Subtitle A. B. or C oc of Title I ~ the appropriate State court, court. Thele The.e provis\onlalao al80 apply' to review oc of any action taken 10 Implement the rules rule. under section 210. Thil This mean. thai pertons penonll can bring an action In State Slate court to require the State resulatory regulatory authoriliel authorilie. or nonregulaled nonregulated utilitiel utilities to implement Implemenl thele the.e regulatlonl. regulatlonl, Section Sectlon 123(c)(2) of PURPA provldel provide. thai that peraonl per.onl seeking review of any determination made by 8 Federal agency fdey fday bring an action in the appropriate Federal court. This Thil distinction between Federalagenciel Bgencies and non-federal agenelel agencle. allo a110 applies to review of enforcement of the implementation Implementation of the rules rule. under section lectlon 210. Finally, Finally. the Commission believes that review and enforcement of implementetion implementation under.ection section 210 of PURPA can con.ilt consiet not only of review and enforcement es as 10 to whether the State Slate regulatory authority euthority or nonregulated nonregu1eted electric utility ha, haa conducted the lruliel Initial Implementation properiy-namely. properly-namely. put Into ecfect errect regulationl regulation. implementing.ection Action 210 rules rule. or procedurel procedure. for ror that implementetion. implementation. efter aher notice and an opportunity for a hearing. It can alao conlilt consilt of review and enforcement o( of the application by a State Siale regulatory authority or nonregulated electric utility, on a cale-by-cale cale-by-c8le basis, bui of or ita Ita regulation.a regulauotll or of any other provision it may have adopted to Implement the Commllalon's Commlsllon's rule. under lection 210. Section 210(b)(2)(A} 21o(b)(2)(A) of PURPA.Iate. Ilates that the Commi"lon Commiaaion may enforce the Implementation of regulationtl tiona under.ection 210(0. 210(1), The Congreaa Congre.1 haa bu provided Dot noi only For-private rot-private causel of 8ction action In St8te Siale court. courts to obtain Judicial JudiCial review and enforcemenl enforcement of the i.mplementation of the Commllsion's Commlle[on'. ru181 rules under teetlon tectlon 210. but al.o provided thai the Commi"lon Comml8l10n may.erva lerva a. II a forum (or for review and enforcemenl of the implementation of lhi'. thi. program, program. Fflgu/otory Fflgulatory outhorities authorities and nonregulaled nonreguloted electric utilities Paragraph (a) (aj oc of, 29Z sets forth Corth the obligalion obligation of each Stale State regulatory authority authorily to commence Implementation of Subpart C within one year of the dat.e date these thele rulel take erfect. In complying with thi, paragraph the State regulatory authoritlea authorities are required to provide for fot notice nolice of and opportunity for public hearing. AI As described in the summary or this Utla.ubpart, lubpart,.uch IUch implementation lmplementatlon may conliat consiat of the adoption of the Commlssion'l Commis8ion'. rulel. rulel, an undertaking to resolve disputes djaputes between qualifylns qualifyins facilitlel faciliue. and electric utilitiel utilities eri.ing erilins under Subpart C, or any other action teetooably teaaooably deligned desisned to implement Subpart e. C. 11Iil Thil lectlon doel not cover one provilion provision of Subpart C which il i. not required to be implemented Implemented by the Stale regulatory aulhority authority or nonregulaled nonregulated electric utillty, Thia Thil provision i. is ,302 (Availability of electric utilily utility 'Yltem ayltem COil COlt data). data), the Implementation Implementalion of which il is lubiec! lubjecl to, , disculsed dlscusled below. Sublectlon Sub8ectlon (b) seta leh forth the obligaton of each nodregulated nonrl!gulated electric utility to commence. commence, after DOtice Illnd opportunity (or for public bearing. bearing, lmplementation of Subpart Subpert C. The nonregulated electric utilities, utilities. being both the regulator and the utility.ubject subject to the regulation. regulation, may.atisfy utilfy the obligation to commence Implementation of Subpart C through laluance bauance of regulations. an undertak.id8 10 to comply with Subpart C, C. or any other action teaaooably reasonably dealgoed de.igned 10 to implement thet that aubpart lubpart PllJ'agraph Paragraph {c) (c) setl sets forth a reporting requirement under which each State Stete regulatory authority and nonregulated electric utility ia to file with the Com.ml"loo. Cornmlaalon, not leter later then than one year after thele theae rulel rulea take effect. a report describing the manner in which whicb ills it I. proceedina to implement Subpart C, C. Comments received regardifl8 regardins this secuon lecuon indicated e a concern that the obligation of. a State regulatory authorit), authority or nonregulated ulility utility "to commence implementation within one year." did Dot not provide any guidance 81 el to when wben the tha procell mu.t mult be completed. The Commiulon.. notel that Ibe the intention or this tbj'lection tection Is II that thai the State regulalory regulatory authoritie. authoritiel and nonregulated utilluel have bave one year in which to establish procedures procedurel and that al at the end or of thet that year elilcb e\!lch State Stete must be prepared 10 to entertain applications. application., The Tha phra.e phrale "commence implementation" i. il intended by the Commiaaion to connote thai that implementation implementetion of or thele theae rules ii a I AD 33

106 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 106 of 111 Federal Reglolor Regbt.r J Vol. 45. No. 38 I J Mooday. February 2S ao I J Rules.. and Re8ulaUo RegulaUonl.. contlnuins continuins procetl.. and that oversight will wul be onaolnj, onaolnj. 'Z92.40Z I Z Implementotion Implementation 0/ reporting ob}6ctivft. ob}6ctivn. The Th, obljiauon obuaatlon to comply with, f Z9Z.30% ZS illmpoled directly dlrecuy on elachic elecbie litillti ut1l1u... ThI. ThIt I. differeot diaelel'lt from the relt reat 0' Subpart C where the obligation to acl act I, i, Imposed Imposad on the Slate State regulatory authority Of the oonresuj.aled electric utility uduty in Its III role II a. rqujator. Th, Commf CommIe.lon I, exerd.ina exercl.inc It. eu.thority under aecuon 193 of PURPA and other lawl law, within the Comml Comm.l.. lou, Io.a., authortty authority to requ.lte requite lhfl reportin,. reportjn,. ~ Any electric lltility utility wbich fall, to comply with the requirement, requirement. of, I Z92.302{b) Z9%.302{b) 11 rublect 10. the th.l&tne tam. penelun penalttn.. It mlgbt mlg:bt reetin reeet... II re.ult of. failure to compl" comply with the requ1rementa requ1rementl of the Comml"ion'l.. ioo', regu1auoql regu1auontla.ued illued P.Dder aecdon aecttoo 133 of PURPA.. PlJRPA.. Aa atated Ilated earu eatu... ln In tbit this preamble. the data required by t %9z ,302 Will (onn fonn the b balll.. l, from which the cates ralel for purc.ha.ea pu.rc.ha.ea will b. be derived: 1292,302 t I. i.!hut tho. a critical element to WI w. program.. The Tha Coa:unJ.sioft loft believes belie"es that. with tegard regard to utilillel ulilltlea.ubjaet.ubject to section tection 133 of PURPA, th, the CommJuion CommJ"IOD may exetdte exetclae ita I... authority under secliod secllon 133 to require the: data required by t 2SlZ.302(b) 2Sl2.302(b) on OD the bub that the Commiulon Commission finds find. such luch Information InformaUon necessary nece.aary 10 to allow detennlnalion detennlnation of the co.t. CO.tl auoelated asaoelated with providing electric UN!cel, untee. With regard to utuities utilities nol not.ubject lubfect to section lecuon 133. if If they (ail fail 10 provide the data called for in 1 I (c). the Commiuion Commlaaion may compel lis Its production under the Federal Power Act and other.talules Iialutel which provide the Commlaaion COmnUuion with authority to require reporting of.ueb IUch data. 1292,4(}3 I $2.4(}3 WaiVV'S, Wai~ Paragrapb [a) r.) provide. for a procedure by which any State regulatory authority or nonregulaled e.lectric electric IItWty utility may apply for. waiver from the application of any of the requirement. of Subpart C other than I (Section 29%.302(d) 29%.302{d) h ba... beea revised 10 to pennlla pennlta Stale State regulatory authority or nonresulated non.regulated uulity utility to adopt a.ub.utute sub.utute method fot rot the provisjon provi.jon of Iy.tem Iystem cost data without prior Commission CommlllllIon approval) approval) Paragraph (b) (bj provldel provide. that the Commillion will grant.uch luch a waiver onl)' only II the applicant appllcanl can.bow thai that compliance with any of tha the requlremenl. requlrementa I, I. not oecellary necellary to encourage cogeneration or.mall smail power production end and i. ia nol not otherwise required under.eclion lection 210 or PURPA. Thi Thll lecuon ectlon 1& is Included in recognition of the need for the Commission to afford a Hord nexibilily nexibllily 10 the Slate. 51alel and nonregulaled utuilies utulue.lo 10 lmplemenl implement the CommJ"ion',.. lon'. rule. under.ectlon aectlon 210. Seve,..1 commentl ausseated usgnted thet that the Commltalon CommJlllon.et let (orth forth procedure. for conliderbut conliderbu! appucatioftl appucat!ona (or for waiv4h'li waivch'li which whlch would allow fonnal fonna! pardcfpauoo partlcfpatioo by qualifying fachitfe. facuitfe. in public hearing, hearing. The Comml CommiUiOll.. ion notel thai Intere.ted Inlereated partfea partiel wowd would be givea given an all opponunlty opportunity 10 be heard beard in any ady proceedina It conduct. conducll to determine whether or oot noi a waiver walver Ibowd Ibould be sranted. granled. Subp4Irt Su~ F-Exempdon F-Exemptlon of OUaItfylng Qualtfylng A_ Smd Small Po... Production and CogerwaUon CogeMratIon Facllttfn Faelltd.. From C.rtatn Certatn federal Federal end and St.te Slilt. Lawe Lawa end and AeguIa... I EnmptiDn Enmpti~n of 0/ quajifyina /ocilititt./rom facilititta/rom iliff Fttderai Power Powttr AeL AcL Sectton Section 21O(e) 2l0(e) of PURPA.tatH Itatu thai the: CommJaaioo Ihall prelcrib. preacnol rules rulel under which whlch qualifyins qualifying f.eiliue. facijlt!el are exempt. in In part. from the Federal Power Act. from the Public PubUc Utility Holding Company Acl Act o( of 193.S. t935. from the State Stal8 law. lawl and regulationl respecting re.pecting the cale., rate or relpecting respecting the fmanclal fmancial or OtBani.tation organi.tauoo regulation. of electric ulilitiel, uliliue or from any com6inatlon of the foregoing. If the Corrunlssion detennlne. delenninea uch exemption exemption is I. neceslary necessary to encourage cogeneralion and,mall '11'1.11 power production. M noted In the Stall Slarr OilCUliion DisCUlalon Paper. the Congreu Congrelll iniended Inlended the Commlulon Commlaalon to make liberal ule of Itl It, exemption authority In order 10 remove the disincentive dislncentlve 01 of uuuty-type ~type regulation. The Commlillion Commiaeion believes that broad exemption II I. appropriete. appropriate. S«Uon SeeUon 210(e)(2) of PURPA providea th.t thai the Commitlion,. I. nolauthorized to exempt ltdau JlIlaU power production (aciliue. (acuiue, or 30 to 80 megawatt capacity l;apacuy from then thetelaws. An exception I. II made for small power production facwtie. using ullng bloma.... s 81 as a primary energy lource. Such faeilltie. facilltie. betwe~ between 30 and 80 megawall. megawatt. may be ex.empted ex.empled from Crom the PubUc Utility utuity Holding Company Act of 1935 and from State law. and regula regujationa lion. but may not be exempted from the Federal Power Act. The Commission will est,bu.b establish procedure. for lor the detennmatjon detennination orrate. ocratea for lor these facilillel cilities In a aeparate lepara!e proceeding. Paragraph (a) aet. letl forth tho.e those faciliue. facilities which ate are eligible for exemption. Paragraph (b) provide. providea thet that facilities described In paragraph fa} fa).hall IhaU be exempted from all butl;ertain certain.pecified.eclione lectionl of the Federal Power Ace Section SeCIIon 210(e){3)(C) of PURPA provides providel that no qualifying fa cility may be exempled from any license Iicenl. or penni! requirement under Part I of the tha Federal Power Act. Accordingly. no qualifying laclutiea (actlitiea will be exempt from Part Pa.r1 I 01 of the Federal Power Act. The CommilltOA CommJ.. foq recently 1.lued IIBued limplified Bimplified procedure. for obtaining obtal.nlng water power licenses llceruea (or for hydroelectric projec'l' projec'l. of or $ megawalll megawatta or leal, and hal haa luued Issued propoted propo.ed regulations to expedite licen.lng Iicen.lng of ejd.tlng existing f.cilitles." faciulle " Th. The CommJ"lon Comm.l.. believes cogenention cogenerltion and.mall power production facilitie. facilitlel could be the lubject 01 of an ajl order under.ectlon seetlon 202(c) of Ihe Federal Power Act requiring them 10 provide energy if the Economic Regulatory Admlni.tration AdminiatraUon delermine. determinel that an emergency.ituauon situation exi.li. exists. Beaul. Becau.. application applicalion of lhit thit.ection lectioo I. II llinlted UnUted 10 to emergency.ltualloftl situations and ii 11 nol affected ahected by the fact that mat a facility attains auains qualifying qualifyiag.tatu. atatus or engages 10 In inlerchaj:lge. inlerchanges with an electric utuhy. utility. the Commltalon Comml8l10n noles note. that qualifying (ac1utie. fac1uuel will not be exempled exempted from section aecuon 202(c) 202{c) of the Act. Furthermore. Furthennore, In response respon.e 10 commenl. the Coaunission Commission has revised this paragrapb ph to provide that qualifying facliuel facilities are nol exempt from section. secllon n. and 2U 21% of the Federal Power Act... required by section 210(e)(3)(8) ZlO(e)(3)(B) ofpurpa. Sections S zoe , and 304 of the Federal Power Act rerect traditional rale rate regulation resulation or regulation of securities of public utililies. The Commission has determined that t qualifying facilities shall be exempled exempted from thele these secuons sections of the Federal Power Powee Act. Section 305(c) of the Act imposes impo.es certain reponing reporting requirement. requirements on Interlocking directorates. directorates, The Commission Commlsaion believes that any person who wbo otherwise Is II required 10 to file 8 repon report regardina regarding interlocking politiona positionl.bould.hould nol noi be exempted from Crom such auch reqwremenl because beeause he or.be Ihe It i.t alao al..o 8 a director or officer of 01 a qualifying quallrying facility. Finally, the enforcement provislonl provisions of Part m of the Federal Power Act will conunue 10 apply with respect to Ihe the lecuon. IIcUon. of the federal Federal Power Act from which qualifying racilities racililie. are nol ex.empt. I Z9Z.6fJ2 zgz,(j()2 exemption Ex.mpti~n 01 of quoll/yins quo/j/yills locililie8 facililie8 /rom from the Public Utility Holding Company Act and certain Slote loly low ond resulation. Under Iection taction 210(e) 210(e} of PURPA the Commlaslon Commlulon can 8)lempt exempt qualifying 'acilltiel (aciliu" from regulation under the "os. Otd., Ord.r No. 11. t 1. Simplified 1'nIotd_ PnIotd_ lor Ce:rt,tn C!:rt.tn Water Pu... ~ UUftUI. Uurutu. Oodel Dodet No. R~I:'I-<t, R!>I~ lulled wlle-d Septembet Seplembet~ $,. 1m tm.. end ",pplicetlon Applic-'Ion lor UcenM for Majo. Pmi.ct.-E~ PmifCI.-E~I,' I.lII n, ", Darn. Dam. Doek.' Dock.' No. RM, f1l f'1l Apnl IApnl 21. 1m). AD 34

107 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 107 of 111 Federal Regiater Register I / Vol. 45. No. No, 38 I Monday. February 15, I Rulea Rule. and Regulation. Public: PubUc Utility Holding Company Act of organiulional resulation of electric IV. Effective o.te and Ind Siale lawl and febulauonj resu1atlont eancemins concerning rate. ratel or flnancjal nnlncjai orslniution. o,..anlu.tion. Only cogeneration coseneration faciutie. raciutie, and.mall amall Power productfon production facilities cilities of 30 megawans rnegawaus or leu le&t may be exempted from both of these laws, with the exception Ihal that any qualifyins.mau smlll power production producllon facility ',i.e.. ~ up to 80 megawatts} megawatts) using biomes. biomass 81 a primary ener'll)' ener'by aow"ce l ouree can be exempted rom these laws. The Commission bas detennlned th.t tha i where wbere a quallfyins qualifying fac.lllty faclllty I ubjected to more mote atringent atringenl regulation than thab other companies.olely lolely by rea.on reason of the 'act fact that Ills engaged engeged In the production of electric energy. enei'sy. these more.tringeot.tringent requirements.bowd hawd be eased thtousb exemption of qualifying f.ci1itie r.cijitie By excluding any quallfylns quauryins facility from the dennition of an "electric utility company" under lection 2(a)(3J 2(a)(3) of the Public Utility Holding Company Act of , luch lucb 'acilities facilities would be removed... ed (rom from Public Ulillty Utility Holding Company Act regulation which i. epplied applied exclusl exclusively... ely to electrlc utlilty utility companies, Moreover,... er. b)l b)' excluding qualifying facilities ' aclllties from thll thil derioluon, defir:aiuon. parent companies of qualljylng qua1ljylng facilities would not be sublect to additional tegulauon regulauon 81 aa 8 result of electric production by their lubsldiaries, lubsldiaries. The Commlesion Commission therefore thererore believe8... es that tbat In order to encourage cogene.ration cogeneration and.mall small power production it is Is necelsary necessary to exempt cogeneralors cogenerato... and null Imall power producers from.n.11 of the proyisions... of the tbe Public UUIHy Ut,ilHy Holding Company Act of 1935 relaled related to electric utilities. utilities, Accordingly, paragraph (b) states slates thai no qualifying facility.hall shall be considered to be an "electric "electrlc utility utilily company". company", I:IS 98 denned defined in section 2(a)(3} 2(a}(3} of tbe Public UlIIIIY Utility Holding Company Act or of U.S.c. I 79b('1I3). 79b(')(3). Section 21O(e) of PURPA stales Itates that qualifying (aclliues 'aciliues which wblch may be exempled exempted from the Public Utility UtUily Holdins Holding Company Act may also be exempted (rom from State law. laws end and regulations respecung respechng the tbe rales rates or nnancial organizallon of electric utilities. utilltie. The Commillion Commission has decided to rovlde. broad exemption from Stale Slate r. awl and regulation. regulations which wblch would conoid conriel with the Sial,', S,ale'. implementation of or the tha Commllllon'l Commission'. rules under lectlon 210, 21~ The Corruni"lon.. loo belln'tt' believe. thai luch lucb brold broad exemption I.a ia neeetiary nece.. to encourage cogeneration cogenerauon or.mall amall power production. AcoordlngJy, AccordlngJy,.ubparagTapb,ubpara8Taph (e)(l) (C){l) provides provldel that.ny any qualifying facility.hall Ihall be exempt (rom from State law, lawl and regulation. regulationl re.pectlng respecting fetes retes of electric utilities, utilulel, and (rom from financlaj and utilities. Several commenlen noted that thai Ihi thie.ecuon might be Interpreted.. a. exempting quaufylns facilitie. racilitiel from.iale,iale law. lawe or reguletions resulationa implmentins implunentins the Commillion'a Commiasion', Nle.,. under.ectlon lection 210(1) of PURPA, 1n In order to clarify that quali(ying qualifying (acilitlel facililie. are not to be exempt from thete theae rulee. rule., the Commission hal haa added subparagraph subparagrapb (c)(2) (cl(2) prohibiting an)' exemption. from Slate State law. and regulation. regulationt promulgated pursuant pw'$uan! to Subpart C o( of thtlt the.e rule.. Some commenle", commell.ten: indicated indjcated tb,t tbat, 292,3Ot(b)(1) {b)(I) mlgbt might be interpreted Interpreted as prohibiting a State from reviewing contracts (or for purchase.,. The.e commentera commentert Ilated Italed thai. that, as a part o( of a State'l State's regulation regwallon or of electric uulitie., utili tie', a State regulatory regulalory authority Deeds to be able 10 to revfew contract. entered tmlered into by electric utilluel1t utilltie.1t regulates. The.e These Nlet. Nlu, and tfie exemption. exemptionl being provided by the.e thele rules. are ere not intended to djvest diveat a State regujatory agency o( of '" Ita authority Wlder under State Stete la le w 10 review conlr.cl. contractl for ror purchaaes purchases '1 as part 01 of ita resul,uoo regul.tiod or of electric utililies. utilities. Such authority may continue to be exercised If CODal,tenl CODIlslenl with the terms, terms. policies and practice, under.ectlons 210,nd and Z01 o(purpa ofpurpa.dd and W. thia Commission'. Commission's implementing lmplemenuns regulations, If the authority or It. exercise i.ln il In connict with these.ections lection' of PURPA or the Commiasion. Commiaalon'. regulation. thereunder. thereunder, the State muit must yield to the federal Federal requirementa. requirements. The CommllSlon Commission doe.,not believe It II pollible or advisable to attempt to ettablub eatabush more precise pleciae guideline. guidelinel than these. theee, Accordingly. Accordingly, Slatel Slalel whicb which h have... e que.tion. in thl. tbl. regard should Ihould.eek aeek an interpretive Interpretive ruling (rom the Commlulon'. Commiulon'. CeDeral General Caunle!. CoUDleJ. Subparagraph Subparagrapb (c)(3j (cu3j provide. that. that, upon requeat of. a SlIte State resulalor)' regulatory authority or nonregulated nonresulated electric utility. utility, the Commiaaion Commillion may mey limit the applicability of the broad exemptioo exemptiod from the State Siale law,.. Tbi. Tbia provilion provi.ion II Is intended to add flexibility to the tbe exemption. The Commi"lon CoauniJ5lon perceive. that there rna)' be in,tance. in.tance. In which a qualifying qubiif)'inb faciuty raciuly would wll wl. h to bave an Interprelation Interpretation of whethu whether or not 111. II is subject lubjeci to a part.lcular particular Stale State law In order 10 to remove... e any uncertainty. unce:rtainty. Under subparagraph lubparagraph (C)(4). (C)(4), the Commlsalon Commleslon may determine: whether. a quaufylng qualifying racility i. il exempt exempl from a perticular State law or regul.t1on. regulation, (Public Utility Ulility Re,ul.toty Re,ulatory PolIcie. PolIciea Act or of 19?8. 19?a. 16 U.S.C., zeot. zeot,~, ~I.eq ~ EnetJY Supply and Environmentat Environment. 1 Cootdlnllion Coordination Act. 15 U.S.C, I 791 e( et.e9 '''9.. Federal Federll Power Po~t Act,... amended, 18 U,S.C, U.S,C. 11V2, 1V2 et '''9".eq.. Department Dep.rtment or EneraY En,,'lIY 0'8S"tUllon O'sanl"lIoo Act, fo2 U U.s,C. U.s,C, 17101, el.eq et.eq.. E,O. E.O, 12009, fo2 U Fed. Rea. Res, 46261) 46281) Tbe The regulation. regulations promulgated in thi, thb order ate" effecuve March 20, In consideration IXInlkferatlon of the (OM!80inB. IOM!80inB. the Commlllion Commllllon amendl amend. Pan 292 of Chapter I, Tille 18, Code of Federal Federa1 Regulations, as se.1 se.t forth below. below, euecll effectlv.... e March 20, ZO, , By the tha Commillion. Commle.ion. J(enoelh J(enoelb F. Plumb, Plumb. Secretory. Secretory, (1) Subchapter I( K I. II amended 10 ID the lable of content. lent. and in the text of the regulation by deleting the title (or fot Part 292 and.ubllitutlng.ublututlng tbe following following in Ueu thereor: thereof: Part 292.-Regul.lIonl 292.-ReguI.tlon. Under Sectlonl Sactlon. Z01.nd and 210 of lbe the PublJc Utility UIiUty Rqujalo!,), RquJatory folide. Polici,. Act or of Wilb With Resard Regard 10 to Small Power Production Produclion and Coaenu.tlon, Coaeneratlon. (2) Subchapter K!. K'll further amended in In the table o( of contenta tontenll to Part 292 and end In the text texl or the regulations regulation. by reserving Su.bpart Subpart B and by addjn8 adding oew new Subpart. A. C. C, D, 0, and F to read a. rollows! rollows: PART 282-REGULA1l0NS 2i2-REGULAllONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC UTIlITY UTILITY REGULATORY POUCIES ACT OF 1911 WITH REIlARO TO SMALL POWER PRODUCTION AND COGENERATION.... Subpart A-G~I ProvWons Provt.Ions O4!linllionJ. tnlinltionj. Subplrt Subpart 8-(Rc a-fr~.. rndl rv.dl SUbpart SUbp.rt C-ArrIngementl C-Arnngementl eetween eatween ElectriC UtHi'IH Utlm... and Quelilylng QUllilylng Cogeneration CogenereUon and Small Smlll Power Produellon Producllon faclllllea Unci«Under SecUon SeeUon 210 olttt. or lhe PubUc Publkl Utility UUllly RegulatOf'y AegulalOf'y Poflclea PokIes Act Ad of llr '1 Scope. Sc::cpe, A.. II.blllty U,blllty of Electrfe Electrfc Utility UtlHry S),.11I!1ft S),.llI!m Cott Cot, olla, oa'a E1aetric Electric Uttlit)' UtUlty Ob1i8aUons ObliBaUons Under This Subpart Relll' RallJ, lot fot Put'chne PuN:hne ~ Rat" R.tes for Salu, Salu Z9Z.306 lntercomecuon interconnection Coil.. 29z S),.teln Sy.tem EmergencJet, EmergencJet Z.308 Stand.rds fot for Opet.tlna Opetatlns Relllbliity. Rellabllily, Subpart ~n O--Irnptementatton D-JrnptementaUon 292A Implement.tion Implementalion by Sl,te Stltll! Regulatory RegulatOf')' Authorilil. Auihorilifll and Nonrqulated Nonresulated Uttlilies. Ulilitles, Z Implementation Implemenlation of Certaln Reportlna Requ1temeDIa. RequlnmeDtt. 29z.403 Z9z.403 W.ly......,.., SUbpart F- 'umptton F- umptton 01 of au.iif)'lng ~tno Smll Smelt Power PJoduction PYoduction Facftlu.t Ftcftlu.t.1'Id and CogenefWtlon Cogenemton Factll1le. FacJlltlea From Certain FflMraltnd FacMraI and State Slate... I.awa.net.nd Ravua-tlona R~.lIona 292, Exemption 0' of Qu.Ufytna Qualtfyina f.cliuh!1 r.dlnh!. from lb, the F,d'rel F.d.rel Powe, Power Act, Exempllon Ex.mptlon of QuaUfytna Qu.Ufylna F.cUIll F,clllll.. From lb, ihl Public Utillt)' Utility Holdlna Hotd1na Company AD 35

108 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 108 of 111 Federal Register I Vol. 45, 45. No , 1960 I Rules and a Act and Certlin Certlln State Stata Law and Reguletlon. Regulation. Authority: TIll. TIlII part iuued luued under the Public Utility Regulltory Policlu Pollclea ACI of 1978, 18 U.S.c., t 2eO\ 2eOt fit 'eq leq.. Energy Supply and environmental Environmental CoordlnaUon CoordinaUon AcL 15 U.S.c. t 791.t 'eq~.eq~ Federal Power Powlr Act. 18 U.s.c. 1m Im..'.eq, 'efl.. Department Deplrtment or Energy Ene'1Y OtJanlzatloll Act. (2 U.s.c. t 710t fit,eq.. OraanlzatJolI Act. t2 U.S.c., 710t et 'efl lz009. 4Z FR te287. Subpart "-General ProvtsJona Proviakma.2t2.101 DrlftnItIone. DrlftnIUone.. (aj General Ceneral rule. Term' Terml defined In the Public Utility Regulatory Policiel Policie. Act o( 1978 (PURPA).hall shall have the same meaning (or purposel of W, WI part II.. they have under PURPA. PURPA, unlen unleu (urther defined in In tble thle part. (b) Definition!l. The following rollowing definition. definltionl apply for ror purpojei purpole. o( this thil part. (1) (11 "Qualifying "Qualirylng (acility" means mean. a cogeneration facility or a,mall Imall power production (acllity (acility which II Is a qualifying Cacility under Subpart B or of this part of the Commls.lon', Commls.lon 1 regulations. regulauolu. (l) (2) "Purchase" means mean. the purch8le purchase of electric energy or capacity or both from a qualifying facility racillty by an electric utility. {3l "Sale" means the sale aa of electric energy or capacity or both by an electric utility 10 to a qualifying facility. racility, {4J "System emergency" meane means a condition on a utility'1 utility' IYltem yalem which I, II likely to result In Imminent aignificent lignificant disruption of service to customen customers or I, II Imminently likely to endanger life or property. property, {51 (51 "Rate" meanl mean, any price, price. rate, rate. charge. or clallificatlon claslificatlon made. demanded. observed or received with relpect re,pect 10 to the lale or purchase of electric energy or capacity, or any rule. rule, regulation. or practice relpecting ~apectins any.uch IUch rate, rate. charge. charge, or clauification clauicication, and any contract conlract'perlblnlng 'Pertaining to the aale lale or purchaae purchase of electric energy or capacity. (6) "Avoided COltl" costl" mean, mean. the incremental Incremental COlta coall to an electric ulility of electric energy or capacity or both which. which, but for the purchall! purchaae from the quaufylns facility or qualifying facllilles, cilities,.uch IUch utility would generate 1I11!l IIself or purchale purchase from anolher another loutee. (7) "interconnection coat." COltl" mean' meanl the realodable realonable CO,tl COlt. of connection. connection,.wltching..wltching, metering, melering. Iran.mlulon. tranlmlllion. dl.tribution dlltribution.... IIfely fety provillonl provilion.nd administrative admlnillratlve co.tllncurred COltS Incurred by the electric utility directly related to the in.t.li.tlon In.tallatlon and maintenance of the phyllcal phy.lcal faduties necel.... ary to permit interconnected inlerconnected operationl with a quaillyins qualifying (acllity. (acillty, 10 to the extent.uch COl" co... are 10 exceu excel' of the correlpondlng co.ta co,ti which the electric utility would ban Incurred I( It had not engaged In Interconnected Iotarconnected operationl, but In.lead In.tead generated led an equivalent amount amounl of electric energy itself itseu or purchased purchaaed an equivalent... amount of eleclric energy or capacity from rrom other sources. lourcel. Interconnection costl costs do not Include any COlts included in In the calculation of.voided... COltS. costs. (8) "Supplementary power" meanl means electric energy or capacity,upplied lupplled by an eleclrlc electric utility, utility. regularly used by a qualifying qualifying facility racility in addition 10 to Ihat that which the facility generatel.. itselr. itlelf. (9) (9J "Back-up power" meanl mean, electric energy or capacity supplied by an electric eleclric utility to replace energy ordinarily generated by a faciuly'l faciuly', own geaeration generation equipment during an unlcheduled unscheduled outage oulage of the facility. (lo) (10) "!nlerruplible "Interruptible power" means electric energy or capacity supplied aupplled by an electric utility subject to interruption Interruption by the electric utility under Ipeclfled Ipeclfied condition.,. (11) "Maintenance power" meanl meana electric energy or capacily capacity supplied eupplied by an eleclric electric utility during scheduled Icheduled outages of Ihe the qualifying facility. Subpart 8-{Reserved1 B-{Resarved1 Subpart C-Arrangement. C-Arrangement, aetween Between Electric Elecll1c Utillti" Utllllie. and Qualifying auallfylng Cogeneration and Small Power Productlon Facllltl Facllltiea.. Under Section of the Public Utility Ullllty Regulatory Pollcl" Policies Act t 29U Sc:ope. (a) raj Applicability. This subpart lubpart applies 10 to the regulation of lales and purchases between qualifying facilities and electric utilities. {bl Negotiated rates or terms. terms, Nothing NOlhing In this aubpart: lubpart! {11 (1) tlmlts tlmltl tbe authority of any electric utility or any qualifying facility to agree to a rate for any purchall!, purchase, or terms or conditions conditiona relating relaling to any purchase, purchase. which wbich differ dirrer from the rate or terms or conditiona which would otherwise otherwlle be required by this thllsubpart; or {2l (2) AffeclJ Affecl8 the validity of any contract entered Into between a qualifying facuity and an electric utilily utility (or.ny any purchase, purchase. t """lltabjllty Availability of 01 electric electttc utility li)'atem ayetem co.t co.! data. (a) Applicability. (1) Except at ai provided In paragraph (a)(l) (aj(2) of or thl. aectlon. lectlon. paragraph (b) appliea to each electric utility, utility. In any calendar year, if the lotal tolal,alea salel of electric energy by.uch auch utility for pwposi!i purposea other than reaale resale exceeded 500 SOO million kllowatt-boure kilowatt-hours during any calendar year beginning after December , and before Ihe the immediately preceding calendar year. {21 I21 Each utility hevlns total 1.1" salal of electric energy (or purpolel purpole. other othar than thad resale of lell less than one billion 1I10watlhouhour. during any calendar year beginning afler after December 31, and kilowatt before befote the immediately preceding year, shall ahan not be subject to the provision' provlsionl of thil seclion JecUon until May 31, (h) General Ceneral rule. To make available data from which avoided a... olded cosl" costa may be derived, not later than November... 1, t, May 3t, 31, t982, and nol not less lell often than every two yean years thel'1!8fter. therufter. each regulated electric utility described In paragraph (a) (aj of!hie thie eectlon leclion,hall shall provide... to its Its State Stete regulatory authority. and ahal! Ihan maintain for public inspection. and each nonregulated nonj'egulaled electric utility described in In paragraph (al (8) of this section IecUon ahall I han maintain for public inspection, mspection. the following data: (1) The estimated avoided cost on the electric utility'1 utility', 'Yltem, Iy.tem, lolely.with relpect rejpect 10 to the energy component, component. for ror varioul varioua levels... els of purchase. purchasee from rrom qualifying facilitiel. facilltiel. Such levels level. of purchaael purchalea shall Ihall be atated Ita ted in In blockl block, of not more than 100 too megawatt, megawattl for aysteml Iyaterns with peak demand of 1000 megawalls megawatt. or more, and in In blocks blockl equivalent to not more than 10 percent of Ihe the.ystem syelem peak demand for systeml syltem' of less than 1000 megawatt,. megawattl. The avoided coels shall ahall be atated Ita ted on a cent. cenl. per kilowatt-hour kilowall-hour basis. during daily and seasonal peak and off-peek off peak perioda, periodl, by year, year. for the current calendar year and each of the nexts 5 years: (ll {21 The electric utility', plan for the addition of or capacity by amount and type, for purchases purchasel of firm energy and capacity. capacity, and for capacity retirement, retlrementl for each year during the succeeding 10 yeara: years: and (3) The estimated capachy capacity costs at completion of the planned capacity addition. addilionl and planned capacity flj1l1 fll'q1 purehasea, purchasea. on the basis of dollars per kilowatt, and the allocialed asaocialed energy cost, costl of each unit. expressed in In cent, centl per kilowatt hour. These COlts shall be expresaed expressed in In terml of individual generating unit, unltl and of individual planned fmn flltn purchases, purchales. (c) Special Speciol rule ru/a for small e/tfctric a/tfctric utilities. utilitie,. (tl (1) Each electric utility (olher (other than any electric utility utuity to which paragraph (bl of!hil thil section lecllon appliel).hall.,hall, upon request: requelt: (I) Provide... comparable data to that required under paragraph {bl (b) of or!hi. thle eection leclion to enable quali } jng quali }'jng fa chitiel ciliue, to elumate esumate the electric utility" utility'l a avoided... coati COltl for period, periodl delcribed de,cribed in paragraph (b) (bj of thie... lection: clion; or (il) (Ii) With regard to an electric utility whlch wblch I, II legally obligaled obligated to obtain all Itl requlrementl requirement. for electric energy and capacity from another electric utility, utility. provide the tbe data of It, Itl.upplylng lupplylng utllily utlilly AD 36

109 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 109 of 111 Federal Register I Vol. 45, No. 38 I Monday. February I Rul es end Regulation, U235 and Ihe rates.t II which II currently purchase. such luch enersy and capacity. (ZllIany IZ)1I8"y.uch such elegtric utility (au. fajl. to provide.uch IUch information Information on requelt. request. the qualifying (acuity facuhy may apply appl)' 10 the State Stale resulatory rebula authority (which haa ratemaklng authority o,,'er the electric ullllly) utlll1y) or the Commission for an 81'1 order requiring Ihat that the inrormation be provided. (d) Subslllullon Subslltullon of oltemotlv6 oltemotlv8 Ole/hod. ill (11 Afler Arter public nolice in the lrel Ire. served b), the electric utilily. utility. aod lod.ner opportunity for ror pubuc comment. cammen", an)' Iny Slate ugulatory ~gulatory authority ma), rna)' require (with respect re.pecl to any an}, electric eleclric ulillty utility over which it has ratemaking authority). or any an)' non regulated electric utlllly ullllly ma), may provide. dats different than those which are otherwise required by Ihls this lection ir it determines thai that avoided cost. cosl, can be derived from rrom such data. (2) (Zl An) Stale regulatory authority (wilh rl'fope rl'fiopec1 10 an.)' an.y electric utility ulilil), over which il hu ratemaking authority) uthorily) or nonresulated utility which require requjres such dlnerent data shall Dotify the Commission within 30 days dayi of making such determination. (e) (ej Stole Rel'iew. (lj (1) Any dala data submitted illed by an electric eleclric UIJIIly utility under thi. thl. section shall be subject to ft!view H!view by the Stllte Stllte regulatory authority which has ratemaldng ratema~jng aulhority authority over.uch electric utility. (2J (2) In any an)" such re\ iew. the elecbic uti uulity lit)' has ha. the burden of 01 comlr8 coming fonvard with justiocation for its data. f Electric utility utllit)' obligations under tn, tns IWbp.rt. eubpsrt. (8) (a) Obligation 10 to purchase fram from qualifylnsfacilities. Each electric utility shall purchase. in accordance with any energy and capacity which wblch I. Is made available from II qualifying facijity: racility: (1) (11 OirecUy Directly to the electric utiljt)~ uli llt or Ot (2) Indirectly Indi~ctly to the electric utllily utilily in accordance with paragraph Cd) of this.rehon..etuon. (bl (b) Obligafion ObliBatian to sej/ to quolifyif18 qualifying facilities, focilitiel. Each electric utility shall sell seli 10 to 8ny an)' qualifying facility. in accordance with any energy and capachy requested by Ihe the qualifying facility. feciuty. (c) (ej Obligation ObliBatian to interconnect. (1) Subject to paragraph (c)(2) (cj(21 of Ihls this section. lecuon. any electric utility.hall shall melle malle.uch luch Interconnedion. Interconnections with any an)' qualifying qualifying facility.1 as may be nece.. ary al")' 10 to accomplish purchasea purchases or sale. aale. WIder under thil.uhparl.ubparl The obligation 10 pa)' pay (or fol' any Interconnection COlts sball be determined In accordilnce accordance with I ZS (2) No electric utility is required to Interconnect with any quaufying quahrying (acility facilily If, solely lolely by reaaon reason or of purchalea purchases or sales aslea over tbe the interconnection. intercomeclion. the electric utility ""ould \o"ould bec:ome become.ubject. to regulation as es a public utility under Par! II of Ihe the Federal Power Act. Cd) Id) TronsmissiDn Transmission to other electric utilities. If a qualifying facility agrees. an electric utility lit)' which would olherwise otherwise be obligated to 10 purchase energy or capacity capaclly from.uch such quaucying facility may transmit the energy or capacity to any othl!r other electric utility. Any electric utility ulliny 10 to which luch energy or capacity capacily il is lran.nulled lransmjlled shall purchase such luch energy or capselty capaclty under thla thl. subpart aubpart as if the qualify;ng (aclllty facility were supplying energy or capacity directly to such electric utility. The rate ror purchase by the electric utility to which such energy Is transmitted shall ahall be adjusted up or down to renect line losses pursuant to (e){4) and shau abau not include aoy any charges dlarges for transmission (e) Ie) ParolJeloperation. Parallel operation. Each.electric Each,electric utilily utility shall offer orter to operate in parallel with wilh a qualifylns qualilylns (acillty. (scillty. provided thai that the qualifying faculty complies with any applicable standards Itandards established in scgordance acgordance with t 292, Rlt Rat for purch.a.h, purch.aih. Ca) la) Rates forpurchase8. forpurchose!j. (1) Rates for purchases shall: sball: (I) Be just and reasonable to the electric consumer of the electric utility and in the public interest: and liij fl.:ot l'-:ot discriminate diacriminate against agalnst qualifying cogeneration and Bnd.mall small power productiod production facilities. fscilllie. (2) f2j Notb.ins In thi, tbj..ubpart aubp8j1 requires any electric utility 10 to pay more than the avoided costl costs for purchaaes,.. (b) Relationship RelationshIp 10 to avoided costs. (11 Por purposes purposel of thi. this paragraph. "new c.apacity" means meana any pun:hase pwt:hase from capacity capacit)' or a quallfyi.ng quallfyi.na: (acully, f",cully. constn.u::tion construction of which which Waf was commenced on nr after November (Z) (2) Subject to paragrapb (b)(3) of this.ection, lection, a rate fot (or purchaaes purchues aalisfies astisfies the requift!ments requirements of paragrapb paragraph (a) Ca) of this section lie<:tion it jj the rate equal. the avoided costs determined after conlideration of o( the factorl (actors.at tet fo'rth fo'rtb In paragraph (e) or Ihls section (3) A tate rate for purchatel purchaee.lother (other than from new capecit)')ldsy capacity) may be leis leas lb.an th,an the avoided coetl( COlt II the State regulatory aulhorily aulborily (with f1!apect respect to any electric utility over which II It hn bas rall.:making ratemaldng authority) or the nonreguj.ated nonregulated electric utiuty determines detennlnes that thai a lower rite rate ia is conllstent consistent with paragraph (a) (al of this section. and lind la Is sufoclent aufoclent 10 to encourage encoursge cogeneration and.mall tmall power production. (4) Ratea Ratee (or for purchasee purchatet from new capacity shall be In in accord.nce accordllnce with paragrapb paragraph (b)(2) of lhll thla.ection. regardless oc of whether the electric eleclric utulty making such purch8lea porchues i8 simultaneously making sales to the qualifying qualirying (acility. facility. (5}ln the case in which the rates lor for purchases are based upon estimate. estimste. of avoided colta cosl. over the specific apecific tem! of the contract or other legally enforceable obligation. the rates rate. ror such auch purchase. purchases do not violate Ie!.hie this.ubpa.rt subpa.rt if the rates ratet ror such purchases diller differ from avoided COlts cosl. at the time of delivery. delive.ry. (cl lc) Slondord Standard rotes lor fdr purchases. pwchoses. 111 (1' Then!" Thent shall ahall be put into erred (with respect to each electric utility) standard atandard rale. rate. fof' purchases purchase. (rom rrom qualifying facilities with a design capacity 0(100 of kilowatts or less. (2) There may be put pul into effect standard tatea ratea for purcbases purcbaees from qualifying facuitiea racuities with a design capacity of or more than 100 kilowau kilowatt (3) The.tandard standard rales rates for purchases purchase. under!hi. thle paragraph:.: (I) Shall be consislent consistent with paragraph. (a) la) and (e) tel of thls this section; aection; and Iii I ) May differentiate among qualifying qualuying racillties ratillties using various technologies technologie. on the basis or of the e supply aupply characteristics of the different dif erenl technologies.. (d) Purchases "as available" or pul'$uont pursuant to 0 lesally lesoj/y enforceoble enforceable obligation. Each qualifying facility shall Ihall have the opdon option either: (I) (1) To provide energy as the qualifying racllfly racillty determines such auch energy 10 be available for.uch such purc.bases. in which, whlcb case tase the ralea ralel for for such auch purchasea purchases.ball,bs be baled ba.ed on the purchasing utijjly's utility', avoided coals COStl calcujated calculated at the time of or delivery: or (Zl (Z) To provide energy or capacity pursuant to a lega1ly enforceable obli.gation obli,galion (or for!he!be delivery or energy or capacity over a I.peclfied apeclfied term, tenn, in whicb cue case the rates rales for such auch purchases purchaae,.hall. at the option of the qualifying facility faciuty exerclud exerclaed prior to the beginnins beginnir8 of the lpecilied lerm. term. be baaed on either: (I) The avoided costs coats calculated at the lime of delivery. or (Ii) The avoided COlt. cost. calculated al at the time the obugation II Is incurted. incurred. (e) Ie) Factors Dllecting Dffecting rotes for purchases. In determining detenninlng avoided co. coals. IS. the following factol's factors Iball. to the extent extenl practicable. be taken into account; account: (lj The data provided pursuanl pursuant to I 29UOZ(b), (c). or (d). including includin8 Slate review o( of l.oy luly luch IUch data: (Zl (2) The IvaIlability o( of capacit)' capacity or enel'8')' enel"8)' from a qualifyill8lacility qualifying facility during durins the.yatem.ystem dally and seasooal tealooal peak period,. periods. Including: (I) (II The ability abill!y of the utility to dispatch the qualifylns qualifyln8 facility; facility: (II) The expected or demonstrated ft!liablllty reliability of or the qualifylng qualifying facility: racility: AD 37

110 Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 110 of Federal Regliler I VoL 45. No. 38 J Monday, February 25, 1980 I Rule. and Regulations (iii) The term, term. of any contract or other legllllly le811111y enforceable obligation. li'icludlna the duration of the Obligation. termination notice requirement and aanctlon. (or non-compuance: (Iv) The extenl extent to which scheduled outage. of the qualifyins qualifying facility can be usefully coordinated with scheduled outage. out8ge. of the utility', utility'. fac:lutje.: rac:llitjea: (vi Tbe u.erulne utefulne.. of energy 8.lId ud capacity.uppljed lupplled from 8 qualifyllll qualifytlll facility during ly,lern Iyslern emergencle emergencies... including It, It. ability to leparate ItIIload from It. generation: (vi) The individual Individual and aggregate value of energy and capacity from quahfying qualifying f.ciutle. f.cuilie. on the electric utility" utility', Iy.lem; Iyalem; and (vii) The amaller capacity Increment. and the aborter lead time. available with additions of capacity from qualifylns facilltiea; faci1ltiea: and (3) The niatiorabip niatiodabip of the availability of or energy or capacity from the qualifying f.cllity f,cllity 81 derived inparagraph (e}(2) of thll.ectlon. lectlon. to the ability of the electric utility to avoid co.t.. COltA. including the deferral of capacity additionl and the reduction of folln ruel ule; and (4) The coall COlt. or lavings lavingl reswting from variation. in line 101lea 10lses from thoae those that would have existed in the absence of pun:hales from a qualifying facility. if the purcbasing purcba.tng electric utility generated an equivalent equjvalent amount of energy itself Itlelf or purchased an equivalent amount of electric energy or capacity. (I] Periods during which purchases not required. (1) Any electric utility which gives notice pursuant 10 to paragrapb (I](2) (1](2) of or this section will not nol be required 10 to pureba8e pureb.se electric energy or capacity during any period during which. dua 10 operational circumstancel, clrcumstancea, purebaaes purebales from quaufy1na quaufylna fac.ilitlel facilities will teswlin reluliin co.ta COltA greater than thoae those which the utility would Incur If if It did not make auch luab purchases. purchaaea. but inatead Instead generated an equiva lent amount of energy Itlelf. Ilaelf. (2) Any electric utility leeking to invoke paragraph (1]11) (1](1) of t.hia t.bit aecuon IIctlon must muat Dotify, notify, in accordance with applicable State law or regulation. each affected qualifying facility In in time for the qualifying (acillty to ceale the delivery of energy or capacl.ty capacl.1f to the electric uullty. (3) Any electric utility which fau. fail. to comply with the provi.ionl provi.ion. of paragraph (fli2) ((J(21 of (hi. lhia lection leclion will be required to pay the.ame lame rate for.uch,uch pureha18 purchaae of energy or capacity 81 would be required bad the period described In paragrapb paragraph (fi(t) ((J(l) of thi. thia section aeclion nol not occurred. (e) A claim by an electric utility thai.ucb IUcb a period haa has occurred or will occur I, I..ubJect aubject to such verification verificauod by It. ill State regulatory authori~ autbori~ a. as the State regulatory authority detenrunel determlnel necellary nece8lary or appropriate, either before or after the occurrence.,huos, R8t Rat.. tot... (a) General role,. ru/e$. (1) Ratea Rates for,1atel: lalel: (I) Sball be JUII JUILI and reasonable realonable and in the public inlerest; intereal; and (il) (ii) Shall not dilcrim1nate discrim1nate agaljul ag8lnalany any qualifying facility in comparison to ralel rate. for lalel lale. to other cu.atornera cu.atornetl served by the electric utility. 12) (2) Ratel Rate. for lale. lalea which are based on accurate data and consistent systemwide Iyatemwide coauog costing principles.ball Iball not Dot be considered to dilcriminate discriminate agaln.t again.t any quallfyins facility racility to the extent that such rates ratea apply to the utility's other cuatomerl customerl with limllar limililt load losd or other coat-related cost-related characleriltics. cblltacterlstica. (b) Additional Services to be Provided 10 Qualifying Facilities.. (1) (l) Upon requelt or of a qualifying facility. each electric utility Ihall provide: (I) Supplementary power; (ii) Back-up power; (Iii) Maintenance power: and (lv}lnterruplible (Iv) Interruptible power. (2) The State regulatory euthority authority (with respect 10 to any electric utility over which it bal ratemaking authority) and the Commission {with (with respect to any nonregulaled electric utility} utility) tilay may waive any requirement of paragraph paragrapb (b)(l) of thia this section If. if. after notice in the area served aerved by the electric utility and after opportunity for public comment. the electric utility demonstratel demonatrate. and the State regulatory regulstory authority or the Commission, as aa the cale case may be. finda findt that compliance with such luch requirement will: (1) Ci)lmpair Impair the electric utility'l utility's ability to render adequste adequate service to ita: III cultomera: customers; or (il) Place an undue burden on the electric utility. {cl Rate, Rate. for solell sale. of bock up and maintenance power. The rate for lales lalel of back-up power or maintenance power: (1) ehall Ihall not be baled baeed upon an assumption (unie.. euppqrted luppqrted by factual data) that forced outages outagel or other reductions in electric output by all qualifying: facilltlel on an electric I,Itlllty'l utwty'1 Iy.tem IYltem wul occur simultaneously. almultaneoualy, or durlna the syltem peak. or bolk and (2).hall Ihall take into account lbe the extent to which acheduled Icheduled outages outagea of the qual1fytns qualifytns facilitiel faeiliue. can be ulefully uaefully coordinated with Icheduied IcheduJed outagel outagea of the utility', utility'. facilitlel. raclliuea. I t 2t2.301 Int..-conneeuon Intlll"COnMCtlon eo.ta. eosta. (a) Obligation to pay. Each Eacb qualifying facility racillty shall be obligated to pay IIny any lnter<:onnection lnlerc:onnectiod cost. COlt. which the Stat. regulatory authority (with respect to any electric utility over which it haa has fatemaklng ratemaking authority) or nonregulaled nonregulated electric utility may assess asseaa against the qualtrying quaufying facility on a nondiscriminatory baala bull with respect 10 to other custome" customers with similar limilar load characteristics. (b) Reimbursement of interconneclion Interconneclion costs. Each State regula tory authority (with respect to any electric utility over which It has ratemaking authority) am' nonregulated utility shall determine the manner for payments of interconnection colta. cosla. which may include reimbursement over a reasonable period 01 of time. ' ' SYltem emergencl... (a) Quobfying Qualifying fac/lity facility obligolioll obligolioll to provide power during system embtbencies. emel1jencies. A qualifying facility shall be required to provide energy or capacity to an electric utility during a system emergency only to the extent: (l) (1) Provided by agreement between,uch such qualifying facility and electric utility; or (2) (21 Ordered under section liection 20Z(c) 202(c1 of lhe the Federal Federsl Power Act. (b) Discontinuance of purchases and sales during system emergencies. During any syatem Iystem emergency, emergency. an electric util ity may discontinue: (ll (I) Purchases Purchsses from. a quatjf)'illg qualjf)'illg facility facilit)' if such purchases would contribute to such emergency: and (2) Sales to a qualifying facility. provided that such discontinuance disconlinuance is on a nondiscriminatory basis Standards St.ndards lor operating,...lmimty.,..u.,mty. Any State regulatory authority a [with respect 10 to any electric utility over which it bas ratemaking authority) or nonregulated electric utility may elltabush eltabllah reasonable standards IItandards to enaure ensure system safety and reliability reuabllily of interconnected lnlerconnected operations. Such standard. atandard. may be recommended by an}' electric utility. any qualifying facility. rseilhy. or any other person. If 1 any State Siale regu latory authority (with respect to any electric utility over which whlc~ II it has ratemaking ralemaking authority) or nonregulated electric ele:::tric utility eatabliahes eltablilhea such standards. it shall.pecify,pecit'y the need for luch standards on the balis ballis of syltern system safely and rellabiuty. reliability. SUbpart D-Implementatlon D-Implementation, lmp..mentluon Implementation by Stat. Slat. ~tory NOtJlIItory authortuea lulhortues and ngnregulated nonrelilutated -..ctric IlIIIctrIc ~ltin. ~Ittn. (a) Stole State regulatory ourhoritiell. authorities. Nol Not later than one year after these rules lake effect. each State regulatory authority.hall after nouce nolice And an opportunity for public publlc hearing. commence AD 38

111 Federal Register I Vol. 45, No. 38 I Monday, February I Rule. and Regulations Regu1ation Implementalion or Subpart C (other than I thereof). Such Implementanon Implementation may consllt consilt or of the laauance I"uance or of regulations. an undertaking 10 to re,olve relolve disputes disputea between qualirylng qualfrylng racilitiet racjlltiet and electric utilluea arisina arillin8 under Subpart C. or any other aclion acllon reasonably designed dealgned to Implement IUch. aubpart (oiher (olher than thereof). {bl (bl Nonrrgu/oled Nonrrguloted electric utilities. Not laler than one year after the.e Iheae rulet rulea lake errect. effeci. each nonregulaled electric utility utllily shall. afler nolice.nd and an opportunity for public hearing. beanns. commence, implementation or Subpart C (other (olber than I thereoij. Such implementation may con.ill consisl of the l"uanc8 laauancb of rcgulation regulations.. an undertaking to comply with Subpart C. or any other acllon reasonably designed 10 to Implement.ucb such subpart aubparl (other than t thereof). (c) Reporti1l8 Reportj1l8 requirement. Not Nollater later than one year after afler these rulellteke rules take effect. each State Slate regulatory authority and nonregualed electric utility.hau shau 6le me with the Commission a report describing describln8 the manner in which it ii wiu implement Subpart C (olher lather than thereol'}. thereol'). 12t2.402 o ImpllmenlaUon Impl.mentaUon ot Clrtaln c.rtaln reportlno teportlno,..qultamenla. rtqulr.menla. Any electric utility ulility which falls fajls 10 comply with wilh the requirement. of or Z92.302(bJ Z9z.302IbJ.hall shall be subjecllo subject to the same penallies penalties 10 to which II It may be.ubjected for failure lailure to comply wilh with the requirements of Ihe Commiulon's regulation. ' I.. ued under.ection seclion 133 of PURPA. t W.I".,., W.tv.,., Case: , 04/02/2018, ID: , DktEntry: 13-1, Page 111 of 111 (a) Stote State regulatory outharity authority ond and nonregulated nonreguloted electric utility waivers. Any State Slate N!gulalory N!gulatory authority (with respect respecllo 10 any electric utility over whlcb ii it has ralemaking ratemaking authority) or nonregulaled nonregulated eleclric electric utility ulillty may. alter arter public nolice notice In the area.erved lerved by the electric eleclric utility. uulily. apply for a welver from Irom Ihe the application of any of the requirement. requirement, of Subpart C (other than I thereon. (b) Commission oction. action. The Commisalon Commis.lon wlllsrant wlllarant.uch auch a wavier only if an applicant under paragraph (a) la) of!.his this.ection section demonstrate, demonstratel that compliance with any of the requirementl requirement' of Subpart C I, II not neceuary necel8ary to encourage c08eneration cogeneration and small Imall power production producllon and ia not otherwi,e otherwise required under aectlon 210 of PURPA. Subpart F-E.emptlon F-Exemptlon of Qualifying Q~lItylng Sm." sm." Power Pow.r Production FacJlltl FacJlJtI.. end Cogeneration hcllltln from Certain Federal and Stal. Stale Law. Lawa and R.gula.tionI Ragulationl f 2t2.50t H2.SOt E.atmpUon EatrnpUon to qualltyktg qualltytng fllclliti.a fllcllitlea from the 'Federal p~ Act. (a) Applicability. Thil rbia aectlon applies appliea 10: to: (1) qualifying cogeneration 'acllities: facilities:.nd and (2) qualifylna qualify1na.mall power producllon 'acililie. facilitie. whjch whjeh have a power pnxfuction proauction capacity which does not exceed 30 megswaus. megawatts. fb] hi Cenerol CeneI'DI ttlle. rule. AXIy AIly qualllyins qualifying facility de. cribed crlbed In paragrapb paragraph (a).ball shall be exempt from aulections all.ection. of the Federal Power Act. except: e.xcepl: (1) SecUonl Sectlon.l-3O; 1-30; (2) Section. Secllon. 202{c) and 212; 2.12; (3) Sectlon. Sectlonl 3OS(c): JOSlc}: and (4) (41 Any neceuary necessary enforcement enforcemenl provilion provision 01 of Part UI with regard re8ard 10 to the,ectlonl lectionsli.led li,ted In in para8raphs paragrapha (b) (1]. fll. (2) and (3] (3) of thl. aectlon Iampt!on EJempUon to quallfy1no tadlltln tadutln from the th. Public UIlltty UtUtty Holding CompanV Act anet c.n.ln c.rtaln SUite SUIt. law "wand regulation. 'egu"uon. 'a) (a) Applicability. AppHcabjljty. This section applies 10 to any qualifying ' racility de.cribed deacribed in 1 I (a) {a). and to any qualifying,mall Imall power production facility with 8 power production cap.city capacity over 30 megawalls megawatts li,uch li.ucb facility producea produces electric energy lolely by the ute use of blome81.. 8' as a e primary energy louree. (b) Exemption from the Public Uti/ity Utility Holding Compony Company Act of A qualifying facility described de.crlbed In paragraph (a) shall not be con.idered 10 be ao an "electric uullty utility company" u AI defined in aecllon lecllon 2(a)(3) oflhe the Public UIflilV UtOi IV Holding Company Act Acl of U.S.C. "bl')i').?obla)i'). (c) Exemption from certain Stote low law and regulation. (1) Arty Any qualirying qualifying facility ahall be exempled exempted (except fex II provided In in paragraph (C)(2') (e)(2)} of this aectlon lecllon from Siale State law or regulation respecting: (I) The ratel rates of electric utilities: utilitie.: and (II) The financial and organizational re8ulation regulation or electric utilitiel. utilitie,. (2) A qualuyina: qualifying facility may not nol beexempted from Stale State law and regulation Implementing Subpart C. 131 (3) Upon request requeat ofe e Stale re8ulatory regulatory authority or nonregulaled nonregulated electric uulily. utility. the Comminlon Commission may conllder conlider a limitation on the exemptiona exemption. specified apecifled in subparagraph (t). (1). (4) Upon tequeat requeat or any perlon. the Commlulon Commi.. lon may determine whether a _ qualifying 'adllty facility I. Is exempt from 8 a patucular patucujar State law Jawor regulauon.. 1"DDc.~"'ru.d 1"DDc.~JOru.d ~_..) J _ 2'; rol-... Wednesday.._ Aprfl Aprrt.. 9, = rol~,. CFR Part 292 (tlocke' (tlo~k.t No. RM7t-55) Rates A'ates and Exemptions for Qualifying Small Power ProducUon and Cogeneration FaciIlUe:s; FacillUe:Si Comcllo" Corne-tJo" April 3. 1sao. AGENCY: FederaJ PederaJ Energy Regulatory Commission. 00& DO& ACTION: Erratum notice. IUMMARY: This Thll notice contain, contains a correction of or I Z.302 (a) and (b) (h) of the Federal EnelllY Energy Re&uJalory Re~u1atory Commission', Commission'l rinal regulations: for '!,I~THER '!J~THER IHFCRMATIOH CONTAct: CONTACT: Oehcrah Debcrah Cottheil. GOltheil. Office of the Ceneral Counsel. Federal Energy Regu!3tory Commlssi{'n. 825 North Cepitol Street.!'olE tole.. WashL'lgton. D.C (202) SUPPUMEHTARV SUPPUMEHTARY INFORMATION: INFORMATIOH: In in the Fedet31 Fedef31 Energy Regulstory Regulatory Commission', Commllsion', Final Regulations. Issued February )980. entitled Regulatior>.! Under Section 2tO of!.he the Ptlblic P'.Jblie UUlity Regulatory Policiu Act of 1918 (45 FR 122H. february at 45 FR , In (a) and (bj. (h). the :ererence :eference to May 31. 1S8Z l saz dhould ilhould be.cbango!d changed to fu.'ll; This Th!s revision will accurately C.3.:y c.3>:y Ol;t Ol:t :..':e Ccm:nh Ccm:nilS~c s!c;:. s :-:, 'S i.n!o;o; L..,!or;t. u s!!!::e1!,!'l.., L~e e p:'!j.mh!e p:o!j..mh!e 10 the :'U!'!. :"U!'!. to Ncon ror~ to~ to!.h th e- d dt.!! oito!! re'.:j. re~u:.t u:.to?..,j d by the Con;mi5~:o is :i ~o n'5 regdalfc;:j reidalfc,.j implementi!13 menli!13 eection 1330fPURf';\." eeclion 1330fPURi'A." Ken.oe~ e ~ f. Plu nl~. $e(;re!ar/. $e :J"e!ar/. Ifl Ooc. Doc. <<).111:Il0l fli.d film ~. u..., alljjho llijjho COOl. COOl: U~s.u u~s." AD 39