[Federal Register Volume 63, Number 186 (Friday, September 25, 1998)]
[Proposed Rules]
[Pages 51310-51312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25676]



Federal Energy Regulatory Commission

18 CFR Part 292

[Docket No. RM88-6-000]

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

Issued September 21, 1998.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order Terminating Proceeding.


SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
terminating this proceeding because the matters at issue in this 
proceeding have since been overtaken by events.

DATES: This order is withdrawn September 25, 1998.

FOR FURTHER INFORMATION CONTACT: Kimberly D. Bose, Federal Energy 
Regulatory Commission, Office of the General Counsel, 888 First Street, 
N.E., Washington, D.C. 20426, (202) 208-2284.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission also provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in the Public Reference Room 
at 888 First Street, N.E., Room 2A, Washington, D.C. 20426.
    The Commission Issuance Posting System (CIPS) provides access to 
the texts of formal documents issued by the Commission. CIPS can be 
accessed via Internet through FERC's Homepage (http://www.ferc.fed.us) 
using the CIPS Link or the Energy Information Online icon. The full 
text of this document will be available on CIPS in ASCII and 
WordPerfect 6.1 format. CIPS is also available through the Commission's 
electronic bulletin board service at no charge to the user and may be 
accessed using a personal computer with a modem by dialing 202-208-
1397, if dialing locally, or 1-800-856-3920, if dialing long distance. 
To access CIPS, set your communications software to 19200, 14400, 
12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, no parity, 8 
data bits and 1 stop bit. User assistance is available at 202-208-2474 
or by E-mail to [email protected] fed.us.
    This document is also available through the Commission's Records 

[[Page 51311]]

Information Management System (RIMS), an electronic storage and 
retrieval system of documents submitted to and issued by the Commission 
after November 16, 1981. Documents from November 1995 to the present 
can be viewed and printed. RIMS is available in the Public Reference 
Room or remotely via Internet through FERC's Homepage using the RIMS 
link or the Energy Information Online icon. User assistance is 
available at 202-208-2222, or by E-mail to [email protected] fed.us.
    Finally, the complete text on diskette in WordPerfect format may be 
purchased from the Commission's copy contractor, RVJ International, 
Inc. RVJ International, Inc., is located in the Public Reference Room 
at 888 First Street, N.E., Washington, D.C. 20426.

    Before Commissioners: James J. Hoecker, Chairman; Vicky A. 
Bailey, William L. Massey, Linda Breathitt, and Curt Hebert, Jr.

    In 1988, the Commission issued a Notice of Proposed Rulemaking in 
this proceeding.1 For the reasons given below, we are 
exercising our discretion to terminate this proceeding.

    \1\ Administrative Determination of Full Avoided Costs, Sales to 
Qualifying Facilities, and Interconnection Facilities, 53 FR 9331 
(1988), FERC Stats. & Regs. para. 32,457 (1988) (ADFAC NOPR).


    In 1980, the Commission implemented rules regarding, among other 
things, rates for purchases from qualifying cogeneration and small 
power production facilities (QF) pursuant to sections 201 2 
and 210 3 of the Public Utility Regulatory Policies Act of 
1978 (PURPA).4

    \2\ See 16 U.S.C. Sec. 796.
    \3\ See 16 U.S.C. Sec. 824a-3.
    \4\ See Small Power Production and Cogeneration Facilities; 
Regulations Implementing Section 210 of the Public Utility 
Regulatory Policies Act of 1978, Order No. 69, 45 FR 12214 (1980), 
FERC Stats. & Regs., Regulations Preambles 1977-1981 para. 30,128 
(1980) and Small Power Production and Cogeneration Facilities--
Qualifying Status, Order No. 70, 45 FR 17,959 (1980), FERC Stats. & 
Regs., Regulations Preambles 1977-1981 para. 30,134 (1980), order on 
reh'g, Order Nos. 69-A and 70-A, 45 FR 33958 (1980), FERC Stat. & 
Regs., Regulations Preambles 1977-1981 para. 30,160 (1980), aff'd in 
part and vacated in part, American Electric Power Service 
Corporation v. FERC, 675 F.2d 1226 (D.C. Cir. 1982), rev'd in part, 
American Paper Institute, Inc. v. American Electric Power Service 
Corporation, 461 U.S. 402 (1983).

    In 1987, the Commission held a series of regional conferences and 
solicited written comments concerning the Commission's QF program. The 
Commission sought input concerning, inter alia, the so-called avoided 
cost rule and the implementation of that rule by state commissions and 
others.5 After reviewing the information received in the 
regional conferences and in the written comments, the Commission issued 

    \5\See FERC Stats. & Regs. at 32,158; accord, Cogeneration; 
Small Power Production--Notice of Pubic Conference and Request for 
Comments, 64 FERC para. 61,364 at 63,489-90 n.2 (1993).
    \6\ The Commission also issued three other notices of proposed 
rulemakings. Regulations Governing Independent Power Producers, 53 
FR 9327 (1988), FERC Stats. & Regs. para. 32,456 (1988); Regulations 
Governing Bidding Program, 53 FR 9324 (1988), FERC Stats. & Regs. 
para. 32,455 (1988); Regulations Governing the Public Utility 
Regulatory Policies Act of 1978, 53 FR 31021 (1988), FERC Stats. & 
Reg. para. 32,465 (1988). On September 29, 1993, these proceedings 
were terminated because the matters at issue had been overtaken by 
events. 64 FERC at 63,491-92.
    All four of the proceedings, including the ADFAC NOPR, arose out 
of concerns expressed to the Commission that the Commission's QF 
regulations required revision and also that the Commission draft 
regulations to deal with newly-developing independent power 
producers. See generally id. at 63,490.


    The Commission's regulations define avoided cost as the incremental 
cost to an electric utility of electric capacity or energy, or both, 
which but for the purchase from the QF the utility would generate 
itself or purchase from another source.7 The regulations 
also provide that, if the rate paid by an electric utility to a QF for 
power and energy is equal to avoided cost, the rate is considered just 
and reasonable, non-discriminatory, and in the public 
interest.8 Finally, the regulations further provide a list 
of factors that, to the extent practicable, must be taken into account 
in determining avoided cost.9

    \7\ 18 CFR 292.101(b)(6).
    \8\ 18 CFR 292.304(a)(1), 292.304(b)(2).
    \9\ 18 CFR 292.304(e).

    The ADFAC NOPR, among other things, proposed amending the 
Commission's regulations to more precisely define the guidelines and 
criteria to be used by state commissions and others in administratively 
determining avoided cost.10 The ADFAC NOPR also acknowledged 
the difficulty of administratively determining avoided cost and setting 
avoided cost rates, and noted particularly that bidding was an 
alternative that promised greater efficiency in setting avoided cost 

    \10\ FERC Stats. & Regs. at 32,157, 32,162-74.
    \11\ FERC Stats. & Regs. at 32,164, 32,167.

    Comments were filed in May 1988, reply comments were filed in July 
1988, and a public hearing was held on July 21-22, 1988. A number of 
commenters supported the proposed rules, but often with qualifications 
and proposed changes. Many commenters, however, including public 
utilities and state commissions, opposed the proposed rules. Some urged 
the issuance of a policy statement rather than a rulemaking. Many state 
commissions, in particular, deemed the proposed rules an intrusion on 
state authority, unnecessary or impractical. Representatives of the QF 
industry urged major revisions of various particular proposals. Various 
parties representing consumer and utility interests also opposed the 
proposed rules.


    Over a decade has passed since the ADFAC NOPR was issued. During 
those ten years, conditions which directly or indirectly affect QFs 
have changed significantly. One significant development was the passage 
of the Energy Policy Act of 1992, Pub L. No. 102-486, 106 Stat. 2776 
(1992) (codified in, among other places, 16 U.S.C.), which, among other 
things, created a new category of non-traditional power producers, 
exempt wholesale generators (EWGs), that, like most QFs, are exempt 
from the requirements of the Public Utility Holding Company Act of 1935 
(PUHCA).12 In fact, many of the entities that could qualify 
as QFs can also meet the criteria for EWG status and so need not be QFs 
in order to obtain exemption from PUHCA. Likewise, other non-
traditional power producers that may be competitors of QFs, but may 
themselves not be QFs, can also qualify as EWGs.

    \12\ 15 U.S.C. Secs. 79a et seq.; compare 15 U.S.C. Sec. 79z-
5a(e) with 18 CFR 292.601-02.

    The Energy Policy Act also expanded the Commission's authority to 
order transmission for, among others, QFs as well as certain 
EWGs.13 Additionally in this regard, the Commission in 1996 
issued Order No. 888,14 in which the Commission directed 
that all public utilities that own, control or operate facilities used 
for the transmission of electric energy in interstate commerce file 
open access, non-discriminatory transmission tariffs with minimum terms 
and conditions of non-

[[Page 51312]]

discriminatory service.15 The sellers eligible for such 
service expressly include QFs.16

    \13 \See 16 U.S.C. Secs. 824j, 824k.
    \14 \Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (1996), FERC Stats. & Regs. para. 31,036 
(1996), order on reh'g, Order No. 888-A, 62 FR 12274 (1997), FERC 
Stats. & Regs. para. 31,048, order on reh'g, Order No. 888-B, 81 
FERC para. 61,248 (1997), order on reh'g, Order No. 888-C, 82 FERC 
para. 61,046 (1998), accord, Public Service Company of New Hampshire 
v. New Hampshire Electric Cooperative, Inc., 83 FERC para. 61,224 at 
61,999 (1998)(``The regulatory context is now quite different from 
that which existed'' when the QF regulations first were promulgated, 
with the requirement that public utilities now provide open access 
transmission service to, among other entities, QFs), reh'g pending 
    \15 \E.g., Order No. 888, FERC Stats. & Regs. at 31,635-36.
    \16 \E.g., id. at 31,688.

    In addition, as stated above, the ADFAC NOPR acknowledged the 
difficulty of administratively setting avoided cost rates, and 
particularly recognized that competitive bidding was a viable 
alternative to determining avoided cost. Since 1988, in fact, 
substantial experience has been gained by state commissions, electric 
utilities and QFs themselves regarding competitive bidding. While few 
states allowed competitive bidding at the time of the ADFAC NOPR, well 
over half the states now use competitive bidding to one degree or 
another in setting avoided cost rates.17 Indeed, in a number 
of cases, the Commission itself has considered rates resulting from 
competitive bidding and negotiation in which QFs were active 
participants.18 Accordingly, the industry itself appears to 
have made substantial progress regarding the determination of avoided 
cost and the setting of avoided cost rates.

    \17 \64 FERC at 63,491; accord, Order No. 888, FERC Stats. & 
Regs. at 31,651; National Independent Energy Producers, Competing 
for Power: A Survey on Competitive Procurement Systems and Blueprint 
for the Future 5-6 (July 1991).
    \18 \E.g., PSNH, 83 FERC at 62,000-01 (``parties to QF purchases 
are free to negotiate purchase rates'' and a ``more competitive 
environment is expected to foster such outcomes''); accord, id. at 
61,995-96, 62,001 n.20 (noting the use of competitive bidding by the 
applicant to establish an avoided cost rate); Enron Power Enterprise 
Corporation, 52 FERC para. 61,193 (1990) (involving multi-source, 
including QF, competitive bidding); Doswell Limited Partnership, 50 
FERC para. 61,251 (1990) (involving QF competitive bidding); see 
also Southern California Edison Company, 70 FERC para. 61,215 at 
61,675-76, 61,677, order on reconsid. 71 FERC para. 61,269 at 
62,078-80 (1995); cf. Jersey Central Power & Light Company, 73 FERC 
para. 61,092 at 61,297 & n.5, reh'g denied, 73 FERC para. 61,333 
(1995); Metropolitan Edison Company, 72 FERC para. 61,015 at 61,049 
& n.6, reh'g denied, 72 FERC para. 61,269 at 62,184 (1995).

    Given these facts, as well as the continuing development of 
competitive power markets generally,19 the Commission does 
not believe it appropriate to adopt revisions proposed a decade ago.

    \19\ See Order No. 888, FERC Stats. & Regs. at 31,639-52; 
accord, Order No. 888-A, FERC Stats. & Regs. at 30,183-85; see also 
70 FERC at 61,675-76.

    Additionally, we note that certain of the issues addressed in the 
ADFAC NOPR were the subject of other proceedings: for example, allowing 
QFs to construct and own transmission lines and interconnection 
equipment.20 Likewise, the issue of whether states can 
require that rates for QF sales at wholesale be set above avoided cost, 
which was added to the ADFAC NOPR proceeding after the ADFAC NOPR was 
originally issued,21 has since been addressed in another 

    \20\ See Streamlining of Regulations Pertaining to Parts II and 
III of the Federal Power Act and the Public Utility Regulatory 
Policies Act of 1978, Notice of Proposed Rulemaking, 57 FR 55176 
(1992), FERC Stats. & Regs. para. 32,489 at 32,643-44, 32,647 
(1992), regulation adopted, Order No. 575, 60 FR 4831 (1995), FERC 
Stats. & Regs. para. 30,014 at 31,279-81 (1995), order on reh'g, 71 
FERC para. 61,121 (1995).
    \21\ See Administrative Determination of Full Avoided Costs, 53 
FR 24099 (1988), FERC Stats. & Regs. para. 32,462 (1988); cf. Orange 
and Rockland Utilities, Inc., 70 FERC para. 61,014, reconsideration 
denied, 71 FERC para. 61,034 (1995).
    \22\ See Connecticut Light & Power Company, 70 FERC para. 
61,012, reconsideration denied, 71 FERC para. 61,035 (1995).

    Accordingly, because the revisions to the Commission's regulations 
proposed in the ADFAC NOPR have been overtaken by subsequent events, 
the Commission will exercise its discretion to terminate this 

    \23\ See, e.g., Professional Drivers Council v. Bureau of Motor 
Safety, 706 F.2d 1216, 1220-21 (D.C. Cir. 1983) (discussing agency's 
decision not to promulgate new rules in an area already subject to 
agency regulation).

Administrative Findings and Effective Date

    The Administrative Procedure Act (APA) 24 requires a 
notice of proposed rulemaking to be published in the Federal Register. 
The APA also mandates that an opportunity for comments be provided when 
an agency proposes to promulgate regulations. The Commission finds that 
notice and comment are unnecessary when terminating this proceeding. 
The express language of the APA requires such notice and comment only 
when promulgating new regulations and not when the agency is, as in 
this case, terminating a proceeding that proposed amending pre-existing 
regulations.25 Moreover, notice and comment are not required 
under the APA when the agency for good cause finds that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.26 As explained above, this order merely 
removes from consideration proposed regulations that were never adopted 
and have since been overtaken by events, and thus are no longer 

    \24\ 5 U.S.C. 553(b), (c).
    \25\ See, e.g., Kennecott Utah Copper Corporation v. United 
States Department of Interior, 88 F.3d 1191, 1207-09 (D.C. Cir. 
1996) (discussing challenges to withdrawal of draft final 
regulations without notice and comment); accord, ICORE, Inc. V. FCC, 
985 F.2d 1075, 1082 (D.C. Cir. 1993) (not modifying a rule is not 
same as rulemaking).
    \26\ 5 U.S.C. 553(b).

    The Commission will make the termination of this proceeding 
effective on September 25, 1998.

List of Subjects in 18 CFR Part 292

    Electric power plants, electric utilities, natural gas, reporting 
and recordkeeping requirements.

The Commission Orders

    Docket No. RM88-6-000 is hereby terminated.

    By the Commission.
David P. Boergers,
[FR Doc. 98-25676 Filed 9-24-98; 8:45 am]