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[Federal Register Volume 89, Number 228 (Tuesday, November 26, 2024)]
[Rules and Regulations]
[Pages 93410-93456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-24528]

[[Page 93409]]

Vol. 89

Tuesday,

No. 228

November 26, 2024

Part II

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 35

Compensation for Reactive Power Within the Standard Power Factor Range; 
Final Rule

Federal Register / Vol. 89, No. 228 / Tuesday, November 26, 2024 / 
Rules and Regulations

[[Page 93410]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM22-2-000; Order No. 904]

Compensation for Reactive Power Within the Standard Power Factor 
Range

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final determination.

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SUMMARY: In this final determination, the Federal Energy Regulatory 
Commission (Commission) finds that allowing transmission providers to 
charge transmission customers for a generating facility's provision of 
reactive power within the standard power factor range is unjust and 
unreasonable. The Commission, therefore, is revising Schedule 2 of its 
pro forma open-access transmission tariff (OATT), section 9.6.3 of its 
pro forma large generator interconnection agreement (LGIA), and section 
1.8.2 of its pro forma small generator interconnection agreement (SGIA) 
to prohibit the inclusion in transmission rates of any charges related 
to the provision of reactive power within the standard power factor 
range by generating facilities.

DATES: Effective January 27, 2025.

FOR FURTHER INFORMATION CONTACT: 
Paul Robinson (Technical Information), Office of Energy Market 
Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8460, 
[email protected]
Jennifer Enos (Legal Information), Office of the General Counsel, 888 
First Street NE, Washington, DC 20426, (202) 502-6247, 
[email protected]

SUPPLEMENTARY INFORMATION:

Table of Contents

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                                                               Paragraph
                                                                 Nos.
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I. Background...............................................           3
    A. Historical Framework Including Order Nos. 888 and               3
     2003...................................................
    B. Notice of Inquiry and Notice of Proposed Rulemaking..          16
II. Discussion..............................................          20
    A. Need for Reform......................................          27
    1. Comments.............................................          29
    2. Commission Determination.............................          49
    B. Cost of Producing Reactive Power.....................          62
    1. Comments.............................................          66
    2. Commission Determination.............................          89
    C. Cost Recovery........................................         109
    1. Comments.............................................         113
    2. Commission Determination.............................         141
    D. Reliability..........................................         155
    1. Comments.............................................         157
    2. Commission Determination.............................         165
    E. Investment...........................................         170
    1. Comments.............................................         171
    2. Commission Determination.............................         178
    F. Additional Comments..................................         187
    1. Comments.............................................         187
    2. Commission Determination.............................         201
III. Compliance Procedures..................................         202
    A. Revisions to Eliminate Compensation for Reactive              202
     Power Supply Within the Standard Power Factor Range....
    1. Revise Schedule 2 of the Commission's Pro Forma OATT.         203
    2. Revise Section 9.6.3 of the Pro Forma Large Generator         204
     Interconnection Agreement..............................
    3. Revise Section 1.8.2 of the Pro Forma Small Generator         205
     Interconnection Agreement..............................
    4. Compliance Procedures................................         206
    B. Transition Period....................................         207
    1. Comments.............................................         210
    2. Commission Determination.............................         224
IV. Information Collection Statement........................         228
V. Environmental Analysis...................................         242
VI. Regulatory Flexibility Act..............................         243
VII. Document Availability..................................         247
VIII. Effective Date and Congressional Notification.........         250
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    1. In this final determination, pursuant to section 206 of the 
Federal Power Act (FPA), the Federal Energy Regulatory Commission finds 
that allowing public utility transmission providers (transmission 
providers) \1\ to charge transmission customers for a generating 
facility's provision of reactive power within the standard power factor 
range is unjust and unreasonable. The Commission, therefore, is 
revising Schedule 2 of the

[[Page 93411]]

Commission's pro forma OATT to prohibit transmission providers from 
including in their transmission rates any charges associated with the 
provision of reactive power within the standard power factor range from 
generating facilities and requiring transmission providers to make 
compliance filings to update Schedule 2 of their OATTs accordingly.\2\ 
The final determination further revises the Commission's pro forma LGIA 
and pro forma SGIA to remove the requirement that a transmission 
provider pay an interconnection customer for reactive power within the 
standard power factor range if the transmission provider pays its own 
or affiliated generating facilities for the same service, and the final 
determination requires transmission providers to make compliance 
filings to update their pro forma interconnection agreements 
accordingly. As a result of this final determination, transmission 
providers will be required to pay an interconnection customer for 
reactive power only when the transmission provider requests or directs 
the interconnection customer to operate its facility outside the 
standard power factor range set forth in its interconnection agreement.
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    \1\ Section 201(e) of the FPA, 16 U.S.C. 824(e), defines 
``public utility'' to mean ``any person who owns or operates 
facilities subject to the jurisdiction of the Commission under this 
subchapter.'' As stated in the Order No. 888 pro forma OATT, 
``transmission provider'' is a ``public utility (or its Designated 
Agent) that owns, controls, or operates facilities used for the 
transmission of electric energy in interstate commerce and provides 
transmission service under the Tariff.'' Promoting Wholesale 
Competition Through Open Access Non-Discriminatory Transmission 
Servs. by Pub. Utils.; Recovery of Stranded Costs by Pub. Utils. & 
Transmitting Utils., Order No. 888, FERC Stats. & Regs. ] 31,036 
(1996) (cross-referenced at 75 FERC ] 61,080), order on reh'g, Order 
No. 888-A, FERC Stats. & Regs. ] 31,048 (cross-referenced at 78 FERC 
] 61,220), order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), 
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in 
relevant part sub nom. Transmission Access Pol'y Study Grp. v. FERC, 
225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. N.Y. v. FERC, 535 U.S. 
1 (2002); Pro forma OATT section I.1 (Definitions). The term 
``transmission provider'' includes a public utility transmission 
owner when the transmission owner is separate from the transmission 
provider, as is the case in regional transmission organizations 
(RTO) and independent system operators (ISO).
    \2\ Operating ``inside the standard power factor range'' refers 
to a generating facility providing reactive power within the power 
factor range set forth in the generating facility's interconnection 
agreement when the unit is online and synchronized to the 
transmission system. The standard power factor range is sometimes 
referred to as the ``deadband.'' Compensation for Reactive Power 
Within the Standard Power Factor Range, Notice of Proposed 
Rulemaking, 89 FR 21,454 (Mar. 28, 2024) (cross-referenced at 186 
FERC ] 61,203, at P 2 n.1) (NOPR).
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    2. As discussed below, the Commission has a statutory duty to 
ensure that transmission rates are and remain just and reasonable. We 
find that this reform will ensure that transmission providers do not 
pass onto transmission customers unjust and unreasonable charges that 
lack a sufficient economic basis or justification and yield no 
commensurate benefit for ratepayers.

I. Background

A. Historical Framework Including Order Nos. 888 and 2003

    3. Almost all bulk electric power is generated, transported, and 
consumed in alternating current (AC) networks. Reactive power, which is 
measured in megavolt-amperes reactive (MVAr),\3\ is a critical 
component of operating an AC electricity system and is required to 
control system voltage within appropriate ranges for efficient and 
reliable operation of the transmission system. Reactive power supports 
the voltages that must be controlled to provide for delivery of real 
power and for system reliability. Reactive power can be produced or 
absorbed \4\ by generating facilities, power electronic equipment such 
as flexible AC transmission system devices, transmission lines and 
equipment, and load. As relevant here, generating facilities must 
either produce or absorb reactive power for the transmission system to 
maintain voltage levels required to reliably supply real power from 
generation to load.
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    \3\ MVAr is the typical unit of measurement for reactive power.
    \4\ A generating facility's leading reactive power indicates its 
ability to absorb reactive power, and its lagging reactive power 
indicates its ability to produce reactive power.
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    4. In Order No. 888, the Commission required that reactive supply 
and voltage control from generating facilities be offered as a discrete 
ancillary service by transmission providers and, to the extent 
feasible, charged for on the basis of the amount required.\5\ The 
Commission explained that there are two ways of supplying reactive 
power and controlling voltage. One is to install facilities as part of 
the transmission system, the cost of which is part of the cost of basic 
transmission service. The second is to use generating facilities to 
supply reactive power and voltage control, which must be unbundled from 
basic transmission service.
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    \5\ Order No. 888, FERC Stats. & Regs. ] 31,036, at 31,705-07 & 
n.359.
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    5. With respect to compensation, the Commission stated that the 
transmission provider's ``rates for ancillary services should be cost-
based.'' \6\ The Commission expected, however, that transmission 
customers would be able to change the amount of reactive power service 
they required. The Commission also identified the possibility that 
reactive power could potentially be supplied by ``a competitive market 
for such service'' if ``technology or industry changes'' made such a 
market possible.\7\
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    \6\ Id. at 31,720.
    \7\ Id. at 31,707 & n.359.
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    6. The Commission's policy on reactive power compensation has 
evolved since issuing Order No. 888 in 1996.\8\ In Order No. 2003, the 
Commission adopted a standard agreement for the interconnection of 
large generating facilities (the pro forma LGIA), and specifically 
addressed the circumstances under which a transmission provider must 
pay an interconnection customer for reactive power depending upon 
whether such reactive power was inside or outside the standard power 
factor range.\9\ This standard agreement included the requirement that 
interconnection customers maintain a composite power delivery at a 
continuous rate of power output at the generating facility's point of 
interconnection at a power factor within the range of 0.95 leading to 
0.95 lagging when synchronized to the transmission system, unless the 
transmission provider has established a different power factor 
range.\10\ Order No. 2003 required that a transmission provider 
compensate an interconnection customer for reactive power when the 
transmission provider requests that the interconnection customer 
operate its generating facility outside the established power factor 
range. With respect to reactive power within the established power 
factor range, the Commission concluded in Order No. 2003 that the 
interconnection customer should not be compensated for reactive power 
when operating within the range established in the interconnection 
agreement because doing so ``is only meeting [the generating 
facility's] obligation.'' \11\ However, in Order No. 2003-A, the 
Commission clarified that ``if the Transmission Provider pays its own 
or its affiliated generators for reactive power within the established 
range, it must also pay the Interconnection Customer.'' \12\ This 
standard is generally referred to as the ``comparability standard.'' 
\13\
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    \8\ Id. at 31,705-07 & n.359.
    \9\ Standardization of Generator Interconnection Agreements & 
Procs., Order No. 2003, 68 FR 49846 (Aug. 19, 2003), 104 FERC ] 
61,103, at P 546 (2003), order on reh'g, Order No. 2003-A, 69 FR 
15932 (Mar. 26, 2004), 106 FERC ] 61,220, order on reh'g, Order No. 
2003-B, 70 FR 265 (Jan. 4, 2005), 109 FERC ] 61,287 (2004), order on 
reh'g, Order No. 2003-C, 70 FR 37661 (June 30, 2005), 111 FERC ] 
61,401 (2005), aff'd sub nom. Nat'l Ass'n of Regul. Util. Comm'rs v. 
FERC, 475 F.3d 1277 (D.C. Cir. 2007).
    \10\ The power factor is the ratio of a generating facility's 
real power to its apparent power, where apparent power is the total 
power output of the system (both real and reactive power). Power 
factors can range from 1.0 to 0.0, with 1.0 representing only real 
power and 0.0 representing only reactive power.
    \11\ Order No. 2003, 104 FERC ] 61,103 at P 546.
    \12\ Order No. 2003-A, 106 FERC ] 61,220 at P 416. Order No. 
2003-A also exempted wind generating facilities from maintaining the 
established power factor range. Id. P 34.
    \13\ In Order No. 2006, the Commission adopted identical power 
factor and compensation requirements for small generating facilities 
(those with a capacity of 20 MW or less) and initially exempted 
small wind generating facilities from the reactive power requirement 
before Order No. 827 eliminated such exemptions. Reactive Power 
Requirements for Non-Synchronous Generation, Order No. 827, 81 FR 
40793 (June 23, 2016), 155 FERC ] 61,277, order on clarification and 
reh'g, 157 FERC ] 61,003 (2016); Standardization of Small Generator 
Interconnection Agreements & Procs., Order No. 2006, 111 FERC ] 
61,220, order on reh'g, Order No. 2006-A, 70 FR 71760 (Nov. 30, 
2005), 113 FERC ] 61,195 (2005), order granting clarification, Order 
No. 2006-B, 71 FR 42587 (July 27, 2006), 116 FERC ] 61,046 (2006).

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[[Page 93412]]

    7. Order No. 661 established technical requirements for 
interconnecting large wind resources and maintained the exemption from 
providing reactive power, except where the transmission provider 
showed, through a system impact study, that reactive power capability 
was required to ensure safety or reliability.\14\ In Order No. 
2006,\15\ the Commission adopted identical power factor and 
compensation requirements for small generating facilities (facilities 
that have a capacity of no more than 20 megawatts (MW)) but exempted 
small wind generating facilities from the reactive power requirement. 
Subsequently, in Order No. 827,\16\ the Commission eliminated the 
exemptions for both small and large wind generating facilities, thus 
requiring those facilities to provide reactive power. The Commission 
explained that it had previously exempted wind generators from the 
uniform reactive power requirement because, historically, the costs to 
design and build a wind generator that could provide reactive power 
were high and could have created an obstacle to the development of wind 
generation. But the Commission found in Order No. 827 that, due to 
technological advancements since the establishment of those exemptions, 
the cost of providing reactive power no longer presented an obstacle to 
the development of wind generation, and therefore found that the 
exemptions had become unjust and unreasonable.\17\ The Commission 
therefore required all newly interconnecting non-synchronous generating 
facilities to provide reactive power within the range of 0.95 leading 
to 0.95 lagging at the high-side of the generator substation 
transformer as a condition of interconnection.
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    \14\ Interconnection for Wind Energy, Order No. 661, 70 FR 34993 
(June 16, 2005), 111 FERC ] 61,353, order on reh'g, Order No. 661-A, 
70 FR 75005 (Dec. 19, 2005), 113 FERC ] 61,254 (2005).
    \15\ Order No. 2006, 111 FERC ] 61,220.
    \16\ Order No. 827, 155 FERC ] 61,277.
    \17\ See also PJM Interconnection, L.L.C., 151 FERC ] 61,097, at 
P 28 (2015) (finding that, since Order No. 661, the cost of the 
technology necessary for a non-synchronous resource to provide 
reactive power has lessened such that the cost of installing 
equipment that is capable of providing reactive power is comparable 
to the costs of a traditional generator).
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    8. In sum, ``Order Nos. 2003 and 2003-A establish a reactive power 
compensation policy that, in the first instance, treats the provision 
of reactive power inside the [standard power factor range] as an 
obligation of good utility practice rather than as a compensable 
service and permits compensation inside the [standard power factor 
range] only as a function of comparability.'' \18\ ``Put differently, 
reactive support by generating facilities operating within the standard 
power factor range ensures that when these facilities inject real 
power--the product that their facilities exist to create and sell--onto 
the grid under normal conditions, they can do their part to maintain 
adequate voltages and to not threaten reliability.'' \19\ By contrast, 
reactive power provided outside of the standard power factor range is 
considered an ancillary service for transmitting power across the 
transmission system to serve load,\20\ and thus, the Commission has 
required compensation for such service.
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    \18\ Bonneville Power Admin. v. Puget Sound Energy, Inc., 120 
FERC ] 61,211 (2007) (BPA), order denying reh'g and granting 
clarification, 125 FERC ] 61,273, at P 18 (2008) (BPA Rehearing 
Order). See also BPA Rehearing Order, 125 FERC ] 61,273 at P 15 & 
n.24 (``[N]either affiliated nor non-affiliated generators have an 
inherent right to any compensation for reactive power inside the 
deadband.''). Accord., Midcontinent Indep. Sys. Operator, Inc., 182 
FERC ] 61,033 (MISO), order on reh'g, 184 FERC ] 61,022, at P 23 
(2023) (MISO Rehearing Order); Sw. Power Pool, Inc., 119 FERC ] 
61,199 (SPP), order on reh'g, Sw. Power Pool, Inc., 121 FERC ] 
61,196, at 61,968 (2007) (SPP Order on Rehearing) (``[R]eactive 
power is required for an interconnecting generator to deliver its 
power and reactive power produced within the deadband and is, 
therefore, generally not compensable.''); Mich. Elec. Transmission 
Co., 97 FERC ] 61,187, at 61,852-53 (2001) (METC Rehearing Order) 
(``Providing reactive power within design limitations is not 
providing an ancillary service; it is simply ensuring that a 
generator lives up to its obligations.''); Consumers Energy Co., 94 
FERC ] 61,230, at 61,834 (2000) (affirming the Commission's 
rejection of generators' request for reactive power compensation 
when operating within a facility's reactive power design limitation, 
stating that as a condition of interconnecting to the transmission 
provider's system, ``to ensure system security,'' the generator was 
required to provide equipment, ``at its own cost, to meet its 
reactive power obligations as provided for in [its interconnection 
agreement].''(emphasis added)); cf. Dynegy Midwest Generation, Inc., 
125 FERC ] 61,280, at P 16 (2008) (``Reactive power is a localized 
service that is quickly used by transmission system components and 
cannot be transported over long distances.'').
    \19\ MISO Rehearing Order, 184 FERC ] 61,022 at P 23.
    \20\ See, e.g., id. at PP 23-24 (citing METC Rehearing Order, 97 
FERC at 61,852-53).
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    9. Consistent with Order Nos. 2003 and 2003-A and Commission 
precedent that pre-dated those Orders, the Commission has permitted 
transmission providers to eliminate separate compensation for 
generating facilities providing reactive power within the standard 
power factor range.\21\ In these cases, the Commission affirmed its 
determination that the provision of reactive power within the standard 
power factor range is not compensable except as a matter of 
comparability. For example, in BPA, the Commission granted a complaint 
filed by Bonneville Power Administration (BPA) arguing that the rate 
schedules of certain independent power producers (IPP) for reactive 
power within the standard power factor range, often referred to as a 
``deadband,'' were no longer just and reasonable given BPA's decision 
to no longer pay its own or affiliated generators for providing this 
service.\22\ The Commission found that ``Commission policy clearly 
allows BPA to discontinue paying all its merchants for inside the 
deadband reactive power service,'' explaining that ``[t]he Commission's 
policy is not new; we confirmed it in Order No. 2003, when we stated 
that an interconnecting generator `should not be compensated for 
reactive power when operating its Generating Facility within the 
established power factor range, since it is only meeting its 
obligation.'' \23\
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    \21\ See, e.g., MISO, 182 FERC ] 61,033 at PP 52-53; MISO 
Rehearing Order, 184 FERC ] 61,022 at PP 26-27; Pub. Serv. Co. of 
N.M., 178 FERC ] 61,088, at PP 29-31 (2022) (PNM); Nev. Power Co., 
179 FERC ] 61,103, at PP 20-21 (2022); BPA, 120 FERC ] 61,211 at P 
20; E.ON U.S. LLC, 119 FERC ] 61,340, at P 15 (2007); Entergy 
Servs., Inc., 113 FERC ] 61,040, at P 38 (2005).
    \22\ BPA, 120 FERC ] 61,211 at PP 19-20; BPA Rehearing Order, 
125 FERC ] 61,273 at PP 10-11.
    \23\ BPA, 120 FERC ] 61,211 at PP 19-20 (citing Order No. 2003, 
FERC Stats. & Regs. ] 31,146 at P 546); METC Rehearing Order, 97 
FERC at 61,852 (``Providing reactive power within design limitations 
is not providing an ancillary service; it is simply ensuring that a 
generator lives up to its obligations.'').
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    10. The Commission has also found that a transmission provider's 
decision to end compensation for reactive power within the standard 
power factor range does not compromise a generating facility's ability 
to recover costs that it may incur in producing reactive power within 
this range.\24\ For example, the Commission has observed that 
generating facilities ``may be able to recover the costs for reactive 
power within the deadband in other ways--such as through higher power 
sales rates of their own.'' \25\ In response to arguments by certain 
independent power producers that such recovery is infeasible because of 
competition, the Commission has found that ``since the incremental cost 
of reactive power service within the deadband is minimal, the 
infeasibility argument lacks plausibility. The purpose for which 
generation assets are built (including reactive power capability to 
maintain voltage levels for generation entering the grid) is to make 
sales of real power.'' \26\
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    \24\ Id. PP 19-22.
    \25\ Id. P 21 (citing Sw. Power Pool, Inc., 119 FERC ] 61,199, 
at P 39).
    \26\ Id.
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    11. The Commission made similar findings in MISO, wherein it 
accepted an FPA section 205 application by

[[Page 93413]]

Midcontinent Independent System Operator, Inc. (MISO) transmission 
owners to end generator compensation for the provision of reactive 
power within the standard power factor range.\27\ In accepting MISO 
transmission owners' proposal, the Commission reiterated its 
longstanding policy ``that the provision of reactive power within the 
standard power factor range is, in the first instance, an obligation of 
the interconnecting generator and good utility practice,'' such that 
``MISO [transmission owners] do not have an obligation to continue to 
compensate an independent generator for reactive power within the 
standard power factor range when its own or affiliated generators are 
no longer being compensated.'' \28\ The Commission also rejected any 
reliance arguments, reasoning in part that the provision of reactive 
power within the standard power factor range required little or no 
incremental investment given that, for both synchronous and non-
synchronous generating facilities,\29\ the same equipment is used for 
the production of real power and reactive power.\30\ In addition, the 
Commission found that generating facilities have other opportunities, 
beyond Schedule 2, to seek to recover their costs of providing reactive 
power.\31\
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    \27\ MISO, 182 FERC ] 61,033 at P 53 (``Bearing in mind that the 
provision of reactive power within the standard power factor range 
is, in the first instance, an obligation of the interconnecting 
generator and good utility practice, MISO [transmission owners] do 
not have an obligation to continue to compensate an independent 
generator for reactive power within the standard power factor range 
when its own or affiliated generators are no longer being 
compensated.'' (citation omitted)); see also PNM, 178 FERC ] 61,088 
at PP 29, 33 (accepting PNM's revisions to eliminate compensation 
for reactive service under Schedule 2 and rejecting generators' 
arguments that it is ``just and reasonable for it to be compensated 
for investments made'' to provide reactive support consistent with 
interconnection requirements even though PNM elected to no longer 
pay its own or affiliated generators for such reactive power).
    \28\ MISO, 182 FERC ] 61,033 at P 53. The Commission found 
``those protests that challenge these well-established policies to 
be collateral attacks on these earlier determinations.'' Id.
    \29\ Synchronous generating facilities (e.g., coal, gas, nuclear 
resources) produce electricity in sync with the transmission system 
at the system frequency. Non-synchronous generating facilities 
(e.g., solar, wind, battery storage resources) produce electricity 
that is initially not in sync with the transmission system and use 
inverters to convert their electrical output to synchronize with the 
transmission system. See FERC, Payment for Reactive Power, 7 (Apr. 
22, 2014) (2014 Staff Report), https://www.ferc.gov/sites/default/files/2020-05/04-11-14-reactive-power.pdf.
    \30\ MISO Rehearing Order, 184 FERC ] 61,022 at PP 29-30 (citing 
S. Co. Servs., Inc., 80 FERC ] 61,318, at 62,091 (1997) (noting also 
that the primary function of a generating plant is to produce real 
power; thus, if costs were allocated based on the ``predominant'' 
function of the equipment, ``all of the costs of generation would 
thus be assigned to real power production and there would be no 
basis for any separate reactive power charge''); BPA, 120 FERC ] 
61,211 at P 21 (finding that the incremental cost of reactive power 
service within the standard power factor range is minimal); METC 
Rehearing Order, 97 FERC at 61,852-53 (``[R]eactive power provided, 
not as an ancillary service, but rather as a `no cost' service 
within reactive design limitations, may therefore, be provided 
without compensation.'').
    \31\ MISO Rehearing Order, 184 FERC ] 61,022 at PP 40-42; SPP, 
119 FERC ] 61,199 at P 39 (stating that IPPs ``are free to negotiate 
rates that they charge their customers for real power that are 
sufficient to compensate them for any costs that they may incur in 
producing reactive power within their deadbands, just as affiliated 
generators may seek to negotiate rates that they charge their 
customers that are sufficient to compensate them for the costs of 
any reactive power that they provide within their deadbands.'').
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    12. Consistent with Order Nos. 2003 and 2003-A and other Commission 
precedent, multiple RTOs/ISOs and non-RTO/ISO transmission providers 
have elected not to compensate generating facilities for providing 
reactive power within the standard power factor range under Schedule 2 
of their OATTs.\32\
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    \32\ See, e.g., MISO, 182 FERC ] 61,033 at PP 52-53; MISO 
Rehearing Order, 184 FERC ] 61,022 at P 26; PNM, 178 FERC ] 61,088 
at PP 29-31; Nev. Power Co., 179 FERC ] 61,103 at PP 20-21; BPA, 120 
FERC ] 61,211 at P 20; E.ON U.S. LLC, 119 FERC ] 61,340 at P 15; 
Entergy Servs., Inc., 113 FERC ] 61,040 at P 38.
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    13. Of the six Commission-jurisdictional RTOs/ISOs, only three 
currently compensate generating facilities for reactive power provided 
within the standard power factor range. Generating facilities in PJM 
Interconnection, L.L.C. (PJM) \33\ generally use the cost-based AEP 
Methodology to calculate cost-of-service rates for the production of 
reactive power.\34\ Because the same generation equipment contributes 
to the production of both real power and reactive power, the AEP 
Methodology allocates the costs of each piece of equipment to real 
power service and reactive power service by assigning the cost of each 
piece of equipment to either real power service, reactive power 
service, or both. ISO New England Inc. (ISO-NE) \35\ and New York 
Independent System Operator, Inc. (NYISO) \36\ compensate generating 
facilities for reactive power under flat rate designs that are adjusted 
for inflation.\37\
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    \33\ PJM Interconnection, L.L.C., Intra-PJM Tariffs, OATT 
Schedule 2, (Reactive Supply and Voltage Control from Generation or 
Other Sources Service) (4.0.0).
    \34\ The AEP Methodology derives its name from Opinion No. 440, 
where the Commission approved AEP's, a vertically integrated 
utility, method for calculating the costs of synchronous generation 
equipment associated with the production of reactive power. See Am. 
Elec. Power Serv. Corp., Opinion No. 440, 88 FERC ] 61,141 (1999), 
order on reh'g, 92 FERC ] 61,001 (2000). In WPS Westwood, the 
Commission recommended that all generating facilities that have 
actual cost data and support documentation use the AEP Methodology. 
See WPS Westwood Generation, LLC, 101 FERC ] 61,290, at P 14 (2002).
    \35\ ISO New England Inc., ISO New England Inc. Transmission, 
Markets and Services Tariff, Schedule 2 (Reactive Supply and Voltage 
Control Service) (8.0.0).
    \36\ New York Independent System Operator, Inc., NYISO Tariffs, 
NYISO OATT, Sec.  6.2 OATT Schedule 2 (Charges For Voltage Support 
Service) (6.0.0).
    \37\ Both ISO-NE and NYISO proposed their respective reactive 
power capability compensation mechanisms pursuant to section 205 
filings. See ISO New England Inc., 122 FERC ] 61,056, at P 1 (2008) 
(settling, in part, for a new flat rate in $/kVAR-yr). N.Y. Indep. 
Sys. Operator, Inc., Docket No. ER02-617-000 (Feb. 5, 2002) 
(delegated order accepting NYISO's amended Rate Schedule 2 of the 
Market Administration and Control Area Services Tariff).
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    14. California Independent System Operator Corporation (CAISO),\38\ 
Southwest Power Pool, Inc. (SPP),\39\ and MISO \40\ do not pay 
separately for reactive power within the standard power factor range.
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    \38\ CAISO never provided compensation for reactive power within 
the standard power factor range. See Cal. Indep. Sys. Operator 
Corp., 160 FERC ] 61,035, at P 7 (2017) (explaining that CAISO 
considered the possibility of compensating generating facilities for 
reactive power in its stakeholder process, but decided against it, 
reasoning that the ability to provide reactive power is part of a 
generator's fixed costs, which are recovered through power purchase 
agreements).
    \39\ SPP, 119 FERC ] 61,199 at P 30.
    \40\ MISO, 182 FERC ] 61,033 at PP 52-66; MISO Rehearing Order, 
184 FERC ] 61,022 at PP 23-55.
---------------------------------------------------------------------------

    15. Outside the RTOs/ISOs, transmission providers that pay for the 
provision of reactive power within the standard power factor range 
generally use the AEP Methodology to set reactive power compensation on 
an individual generating facility basis. Many non-RTO/ISO transmission 
providers do not pay separately for reactive power provided within the 
standard power factor range.\41\
---------------------------------------------------------------------------

    \41\ See, e.g., Arizona Public Service Company, FERC Electric 
Tariff Vol. No. 2, Schedule 2 (Reactive Supply and Voltage Control 
from Generation or Other Sources Service) (6.0.0) (``This service 
will be provided at no charge until [Arizona Public Service Company] 
has developed a rate that has been filed with the Commission and 
allowed to be implemented; however, Transmission Customers taking 
service at transmission voltage levels shall be responsible for 
maintaining a power factor of  95.0%, and Transmission 
Customers taking service at distribution voltage levels shall 
maintain a power factor of not less than 90% lagging but in no event 
leading, unless agreed to by [Arizona Public Service Company].''); 
Public Service Company of New Mexico, PNM Open Access Transmission 
Tariff, Schedule 2 (Reactive Supply and Voltage Control from 
Generation or Other Sources Service) (2.1.0) (``As of October 1, 
2021, the Effective Date of this Schedule 2, the Transmission 
Provider is not charging for Reactive Supply and Voltage Control 
from Generation or Other Sources Service from its own resources. As 
a result, there will be no separate charge for such service.'').

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[[Page 93414]]

B. Notice of Inquiry and Notice of Proposed Rulemaking

    16. On November 18, 2021, the Commission issued a Notice of Inquiry 
(NOI) \42\ in this proceeding, seeking comment on various issues 
regarding reactive power compensation and market design as a result of 
the significant changes that have taken place in the electric industry 
in the last two decades, including changes in the generation resource 
mix and a general shift away from cost-of-service rates for generating 
facilities selling into Commission-jurisdictional markets. Generally, 
the Commission sought to ``examine whether the current regime for 
reactive power capability compensation requires revisions to ensure 
that payments for reactive power capability accurately reflect the 
costs associated with reactive power capability.'' \43\
---------------------------------------------------------------------------

    \42\ Reactive Power Capability Compensation, Notice of Inquiry, 
177 FERC ] 61,118 (2021) (NOI).
    \43\ Id. P 19.
---------------------------------------------------------------------------

    17. On March 21, 2024, the Commission issued a NOPR in this same 
proceeding. Based on a review of the comments submitted in response to 
the Commission's NOI in the instant docket, as well as the Commission's 
experience in the years since the issuance of Order Nos. 2003 and 2003-
A, the NOPR preliminarily found that where transmission providers 
require transmission customers to pay for the provision of reactive 
power within the standard power factor range, transmission rates may be 
unjust and unreasonable, as they include costs without a sufficient 
economic basis or justification. In support of such preliminary 
finding, the NOPR explained that generating facilities provide reactive 
power within the standard power factor range at no cost or de minimis 
cost, and that providing reactive power within the standard power 
factor range is already an obligation of the generating facility as an 
interconnection customer and consistent with good utility practice.\44\ 
The NOPR also stated that current compensation may result in undue 
compensation or other market distortions. The NOPR proposed, pursuant 
to FPA section 206,\45\ that a just and reasonable replacement rate was 
to prohibit transmission providers from including in their transmission 
rates any charges associated with the supply of reactive power within 
the standard power factor range from a generating facility.
---------------------------------------------------------------------------

    \44\ Real power, which accomplishes useful work (e.g., runs 
motors), is typically measured in MWs.
    \45\ 16 U.S.C. 824e.
---------------------------------------------------------------------------

    18. Specifically, the NOPR proposed to add the following sentence 
to the end of Schedule 2 of the pro forma OATT: \46\ ``However, such 
rates shall not include compensation to generating facilities for the 
supply of reactive power within the power factor range specified in its 
interconnection agreement.'' Second, the NOPR proposed to remove the 
following clause from section 9.6.3 of the pro forma LGIA: \47\ 
``provided that if Transmission Provider pays its own or affiliated 
generators for reactive power service within the specified range, it 
must also pay Interconnection Customer.'' Third, the NOPR proposed to 
remove the following sentence from section 1.8.2 of the pro forma SGIA: 
\48\ ``In addition, if the Transmission Provider pays its own or 
affiliated generators for reactive power service within the specified 
range, it must also pay the Interconnection Customer.''
---------------------------------------------------------------------------

    \46\ See pro forma OATT, Schedule 2.
    \47\ See pro forma LGIA, Sec.  9.6.3.
    \48\ See pro forma SGIA, Sec.  1.8.2.
---------------------------------------------------------------------------

    19. Comments on the NOPR were due on June 26, 2024. Thirty-one 
parties filed comments.\49\ Comments were submitted by RTOs/ISOs and 
other transmission providers, generating facilities, generation 
developers, transmission owners, load-serving entities (LSE), 
Monitoring Analytics, LLC, acting in its capacity as the Independent 
Market Monitor for PJM (PJM IMM), trade associations representing 
specific generation technologies, and consumer advocates. Of these, and 
with few exceptions, transmission owners, LSEs, the PJM IMM, 
independent filers,\50\ and consumer advocates supported or did not 
oppose the NOPR proposal to eliminate compensation in the standard 
power factor range,\51\ while generating facilities, generation 
developers, and trade associations representing specific generation 
technologies oppose the NOPR proposal.\52\
---------------------------------------------------------------------------

    \49\ See app. A.
    \50\ C T Gaunt states that reactive power cannot be delivered 
and also that it cannot be lost in transmission through a 
transformer or power system. Thus, C T Gaunt claims that there are 
no grounds for arguing against the Commission's determination in the 
NOPR. C T Gaunt Reply Comments at 2-3.
    \51\ American Electric Power Service Corporation (AEP) (on 
behalf of itself and its affiliates, including Appalachian Power 
Company, Indiana Michigan Power Company, Kentucky Power Company, 
Kingsport Power Company, Ohio Power Company, Wheeling Power Company, 
Public Service Company of Oklahoma, Southwestern Electric Power 
Company, AEP Appalachian Transmission Company, Inc., AEP Indiana 
Michigan Transmission Company, Inc., AEP Kentucky Transmission 
Company, Inc., AEP Ohio Transmission Company, Inc., AEP West 
Virginia Transmission Company, Inc., AEP Oklahoma Transmission 
Company, Inc., and AEP Southwestern Transmission Company, Inc.); 
Ameren Service Company (Ameren) (on behalf of Ameren Illinois 
Company d/b/a Ameren Illinois, Union Electric Company d/b/a Ameren 
Missouri and Ameren Transmission Company of Illinois); C T Gaunt; 
New England Consumer Advocates (consisting of the Office of 
Massachusetts Attorney General Andrea Joy Campbell, the Connecticut 
Office of Consumer Counsel, the Maine Office of Public Advocate, the 
New Hampshire Office of Consumer Advocate, and the Rhode Island 
Division of Public Utilities and Carriers); Joint Consumer Advocates 
(including the Illinois Attorney General, Illinois Citizens Utility 
Board, Maryland Office of People's Counsel, the New Jersey Division 
of Rate Counsel, the North Carolina Utilities Commission Public 
Staff, the Office of the People's Counsel for the District of 
Columbia, and the West Virginia Consumer Advocate Division of the 
Public Service Commission), Joint Customers (including Old Dominion 
Electric Cooperative, Northern Virginia Electric Cooperative, Inc., 
and Dominion Energy Services, Inc. on behalf of Virginia Electric 
and Power Company d/b/a Dominion Energy Virginia); Liberty Utilities 
(Granite State Electric) Corp. d/b/a Liberty (Liberty); MISO; MISO 
Transmission Owners (including Ameren, as agent for Union Electric 
Company d/b/a Ameren Missouri, Ameren Illinois Company d/b/a Ameren 
Illinois, and Ameren Transmission Company of Illinois; Arkansas 
Electric Cooperative Corporation; City Water, Light & Power; 
Cooperative Energy; Dairyland Power Cooperative; East Texas Electric 
Cooperative; Entergy Arkansas, LLC; Entergy Louisiana, LLC; Entergy 
Mississippi, LLC; Entergy Texas, Inc.; Great River Energy; 
Indianapolis Power & Light Company; Lafayette Utilities System; 
MidAmerican Energy Company; Minnesota Power (and its subsidiary 
Superior Water, L&P); Missouri River Energy Services; Montana-Dakota 
Utilities Co.; Northern States Power Company, a Minnesota 
corporation, and Northern States Power Company, a Wisconsin 
corporation, subsidiaries of Xcel Energy Inc.; Northwestern 
Wisconsin Electric Company; Otter Tail Power Company; Prairie Power, 
Inc.; Southern Indiana Gas & Electric Company (d/b/a CenterPoint 
Energy Indiana South); and Southern Minnesota Municipal Power 
Agency); the Ohio Office of the Federal Energy Advocate of the 
Public Utilities Commission of Ohio (Ohio FEA); Portland General 
Electric Company (PGE); PJM; the PJM IMM; the Transmission Access 
Policy Study Group (TAPS) (an association of transmission dependent 
utilities in 35 states). For convenience, we have listed each 
commenter and the parties they represent. For brevity, for the 
remainder of this rule, we will refer to each commenter by their 
abbreviated names as defined in this footnote.
    \52\ The American Council on Renewable Energy (ACORE); Calpine 
Corporation (Calpine); Eagle Creek Reactive Generators (including 
Mahoning Creek Hydroelectric Company, LLC, York Haven Power Company, 
LLC, Eagle Creek Reusens Hydro, LLC, Great Falls Hydroelectric 
Company Limited Partnership, Lake Lynn Generation, LLC, PE Hydro 
Generation, LLC, Black River Hydroelectric, LLC, All Dams 
Generation, LLC, and Eagle Creek Hydro Power, LLC); EDP Renewables 
North America LLC (EDPR); Elevate Renewables F7, LLC (Elevate); 
Generation Developers (including Vistra Corp. and Dynegy Marketing 
and Trade, LLC); Glenvale LLC (Glenvale); Indicated Reactive Power 
Suppliers (including KMC Thermo, LLC, Bitter Ridge Wind Farm, LLC, 
Guernsey Power Station LLC, Moxie Freedom LLC, Safe Harbor Water 
Power Corporation, BIF III Holtwood LLC, Brookfield Power Piney & 
Deep Creek LLC, Erie Boulevard Hydropower, L.P., Carr Street 
Generating Station, L.P., Bear Swamp Power Company LLC, Brookfield 
White Pine Hydro LLC, Brookfield Renewable Trading and Marketing LP, 
and Reworld Waste, LLC f/k/a Covanta; Independent Power Producers of 
New York, Inc. (IPPNY); Indicated Trade Associations (including 
Electric Power Supply Association, The PJM Power Providers Group the 
New England Power Generators Association, Inc., Independent Power 
Producers of New York, Inc., the Coalition of Midwest Power 
Producers); ISO-NE; Middle River Power LLC (including Coalition of 
Midwest Power Producers, the Electric Power Supply Association, the 
PJM Power Providers Group, the New England Power Generators 
Association, Inc., and the Independent Power Producers of New York, 
Inc.); National Hydropower Association (NHA) (a national trade 
association with over 320 member companies); New England Power 
Generators Association, Inc. (NEPGA); New England Power Pool 
(NEPOOL); New England States Committee on Electricity (NESCOE); 
Nuclear Energy Institute (NEI); North American Generator Forum 
(NAGF); NYISO; Onward Energy Holdings, LLC (Onward Energy); PSEG 
(including Public Service Electric and Gas Company, PSEG Power LLC, 
and PSEG Energy Resources & Trade LLC, and each wholly owned, direct 
or indirect subsidiaries of Public Service Enterprise Group 
Incorporated) (PSEG); Reactive Service Providers (including CIP, D. 
E. Shaw Renewable Investments, L.L.C., Invenergy Renewables LLC, 
Leeward Renewable Energy, LLC, Lightsource Renewable Energy 
Operations, LLC, NextEra Energy Resources, LLC,1 [Oslash]rsted Wind 
Power North America, LLC, and RWE Clean Energy, LLC); Clean Energy 
Associations (including Solar Energy Industries Association (SEIA) 
and American Clean Power Association (ACP)). For brevity, for the 
remainder of this rule, we will refer to each commenter by their 
abbreviated names as defined in this footnote.

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[[Page 93415]]

II. Discussion

    20. In this final determination, the Commission adopts the NOPR as 
proposed, except with respect to the timing of the compliance 
procedures and implementation. Based on our review of the record, we 
find there is substantial evidence to support the conclusion that 
allowing transmission providers to charge transmission customers for a 
generating facility's provision of reactive power within the standard 
power factor range results in unjust and unreasonable transmission 
rates. As explained in the NOPR, generating facilities providing 
reactive power within the standard power factor range are only meeting 
their obligations under their interconnection agreements and in 
accordance with good utility practice, and in doing so, incur no or at 
most de minimis variable costs beyond the cost of providing real power. 
Moreover, providing compensation for the provision of reactive power 
within the standard power factor range risks overcompensation and 
market distortion in ways that did not exist prior to the existence of 
organized markets.
    21. We find that these reforms will not adversely impact 
reliability. We also find that generating facilities have the 
opportunity to seek to recover any costs associated with providing 
reactive power within the standard power factor range through their 
rates for selling real power, including energy or capacity sales, 
whether in organized or bilateral markets. Given that the primary 
function of a generating facility is to produce real power and that the 
provision of reactive power within the standard power factor range is 
necessary for the provision of real power, we find that the existing 
means of cost recovery for real power are not only reasonable but also 
the most logical outcome.
    22. Based on more than two decades of experience since Order No. 
2003, and the record developed in this proceeding, we find that, even 
as a function of comparability, charging transmission customers under 
Schedule 2 for the provision of reactive power within the standard 
power factor range has become unjust and unreasonable. As explained 
above and for the reasons discussed below, in Order No. 2003, the 
Commission found generators should not receive compensation for the 
provision of reactive power within the standard power factor as it was 
an obligation of good utility practice. Based on rehearing requests, in 
Order No. 2003-A, the Commission agreed that where vertically 
integrated transmission owners continued to have rate schedules 
providing payment to their affiliated generating facilities for 
reactive power service within the standard power factor range, such 
transmission owners were also required to pay non-affiliated 
interconnection customers for the same provision of reactive power. At 
the time of Order Nos. 2003 and 2003-A, functional unbundling of 
transmission service \53\ and the development of organized wholesale 
electricity markets \54\ were relatively nascent, and so too was the 
Commission's experience with the impacts of establishing the 
comparability standard for the provision of reactive power within the 
standard power factor range. At the time, establishing the 
comparability standard appeared consistent with Order No. 2003's stated 
intent of ``minimiz[ing] opportunities for undue discrimination and 
expedit[ing] the development of new generation, while protecting 
reliability and ensuring that rates are just and reasonable.'' \55\
---------------------------------------------------------------------------

    \53\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,654 (``We 
conclude that functional unbundling of wholesale services is 
necessary to implement non-discriminatory open access 
transmission.'').
    \54\ Regional Transmission Orgs., Order No. 2000, FERC Stats. & 
Regs. ] 31,089 (1999) (cross-referenced at 89 FERC ] 61,285) (``We 
conclude that properly structured RTOs throughout the United States 
can provide significant benefits in the operation of the 
transmission grid.''), order on reh'g, Order No. 2000-A, FERC Stats. 
& Regs. ] 31,092 (2000) (cross-referenced at 90 FERC ] 61,201), 
aff'd sub nom. Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 
F.3d 607 (D.C. Cir. 2001).
    \55\ See, e.g., Order No. 2003, 104 FERC ] 61,103 at P 12 
(explaining that standard interconnection procedures and a standard 
agreement will: ``(1) limit opportunities for Transmission Providers 
to favor their own generation; (2) facilitate market entry for 
generation competitors by reducing interconnection costs and time; 
and (3) encourage needed investment in generator and transmission 
infrastructure'').
---------------------------------------------------------------------------

    23. Since Order No. 2003, however, many industry changes have 
occurred. Some vertically integrated utilities have divested their 
generation. Competitive markets have developed, leading many generators 
to recover their costs through market-based rather than cost-based 
rates. The development of competitive markets makes even more 
challenging any allocation of costs between real power production, 
under market-based rates, and reactive power service, under cost of 
service rates.\56\ When rates are market-based, challenges in 
allocation will affect the competitive positions of the entities.\57\ 
New technologies have developed that provide reactive power through 
different means and to which the AEP Methodology that predates these 
technologies does not squarely apply. With fewer vertically integrated 
utilities, the continued development of competitive markets, and new 
technologies, the initial justification for compensation (i.e., that 
the Commission required separate compensation on a comparable basis 
because vertically integrated transmission owners continued to have 
rate schedules providing payment to their affiliated generating 
facilities for reactive power service) is no longer broadly applicable. 
Indeed, the wide-ranging rates for reactive power resulting from cost-
of-service proceedings further undermine the principle of comparability 
as some generating facilities now receive substantially higher rates 
for the provision of reactive power within the

[[Page 93416]]

standard power factor range than others.\58\
---------------------------------------------------------------------------

    \56\ See In re Permian Basin Area Rate Cases, 390 U.S. at 804 
(``There is ample support for the Commission's judgment that the 
apportionment of actual costs between two jointly produced 
commodities, only one of which is regulated by the Commission, is 
intrinsically unreliable.''); A.A. Poultry Farms, Inc. v. Rose Acre 
Farms, Inc., 881 F.2d 1396, 1400 (7th Cir. 1989) (``How does one 
allocate the cost of activities that have joint products? Agencies 
engaged in ratemaking struggle with these problems for years, even 
decades, without producing clear answers.''); Richard A. Posner, 
Natural Monopoly and Its Regulation, 21 Stan. L. Rev. 548, 595 
(1969) (``where services involve joint or common costs a rational 
allocation is impossible even in theory. How much of the cost of a 
telephone handset is assignable to local and how much to interstate 
telephone service?'').
    \57\ When both real power and reactive power rates were cost-
based, the only effect of the allocation was to change the 
allocation of costs and the rates for transmission and generation 
service; the transmission provider would not exceed its total 
revenue requirement.
    \58\ The PJM IMM notes that total settled reactive power revenue 
requirements for oil-fueled steam units average $993/MW-year whereas 
other units have settled reactive power revenue requirements as high 
as $18,750/MW-year. IMM Initial Comments at 5.
---------------------------------------------------------------------------

    24. All of these changes taken together, coupled with the record 
developed here, make clear that separate compensation for the provision 
of reactive power within the standard power factor range results in 
unjust and unreasonable rates to transmission customers, because such 
compensation is not necessary for comparability or to ensure continued 
investment in the capability of generating facilities to provide 
reactive power within the standard power factor range.\59\ We 
acknowledge that this final determination represents a change in 
policy,\60\ a change we find appropriate based on the record before us, 
as explained in detail herein.\61\
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    \59\ See, e.g., PJM IMM Initial Comments at 11-12 (``The salient 
difference between PJM and CAISO, SPP, and MISO is that PJM 
customers paid $388,044,837.00 in out of market payments for 
reactive capability in 2023, and customers in CAISO, SPP and MISO, 
paid $0.00''); For Schedule 2 service in 2023, PJM paid $388 
million, NYISO paid $75 million, and ISO-NE paid $18 million. See 
PJM 2023 Annual Report at 5, https://services.pjm.com/annualreport2023/); 2023 NYISO Voltage Support Service Rates, 
https://www.nyiso.com/documents/20142/35126567/2023-OATT-MST-Schedule-2-VSS-Rates-FINAL-for-posting.pdf/f59317b0-41c6-9f41-5d61-e7f502af82c2); 2023 Annual Markets Report at 154, iso-ne.com/static-assets/documents/100011/2023-annual-markets-report.pdf.
    \60\ See Order No. 2003-C, 111 FERC ] 61,401 at P 42 (finding 
that because providing reactive power within the established range 
is an ``important service,'' payment for such service does not 
constitute a ``windfall'').
    \61\ PJM Power Providers Grp. v. FERC, 88 F.4th 250, 271-72 (3d 
Cir. 2023), amended sub nom. PJM Power Provisers Grp. v. FERC, No. 
21-3068, 2024 WL 259448 (3d Cir. Jan. 24, 2024) (``An agency may 
alter its `view of what is in the public interest.' The fact that 
contrary agency precedent exists `gives us no more power than usual 
to question the Commission's substantive determinations.' The agency 
need not establish that `the reasons for the new policy are better 
than the reasons for the old one; it suffices that the new policy is 
permissible under the statute, that there are good reasons for it, 
and that the agency believes it to be better.' '') (citing FCC v. 
Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)); In re 
Permian Basin Area Rate Cases, 390 U.S. 747, 784 (1968) (Permian 
Basin); see also Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State 
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42 (1983) (``[W]e fully 
recognize that regulatory agencies do not establish rules of conduct 
to last forever.'') (internal quotations omitted); Greater Bos. 
Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) (an 
agency may change its course as long as it ``suppl[ies] a reasoned 
analysis indicating that prior policies and standards are being 
deliberately changed, not casually ignored.''), cert. denied, 403 
U.S. 923 (1971)).
---------------------------------------------------------------------------

    25. Accordingly, we are modifying Schedule 2 of the pro forma OATT, 
section 9.6.3 of the pro forma LGIA, and section 1.8.2 of the pro forma 
SGIA, and we are requiring transmission providers to make corresponding 
revisions to their OATTs and pro forma interconnection agreements, to 
prohibit transmission providers from including in their transmission 
rates any charges associated with the provision of reactive power 
within the standard power factor range from generating facilities.
    26. We discuss below the issues raised in the comments.

A. Need for Reform

    27. The NOPR preliminarily found that where transmission providers 
require transmission customers to pay for generating facilities' 
provision of reactive power within the standard power factor range, 
transmission rates may be unjust and unreasonable, as such rates may 
include costs without a sufficient economic basis or justification and 
such costs may not result in transmission customers receiving 
commensurate reliability benefits.\62\ In support of the need for 
reform, the NOPR preliminarily found that generating facilities 
providing reactive power within the standard power factor range are 
only meeting their obligations under their interconnection agreements 
and in accordance with good utility practice, and in doing so, incur no 
or at most a de minimis increase in variable costs beyond the cost of 
providing real power.\63\ The NOPR also highlighted various adverse 
impacts of the Commission's policy on reactive power compensation, 
which have been exacerbated by the increasing volume of filings for 
reactive power compensation and in turn, increasing reactive power-
related costs to transmission customers.\64\ For example, in many 
regions, generating facilities are sited without regard to where there 
is a geographic need for reactive power, which is significant given 
that unlike real power, reactive power cannot be efficiently 
transmitted long distances.\65\ Additionally, adjudicating cost-of-
service reactive power rates has become increasingly administratively 
burdensome and may result in inconsistent rate treatment across 
generating facilities.\66\ Furthermore, in regions where generating 
facilities may seek to recover their costs by participating in 
organized competitive wholesale markets, providing separate 
compensation for the provision of reactive power within the standard 
power factor range risks overcompensation and market distortion in ways 
that did not exist prior to the existence of organized markets.\67\ 
Finally, as explained in the NOPR, the costs to transmission customers 
have increased substantially without any commensurate increase in 
benefits.\68\
---------------------------------------------------------------------------

    \62\ NOPR, 186 FERC ] 61,203 at PP 25, 40.
    \63\ Id. PP 28-33.
    \64\ Id. PP 34-40.
    \65\ Id. P 35.
    \66\ Id. PP 36-38.
    \67\ Id. P 39.
    \68\ Id. P 40.
---------------------------------------------------------------------------

    28. The NOPR also preliminarily found that cessation of payments 
for reactive power within the standard power factor range for 
generating facilities does not compromise a generating facility's 
ability to recover costs-if any-that it may incur in producing reactive 
power within such range because generating facilities have the 
opportunity to seek to recover such costs in other ways, such as 
through energy or capacity sales.\69\
---------------------------------------------------------------------------

    \69\ Id. P 42.
---------------------------------------------------------------------------

1. Comments
    29. AEP, Ameren, Joint Consumer Advocates, Joint Customers, MISO 
Transmission Owners, New England Consumer Advocates, Ohio FEA, PGE, 
PJM, the PJM IMM, and TAPS agree there is a need for reform and, 
accordingly, support the NOPR proposal to eliminate compensation for 
reactive power within the standard power factor range.\70\
---------------------------------------------------------------------------

    \70\ AEP Initial Comments at 1-2; Ameren Initial Comments at 2-
3; Joint Consumer Advocates Initial Comments at 1; Joint Customers 
Initial Comments at 2; MISO Transmission Owners Initial Comments at 
1, 5; New England Consumer Advocates Initial Comments at 6; Ohio FEA 
Initial Comments at 3; PGE Initial Comments at 1; PJM Initial 
Comments at 1, 3; PJM IMM Initial Comments at 2; TAPS Initial 
Comments at 1.
---------------------------------------------------------------------------

    30. Many commenters argue that there is substantial evidence to 
support the conclusion that allowing transmission providers to charge 
transmission customers for a generating facility's provision of 
reactive power from within the standard power factor range results in 
unjust and unreasonable transmission rates.\71\ They also agree that 
current generator compensation for the provision of reactive power 
within the standard power factor range lacks sufficient economic basis 
or justification,\72\ and that customers may

[[Page 93417]]

not be receiving commensurate reliability benefits.\73\
---------------------------------------------------------------------------

    \71\ See, e.g., Joint Customers Reply Comments at 10-11 
(``Standing on its own, the record in this proceeding is sufficient 
to justify the conclusion that compensating generators, any 
generators, for reactive service within the standard power factor 
range is not just and reasonable. Through the NOI comments, the 
development of the NOPR, and comments to the NOPR, the Commission 
has supported its conclusions and addressed potential concerns.'').
    \72\ Joint Consumer Advocates Initial Comments at 1, 5; Joint 
Customers Initial Comments at 5-6; Joint Customers Reply Comments at 
1-2; MISO Transmission Owners Reply Comments at 2; PGE Initial 
Comments at 5; TAPS Initial Comments at 3.
    \73\ Joint Customers Initial Comments at 13-17; MISO 
Transmission Owners Reply Comments at 8, 19; New England Consumer 
Advocates Initial Comments at 4-6; TAPS Initial Comments at 3.
---------------------------------------------------------------------------

    31. Joint Customers maintain, for example, that the NOPR builds on 
longstanding Commission policy, reaffirmed since Order No. 2003, that 
no compensation is appropriate for reactive service within the standard 
power factor range and that challenges to the sufficiency of the record 
or the process are unfounded.\74\ Joint Customers explain that ``[t]he 
only change the Commission is making in the NOPR is to determine that 
transmission providers no longer should have the option to compensate, 
affiliate and non-affiliate alike. And for that discrete change, that 
the exception to the general rule on compensation should be closed, the 
Commission has plainly created a sufficient record.'' \75\
---------------------------------------------------------------------------

    \74\ Joint Customers Reply Comments at 10-11.
    \75\ Id. at 11 (emphasis in original).
---------------------------------------------------------------------------

    32. PJM supports the NOPR and asserts that it would largely 
eliminate the problems with the current reactive power compensation 
regime in PJM, including the resource-intensive administrative burdens 
of reactive power rate proceedings and the ``black box'' settlements 
that ``seem[ ] at odds with the Commission's general precedent on 
efficient energy and ancillary service price formation.'' \76\ MISO 
explains that it has not experienced reliability concerns since 
eliminating compensation for reactive power within the standard power 
factor range in December 2022 \77\ and that it would not expect to see 
any effect on reliability through eliminating compensation for reactive 
power within the standard power factor range.\78\
---------------------------------------------------------------------------

    \76\ PJM Initial Comments at 1-3.
    \77\ MISO Initial Comments at 2.
    \78\ Id.
---------------------------------------------------------------------------

    33. MISO Transmission Owners support the need for reform, arguing 
that the current framework for reactive power compensation is neither 
just nor reasonable given that it results in transmission customers 
being required to pay for a service that generators already are 
required to provide and that costs them little or nothing to 
provide.\79\
---------------------------------------------------------------------------

    \79\ MISO Transmission Owners Initial Comments at 5.
---------------------------------------------------------------------------

    34. Many commenters agree that the current reactive power framework 
does not result in commensurate reliability benefits.\80\ First, many 
commenters agree that compensation for providing reactive power within 
the standard power factor range is unnecessary to maintain 
reliability.\81\ Second, many commenters also agree with the NOPR that 
under the current framework, compensation for reactive power within the 
standard power factor range is not tied to whether there is a 
particular geographic need for reactive power.\82\ TAPS, for example, 
contends that the existing approach to reactive power capability 
compensation does not adequately consider a generator's actual 
contribution to reliability or lack thereof and thus requires consumers 
to pay excessive charges for reactive power that may not be needed or 
is in the wrong location.\83\ Similarly, Joint Customers contend that 
``[t]his incentive structure to provide payment based on reactive 
capability results in the building of unnecessary capabilities in 
locations it is not or may not be needed and does not allocate the 
costs associated with reactive capability in a manner that is at least 
roughly commensurate with the benefits received.'' \84\
---------------------------------------------------------------------------

    \80\ Joint Customers Initial Comments at 12; MISO Transmission 
Owners Initial Comments at 19; MISO Transmission Owners Reply 
Comments at 3-5; New England Consumer Advocates Initial Comments at 
4-6; TAPS Initial Comments at 3-5.
    \81\ See, e.g., PJM IMM Initial Comments at 11-12 (``There will 
be no adverse reliability impacts in PJM (or other similarly 
situated regions) for the same reasons that . . . there have been no 
observable impacts in regions that do not compensate generating 
facilities for the supply of reactive power with the standard power 
factor range. As in the case of CAISO, SPP and MISO, new and 
existing generating facilities in PJM are required to provide 
reactive power within the standard power factor range as a condition 
of obtaining and maintaining interconnection service. There is no 
evidence that expanding the just and reasonable approach to 
compensation already in place in CAISO, SPP and MISO to PJM will 
have any adverse impact on reliability in PJM.''); MISO Transmission 
Owners Initial Comments at 13 (``When the MISO Transmission Owners 
proposed to eliminate compensation for producing reactive power 
within the deadband, the most common protest from generators was 
that it would impact the reliability of the grid. However, such 
claims are not supported by evidence and distract from the 
underlying fact that generators are obligated to provide reactive 
power within the deadband whether or not they are compensated for 
it.'' (citations omitted)).
    \82\ See, e.g., Ohio FEA Initial Comments at 5 (``As a result, 
in areas like PJM, generators currently receive compensation 
regardless of proximity to locations on the transmission system 
where there is an actual need for additional reactive power.''); 
Joint Customers Initial Comments at 17 (``Further, the failure to 
account for transmission system needs or grid geography in the 
current regime in regions like PJM undermine the reliability 
benefits of generators that interconnect to the system with reactive 
capabilities, whether meeting or exceeding their baseline 
interconnection requirements. The current paradigm has resulted in 
the development and deployment of generator based reactive 
capability that is ill-suited to the needs of the transmission 
system, and specifically that is well in excess of needs. 
Eliminating the incentive to overbuild reactive capability will not 
negatively impact reliability.'').
    \83\ TAPS Initial Comments at 4-5.
    \84\ Joint Customers Initial Comments at 12 (citing Ill. Com. 
Comm'n. v. FERC, 576 F.3d 470, 477 (7th Cir. 2009)).
---------------------------------------------------------------------------

    35. Further, like PJM, many commenters agree with the NOPR 
regarding the administrative burden for all parties to determine 
Schedule 2 rates.\85\ Joint Consumer Advocates argue that ``the 
existing compensation framework for generators that supply reactive 
power has led to unjust and unreasonable rates'' and note that ``[d]ue 
to limited resources, the [Joint Consumer Advocates] have generally 
been unable to participate in the numerous reactive proceedings and 
assist the Commission with the review and scrutiny of generator 
submissions. But such review and scrutiny are essential given the sheer 
number of filings and the absence of standardized accounting for the 
costs claimed in them by generators.'' \86\
---------------------------------------------------------------------------

    \85\ AEP Initial Comments at 4-6; Joint Customers Initial 
Comments at 1-5; PJM IMM Initial Comments at 9.
    \86\ Joint Consumer Advocates Initial Comments at 7. See also 
PJM IMM Initial Comments at 9 (``Applying cost of service rules is 
costly, burdensome and unnecessary. Most reactive proceedings for 
generators in PJM are resolved in black box settlements that require 
substantial time and resources from all parties, fail to address the 
merits of the cost support provided, result from an unsupported 
split the difference approach, and that produce a wide, unreasonable 
and discriminatory disparity among the rates per paid per MW-year 
for the same service.''); Joint Customers Initial Comments at 7 
(``As well documented in comments to the NOI and described in the 
NOPR, the current individualized consideration of reactive filings 
purporting to apply the AEP [M]ethodology places a heavy burden on 
customers, Transmission Providers, and the Commission while 
resulting in customer charges with dubious connection to any clear 
benefits to the customers paying those charges. This combination 
created an intolerable condition necessitating Commission action to 
reform the compensation structure.'').
---------------------------------------------------------------------------

    36. AEP states that it supports the Commission's proposal to 
prospectively terminate reactive power compensation to generators for 
maintaining the ability to produce reactive power within the standard 
power factor range because it ``will more equitably balance the 
interests of customers and generators, ensure that reactive power will 
continue to be provided as a requirement of interconnection, and 
significantly decrease the administrative burdens associated with 
individualized, opaque, and inconsistent cost-of-service reactive power 
rate proceedings.'' \87\
---------------------------------------------------------------------------

    \87\ AEP Initial Comments at 4-5.
---------------------------------------------------------------------------

    37. Similarly, New England Consumer Advocates state that 
``[t]ransmission rates have been rising in recent years and costs are 
only expected to increase in the near term to accommodate projected 
future transmission system

[[Page 93418]]

needs. At this time of increasingly onerous retail energy costs, 
particularly in New England, the Commission must ensure that 
transmission providers are passing on to consumers only those costs 
which are just and reasonable, and for which consumers receive 
commensurate benefit.'' \88\
---------------------------------------------------------------------------

    \88\ New England Consumer Advocates Initial Comments at 3-4. See 
also PJM IMM Initial Comments at 5 (``Most recent cases settled 
prior to issuance of the NOPR have settled for costs well in excess 
of the average cost and well in excess of the ARR offset amount. The 
issue is growing in significance.''); MISO Transmission Owners 
Initial Comments at 5 (``The Commission's preliminary findings that 
led to the changes proposed in the NOPR are accurate. The current 
framework for reactive power compensation can result in transmission 
customers being required to pay for a service that generators 
already are required to provide and that costs them little or 
nothing to provide. Therefore, the current framework allows for 
compensation that is neither just nor reasonable.'').
---------------------------------------------------------------------------

    38. The PJM IMM argues that opposing comments come largely from 
generation owners opposed to the removal of subsidies that have 
benefited them, even though such subsidies are primarily the result of 
the ``nonsensical, wasteful and unworkable'' attempts to allocate a 
portion of costs recoverable in markets to a guaranteed reactive 
payment based on an outdated and arbitrary cost-of-service approach 
referred to as the AEP Methodology.\89\
---------------------------------------------------------------------------

    \89\ PJM IMM Reply Comments at 1-2.
---------------------------------------------------------------------------

    39. Other commenters opposed the NOPR, arguing that existing 
reactive power rates remain just and reasonable.\90\ Reactive Service 
Providers argue that ``changes to cost allocation'' following Order No. 
888 (i.e., functional unbundling) do not warrant a change to reactive 
power compensation.\91\ Reactive Service Providers contend that 
reactive power supply being unaffected in regions where transmission 
providers no longer pay for reactive power is not evidence that 
reactive power compensation is unjust and unreasonable,\92\ that the 
``comparability'' policy cannot be used as a basis to end 
compensation,\93\ that administrative burden is not a basis to find 
that compensation is unjust and unreasonable,\94\ and that inconsistent 
rate treatment across generating facilities does not mean that 
compensation is unjust and unreasonable.\95\
---------------------------------------------------------------------------

    \90\ Clean Energy Associations Initial Comments at 2-3; 
Indicated Trade Associations Reply Comments at 16; NEI Initial 
Comments at 1.
    \91\ Reactive Service Providers Initial Comments at 4, 29-34.
    \92\ Id. at 41-43.
    \93\ Id. at 43-48.
    \94\ Id. at 48-52.
    \95\ Id. at 53-54.
---------------------------------------------------------------------------

    40. Reactive Service Providers argue that the Commission should 
study individual generating facilities to determine if reactive power 
is still needed.\96\ Reactive Service Providers also argue that the 
Commission must ensure that compensation for providing reactive power 
outside the standard power factor range is adequate.\97\
---------------------------------------------------------------------------

    \96\ Id. at 76-77.
    \97\ Id. at 77.
---------------------------------------------------------------------------

    41. Indicated Trade Associations assert that the NOPR would grant 
transmission providers unlawfully preferential treatment, creating a 
preference for higher cost transmission solutions, and suggest that the 
Commission should withdraw the NOPR proposal and refocus its efforts on 
improving the methodologies used to determine reactive power rates.\98\ 
Further, Indicated Trade Associations assert that concerns raised about 
the AEP Methodology being burdensome and a lack of refund protections 
for customers do not justify eliminating reactive power compensation 
within the standard power factor range altogether.\99\
---------------------------------------------------------------------------

    \98\ Indicated Trade Associations Reply Comments at 16-17.
    \99\ Id. at 8-9.
---------------------------------------------------------------------------

    42. ISO-NE argues that ISO-NE's Schedule 2 VAR compensation program 
should not be disturbed.\100\ ISO-NE asserts that its treatment of 
reactive power is distinct from its energy and capacity markets.\101\ 
ISO-NE further states that its VAR service is not based on cost-of-
service and is different from the standard AEP Methodology but is 
instead based on a resource's capability to provide reactive power. 
ISO-NE explains that its VAR service compensates resources at a uniform 
payment rate (i.e., a single rate for reactive power provided within 
and outside of the standard power factor range) and is not resource-
intensive to calculate.\102\ ISO-NE adds that total VAR payments 
amounted to 0.25% of the total energy, ancillary services, and capacity 
markets combined (or approximately 18-20 million dollars) for the same 
given period. NEPOOL argues that one of the reasons Schedule 2 has 
worked well for New England is that it provides a simple fixed rate for 
the main component of VAR service, which pays part of the costs of a 
reactive power resource's capability to provide VAR service to the 
transmission system when needed. NEPOOL explains that this same fixed 
rate is provided to all qualified resources without further analysis 
of, or dispute about, resource-specific costs.\103\ NEPOOL argues that 
one of the reasons Schedule 2 has worked well for New England is that 
it provides a simple fixed rate for the main component of VAR service, 
which pays part of the costs of a reactive power resource's capability 
to provide VAR service to the transmission system when needed, without 
further analysis of, or dispute about, resource-specific costs.\104\
---------------------------------------------------------------------------

    \100\ ISO-NE Initial Comments at 1-2, NESCOE Reply Comments at 
2; NEPGA Reply Comments at 6-7; NEPOOL Reply Comments at 6-7. ISO-NE 
explains that its VAR service consists of four components: (1) the 
fixed Capacity Cost (CC) rate, under which Qualified Reactive 
Resources are eligible to receive VAR payments for their measurable 
capability to provide VAR service to the New England Transmission 
System; (2) the variable Lost Opportunity Cost, which compensates 
for the value of a resource's lost opportunity in the wholesale 
energy market in situations where a resource that would otherwise be 
economically dispatched is directed by the ISO to reduce real power 
output to provide more reactive power; (3) the variable Cost of 
Energy Consumed, which compensates for the cost of energy consumed 
by the resource solely to provide reactive power; and (4) the Cost 
of Energy Produced, which compensates for the difference between the 
locational marginal price and a resource's offer price, if the 
locational marginal price is lower than the offer price, for each 
hour the resource provides reactive power. ISO-NE Initial Comments 
at 3-4. ISO-NE notes that the components other than the CC component 
may occur infrequently and are far less than the CC rate component. 
ISO-NE Initial Comments at 4 n.5.
    \101\ ISO-NE Initial Comments at 1-2.
    \102\ Id. at 3-5, 14. The ISO New England Ancillary Service 
Schedule 2 Business Procedure is available on the ISO-NE website: 
https://www.iso-ne.com/static-assets/documents/rules_proceds/operating/gen_var_cap/schedule_2_var_business_procedure.pdf. 
Operating Procedures include primarily: ISO New England Operating 
Procedure No. 12--Voltage and Reactive Control, available at https://www.iso-ne.com/static-assets/documents/rules_proceds/operating/isone/op12/op12_rto_final.pdf; and ISO New England Operating 
Procedures No. 23--Generating Resource Auditing, available at http://www.iso-ne.com/static-assets/documents/rules_proceds/operating/isone/op23/op23_rto_final.pdf.
    \103\ NEPOOL Reply Comments at 6-7.
    \104\ Id. at 6-7.
---------------------------------------------------------------------------

    43. NYISO challenges the Commission's preliminary conclusion that 
compensating generating facilities for providing reactive power within 
the standard power factor range has resulted in unjust and unreasonable 
transmission rates and urges the Commission to allow NYISO to maintain 
its current reactive power compensation program.\105\ NYISO states that 
it supports the NOPR's objective to avoid administratively burdensome 
processes and procedures to determine individualized cost-of-service 
reactive power rates for generation facilities. NYISO adds that NYISO's 
existing reactive power and Voltage Support Service (VSS) compensation 
structure, which uses a flat dollars per MVAr-year structure, is just 
and reasonable.\106\ NYISO maintains that this structure aligns costs 
directly with services provided, ensures reliability benefits

[[Page 93419]]

commensurate with expenses,\107\ provides market-like incentives, and 
encourages resources to offer reactive power cost-effectively by 
rewarding increased capability and maintaining necessary 
equipment,\108\ which reduces the need for complex, individualized 
cost-based payments and integrates reactive power support efficiently 
into the broader market framework, promoting economic efficiency and 
reliability.\109\ NYISO contends that a uniform implementation approach 
is not suitable given the varying regional needs and existing effective 
compensation frameworks.\110\
---------------------------------------------------------------------------

    \105\ NYISO Initial Comments at 1.
    \106\ Id. at 2; IPPNY Reply Comments at 1-2.
    \107\ NYISO Initial Comments at 2-5.
    \108\ Id. at 7-8.
    \109\ Id. at 7-8.
    \110\ Id. at 14.
---------------------------------------------------------------------------

    44. Indicated Trade Associations, Generation Developers, NEI and 
PSEG raise constitutional claims with respect to the NOPR proposal. 
Indicated Trade Associations argue that the proposed rule violates the 
Takings Clause of the Fifth Amendment to the United States 
Constitution.\111\ They argue that public utilities have the statutory 
and constitutional right to compensation for the services they provide, 
including reactive power, and the Commission cannot deprive public 
utilities of just and reasonable compensation simply by characterizing 
the provision of reactive power as a condition of interconnection, 
particularly where it was the Commission that established this 
condition. Similarly, Generation Developers argue that forcing 
generators to supply an identifiable portion of the reactive power they 
generate, without any compensation, as a condition of interconnection 
to the transmission system, falls squarely within the kinds of takings 
prohibited by the Takings Clause.\112\ PSEG states that, in accordance 
with the FPA and the Supreme Court precedent in Hope, the Commission 
has a duty to protect public utilities from rates that are 
confiscatory.\113\ PSEG argues that the proposed rule, not unlike the 
Commission denying transmission owners the opportunity to earn a return 
on network upgrades in Ameren, essentially compels generators to 
provide a service without the ability to recover their fixed associated 
costs, which is unjust and unreasonable, unduly discriminatory, and 
confiscatory and in violation of the FPA and judicial precedent.\114\
---------------------------------------------------------------------------

    \111\ Indicated Trade Associations Initial Comments at 22-24 
(citing Smyth v. Ames, 169 U.S. 466, 546 (1898)).
    \112\ Generation Developers Initial Comments at 26 (citing Horne 
v. Dept. of Ag., 576 U.S. 350, 359, 367 (2015); FPC v. Hope Nat. Gas 
Co., 320 U.S. 591, 603 (1944); Bluefield Waterworks & Improvement 
Co. v. Pub. Serv. Comm'n, 262 U.S. 679, 690 (1923)).
    \113\ PSEG Initial Comments at 18-19 (citing Bluefield 
Waterworks & Improvement Co. v. Pub. Serv. Comm'n, 262 U.S. at 690; 
Duquesne Light Co. v. Barash, 488 U.S. 299, 308 (1989) (``If the 
rate does not afford sufficient compensation, the State has taken 
the use of the utility property without paying just 
compensation.'')).
    \114\ PSEG Initial Comments at 19-20 (citing Ameren Servs. Co. 
v. FERC, 880 F.3d 571, 581-82 (D.C. Cir. 2018)).
---------------------------------------------------------------------------

    45. MISO Transmission Owners disagree with commenters arguing that 
the NOPR proposal constitutes an unconstitutional taking.\115\ They 
contend that the commenters' claim that the Order No. 2003 requirement 
for generators to provide reactive power within the standard power 
factor range violates the Takings Clause of the U.S. Constitution is a 
collateral attack on Order No. 2003. They contend that, while some 
contractual rights are considered ``property'' within the meaning of 
the Takings Clause of the Fifth Amendment, the contractual relationship 
entered into when a generator interconnects with a transmission system 
does not implicate a taking that must be compensated.\116\ MISO 
Transmission Owners state that the Commission determined in Order No. 
2003 that generators ``should not be compensated for reactive power 
when operating [their] Generating Facilit[ies] within the established 
power factor range, since [they are] only meeting [their] obligation.'' 
Moreover, they state that ``as `legislation [that] readjust[s] rights 
and burdens is not unlawful solely because it upsets otherwise settled 
expectations,' the Commission's action implementing the changes in the 
NOPR would not constitute an unconstitutional taking just because the 
changes would `impact the benefits and burdens' of the agreement 
entered into by generators interconnecting with the Transmission 
System.'' \117\ They contend that ``[g]enerators have only a unilateral 
expectation of payment for the provision of reactive power and not a 
legitimate claim of entitlement to compensation.'' \118\
---------------------------------------------------------------------------

    \115\ MISO Transmission Owners Reply Comments at 12 n.33.
    \116\ Id. (citing Transmission Plan. & Cost Allocation by 
Transmission Owning & Operating Pub. Utils., Order No. 1000-A, 77 FR 
32184 (May 31, 2012), 139 FERC ] 61,132, at P 368 (citing Connolly 
v. Pension Guar. Corp., 475 U.S. 211, 224 (1986)), order on reh'g 
and clarification, Order No. 1000-B, 77 FR 64890 (Oct. 24, 2012), 
141 FERC ] 61,044 (2012), aff'd sub nom. S.C. Pub. Serv. Auth. v. 
FERC, 762 F.3d 41 (D.C. Cir. 2014)).
    \117\ Id. (citing Order No. 1000-A, 139 FERC ] 61,132 at P 369 
(citing Connolly v. Pension Guar. Corp., 475 U.S. at 223)).
    \118\ Id. (citing Bd. of Regents of State Coll. v. Roth, 408 
U.S. 564, 577 (1972) (``To have a property interest in a benefit, a 
person clearly must have more than an abstract need or desire for 
it. He must have more than a unilateral expectation of it. He must, 
instead, have a legitimate claim of entitlement to it.''); Del. 
Riverkeeper Network v. FERC, 895 F.3d 102, 108-09 (D.C. Cir. 2018) 
(citing Town of Castle Rock, Colo. v. Gonzales, 545 U.S. 748, 756 
(2005)).
---------------------------------------------------------------------------

    46. Eagle Creek and the NHA both assert that existing reactive 
service rates enjoy the Mobile-Sierra presumption. The NHA asserts 
that, in order for the Commission to disallow the existing reactive 
service rates, each rate on-file must be demonstrated by the Commission 
to ``seriously harm the public interest.'' \119\ Eagle Creek and the 
NHA both note that, given the highly localized nature of reactive 
power, it is unclear how the Commission could assess these individual 
contracts without conducting a case-by-case analysis through individual 
section 206 proceedings.\120\ Eagle Creek and the NHA claim that absent 
such proceedings, generating facilities would be deprived of their 
current just and reasonable compensation and previous investments made 
by generating facilities would be compromised.\121\ The NHA and Eagle 
Creek assert that, by relying on a generic rulemaking to effectively 
cancel all reactive power rates, the NOPR is an ``act of convenience'' 
and ``an indirect attempt to strip the value of existing rates without 
facing the legal challenge that the Mobile-Sierra doctrine presents.'' 
\122\
---------------------------------------------------------------------------

    \119\ Eagle Creek Initial Comments at 4; NHA Initial Comments at 
8-9.
    \120\ Eagle Creek Initial Comments at 4; NHA Initial Comments at 
8.
    \121\ Eagle Creek Initial Comments at 4-5; NHA Initial Comments 
at 8.
    \122\ NHA Initial Comments at 8-9; see also Eagle Creek Initial 
Comments at 4-5.
---------------------------------------------------------------------------

    47. Joint Customers disagree with Eagle Creek and the NHA's 
argument that the Commission cannot eliminate compensation within the 
standard power factor range without initiating individual rate 
proceedings.\123\ Joint Customers explain that precedent cases, such as 
PNM and MISO, demonstrate that changes to the underlying Schedule 2 
tariff provisions effectively eliminate compensation for third-party 
generators without separate rate challenges.\124\
---------------------------------------------------------------------------

    \123\ Joint Customers Reply Comments at 13-14.
    \124\ Id. (``There is no validity to the argument that 
individual rate challenges must be pursued by the Commission or 
complainants, and it is well established that a change to the 
underlying Schedule 2 in a transmission provider's tariff, as 
proposed by the Commission in the NOPR, will contemporaneously end 
compensation to third-party generators with no further action 
required.''); see also PJM IMM Initial Comments at 9 (``The NOPR 
does not propose a new Commission policy. Rather, it extends and 
makes uniform policies that have long applied in jurisdictional 
markets.'').
---------------------------------------------------------------------------

    48. Reactive Service Providers and Generation Developers argue that 
the NOPR violates the D.C. Circuit's holding

[[Page 93420]]

in Atlantic City.\125\ They assert that by using the Commission's 
authority under section 206 of the FPA to eliminate reactive power 
compensation, the NOPR essentially strips generating facilities of 
their ability to make filings under section 205 of the FPA to recover 
the costs of the reactive power service that they provide.\126\
---------------------------------------------------------------------------

    \125\ Atl. City Elec. Co. v. FERC, 295 F.3d 1 (D.C. Cir. 2002) 
(Atl. City).
    \126\ Generation Developers Initial Comments at 31-32 (citing 
Atl. City, 295 F.3d at 9-10); Reactive Service Providers Initial 
Comments at 54.
---------------------------------------------------------------------------

2. Commission Determination
    49. Based on our review of the record, we find that there is 
substantial evidence to support the conclusion that transmission rates 
are unjust and unreasonable to the extent they include charges 
associated with the provision of reactive power within the standard 
power factor range. We therefore adopt the preliminary findings in the 
NOPR concerning the need for reform \127\ and, pursuant to section 206 
of the FPA, conclude that certain revisions to Schedule 2 of the pro 
forma OATT, pro forma LGIA, and pro forma SGIA are necessary to ensure 
rates that are just, reasonable, and not unduly discriminatory or 
preferential.
---------------------------------------------------------------------------

    \127\ NOPR, 186 FERC ] 61,203 at PP 24-27, 28.
---------------------------------------------------------------------------

    50. We agree with commenters that the current framework allows for 
transmission rates that are ``neither just nor reasonable'' and ``can 
result in transmission customers being required to pay for a service 
that generators already are required to provide and that costs them 
little or nothing to provide.'' \128\ As reflected in the record, 
absent reform, transmission customers would be required to continue to 
pay charges associated with generating facilities' provision of 
reactive power within the standard power factor range even though such 
charges are without a sufficient economic basis and do not result in 
transmission customers receiving commensurate reliability benefits. The 
need for reform is particularly acute given that ``transmission rates 
have been rising in recent years and costs are only expected to 
increase in the near term to accommodate projected future transmission 
system needs.'' \129\
---------------------------------------------------------------------------

    \128\ See, e.g., MISO Transmission Owners Initial Comments at 5; 
Joint Customers Initial Comments at 6-16, PJM IMM Initial Comments 
at 1-4, 6-9; PJM IMM Reply Comments at 2-3, 6-7; Ameren Initial 
Comments 2-3; AEP Initial Comments at 4-5; Ohio FEA Initial Comments 
at 5-6; TAPs Initial Comments at 1, 3-8; PGE Initial Comments at 3-
4.
    \129\ See, e.g., New England Consumer Advocates Initial Comments 
at 3 & n.7 (citing, e.g., Massachusetts Attorney General Maura 
Healey, Initial Comments, Docket No. RM21-17-000, at 28 (filed Aug. 
17, 2022); see also New England States Committee on Electricity, New 
England States' Vision for a Clean, Affordable, and Reliable 21st 
Century Regional Electric Grid (2020), https://nescoe.com/resource-center/vision-stmt-oct2020/).
---------------------------------------------------------------------------

    51. As described below, most commenters agree or do not dispute 
that real and reactive power are provided as joint products,\130\ with 
joint costs.\131\ Similarly, most commenters agree or do not dispute 
that, under their interconnection agreements and in accordance with 
good utility practice, generating facilities have a long-standing 
obligation to provide reactive power within the standard power factor 
range in order to interconnect reliably to the transmission system. 
Most commenters agree or do not dispute that generating facilities must 
produce reactive power within the standard power factor range to allow 
the generating facilities' real power to reliably flow to load.\132\ As 
such, we disagree with some commenters who challenge the Commission's 
preliminary finding that providing reactive power within the standard 
power factor range has no or de minimis costs \133\ and find, as 
discussed in greater detail below, that there is substantial evidence 
to conclude that in satisfying such obligations generating facilities 
incur no incremental investment, or fixed costs, and at most de minimis 
variable costs over and above those needed to provide real power.\134\ 
This is because no additional equipment is required to provide reactive 
power; rather the same equipment that is needed to produce, and is used 
to produce, real power also provides reactive power functions, at no 
additional capital cost. Variable costs, if any, are limited to the 
fuel costs (in synchronous facilities) or the cost of foregone direct 
current power (in non-synchronous facilities) necessary to provide the 
reactive power and to reliably inject real power into the transmission 
system.\135\ For example, in Panda Stonewall the annual revenue 
requirement of $2,051,894 included just $10,018 of identified variable 
costs.\136\ In light of this evidence, we find that charging 
transmission customers for the provision of reactive power within the 
standard power factor range results in unjust and unreasonable 
rates.\137\
---------------------------------------------------------------------------

    \130\ See PSC VSMPO-Avisma Corp. v. U.S., 688 F.3d 751, 756 
(Fed. Cir. 2012) (``[J]oint products [are] two dissimilar end 
products that are produced from a single production process.'') 
(citing Robert A. Anthony & James S. Reece, Accounting Principles 
442 (5th ed. 1983).
    \131\ A joint cost is an expenditure that benefits more than one 
product, and for which it is not possible to separate the 
contribution to each product. Permian Basin, 390 U.S. at 761 n.25 
(citing Accounting Tools, The Supply and Price of Natural Gas 25 
(1962)) (``Joint costs `are incurred when products cannot be 
separately produced.'''); https://www.accountingtools.com/articles/joint-cost.
    \132\ See SPP, 119 FERC ] 61,199, at P 28 (``[I]f a generator is 
to sell (and be able to deliver) its power to a customer, reactive 
power is essential to the transaction. Thus, it is hardly surprising 
that the Commission has concluded, . . . , that the provision of 
sufficient reactive power is an obligation of a generator 
interconnected to the system, and that, . . . , a generator is not 
entitled to separate compensation for providing reactive power 
within its deadband.'').
    \133\ See, e.g., Eagle Creek Initial Comments at 3-4; Indicated 
Trade Associations Initial Comments at 7; ACORE Initial Comments at 
2; Elevate Renewables Initial Comments at 9-12; Generation 
Developers Initial Comments at 13; Glenvale Initial Comments at 9-
10; Indicated Reactive Power Suppliers Initial Comments at 2, 9-10; 
Indicated Trade Associations Initial Comments at 2, 6; Middle River 
Power Initial Comments at 2-3; NEI Initial Comments at 4-5, 8-9; NHA 
Initial Comments at 2, 4-5.
    \134\ Although the Commission found in the MISO Rehearing Order, 
and earlier, that ``Reactive Service requires little or no 
incremental investment'' see, e.g., MISO Rehearing Order, 184 FERC ] 
61,022 at P 29 (emphasis added), we note that beyond vague 
assertions that incremental fixed costs are incurred, no evidence of 
investment or fixed costs specific to providing reactive power was 
provided in response to requests for such costs in the MISO 
Rehearing Order, the NOI, or the NOPR. As such, the Commission 
concludes below that there are no incremental or fixed costs to 
provide reactive power beyond those to provide real power.
    \135\ Under certain transmission system conditions, the 
generating facility may operate at a power factor of 1.0, which 
represents zero incremental variable costs and thus zero total costs 
of providing reactive power. A generating facility operating at any 
reactive power level (i.e., a power factor other than 1.0) will 
incur some amount of incremental fuel cost, but the Commission 
generally considers these costs de minimis within the standard power 
factor range. See, e.g., APS, 94 FERC at 61,080 (``We note that 
operating a generating unit within the proposed [standard power 
factor range] does not affect the generation output of a unit.''); 
Commission Staff Report, Principles for Efficient and Reliable 
Reactive Power Supply and Consumption, Docket No. AD05-1-000, at 96 
(2005 Staff Report) (2005) (``The marginal cost of providing 
reactive power from within a generator's capability curve (D-curve) 
is near zero.'').
    \136\ Panda Stonewall, LLC, 176 FERC ] 61,072, at P 6 n.9 
(2021). We note that the heating losses component reflects the 
incremental fuel cost of providing reactive power. See, e.g., Panda 
Stonewall, LLC, 174 FERC ] 61,266, at P 155 (2021) (``The AEP 
methodology already has a means in place to provide compensation for 
the small amount of additional fuel used during the production of 
reactive power, which is a heating loss calculation based on the MW-
hours of actual reactive power production and the usage charges for 
fuel.'').
    \137\ See Belmont Mun. Light Dep't v. FERC, 38 F.4th at 173, 
179, 186 (2022) (finding that the Commission's approval of a portion 
of ISO-NE's Inventoried Energy Program ``was not reasoned 
decisionmaking'' and ``thwart[ed] the [Commission's] own 
`longstanding policy that rate incentives must be prospective and 
that there must be a connection between the incentive and the 
conduct meant to be induced''' because it would compensate market 
participants for conduct they already engage in as part of standard 
business operations).
---------------------------------------------------------------------------

    52. ISO-NE and NYISO oppose the NOPR and seek flexibility to 
preserve their existing reactive power compensation regimes. We deny 
their requests. ISO-NE and NYISO principally argue that their flat-rate

[[Page 93421]]

compensation regimes are transparent, not administratively burdensome, 
designed to prevent double-recovery, and able to procure significant 
reliability benefits at ``reasonable'' or ``low'' cost. However, these 
arguments ignore the preliminary findings of the NOPR, namely that 
generating facilities providing reactive power within the standard 
power factor range are only meeting their obligations under their 
interconnection agreements in accordance with good utility practice, 
and in doing so incur no or at most a de minimis increase in variable 
costs beyond the cost of providing real power. As explained in this 
final determination and decades of prior Commission precedent, in order 
to reliably interconnect to the transmission system and deliver real 
power to customers, generating facilities must be capable of 
maintaining voltage levels for injecting real power into the 
transmission system.\138\ As relevant here, these findings apply 
equally to flat-rate compensation regimes like ISO-NE's and NYISO's, as 
well as the compensation regimes of PJM and certain non-RTO regions. 
Thus, the ISO-NE and NYISO regimes, while easier to implement 
administratively, also impose unreasonable and unsupportable costs on 
transmission customers.
---------------------------------------------------------------------------

    \138\ See, e.g., BPA, 120 FERC ] 61,211 at P 21 (``The purpose 
for which generation assets are built (including reactive power 
capability to maintain voltage levels for generation entering the 
grid) is to make sales of real power.''); SPP, 119 FERC ] 61,199 at 
P 28 (``[I]f a generator is to sell (and be able to deliver) its 
power to a customer, reactive power is essential to the 
transaction''). See also PJM Interconnection, L.L.C., 145 FERC ] 
61,280, at P 17 (2013) (approving tariff revisions that require 
interconnection customers to pay for upgraded telecommunication 
equipment (phasor measurement units) as the ``data is integral to 
improved communication and to the reliability of the system and, as 
such, benefits both the system and the generators'').
---------------------------------------------------------------------------

    53. ISO-NE's and NYISO's claims regarding transparency, 
administrative burden, and preventing double recovery all presuppose 
that compensation is due, and thus that a compensation method is 
needed. But, where compensation is found to be unjust and unreasonable, 
as we find here, such a compensation methodology will necessarily 
result in unjust and unreasonable rates and thus is not permissible.
    54. Additionally, we agree with New England Consumer 
Advocates,\139\ who argue that any payment for reactive power 
capability within the standard power factor range must yield some 
roughly commensurate incremental benefit above and beyond that which 
would accrue absent payment.\140\ As discussed below,\141\ ISO-NE and 
NYISO allude generally to reliability benefits from reactive power 
compensation over the full range of a resource's capability to provide 
reactive power--that is, both within and outside of the standard power 
factor range--rather than the narrower focus of this final 
determination. And, in both ISO-NE (except for certain circumstances as 
explained by ISO-NE) \142\ and NYISO, as everywhere, generating 
facilities must provide reactive power within the standard power factor 
range to make sales of real power regardless of whether they receive 
separate compensation.\143\
---------------------------------------------------------------------------

    \139\ New England Consumer Advocates Initial Comments at 5 (``To 
the extent . . . benefits are achieved by compliance with a 
generating facility's interconnection agreement and/or as `good 
utility practice,' [New England Consumer Advocates] agree[] with the 
Commission that ratepayers should not be paying separately for the 
costs to produce a joint reactive power product.'').
    \140\ See, e.g., Ill. Com. Comm'n. v. FERC, 576 F.3d at 476 
(``[The Commission] is not authorized to approve a pricing scheme 
that requires a group of utilities to pay for facilities from which 
its members derive no benefits, or benefits that are trivial in 
relation to the costs sought to be shifted to its members.'').
    \141\ See infra II.D.2.
    \142\ ISO-NE notes that not all generating facilities are 
obligated to provide reactive power within the standard power factor 
range. ISO-NE Initial Comments at 9. Specifically, ISO-NE notes that 
several older generating facilities in New England have 
interconnection agreements that pre-date the obligation to provide 
reactive power within the standard power factor range. Id. ISO-NE 
states that these resources choose to participate in the Schedule 2 
VAR compensation program, incurring an obligation to maintain and 
provide VAR service in New England. Id. Any generating facilities 
with individualized bilateral contracts providing for reactive power 
compensation within the standard power factor range may pursue 
claims that they have an independent contractual right to reactive 
power compensation within the standard power factor range, but we 
express no opinion here as to whether any such generator would be 
entitled to such compensation.
    \143\ See, e.g., BPA, 120 FERC ] 61,211 at P 21 (``The purpose 
for which generation assets are built (including reactive power 
capability to maintain voltage levels for generation entering the 
grid) is to make sales of real power.''); SPP Order on Rehearing, 
121 FERC ] 61,196 at P 15 (``As we have previously explained, 
reactive power is required for an interconnecting generator to 
deliver its power and reactive power produced within the [standard 
power factor range] and is, therefore, generally not compensable.'' 
(emphasis added)).
---------------------------------------------------------------------------

    55. We do not dispute that the provision of reactive power within 
the standard power factor range provides reliability benefits, only 
that there are no incremental fixed costs other than joint costs that 
are also associated with the production of real power and at most de 
minimis incremental variable costs that would warrant a separate 
compensation mechanism. We also find that there is substantial evidence 
to conclude that, under the current reactive power compensation 
framework, reactive power-related transmission charges are not tied to 
geographic need and result in excess reactive power capability that is 
not required for interconnection and does not provide transmission 
customers with commensurate reliability benefits.\144\ Accordingly, we 
deny ISO-NE's and NYISO's respective requests for flexibility to 
include in transmission rates charges associated with the provision of 
reactive power within the standard power factor range.
---------------------------------------------------------------------------

    \144\ Joint Customers Initial Comments at 12 (``This incentive 
structure to provide payment based on reactive capability results in 
the building of unnecessary capabilities in locations it is not or 
may not be needed and does not allocate the costs associated with 
reactive capability in a manner that is at least roughly 
commensurate with the benefits received.'' (citing Ill. Com. Comm'n. 
v. FERC, 576 F.3d at 477)); MISO Transmission Owners Initial 
Comments at 8 (``Moreover, the capability-based compensation 
methodology currently permitted by the Commission . . . allows and 
even incentivizes generators to add as much reactive equipment as 
they desire, i.e., to gold plate a facility's reactive capability, 
regardless of whether that reactive support is needed at that point 
on the grid.''); TAPS Initial Comments at 4-5 (``Nor can customers 
be assured they are receiving reliability benefits commensurate to 
the reactive power compensation paid under the current approach. The 
existing approach to reactive power capability compensation does not 
adequately consider a generator's actual contribution to 
reliability, or lack thereof. For example, that approach does not 
account for relevant factors such as location, the need for reactive 
power, deliverability to where reactive power may be needed, 
possible degradation in generator performance or other changes over 
time. The result is that the current approach to reactive power 
compensation requires consumers to pay excessive charges for 
reactive power that may not be needed or is in the wrong location.'' 
(citations omitted)). See Belmont Mun. Light Dep't v. FERC, 38 F.4th 
at 187-90 (finding that the Commission's acceptance of ISO-NE's 
Inventoried Energy Program ``was not reasoned decision making'' 
because record evidence indicated that certain types of generating 
facilities ``would not change their behavior in response to 
payments.'').
---------------------------------------------------------------------------

    56. We reject commenters' arguments that the final determination 
violates the Fifth and Fourteenth Amendments of the U.S. Constitution. 
The final determination's elimination of reactive power payments for 
the provision of reactive power within the standard power factor range 
is not confiscatory and would not amount to a taking of property. As 
noted above, generating facilities incur no or at most a de minimis 
increase in variable costs beyond the cost of providing real power and 
have the opportunity to seek recovery of any costs they do incur. In 
addition, commenters' arguments that the obligation to provide reactive 
power within the standard power factor range is unconstitutional are 
impermissible

[[Page 93422]]

collateral attacks on our prior determinations and unpersuasive.\145\
---------------------------------------------------------------------------

    \145\ MISO Transmission Owners Reply Comments at 12 n.33 
(``Moreover, as `legislation [that] readjust[s] rights and burdens 
is not unlawful solely because it upsets otherwise settled 
expectations,' the Commission's action implementing the changes in 
the NOPR would not constitute an unconstitutional taking just 
because the changes would `impact the benefits and burdens' of the 
agreement entered into by generators interconnecting with the 
Transmission System. Generators have only a unilateral expectation 
of payment for the provision of reactive power and not a legitimate 
claim of entitlement to compensation.'') (citations omitted). See 
also MISO, 182 FERC ] 61,033 at P 62; MISO Rehearing Order, 184 FERC 
] 61,022 at PP 52-54 (``Vistra has not persuaded us that it has a 
property interest in continued Reactive Service compensation under 
the Tariff, nor that MISO TOs' proposal would unconstitutionally 
deprive generators of that putative property interest under the 
Takings Clause or Due Process Clause of the Fifth Amendment.'').
---------------------------------------------------------------------------

    57. The Commission has repeatedly held that ``the provision of 
sufficient reactive power is an obligation of a generator 
interconnected to the system, and . . . as a general matter, a 
generator is not entitled to separate compensation for providing 
reactive power within its deadband.'' \146\ A generating facility must 
in fact produce reactive power to move real power from the generating 
facility to the transmission system to deliver its real power to 
customers, while maintaining system reliability.\147\ It is only by 
virtue of comparability that generating facilities were previously 
entitled to reactive power compensation.\148\
---------------------------------------------------------------------------

    \146\ See, e.g., MISO, 182 FERC ] 61,033 at P 62 (citing SPP, 
119 FERC ] 61,199 at P 28); MISO Rehearing Order, 184 FERC ] 61,022 
at P 52 (finding that protesters constitutional claims were 
impermissible collateral attacks on the Commission's prior 
determinations given ``[t]he obligation to provide Reactive Service 
exists independent of, and was not altered by, MISO TOs' proposal: 
it was stated in Order No. 2003 and applies to individual generators 
through their GIAs.'').
    \147\ See, e.g., MISO Rehearing Order, 184 FERC ] 61,022 at P 53 
(``[T]he function of generators' Reactive Service is to ensure that 
generators' real power can enter the transmission grid while 
maintaining system reliability.''); SPP, 119 FERC ] 61,199 at P 28 
(explaining that if a generator is to sell (and be able to deliver) 
its power to a customer, reactive power is essential to the 
transaction).
    \148\ NOPR, 186 FERC ] 61,203 at P 4 (citing Order No. 2003-A, 
106 FERC ] 61,220 at P 416). See also MISO Rehearing Order, 184 FERC 
] 61,022 at P 26 (``On rehearing, we continue to reject, as 
collateral attacks on that longstanding policy, arguments that 
stand-alone compensation for Reactive Service is generically 
required--for example, to ensure that generators can recover their 
costs for Reactive Service capability. These arguments would negate 
the conclusions in Order Nos. 2003 and 2003-A that such compensation 
should not be provided, except as required by the comparability 
standard.'').
---------------------------------------------------------------------------

    58. Simply stated, the obligation to provide reactive power within 
the standard power range exists independent of, and was not altered by, 
the NOPR's proposal: it was stated in Order No. 2003 and applies to 
individual generating facilities through their interconnection service 
agreements. This final determination changes only the allowance for 
transmission providers to provide compensation at their discretion to 
their own and affiliated generating facilities, and then to third-party 
generating facilities under the comparability standard for the 
provision of reactive power within the standard power factor range. 
This change eliminates a stream of revenue under Schedule 2, but we 
find here that such elimination is just and reasonable given that the 
record demonstrates that generating facilities incur no or at most a de 
minimis increase in variable costs beyond the cost of providing real 
power.\149\ Moreover, to the extent that generating facilities have any 
costs associated with providing reactive power within the standard 
power factor range, generating facilities may seek to recover these 
costs through energy or capacity sales.\150\ Accordingly, and 
consistent with precedent, commenters have not persuaded us that they 
have a property interest in continued compensation under Schedule 2, or 
that this final determination would unconstitutionally deprive 
generating facilities of that putative property interest under the 
Takings Clause or Due Process Clause of the Fifth Amendment.
---------------------------------------------------------------------------

    \149\ See MISO Transmission Owners Initial Comments at 6 (``The 
MISO Transmission Owners' experience supports the Commission's 
preliminary finding that providing reactive power within the 
standard power factor range requires little or no cost to 
generators. Generators incur little or no costs beyond what is 
already needed to produce real power because the same equipment used 
to produce real power includes reactive power functions.'' 
(citations omitted)); PJM IMM Reply Comments at 3 (``Neither the 
[Indicated Trade Associations] nor any other opposing commenter, nor 
any of the precedent relied upon by opposing commenters, identify 
any additional costs or more than de minimis costs incurred by 
generators in order to provide reactive capability.'').
    \150\ MISO Rehearing Order, 184 FERC ] 61,022 at P 53; BPA, 120 
FERC ] 61,211 at P 20; BPA Rehearing Order, 125 FERC ] 61,273 at P 
11; see also NOPR, 186 FERC ] 61,203 at P 24; see also MISO 
Transmission Owners Initial Comments at 6; PJM IMM Reply Comments at 
3.
---------------------------------------------------------------------------

    59. We disagree with Eagle Creek's and the NHA's assertions that 
most reactive service rate schedules on file enjoy the Mobile-Sierra 
presumption and as a result, in order for the Commission to disallow 
the existing reactive service rates, each rate on file must be 
demonstrated by the Commission to ``seriously harm the public 
interest.'' \151\ While the Mobile-Sierra doctrine establishes a more 
rigorous application of the just and reasonable standard when the 
Commission proposes to change an individual contract negotiated at 
arms-length,\152\ reactive power-related transmission rates are not 
individually negotiated contract rates, but rather transmission owner 
tariff-based rates of general applicability reflected in the 
transmission owner's Schedule 2.\153\ The fact that the Commission has 
accepted generating facilities' rate filings setting forth reactive 
power rates covering the provision of reactive power within the 
standard power factor range establishes only the rate at which the 
generating facility is obligated to sell reactive power to a 
transmission provider; that rate does not establish an obligation for 
the transmission provider to purchase such reactive power. Those 
individual rates establish only the charges that transmission providers 
will include in transmission rates if, and only if the transmission 
providers' OATTs require the payment of compensation for reactive 
power.\154\
---------------------------------------------------------------------------

    \151\ Eagle Creek Initial Comments at 4; NHA Initial Comments at 
8-9.
    \152\ The Commission has explained that the Mobile-Sierra 
``public interest'' presumption applies to an agreement only if the 
agreement has certain characteristics that justify the presumption. 
In ruling on whether the characteristics necessary to justify a 
Mobile-Sierra presumption are present, the Commission must determine 
whether the agreement at issue embodies either: (1) individualized 
rates, terms, or conditions that apply only to sophisticated parties 
who negotiated them freely at arm's length; or (2) rates, terms, or 
conditions that are generally applicable or that arose in 
circumstances that do not provide the assurance of justness and 
reasonableness associated with arm's-length negotiations. Unlike the 
latter, the former constitute contract rates, terms, or conditions 
that necessarily qualify for a Mobile-Sierra presumption. E.g., 
Linden VFT, LLC v. Pub. Serv. Elec. & Gas Co., 161 FERC ] 61,264, at 
P 27 (2017); PJM Interconnection, L.L.C., 161 FERC ] 61,262, at P 18 
(2017); Sw. Power Pool, Inc., 144 FERC ] 61,059, at P 127 (2013), 
order on reh'g and compliance, 149 FERC ] 61,048, at P 94 (2014) 
(citations omitted); Midwest Indep. Transmission Sys. Operator, 
Inc., 142 FERC ] 61,215, at P 177 (2013), order on reh'g and 
compliance, 147 FERC ] 61,127, at P 108 (2014) (citations omitted).
    \153\ See, e.g., Wabash Valley Power Ass'n, Inc. v. FERC, 45 
F.4th 115, 120 (D.C. Cir. 2022) (``[A] contract requiring the 
purchaser to pay a utility's `going rate' on file with FERC, without 
more, does not eliminate review under the ordinary just-and-
reasonable standard.'').
    \154\ Cf. Whitetail Solar 3, LLC, Opinion No. 583, 184 FERC ] 
61,145, at P 45 (2023) (affirming the Presiding Judge's finding that 
Schedule 2, not Applicants' interconnection agreements, determines 
whether generating facilities are eligible for compensation, 
therefore, ``there is no reason for the Commission to amend the 
[interconnection agreements] of all existing distribution-connected 
generation, as Applicants suggest would be necessary in light of the 
Initial Decision.''); see also MISO, 182 FERC ] 61,033 at P 63 (``As 
described above, MISO [Transmission Owners] have the unilateral 
right to change Schedule 2 through an FPA section 205 filing and by 
doing so, they automatically change the rate payable for Reactive 
Service that generators contractually agreed to in section 9.6.3 of 
their GIAs.'' (citations omitted)).
---------------------------------------------------------------------------

    60. As discussed above, the final determination requires revisions 
to

[[Page 93423]]

Schedule 2 to prohibit the inclusion in transmission rates of charges 
associated with reactive power in the standard power factor range and, 
for consistency, also requires conforming revisions to the pro forma 
LGIA and pro forma SGIA to remove language related to the comparability 
standard. Since Schedule 2 is a tariff-based rate, that rate can be 
modified under the ordinary just and reasonable standard.\155\ However, 
this final determination does not affect the ability of generating 
facilities to pursue claims that they have an independent contractual 
right to reactive power compensation within the standard power factor 
range, based on a bilateral agreement with the relevant transmission 
owner.\156\
---------------------------------------------------------------------------

    \155\ See Joint Customers Reply Comments at 14 (``There is no 
validity to the argument that individual rate challenges must be 
pursued by the Commission or complainants, and it is well 
established that a change to the underlying Schedule 2 in a 
transmission provider's tariff, as proposed by the Commission in the 
NOPR, will contemporaneously end compensation to third-party 
generators with no further action required.'').
    \156\ For example, ISO-NE and NEPOOL claim that certain 
agreements exist that do not obligate certain non-generator 
resources to provide reactive power either within or outside of the 
standard power factor range and are still entitled to compensation. 
See supra n.142; ISO-NE Initial Comments at 9; NEPOOL Reply Comments 
at 9. We express no opinion here as to whether any such generating 
facility, such as those situations noted by ISO-NE and NEPOOL, would 
be entitled to such compensation under such agreements.
---------------------------------------------------------------------------

    61. We also find that Generation Developers' and Reactive Service 
Providers' \157\ assertions that the final determination would violate 
Atlantic City by depriving generating facilities of their FPA section 
205 filing rights lack merit. The Commission is not depriving 
generating facilities of their filing rights. The commenters' arguments 
fundamentally misunderstand generating facility compensation under the 
Commission's pro forma OATT and interconnection agreements. The final 
determination is not adjusting, overturning, or reducing to zero any 
generating facility's rate for reactive power within the standard power 
factor range. The final determination addresses only the justness and 
reasonableness of transmission rates chargeable to transmission 
customers under Schedule 2 and by extension, payable to the 
transmission providers' own generating facilities or affiliated 
generating facilities and third-party generating facilities under the 
comparability standard, consistent with their interconnection 
agreements, not any independent right of generating facilities to 
establish a rate under FPA section 205. While this does result in 
generating facilities, affiliated and non-affiliated, no longer being 
entitled to compensation for the provision of reactive power within the 
standard power factor range as a function of comparability, the 
Commission has found that such an outcome does not undermine the 
generating facilities' FPA section 205 filing rights.\158\
---------------------------------------------------------------------------

    \157\ Generation Developers Initial Comments at 31-32 (citing 
Atl. City, 295 F.3d at 9-10); Reactive Service Providers Initial 
Comments at 54.
    \158\ Cf. MISO, 182 FERC ] 61,033 at P 65 (``[W]e find that MISO 
TOs' proposal does not restrict independent power producers' FPA 
section 205 rights to file a rate for reactive power; instead, the 
proposal addresses only the rates chargeable to transmission 
customers under Schedule 2 and by extension, payable to resources 
consistent with their GIAs, not any independent right of generators 
to seek compensation under FPA section 205.''); Opinion No. 583, 184 
FERC ] 61,145 at P 45 (``Applicants' [interconnection agreements] do 
not establish an independent right outside the context of Schedule 2 
to reactive power compensation for merely meeting the technical 
requirements required for interconnection.''); see also Joint 
Customers Initial Comments at 14 (``Without comparability as an 
issue, it is existing Commission policy that it is inappropriate to 
compensate within the standard power factor range. The Order No. 
2003 determination that compensation should not be paid for reactive 
service meeting interconnection requirements remains well 
supported.'' (emphasis in original)). We also note that individual 
generating facility reactive power tariffs themselves do not 
establish a payment obligation, only the rate that a buyer will pay 
if it takes service. A tariff rate is an offer to sell service at 
the stated rate; it does not establish an obligation on any party to 
pay that rate. See 18 CFR 35.2(c)(1) (``The term tariff as used 
herein shall mean a statement of (1) electric service as defined in 
paragraph (a) of this section offered on a generally applicable 
basis) (emphasis added)); Sw. Power Pool, Inc., 149 FERC ] 61,048 at 
P 106 (``The Commission's use of the term `tariff rates' as 
generally applicable rates is justified by the definition of the 
term `tariff' set forth in the Commission's regulations under the 
FPA, which state, in part, that a tariff is `a statement of . . . 
electric service . . . offered on a generally applicable basis.' 
''). In order to constitute an obligation, a party must sign a pro 
forma or other service agreement. See Cal. Indep. Sys. Operator 
Corp., 100 FERC ] 61,234, at 61,834 (2002) (``[T]he Commission moved 
to a paradigm of standard agreements in which terms and conditions 
that are included in a public utility's OATT and bilateral contracts 
are replaced by pro forma service agreements''). Therefore, if 
transmission providers revise their Schedule 2's to eliminate 
compensation for the provision of reactive power within the standard 
power factor range, no party will exist to pay the generating 
facility's filed tariff rate. See, e.g., PNM, 178 FERC ] 61,088 
(finding that the transmission owner is not required to pay for 
reactive power, but not instituting section 206 proceedings to 
cancel reactive power tariffs).
---------------------------------------------------------------------------

B. Cost of Producing Reactive Power

    62. The NOPR preliminarily found that providing compensation for 
the provision of reactive power within the standard power factor range 
is unjust and unreasonable. The Commission relied on three key points 
to support this preliminary finding.
    63. First, the NOPR relied on the Commission's prior findings that, 
for both synchronous and non-synchronous generating facilities, because 
all equipment used to produce reactive power is also necessary to 
produce and deliver real power to the transmission system, there are no 
incremental fixed costs associated with the provision of reactive power 
within the standard power factor range.\159\ The NOPR also explained 
that the Commission has repeatedly found, that ``[v]ariable costs of 
generating reactive power are de minimis'' and ``generally limited to 
changes in losses within the generating facility which are part of the 
overall efficiency of the resource and, as such, are typically captured 
in the resource offers.'' \160\ Thus, by providing reactive power 
within the standard power factor range, both synchronous and 
nonsynchronous facilities incur no additional fixed costs and at most 
de minimis variable costs beyond which they already incur to provide 
real power.\161\
---------------------------------------------------------------------------

    \159\ NOPR, 186 FERC ] 61,203 at PP 29-31 (``[S]ynchronous and 
non-synchronous resources provide real and reactive power as joint 
products, with joint costs.'').
    \160\ Id. P 31.
    \161\ Id. PP 8, 28.
---------------------------------------------------------------------------

    64. Second, the NOPR relied on the fact that all generating 
facilities must provide reactive power within the standard power factor 
range as an obligation of good utility practice and to meet the 
obligations under their interconnection agreements.\162\

[[Page 93424]]

Additionally, the NOPR emphasized that ``reactive support by generating 
facilities operating within the standard power factor range ensures 
that when these facilities inject real power--the product that their 
facilities exist to create and sell--onto the grid under normal 
conditions, they can do their part to maintain adequate voltages and to 
not threaten reliability.'' \163\ In other words, a generating facility 
must produce reactive power within the standard power factor range in 
order to generate and safely inject real power into the transmission 
system and comply with reliability requirements. As such, providing 
reactive power within the standard power factor range can be regarded 
as a joint product with providing real power, with joint costs.
---------------------------------------------------------------------------

    \162\ Id. P 33 (citing MISO, 182 FERC ] 61,033 at P 53 
(``Bearing in mind that the provision of reactive power within the 
standard power factor range is, in the first instance, an obligation 
of the interconnecting generator and good utility practice, MISO 
[transmission owners] do not have an obligation to continue to 
compensate an independent generator for reactive power within the 
standard power factor range when its own or affiliated generators 
are no longer being compensated.'' (citations omitted)); id. P 54 
(``We find unpersuasive protesters' arguments that it is not just 
and reasonable to eliminate compensation for Reactive Service within 
the standard power factor range because generators have come to rely 
on the compensation for Reactive Service in order for the generators 
to remain financially viable. The Commission has previously rejected 
such arguments, finding that all newly interconnecting generators 
are required to provide reactive power within the power factor range 
of 0.95 leading to 0.95 lagging as a condition of interconnection.'' 
(citations omitted)); PNM, 178 FERC ] 61,088 at PP 29, 33 (rejecting 
generating facility's arguments that it is ``just and reasonable for 
it to be compensated for investments made'' to provide reactive 
support consistent with interconnection requirements even though 
transmission provider elected to no longer pay its own or affiliate 
generators for such reactive power); Nev. Power Co., 179 FERC ] 
61,103 at P 22 (finding that the generating facility's argument, 
``that it is not just and reasonable to eliminate their compensation 
for reactive service because they made investments in their 
generating facilities based on the expectation that they would 
receive compensation for reactive service,'' unpersuasive because 
all newly interconnecting generators are required to provide 
reactive power within the standard power factor range as a condition 
of interconnection); Order No. 2003, 104 FERC ] 61,103 at P 546.
    \163\ NOPR, 186 FERC ] 61,203 at P 13 (citing MISO Rehearing 
Order, 184 FERC ] 61,022 at P 23).
---------------------------------------------------------------------------

    65. Third, the NOPR noted that in regions where generating 
facilities recover their costs by participating in organized 
competitive wholesale markets, providing separate compensation for the 
provision of reactive power within the standard power factor range 
risks overcompensation and market distortions in ways that did not 
exist prior to the existence of organized markets.\164\ The NOPR 
explained that the AEP Methodology was created in an era of vertically 
integrated utilities, when most utilities filed FERC Form No. 1s, used 
the Uniform System of Accounts (USofA) to classify their costs, and 
recovered those costs through cost-based rates.\165\ Today, however, 
most generating facilities recover their costs through competitive 
markets in both RTO/ISO and non-RTO/ISO regions, so the imprecision of 
the AEP Methodology, the NOPR explained, becomes more significant 
because it can lead to arbitrary increases in the utility's total 
recovery when cost-based reactive power payments are added to any 
market recoveries.\166\ The NOPR added that this is especially true 
when markets fail to account for separate, cost-based reactive power 
revenues by using standard rate making techniques.\167\
---------------------------------------------------------------------------

    \164\ Id. at P 39.
    \165\ Id.
    \166\ Id.
    \167\ Id. at 39 & nn.100-02. The Commission noted that, in PJM 
for example, while the capacity market rules currently account for 
reactive power payments to resources by assuming average reactive 
power compensation of $2,546 per MW-year, reactive power revenue 
requirements in PJM range from roughly $1,000 per MW-year to $13,000 
per MW-year. The Commission noted that this wide range of actual 
compensation, which is both above and below the assumed reactive 
power compensation in the capacity market rules, can lead to market 
distortions.
---------------------------------------------------------------------------

1. Comments
    66. Many commenters support the NOPR's finding that transmission 
charges for generating facilities' provision of reactive power within 
the standard power factor range are unjust and unreasonable.\168\ 
Likewise, many commenters support the NOPR's preliminary finding that 
generating facilities already provide reactive power within the 
standard power factor range at no cost or de minimis cost.\169\ Ameren 
and MISO Transmission Owners agree with the NOPR that providing 
reactive power within the standard power factor range requires little 
or no cost to generators because the same equipment used to produce 
real power includes reactive power functions.\170\ In support, MISO 
Transmission Owners point to MISO and the MISO Rehearing Order wherein 
the Commission also concluded that, based on that record, reactive 
power service within the standard power factor range required little or 
no incremental investment. MISO Transmission Owners add that, as the 
Commission found in the MISO Rehearing Order, even newer wind turbines 
use inverters that allow generating facilities to produce and control 
reactive power without costly additional equipment.\171\ MISO 
Transmission Owners also state that generating facility equipment 
typically comes with reactive power capabilities that not only meet the 
standard range requirements (i.e., 0.95 leading and 0.95 lagging) but 
exceed them (e.g., 0.80-0.90).\172\ MISO Transmission Owners argue that 
since generating facilities bear no or at most de minimis incremental 
costs to provide reactive power within the standard power factor range, 
one must consider what the actual purpose is of compensating generating 
facilities for such service.\173\
---------------------------------------------------------------------------

    \168\ AEP; Ameren; Joint Consumer Advocates; Joint Customers; 
MISO Transmission Owners; New England Consumer Advocates; Ohio FEA; 
PGE; PJM; the PJM IMM; the Transmission Access Policy Study Group.
    \169\ See Ameren Initial Comments at 3; Joint Customers Reply 
Comments at 11-13; MISO Transmission Owners Initial Comments at 5-7; 
New England Consumer Advocates Initial Comments at 4-6; PJM IMM 
Initial Comments at 4.
    \170\ Ameren Initial Comments at 3 (citing BPA, 120 FERC ] 
61,211 at P 21 (``Evidence from numerous reactive power rate filings 
demonstrates newly interconnecting resources have the capability to 
provide reactive power, some well in excess of the required 0.95 
leading to 0.95 lagging. It is also well-documented that the same 
equipment used to produce real power includes reactive power 
functions and thus there is little, if any, incremental cost 
associated with providing reactive power.'')); MISO Transmission 
Owners Initial Comments at 5-7 (citing MISO, 182 FERC ] 61,033 at P 
55; MISO Rehearing Order, 184 FERC ] 61,022 at PP 25 n.76, 29-30, 
34, 41-42 (``[T]he record establishes, that Reactive Service 
requires little or no incremental investment.'')); MISO Transmission 
Owners Reply Comments at 9; see also Ohio FEA Initial Comments at 3.
    \171\ MISO Transmission Owners Initial Comments at 7 & n.18 
(citing MISO Rehearing Order, 184 FERC ] 61,022 at P 30 n.98 
(``[O]lder wind generators could not produce and control reactive 
power without the use of costly equipment [ ] `because they did not 
use inverters like other non-synchronous generators' but modern 
turbines now use inverters and newer wind generators now can.'')).
    \172\ Id. at 7.
    \173\ Id. at 9.
---------------------------------------------------------------------------

    67. Joint Customers state that attempts to undermine the NOPR, such 
as challenging the assertion that incremental costs of providing 
reactive service within the standard power factor range are de minimis, 
are meritless.\174\ Joint Customers argue that the costs incurred by 
generators to meet interconnection requirements are necessary for safe 
and reliable grid operations and that arguments against the de minimis 
designation often misrepresent the incremental costs involved in 
meeting interconnection requirements versus providing additional 
reactive capability.\175\ Joint Customers note that claims of excessive 
costs for non-synchronous generators to comply with power factor 
requirements are collateral attacks on prior Commission orders, 
particularly Order No. 827.\176\
---------------------------------------------------------------------------

    \174\ Joint Customers Reply Comments at 11-13.
    \175\ Id.
    \176\ Id. at 13 (citing Order No. 827, 155 FERC ] 61,277 at P 11 
(``Prior to Order No. 827, non-synchronous generators were exempt 
from complying with power factor requirements. The entire point of 
Order No. 827 was to find that technological advancements had 
reduced the cost of compliance such that non-synchronous generators 
no longer needed the exemption. The order also explicitly maintained 
the compensation scheme for reactive power, with all that means for 
the elimination of compensation if not justified by 
comparability.'').
---------------------------------------------------------------------------

    68. The PJM IMM, MISO Transmission Owners, and several other 
commenters assert that providing reactive power within the standard 
power factor range is an obligation of interconnection and consistent 
with good utility practice.\177\ The PJM IMM asserts that the 
Commission has a long

[[Page 93425]]

standing policy that ``treats the provision of reactive power inside 
the [standard power factor range] as an obligation of good utility 
practice rather than as a compensable service and permits compensation 
inside the [standard power factor range] only as a function of 
comparability.'' \178\
---------------------------------------------------------------------------

    \177\ PJM IMM Initial Comments at 6-9 (citing PJM, OATT, 
Attachment O, Sec. Sec.  4.7.1.1.1., 4.7.1.2. (3.0.0)); Joint 
Consumer Advocates Initial Comments at 6-7; MISO Transmission Owners 
Reply Comments at 4; TAPS Initial Comments at 6; Ohio FEA Initial 
Comments at 5; Joint Customers Initial Comments at 14-16; PGE 
Initial Comments at 4 (citing MISO, 182 FERC ] 61,033 at P 53 
(noting that in the acceptance of the MISO Transmission Owners 
application to end compensation within the standard power 
application, the Commission reiterated its policy ``that the 
provision of reactive power within the standard power factor range 
is, in the first instance, an obligation of the interconnecting 
generator and good utility practice.'')).
    \178\ PJM IMM Initial Comments at 6-8 (citing NOPR, 186 FERC ] 
61,203 at P 5 (citing BPA Rehearing Order, 125 FERC ] 61,273 at P 
18)); see also MISO Transmission Owners Initial Comments at 10-12.
---------------------------------------------------------------------------

    69. The PJM IMM states that reactive power is not the only design 
obligation the generation interconnection customers assume.\179\ The 
PJM IMM notes, for example, that generating facilities are required to 
provide primary frequency response capability, but the PJM OATT does 
not provide an out of market payment for such service because it is 
treated as an obligation assumed by generation interconnection 
customers for receiving interconnection service.\180\ MISO Transmission 
Owners also point out that the SEIA, the national trade association for 
the U.S. solar industry, has acknowledged that reactive power 
compensation does not affect a generator's operations and that 
provision of reactive power within the standard power factor range is 
required regardless of compensation.\181\
---------------------------------------------------------------------------

    \179\ PJM IMM Initial Comments at 8.
    \180\ Id. (citing PJM, OATT, Attachment O Sec.  4.7.2. (3.0.0)).
    \181\ MISO Transmission Owners Initial Comments at 9 & n.24 
(citing SEIA, Reactive Power Compensation: How to Unlock New Revenue 
Opportunities for Solar and Storage Projects, Solar Energy 
Industries Association 4 (July 29, 2020), https://old.seia.org/sites/default/files/2023-01/Speaker%20Q&A%20-%20Reactive%20Power%20Compensation%20Webinar.pdf (also attached as 
Exhibit I) (``Filing for and receiving reactive revenues has no 
impact on the generator's operating profile. The ISO/RTOs have a 
right to dispatch generators to provide reactive service as needed 
to maintain reliability.'')). The MISO Transmission Owners also add 
that ``[a]t the same time MISO was experiencing a dramatic increase 
in the amounts transmission customers paid for reactive power 
service prior to its elimination of compensation for reactive power 
service within the deadband, SEIA highlighted that MISO was one of 
the two `most lucrative' regions for reactive power compensation, 
where generators received millions of dollars in compensation for 
having the capability to produce reactive power within the deadband, 
a capability that was already a condition of obtaining 
interconnection.'' Id. at 9-11.
---------------------------------------------------------------------------

    70. Additionally, MISO Transmission Owners agree that the 
Commission's line of precedent since Order No. 2003 has required 
interconnecting generators to be able to provide reactive power within 
the standard power factor range without compensation, with few 
exceptions.\182\ MISO Transmission Owners argue that generators are 
incented by their own reliability requirements to install the equipment 
that will help keep their projects on-line and delivering real power, 
and that ``skimping'' on equipment that can provide reactive power 
across a range of operating conditions is not in generators' best 
operational interests or consistent with good utility practice.\183\ 
MISO Transmission Owners state that generating facilities are also 
required by the North American Electric Reliability Corporation (NERC) 
reliability standards to operate in automatic voltage control mode and 
maintain a voltage set point provided by the transmission 
provider.\184\
---------------------------------------------------------------------------

    \182\ Id. at 10-11 (citing Order No. 2003, 104 FERC ] 61,103 at 
P 546; Order No. 2003-A, 106 FERC ] 61,220 at PP 410, 416; Order No. 
827, 155 FERC ] 61,277 at P 59).
    \183\ Id. at 11 & n.29 (citing MISO Rehearing Order, 184 FERC ] 
61,022 at P 35 n.116 (``[G]enerators have incentives to install 
equipment to ensure that their generation remains online and 
delivering real power.'')).
    \184\ Id. at 11-12 (citing Reliability Standard VAR-002-3--
Generator Operation for Maintaining Network Voltage Schedules), at 2 
(Aug. 1, 2014), http://www.nerc.com/pa/Stand/Reliability%20Standards/VAR-002-3.pdf (``R2 . . . Generator Operator 
shall maintain the generator voltage or Reactive Power schedule 
(within each generating Facility's capabilities).'').
---------------------------------------------------------------------------

    71. MISO Transmission Owners and the PJM IMM agree with the NOPR's 
preliminary finding that the current reactive power compensation 
framework allows for undue compensation and potential market 
distortions, and they argue that the current compensation framework 
leads to ``black-box'' settlements that lack transparency and result in 
vastly disparate rates.\185\ The PJM IMM argues that separately 
compensating resources based on a judgment-based allocation of capital 
costs is not appropriate in the PJM markets.\186\ The PJM IMM argues 
that cost-of-service compensation for reactive power distorts markets 
and undermines competition.\187\ The PJM IMM asserts that the current 
rules create strong incentives for generating facilities to attempt to 
maximize the allocation of capital costs to reactive service in order 
to maximize guaranteed, nonmarket revenues.\188\ The PJM IMM claims 
that there is no reasonable basis for the disparity in the price to 
customers from different types of generators for the same service and 
that reactive power is a homogeneous product which should have the same 
price for all sellers. The PJM IMM notes that the most recent reactive 
power rate cases settled prior to issuance of the NOPR have resulted in 
costs well in excess of the reactive power revenue offset assumed in 
PJM's capacity market.\189\
---------------------------------------------------------------------------

    \185\ Id. at 8; PJM IMM Initial Comments at 4-6; see also Joint 
Customers Initial Comments at 4-6.
    \186\ PJM IMM Initial Comments at 3-4.
    \187\ Id. at 4-6.
    \188\ Id. at 4. The PJM IMM asserts that these revenues provide 
a nonmarket advantage to generating facilities that receive them, 
resulting in an arbitrary and nonmarket-based advantage (i.e., 
distortionary).
    \189\ Id. at 6 (explaining that in PJM's capacity market, ``the 
parameters that define the demand curve . . . are based on the costs 
of new entry of a reference generating unit, less net revenues from 
other PJM markets'' such as reactive power revenues). The PJM IMM 
explains that the level of these net revenues that are subtracted, 
or offset, from the costs of new entry, are based on a calculation 
from the PJM IMM of the average Schedule 2 payment for reactive done 
in 2008 and based on reactive rates from prior years. However, the 
PJM IMM states that ``[m]ost recent cases settled prior to issuance 
of the NOPR have settled for costs well in excess of the average 
cost and well in excess of the [] offset amount'' and that ``[t]he 
issue is growing in significance.'' Id. at 5.
---------------------------------------------------------------------------

    72. Many other commenters, in contrast, challenge the Commission's 
preliminary finding that providing reactive power within the standard 
power factor range has no or de minimis costs.\190\ The Indicated Trade 
Associations and Generation Developers emphasize that the costs of 
equipment and production associated with reactive power, particularly 
for renewable resources, are substantial and involve significant 
capital investments.\191\ Indicated Reactive Power Suppliers, NEPGA, 
and Reactive Service Providers assert that eliminating compensation for 
reactive power within the standard power factor range is unjust and 
unreasonable, given the substantial capital costs incurred by 
generators.\192\ They argue that the NOPR's proposal fails to account 
for these costs as well as for lost opportunities for real power 
generation and renewable energy credits.\193\ They assert that the

[[Page 93426]]

Commission's proposal is inconsistent with the FPA's purpose of 
ensuring just and reasonable returns on investment, particularly for 
inverter-based resources, which incur distinct incremental costs for 
reactive power provision.\194\
---------------------------------------------------------------------------

    \190\ Eagle Creek Initial Comments at 3-4; Indicated Trade 
Associations Initial Comments at 7; ACORE Initial Comments at 2; 
Elevate Renewables Initial Comments at 9-12; Generation Developers 
Initial Comments at 13; Glenvale Initial Comments at 9-10; Indicated 
Reactive Power Suppliers Initial Comments at 2, 9-10; Indicated 
Trade Associations Initial Comments at 2, 6; Middle River Power 
Initial Comments at 2-3; NEI Initial Comments at 4-5, 8-9; NHA 
Initial Comments at 2, 4-5. Indicated Trade Associations also assert 
that prior Commission orders cited by the NOPR to support the 
assertion that no costs or de minimis costs are incurred to provide 
reactive power within the standard power factor range do not provide 
evidence to support the conclusion. Indicated Trade Associations 
Initial Comments at 8 (citing BPA, 120 FERC ] 61,211 at P 21; BPA 
Rehearing Order, 125 FERC ] 61,273 at P 7 n.7; Ariz. Pub. Serv. Co., 
94 FERC ] 61,027, at 61,080 (2001) (APS)); Onward Energy Reply 
Comments at 2.
    \191\ Indicated Trade Associations Initial Comments at 10; 
Generation Developers Initial Comments at 13.
    \192\ Indicated Trade Associations Reply Comments at 6-7; NEPGA 
Reply Comments at 3 (citing Indicated Trade Association Initial 
Comments, Affidavit of Michael Borgatti, Docket No. RM22-2-000 at 9-
10 (filed May 28, 2024)); Reactive Service Providers Initial 
Comments at 37-40.
    \193\ See Indicated Trade Associations Initial Comments at 11-12 
(``[F]or renewable resources, having to back down generation in 
order to produce reactive power would also result in lost renewable 
electricity production tax credits, renewable energy certificates, 
and similar benefits''); Generation Developers Initial Comments at 
13.
    \194\ See Indicated Trade Associations Reply Comments at 7; 
Generation Developers Initial Comments at 13, 20-21.
---------------------------------------------------------------------------

    73. Some commenters argue that there is an insufficient legal 
foundation under section 206 of the FPA to demonstrate that all 
existing reactive power rates are unjust and unreasonable.\195\ 
Generation Developers assert that the fact that many generators are 
required to provide reactive power as a condition of receiving 
interconnection service and consistent with good utility practice does 
not provide a basis for concluding that the compensation received by 
generating facilities is unjust and unreasonable.\196\ Generation 
Developers assert that the Commission's reasoning improperly assumes 
that generating facilities investing in reactive power capability are 
not performing a service that benefits the transmission system, but is 
instead only needed to support their own deliveries.\197\ Generation 
Developers assert that the NOPR's categorical determination that the 
just and reasonable reactive power rate is zero, and thus all reactive 
rates that are not zero are unjust and unreasonable, fails to comply 
with the requirements of section 206 of the FPA.\198\ NEI adds that the 
Commission failed to meet its section 206 burden because the NOPR does 
not offer substantial evidence that reactive power costs are zero or 
minimal, cost allocation is inappropriate, or reducing reactive power 
compensation to zero would allow generators to recover their costs, 
plus a reasonable rate of return.\199\
---------------------------------------------------------------------------

    \195\ Generation Developers Initial Comments at 24-25; Middle 
River Power Initial Comments at 4; NEI Initial Comments at 7; PSEG 
Initial Comments at 2-3, 11-12; Reactive Service Providers Initial 
Comments at 7-54; NYISO Initial Comments at 1.
    \196\ Generation Developers Initial Comments at 25.
    \197\ Id.
    \198\ Id. at 31; PSEG Initial Comments at 12-13.
    \199\ NEI Initial Comments at 8.
---------------------------------------------------------------------------

    74. Generation Developers assert that the Commission ignores well-
documented evidence that certain types of generating facilities, namely 
inverter-based generating facilities, incur distinct, incremental costs 
associated with providing reactive power.\200\ Generation Developers 
assert that, when the Commission first required that generating 
facilities be capable of supplying reactive power within the standard 
power factor range in Order No. 2003, it explicitly exempted wind 
generating facilities from that requirement because most wind 
generators could not maintain the power factor range.\201\ Generation 
Developers state that the Commission also generally exempted wind 
generators from operating within the standard power factor range in 
Order No. 661 because ``for wind plants, reactive power capability is a 
significant added cost.'' \202\ Generation Developers assert that while 
the Commission removed this exemption in Order No. 827 \203\ after 
finding that technological advancements made it so the cost of reactive 
power no longer presented an obstacle to the development of wind 
generation, it ``notably did not find that there were no such costs or 
even de minimis costs associated with the provision of reactive power 
by wind resources.'' \204\ Instead, Generation Developers argue that 
the Commission removed this exemption based on its finding that 
imposing an obligation on non-synchronous generating facilities to 
provide reactive power within the standard power factor range was 
necessary to support transmission service and reliability.\205\ 
Generation Developers add that, even if costs have declined over the 
years, the Commission has not demonstrated that it would be just and 
reasonable to nullify the rate schedules of facilities that came online 
years before the technological advancements referenced in Order No. 827 
and had to make incremental investments to its facility to produce 
reactive power within the standard power factor range.\206\
---------------------------------------------------------------------------

    \200\ Generation Developers Initial Comments at 13-17.
    \201\ Id. at 13 (citing Order No. 2003, 104 FERC ] 61,103 
(noting that the Commission exempted wind generation from the 
requirement because ``wind generators for the most part cannot 
maintain the required power factor, simply because the necessary 
technology does not exist for wind generators'')).
    \202\ Id. at 13-14 (citing Order No. 661, 111 FERC ] 61,353 at P 
46; Order No. 661-A, 113 FERC ] 61,254). Generation Developers add 
that in Order No. 661, the Commission was presented with evidence 
that ``wind turbines cannot meet the proposed power factor standard 
over the full range of real power output, and that dynamic VAR 
control (DVAR) banks or static capacitors would have to be installed 
at an additional expense to meet the proposed power factor over the 
entire range.'' Generation Developers Initial Comments at 13 (citing 
Order No. 661-A, 113 FERC ] 61,254 at P 45 (emphasis added)). 
Generation Developers state that while Order No. 661 was limited to 
wind resources, the Commission extended the exemption to other non-
synchronous resources on a case-by-case basis. Generation Developers 
Initial Comments at 14 (citing Nev. Power Co., 130 FERC ] 61,147, at 
P 27 (2010)).
    \203\ Order No. 827, 155 FERC ] 61,277 at P 21.
    \204\ Generation Developers Initial Comments at 14.
    \205\ Id. (citing Order No. 827, 155 FERC ] 61,277 at P 4) 
(``The Commission instead made its decision to apply reactive power 
requirements to non-synchronous resources based on its `balancing 
the costs to newly-interconnecting non-synchronous generators of 
providing reactive power with the benefits to the transmission 
system of having another source of reactive power.' '').
    \206\ Id. at 17.
---------------------------------------------------------------------------

    75. Generation Developers argue that the 2014 Staff Report is the 
most recent and comprehensive evidence on the costs that non-
synchronous generating facilities incur in providing reactive 
power.\207\ Generation Developers assert that the NOPR does not provide 
any evidence to support that the costs of providing reactive power have 
changed since the Commission's observations in the 2014 Staff Report, 
but instead relies on a rehearing order in a proceeding concerning the 
MISO transmission owners' proposal to eliminate reactive power 
compensation within the standard power factor range for the proposition 
that non-synchronous generating facilities have no or de minimis 
costs.\208\ Generation Developers assert that the Commission's reliance 
on a statement from the MISO Rehearing Order, and the purported failure 
of parties in that proceeding to demonstrate costs of non-synchronous 
facilities, does not satisfy the Commission's burden in this case.\209\ 
Generation Developers add that the Commission's reliance on cases that 
pre-date the emergence of non-synchronous generating facilities for the 
proposition that all generating facilities have no or de minimis costs 
is misplaced.\210\ For example, Generation Developers contend that the 
Commission erred in citing Duke Energy Corporation's comments to the 
NOI in support of its finding that the inverter is the most critical 
equipment for the production of reactive power from non-synchronous 
resources.\211\
---------------------------------------------------------------------------

    \207\ Id. at 14-15 (citing 2014 Staff Report (``[M]ost dynamic 
reactive power, which is crucial to transmission system reliability, 
is provided by generators.''). Specifically, Generation Developers 
state that the 2014 Staff Report made the following findings: ``(1) 
the costs of reactive power equipment for wind generators range from 
3.18% to 4% of their capital costs; and (2) the costs of adding 
reactive power capability to solar photovoltaic generators range 
from 2% to 20% of a project's total costs, depending on project 
size.'' Id. at 15 (citing 2014 Staff Report app. 2 at 2-3).
    \208\ Id. at 15 (citing NOPR, 186 FERC ] 61,203 at P 29 n.70 
(citing MISO Rehearing Order, 184 FERC ] 61,022 at P 30)).
    \209\ Id.
    \210\ Id. at 16 (citing BPA, 120 FERC ] 61,211; METC Rehearing 
Order, 97 FERC at 61,852-53; APS, 94 FERC at 61,080).
    \211\ Id. at 16-17 n.52 (citing Duke Energy Corporation Initial 
Comments to the NOI at 4).
---------------------------------------------------------------------------

    76. PSEG similarly notes that the Commission has long used the AEP 
Methodology to allocate costs associated

[[Page 93427]]

with the provision of reactive power within the standard power factor 
range.\212\ PSEG witness Dr. Dumais observes that the AEP Methodology 
identifies four categories of equipment costs that are involved in the 
production of reactive power from synchronous generating 
facilities.\213\
---------------------------------------------------------------------------

    \212\ PSEG Initial Comments at 9.
    \213\ Id., Prepared Testimony of Dr. Paul A. Dumais at 11, 1:11.
---------------------------------------------------------------------------

    77. Indicated Trade Associations argue that the cases cited to in 
the NOPR to support the finding that there are no or de minimis costs 
associated with producing reactive power do not support the 
Commission's assertion.\214\ For example, Indicated Trade Associations 
assert that in BPA, the Commission summarily stated without evidence 
that ``the incremental cost of reactive power service within the 
deadband is minimal.'' \215\ Indicated Trade Associations assert that, 
on rehearing, however, when a party argued that `` `only the short-run 
marginal cost of producing the next increment of reactive power `can 
logically be described as minimal' because it excludes capability 
costs,' . . . the Commission sidestepped this issue, stating that `the 
issue of whether or not the cost is minimal is not relevant to whether 
the independent power producers are entitled to compensation.' '' \216\ 
Indicated Trade Associations argue that in APS, another order cited in 
the NOPR, ``the Commission simply noted that intervenors `have not 
demonstrated that [the proposed reactive power] requirement will limit 
the real power output of a generating unit and therefore will not 
result in any lost opportunity costs.' '' \217\
---------------------------------------------------------------------------

    \214\ Indicated Trade Association Initial Comments at 7-8.
    \215\ Id. at 8 (citing BPA, 120 FERC ] 61,211 at P 21).
    \216\ Id. (citing BPA Rehearing Order, 125 FERC ] 61,273 at 
n.7).
    \217\ Id. (quoting APS, 94 FERC at 61,080; citing NOPR, 186 FERC 
] 61,203 at P 29 n.70).
---------------------------------------------------------------------------

    78. Elevate and Glenvale further argue that the Commission's 
assumption that all resource classes, including energy storage 
resources, incur no or minimal costs is unsupported by evidence.\218\ 
Elevate asserts that recurring capital investments are required to 
address battery degradation caused by the provision of reactive 
power.\219\ Specifically, Elevate argues that while the level of 
degradation increases as the reactive power to real power ratio moves 
further from unity, even the provision of reactive power within the 
standard power factor range contributes to the degradation of the 
storage resource's capability.\220\ Elevate states that energy storage 
resources must make significant and recurring capital investments to 
address this degradation, which, in Elevate's experience, costs 
approximately one percent of the resource's original capital investment 
annually.\221\ Elevate asserts that the record is devoid of any 
evidence that energy storage resources incur no or de minimis costs to 
provide reactive power.\222\ Glenvale argues that there are marginal, 
operational, and replacement costs associated with providing reactive 
power within the power factor range for solar generating 
facilities.\223\ Specifically, Glenvale asserts that, at the capital 
investment stage, there are different inverter options that allow 
generating facilities to provide reactive service outside of generating 
hours (e.g., allowing solar generating facilities to provide reactive 
power at night) and that this incurs additional costs which would not 
be required if the generating facility were not set up to provide 
reactive power at night.\224\ Glenvale also asserts that inverters use 
electricity to provide reactive power, explaining that when a 
generating facility is synchronized, this presents as reduced 
generation, and when a generating facility is not synchronized, the 
generator must either use an alternate power source or it presents as 
negative generation (both of which Elevate states result in additional 
costs).\225\ Glenvale also states that the provision of reactive power 
can result in a reduced inverter service life.\226\ Glenvale notes that 
it is difficult to allocate these costs among each of the three service 
conditions--within the standard power factor range while synchronized, 
within the standard power factor range at night, and outside the 
standard power factor range at all times--but Glenvale asserts that at 
least some of the costs are attributable to providing reactive power 
within the standard power factor range.\227\ NEI asserts that there are 
real costs for nuclear generating facilities to provide and maintain 
reactive power capability, including: properly sized generators, 
maintenance associated with normal operations to preserve reactive 
power capability, and additional repairs that may be needed to address 
age-related degradation to equipment that might otherwise impair 
reactive power capability.\228\
---------------------------------------------------------------------------

    \218\ Elevate Initial Comments at 9-12; Elevate Reply Comments 
at 7-9; Glenvale Initial Comments at 9-10.
    \219\ Elevate Initial Comments at 9-12; Elevate Reply Comments 
at 7-9.
    \220\ Elevate Reply Comments at 8.
    \221\ Id.
    \222\ Elevate Initial Comments at 12.
    \223\ Glenvale Initial Comments at 9-10.
    \224\ Id. at 9.
    \225\ Id.
    \226\ Id. at 9-10 & n.29 (citing Ramanathan Thiagarajan, Adarsh 
Nagarajan, Peter Hacke, and Ingrid Repins, Effect of Reactive Power 
on Photovoltaic Inverter Reliability and Lifetimes (2019), https://www.nrel.gov/docs/fy19osti/73648.pdf.) (``One characterization in 
recent research is that providing reactive power within the standard 
power factor range reduces service life by one year, and that 
providing reactive power outside of the standard range reduces 
service life by a second year.'')).
    \227\ Id. at 10.
    \228\ NEI Initial Comments at 5.
---------------------------------------------------------------------------

    79. Relatedly, NEI explains that nuclear generators are most likely 
to be called upon to provide reactive power services and thus are the 
generators most likely to face accelerated degradation and damage to 
reactive power equipment.\229\
---------------------------------------------------------------------------

    \229\ Id. at 14-16.
---------------------------------------------------------------------------

    80. Reactive Service Providers argue that there is no evidence to 
support the claim that providing reactive power within the standard 
power factor range requires no incremental investment, and that even if 
the investment needed were de minimis, that would not be a reason to 
not provide compensation.\230\ Reactive Service Providers further 
contend that there is no evidence that the costs of providing reactive 
service have increased since the advent of RTOs and IPPs \231\ or that 
generating facilities are recovering their costs in regions where 
transmission providers do not provide compensation.\232\
---------------------------------------------------------------------------

    \230\ Reactive Service Providers Initial Comments at 37-40.
    \231\ Id. at 31-34.
    \232\ Id. at 37-41.
---------------------------------------------------------------------------

    81. Eagle Creek criticizes the Commission's determination that 
there are no or de minimis costs associated with the provision of 
reactive power in the standard power factor range as flawed based on 
its own tariff cases under the AEP Methodology and argues that 
eliminating compensation for reactive power would be arbitrary and 
capricious.\233\ ACORE, Indicated Reactive Power Suppliers, and Middle 
River Power similarly argue that their facilities have demonstrated 
just and reasonable compensation covering actual reactive power costs 
during settlement negotiations.\234\
---------------------------------------------------------------------------

    \233\ Eagle Creek Initial Comments at 3-4. Eagle Creek argues 
that, for each of its tariff cases, it submitted evidence 
documentation of the fixed and sunk costs that it invested to 
increase its reactive power generation. Id.
    \234\ ACORE Initial Comments at 2; Indicated Reactive Power 
Suppliers Initial Comments at 9; Middle River Power Initial Comments 
at 2-3 (noting that Middle River Power owns 19 fossil-fired 
generating facilities that recover approximately $4.5 million in 
annual reactive power revenues through their reactive service 
tariffs on file with Commission, which it argues were ``demonstrated 
in rigorous proceedings before the Commission'' to be just and 
reasonable compensation covering actual costs).

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

[[Page 93428]]

    82. Indicated Trade Associations assert that the Commission fails 
to reconcile the NOPR's insistence that there are no segregable costs 
associated with the provision of reactive power with its longstanding 
precedent of the AEP Methodology, where the Commission approved 
isolating costs of providing reactive power.\235\ NEI asserts that, 
rather than point to actual data that demonstrates generating facility 
costs for providing reactive power, the NOPR relies on the misplaced 
theory that ``because both synchronous and non-synchronous resources 
provide real and reactive power as joint products, with joint costs, . 
. . any allocation of joint fixed costs between real and reactive power 
could be viewed as inherently arbitrary.'' \236\ NEI and Generation 
Developers argue that the AEP Methodology compensates generators based 
on their actual costs and reactive capabilities, providing them with a 
just and reasonable opportunity to recover their investments in 
reactive service capability, and asserts that the Commission has 
repeatedly confirmed this cost allocation methodology and its 
underlying factual predicates in numerous proceedings.\237\ Generation 
Developers suggest that the Commission has allocated real and reactive 
power costs using the AEP Methodology for over two decades \238\ and 
has rejected arguments that the AEP Methodology results in an improper 
allocation of costs or is used merely as a matter of administrative 
convenience.\239\ The NHA asserts that the Commission correctly 
identifies real power and reactive power as jointly produced 
commodities, but it incorrectly attributes the cost of all generation 
equipment to be predominantly for the production of real power.\240\
---------------------------------------------------------------------------

    \235\ Indicated Trade Associations Initial Comments at 9; see 
also id. (citing Va. Elec. & Power Co., 114 FERC ] 61,318, at P 3 
(2006)) (``[T]he Commission expressly instructed generators to use 
the AEP Methodology `to compute the portion of plant investment 
attributable to reactive power production . . . Because these 
production plants produce real and reactive power, AEP developed an 
allocation factor to segregate the reactive production function from 
the real power production function. The allocation factor is used to 
determine the amount of investment allocable to reactive power.' '') 
(emphasis added by Indicated Trade Associations)).
    \236\ NEI Initial Comments at 10 (citing NOPR, 186 FERC ] 61,203 
at P 30)
    \237\ Id. at 10-11; Generation Developers Initial Comments at 7-
9.
    \238\ Generation Developers Initial Comments at 8-9 (citing 
Dynegy Midwest Generation, Inc., 125 FERC ] 61,280 at P 11; 
Bluegrass Generation Co., L.L.C., 118 FERC ] 61,214, order on reh'g, 
121 FERC ] 61,018, at P 12 (2007)).
    \239\ Id. (citing Bluegrass Generation Co., 121 FERC ] 61,018 at 
P 12 (``This policy is not a matter of administrative convenience . 
. . but the result of the Commission's deliberate determination that 
the AEP methodology is a just and reasonable manner of calculating a 
reactive power revenue requirement'').
    \240\ NHA Initial Comments at 4-5 (noting that ``[t]here is no 
basis for this assumption, especially if the Commission believes the 
AEP Methodology is incapable of isolating real and reactive 
cost.'').
---------------------------------------------------------------------------

    83. Clean Energy Associations assert that reactive power is not 
always coupled with real power as they believe the Commission states in 
the NOPR.\241\ Middle River Power argues that the Commission's 
statement that generating facilities are being asked to provide 
reactive power in order to offset the impact of the power they inject 
into the system is incorrect.\242\ Similarly, Middle River Power 
asserts that the Commission has previously found that generators are 
being asked to supply reactive power to support load. Clean Energy 
Associations argues that the Commission conflates the cost of equipment 
with the cost of providing an essential transmission service and that 
providing reactive power--even within the standard power factor range--
comes at the expense of providing real power.\243\ Clean Energy 
Associations note that a possible solution to this problem could be 
that the Commission distinguish ``reactive power capability'' from the 
``reactive power service.'' \244\
---------------------------------------------------------------------------

    \241\ Clean Energy Associations Initial Comments at 7.
    \242\ Middle River Power Initial Comments at 3.
    \243\ Clean Energy Associations Initial Comments at 6-7.
    \244\ Id.
---------------------------------------------------------------------------

    84. ACORE asserts that a requirement to provide a service does not 
negate the fact that costs are incurred to provide that service.\245\ 
Similarly, Elevate and Indicated Trade Associations argue that, even if 
it were true that resources do not incur distinct costs associated with 
reactive power, the Commission fails to point to precedent to support 
its conclusion that the lack of distinct costs is an appropriate basis 
on which to deny resources the ability to recover those costs.\246\ The 
Indicated Trade Associations assert that the NOPR's assumption that 
there are no or minimal costs associated with the provision of reactive 
power directly contradicts Order No. 888, which Indicated Trade 
Associations argue found that reactive service from generating 
facilities must be priced at cost, thereby acknowledging that there are 
distinguishable costs associated with the provision of reactive 
power.\247\ Middle River Power argues that the Commission has 
historically required compensation for reactive power as a separate 
ancillary service.\248\
---------------------------------------------------------------------------

    \245\ ACORE Initial Comments at 2.
    \246\ Elevate Initial Comments at 9-10; Indicated Trade 
Associations Initial Comments at 9.
    \247\ Indicated Trade Associations Initial Comments at 9 (citing 
Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,720-21).
    \248\ Middle River Power Initial Comments at 2-3.
---------------------------------------------------------------------------

    85. Reactive Service Providers assert that the Commission has not 
supported its claim that generating facilities (and specifically IPP) 
already have an obligation to provide reactive service within the 
standard power factor range.\249\ Reactive Service Providers argue that 
the NOPR's finding is contrary to decades of Commission precedent,\250\ 
and the Commission ``lost its way as it proceeded to Order No. 2003 and 
beyond, caught up in a myopic view that unbundling and the emergence of 
the IPP industry somehow transferred the `obligation' to provide 
reactive service within the standard range from the Transmission 
Provider to the IPP generator.'' \251\ Reactive Service Providers 
assert that transmission providers alone have the obligation to 
maintain a reliable and stable transmission system, and generating 
facilities are purely a tool that transmission providers use to fulfill 
this obligation.\252\ Reactive Service Providers assert that in Order 
No. 888, the Commission determined that various ancillary services 
support the transmission system so that load can be served, but the 
Commission notably did not find that generating facilities have this 
obligation.\253\ Instead, Reactive Service Providers argue that the 
Commission merely recognized that generating facilities were a critical 
tool that transmission providers can use to maintain the safe and 
reliable operation of the transmission system.\254\ Reactive Service 
Providers assert that, for Reactive Supply and Voltage Control from 
Generation Sources (which

[[Page 93429]]

ultimately became Schedule 2), the Commission noted that:
---------------------------------------------------------------------------

    \249\ Reactive Service Providers Initial Comments at 7 (citing 
NOPR, 186 FERC ] 61,203 at P 5).
    \250\ Id. at 9.
    \251\ Id. at 8.
    \252\ Id. at 8-9 (citing Affidavit of Dennis W. Bethel).
    \253\ Id. at 9 (citing Order No. 888, FERC Stats. & Regs. ] 
31,036 at 31,349 (noting that the Commission adopted the following 
definition of ancillary services: ``Those services that are 
necessary to support the transmission of capacity and energy from 
resources to load while maintaining reliable operation of the 
Transmission Provider's Transmission System in accordance with Good 
Utility Practice'' and that the Commission determined that ``A 
control area is part of an interconnected power system with a common 
generation control system. It may contain one or several utilities. 
The operator of the control area is responsible for balancing 
generation and load and for maintaining reliable system 
operation.'')).
    \254\ Id.

    NERC states that reactive supply is provided from both 
generation resources and transmission facilities (e.g., capacitors), 
and lists its provision as two services, distinguished by the 
facilities that supply them. NERC further distinguishes reactive 
supply service based on the source of the need for the service: (1) 
reactive supply needed to support the voltage of the transmission 
system; and (2) reactive supply needed to correct for the reactive 
portion of the customer's load at the delivery point.\255\
---------------------------------------------------------------------------

    \255\ Id. at 10 (citing Order No. 888, FERC Stats. & Regs. ] 
31,036 at 31,355).

    Reactive Service Providers assert that NERC did not identify the 
impact of generating facilities to the transmission system as a reason 
or need for reactive supply, but instead only identified the 
transmission system and load as needing the reactive service, noting 
that generating facilities would serve those needs at the point of 
interconnection.\256\ Reactive Service Providers assert that, while 
both before and after Order No. 888, transmission providers 
holistically relied on generation- and transmission-based reactive 
assets to fulfill their obligations to maintain the voltage of the 
transmission system, generating facilities never had an independent 
obligation to provide reactive service, as the Commission asserts in 
the NOPR.\257\
---------------------------------------------------------------------------

    \256\ Id.
    \257\ Id. at 11.
---------------------------------------------------------------------------

    86. Reactive Service Providers assert that when the Commission 
issued Order No. 2003, it summarily stated that, as a condition to 
obtain interconnection service, the generating facility must provide 
reactive service within the standard power factor range.\258\ Reactive 
Service Providers argue that the Commission did not amass any evidence 
in the Order No. 2003 proceeding to explain why generating facilities 
have an obligation to provide reactive service within the standard 
power factor range and posit that the Commission may have come to this 
conclusion in Order No. 2003 and the NOPR ``because the Transmission 
Provider has always relied on generators as one of its tools to enable 
the Transmission Provider to fulfill its obligation to maintain the 
Transmission System in a safe and reliable manner.'' \259\ Reactive 
Service Providers assert that none of the transmission system 
operators, NERC, and the Commission, in nearly all precedent, have ever 
concluded that generation has an ``obligation'' to provide reactive 
service within the standard range; the Commission's statement in Order 
No. 2003 is an outlier.\260\
---------------------------------------------------------------------------

    \258\ Id. at 11-12.
    \259\ Id. at 12.
    \260\ Id. at 12-19 (citing Order No. 661, 111 FERC ] 61,353 at 
PP 50-51 (``this Final Rule requires the wind plant to maintain the 
required power factor range only if the Transmission Provider shows 
through the System impact Study, that such capability is required of 
that plant to ensure safety or reliability. . . . ``[B]ecause the 
Transmission Provider is responsible for the safe and reliable 
operation of its transmission system (pursuant to NERC and regional 
reliability council standards), it is in the best position to 
establish if reactive power is needed in individual 
circumstances.''); Order No. 827, 155 FERC ] 61,277 at P 35 
(``balancing the costs to newly-interconnecting non-synchronous 
generators of providing reactive power with the benefits to the 
transmission system of having another source of reactive power'') 
(emphasis added by Reactive Service Providers)); id. at 18 (``[I]n 
Order No. 901, the [Commission] continued the clear distinction 
between a Transmission Provider that has the obligation to plan and 
operate the Transmission System and generation that is a tool that 
Transmission Providers must account for and uses to fulfill its 
obligation to plan and operate the Transmission System.'') (citing 
Reliability Standards to Address Inverter-Based Res., Order No. 901, 
88 FR 74250 (Oct. 30, 2023) 185 FERC ] 61,042, at P 174 (2023)).
---------------------------------------------------------------------------

    87. Similarly, Reactive Service Providers assert that ``good 
utility practice'' does not entail an obligation for generating 
facilities to provide reactive power for free, and the Commission has 
not explained why it believes such obligation exists.\261\ Reactive 
Service Providers argue that the current compensation scheme for 
reactive power is consistent with the Commission's definition of good 
utility practice because it includes practices that ``could have been 
expected to accomplish the desired result at a reasonable cost 
consistent with good business practices, reliability, safety and 
expedition.'' \262\ Reactive Service Providers assert that good utility 
practice does not address what the electric industry (i.e., the 
transmission provider) can achieve for free, but rather a cost that the 
transmission provider must pay as a matter of ``good business 
practices'' in order to fulfill its obligation.\263\ Indicated Trade 
Associations argue that the Commission cannot deprive public utilities 
from just and reasonable compensation for reactive power within the 
standard power factor range by simply classifying it as a condition of 
interconnection, particularly when the Commission established that 
condition.\264\
---------------------------------------------------------------------------

    \261\ Id. at 19.
    \262\ Id. at 19-20 (quoting at Order No. 2003, 104 FERC ] 61,103 
at P 56) (emphasis added by Reactive Service Providers). Reactive 
Service Providers assert that the Commission adopted the same 
definition of ``good utility practice'' in Order No. 2003 as it did 
in Order No. 888. Id. at 19.
    \263\ Id. at 20.
    \264\ Indicated Trade Associations Initial Comments at 23 
(citing Banton v. Belt Line Ry. Corp., 268 U.S. 413, 420 (1925) 
(``[t]he commission under the guise of regulation may not compel the 
use and operation of the company's property for public convenience 
without just compensation.''); Gulf Power Co. v. U.S., 187 F.3d 
1324, 1331 (11th Cir. 1999) (``[c]haracterizing the mandatory access 
provision as a regulatory condition . . . cannot change the fact 
that it effects a taking by requiring a utility to submit to a 
permanent, physical occupation of its property'')).
---------------------------------------------------------------------------

    88. Generation Developers assert that the NOPR errs in concluding 
that separate compensation for reactive power may result in a windfall 
to generators. Generation Developers note that many generators across 
markets are in fact increasingly unable to recover their costs.\265\ 
Indicated Trade Associations similarly refute the NOPR's preliminary 
conclusion that separate compensation for reactive power within the 
standard power factor range may result in market distortions, 
contending that all rates are approved by the Commission and that any 
distortions are a result of PJM's capacity market rules.\266\
---------------------------------------------------------------------------

    \265\ Generation Developers Initial Comments at 27 (citing 
CAISO, 2022 Annual Report on Market Issues & Performance 15 (July 
11, 2023), http://www.caiso.com/market/Pages/MarketMonitoring/AnnualQuarterlyReports/Default.aspx; PJM, Energy Transition in PJM: 
Resource Retirements, Replacements and Risks 10 (Feb. 24, 2023), 
https://insidelines.pjm.com/pjm-details-resource-retirements-replacements-and-risks.).
    \266\ Indicated Trade Associations Reply Comments at 9.
---------------------------------------------------------------------------

2. Commission Determination
    89. Based on our review of the record, we conclude that 
compensation for the provision of reactive power within the standard 
power factor range is unjust and unreasonable because: (1) the 
provision of such reactive power requires either no or at most a de 
minimis increase in variable costs beyond the cost of providing real 
power; (2) such compensation may result in undue compensation and other 
market distortions; and (3) the provision of reactive power within the 
standard power factor range is an obligation of the generating facility 
as an interconnection customer and consistent good utility 
practice.\267\
---------------------------------------------------------------------------

    \267\ PJM IMM Initial Comments at 6-9; Joint Consumer Advocates 
Initial Comments at 6-7; MISO Transmission Owners Reply Comments at 
4; TAPS Initial Comments at 6; Ohio FEA Initial Comments at 5; Joint 
Customers Initial Comments at 14-16; PGE Initial Comments at 4 
(citing MISO, 182 FERC ] 61,033 at P 53 (noting that in the 
acceptance of the MISO Transmission Owners application to end 
compensation within the standard power application, the Commission 
reiterated its policy ``that the provision of reactive power within 
the standard power factor range is, in the first instance, an 
obligation of the interconnecting generator and good utility 
practice.'')).
---------------------------------------------------------------------------

    90. As explained in the NOPR, because real and reactive power are 
provided as joint products with joint costs produced from the same

[[Page 93430]]

equipment, any allocation of joint fixed costs between real and 
reactive power could be viewed as inherently arbitrary.\268\ And while 
the production of reactive power within the standard power factor range 
can result in certain incremental variable costs such as fuel, 
maintenance, and potentially other costs, we continue to find, based on 
the record and past precedent, that variable costs of generating 
reactive power within the standard power factor range are at most de 
minimis.\269\ With respect to fixed costs, for synchronous generating 
facilities, ``the same equipment is used to provide real and reactive 
power.'' \270\ Non-synchronous generating facilities use a different 
physical process to produce reactive power, but ``the most critical 
element in VAR production, the inverter,'' \271\ is also necessary for 
non-synchronous generating facilities to produce real power that can be 
reliably injected into AC systems.\272\ In other words, for both 
synchronous and non-synchronous generating facilities, ``[t]here are 
few if any identifiable costs incurred by generators in order to 
provide reactive power'' \273\ beyond the investments in equipment 
already necessary to generate and supply real power to the transmission 
system.\274\
---------------------------------------------------------------------------

    \268\ NOPR, 186 FERC ] 61,203 at P 30; (citing PJM IMM Initial 
Comments to the NOI at 2 (``There is no reason to include complex 
rules that arbitrarily segregate a portion of a resource's capital 
costs as related to reactive power and that require recovery of that 
arbitrary portion through guaranteed revenue requirement payments 
based on burdensome cost of service rate proceedings.''); id. at 3, 
5, 21, 24; Permian Basin, 390 U.S. at 804 (``There is ample support 
for the Commission's judgment that the apportionment of actual costs 
between two jointly produced commodities, only one of which is 
regulated by the Commission, is intrinsically unreliable.''); 
Richard A. Posner, Natural Monopoly and Its Regulation, 21 Stan. L. 
Rev. 548, 595 (1969) (``[W]here services involve joint or common 
costs a rational allocation is impossible even in theory. How much 
of the cost of a telephone handset is assignable to local and how 
much to interstate telephone service?''); see also A.A. Poultry 
Farms, Inc. v. Rose Acre Farms, Inc., 1400 (7th Cir. 1989) (``How 
does one allocate the cost of activities that have joint products? 
Agencies engaged in ratemaking struggle with these problems for 
years, even decades, without producing clear answers.'')).
    \269\ NOPR, 186 FERC ] 61,203 at P 31 (citing SPP Initial 
Comments to NOI at 2; PJM IMM Initial Comments to NOI at 4.).
    \270\ Ameren Initial Comments at 3; MISO Transmission Owner 
Reply Comments at 9. See also NOPR, 186 FERC ] 61,203 at P 29 
(citing Edison Electric Institute Initial Comments to the NOI at 6).
    \271\ Duke Energy Corporation Initial Comments to the NOI at 4.
    \272\ See, e.g., MISO Transmission Owners Initial Comments at 7 
(``[E]ven newer wind turbines use inverters that allow for the 
generator to produce and control reactive power without costly 
additional equipment.); see also MISO Rehearing Order, 184 FERC ] 
61,022 at P 30 (``As to non-synchronous resources, the principal 
piece of equipment required for non-synchronous resources to produce 
reactive power is the inverter, which is already necessary to 
convert the direct current produced by non-synchronous resources to 
alternating current--i.e., to supply real power that can be injected 
into alternating current power systems. On rehearing and in earlier 
protests, no party points to any other equipment costs incurred by 
non-synchronous generating facilities that are attributable to 
providing Reactive Service.'' (citations omitted)).
    \273\ PJM IMM Initial Comments to the NOI at 4; see also MISO 
Transmission Owners Reply Comments at 7-8.
    \274\ MISO Transmission Owners Initial Comments at 6 (``The MISO 
Transmission Owners' experience supports the Commission's 
preliminary finding that providing reactive power within the 
standard power factor range requires little or no cost to 
generators. Generators incur little or no costs beyond what is 
already needed to produce real power because the same equipment used 
to produce real power includes reactive power functions.'' 
(citations omitted)); PJM IMM Reply Comments at 3 (``Neither 
[Indicated Trade Associations] nor any other opposing commenter, nor 
any of the precedent relied upon by opposing commenters, identify 
any additional costs or more than de minimis costs incurred by 
generators in order to provide reactive capability.''); MISO 
Transmission Owners Reply Comments at 9-10 & n.29. See also, BPA, 
120 FERC ] 61,211 at P 21 (finding that the incremental cost of 
reactive power service within the deadband is minimal); METC 
Rehearing Order, 97 FERC at 61,852-53 (``[R]eactive power provided, 
not as an ancillary service, but rather as a ``no cost'' service 
within reactive design limitations, may therefore, be provided 
without compensation.''); APS, 94 FERC at 61,080 (rejecting 
generators' arguments for reactive power compensation for operating 
within standard power factor range because the generators failed to 
demonstrate that ``such a requirement will limit the real power 
output of a generating unit and therefore will not result in any 
lost opportunity costs'' or that operating a generating unit within 
the proposed standard power factor range will ``affect the 
generation output of a unit'').
---------------------------------------------------------------------------

    91. While most commenters agree or do not dispute that all 
equipment used to produce reactive power, for both synchronous and non-
synchronous generating facilities, is also necessary in order to 
produce and deliver to the transmission system real power, several 
commenters dispute the NOPR's findings that both synchronous and non-
synchronous facilities incur no or at most a de minimis increase in 
costs beyond the cost of providing real power.\275\ However, these 
commenters do not identify any specific costs beyond those incurred to 
ensure that real power can be reliably injected into the transmission 
system.\276\ For example, Indicated Trade Associations, Generation 
Developers, and Glenvale emphasize that there are costs of equipment 
and production associated with reactive power, but they provide only 
vague references to those specific equipment costs and identify no 
distinct equipment (apart from equipment already needed for real power 
production).\277\ Many of the commenters opposing the rule also 
conflate the cost of providing reactive power capability within and 
outside the standard power factor range.\278\ For example, commenters 
suggest that there are opportunity costs to provide reactive power 
capability, even within the standard power factor range, because doing 
so requires a generating facility to forgo real power production.\279\ 
As explained in the NOPR and in other Commission precedent, however, 
reactive power opportunity costs are an issue only when providing 
reactive power outside the standard power factor range. This is 
because, unlike operating within the standard power factor range, 
generating facilities operating outside the standard power factor range 
forgo generating more real power output and thus, forgo sales of real 
power.\280\ Importantly, commenters do not provide any evidence to 
support their assertion that operating within the standard power factor 
range will limit the real power output of their generating facilities. 
To the contrary, rather than limiting real power output, real power 
cannot be supplied from a generating facility unless that facility is 
producing reactive power within the standard power factor range to 
generate and safely inject real power into the

[[Page 93431]]

transmission system and comply with reliability requirements.
---------------------------------------------------------------------------

    \275\ NOPR, 186 FERC ] 61,203 at PP 8, 28.
    \276\ The only incremental costs identified in the NOPR were 
heating losses. NOPR, 186 FERC ] 61,203 at P 28 & n.74.
    \277\ Eagle Creek Initial Comments at 3-4; Generation Developers 
Initial Comments at 13; Glenvale Initial Comments at 9-10 Indicated 
Trade Associations Initial Comments at 7-12; Middle River Power 
Initial Comments at 2-3.
    \278\ See Clean Energy Associations Initial Comments at 6-7 
(``However, during certain generating facility and grid operating 
conditions, when the generator provides an actual service (i.e., 
injects reactive power to support voltage) it could come at the cost 
of production of real power. During that time, reactive power is 
prioritized and real power generated by the plant may be limited. In 
such a case the generation facility is prioritizing the utilization 
of their asset to assist or enhance grid stability at the cost of 
their revenue, which is primarily obtained from real power sales. 
The Commission should consider this opportunity cost in the context 
of interconnection customers that participate in regional wholesale 
markets.'')
    \279\ See, e.g., Indicated Reactive Power Suppliers Initial 
Comments at 10 (``Stripping generators of the ability to be 
compensated for reactive power supply, including lost opportunity 
costs, within the [standard power factor range] is not just and 
reasonable and not supported by the record.''); Indicated Trade 
Associations Initial Comments at 11 (``The NOPR also completely 
ignores the fact that the provision of reactive power within the 
deadband represents a lost opportunity to produce real power, 
thereby resulting in lost opportunity costs.'').
    \280\ See, e.g., NOPR, 186 FERC ] 61,203 at P 32 (``[I]f the 
transmission provider requires a generating facility to provide 
reactive power outside of the standard power factor range, the 
generating facility may have to `reduce its MW output in order to 
comply with such an instruction[,]' which could limit the generating 
facility's opportunity to receive compensation for real power 
sales.'') (citing CAISO Initial Comments to NOI at 4).
---------------------------------------------------------------------------

    92. Like in MISO, the commenters here fail to identify any 
incremental fixed costs associated with the provision of reactive power 
within the standard power factor range and identify only de minimis 
variable costs.\281\ In MISO, the MISO transmission owners proposed to 
eliminate all charges under Schedule 2 for the provision of reactive 
power within the standard power factor range. Like here, protesters 
opposing MISO's proposal challenged the conclusion that reactive power 
within the standard power factor range required little or no 
incremental investment. The Commission rejected their protests, finding 
that they had failed to identify any record evidence demonstrating that 
there are more than minimal capital expenditures on equipment or 
additional operations and maintenance costs attributable to providing 
such reactive power. Like here, protesters alluded to alleged 
opportunity costs and operation and maintenance costs but failed to 
point to any evidence of such costs.
---------------------------------------------------------------------------

    \281\ See, e.g., MISO Rehearing Order, 184 FERC ] 61,022 at P 29 
(``We continue to conclude, and the record establishes, that 
Reactive Service requires little or no incremental investment.''); 
METC Rehearing Order, 97 FERC at 61,852-53 (``[R]eactive power 
provided, not as an ancillary service, but rather as a ``no cost'' 
service within reactive design limitations, may therefore, be 
provided without compensation.''); APS, 94 FERC at 61,080 (rejecting 
generators' arguments for reactive power compensation for operating 
within standard power factor range because the generators failed to 
demonstrate that ``such a requirement will limit the real power 
output of a generating unit and therefore will not result in any 
lost opportunity costs'' or that operating a generating unit within 
the proposed standard power factor range will ``affect the 
generation output of a unit''); BPA, 120 FERC ] 61,211 at P 21 
(``[T]he incremental cost of reactive power service within the 
[standard power factor range] is minimal.''). See also S. Co. 
Servs., Inc., 80 FERC at 62,091 (noting also that the primary 
function of a generating plants is to produce real power; thus, if 
costs were allocated based on the ``predominant'' function of the 
equipment, ``all of the costs of generation would thus be assigned 
to real power production and there would be no basis for any 
separate reactive power charge'').
---------------------------------------------------------------------------

    93. Although Generation Developers claim that the report is the 
most recent and comprehensive evidence on the costs of non-synchronous 
generating facilities to provide reactive power, Generation Developers' 
arguments regarding the evidence in the 2014 Staff Report ignore that 
the Commission found in the MISO Rehearing Order that even newer wind 
turbines use inverters that allow generating facilities to produce and 
control reactive power without costly additional equipment,\282\ and 
has found elsewhere \283\ that the provision of reactive power requires 
no or at most de minimis variable costs beyond the cost of producing 
real power.
---------------------------------------------------------------------------

    \282\ MISO Transmission Owners Initial Comments at 7 (citing 
MISO Rehearing Order, 184 FERC ] 61,022 at P 30 n.98 (``[O]lder wind 
generators could not produce and control reactive power without the 
use of costly equipment [ ] because they did not use inverters like 
other non-synchronous generators but modern turbines now use 
inverters and newer wind generators now can.'')).
    \283\ METC Rehearing Order, 97 FERC at 61,852-53.
---------------------------------------------------------------------------

    94. Generation Developers also assert that the Commission's 
reliance on a statement from the MISO Rehearing Order, and the 
purported failure of parties in that proceeding to demonstrate 
significant incremental costs of non-synchronous facilities, does not 
satisfy the Commission's burden in this case.\284\ Generation 
Developers add that the Commission's reliance on cases that pre-date 
the emergence of non-synchronous generating facilities for the 
proposition that all generating facilities have no or de minimis costs 
is misplaced.\285\ Indicated Trade Associations similarly argue that 
Commission precedent cited in the NOPR (i.e., BPA and APS) does not 
support the conclusion that the incremental costs of the provision of 
reactive power within the standard power factor range are at most de 
minimis.\286\
---------------------------------------------------------------------------

    \284\ Generation Developers Initial Comments at 15.
    \285\ Id. at 16 (citing BPA, 120 FERC ] 61,211; METC Rehearing 
Order, 97 FERC at 61,852-53; APS, 94 FERC at 61,080).
    \286\ Indicated Trade Associations Initial Comments at 8 (citing 
BPA, 120 FERC ] 61,211 at P 21; BPA Rehearing Order, 125 FERC ] 
61,273 at P 7 n.7; APS, 94 FERC at 61,080).
---------------------------------------------------------------------------

    95. We disagree with Indicated Trade Associations and Generation 
Developers. Commenters provide no support for the contention that 
decades of Commission precedent are irrelevant for purposes of 
supporting our findings here, including precedent from after the 
emergence of non-synchronous generating facilities.\287\ As 
demonstrated by the decades of Commission precedent cited in the NOPR 
and here, many of the findings in this final determination are not new. 
The Commission has reached similar conclusions based on similar 
evidence (or lack thereof) in other proceedings, including with respect 
to the provision of reactive power within the standard power factor 
range by non-synchronous generating facilities.\288\ This precedent 
coupled with the evidence in this record, supports this final 
determination, including with respect to non-synchronous generating 
facilities.\289\
---------------------------------------------------------------------------

    \287\ See, e.g., MISO, 182 FERC ] 61,033; PNM, 178 FERC ] 61,088 
at PP 29-31.
    \288\ See, e.g., MISO Rehearing Order, 184 FERC ] 61,022 at PP 
29-31 (finding that providing reactive service requires ``little or 
no incremental investment'' by both synchronous and non-synchronous 
resources); PJM Interconnection, L.L.C., 151 FERC ] 61,097 at PP 7, 
28 (finding that non-synchronous generating facilities are 
comparable to traditional synchronous generating facilities, in that 
there are for both types of generating facilities very little if any 
incremental costs incurred to provide reactive power); 2005 Staff 
Report at 96 (``The marginal cost of providing reactive power from 
within a generator's capability curve (D-curve) is near zero.'').
    \289\ We also note that Order No. 827, which was issued in 2016, 
after the 2014 Commission Staff Report, removed the exemption for 
wind generating facilities to provide reactive power because of 
``declining costs'' resulting from ``improvements in technology.'' 
Order No. 827, 155 FERC ] 61,277 at P 24. In Order No. 827, the 
Commission noted that other types of non-synchronous generating 
facilities were not exempt from the requirement to provide reactive 
power and that Order No. 827's findings applied to all newly 
interconnecting non-synchronous generating facilities. Id. P 22.
---------------------------------------------------------------------------

    96. Glenvale contends that certain types of non-synchronous 
generating facilities incur additional costs to provide reactive power 
when not providing real power, such as for solar generating facilities 
providing reactive power at night.\290\ However, as these capabilities 
relate to the provision of reactive power when not providing real 
power, such costs necessarily are for the provision of reactive power 
outside the standard power factor range and thus are not impacted by 
and are beyond the scope of this proceeding.
---------------------------------------------------------------------------

    \290\ Glenvale Initial Comments at 9-10.
---------------------------------------------------------------------------

    97. Similarly, some commenters point to capital investments that 
expand a generating facility's reactive power capability beyond the 
standard power factor range,\291\ but that capability, and thus that 
investment, does not address the relevant issue of whether transmission 
charges associated with the provision of reactive power within the 
standard range are just and reasonable.\292\
---------------------------------------------------------------------------

    \291\ See, e.g., Eagle Creek Initial Comments at 3 (``Where 
Eagle Creek Reactive Generators made specific capital investments 
that enhanced reactive service--for example, by installing upgraded 
exciters with demonstrable power factor improvements--their related 
reactive compensation case was necessarily strengthened.'').
    \292\ We note that the additional capabilities are not required 
as a condition of interconnection. Furthermore, all generating 
facilities are allowed to seek compensation when directed to provide 
reactive power beyond the standard power factor range. This final 
determination does not change the ability of generating facilities 
to seek compensation associated with providing reactive power 
outside the standard power factor range.
---------------------------------------------------------------------------

    98. Eagle Creek and others argue that rates calculated using the 
AEP Methodology are themselves evidence of significant reactive-power-
related capital investments.\293\ Putting aside

[[Page 93432]]

that these commenters provide no support for their contentions, the AEP 
Methodology is a cost allocation methodology only; it is not designed 
to, and does not, establish ``evidence of significant reactive-power-
related capital investments.'' To the contrary, were it possible to 
identify discrete, incremental capital investments made to provide 
reactive power within the standard power range, the AEP Methodology 
could be utilized to allocate such reactive power costs incurred by the 
generator; however, no such incremental capital costs exist here, and 
so the AEP Methodology is inapplicable. In addition, as noted in the 
NOPR, the AEP Methodology originated in an era of vertically integrated 
utilities that recovered both generation and transmission costs 
entirely through cost-based rates and classified those costs under 
USofA accounting requirements.\294\ The Commission accepted the AEP 
Methodology as a way to assign these costs using a cost-of-service 
allocation method for assigning joint costs between the generation and 
transmission functions. As the PJM IMM explains ``The AEP Method[ology] 
is not about identifying incremental costs incurred to provide reactive 
power . . . [but rather] allocates the costs of an integrated power 
plant between reactive power and real power.'' \295\ As noted in the 
Fern Initial Decision, ``The standard techniques for addressing a 
facility that operates in both a monopoly market and a competitive 
market--cost allocation and revenue credit--have no connection to the 
AEP [M]ethod[ology],'' and ``[a]uto-transporting a monopoly-era method 
into an organized-market context--which is exactly what this 
proceeding's witnesses do, what dozens of settlements do and what this 
Initial Decision does--is not regulating based on physical facts.'' 
\296\
---------------------------------------------------------------------------

    \293\ See, e.g., ACORE Initial Comments at 2 (``A requirement to 
provide a service does not negate the fact that costs are incurred, 
as demonstrated by the multiple settlements reached for payment of 
this service.''); Indicated Reactive Power Suppliers Initial 
Comments at 9 (``[S]ubstantial cost support included with the 
proposed reactive service tariffs of each of the Indicated Reactive 
Power Suppliers . . .meticulously demonstrate the fixed and sunk 
costs allocable to reactive power production using the AEP 
[M]ethodology'').
    \294\ See, e.g., Joint Customers Reply Comments at 6-7; ELCON 
Initial Comments at 5. As noted in the NOI, most of the filings at 
the Commission seeking to establish rates for reactive power 
compensation are made by generating facilities (both synchronous and 
non-synchronous) that have received waivers of the Commission's 
requirement to maintain their accounts under the USofA rules and to 
file FERC Form No. 1.
    \295\ PJM IMM Reply Comments at 3. See also PJM IMM Initial 
Comments at 3 (``The AEP Method[ology] was based on three sentences 
in testimony filed in 1993 that provide no logical, engineering or 
economic support for allocating a part of generator capital 
investment to reactive. That testimony was about a subjective 
decision to reassign costs that were already fully accounted for and 
not about any asserted costs to provide reactive power that were not 
recovered elsewhere and not for any asserted additional costs of 
providing reactive power.''); Joint Customers Reply Comments at 12 
(``The amount of total plant cost that is allocated to the reactive 
function based on a power factor for ratemaking purposes under the 
AEP [M]ethodology is not at all indicative of actual incremental 
costs for incremental levels of additional reactive capability.'' 
(emphasis in original)). See also 2005 Staff Report at 69 (``[T]he 
allocation factor used in the AEP Methodology does not directly 
relate to the incremental investment cost in providing reactive 
capability or supply'').
    \296\ Fern Solar LLC, 183 FERC ] 63,004, at P 937 (2023).
---------------------------------------------------------------------------

    99. We also disagree with those commenters that suggest that the 
mere existence of joint products requires allocating costs to both real 
and reactive power production. These assertions disregard longstanding 
Commission precedent.\297\ PSEG, for example, relies on Dynegy Midwest 
Generation, Inc. v. FERC for the proposition that ``the NOPR . . . 
conflicts with Commission and judicial precedents that have long 
recognized that there are specific fixed costs associated with the 
production of reactive power.'' \298\ But the Commission explicitly 
rejected this same argument when Dynegy made it in the MISO 
proceeding.\299\
---------------------------------------------------------------------------

    \297\ See, e.g., MISO Rehearing Order, 184 FERC ] 61,022 at P 26 
(``[W]e continue to reject, as collateral attacks on that 
longstanding policy, arguments that stand-alone compensation for 
Reactive Service is generically required--for example, to ensure 
that generators can recover their costs for Reactive Service 
capability.''); Entergy Servs. Inc., 114 FERC ] 61,303, at P 14 
(2006) (``In Order No. 2003, the Commission emphasized that an 
interconnecting generator should not be compensated for reactive 
power when operating its Generating Facility within the established 
power factor range, since it is only meeting its obligation. 
Generators interconnected to a transmission provider's system need 
only be compensated where the transmission provider directs the 
generator to operate outside the dead band.'' (internal citations 
omitted)).
    \298\ PSEG Initial Comments at 13 & n.33 (citing Dynegy Midwest 
Generation, Inc. v. FERC, 633 F.3d 1122, 1126 (D.C. Cir. 2011)).
    \299\ MISO Rehearing Order, 184 FERC ] 61,022 at P 31 (``Vistra 
challenges the conclusion that Reactive Service requires little or 
no incremental investment by claiming that the D.C. Circuit in 
Dynegy rejected that conclusion. We disagree with Vistra's 
interpretation of Dynegy. Rather, in Dynegy, the court concluded 
that the Commission had not made any such finding in that case, 
instead providing only a `glancing remark' to this effect, and that 
the record in that case did not support such a finding. Here, in 
addition to noting the Commission's previous conclusions that 
Reactive Service capability requires little or no incremental 
investment, we have further explained immediately above the basis 
for this finding.'').
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    100. Thus, based on the totality of the record, we agree with 
Ameren that, for both synchronous and non-synchronous generating 
facilities, ``it is [ ] well-documented that the same equipment used to 
produce real power includes reactive power functions,'' and thus 
``there is little, if any, incremental cost associated with providing 
reactive power'' beyond the investments in equipment already necessary 
to generate and supply real power to the transmission system.\300\ As 
discussed below, we also find that the joint costs associated with the 
production of real and reactive power are costs that generating 
facilities must incur to provide the real power for which they are 
compensated.\301\
---------------------------------------------------------------------------

    \300\ See, e.g., Ameren Initial Comments at 3; MISO Transmission 
Owners Initial Comments at 6 (``Generators incur little or no costs 
beyond what is already needed to produce real power.''); PJM IMM 
Initial Comments at 4 (``There are few if any identifiable costs 
incurred by generators in order to provide reactive power. 
Separately compensating resources based on a judgment based 
allocation of capital costs was never and is not now appropriate in 
the PJM markets. Generating units are fully integrated power plants 
that produce both the real and reactive power required for grid 
operation . . . . [T]here is no reason to include complex rules that 
arbitrarily segregate a portion of a resource's capital costs as 
related to reactive power.'').
    \301\ See PJM IMM Initial Comments at 12 (``The market approach 
should be used, as it is overwhelmingly more efficient than the 
current rate case, cost of service approach. Supporters of the cost 
of service approach have never explained why a nonmarket approach is 
required in PJM or why it is preferable to a market approach.''); 
id. at 11-12 (``There is no evidence that units are built as a 
result of reactive revenue. There is no evidence that sources of 
revenue are not fungible and that a decrease in reactive revenues 
could be not replaced with other sources of revenue. There is no 
basis for adding new resources to the already very crowded 
interconnection queue solely based on out of market subsidies from 
reactive revenues.'').
---------------------------------------------------------------------------

    101. Reactive Service Providers argue that the Commission has not 
supported its claim that generating facilities already have an 
obligation to provide reactive service within the standard power factor 
range. Specifically, Reactive Service Providers assert that when the 
Commission issued Order No. 2003, it summarily stated that a generating 
facility must provide reactive service within the standard power factor 
range as a condition to obtain interconnection service, but it did not 
amass any evidence to explain why generating facilities have this 
obligation. Reactive Service Providers claim that Order No. 2003 is an 
outlier among Commission precedent and that none of the transmission 
system operators, NERC, or the Commission, in nearly all precedent, has 
ever articulated such obligation. However, as discussed at length 
above, outlined in the NOPR, and reiterated in recent Commission 
decisions, the Commission has for decades stated that ``the provision 
of reactive power within the standard power factor range is, in the 
first instance, an obligation of the interconnecting generator and good 
utility practice.'' \302\ We find Reactive

[[Page 93433]]

Service Providers' comments challenging this well-established policy to 
be a collateral attack on Order No. 2003.\303\
---------------------------------------------------------------------------

    \302\ MISO, 182 FERC ] 61,033 at PP 53-54 (citing Order No. 
2003-A, 106 FERC ] 61,220 at P 416; SPP, 119 FERC ] 61,199 at P 28) 
(``Accordingly, by designing their generating facilities to have the 
capability to provide reactive support, interconnecting generators 
are meeting the conditions of interconnection required of all 
generators and as a general matter are not entitled to compensation 
under the Commission's precedent unless the transmission provider 
pays its own or affiliated generators for reactive power within the 
standard power factor range.''); NOPR, 186 FERC ] 61,203 at P 16.
    \303\ See e.g., ISO N. England Inc., 138 FERC ] 61,238, at P 17 
(2012) (``[A] collateral attack is `[a]n attack on a judgment in a 
proceeding other than a direct appeal,' and is `generally 
prohibited.' '' (quoting N. England Conf. of Pub. Utils. Comm'rs v. 
Bangor Hydro-Elec. Co., 135 FERC ] 61,140, at P 27 (2011))).
---------------------------------------------------------------------------

    102. Further, as the Commission has explained, to interconnect 
reliably to the transmission system and deliver power to customers, 
generating facilities must be capable of maintaining voltage levels for 
injecting real power into the transmission system.\304\ Said 
differently, ``if a generator is to sell (and be able to deliver) its 
power to a customer, reactive power is essential to the transaction.'' 
\305\ Thus, standalone compensation for the provision of reactive power 
within the standard power factor range does not result in just and 
reasonable transmission rates.
---------------------------------------------------------------------------

    \304\ See, e.g., MISO, 182 FERC ] 61,033; MISO Rehearing Order, 
184 FERC ] 61,022 at P 23 (citing METC Rehearing Order, 97 FERC at 
61,852-53); see also MISO Transmission Owners Initial Comments at 11 
(``Moreover, generators are incented by their own reliability 
requirements to install the equipment that is most likely to keep 
their projects on-line and delivering real power.'' (citations 
omitted)); NOPR, 186 FERC ] 61,203 at P 33 (``For example, CAISO 
states that ``[t]he rationale for the CAISO's existing approach to 
reactive power compensation is that the reactive power ranges called 
for in each interconnection agreement represent a reasonable range 
of what a generator is expected to provide the CAISO without 
additional compensation in accordance with good utility practice and 
as a condition of being part of the CAISO markets and CAISO grid.'') 
(citing CAISO Initial Comments to the NOI at 3).
    \305\ SPP, 119 FERC ] 61,199 at P 28. This has always been a 
physical reality of the transmission system, even for wind 
generating facilities that were exempted from providing reactive 
service within the standard power factor range prior to Order No. 
827. Specifically, in Order No. 827, the Commission ``exempted wind 
generators from the uniform reactive power requirement because, 
historically, the costs to design and build a wind generator that 
could provide reactive power were high and could have created an 
obstacle to the development of wind generation.'' Order No. 827, 155 
FERC ] 61,277 at P 4 (emphasis added). During this period of 
exemption, wind generating facilities would have had to rely on 
dynamic reactive power service supplied by other generating 
facilities and equipment on the transmission system capable of 
providing reactive support to allow their real power to reliably 
flow onto the transmission system. In essence, prior to Order No. 
827, the Commission allowed the nascent wind industry to make up for 
these reactive power deficiencies by relying on transmission 
customers for reactive support because it determined that the costs 
of requiring them to provide their own reactive power could have 
been prohibitive. By the time of Order No. 827, that rationale for 
the exemption no longer existed, and the Commission, in removing 
this exemption for wind generating facilities in Order No. 827, 
noted that ``[d]ue to technological advancements, the cost of 
providing reactive power no longer presents an obstacle to the 
development of wind generation.'' Id. Additionally, the Commission 
expressed its concern ``that, as the penetration of non-synchronous 
generators continues to grow, exempting a class of generators from 
providing reactive power could create reliability concerns, 
especially if those generators represent a substantial amount of 
total generation in a particular region, or if many of the resources 
that currently provide reactive power are retired from operation. In 
addition, as noted above, maintaining the exemptions for wind 
generators places an undue burden on synchronous generators to 
supply reactive power without a reasonable technological or cost-
based distinction between synchronous and non-synchronous 
generators.'' Id. P 25.
---------------------------------------------------------------------------

    103. Some commenters note that because Order No. 888 defined 
voltage support as a distinct ancillary service, it must be compensated 
separately.\306\ The Commission's policy on reactive power compensation 
has evolved since issuing Order No. 888, which included provisions 
regarding reactive power from generating facilities as an ancillary 
service in Schedule 2 of the pro forma OATT.\307\ Specifically, in 
Order No. 2003, when adopting the pro forma LGIA, the Commission 
initially concluded that the interconnection customer should not be 
compensated for reactive power when operating within the range 
established in the interconnection agreement because doing so ``is only 
meeting [the generating facility's] obligation.'' \308\ And in Order 
No. 2003-A, the Commission clarified that ``if the Transmission 
Provider pays its own or its affiliated generators for reactive power 
within the established range, it must also pay the Interconnection 
Customer.'' \309\ As a result, since Order No. 2003-A, the sole basis 
for reactive power capability compensation within the standard power 
factor range has been comparability (i.e., to ensure comparable 
treatment between affiliated and unaffiliated generating facilities), 
not compensability (i.e., an independent right to receive compensation 
for reactive power within the standard power factor range).\310\ The 
Commission has reiterated these findings in subsequent orders 
permitting transmission providers to eliminate separate compensation 
for generating facilities providing reactive power within the standard 
power factor range.\311\ Accordingly, commenters' arguments in this 
regard are without merit.
---------------------------------------------------------------------------

    \306\ See, e.g., Indicated Trade Associations Initial Comments 
at 9 (``This assumption is at odds with Order No. 888, which 
expressly found that reactive service from generation facilities 
must be priced at cost''); NEI Initial Comments at 4 
(``Unsurprisingly, in Order No. 888 the Commission found that 
reactive power is one of six ancillary services necessary to provide 
basic transmission service within every control area. Schedule 2 of 
the Open Access Transmission Tariff thus required that transmission 
providers provide--and transmission customers pay for--reactive 
power.''); PSEG Initial Comments at 13 (``The NOPR, if adopted, 
would effectively eliminate reactive power as one of ancillary 
services that the Commission has recognized since Order No. 888.''); 
Middle River Power Initial Comments at 2-3 (citing Indicated Energy 
Trade Associations Initial Comments at 21; Order No. 888, FERC 
Stats. & Regs. ] 31,036 at 31,707 (``[T]ransmission customer actions 
do not eliminate entirely the need for generator-supplied reactive 
power.'' ``The transmission provider must provide at least some 
reactive power from generation sources.'')).
    \307\ NOPR, 186 FERC ] 61,203 at P 12; Order No. 888, FERC 
Stats. & Regs. ] 31,036 at 31,705-07 & n.359; see also BPA Rehearing 
Order, 125 FERC ] 61,273 at P 18.
    \308\ Order No. 2003, 104 FERC ] 61,103 at P 546.
    \309\ Order No. 2003-A, 106 FERC ] 61,220 at P 416; see also 
MISO Rehearing Order, 184 FERC ] 61,022 at P 24 (``Order No. 2003 
reflects the distinction between these two different reactive power 
concepts. When the transmission provider asks the interconnecting 
generator to operate its facility outside the established power 
factor range, the transmission provider is required to pay the 
interconnecting generator for the provision of such reactive power. 
By contrast, compensation for reactive power when the generating 
facility is operating within the established power factor range is 
generally not required. The sole exception the Commission identified 
was that `if the Transmission Provider pays its own or its 
affiliated generators for reactive power within the established 
range, it must also pay the Interconnection Customer.' '' (internal 
citations omitted)).
    \310\ BPA Rehearing Order 125 FERC ] 61,273 at P 18.
    \311\ See, e.g., MISO, 182 FERC ] 61,033 at PP 52-53; MISO 
Rehearing Order, 184 FERC ] 61,022 at PP 23-25, 41; PNM, 178 FERC ] 
61,088 at PP 29-31; Nev. Power Co., 179 FERC ] 61,103 at PP 20-21; 
BPA, 120 FERC ] 61,211 at P 20; E.ON U.S. LLC, 119 FERC ] 61,340 at 
P 15; Entergy Servs., Inc., 113 FERC ] 61,040 at P 38.
---------------------------------------------------------------------------

    104. We also find Elevate's and Glenvale's arguments that some 
resource classes incur additional costs, including Elevate's claims 
about battery degradation, unpersuasive.\312\ Elevate highlights 
battery degradation caused by the provision of reactive power, while 
Glenvale notes the operational and replacement costs associated with 
providing reactive power within the standard power factor range but 
neither explains how or why such costs are different and separate from 
the costs to provide real power. Degradation of components of a 
generator, including degradation of batteries, is a natural and 
inevitable result of power plant operation. As a result, the costs 
incurred by a generator to address such degradation, like other costs 
discussed above, are costs that generating facilities must incur to 
provide the real power for which they may seek compensation; nor

[[Page 93434]]

do transmission customers receive benefits that are commensurate with 
the charges for the provision of reactive power within the standard 
power factor range. Moreover, as discussed further below, battery 
storage resources, like all other generating facilities, still have the 
opportunity to seek to recover their costs through sales of energy and 
capacity, and the Commission's actions here do not undercut those 
opportunities.\313\
---------------------------------------------------------------------------

    \312\ Elevate Initial Comments at 9-12; Elevate Reply Comments 
at 7-9.
    \313\ PJM IMM Reply Comments at 4-5 (``The NOPR does not require 
a finding that generators recover all of their cost in markets. 
Markets do not include such guarantees. In competitive markets, 
generation owners may overrecover their costs in markets at times 
and generators may underrecover their costs at times. The point is 
that when markets provide an opportunity to recover all costs, those 
same costs should not be recovered in a separate cost of service 
rate. The same investment should not be recoverable and recovered in 
two parallel regulatory regimes. That result is plainly unjust and 
unreasonable.'').
---------------------------------------------------------------------------

    105. Similarly, regarding NEI's assertion that nuclear generating 
facilities incur disproportionate degradation from the provision of 
reactive power within the standard power factor range, we find that to 
the extent there are de minimis variable costs associated with 
providing reactive power within the standard power factor range, 
generating facilities in RTO/ISO markets could seek to recover such 
costs through energy and capacity markets. Transmission providers are 
responsible for maintaining voltage levels within their regions and 
have authority to direct generating facilities to operate at 
appropriate power factors to ensure system reliability.\314\
---------------------------------------------------------------------------

    \314\ See MISO Transmission Owners Initial Comments at 11-12 
(citing VAR-002-3-- Generator Operation for Maintaining Network 
Voltage Schedules, North American Electric Reliability Corporation, 
at 2 (Aug. 1, 2014), http://www.nerc.com/pa/Stand/Reliability%20Standards/VAR-002-3.pdf (``R2 . . . Generator Operator 
shall maintain the generator voltage or Reactive Power schedule 
(within each generating Facility's capabilities).'').
---------------------------------------------------------------------------

    106. In response to Clean Energy Associations' assertion that 
reactive power is not always coupled with real power,\315\ we reiterate 
that the final determination addresses only compensation for the 
provision of reactive power within the standard power factor range and 
that producing solely reactive power (i.e., a power factor of zero) 
entails reactive power production outside of the standard power factor 
range. As such, we find Clean Energy Associations' concerns outside the 
scope of this final determination.
---------------------------------------------------------------------------

    \315\ Clean Energy Associations Initial Comments at 7.
---------------------------------------------------------------------------

    107. We also find that compensation for the provision of reactive 
power within the standard power factor range could result in undue 
compensation and other market distortions.\316\ In response, Reactive 
Service Providers assert that generating facilities cannot be receiving 
windfalls from reactive power compensation because many generating 
facilities across multiple regions are retiring due to economic 
factors.\317\ However, these statements confuse compensation for 
reactive power within the standard power factor range with general cost 
recovery for generating facilities, which involves many other revenue 
streams. Our findings here are that generating facilities incur no 
incremental fixed costs and at most de minimis variable costs 
incremental to the cost of providing real power, because no additional 
equipment is required to provide reactive power and variable costs are 
limited to the fuel costs (in synchronous facilities) or foregone 
direct current power (in non-synchronous facilities) necessary to 
provide the reactive power required to safely inject real power into 
the transmission system and comply with reliability requirements. 
Similarly, Indicated Trade Associations \318\ contend that separate 
reactive power compensation cannot lead to market distortions because 
such rates have been approved by the Commission. But this argument 
ignores the final determination's central logic that such rates lack a 
sufficient economic basis, and the comments in this proceeding have not 
refuted that central logic.
---------------------------------------------------------------------------

    \316\ See, e.g., PJM IMM Initial Comments at 4 (``The current 
rules create strong incentives for generators to attempt to maximize 
the allocation of capital costs to reactive in order to maximize 
guaranteed, nonmarket revenues. Those nonmarket revenues provide a 
nonmarket advantage to those generators who receive them. This is a 
return to using the regulatory process for advantage rather than 
competing in the market. That advantage is arbitrary, not market 
based and therefore distortionary.'').
    \317\ Reactive Service Providers Initial Comments at 27.
    \318\ Indicated Trade Associations Reply Comments at 9.
---------------------------------------------------------------------------

    108. As discussed further below, any purported de minimis variable 
costs associated with providing reactive within the standard power 
factor range can be recovered through other means.\319\
---------------------------------------------------------------------------

    \319\ See infra II.C.2; see also Joint Customers Initial 
Comments at 16 (``Finally, there is no reason to believe incremental 
costs of reactive power could not be recovered in the same way other 
costs are recovered. This could be through capacity markets and 
through power sales, depending on the regional characteristics of 
how generators cover other costs.'').
---------------------------------------------------------------------------

C. Cost Recovery

    109. In the NOPR, the Commission preliminarily found that separate 
compensation for providing reactive power within the standard power 
factor range is not necessary for generating facilities to recover 
their costs.\320\ The Commission noted that, although the prospect of 
receiving separate, fixed reactive power payments may be beneficial for 
developing certain generating facilities, resource developers continue 
to develop new generating facilities in regions without such 
payments.\321\ Furthermore, the NOPR explained that the basis for these 
payments has always been comparability rather than compensability.\322\
---------------------------------------------------------------------------

    \320\ NOPR, 186 FERC ] 61,203 at P 45.
    \321\ For example, as of February 21, 2024, there were 453 total 
generating facilities in the CAISO interconnection queue, 440 of 
which were non-synchronous generating facilities. This corresponds 
to 122,885 MW of capacity, 120,043 MW of which comes from the non-
synchronous generating facilities in the queue. See CAISO, Formatted 
Generator Interconnection Queue Report, https://rimspub.caiso.com/rimsui/logon.do (last visited Feb. 21, 2024). Similarly, as of 
February 21, 2024, there were 947 total generating facilities in the 
SPP interconnection queue, 770 of which were non-synchronous 
generating facilities. This corresponds to 175,243 MW of capacity, 
141,879 MW of which comes from the non-synchronous generating 
facilities in the queue. See SPP, Generator Interconnection Active 
Requests, https://opsportal.spp.org/Studies/GIActive (last visited 
Feb. 21, 2024).
    \322\ NOPR, 186 FERC ] 61,203 at P 45.
---------------------------------------------------------------------------

    110. Instead, in the context of RTO/ISO markets, the Commission 
preliminarily found it would be more efficient for generating 
facilities to seek to recover any identified costs to provide reactive 
power within the standard power factor range, to the extent they exist, 
through energy and capacity sales, because competition between 
generating facilities may incentivize efficiency and increase 
transparency.\323\
---------------------------------------------------------------------------

    \323\ Id.
---------------------------------------------------------------------------

    111. The Commission noted that it has previously and repeatedly 
rejected arguments that generating facilities need separate reactive 
power payments, because the incremental cost of reactive power within 
the standard power factor range is minimal.\324\ Therefore, consistent 
with those findings, the NOPR preliminarily found that eliminating 
compensation for reactive power within the standard power factor range 
would not compromise the ability of IPPs in non-RTO/ISO regions to 
recover their costs associated with producing reactive power within the 
range because generating facilities have the opportunity to seek to 
recover such costs in other ways, such as through higher power sales 
rates or through

[[Page 93435]]

power purchase agreements (PPA).\325\ The Commission further noted that 
the experiences of CAISO, SPP, MISO, and non-RTO/ISO regions where 
generating facilities do not receive separate compensation for the 
provision of reactive power within the standard power factor range and 
the evidence in the record demonstrate that: (1) eliminating 
compensation has not led to an insufficient supply of reactive power in 
those regions and that (2) generating facilities in these regions have 
been able to recover any purported costs associated with the production 
of reactive power.\326\
---------------------------------------------------------------------------

    \324\ Id. P 47 (citing BPA, 120 FERC ] 61,211 at P 21).
    \325\ Id.
    \326\ Id. P 48.
---------------------------------------------------------------------------

    112. In the NOPR, the Commission sought comment on whether, and if 
so how, the elimination of separate compensation for reactive power 
within the standard power range would affect generating facilities' 
ability to recover their costs--if any.\327\
---------------------------------------------------------------------------

    \327\ Id. P 49.
---------------------------------------------------------------------------

1. Comments
    113. Several Commenters argue that the record supports the finding 
that generating facilities can recover any purported costs of providing 
reactive power in the standard power factor range through their sales 
of energy and capacity.\328\ TAPS contends that the Commission is not 
required to guarantee that generating facilities recover their 
incremental costs of providing reactive power in the standard power 
factor range (to the extent those costs exist), but rather the 
``opportunity to recover costs is all that is required.'' \329\ TAPS 
explains that the Commission has never required payment of separate, 
cost-based reactive power compensation within the standard power factor 
range to all interconnecting generators in all circumstances, but has 
rather given transmission providers the option to provide for such 
reactive power compensation for its own generation, provided all 
generators on its system were treated comparably, and transmission 
providers could also eliminate such compensation for itself and others 
on a comparable basis.\330\ New England Consumer Advocates states that 
any final determination should ensure that ratepayer costs for reactive 
power compensation are sufficiently justified, and that ISO-NE should 
articulate specific benefits and compare those benefits with the cost 
of compensation.\331\
---------------------------------------------------------------------------

    \328\ See AEP Initial Comments at 4-6; Joint Consumer Advocates 
Initial Comments at 7-8 (``[Joint Consumer Advocates] assert that 
PJM generators will still have a more than ample opportunity to 
recover the costs associated with their provision of reactive 
power''); Joint Customers Initial Comments at 15 (``Generators have 
other means of covering costs incurred to meet interconnection 
design requirements.''); Joint Customers Reply Comments at 15; MISO 
Transmission Owners Initial Comments at 16-17; MISO Transmission 
Owners Initial Comments at 15 (``Moreover, transmission providers 
have mechanisms for maintaining system reliability in the face of 
premature retirements, including identifying resources as ``system 
support resources.'') (citations omitted)); Ohio FEA Initial 
Comments at 5 (``Ohio . . . supports competitive markets to induce 
efficiency and control costs'').
    \329\ TAPS Initial Comments at 7 & n.19 (citing CXA La Paloma, 
LLC v. CAISO, 165 FERC ] 61,148, at P 71 (2018) (``The Commission 
has been clear that suppliers in competitive wholesale electricity 
markets are not guaranteed full cost recovery, but only the 
opportunity to recover their costs.'')).
    \330\ Id. at 6-7 & n.18 (citing MISO, 182 FERC ] 61,033 at P 53 
(``MISO [Transmission Owners] do not have an obligation to continue 
to compensate an independent generator for reactive power within the 
standard power factor range when its own or affiliated generators 
are no longer being compensated.''); Id. (citing PNM, 178 FERC ] 
61,088 at P 29; Nev. Power Co., 179 FERC ] 61,103, P 20 (2022); BPA, 
120 FERC ] 61,211 at P 20; E.ON U.S. LLC, 119 FERC ] 61,340 at P 15; 
Entergy Servs., Inc., 113 FERC ] 61,040 at P 38) (``Commission's 
precedent allows transmission providers to eliminate compensation 
for reactive power within the standard power factor range for all 
generators, regardless of whether the generator is owned by or 
otherwise affiliated with a transmission owner or is 
independent.'')).
    \331\ New England Consumer Advocates Initial Comments at 4-6. 
See also id. at 5 (``To the extent . . . benefits are achieved by 
compliance with a generating facility's interconnection agreement 
and/or as `good utility practice,' [New England Consumer Advocates] 
agree[] with the Commission that ratepayers should not be paying 
separately for the costs to produce a joint reactive power 
product.'').
---------------------------------------------------------------------------

    114. Ohio FEA states that it supports prohibiting, as expeditiously 
as possible, the inclusion in transmission rates of charges related to 
the provision of reactive power within the standard power factor range 
because generators have an opportunity to recover all costs, including 
reactive power costs, through PJM markets.\332\
---------------------------------------------------------------------------

    \332\ Ohio FEA Initial Comments at 5.
---------------------------------------------------------------------------

    115. Several commenters argue that the NOPR's proposal would 
resolve cost causation issues that result from the current practice of 
providing separate compensation for reactive power within the standard 
power factor range.\333\ Joint Customers, Ameren, TAPS, and MISO 
Transmission Owners argue that the current incentive to provide payment 
based on reactive power capability results in the building of 
unnecessary capabilities in locations it may not be needed and does not 
allocate costs associated with reactive power in a manner that is 
roughly commensurate with the benefits received.\334\ They assert that 
the current scheme results in a proliferation of charges for reactive 
power that is disconnected from the actual benefits received.\335\
---------------------------------------------------------------------------

    \333\ Ameren Initial Comments at 3; Joint Customers Initial 
Comments at 12-13; TAPS Initial Comments at 4-5; MISO Transmission 
Owners Reply Comments at 11-12; MISO Transmission Owners Initial 
Comments at 5; PGE Initial Comments at 3-4.
    \334\ Joint Customers Initial Comments at 12-13; Ameren Initial 
Comments at 3; TAPS Initial Comments at 4-5; MISO Transmission 
Owners Reply Comments at 11-13. See also Joint Customers Initial 
Comments at 5-6 (``The Commission's policy of looking strictly to 
capability for determining cost recovery for Reactive Service 
incentivized overbuilding of capability beyond what was required 
based on interconnection requirements. This policy of not 
considering need or requiring a demonstration of need by the 
transmission owner has resulted in compensation for reactive 
capability without an actual demonstrated benefit to transmission 
system customers. This disconnect between capability and any actual 
demonstrated benefit highlights serious concerns that charges to 
customers are not related to any benefits received.'' (citations 
omitted)).
    \335\ Joint Customers Initial Comments at 12-13; Ameren Initial 
Comments at 3; TAPS Initial Comments at 4-5; MISO Transmission 
Owners Reply Comments at 11-13. See also MISO Transmission Owners 
Initial Comments at 15 (``Moreover, transmission providers have 
mechanisms for maintaining system reliability in the face of 
premature retirements. When generators advise MISO of a planned 
retirement via Attachment Y of the MISO Tariff, MISO completes a 
review to determine whether any Transmission System reliability 
concerns are caused by the retirement. If voltage concerns arise in 
the Attachment Y study, options to address the voltage concerns are 
reviewed and ultimately a permanent solution is identified. If the 
permanent solution cannot be implemented before the planned 
retirement date, then the MISO Tariff has a designation for ``system 
support resources,'' under which generators are eligible to receive 
cost-based compensation to support their continued operation until 
an alternative solution to the reliability problem posed by the 
resources' retirement is developed.'' (citations omitted)).
---------------------------------------------------------------------------

    116. MISO Transmission Owners argue that, contrary to some 
commenters' claims, the NOPR's proposed changes do not violate cost 
causation principles because generating facilities will still be 
compensated for the reactive power their generating facilities supply 
when they are required to operate outside the standard power factor 
range.\336\ MISO Transmission Owners state that ``cost causation 
involves customers paying for a cost that they cause, not suppliers 
receiving compensation for services provided,'' and assert that some 
``commenters attempt to turn this concept on its head'' by ``plac[ing] 
the focus on the service provider rather than the paying customer in an 
attempt to require payment for a service they are already obligated to 
provide as a condition of interconnection.'' \337\ MISO

[[Page 93436]]

Transmission Owners argue that commenters' claims that the NOPR's 
proposed changes violate cost causation principles is a collateral 
attack on principles first promulgated in Order No. 2003 and its 
progeny because that series of orders required generators to provide 
reactive power within the standard power factor range without 
compensation, with few exceptions.\338\ MISO Transmission Owners argue 
that the NOPR's proposed changes do not change generating facilities' 
obligation to provide reactive power within the deadband, but rather 
they remove the unnecessary costs associated with payments to 
generating facilities.\339\
---------------------------------------------------------------------------

    \336\ MISO Transmission Owners Reply Comments at 11.
    \337\ Id. at 12 (citing K N Energy, Inc. v. FERC, 968 F.2d 1295, 
1300 (D.C. Cir. 1992) (``[A]ll approved rates [must] reflect to some 
degree the costs actually caused by the customer who must pay 
them.''); Entergy Ark., LLC v. FERC, 40 F.4th 689, 692 (D.C. Cir. 
2022) (``In assessing whether a rate is `just and reasonable,' FERC 
and the courts determine, among other things, whether the rate 
comports with the `cost-causation principle' which requires that the 
rates charged for electricity reflect the costs of providing it.'' 
(citing Old Dominion Elec. Coop. v. FERC, 898 F.3d 1254, 1255 (D.C. 
Cir. 2018))).
    \338\ Id. at 11-13. See also MISO Transmission Owners Initial 
Comments at 16 (``As the Commission explains, compensation for 
providing reactive power within the deadband is unnecessary, as 
resources are otherwise able to recover their costs. The Commission 
is correct in finding that there are many other mechanisms through 
which generators may recover the costs of reactive power service, if 
they need to. This is consistent with Commission precedent that has 
repeatedly highlighted how generators have the opportunity to 
recover any legitimate costs through other means. The Commission has 
found generators may recover such costs through power purchase 
agreements or capacity and energy market offers. As the Commission 
found when accepting the elimination of reactive power compensation 
in MISO, generators can still include the costs of reactive service 
in energy offers or capacity offers, even if subject to market power 
mitigation.'' (citations omitted)).
    \339\ MISO Transmission Owners Reply Comments at 12-13.
---------------------------------------------------------------------------

    117. Ohio FEA and New England Consumer Advocates state that they 
support the Commission's efforts to mitigate escalating transmission 
costs for customers, particularly when those costs provide no 
incremental benefit to the customers who pay them.\340\
---------------------------------------------------------------------------

    \340\ Ohio FEA Initial Comments at 4; New England Consumer 
Advocates Initial Comments at 3-4.
---------------------------------------------------------------------------

    118. Joint Customers acknowledge that the Commission generally 
allows for flexibility to account for regional differences. However, 
Joint Customers argue that such regional variations do not undermine 
the general rule against compensation for meeting interconnection 
requirements related to the standard power factor range.\341\ Joint 
Customers contend that ``[t]here is a sufficient record for a 
determination that compensation for meeting interconnection 
requirements related to the standard power factor range should be 
prohibited as a general matter, with the understanding that generators 
directed to operate outside that range will continue to be 
compensated.'' \342\ Joint Customers witness Dr. Bresmer argues that a 
generating facility providing reactive power within the standard power 
factor range is simply meeting its interconnection obligations and not 
providing an ancillary service.\343\
---------------------------------------------------------------------------

    \341\ Joint Customers Reply Comments at 14-15.
    \342\ Id. at 15.
    \343\ See, e.g., Joint Customers Initial Comments, Affidavit of 
Dr. Albert W. Bremser at 6:3-7 (``When a generating facility is 
operating within the standard power factor range, the generating 
facility is meeting its responsibility to maintain appropriate 
operational voltage levels for real power moving onto the 
transmission system. It is only when a generating facility is called 
upon to operate outside the standard power factor range that it is 
providing an ancillary service.'' (citations omitted)).
---------------------------------------------------------------------------

    119. Several commenters \344\ argue that there is not sufficient 
evidence to support the conclusion that energy markets or capacity 
markets could or should be used to recover the costs of providing 
reactive power. Glenvale \345\ and Indicated Reactive Power Suppliers 
\346\ each state that reactive power and capacity are two distinct 
types of services and should not be combined. Glenvale argues that 
energy markets do not necessarily provide revenue opportunities due to 
competition and long-term contracts that do not allow certain 
generators access to these energy markets for several years. Indicated 
Trade Associations note that certain types of resources may not even 
participate in the capacity market.\347\ For example, Glenvale argues 
that some generators that provide reactive power but choose not to 
participate in the capacity market will not be able to recover lost 
reactive revenues.
---------------------------------------------------------------------------

    \344\ See, e.g., Clean Energy Associations Initial Comments at 
8-9; EDPR Initial Comments at 4-5; Elevate Initial Comments at 8-9; 
Generation Developers Initial Comments at 18-19; Glenvale Initial 
Comments at 5-6, 8-9; Indicated Reactive Power Suppliers Initial 
Comments at 14; Indicated Trade Associations Initial Comments at 3, 
15; ISO-NE Initial Comments at 1-2; NAGF Initial Comments at 1; NEI 
Initial Comments at 12-13; NEPGA Reply Comments at 1, 4-6; NHA 
Initial Comments at 6-7; PSEG Initial Comments at 2-3, 6, 14-15; 
Reactive Service Providers Initial Comments at 56-62, 77.
    \345\ Glenvale Initial Comments at 6.
    \346\ Indicated Reactive Power Suppliers Initial Comments at 11-
12.
    \347\ Indicated Trade Associations Initial Comments at 15 
(citing PJM OATT, Attachment DD, Sec.  6.6A(c) (0.0.0) (providing a 
categorical exception from the capacity must-offer obligation for 
certain types of resources)).
---------------------------------------------------------------------------

    120. Some commenters argue that generating facilities will be 
unable to recover reactive power costs in their PPAs.\348\ Indicated 
Trade Associations argue that generators may have relied on existing 
reactive power compensation policies when they structured their PPAs, 
bilateral arrangements, and behind the meter arrangements.\349\ 
Indicated Trade Associations \350\ and Generation Developers \351\ each 
claim that the notion that PPA counterparties will be willing to 
renegotiate their contracts to allow them to charge a higher rate to 
recover the costs of a different service belies a basic understanding 
of wholesale markets.
---------------------------------------------------------------------------

    \348\ EDPR Initial Comments at 4-5; Generation Developers 
Initial Comments at 19; Indicated Trade Associations Initial 
Comments at 18; Reactive Service Providers Initial Comments at 59-
62.
    \349\ Indicated Trade Associations Initial Comments at 17-18.
    \350\ Id.
    \351\ Generation Developers Initial Comments at 19.
---------------------------------------------------------------------------

    121. Some commentators \352\ point to RTO/ISO market rules as 
potential barriers to recouping reactive power costs. Indicated Trade 
Associations assert that the Commission has required RTOs and ISOs to 
implement energy offer caps based on generators' verifiable marginal 
costs.\353\ Generation Developers argue that the Commission should 
require RTOs/ISOs to revise their tariffs to eliminate existing 
barriers to the recovery of reactive power costs and permit generating 
facilities to accurately reflect their investments in reactive power 
capability in their capacity offers.\354\
---------------------------------------------------------------------------

    \352\ Id. at 18-19, 34-35; Glenvale Initial Comments at 6; 
Indicated Trade Associations Initial Comments at 12-15; Reactive 
Service Providers Initial Comments at 77.
    \353\ Indicated Trade Associations Initial Comments at 12-13 
(citing Offer Caps in Mkts. Operated by Reg'l Transmission Orgs. and 
Indep. Sys. Operators, Order No. 831, 81 FR 87770 (Dec. 5, 2016), 
157 FERC ] 61,115, at PP 5, 7 (2016), on reh'g, Order No. 831-A, 82 
FR 53403 (Nov. 16, 2017), 161 FERC ] 61,156 (2017)).
    \354\ Generation Developers Initial Comments at 34-35.
---------------------------------------------------------------------------

    122. Generation Developers argue that energy markets allow 
resources to sell energy on a day-ahead and real-time basis, with 
prices generally reflecting variable costs that are insufficient to 
allow resources to recover their fixed costs.\355\ Generation 
Developers state that RTO/ISO market mitigation rules generally 
prohibit generating facilities from reflecting fixed costs in their 
mitigated energy offer costs, often referred to as the ``missing money 
problem,'' and eliminating reactive power compensation would exacerbate 
this issue.\356\ Generation Developers argue that relying on capacity 
markets for reactive power compensation would result in arbitrary 
differences in the ability of resources to recover their costs because 
they would be required to provide reactive power regardless of whether 
they clear the capacity market.\357\ Generation Developers also

[[Page 93437]]

assert that there is no nexus between the capacity value assigned to a 
generating facility and its reactive power capability.\358\ In 
addition, Generation Developers state that ``[t]he Commission has a 
statutory obligation to ensure that [Commission]-jurisdictional rates 
are just, reasonable, and not unduly discriminatory or preferential'' 
and assert that this requirement ``prohibits the Commission from 
denying utilities the opportunity to recover their costs, plus a 
reasonable rate of return.'' \359\
---------------------------------------------------------------------------

    \355\ Id. at 18.
    \356\ Id.
    \357\ Id. at 19.
    \358\ Id.
    \359\ Id. at 6.
---------------------------------------------------------------------------

    123. Indicated Trade Associations argue that including reactive 
power costs in energy offers would increase a generator's risk of not 
clearing in the energy market. Indicated Trade Associations further 
contend that capacity markets do not provide for recovery of reactive 
power costs because capacity offers from existing resources are limited 
to avoidable or going forward costs and do not allow for inclusion of 
costs that have already been incurred to provide reactive power.\360\
---------------------------------------------------------------------------

    \360\ Indicated Trade Associations Initial Comments at 14.
---------------------------------------------------------------------------

    124. Some commenters \361\ argue that the NOPR violates the cost 
causation and beneficiary pays principles because customers benefit 
from reactive power, including reactive power provided within the 
standard power factor range, and thus generating facilities should be 
compensated for this service.\362\ Generation Developers argue that 
while the cost causation principle does not require ``exact 
precision,'' it does require that Commission-approved rates ``be based 
on the costs of providing the service to the utility's customers, plus 
a just and fair return on equity.'' \363\ Generation Developers and 
Reactive Service Providers assert that the NOPR's proposal would 
insulate transmission providers and customers from any responsibility 
to pay for costs associated with the services they are receiving, which 
is ``precisely the type of free ridership that the [FPA] and the cost 
causation principle are intended to prevent.'' \364\ Generation 
Developers argue that the Commission is essentially directing 
generating facilities to recover the costs of reactive power from 
customers purchasing energy and capacity, rather than the transmission 
customers that benefit from the reactive service.\365\
---------------------------------------------------------------------------

    \361\ Indicated Reactive Power Suppliers Initial Comments at 9; 
Generation Developers Initial Comments at 4, 9-12; Reactive Service 
Providers Initial Comments at 62-63.
    \362\ Indicated Reactive Power Suppliers Initial Comments at 9; 
Generation Developers Initial Comments at 4, 9-12; Reactive Service 
Providers Initial Comments at 62-63.
    \363\ Generation Developers Initial Comments at 9-10 (citing 
Sithe/Indep. Power Partners, L.P. v. FERC, 285 F.3d 1, 5 (D.C. Cir. 
2002)).
    \364\ Id. at 10; Reactive Service Providers Initial Comments at 
62-63.
    \365\ Generation Developers Initial Comments at 10-13.
---------------------------------------------------------------------------

    125. Several commenters \366\ who oppose the NOPR assert that 
removing compensation within the standard power factor range would 
result in discriminatory treatment between generating facilities and 
transmission owners. These commenters argue that, under the NOPR, 
generating facilities would be prohibited from recovering their costs 
to provide reactive power under Schedule 2, yet transmission owners 
that install reactive power equipment and assets as part of their 
transmission system would be able to recover the costs of those assets 
through transmission rates charged to transmission service customers. 
They contend that transmission owners would have guaranteed cost 
recovery for the very same service that generating facilities would be 
prohibited from collecting under this NOPR.\367\ ACORE asserts that 
reactive power provides the same benefit to the system, regardless of 
who owns the capacitor banks.\368\
---------------------------------------------------------------------------

    \366\ ACORE Initial Comments at 3; Generation Developers Initial 
Comments at 8-9; Indicated Trade Associations Initial Comments at 
27; NEI Initial Comments at 2, 16; PSEG Initial Comments at 1-3, 17; 
Reactive Service Providers Initial Comments at 63-64.
    \367\ Indicated Trade Associations Initial Comments at 25-27; 
Reactive Service Providers Initial Comments at 64; PSEG Initial 
Comments at 17; ACORE Initial Comments at 3.
    \368\ ACORE Initial Comments at 3.
---------------------------------------------------------------------------

    126. NEI and PSEG both argue that the 2005 Staff Report recognized 
this discriminatory concern and contend that the Commission therefore 
recommended that all providers of reactive power should be paid on a 
nondiscriminatory basis.\369\ Reactive Service Providers add that 
unless and until the Commission proposes to also eliminate the 
opportunity for transmission providers to collect costs associated with 
providing reactive service, the NOPR's proposal is per se 
discriminatory and preferential, in violation of the FPA.\370\ 
Indicated Trade Associations suggest that by disincentivizing 
generators from competing to provide reactive power service, the NOPR 
creates a preference for higher-cost transmission solutions installed 
by transmission owners, which will harm consumers.\371\
---------------------------------------------------------------------------

    \369\ NEI Initial Comments at 16 (citing 2005 Staff Report at 
4); PSEG Initial Comments at 17 (citing same).
    \370\ Reactive Service Providers Initial Comments at 64.
    \371\ Indicated Trade Associations Initial Comments at 24-26; 
Indicated Trade Associations Reply Comments at 16; NEI Initial 
Comments at 17.
---------------------------------------------------------------------------

    127. Relatedly, Reactive Service Providers and Indicated Trade 
Associations assert that the NOPR raises competition concerns.\372\ 
Reactive Service Providers argue that even if the transmission provider 
elects to no longer pay generating facilities for reactive power 
service, the transmission provider will still be able to collect the 
costs of generation-based reactive power service through retail 
rates.\373\ Reactive Service Providers assert that this ``is a sweet 
deal that allows the Transmission Provider to lean on the IPP to 
provide the service for free under the [Commission]'s jurisdiction, 
with the utility simply shifting to another forum to recover the same 
generation-based costs.'' \374\ Reactive Service Providers argue that 
the NOPR undermines the competition that the Commission sought to 
facilitate in Order No. 2003, and while IPPs are disadvantaged by 
losing a revenue stream, utility-generation is able to make that 
revenue stream up through retail rates, thereby putting utility 
generation in a stronger position to compete.\375\ To the extent that 
reactive power service costs are recoverable by transmission owners 
through state retail rates, NEI recognizes that such rates are outside 
the Commission's jurisdiction.\376\ NEI asserts, however, that this 
does not excuse the Commission from considering transmission owners' 
ability to recover their reactive power costs at the state level when 
the Commission is setting its own jurisdictional wholesale rates.\377\
---------------------------------------------------------------------------

    \372\ Indicated Trade Associations Initial Comments at 14; 
Reactive Service Providers Initial Comments at 45-46
    \373\ Reactive Service Providers Initial Comments at 45-46.; 
Indicated Trade Associations Initial Comments at 14 (arguing that 
including reactive power costs in energy offers would increase a 
generating facility's risk of not clearing in the energy market, and 
that this risk is ``particularly acute in jurisdictions where 
independent power producers compete with vertically integrated 
utilities whose generators recover costs through state-
jurisdictional retail rates.'' (citations omitted)).
    \374\ Reactive Service Providers Initial Comments at 46.
    \375\ Id.
    \376\ NEI Initial Comments at 16.
    \377\ Id. at 16-17 & n.47. NEI asserts that the ``Commission 
still has an obligation to consider whether wholesale rates (or as 
here, proposed rates) are unduly discriminatory when considered in 
relation to retail rates, even though the latter is not subject to 
Commission jurisdiction.'' Id. (citing Fed. Power Comm'n v. Conway 
Corp., 426 U.S. 271 (1976); Commonwealth Edison Co., 8 FERC ] 
61,277, at 61,848 (1979); Sunoco, Inc. (R&M) v. Transcontinental Gas 
Pipe Line Corp., 114 FERC ] 61,180 at P 28 & n.20 (2006)).

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

[[Page 93438]]

    128. NEI contends that the proposed replacement rate would result 
in undue discrimination against nuclear generators by imposing 
disproportionate burdens on them without fair compensation.\378\ NEI 
states that the Commission has an obligation to consider whether the 
proposed rates are unduly discriminatory, meaning that the Commission 
must consider transmission owners' ability to recover their reactive 
power costs at the state level.\379\ Elevate argues that the NOPR is 
inconsistent with the spirit of Order No. 841, which required that 
energy storage resources ``be eligible to provide services that the 
RTOs/ISOs do not procure through an organized market mechanism (such as 
blackstart service, primary frequency response service, and reactive 
power service) if they are technically capable of providing those 
services.'' \380\ Elevate argues that the unique physical and 
operational characteristics of energy storage resources correspond with 
the unique revenue profile of energy storage resources.
---------------------------------------------------------------------------

    \378\ Id. at 2.
    \379\ Id. at 16-17.
    \380\ Elevate Initial Comments at 12-13 (citing Elec. Storage 
Participation in Mkts. Operated by Reg'l Transmission Orgs. & Indep. 
Sys. Operators, Order No. 841, 83 FR 9580 (Mar. 6, 2018), 162 FERC ] 
61,127, at P 79 (2018), order on reh'g, Order No. 841-A, 167 FERC ] 
61,154 (2019)).
---------------------------------------------------------------------------

    129. Indicated Trade Associations argue that the Commission must 
ensure that it adopts comprehensive transition plans that account for 
the specific market design and rules of each RTO/ISO and direct each 
RTO/ISO to make filings identifying modifications to be made to 
existing market rules to implement the NOPR.\381\ Indicated Trade 
Associations contend that the Commission must clarify how generating 
facilities will be compensated for reactive power dispatch outside the 
standard power factor range and note that Consolidated Edison Company 
of New York, Inc. requires newly connecting generating facilities to be 
able to provide reactive power 0.85 lagging to 0.95 leading.\382\ The 
NHA further argues that the Commission should allow individual RTOs/
ISOs to retain their reactive power compensation frameworks, as they 
are better suited to address regional reliability needs, and to develop 
compensation mechanisms to reflect locational needs.\383\ Reactive 
Service Providers contend that there is no evidence that generating 
facilities are being sited without respect to whether there is a 
geographic need for reactive power, or that costs are no longer 
commensurate with benefits.\384\
---------------------------------------------------------------------------

    \381\ Indicated Trade Associations Initial Comments at 30.
    \382\ Id. at 31-32.
    \383\ NHA Initial Comments at 5-7.
    \384\ Reactive Service Providers Initial Comments at 31-34.
---------------------------------------------------------------------------

    130. Several commenters also submitted RTO/ISO-specific comments 
addressing cost recovery. As discussed above, ISO-NE, NESCOE, NEPGA, 
and NEPOOL argue that ISO-NE's Schedule 2 VAR compensation program 
should not be disturbed.\385\ ISO-NE notes that the Commission denied 
Maine Public Utilities Commission's complaint to only allow reactive 
power compensation outside the power factor range, as VAR payments were 
a ``negotiated value and is not equal to, nor is it intended to 
recover, the cost of service of any particular generating Resource.'' 
\386\
---------------------------------------------------------------------------

    \385\ ISO-NE Initial Comments at 1-2; NESCOE Reply Comments at 
2; NEPGA Reply Comments at 6-7; NEPOOL Reply Comments at 6-7.
    \386\ ISO-NE Initial Comments at 9-10 (citing Me. Pub. Util. 
Comm'n v. ISO New England Inc., 126 FERC ] 61,090 (2009)).
---------------------------------------------------------------------------

    131. NEPOOL explains that three factors specific to Schedule 2 
contribute to the reliability benefits of reactive service in New 
England: (1) the generator must be dispatchable and ready to respond to 
the ISO's instruction to produce or absorb reactive power; (2) to be 
designated as a Qualified Reactive Resource,\387\ a generator must have 
automatic voltage regulation equipment and telemetry in place to enable 
the ISO to determine that it is providing ``measurable dynamic reactive 
power voltage support to the New England Transmission System''; and (3) 
Schedule 2 requires reactive power testing of Qualified Reactive 
Resources in accordance with the applicable ISO-NE Operating 
Procedures.\388\ NEPOOL argues that these three factors show that any 
final determination should allow flexibility for transmission 
providers, such as ISO-NE, to maintain compensation mechanisms that pay 
for reactive power across the full power factor range when payment is 
contingent on the reactive power resource meeting enhanced reliability-
related requirements.
---------------------------------------------------------------------------

    \387\ In ISO-NE, a generating facility may submit a request, 
including documentation, to ISO-NE to receive additional 
compensation based on their verified leading and lagging reactive 
capability. See ISO-NE Schedule 2, Sec.  3.1 (10.0.0).
    \388\ NEPOOL Reply Comments at 9-11.
---------------------------------------------------------------------------

    132. NEPGA states that ISO-NE's wholesale energy and capacity 
markets do not compensate for reactive power capability or costs, but 
rather transmission rates compensate for reactive power capability 
through ISO-NE's Schedule 2 rate design.\389\ NEPGA argues that the 
Tariff provisions governing capacity market offers in ISO-NE do not 
allow a generator to include the costs for providing reactive power in 
its offer prices nor does the capacity market value reactive power 
capability. Further, NEPGA states that ISO-NE's energy market offer-
price rules (both day-ahead and in real-time) likewise limit costs to 
those necessary to produce real power versus reactive power. Therefore, 
NEPGA contends that ISO-NE's wholesale markets do not, as the 
Commission suggests, provide an opportunity to recover the costs of the 
capability to provide reactive power and the actual costs to deliver 
reactive power.
---------------------------------------------------------------------------

    \389\ NEPGA Reply Comments at 4-6.
---------------------------------------------------------------------------

    133. NYISO states that it supports the NOPR's objective to avoid 
administratively burdensome processes and procedures to determine 
individualized cost-of-service reactive power rates for generation 
facilities.\390\ As discussed above, NYISO and IPPNY argue that NYISO's 
existing reactive power and VSS compensation structure, which uses a 
flat dollars per MVAr-year structure, is just and reasonable.\391\ 
NYISO and IPPNY each assert that NYISO's flat rate compensation 
structure for VSS has been effective for over 20 years, ensuring 
adequate reactive power capability and system reliability in the New 
York Control Area at a reasonable cost to consumers.\392\ NYISO 
explains that the structure, accepted by the Commission since 1999, was 
developed with stakeholder input and Commission approval, with 
significant revisions in 2016 to include leading and lagging reactive 
power capabilities.\393\ NYISO maintains that this structure aligns 
costs directly with services provided, ensuring reliability benefits 
commensurate with expenses.\394\
---------------------------------------------------------------------------

    \390\ NYISO Initial Comments at 1.
    \391\ Id. at 2; IPPNY Reply Comments at 1-2.
    \392\ NYISO Initial Comments at 2; IPPNY Reply Comments at 1-2.
    \393\ NYISO Initial Comments at 2-5.
    \394\ Id.
---------------------------------------------------------------------------

    134. NYISO states that its flat rate compensation provides market-
like incentives, encouraging resources to offer reactive power cost-
effectively by rewarding increased capability and maintaining necessary 
equipment.\395\ NYISO explains that this approach reduces the need for 
complex, individualized cost-based payments and integrates reactive 
power support efficiently into the broader market framework, promoting 
economic efficiency and reliability.\396\
---------------------------------------------------------------------------

    \395\ Id. at 7-8.
    \396\ Id.
---------------------------------------------------------------------------

    135. NYISO contends that as the current system ensures direct

[[Page 93439]]

compensation for reactive power that is critical for maintaining system 
reliability, altering the compensation mechanism could lead to 
increased costs and complicate market operations, undermining the 
efficiency and effectiveness of its existing framework.\397\
---------------------------------------------------------------------------

    \397\ Id. at 8-11.
---------------------------------------------------------------------------

    136. NYISO emphasizes that as the resource mix evolves with more 
asynchronous and renewable resources, its flexible compensation 
structure is crucial for maintaining and enhancing reactive power 
support.\398\ NYISO argues that this adaptability will ensure ongoing 
system reliability amidst changing resource dynamics.
---------------------------------------------------------------------------

    \398\ Id. at 11-13.
---------------------------------------------------------------------------

    137. Lastly, NYISO and IPPNY each highlight the need for continued 
flexibility in adjusting compensation rules to incentivize maximum 
reactive power capability and minimize out-of-market commitments.\399\ 
NYISO contends that a uniform implementation approach is not suitable 
given the varying regional needs and existing effective compensation 
frameworks.\400\
---------------------------------------------------------------------------

    \399\ Id. at 13-14; IPPNY Reply Comments at 2.
    \400\ NYISO Initial Comments at 14.
---------------------------------------------------------------------------

    138. PJM states that the NOPR would largely eliminate a number of 
problems that PJM and its stakeholder processes have identified. PJM 
explains that given that PJM stakeholders have been unable to reach 
consensus on a new rate paradigm after two years of work, PJM supports 
the proposed reforms identified in the NOPR and encourages the 
Commission to adopt them as proposed.\401\ As discussed further below, 
PJM also proposes that RTOs/ISOs be allowed to implement any needed 
conforming changes to their market rules as part of the compliance 
process.\402\
---------------------------------------------------------------------------

    \401\ PJM Initial Comments at 3-4.
    \402\ Id. at 6-7.
---------------------------------------------------------------------------

    139. The PJM IMM states that the NOPR would extend a just and 
reasonable, pro competition policy to all jurisdictional markets and 
public utilities while protecting PJM customers from unjust and 
unreasonable charges for reactive capability that generation owners are 
already required to provide.\403\ The PJM IMM also argues that power 
suppliers, not customers, are responsible for the regulatory risk 
related to their PPAs.\404\
---------------------------------------------------------------------------

    \403\ PJM IMM Initial Comments at 1-2. See also id.at 4 
(``[T]here is no reason that part of those capital costs should be 
paid directly in a nonmarket, guaranteed, riskless revenue stream 
rather than in the market.''); id. at 6 (``Elimination of the 
reactive revenue requirement and the reactive revenue offset would 
increase prices in the capacity market. The VRR curve, or demand 
curve, would shift to the right, the maximum VRR price would 
increase and offer caps in the capacity market would increase.'').
    \404\ PJM IMM Reply Comments at 5 (``When buyers and sellers 
enter into power purchase agreements, the contracting parties define 
and assign regulatory risk. Customers are not responsible to manage 
or pay for suppliers' risks.'').
---------------------------------------------------------------------------

    140. The PJM IMM adds that generating facilities in PJM incur other 
obligations, such as primary frequency response, as a condition of 
interconnection without separate compensation for such 
obligations.\405\ The PJM IMM maintains that:
---------------------------------------------------------------------------

    \405\ PJM IMM Initial Comments at 8 (``Reactive power is not the 
only design obligation that generation interconnection customers 
assume. Generators are also obligated to provide primary frequency 
response capability ``by installing, maintaining, and operating a 
functioning governor or equivalent controls . . .'' Primary 
frequency response capability is required for the reliable operation 
of the system. The PJM OATT does not, however, provide for an out of 
market payment for such capability. The provision of primary 
frequency capability is treated as an obligation assumed by 
generation interconnection customers for receiving interconnection 
service.'') (citations omitted)); Id. at 9 (``The PJM OATT includes 
a number of other obligations on generation interconnection 
customers, many of which are important and impose costs, but does so 
without including any special provisions for out of market 
compensation.''); PJM IMM Reply Comments at 6 (``The fundamental 
logic of the obligation to provide reactive service, frequency 
control service and other essential elements of interconnecting to 
the power grid is that the grid is a network. All generators who 
connect to the grid benefit from that network effect. All generators 
who connect to the grid have corresponding obligations to the grid 
that permit the grid to function as an effective and reliable 
network. It has always been the case that there are standards for 
interconnecting to the network. Meeting those standards is part of 
being a resource on the network. The actual costs of interconnecting 
to the grid can be significant for resources but those costs are 
part of the cost of building a resource and part of the investment 
decision for resource owners and not a reason for a separate 
guaranteed payment.'').

    There is no evidence that units are built as a result of 
reactive [power] revenue. There is no evidence that sources of 
revenue are not fungible and that a decrease in reactive [power] 
revenues could be not replaced with other sources of revenue. There 
is no basis for adding new resources to the already very crowded 
interconnection queue solely based on out of market subsidies from 
reactive revenues.\406\
---------------------------------------------------------------------------

    \406\ PJM IMM Initial Comments at 12-13.
---------------------------------------------------------------------------

2. Commission Determination
    141. Based on the record here, we adopt the NOPR's preliminary 
findings and conclude that separate compensation for providing reactive 
power within the standard power factor range is not necessary for 
generating facilities to have the opportunity to recover their costs. 
As explained above, for both synchronous and non-synchronous generating 
facilities, real and reactive power are joint products, with joint 
costs and there are no identifiable fixed costs incurred by generating 
facilities to provide reactive power within the standard power factor 
range beyond the investments in equipment already necessary to generate 
and supply real power to the transmission system. Further, the record 
demonstrates that there are at most de minimis variable costs, such as 
fuel and maintenance costs, associated with providing reactive power 
within the standard power factor range. Given that the primary function 
of a generating facility is to produce real power, and that the 
provision of reactive power within the standard power factor range is 
necessary to the provision of real power, we find that a generating 
facility's fixed and variable costs are appropriately recovered through 
payments for real power, such as energy and/or capacity sales, whether 
in organized or bilateral markets.\407\ Accordingly, we find that this 
final determination does not prevent a generating facility from seeking 
to recover its costs because resource owners have the opportunity to 
recover any of their appropriate fixed and variable costs through other 
revenue streams, including the opportunity to make up for lost 
revenues, if any, from the cessation of reactive power 
compensation.\408\ We find that such an

[[Page 93440]]

outcome is not only appropriate given the nature of the costs but also 
more efficient because competition between generating facilities may 
incentivize efficiency.\409\
---------------------------------------------------------------------------

    \407\ We emphasize that our findings in this final determination 
do not affect any party's filing rights under section 205 of the 
FPA, including the right of generating facilities to seek cost 
recovery for the provision of reactive power outside the standard 
power factor range. See supra II.A.2.
    \408\ See, e.g., PJM IMM Initial Comments at 1-2, 4, 6, 9, 12-
13; PJM IMM Reply Comments at 2-5; Joint Customers Initial Comments 
at 16; MISO Transmission Owners Initial Comments at 16-17; Ohio FEA 
Initial Comments at 3, 5; Joint Consumer Advocates Initial Comments 
at 7-8; TAPS Initial Comments at 7-8; see also MISO Rehearing Order, 
184 FERC ] 61,022 at P 42 (``On rehearing, we conclude that Vistra 
has still not adequately explained why generators cannot include the 
costs attributable to Reactive Service in energy offers or capacity 
offers, even if subject to market power mitigation, . . . . As to 
capacity offers, among the ``going forward'' costs that can be 
recovered are ``mandatory capital expenditures necessary to comply 
with federal . . . reliability requirements,'' which would appear to 
include any (hypothetical) capital investments and expenditures 
associated with Reactive Service capability. As to energy offers, 
Vistra does not explain the basis for its assertion that the Tariff 
bars including any incremental costs associated with Reactive 
Service capability (e.g., fuel costs, short-term variable operations 
and maintenance) in such offers. Moreover, while Vistra claims that 
``a generation resource that attempts to recover its fixed costs of 
reactive power through its energy or capacity offers runs the risk 
that it will trigger application of MISO's market power mitigation 
rules,'' even assuming this were correct, this would not preclude 
generators from recovering such costs in the capacity market, but 
rather would require that they verify the costs with the independent 
market monitor. The cases Vistra cites also do not establish that 
where Schedule 2 compensation for Reactive Service is not available, 
seeking compensation through other mechanisms is impermissible.'' 
(citations omitted)).
    \409\ PJM IMM Initial Comments at 1-6, 9, 12-13; PJM IMM Reply 
Comments at 2-5.
---------------------------------------------------------------------------

    142. We recognize, however, the current interplay between existing 
reactive power revenue compensation mechanisms and energy and capacity 
market rules in ISO-NE, NYISO, and PJM,\410\ and, as a result, the 
RTOs/ISOs may request, by setting forth the specific bases and 
reasoning therefore for the Commission's consideration an effective 
date for their compliance filings that allows them to develop and 
propose changes to their markets that are necessary in order to 
accommodate this final determination's elimination of compensation for 
the provision of reactive power within the standard power factor range. 
As recognized in the NOPR and affirmed in the comments, the existing 
capacity market rules in PJM, ISO-NE and NYISO reflect the existence of 
generator payments under Schedule 2 through a revenue offset and reduce 
capacity market revenues accordingly. For example, as PJM and the PJM 
IMM explain, the PJM capacity market rules currently reflect a reactive 
power revenue offset in both the market seller offer caps and the Net 
Cost of New Entry (CONE) for the reference resource, which affects the 
shape of PJM's capacity market demand curve. Therefore, both PJM and 
the PJM IMM argue that the market rules will have to be revised to 
reflect the impacts of this final determination.\411\ Similarly, NYISO 
and ISO-NE may need to propose changes to market rules to reflect the 
elimination of reactive power revenues resulting from this final 
determination. Therefore, as discussed below, we recognize that ISO-NE, 
NYISO, and PJM may need to develop and propose changes to their markets 
that may be necessary to accommodate this final determination's 
elimination of compensation for the provision of reactive power within 
the standard power factor range.\412\ For the reasons explained above, 
we also disagree with those commenters who argue that there is not 
sufficient evidence to support the conclusion that energy markets or 
capacity markets could or should be used to seek to recover the costs 
currently recovered through payments for reactive power, as well as 
those commenters that argue that because capacity and reactive power 
service are separate products, their costs should likewise be recovered 
separately under Schedule 2. Given the same equipment is used for real 
and reactive power and the incremental variable costs of reactive power 
service within the deadband are minimal, as explained in the section 
above, we disagree with commenters' claims that costs, if any, 
currently recovered through reactive power payments cannot be recovered 
through other markets, especially given the transition period provided 
in this final determination, which addresses concerns about existing 
market rules that may impact cost recovery from those markets.\413\ 
Furthermore, our finding here is supported both by experience in CAISO, 
SPP, MISO and certain non-RTO regions where generating facilities do 
not receive compensation for the provision of reactive power within the 
standard power factor range, and the evidence in the record to 
date.\414\ Specifically, experience and evidence demonstrate that: (1) 
eliminating compensation has not led to an insufficient supply of 
reactive power in those regions; and (2) generating facilities in these 
regions have been able to recover their fixed and variable costs 
through other means.\415\ For example, CAISO ``has seen no evidence to 
this point that resources cannot comply with reactive power dispatch 
instructions because they have insufficient funds for the equipment to 
meet the reactive power dispatch.'' \416\ Rather, ``the lack of 
separate reactive power compensation in CAISO or SPP means that all 
costs have to be recovered through the applicable PPA, which also means 
that those PPA prices are higher, all other variables being equal, than 
they would otherwise be.'' \417\
---------------------------------------------------------------------------

    \410\ See, e.g., PJM IMM Initial Comments at 6.
    \411\ See PJM IMM Initial Comments at 6 (``Elimination of the 
reactive revenue requirement and the reactive revenue offset would 
increase prices in the capacity market. The VRR curve, or demand 
curve, would shift to the right, the maximum VRR price would 
increase and offer caps in the capacity market would increase.'').
    \412\ See infra III.B.2.
    \413\ See III.B.2; see, e.g., MISO Rehearing Order, 184 FERC ] 
61,022 at PP 40-42; BPA, 120 FERC ] 61,211 at P 21 (finding that the 
argument that it is not feasible for IPPs to recover their costs 
through higher power sales rates ``lacks plausibility'' ``since the 
incremental cost of reactive power service within the deadband is 
minimal,'' and ``[t]he purpose for which generation assets are built 
(including reactive power capability to maintain voltage levels for 
generation entering the grid) is to make sales of real power''). See 
also Joint Customers Initial Comments at 15 (``Generators have other 
means of covering costs incurred to meet interconnection design 
requirements.''); MISO Transmission Owners Initial Comments at 16 
(``As the Commission explains, compensation for providing reactive 
power within the deadband is unnecessary, as resources are otherwise 
able to recover their costs. The Commission is correct in finding 
that there are many other mechanisms through which generators may 
recover the costs of reactive power service, if they need to. This 
is consistent with Commission precedent that has repeatedly 
highlighted how generators have the opportunity to recover any 
legitimate costs through other means. The Commission has found 
generators may recover such costs through power purchase agreements 
or capacity and energy market offers. As the Commission found when 
accepting the elimination of reactive power compensation in MISO, 
generators can still include the costs of reactive service in energy 
offers or capacity offers, even if subject to market power 
mitigation.'' (citations omitted)).
    \414\ See, e.g., PJM IMM Initial Comments at 4 (``[T]here is no 
reason that part of those capital costs should be paid directly in a 
nonmarket, guaranteed, riskless revenue stream rather than in the 
market.''); Joint Customers Initial Comments at 15 (``Generators 
have other means of covering costs incurred to meet interconnection 
design requirements.'').
    \415\ AEP Initial Comments at 4-6; Joint Consumer Advocates 
Initial Comments at 7-8; Joint Customers Initial Comments at 15-18; 
Ohio FEA Initial Comments at 5 (``Through the PJM markets, 
generators have an opportunity to recover all costs, including 
reactive power costs.''). See also MISO Transmission Owners Initial 
Comments at 15-17 (``The Commission is correct in finding that there 
are many other mechanisms through which generators may recover the 
costs of reactive power service, if they need to.'').
    \416\ NOPR, 186 FERC ] 61,203 at P 48 (citing CAISO Initial 
Comments to NOI at 5-6).
    \417\ Id. (citing LRE/UCS Initial Comments to NOI at 16).
---------------------------------------------------------------------------

    143. We also find it of no consequence that a generating facility 
participates in only the energy market, as no commenter has 
demonstrated why these joint costs could not be recovered via energy 
sales, as these costs are necessary for the production and delivery of 
real power. However, as discussed herein, to the extent that current 
RTO/ISO market rules require generating facilities to subtract their 
separate revenue streams for reactive power from the avoidable costs 
they are permitted to reflect in their capacity market offers, we 
encourage RTOs/ISOs to propose any necessary conforming changes to 
their market rules in section 205 filings accompanying their compliance 
filings to this final determination.\418\
---------------------------------------------------------------------------

    \418\ See PJM Initial Comments at 6-7; infra III.B.2.
---------------------------------------------------------------------------

    144. The NHA asserts that capacity markets are unequipped to 
situate reactive power where it is most needed because capacity markets 
do not allow for granular clearing prices based on specific geographic 
locations. In turn, the NHA argues that RTOs/ISOs should instead 
develop reactive power compensation rules to reflect locational 
requirements.\419\ However, we find that generating facilities are 
required to provide reactive power within the standard power factor 
range as a matter of good utility practice and to meet the obligations 
under their interconnection agreements under Order No. 2003,

[[Page 93441]]

regardless of location.\420\ For that reason, Order No. 2003 does not 
contain a location-specific component for the provisions of reactive 
power within the standard power factor range. Any additional reactive 
power capability required to satisfy specific local reliability needs, 
as well as the compensation for costs incurred to provide that 
capability (e.g., capacitors, synchronous condensers), are for the 
transmission provider to determine and are beyond the scope of this 
final determination.\421\
---------------------------------------------------------------------------

    \419\ NHA Initial Comments at 5-7.
    \420\ See supra II.A.2; MISO Transmission Owners Reply Comments 
at 12-13 (``That series of orders required, among other things, that 
interconnecting generators be able to provide reactive power within 
the deadband without compensation.'').
    \421\ See MISO Transmission Owners Initial Comments at 15 
(``Moreover, transmission providers have mechanisms for maintaining 
system reliability in the face of premature retirements. When 
generators advise MISO of a planned retirement via Attachment Y of 
the MISO Tariff, MISO completes a review to determine whether any 
Transmission System reliability concerns are caused by the 
retirement. If voltage concerns arise in the Attachment Y study, 
options to address the voltage concerns are reviewed and ultimately 
a permanent solution is identified. If the permanent solution cannot 
be implemented before the planned retirement date, then the MISO 
Tariff has a designation for `system support resources,' under which 
generators are eligible to receive cost-based compensation to 
support their continued operation until an alternative solution to 
the reliability problem posed by the resources' retirement is 
developed.'' (citations omitted)).
---------------------------------------------------------------------------

    145. In response to commenters \422\ who argue that generating 
facilities will be unable to recover through their existing PPAs costs 
that are currently recovered through separate reactive power payments, 
the record lacks any concrete evidence showing whether, and to what 
extent, generating facilities factored reactive power revenues into 
their PPAs. Even if a generator were able to demonstrate that 
eliminating compensation under our rule might impact some generating 
facility's profitability, we do not believe that potential disrupted 
expectations weigh in favor of a different outcome in this situation. 
As a general matter, the risk of regulatory change is inherent in any 
long-term PPA.\423\ Moreover, as explained above, because no generating 
facility could have reasonably relied on an inherent right to separate 
compensation for reactive power capability within the standard power 
factor range since Order Nos. 2003 and 2003-A (i.e., because such 
compensation is required only to ensure ``comparability''), there has 
always been some risk in relying on compensation, because market rules 
can change.\424\ Indeed, developers and generating facilities have been 
on notice since at least 2003 that the Commission regards reactive 
power compensation within the standard power factor range as non-
compensable (other than where the comparability standard applies) --a 
conclusion that was patent in those orders, and reinforced repeatedly 
in subsequent Commission orders accepting transmission owner filings 
under section 205 that eliminated reactive power compensation within 
the standard power factor range.\425\ Additionally, the Commission 
rejected reliance arguments in the MISO Rehearing Order \426\ and 
PNM.\427\ We similarly find unsupported Generation Developers'\428\ 
concerns about energy markets being insufficient to recover fixed costs 
and Indicated Trade Associations' \429\ concerns about not clearing the 
energy market when including reactive power costs in energy market 
bids. The record demonstrates that, in regions such as MISO, where 
separate compensation for the provision of reactive power within the 
standard power factor range has been eliminated, generating facilities 
continue to be developed, indicating that such developers believe there 
to be sufficient opportunity to recover their costs, including any 
costs associated with the provision of reactive power within the 
standard power factor range.\430\ In light of this evidence, Indicated 
Trade Associations' and Generation Developers' arguments that organized 
markets do not provide sufficient opportunities for generating 
facilities to recover their costs fall flat.
---------------------------------------------------------------------------

    \422\ EDPR Initial Comments at 4-5; Generation Developers 
Initial Comments at 19; Indicated Trade Associations Initial 
Comments at 18; Reactive Service Providers Initial Comments at 59-
62.
    \423\ See, e.g., PJM IMM Reply Comments at 5 (``When buyers and 
sellers enter into power purchase agreements, the contracting 
parties define and assign regulatory risk. Customers are not 
responsible to manage or pay for suppliers' risks.'').
    \424\ See MISO Rehearing Order, 184 FERC ] 61,022 at P 33 
(``Sophisticated parties, like independent power producers, have the 
ability to manage risks of this sort in entering long-term 
arrangements rather than assuming that this compensation will be 
available in perpetuity.'').
    \425\ See, e.g., Nev Power Co., 179 FERC ] 61,103; PNM, 178 FERC 
] 61,088 at PP 26-36; SPP, 119 FERC ] 61,199 at PP 20, 30-33.
    \426\ See MISO Rehearing Order, 184 FERC ] 61,022 at P 33 
(``[W]e find that generators' assumption that such compensation will 
continue to be available does not give rise to reliance interests 
that justify requiring that such compensation continue to be 
provided.'').
    \427\ PNM, 178 FERC ] 61,088 at P 33 (``[B]y designing its 
generating facility to have the capability to provide reactive 
support, Aragonne Wind is only meeting the conditions of 
interconnection required of all generators and is not entitled to 
compensation unless the transmission provider pays its own or 
affiliated generators for reactive power within the established 
range.'').
    \428\ Generation Developers Initial Comments at 18.
    \429\ Indicated Trade Associations Initial Comments at 14.
    \430\ See MISO Transmission Owners Initial Comments at 14 
(``Moreover, all charges under Schedule 2 of the MISO Tariff for the 
provision of reactive power within the standard power factor range 
were eliminated in the MISO region effective December 1, 2022. MISO 
has since experienced no reliability issues as a result and 
generator interconnection applications, the first step of a process 
that ends with execution of an interconnection agreement that 
obligates the generator to provide reactive power within the 
deadband, remain high.'' (citations omitted)).
---------------------------------------------------------------------------

    146. We agree with Generation Developers that ``[t]he Commission 
has a statutory obligation to ensure that [Commission]-jurisdictional 
rates are just, reasonable, and not unduly discriminatory or 
preferential.'' \431\ Indeed, our actions here do nothing to deny 
generating facilities their ``opportunity to recover their costs, plus 
a reasonable rate of return.'' \432\ As noted above, generating 
facilities have an opportunity to recover appropriately recoverable 
fixed and variable costs through other markets, including the 
opportunity to potentially make up for lost revenue from the cessation 
of reactive power compensation within the standard power factor 
range.\433\ And if market rules in RTOs/ISOs currently inhibit such 
recovery, as discussed herein, we are permitting the RTOs/ISOs to 
request additional time to update those market rules, as may be 
appropriate and consistent with this final determination.
---------------------------------------------------------------------------

    \431\ Generation Developers Initial Comments at 6.
    \432\ Id.
    \433\ See, e.g., N. Am. Elec. Reliability Corp., 183 FERC ] 
61,222 (2023) (explaining that the FPA requires only that 
Commission-jurisdictional rates provide an opportunity for the 
recovery of prudently incurred costs necessary to comply with 
reliability standards--not that all entities have identical 
outcomes) (citing ISO New England Inc., 132 FERC ] 61,044, at P 28 
(2010) (``[R]esources are provided only an opportunity to recover 
their costs, not a guarantee that they will recover those costs.''); 
Bridgeport Energy, LLC, 113 FERC ] 61,311, at P 29 (2005) (``[T]he 
Commission has no obligation in a competitive marketplace to 
guarantee Bridgeport its full traditional cost-of-service. Rather, 
in a competitive market, the Commission is responsible only for 
assuring that Bridgeport is provided the opportunity to recover its 
costs.'') (emphasis in original).
---------------------------------------------------------------------------

    147. Regarding ISO-NE's \434\ reliance on the Commission's denial 
of the Maine Public Utilities Commission's complaint to support its 
assertion that ISO-NE's reactive power scheme was, and continues to be, 
just and reasonable, we acknowledge that our findings in this final 
determination represent a change in policy from prior Commission 
findings on compensation for the provision of reactive power within the 
standard power factor range. However, as discussed above, we find that 
the record in this proceeding demonstrates that such a change is 
appropriate.
---------------------------------------------------------------------------

    \434\ ISO-NE Initial Comments at 10.

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

[[Page 93442]]

    148. We disagree with commenters' \435\ contention that eliminating 
compensation for reactive power within the standard power factor range 
would violate the cost causation principle. As discussed above, real 
and reactive power are provided as joint products, with joint costs, 
and are produced using the same equipment; therefore, a separate cost 
compensation mechanism for the provision of reactive power within the 
standard power factor range is not necessary.\436\ We are not persuaded 
that eliminating compensation for reactive power within the standard 
power factor range violates cost causation.
---------------------------------------------------------------------------

    \435\ ACORE Initial Comments at 3; Generation Developers Initial 
Comments at 4, 9-12; Indicated Trade Associations Initial Comments 
at 27; NEI Initial Comments at 2, 16; PSEG Initial Comments at 1-3, 
17; Reactive Service Providers Initial Comments at 62-64; Indicated 
Reactive Power Suppliers Initial Comments at 9.
    \436\ See II.B.2.
---------------------------------------------------------------------------

    149. Additionally, we disagree with claims that transmission 
customers are the sole beneficiaries and cost-causers, as well as 
assertions \437\ that eliminating compensation for reactive power 
within the standard power factor range would insulate transmission 
providers and customers from paying for any costs associated with the 
services they are receiving--essentially requiring generating 
facilities to recover the costs of reactive power from energy and 
capacity market customers, rather than the transmission customers that 
benefit from the reactive power service. These arguments fail because 
they are inconsistent with Commission precedent that explains that 
providing reactive power within the standard power factor range enables 
generating facilities to reliably deliver real power to the 
transmission system (i.e., make real power sales).\438\ In effect, 
these costs are ``caused'' by the operating requirements of the 
generating facilities to deliver real power, not by the separate needs 
of the transmission customers.
---------------------------------------------------------------------------

    \437\ Indicated Trade Associations Initial Comments at 24-26; 
Indicated Trade Associations Reply Comments at 16; NEI Initial 
Comments at 17.
    \438\ See SPP Rehearing Order, 121 FERC ] 61,196 at P 15 (``As 
we have previously explained, reactive power is required for an 
interconnecting generator to deliver its power and reactive power 
produced within the [standard power factor range] and is, therefore, 
generally not compensable.'' (emphasis added)); BPA Rehearing Order, 
120 FERC ] 61,211 at P 21 (``The purpose for which generation assets 
are built (including reactive power capability to maintain voltage 
levels for generation entering the grid) is to make sales of real 
power.''); see supra II.A.2.
---------------------------------------------------------------------------

    150. We similarly disagree with commenters'\439\ assertions that 
eliminating compensation for reactive power within the standard power 
factor range would result in undue discrimination between generating 
facilities and transmission assets, where owners of the latter would 
still have guaranteed recovery of their costs of reactive power assets 
through transmission rates. The Commission has long held that reactive 
power supply from transmission facilities is distinct from reactive 
power supply from generating facilities, with the former constituting a 
basic part of transmission service.\440\ This is because generating 
facilities must produce reactive power within the standard power factor 
range to allow the generating facilities' real power to reliably flow 
onto the transmission system, while transmission provider investment in 
capacitor banks is to control transmission system voltage levels to 
provide reliable transmission service.\441\ These findings also address 
similar arguments raised by NEI and PSEG.\442\
---------------------------------------------------------------------------

    \439\ Indicated Trade Associations Initial Comments at 24-27; 
Reactive Service Providers Initial Comments at 64; PSEG Initial 
Comments at 17; ACORE Initial Comments at 3; NEI Initial Comments at 
2, 16.
    \440\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,706 
(``We accept NERC's identification of two ways of supplying reactive 
power and controlling voltage. One is to install facilities, usually 
capacitors, as part of the transmission system. We will consider the 
cost of these facilities as part of the cost of basic transmission 
service. Providing reactive power and voltage control in this way is 
not a separate ancillary service. The second is to use generating 
facilities to supply reactive power and voltage control. This use is 
the service named here, which must be unbundled from basic 
transmission service.'').
    \441\ Id. (``NERC further distinguishes reactive supply services 
based on the source of the need for the service: (1) reactive supply 
needed to support the voltage of the transmission system; and (2) 
reactive supply needed to correct for the reactive portion of the 
customer's load at the delivery point.''); see also supra n.439.
    \442\ NEI Initial Comments at 16 (citing 2005 Staff Report at 
4); PSEG Initial Comments at 17 (citing same).
---------------------------------------------------------------------------

    151. Similarly, we find without merit Reactive Service Providers' 
and Indicated Trade Associations' argument that transmission owners 
that own generation will have a competitive advantage over IPPs by 
virtue of their ability to recover their costs through retail rates. 
Putting aside that commenters provide no support for their contention 
that transmission owners that own generation will be able to recover 
their reactive power costs through retail rates,\443\ the Commission 
has rejected similar arguments on multiple occasions. In SPP and BPA, 
the Commission explained ``that merchant generators are free to 
negotiate rates that they charge their customers for real power that 
are sufficient to compensate them for any costs that they may incur in 
producing reactive power within their deadbands, just as affiliated 
generators may seek to negotiate rates that they charge their customers 
that are sufficient to compensate them for the costs of any reactive 
power that they provide within their deadbands.'' \444\ The Commission 
also observed that ``[i]n this regard, all that the protestors have 
done is to note that an incumbent utility's generators may be able to 
make up the revenue that they previously might have earned through a 
separate charge for reactive power within the deadband in other ways--
such as through higher power sales rates. But merchant generators are 
no differently situated and their ability to recover such costs has not 
been compromised. They, equally, may be able to recover the costs for 
reactive power within the deadband in other ways--such as through 
higher power sales rates of their own.'' \445\ As in those other cases, 
we believe that our action here ``maintains a level playing field for 
all generators subject to Commission jurisdiction, such that 
compensation for reactive power support is separately paid when 
reactive power outside the deadband is dispatched to the point on the 
transmission system where it is needed, and in the magnitude required 
to ensure a stable grid.'' \446\
---------------------------------------------------------------------------

    \443\ SPP Order on Rehearing, 121 FERC ] 61,196 at P18 
(``[T]ransmission owners' generators are not entitled to charge 
retail customers retail rates that guarantee full recovery of their 
costs; rather, they must first justify their rates to state 
authorities'').
    \444\ BPA, 120 FERC ] 61,211 at P 21 (citing SPP, 119 FERC ] 
61,199 at P 39).
    \445\ Id.
    \446\ SPP, 119 FERC ] 61,199 at P 38. See N. Am. Elec. 
Reliability Corp., 183 FERC ] 61,222 (rejecting claims that 
reliability standard gives vertically integrated utilities a 
competitive advantage; explaining that, while the approval of the 
new standard may have different implications for different entities 
depending on their existing compensation mechanisms, the FPA 
requires only that Commission-jurisdictional rates provide an 
opportunity for the recovery of prudently incurred costs necessary 
to comply with reliability standards--not that all entities have 
identical outcomes).
---------------------------------------------------------------------------

    152. Regarding Elevate's assertion that Commission precedent, 
including Order No. 841, requires compensation for any service that a 
generating facility is technically capable of providing, we note that 
many regions do not provide separate compensation for each obligation 
of interconnection. For example, as the PJM IMM notes, generating 
facilities in PJM are required to provide primary frequency response 
and other essential transmission system services as a condition of 
interconnection without a separate, dedicated revenue stream.\447\ 
Furthermore, as explained above,

[[Page 93443]]

generating facilities have an opportunity to recover their appropriate 
fixed and variable costs through other markets, including the 
opportunity to make up for lost revenue from the cessation of reactive 
power compensation within the standard power factor range.
---------------------------------------------------------------------------

    \447\ Supra n.415.
---------------------------------------------------------------------------

    153. Although ISO-NE and NYISO argue to maintain their existing 
reactive power compensation schemes, as discussed above, these 
arguments ignore the findings in this final determination, which apply 
equally to flat-rate compensation regimes like ISO-NE's and NYISO's, as 
to the compensation regimes of PJM and certain non-RTO regions. That 
is, generating facilities incur no incremental fixed costs and at most 
de minimis variable costs incremental to the cost of providing real 
power, because no additional equipment is required to provide reactive 
power and variable costs are limited to the fuel costs (in synchronous 
facilities) or foregone direct current power (in non-synchronous 
facilities) necessary to provide the reactive power required to safely 
inject real power into the transmission system and comply with 
reliability requirements.\448\
---------------------------------------------------------------------------

    \448\ See, II.B.2.
---------------------------------------------------------------------------

    154. These commenters argue that transparency, administrative 
burden, and preventing double recovery problems are reduced or 
eliminated in either ISO-NE, NYISO, or both. However, all those 
arguments suppose that compensation is due, and thus that a 
compensation method is needed. But, if no separate compensation is due, 
all compensation methodologies will necessarily result in unjust and 
unreasonable rates.\449\ Furthermore, we agree with New England 
Consumer Advocates,\450\ who argue that any payment for reactive power 
capability within the standard power factor range must yield some 
roughly commensurate incremental benefit above and beyond that which 
would accrue absent payment.\451\ Given those arguments, transmission 
customers in ISO-NE and NYISO, just like transmission customers in PJM 
and non-RTO regions, do not receive benefits that are commensurate with 
the costs of reactive power charges, even if the compensation methods 
used in these regions are less administratively burdensome than the 
methods used in other regions.\452\
---------------------------------------------------------------------------

    \449\ See, II.A.2.
    \450\ New England Consumer Advocates Initial Comments at 5 (``To 
the extent . . . benefits are achieved by compliance with a 
generating facility's interconnection agreement and/or as `good 
utility practice,' [New England Consumer Advocates] agree[] with the 
Commission that ratepayers should not be paying separately for the 
costs to produce a joint reactive power product.'').
    \451\ See, e.g., supra n.140.
    \452\ Joint Customers Initial Comments at 5-6 (``The 
Commission's policy of looking strictly to capability for 
determining cost recovery for Reactive Service incentivized 
overbuilding of capability beyond what was required based on 
interconnection requirements. This policy of not considering need or 
requiring a demonstration of need by the transmission owner has 
resulted in compensation for reactive capability without an actual 
demonstrated benefit to transmission system customers. This 
disconnect between capability and any actual demonstrated benefit 
highlights serious concerns that charges to customers are not 
related to any benefits received.'' (citations omitted)).
---------------------------------------------------------------------------

D. Reliability

    155. The NOPR preliminarily found that ``compensation for providing 
reactive power within the standard power factor range is unnecessary to 
maintain reliability'' and that ``requiring transmission providers to 
continue paying for reactive power already required by a generating 
facility's interconnection agreement is not necessary to ensure that 
generating facilities provide reactive power when required.'' \453\ In 
addition to noting that multiple RTOs, ISOs, and non-RTO/ISO 
transmission providers have elected not to compensate generating 
facilities for the provision of reactive power within the standard 
power factor range under Schedule 2 of the OATT,\454\ the NOPR observed 
that CAISO has not seen major issues of concern with the level of 
reactive power in its region despite not providing separate 
compensation for reactive power within the standard power factor range. 
The Commission also preliminarily found in the NOPR that requiring 
transmission providers to continue paying for reactive power already 
required by a generating facility's interconnection agreement is not 
necessary to ensure that generating facilities provide reactive power 
within the standard power factor range.\455\
---------------------------------------------------------------------------

    \453\ NOPR, 186 FERC ] 61,203 at P 43 (citing Essential 
Reliability Servs. & the Evolving Bulk-Power Sys. Frequency 
Response, Order No. 842, 83 FR 9639 (Mar. 6, 2018), 162 FERC ] 
61,128, at P 121, order on reh'g and clarification, 164 FERC ] 
61,135 (2018) (``While the Commission has approved specific 
compensation for discrete services that require substantial 
identifiable costs, such as for frequency regulation and operating 
reserves, the Commission has not required specific compensation for 
all reliability-related costs. We agree with those commenters who 
observe that minimal reliability-related costs such as those 
incurred to provide primary frequency response, are reasonably 
considered to be part of the general cost of doing business, and are 
not specifically compensated.'')).
    \454\ Id. P 15 (citing MISO, 182 FERC ] 61,033 at PP 52-53; MISO 
Rehearing Order, 184 FERC ] 61,022 at P 26; PNM, 178 FERC ] 61,088, 
at PP 29-31; Nev. Power Co., 179 FERC ] 61,103 at PP 20-21; BPA, 120 
FERC ] 61,211 at P 20; E.ON U.S. LLC, 119 FERC ] 61,340 at P 15; 
Entergy Servs., Inc., 113 FERC ] 61,040 at P 38); see also id. P 18 
(noting that CAISO, SPP, and MISO do not pay separately for reactive 
power within the standard power factor range).
    \455\ Id.
---------------------------------------------------------------------------

    156. The NOPR sought comment on the reliability impact of 
prohibiting transmission providers from including in their transmission 
rates any charges associated with the provision of reactive power 
within the standard power factor range from a generating facility in 
regions where generating facilities currently receive such 
compensation.\456\
---------------------------------------------------------------------------

    \456\ Id. P 44.
---------------------------------------------------------------------------

1. Comments
    157. Many commenters do not expect to see an impact on reliability 
under the NOPR proposal.\457\ For example, ``MISO has not experienced 
reliability concerns since December 1, 2022 due to the elimination of 
compensation for reactive power within the standard power factor 
range.'' \458\ Furthermore, several commenters observe that regions 
like MISO, which implemented similar reforms, and CAISO, which does not 
compensate for reactive power service, have not experienced related 
reliability concerns.\459\ The PJM IMM argues that ``there is no 
evidence that expanding the just and reasonable approach to 
compensation already in place in CAISO, SPP, and MISO to PJM will have 
any adverse impact on reliability in PJM'' and that ``[t]he salient 
difference between PJM and CAISO, SPP, and MISO is that PJM customers 
paid $388,044,837.00 in out of market payments for reactive capability 
in 2023, and customers in CAISO, SPP and MISO, paid $0.00'' \460\ for 
the same service. Joint Customers agree with the NOPR that the 
Commission's ``precedent is crystal clear that compensation is not 
required'' \461\ for

[[Page 93444]]

generators meeting interconnection requirements of providing reactive 
service within the standard power factor range. In addition, MISO 
Transmission Owners assert that eliminating reactive power compensation 
will not adversely affect reliability because generators are required 
to provide reactive power pursuant to their interconnection 
agreements,\462\ NERC requirements,\463\ and Order No. 2003.\464\ Joint 
Customers argue that there is a ``lack of concrete evidence of adverse 
reliability impacts (including in regions where this exact change has 
been implemented)'' in the record and the commenters' concern that ``if 
there is not an unjustifiable free revenue stream ostensibly related to 
reactive service and capability, there will not be sufficient 
generation for real power and capacity at some unspecified point in the 
future'' is ``speculative to the point of incoherence.'' \465\
---------------------------------------------------------------------------

    \457\ See, e.g., Joint Consumer Advocates Initial Comments at 6-
8; Joint Customers Reply Comments at 1-2; MISO Initial Comments at 
2; MISO Transmission Owners Initial Comments at 12-16; New England 
Consumer Advocates Initial Comments at 4-5; Ohio FEA Initial 
Comments at 4; PGE Initial Comments at 2-3; PJM IMM Initial Comments 
at 11-12.
    \458\ MISO Initial Comments at 2.
    \459\ Joint Customers Reply Comments at 2-6; MISO Initial 
Comments at 2; MISO Transmission Owners Initial Comments at 14-15; 
TAPS Initial Comments at 5.
    \460\ PJM IMM Initial Comments at 11-12.
    \461\ Joint Customers Reply Comments at 2; see also id. at 3 
(``The Commission is, in fact, in an enviable position where the pro 
forma revisions contemplated in the NOPR have recently been 
implemented on a large regional scale. For the purposes of 
establishing record support for the NOPR and addressing transition, 
discussed below, the MISO proceeding essentially point by point 
addresses the arguments recycled to oppose the NOPR. The same is 
true with respect to the arguments concerning reliability, which 
were extensively addressed in the MISO order and order on rehearing. 
But with respect to reliability, MISO is dispositive not only for 
its precedential value, but also in setting up a real-world test of 
the countervailing predictions regarding the impact of eliminating 
compensation for reactive service within the standard power factor 
range.'' (citations omitted)); id. at 4 (``MISO's experience 
validates the Commission's conclusions in approving the MISO 
Transmission Owners' proposed tariff revisions, as well as the 
Commission's skepticism regarding speculative warnings of 
reliability impacts. It similarly validates PJM's support for the 
NOPR and the conclusions of the PJM Independent Market Monitor that 
amending Schedule 2 of the PJM Tariff will not lead to reliability 
concerns.'' (internal citations omitted)).
    \462\ Joint Customers Reply Comments at 4-6; MISO Transmission 
Owners Initial Comments at 12-16; MISO Transmission Owners Reply 
Comments at 3-4; Ohio FEA Initial Comments at 4; PGE Initial 
Comments at 2-4.
    \463\ MISO Transmission Owners Initial Comments at 12.
    \464\ MISO Transmission Owners Reply Comments at 6 (citing Order 
No. 2003, 104 FERC ] 61,103 at P 546; Order No. 2003-A, 106 FERC ] 
61,220 at PP 410, 416).
    \465\ Joint Customers Reply Comments at 4-6.
---------------------------------------------------------------------------

    158. MISO Transmission Owners refute the claim that the 
transmission system will face increased retirements due to the loss of 
reactive power revenue by arguing that transmission providers have 
mechanisms for maintaining system reliability in the face of premature 
retirements.\466\ Relatedly, Joint Consumer Advocates, MISO 
Transmission Owners, and TAPS each point to ample backlogs in generator 
interconnection queues nationwide as protection against any threat to 
reliability from eliminating reactive power compensation.\467\
---------------------------------------------------------------------------

    \466\ Supra n.448.
    \467\ Joint Consumer Advocates Initial Comments at 7-8; MISO 
Transmission Owners Initial Comments at 12-16; TAPS Initial Comments 
at 5.
---------------------------------------------------------------------------

    159. MISO Transmission Owners also counter fears \468\ of 
inadequate incentives to make the necessary capital investments to 
provide reactive power by explaining that generators are incented by 
their own operating and reliability requirements to install the 
equipment that is most likely to keep their projects online and 
delivering real power.\469\
---------------------------------------------------------------------------

    \468\ See, e.g., Indicated Trade Associations Initial Comments 
at 21.
    \469\ MISO Transmission Owners Initial Comments at 11 (citing 
MISO Rehearing Order, 184 FERC ] 61,022 at P 35 n.116 
(``[G]enerators have incentives to install equipment to ensure that 
their generation remains online and delivering real power.'')).
---------------------------------------------------------------------------

    160. Other commenters express general reliability concerns under 
the NOPR proposal.\470\ Commenters also argue that specific types of 
resources especially benefit from reactive power revenue, including 
energy storage,\471\ hydro,\472\ and nuclear.\473\ Elevate explains 
that ``[b]ecause energy storage resources `have the capability to 
operate at any power factor, they are exceptionally valuable as 
reactive power resources.''' \474\
---------------------------------------------------------------------------

    \470\ See, e.g., Clean Energy Associations Initial Comments at 
5; Elevate Initial Comments at 4-9; Elevate Reply Comments at 4-6; 
Generation Developers Initial Comments at 2-6; Indicated Trade 
Associations Initial Comments at 18-19; NAGF Initial Comments at 2; 
NEI Initial Comments at 2; NEPGA Reply Comments at 2-3 (citing ISO-
NE Initial Comments at 6-7); NESCOE Reply Comments at 2-3 (citing 
ISO-NE Initial Comments at 5-8); NHA Initial Comments at 1-2, 4; 
NYISO Initial Comments at 8-11; PSEG Initial Comments at 4-5, 8, 16-
20, 22-24; Reactive Service Providers Initial Comments at 22.
    \471\ Elevate Initial Comments at 4-9; Elevate Reply Comments at 
4-6.
    \472\ NHA Initial Comments at 2.
    \473\ Id. at 6.
    \474\ Elevate Initial Comments at 5 (citing Meyersdale Storage, 
LLC Proposed Revenue Requirement under PJM Interconnection, L.L.C. 
Open Access Transmission Tariff, Schedule 2, Reactive Supply and 
Voltage Control From Generation Sources Service, Docket No. ER21-
864-000, Exh. No. MEY-0001 at 11:19-22 (filed Jan. 11, 2021)).
---------------------------------------------------------------------------

    161. Generation Developers argue that, without the reactive power 
capability of generating facilities, transmission providers will need 
to further invest in transmission equipment capable of providing 
reactive support.\475\ Indicated Trade Associations assert that 
eliminating a source of stable, expected reactive power compensation 
could lead to more retirements.\476\ Relatedly, Indicated Trade 
Associations also state that, while CAISO does not currently compensate 
reactive power service, it has had to rely on reliability must-run 
(RMR) agreements to maintain the needed reactive power.\477\ NEI 
emphasizes the importance of reactive power, noting Chairman Wood's 
statement that proper reactive power management would have ``delayed'' 
or possibly prevented the 2003 August blackout,\478\ and NERC's finding 
that ``reactive power is critical to the reliable and efficient 
operation of the power system.'' \479\ NEPOOL argues that payment for 
reactive power broadens the base of resources willing to seek to become 
Qualified Reactive Resources and support reliability in ISO-NE.\480\
---------------------------------------------------------------------------

    \475\ Generation Developers Initial Comments at 2-3.
    \476\ Indicated Trade Associations Initial Comments at 18-19; 
Indicated Trade Associations Reply Comments at 12.
    \477\ Indicated Trade Associations Initial Comments at 19-20.
    \478\ NEI Initial Comments at 3 (citing Letter from FERC 
Chairman Pat Wood, III, 1 (Feb. 4, 2005), https://www.ferc.gov/sites/default/files/2020-05/20050310144430-02-04-05-rp-letter-wood.pdf; 2005 Staff Report at 3 (``Inadequate reactive power has 
led to voltage collapses and has been a major cause of several 
recent major power outages worldwide.'')).
    \479\ NEI Initial Comments at 3-4 citing NERC, Essential 
Reliability Services Task Force Measures Framework Report 16 (Nov. 
2015), https://www.nerc.com/comm/Other/essntlrlbltysrvcstskfrcDL/ERSTF%20Framework%20Report%20-%20Final.pdf.
    \480\ NEPOOL Reply Comments at 12.
---------------------------------------------------------------------------

    162. Indicated Trade Associations also argue that eliminating 
compensation for reactive power service within the standard power 
factor range will hamper generators' ability to provide reactive power 
service outside the standard power factor range because such events do 
not happen with enough regularity to warrant the capital costs 
associated with such capability.\481\ Similarly, Indicated Trade 
Associations argue that the increasing reliance on non-synchronous 
resources makes it even more important to ensure that generators have 
incentives to go beyond the bare minimum requirements outlined in their 
interconnection agreements.\482\
---------------------------------------------------------------------------

    \481\ Indicated Trade Associations Initial Comments at 21.
    \482\ Indicated Trade Associations Reply Comments at 12.
---------------------------------------------------------------------------

    163. NYISO and IPPNY warn that transitioning away from NYISO's 
current reactive power compensation structure could introduce 
reliability risks and operational complexities.\483\ NYISO asserts that 
its reactive power compensation supports electric system reliability 
because it requires resources to undergo annual capability tests and 
maintain automatic voltage control equipment to ensure consistent 
reactive power support.\484\ NYISO explains that these resources 
dynamically produce or absorb reactive power, supporting the electric 
system within and beyond standard power factor ranges without operator 
intervention. NYISO emphasizes that this automatic and

[[Page 93445]]

dynamic support is essential for maintaining system reliability.\485\ 
Reactive Service Providers explains that inverter-based generation can 
and does provide VAR support even when no MW are sold.\486\ Generation 
Developers and Reactive Service Providers highlight the pivotal role in 
maintaining reliability that transmission providers with a dynamic 
source of reactive power supply provide.\487\ NYISO is concerned that 
eliminating compensation for reactive power within the standard power 
factor range will introduce confusion among existing generators and new 
generators, and, in the longer term, introduce reliability issues onto 
the electric system.\488\ NYISO also believes that the final 
determination will result in eliminating the price signals and 
incentives for the reactive power necessary to maintain system 
reliability, instead blending those costs and payments into payments 
made to all capacity suppliers without a direct link to provision of 
the reactive power necessary to support a reliable electric 
system.\489\
---------------------------------------------------------------------------

    \483\ NYISO Initial Comments at 8-11; IPPNY Reply Comments at 1-
2.
    \484\ NYISO Initial Comments at 5-7.
    \485\ Id.
    \486\ Reactive Service Providers Initial Comments at 21-23.
    \487\ Generation Developers Initial Comments at 25; Reactive 
Service Providers Initial Comments at 21-23.
    \488\ NYISO Initial Comments at 7.
    \489\ Id. at 9.
---------------------------------------------------------------------------

    164. Elevate adds that international electric markets recognize the 
importance of energy storage resources to maintaining long-term 
transmission system reliability.\490\ For example, Elevate states that 
in the United Kingdom, the National Grid Electricity System Operator 
(ESO) has entered into a contract with the largest transmission system 
connected battery project in Europe to provide reactive power support 
services to maintain system voltages in the face of growing system 
variability and the retirement of thermal generation resources. Elevate 
states that the ESO entered this contract despite already providing 
compensation to resources for providing or absorbing reactive power as 
a condition of interconnecting and through regular solicitations to 
secure resources to provide more reactive power than what is required 
to interconnect to the transmission system.\491\
---------------------------------------------------------------------------

    \490\ Elevate Reply Comments at 6-7 (citing Energy Storage News, 
Europe's largest transmission-connected BESS begins `world first' 
reactive power services contract, (Feb. 13, 2023), https://www.energy-storage.news/europes-largest-transmission-connected-bess-begins-world-first-reactive-power-services-contract/).
    \491\ Id. at 7 (citing ESO, Obligatory Reactive Power Service, 
https://www.nationalgrideso.com/industry-information/balancing-services/reactive-power-services/obligatory-reactive-power-service#Document-Library (last visited June 26, 2024); ESO, Enhanced 
Reactive Power Service, https://www.nationalgrideso.com/industry-information/balancing-services/reactive-power-services/enhanced-reactive-power-service-erps#Document-library (last visited June 26, 
2024)).
---------------------------------------------------------------------------

2. Commission Determination
    165. Based on our review of the record, and consistent with the 
preliminary finding in the NOPR,\492\ we conclude that prohibiting 
transmission providers from including in their transmission rates any 
charges associated with the provision of reactive power from a 
generating facility within the standard power factor range and thereby 
eliminating compensation to generating facilities for reactive power 
within the standard power factor range, would not negatively impact 
reliability. The record in this proceeding affirms our preliminary 
finding in the NOPR that requiring transmission customers to continue 
paying for reactive power already required by a generating facility's 
interconnection agreement is not necessary to ensure that generating 
facilities provide reactive power when required, as new and existing 
generating facilities are, and will continue to be, required to provide 
reactive power within the standard power factor range as a condition of 
obtaining and maintaining interconnection.\493\ As commenters note, 
these findings are supported by the fact that generating facilities in 
CAISO, SPP, MISO, and certain non-RTO regions (e.g., BPA, Arizona 
Public Service Company, Southern Companies) do not receive compensation 
for reactive power capability within the standard power factor 
range,\494\ and there is no evidence in the record that the lack of 
reactive power compensation anywhere has led to an insufficient supply 
of reactive power in those regions.
---------------------------------------------------------------------------

    \492\ NOPR, 186 FERC ] 61,203 at P 43.
    \493\ Joint Consumer Advocates Initial Comments at 6-8; Joint 
Customers Reply Comments at 1-2; MISO Initial Comments at 2; MISO 
Transmission Owners Initial Comments at 12-16; New England Consumer 
Advocates Initial Comments at 4-5; Ohio FEA Initial Comments at 4; 
PGE Initial Comments at 2-3; PJM IMM Initial Comments at 11-12. See 
also Order No. 842, 162 FERC ] 61,128 (``[T]here are interconnection 
requirements for generating facilities in which the recovery of 
capital costs and operating expenses are not necessarily 
ensured.'').
    \494\ See, e.g, MISO, 182 FERC ] 61,033 (accepting MISO 
transmission owners' proposal to eliminate compensation for the 
provision of reactive power within the standard power factor range); 
Cal. Indep. Sys. Operator Corp., 160 FERC ] 61,035 at P 19 (``[A] 
separate payment for the provision of reactive power capability 
inside the standard power factor range is not required, and we see 
no reason to require a separate cost recovery mechanism for reactive 
power capability based on the record here.''); PNM, 178 FERC ] 
61,088 at P 29 (``Consistent with Commission precedent, a 
transmission provider may decide to eliminate compensation for 
having the capability of providing reactive service within the 
standard power factor range.'').
---------------------------------------------------------------------------

    166. For these same reasons, we also find speculative and without 
merit claims that elimination of compensation for reactive power within 
the standard power factor range will mute investment in real and 
reactive power capability, hasten generating facility retirements and/
or RMR agreements and as a result, negatively impact reliability and 
require increased transmission provider investment in transmission 
equipment capable of providing reactive support.\495\ We see no record 
evidence supporting these concerns, and substantial record evidence to 
the contrary. For example, CAISO stated that its current approach to 
not compensate for reactive power provided within the standard power 
factor range has not resulted in major issues of concern with respect 
to the level of reactive power,\496\ and TAPS points out that 
reliability has not suffered in regions in which reactive power in the 
standard power factor range is not compensated, as confirmed by years 
of experience in regions in which the absence of such compensation is a 
long-standing practice.\497\ Reliability has not been weakened in those 
regions because the Commission's 20 year old requirement that 
interconnection customers have equipment to provide such reactive power 
ensures that generating facilities can interconnect reliably.\498\
---------------------------------------------------------------------------

    \495\ Clean Energy Associations Initial Comments at 5; Indicated 
Trade Associations Initial Comments at 18-19; Indicated Trade 
Associations Reply Comments at 12; NEPOOL Reply Comments at 12; 
Elevate Initial Comments at 4-9; Elevate Reply Comments at 4-6; NEI 
Initial Comments at 6, 15; NHA Initial Comments at 2, 4.
    \496\ CAISO Initial Comments to the NOI at 5-6 (explaining that 
despite the fact that it does not compensate for reactive power 
within the standard power factor range, CAISO ``has seen no evidence 
to this point that resources cannot comply with reactive power 
dispatch instructions because they have insufficient funds for the 
equipment to meet the reactive power dispatch''); MISO Transmission 
Owners Initial Comments at 15 (``The claim that generators may have 
to retire units in the absence of compensation for reactive power 
service within the deadband is pure speculation. Prior to the 
elimination of compensation for reactive power within the deadband 
in MISO, a number of generators in MISO operated without 
compensation for reactive power within the deadband as they did not 
file their revenue requirements for reactive power when their 
projects came on-line.'').
    \497\ TAPS Initial Comments at 5.
    \498\ See, e.g., Joint Customers Reply Comments at 6 (arguing 
that there is a ``lack of concrete evidence of adverse reliability 
impacts (including in regions where this exact change has been 
implemented)'' in the record and that commenters' concern that ``if 
there is not an unjustifiable free revenue stream ostensibly related 
to reactive service and capability, there will not be sufficient 
generation for real power and capacity at some unspecified point in 
the future'' is ``speculative to the point of incoherence''); TAPS 
Initial Comments at 5; MISO Initial Comments at 2 (explaining that 
it would not expect to see any effect on reliability through 
eliminating compensation for reactive power within the standard 
power factor range and in fact, MISO has not experienced reliability 
concerns since December 1, 2022 due to the elimination of 
compensation for reactive power within the standard power factor 
range). See also Order No. 842, 162 FERC ] 61,128 at P 121 (``While 
the Commission has approved specific compensation for discrete 
services that require substantial identifiable costs, such as for 
frequency regulation and operating reserves, the Commission has not 
required specific compensation for all reliability-related costs. We 
agree with those commenters who observe that minimal reliability-
related costs such as those incurred to provide primary frequency 
response, are reasonably considered to be part of the general cost 
of doing business, and are not specifically compensated.'').

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

[[Page 93446]]

    167. In response to the reliability concerns raised by ISO-NE and 
NYISO, we find that their stated concerns are not specific to the 
proposal being adopted in this final determination--that is, their 
arguments are not limited to the provision of reactive power within the 
standard power factor range--and as a result, we find their concerns 
unpersuasive. ISO-NE and NYISO allude generally to reliability benefits 
from reactive power compensation over the full range of a generating 
facility's capability to provide reactive power. As such, ISO-NE's and 
NYISO's comments appear to address the reliability implications of 
eliminating reactive power compensation entirely--that is, eliminating 
compensation both within and outside of the standard power factor 
range--rather than the narrower focus of this final determination, 
which addresses only the provision of reactive power within the 
standard power factor range. However, as explained herein, the long-
existing obligation of generating facilities to provide reactive power 
within the standard power range in order to reliably interconnect to 
the transmission system remains unchanged, as do the rules regarding 
the provision of reactive power outside the standard power factor 
range, which is considered a compensable ancillary service for 
transmitting power across the transmission system to serve load.\499\ 
We also reject arguments about the provision of reactive power service 
beyond the requirements of generating facilities' interconnection 
agreements,\500\ outside of the standard power factor range,\501\ and 
Elevate's claims about the ESO's decision to double-compensate reactive 
power service in the United Kingdom for similar reasons.
---------------------------------------------------------------------------

    \499\ See, e.g., MISO Rehearing Order, 184 FERC ] 61,022 at P 23 
(citing METC Rehearing Order, 97 FERC at 61,852-53).
    \500\ Indicated Trade Associations Reply Comments at 12.
    \501\ Indicated Trade Associations Initial Comments at 21.
---------------------------------------------------------------------------

    168. We agree with NYISO's \502\ and others' \503\ statements about 
the importance of reactive power to reliability, including statements 
of dynamic reactive power sources,\504\ but we note that such 
statements are equally true with or without reactive power compensation 
within the standard power factor range. Once again, requiring 
transmission customers to continue paying for reactive power within the 
standard power factor range already required by a generating facility's 
interconnection agreement is not necessary to ensure that generating 
facilities provide reactive power when required, as new and existing 
generating facilities are, and will continue to be, required to provide 
reactive power within the standard power factor range as a condition of 
obtaining and maintaining interconnection.\505\
---------------------------------------------------------------------------

    \502\ NYISO Initial Comments at 5-7.
    \503\ See, e.g., Joint Consumer Advocates Initial Comments at 6-
8; Joint Customers Reply Comments at 1-2; MISO Transmission Owners 
Initial Comments at 12-16.
    \504\ Generation Developers Initial Comments at 25; Reactive 
Service Providers Initial Comments at 21-23.
    \505\ See supra II.B.2.
---------------------------------------------------------------------------

    169. In response to NEI's statements about the importance of 
reactive power in the 2005 Staff Report,\506\ and NERC's Essential 
Reliability Services Task Force Measures Framework report,\507\ we note 
that the 2005 Staff Report also explains that ``[i]nvestment that 
results in reactive power capability by generation facilities is driven 
by interconnection requirements, historical inertia and potential cost 
recovery for capacity. There is little interaction between the actual 
system need or value of reactive power capability and its supply by 
independent generation resources.'' \508\ Additionally, to support our 
finding here, we are relying on more recent evidence, which indicates 
that RTOs/ISOs and non-RTO regions that have eliminated compensation 
for reactive power capability within the standard power factor range 
are not experiencing any adverse reliability impacts due to absence of 
reactive power compensation within the standard power factor 
range.\509\
---------------------------------------------------------------------------

    \506\ Supra n.508.
    \507\ Supra n.509.
    \508\ See 2005 Staff Report at 69; see also APS, 94 FERC at 
61,080 (``We note that operating a generating unit within the 
proposed [standard power factor range] does not affect the 
generation output of a unit.'').
    \509\ MISO Transmission Owners Initial Comments at 13-14 (``When 
the MISO Transmission Owners proposed to eliminate compensation for 
producing reactive power within the deadband, the most common 
protest from generators was that it would impact the reliability of 
the grid. However, such claims are not supported by evidence and 
distract from the underlying fact that generators are obligated to 
provide reactive power within the deadband whether or not they are 
compensated for it . . . MISO has since experienced no reliability 
issues as a result and generator interconnection applications, the 
first step of a process that ends with execution of an 
interconnection agreement that obligates the generator to provide 
reactive power within the deadband, remain high.'' (citations 
omitted)); PJM IMM Reply Comments at 5 (``There is no evidence from 
any of the markets where this policy already exists that it has 
created a reliability issue.'').
---------------------------------------------------------------------------

E. Investment

    170. The NOPR sought comment on whether, and if so how, eliminating 
separate reactive power compensation within the standard power factor 
range may affect investment decisions to build, or finish building, 
generating facilities, and whether, and if so, how the elimination 
could otherwise affect generating facilities' business decisions in 
those markets.\510\ The NOPR also noted that in MISO, the Commission 
rejected any reliance arguments, reasoning in part that the provision 
of reactive power within the standard power factor range required 
little or no incremental investment.\511\
---------------------------------------------------------------------------

    \510\ NOPR, 186 FERC ] 61,203 at P 49.
    \511\ Id. P 16 (citing MISO Rehearing Order, 184 FERC ] 61,022 
at P 29); MISO Rehearing Order, 184 FERC ] 61,022 at PP 29-31 
(finding that providing reactive service requires ``little or no 
incremental investment'' by both synchronous and non-synchronous 
resources); PJM Interconnection, L.L.C., 151 FERC ] 61,097 at PP 7, 
28 (finding that non-synchronous generating facilities are 
comparable to traditional synchronous generating facilities, in that 
there are for both types of generating facilities very little if any 
incremental costs incurred to provide reactive power).
---------------------------------------------------------------------------

1. Comments
    171. PGE argues that the NOPR proposal would not have a measurable 
impact on investment decisions.\512\ MISO Transmission Owners also 
reject the claim that the proposed rule will disincentivize investment 
in new generating and storage resources.\513\
---------------------------------------------------------------------------

    \512\ PGE Initial Comments at 5.
    \513\ MISO Transmission Owners Reply Comments at 3-7.
---------------------------------------------------------------------------

    172. However, several commenters claim that ending compensation for 
reactive power service in the standard power factor range would have a 
negative impact on investment. Many commenters claim that such an 
action would be disruptive to generators and/or their investors, who 
include forecasts of such compensation as the basis for financing 
arrangements.\514\
---------------------------------------------------------------------------

    \514\ ACORE Initial Comments at 3-4; Calpine Initial Comments at 
2; Clean Energy Associations Initial Comments at 4-5; Generation 
Developers Initial Comments at 33; EDPR Initial Comments at 1, 3-4; 
Elevate Initial Comments at 6; Indicated Reactive Power Suppliers 
Initial Comments at 13-14; Indicated Trade Associations Initial 
Comments at 16; Middle River Power Initial Comments at 6; NEI 
Initial Comments at 2, 5-6, 8; NHA Initial Comments at 4-5.

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

[[Page 93447]]

---------------------------------------------------------------------------
    173. The PJM IMM maintains that:

    There is no evidence that units are built as a result of 
reactive [power] revenue. There is no evidence that sources of 
revenue are not fungible and that a decrease in reactive [power] 
revenues could be not replaced with other sources of revenue. There 
is no basis for adding new resources to the already very crowded 
interconnection queue solely based on out of market subsidies from 
reactive revenues.\515\
---------------------------------------------------------------------------

    \515\ PJM IMM Initial Comments at 12-13.

    174. Similarly, PGE notes that transmission providers that have 
eliminated reactive power compensation have not observed a decrease in 
proposed investment.\516\ MISO Transmission Owners assert that 
Indicated Trade Associations' claim that reactive power revenue streams 
can make the difference in overall profitability is unsupported by 
evidence.\517\ Moreover, MISO Transmission Owners argue that investors 
could not reasonably have relied on reactive power compensation within 
the standard power factor range in perpetuity and should have 
considered the risk of its elimination when making investment 
decisions.\518\ Similarly, Joint Customers explain that to the extent 
that generators voluntarily and unilaterally installed greater reactive 
capability than that required by their respective interconnection 
agreements, they did so at their own risk and for their own strategies, 
none of which mean that they should continue to be compensated for 
costs that they did not have to incur and which do not benefit 
transmission customers.\519\
---------------------------------------------------------------------------

    \516\ MISO Transmission Owners Reply Comments at 4-6.
    \517\ Id. at 3.
    \518\ Id. at 7.
    \519\ Joint Customers Initial Comments at 20.
---------------------------------------------------------------------------

    175. NEI, Calpine, Indicated Reactive Power Suppliers, and 
Generation Developers argue that they relied on the Commission's 
longstanding precedent and policy of allowing compensation for reactive 
power within the standard power factor range in making their investment 
decisions and suggest that the final determination would be highly 
disruptive to market participants.\520\ PSEG asserts that the final 
determination represents a significant departure from existing 
Commission policy without an adequate explanation.\521\
---------------------------------------------------------------------------

    \520\ NEI Initial Comments at 8; Calpine Initial Comments at 2; 
Indicated Reactive Power Suppliers Initial Comments at 13; 
Generation Developers Initial Comments at 33-34.
    \521\ PSEG Initial Comments at 4, 20-22 (citing PJM Providers 
Grp. v. FERC, 88 F.4th at 271-72 (quoting FCC v. Fox Television 
Stations, Inc., 556 U.S. at 515); Ass'n of Oil Pipe Lines v. FERC, 
876 F.3d 336, 342 (D.C. Cir. 2017)).
---------------------------------------------------------------------------

    176. ACORE and Indicated Reactive Power Suppliers highlight the 
costs and potential challenges of generators with PPAs who may be 
unable to renegotiate those agreements to include costs related to 
reactive power service.\522\ ACORE and Calpine argue that the NOPR 
proposal would impede project development during a period of greater 
need for generation resources.\523\ Indicated Reactive Power Suppliers 
states that the loss of reactive power compensation could lead to 
generators not developing other projects because the revenue loss 
impacts these projects' ability to leverage finite capital based on 
this cash flow reduction.\524\ Middle River Power also claims that the 
NOPR proposal may prompt investors to question the reliability and 
stability of other Commission-approved rates and markets.\525\ 
Indicated Trade Associations argue that, given the narrow margins for 
competitive generators, small reactive power revenue streams can make 
the difference between whether a generator will be profitable over its 
life or not.\526\
---------------------------------------------------------------------------

    \522\ ACORE Initial Comments at 3-4; Indicated Reactive Power 
Suppliers Initial Comments at 14.
    \523\ ACORE Initial Comments at 3-4; Calpine Initial Comments at 
2.
    \524\ Indicated Reactive Power Suppliers Initial Comments at 13-
14.
    \525\ Middle River Power Initial Comments at 6.
    \526\ Indicated Trade Associations Initial Comments at 16.
---------------------------------------------------------------------------

    177. Clean Energy Associations argue that the proposal is also 
disruptive to a host of interconnection customers with operating or 
near-completed projects and extant PPAs.\527\ Clean Energy Associations 
also argues that the NOPR fails to consider IPP projects located in PJM 
with reactive power rates that are the result of Commission-approved 
settlements. Clean Energy Associations also argues that the Commission 
has not adequately considered the fundamental differences between IPP 
projects and projects that are utility-owned.
---------------------------------------------------------------------------

    \527\ Clean Energy Associations Initial Comments at 4-5.
---------------------------------------------------------------------------

2. Commission Determination
    178. Based on the record, we find that there is substantial 
evidence to support the conclusion that prohibiting the inclusion in 
transmission rates of reactive power rates within the standard power 
factor range will not have a significant impact on investment in new 
generating facilities.\528\
---------------------------------------------------------------------------

    \528\ See, e.g., MISO Transmission Owners Reply Comments at 3-4, 
5-7; PGE Initial Comments at 5; PJM IMM Initial Comments at 12-13.
---------------------------------------------------------------------------

    179. First, as stated above, generating facilities in CAISO, SPP, 
MISO, and certain non-RTO regions do not receive compensation for the 
provision of reactive power within the standard power factor 
range,\529\ and, as MISO Transmission Owners explain,\530\ there is no 
evidence in the record that: (1) these policies have led to an 
insufficient supply of reactive power in those regions, or (2) 
generating facilities in these regions have been unable to recover any 
costs associated with the provision of such reactive power. Because new 
and existing generating facilities are required to provide reactive 
service within the standard power factor range as a condition of 
interconnection, eliminating compensation for providing that service 
would not negatively impact investment.\531\
---------------------------------------------------------------------------

    \529\ See Cal. Indep. Sys. Operator Corp., 160 FERC ] 61,035 at 
P 19 (``[A] separate payment for the provision of reactive power 
capability inside the standard power factor range is not required, 
and we see no reason to require a separate cost recovery mechanism 
for reactive power capability based on the record here.''). See also 
PNM, 178 FERC ] 61,088 at P 29 (``Consistent with Commission 
precedent, a transmission provider may decide to eliminate 
compensation for having the capability of providing reactive service 
within the standard power factor range.''); Order No. 842, 162 FERC 
] 61,128 (``[T]here are interconnection requirements for generating 
facilities in which the recovery of capital costs and operating 
expenses are not necessarily ensured.'').
    \530\ MISO Transmission Owners Reply Comments at 3-4.
    \531\ See, e.g., MISO, 182 FERC ] 61,033 at P 55; MISO Rehearing 
Order, 184 FERC ] 61,022 at PP 35-36; see also MISO Transmission 
Owners Initial Comments at 9-10 (``At the same time MISO was 
experiencing a dramatic increase in the amounts transmission 
customers paid for reactive power service prior to its elimination 
of compensation for reactive power service within the deadband, SEIA 
highlighted that MISO was one of the two `most lucrative' regions 
for reactive power compensation, where generators received millions 
of dollars in compensation for having the capability to produce 
reactive power within the deadband, a capability that was already a 
condition of obtaining interconnection.'' (citations omitted)).
---------------------------------------------------------------------------

    180. Second, we also agree with the MISO Transmission Owners, who 
note that because compensation for the provision of reactive power 
within the standard power factor range has always been based on 
comparability rather than compensability, ``[r]eactive power 
compensation is not a given'' and that ``[t]he Commission has 
consistently followed these principles, allowing transmission providers 
across the nation to eliminate compensation for reactive power service 
within the deadband.'' \532\

[[Page 93448]]

As previously noted, developers have been on notice since at least 
Order No. 2003 and Order No. 2003-A that reactive power is not 
compensable within the standard power factor range (other than for 
comparability reasons), and so could not have relied, reasonably or 
otherwise, on the permanence of such compensation for investment 
purposes.\533\
---------------------------------------------------------------------------

    \532\ MISO Transmission Owners Initial Comments at 19. See also 
Joint Customers Reply Comments at 6-7 (``Additionally, claims that 
investors made decisions relying on the revenue stream associated 
with the capability to provide reactive power within the deadband 
fail to contend with the many instances in which the Commission 
accepted transmission providers' elimination of compensation for 
reactive power within the deadband. Sophisticated investors could 
not reasonably have relied on compensation for providing reactive 
power within the deadband in perpetuity, but rather should have 
considered the risk of elimination of this revenue stream when 
making investment decisions.'' (citations omitted)).
    \533\ See BPA Rehearing Order, 125 FERC ] 61,273, at P 15 & n.24 
(``[N]either affiliated nor non-affiliated generators have an 
inherent right to any compensation for reactive power inside the 
deadband.'').
---------------------------------------------------------------------------

    181. Third, to the extent that generating facilities may have 
incurred costs by increasing their generating facilities' reactive 
power capabilities beyond the requirements of their interconnection 
agreements, we find that it is unreasonable to charge transmission 
customers for these costs as they were not required for interconnection 
and do not fit within the least justifiable cost to customers.\534\ 
Further, as noted herein, this final determination does not address 
compensation for reactive power provided outside of the standard power 
factor range, which will continue to be compensable.
---------------------------------------------------------------------------

    \534\ See Joint Customers Initial Comments at 20 (``To the 
extent that generators voluntarily and unilaterally installed 
greater reactive capability than that required by their respective 
interconnection agreements, they did so at their own risk and for 
their own strategies, none of which mean that they should continue 
to be compensated for costs that they did not have to incur and 
which do not benefit transmission customers.'').
---------------------------------------------------------------------------

    182. Fourth and finally, as discussed herein and further below, 
generating facilities have other opportunities to recover any de 
minimis variable costs of providing reactive power within the standard 
power factor range, and this final determination establishes a 
transition mechanism to give RTOs/ISOs time to adjust their market 
rules to ensure that generating facilities continue to have such other 
opportunities after this final determination.
    183. Some commenters expressed general concerns about generating 
facilities and investors relying on reactive power revenues for 
planning purposes,\535\ including concerns of interconnection customers 
with near-completed or operating projects, and extant PPAs,\536\ as 
well as with IPP projects located in PJM with reactive power rates that 
are the result of Commission-approved settlements.\537\ However, we 
reiterate that in this final determination \538\ we have rejected any 
reliance arguments, reasoning in part that the provision of reactive 
power within the standard power factor range requires no incremental 
investment or fixed costs and at most de minimis incremental variable 
costs.
---------------------------------------------------------------------------

    \535\ See, e.g., ACORE Initial Comments at 3-4; Calpine Initial 
Comments at 2; Clean Energy Associations Initial Comments at 4-5; 
EDPR Initial Comments at 1, 3-4; Elevate Initial Comments at 6; 
Generation Developers Initial Comments at 33; Indicated Reactive 
Power Suppliers Initial Comments at 14; Indicated Trade Associations 
Initial Comments at 16; Middle River Power Initial Comments at 6; 
NHA Initial Comments at 4-5.
    \536\ See Clean Energy Associations Initial Comments at 5.
    \537\ Id.
    \538\ See supra II.C.2.
---------------------------------------------------------------------------

    184. Relatedly, Indicated Trade Associations \539\ argue that 
narrow profit margins mean that the loss of reactive power revenues 
could tip generating facilities out of profitability. We reiterate our 
finding above that the variable and incremental costs of providing 
reactive power within the standard power factor range requires no or at 
most a de minimis increase in variable costs beyond the cost of 
providing real power \540\ and that generating facilities can recover 
any de minimis variable costs through other means. Additionally, no 
commenter provided any evidence that the loss of reactive power 
compensation would make a project that was otherwise profitable, 
unprofitable.
---------------------------------------------------------------------------

    \539\ Indicated Trade Associations Initial Comments at 16.
    \540\ See supra II.B.2.
---------------------------------------------------------------------------

    185. Further, we disagree with PSEG's assertions that the NOPR 
represents a significant departure from existing Commission policy 
without an adequate explanation and refer PSEG to the evidence and 
reasoning presented herein that we are relying upon in this final 
determination.\541\ Consequently, we are revising the pro forma 
Schedule 2, pro forma LGIA, and pro forma SGIA to prohibit the 
inclusion in transmission rates of unjust and unreasonable charges 
related to the provision of reactive power within the standard power 
factor range by generating facilities. As courts of appeals have 
articulated on several occasions, ``[t]he APA does not require 
`regulatory agencies [to] establish rules of conduct to last forever,' 
'' but rather, ``agencies may `adapt their rules and policies to the 
demands of changing circumstances.' '' \542\
---------------------------------------------------------------------------

    \541\ See supra II.A.2, II.B.2, II.C.2.
    \542\ Solar Energy Indus. Ass'n v. FERC, 80 F.4th 956, 979 (9th 
Cir. 2023) (citing Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State 
Farm Mut. Auto. Ins. Co., 463 U.S. at 43).
---------------------------------------------------------------------------

    186. Similarly, in response to Middle River Power's \543\ claims 
about the reliability and stability of other Commission-approved rates 
and markets, we note when the Commission finds that a rate is unjust 
and unreasonable, as we do here, the Commission has not only the right 
but the obligation under section 206 of the FPA to modify that rate in 
order to ensure it is just and reasonable.\544\ As the PJM IMM,\545\ 
Joint Consumer Advocates,\546\ and Dr. Bremser,\547\ note the 
Commission has previously changed compensation policies when it has 
determined that existing practices were resulting in unjust and 
unreasonable rates.\548\
---------------------------------------------------------------------------

    \543\ Middle River Power Initial Comments at 6.
    \544\ 16 U.S.C. 824e(a) (``Whenever the Commission, after a 
hearing held upon its own motion or upon complaint, shall find that 
any rate, charge, or classification, demanded, observed, charged, or 
collected by any public utility for any transmission or sale subject 
to the jurisdiction of the Commission, or that any rule, regulation, 
practice, or contract affecting such rate, charge, or classification 
is unjust, unreasonable, unduly discriminatory or preferential, the 
Commission shall determine the just and reasonable rate, charge, 
classification, rule, regulation, practice, or contract to be 
thereafter observed and in force, and shall fix the same by 
order.'').
    \545\ PJM IMM Reply Comments at 6 (``Such attacks on the rules 
and standards can be disregarded because they are collateral attacks 
on final rules and standards that are not within the scope of this 
proceeding. Reactive Service Providers arguments challenging 
longstanding Commission policy and multiple Commission orders are 
also beside the point.'').
    \546\ Joint Consumer Advocates Initial Comments at 8 
(``[S]ection 206 of the FPA requires that the Commission act to 
eliminate unjust and unreasonable rates where and when it finds 
them. There is no statutory authorization to allow an unjust and 
unreasonable rate to continue.'')
    \547\ Joint Customers Reply Comments, Reply Affidavit of Dr. 
Albert W. Bremser at 4:1-3 (``My second conclusion is that permanent 
reliance on [Commission]-jurisdictional practices as never changing 
is not consistent with the typical experience of [Commission]-
jurisdictional entities and ratepayers.''; id. at 10:2-6 (``In terms 
of reliance on Commission past practices or what the Commission has 
allowed, it is my experience that the Commission can and does change 
its practices and what it allows. This can impact the rates charged 
to ratepayers and the rates collected by companies.'').
    \548\ See, e.g., Indep. Mkt. Monitor for PJM v. PJM 
Interconnection, L.L.C., 176 FERC ] 61,137 (2021); order on reh'g, 
178 FERC ] 61,121 (2022).
---------------------------------------------------------------------------

F. Additional Comments

1. Comments
    187. Ameren asserts that it was the right decision to eliminate 
compensation for reactive power

[[Page 93449]]

capability in MISO, as evident by the numerous reactive power cases in 
which Ameren intervened from 2018-2022 that were set for hearing and 
settlement judge procedures, with resulting revenue requirements 
reduced substantially from what the filing generator proposed, and in 
some cases by over 50%.\549\
---------------------------------------------------------------------------

    \549\ Ameren Initial Comments at 5 (citing Docket Nos. ER21-
1046, ER21-2329, ER21-2695, ER21-2892, ER22-526, ER22-616, ER22-615, 
ER22-1554, ER22-1610, ER22-1815).
---------------------------------------------------------------------------

    188. The NHA asserts that individual RTOs/ISOs should develop and/
or improve upon reactive power capability compensation market rules to 
reflect locational requirements.\550\
---------------------------------------------------------------------------

    \550\ NHA Initial Comments at 6-7.
---------------------------------------------------------------------------

    189. Indicated Trade Associations request that the Commission 
clarify that the NOPR will not be applied in determining refunds in 
cases where the Commission has established settlement and hearing judge 
proceedings for reactive rates.\551\
---------------------------------------------------------------------------

    \551\ Indicated Trade Associations Initial Comments at 32.
---------------------------------------------------------------------------

    190. Indicated Trade Associations argue that the Commission should 
not implement the NOPR proposal.\552\ Indicated Trade Associations 
assert that the NOPR is not supported by the NOI record, which they 
argue was focused on changes and improvements to the methodology used 
to determine appropriate reactive power compensation, rather than the 
NOPR's proposal to eliminate reactive power compensation within the 
standard power factor range altogether.\553\
---------------------------------------------------------------------------

    \552\ Id. at 1, 7.
    \553\ Id. at 5-6.
---------------------------------------------------------------------------

    191. Glenvale avows that some generators provide reactive power 
within the power factor range but outside of the requirements of their 
interconnection agreements, such as solar generators that are not 
synchronized to the transmission system but still provide reactive 
power service.\554\
---------------------------------------------------------------------------

    \554\ Glenvale Initial Comments at 8.
---------------------------------------------------------------------------

    192. Clean Energy Associations also proposes their own reactive 
power compensation format in which the Commission would develop a new, 
objective, cost-based, technology-neutral rate for reactive power to 
encourage the proliferation of reactive power resources in a non-
discriminatory way.\555\
---------------------------------------------------------------------------

    \555\ Clean Energy Associations Initial Comments at 9-10.
---------------------------------------------------------------------------

    193. Reactive Service Providers also argue that a  0.95 
standard power factor range is arbitrary. As support, they claim that 
it is not NERC-mandated, that many generating facilities are not 
actually satisfying it, and that ``it is in essence a mandate to create 
headroom if and when it is needed by the Transmission Provider.'' \556\ 
Reactive Service Providers argue that there is no difference 
operationally between operating within and outside the standard power 
factor range because that distinction does not reflect the operational 
realities of an integrated transmission system, where the transmission 
provider is ``balancing all resources instantaneously such that all 
load everywhere benefits.'' \557\
---------------------------------------------------------------------------

    \556\ Reactive Service Providers Initial Comments at 24-29.
    \557\ Id. at 35-36.
---------------------------------------------------------------------------

    194. Clean Energy Associations asks that, should the Commission 
proceed with its proposal, that the Commission should clarify that 
interconnection agreements cannot adopt a standard power factor range 
other than 0.95 leading and lagging and specify that compensation must 
be provided for reactive power provided outside of the range.\558\
---------------------------------------------------------------------------

    \558\ Clean Energy Associations Initial Comments at 2-3.
---------------------------------------------------------------------------

    195. ACORE recommends that instead of removing all compensation 
within the standard power factor range, a cost-based, technology-
neutral rate be established for reactive power, with a focus on 
reducing the administrative burdens of the AEP Methodology.\559\
---------------------------------------------------------------------------

    \559\ ACORE Initial Comments at 4.
---------------------------------------------------------------------------

    196. Joint Customers highlight the burdens associated with the 
individualized review of reactive rate filings arguing that it leads to 
higher costs for customers without corresponding benefits and that the 
case-by-case approach using the AEP Methodology is resource-intensive 
and results in inconsistent outcomes.\560\
---------------------------------------------------------------------------

    \560\ Joint Customers Initial Comments at 7-11.
---------------------------------------------------------------------------

    197. Liberty states that it believes the current methodology has 
resulted in ambiguity on cost formation and could lead to unjust rates 
for customers.\561\ Liberty explains that it would generally support a 
cost recovery methodology change that results in reasonable rates for 
customers that are not duplicative in nature, in line with industry 
standards, and sufficiently compensates reactive power capability 
services.
---------------------------------------------------------------------------

    \561\ Liberty Initial Comments at 1.
---------------------------------------------------------------------------

    198. Middle River Power argues that the AEP Methodology has 
consistently produced just and reasonable rates for Middle River Power-
affiliated generation and others and that if administrative burden were 
a problem that must be remedied, the solution would be to reform the 
administrative process by which just and reasonable rates are 
determined.\562\
---------------------------------------------------------------------------

    \562\ Middle River Power Initial Comments at 5.
---------------------------------------------------------------------------

    199. NEI suggests that the Commission should continue to support 
the AEP Methodology.\563\ NEI notes that while there are implementation 
challenges to the AEP Methodology, as highlighted by NEI previously, 
such process-related concerns do not render it unjust and 
unreasonable.\564\
---------------------------------------------------------------------------

    \563\ NEI Initial Comments at 5.
    \564\ Id. at 11.
---------------------------------------------------------------------------

    200. TAPS argues that the AEP Methodology that many generators use 
in their reactive power compensation filings, and which was derived 
many years ago for synchronous generators, is not well-suited for non-
synchronous generators to which the methodology is now being 
applied.\565\ For example, TAPS explains that TAPS members have found 
it very difficult to verify the inputs to the AEP Methodology for a 
specific generator based on publicly available data, because many 
generators seeking compensation do not submit a FERC Form No. 1.
---------------------------------------------------------------------------

    \565\ TAPS Initial Comments at 4.
---------------------------------------------------------------------------

2. Commission Determination
    201. We appreciate the concerns raised by numerous commenters 
requesting that we undertake various initiatives, as set forth above. 
However, we find that the requested initiatives go beyond the scope of 
this rulemaking, which addresses only compensation for reactive power 
service within the standard power factor range. Accordingly, we will 
not address those concerns here.

III. Compliance Procedures

A. Revisions To Eliminate Compensation for Reactive Power Supply Within 
the Standard Power Factor Range

    202. To effectuate the changes discussed herein, we are taking the 
following four actions.
1. Revise Schedule 2 of the Commission's Pro Forma OATT
    203. We revise Schedule 2 of the Commission's pro forma OATT to 
include the following sentence at the end of Schedule 2: ``However, 
such rates shall not include any charges associated with the 
compensation to a generating facility for the supply of reactive power 
within the power factor range specified in its interconnection 
agreement.'' This revision prohibits separate compensation for the 
provision of reactive power within the standard power factor range 
specified in an interconnection agreement.

[[Page 93450]]

2. Revise Section 9.6.3 of the Pro Forma Large Generator 
Interconnection Agreement
    204. We revise section 9.6.3 of the pro forma LGIA to remove the 
proviso: ``provided that if Transmission Provider pays its own or 
affiliated generators for reactive power service within the specified 
range, it must also pay Interconnection Customer.'' Accordingly, under 
our proposal here, section 9.6.3 of the pro forma LGIA would read as 
follows: ``Payment for Reactive Power. Transmission Provider is 
required to pay Interconnection Customer for reactive power that 
Interconnection Customer provides or absorbs from the Large Generating 
Facility when Transmission Provider requests Interconnection Customer 
to operate its Large Generating Facility outside the range specified in 
Article 9.6.1. Payments shall be pursuant to Article 11.6 or such other 
agreement to which the Parties have otherwise agreed.'' Along with the 
other proposed revisions, this proposed revision prohibits a 
transmission provider from including in its transmission rates any 
charges associated with the supply of reactive power within the 
specified power factor range from a generating facility. Accordingly, 
transmission providers would be required to pay an interconnection 
customer for reactive power only when the transmission provider 
requests the interconnection customer to operate its facility outside 
the power factor range set forth in its interconnection agreement.
3. Revise Section 1.8.2 of the Pro Forma Small Generator 
Interconnection Agreement
    205. We similarly are revising section 1.8.2 of the pro forma SGIA 
to remove the following sentence: ``In addition, if the Transmission 
Provider pays its own or affiliated generators for reactive power 
service within the specified range, it must also pay the 
Interconnection Customer.'' Accordingly, under our proposal here, 
section 1.8.2 of the pro forma SGIA would read as follows: ``The 
Transmission Provider is required to pay the Interconnection Customer 
for reactive power that the Interconnection Customer provides or 
absorbs from the Small Generating Facility when the Transmission 
Provider requests the Interconnection Customer to operate its Small 
Generating Facility outside the range specified in article 1.8.1.''
4. Compliance Procedures
    206. To effectuate these changes, we require each transmission 
provider to submit a compliance filing as discussed below to make 
changes to their Schedule 2s or other OATT provisions relating to 
charges and payments for reactive power, as well as to their pro forma 
LGIAs and pro forma SGIAs in their OATTs. To the extent that any 
transmission provider believes that it already complies with the 
reforms adopted in this final determination, the transmission provider 
is required to demonstrate how it complies in the compliance filing 
required 60 days after the effective date of the final determination. 
In reviewing compliance filings proposed by non-RTO/ISO transmission 
providers, the Commission will apply the ``consistent with or superior 
to'' standard to deviations from the adopted pro forma Schedule 2 \566\ 
and to deviations from the pro forma LGIA and pro forma SGIA.\567\ In 
evaluating compliance filings made by RTOs/ISOs, the Commission will 
apply the ``consistent with or superior to'' standard to deviations 
from the adopted pro forma Schedule 2 and the ``independent entity 
variation standard'' to deviations from the pro forma LGIA and pro 
forma SGIA.\568\
---------------------------------------------------------------------------

    \566\ See Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,760-
63.
    \567\ See Order No. 2003, 104 FERC ] 61,103 at PP 822-27; Order 
No. 2006, 111 FERC ] 61,220 at PP 546-50).
    \568\ See Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,760-
63; Order No. 2003, 104 FERC ] 61,103 at PP 822-27; Order No. 2006, 
111 FERC ] 61,220 at PP 546-50).
---------------------------------------------------------------------------

B. Transition Period

    207. In the NOPR, the Commission proposed to require each 
transmission provider to submit a compliance filing within 60 days of 
the effective date of the final determination. The Commission further 
proposed to allow 90 days from the date of the compliance filing for 
implementation of the proposed reforms to become effective.\569\ The 
NOPR sought comment on whether a transition period beyond the 90-day 
implementation period proposed was necessary and for what duration any 
transition period should last.\570\ Specifically, the NOPR asked if any 
factors, such as potential business or investment impacts, should be 
considered in determining whether any transition period is appropriate 
and what transition mechanisms other than delaying the implementation 
date of the final determination would minimize such disruptions.
---------------------------------------------------------------------------

    \569\ NOPR, 186 FERC ] 61,203 at P 54.
    \570\ Id. P 56.
---------------------------------------------------------------------------

    208. The NOPR also sought comment on whether existing generating 
facilities that have previously received compensation for reactive 
power capability should be allowed to continue to receive compensation 
for a limited period, as an interim rate during a transition period, 
while prohibiting new generating facilities from receiving reactive 
power capability compensation.\571\ The NOPR asks how it should 
determine eligibility for continued compensation.
---------------------------------------------------------------------------

    \571\ Id.
---------------------------------------------------------------------------

    209. In addition, for regions that have an established capacity 
market, the NOPR sought comment on whether transmission providers 
should be allowed to make the implementation of their compliance filing 
align with the region's capacity market timelines to allow costs 
associated with reactive power production, if any, to be incorporated 
into capacity market bids.\572\ For regions without a capacity market, 
the NOPR sought comment on whether a different transition mechanism, if 
any, would be necessary and whether it would be unduly discriminatory 
or preferential to set different implementation dates for the final 
determination in different markets and regions.
---------------------------------------------------------------------------

    \572\ Id.
---------------------------------------------------------------------------

1. Comments
    210. Several commenters who support the NOPR assert that no 
transition beyond the 90-day transition period in the NOPR is 
necessary.\573\ MISO Transmission Owners urge the Commission to neither 
provide a transition period nor compensate generators that previously 
received reactive power compensation for a limited period.\574\ MISO 
Transmission Owners urge the Commission to adopt the NOPR's proposed 
rule to be effective immediately.\575\ While Joint Customers oppose a 
transition period, citing Commission policy and precedent,\576\ they 
state that only a brief transition period, if any, is necessary for the 
implementation of the NOPR reforms.\577\
---------------------------------------------------------------------------

    \573\ See PGE Initial Comments at 5; TAPS Initial Comments at 8; 
PGE Initial Comments at 5.
    \574\ MISO Transmission Owners Initial Comments at 17-19.
    \575\ Id. at 2.
    \576\ Joint Customers Reply Comments at 7-8 (citing PNM, 178 
FERC ] 61,088 at P 32; MISO, 182 FERC ] 61,033 at P 67; MISO 
Rehearing Order, 184 FERC ] 61,022 at PP 32-33.)
    \577\ Joint Customers Initial Comments at 18-21.
---------------------------------------------------------------------------

    211. PGE states that it does not believe the decision to implement 
these provisions in the 90-day implementation period will have a 
measurable impact on business or investment decisions.\578\
---------------------------------------------------------------------------

    \578\ PGE Initial Comments at 5.
---------------------------------------------------------------------------

    212. Joint Customers and MISO Transmission Owners suggest that

[[Page 93451]]

generators should have made business or investment decisions in 
anticipation of the potential elimination of reactive power within the 
standard power factor range.\579\ Joint Customers explain that the move 
towards these reforms has been ongoing for years, providing ample time 
for market participants to adjust their investment strategies.\580\ 
Similarly, MISO Transmission Owners assert that generators have been on 
notice of the prospect of the elimination of reactive power since Order 
No. 2003 and reminded of it routinely since then.\581\
---------------------------------------------------------------------------

    \579\ Joint Customers Reply Comments at 9-10; MISO Transmission 
Owners Initial Comments at 18-19 (noting that generating facilities 
have been on notice of the prospect of the elimination of reactive 
power compensation since Order No. 2003 and reminded of it routinely 
since then).
    \580\ Joint Customers Initial Comments at 21.
    \581\ MISO Transmission Owners Initial Comments at 18-19.
---------------------------------------------------------------------------

    213. MISO Transmission Owners and TAPS both oppose a transition 
period so that reduced rate relief can be provided to customers.\582\ 
MISO Transmission Owners emphasize that the Commission found that by 
eliminating compensation for reactive power within the standard power 
factor range MISO would ``reduce charges to MISO's transmission 
customers.'' \583\ MISO Transmission Owners further state that the 
Commission should not compensate generators that previously received 
reactive power compensation for a limited period for such reasons.\584\ 
MISO Transmission Owners add that, under the current compensation 
scheme, generating facilities are able to ``gold-plate their reactive 
capabilities to the detriment of ratepayers,'' so the Commission 
``should refrain from imposing any transition period or vintaging 
carve-outs that allow capability-based compensation to continue.'' 
\585\ TAPS claims that customers, including TAPS members, have been 
harmed by excessive reactive power compensation thus far and 
accompanying inefficient, administratively burdensome, case-by-case 
determinations.\586\ Therefore, TAPS argues against a transition period 
because generators should no longer benefit from currently unjust and 
unreasonable rates.\587\ Likewise, Joint Customers noted the Commission 
has previously rejected the continuation of compensation beyond the 
tariff effective date.\588\
---------------------------------------------------------------------------

    \582\ Id.; TAPS Initial Comments at 8.
    \583\ MISO Transmission Owners Initial Comments at 18 (citing 
MISO, 182 FERC ] 61,033 at P 67; MISO Rehearing Order, 184 FERC ] 
61,022 at P 55 n.186 (rejecting an argument that the Commission 
should have declined to waive the 60-day notice requirement)).
    \584\ Id.at 17-18.
    \585\ Id. at 19.
    \586\ TAPS Initial Comments at 8.
    \587\ Id.
    \588\ Joint Customers Reply Comments at 8.
---------------------------------------------------------------------------

    214. Calpine and Indicated Trade Associations oppose the NOPR 
proposal and request that if the Commission were to move forward, the 
Commission exempt existing resources, applying the proposed reforms 
only to new resources. Calpine reasons that the Commission exempted 
existing resources from new requirements in Order Nos. 827 and 842 and 
that exemptions would support market stability and investments needed 
for reliability.\589\ Indicated Trade Associations further assert that 
in addition to existing resources, the exemption should also be allowed 
for resources in advanced stages of development.\590\ Indicated 
Reactive Power Suppliers state that Commission-approved cost-based 
tariffs should last the remaining life, transfer of ownership, or 
expiration of PPAs for existing resources.\591\ Middle River Power 
requests that the Commission consider implementing a legacy rate 
provision for generators that have existing reactive rate tariffs to 
mitigate adverse impacts on its current investments and contends that 
the Commission has a history of adopting similar measures under similar 
circumstances.\592\ Reactive Service Providers state that the 
Commission should consider grandfathering the agreements of existing or 
near-completion generating facilities.\593\ Generation Developers argue 
that the Commission should not eliminate reactive power compensation 
for resources receiving compensation pursuant to a rate schedule or 
tariff in effect prior to the effective date of any final determination 
in this proceeding.\594\ EDPR also proposes that facilities which have 
already concluded long-term PPAs but do not yet have an established 
rate be allowed to prove that the long-term PPA for a facility seeking 
reactive power compensation was executed prior to the issuance of the 
NOPR.\595\
---------------------------------------------------------------------------

    \589\ Calpine Initial Comments at 2-3.
    \590\ Indicated Trade Associations Initial Comments at 29-30.
    \591\ Indicated Reactive Power Suppliers Initial Comments at 2; 
Glenvale Initial Comments at 6-7.
    \592\ Middle River Power Initial Comments at 6-7 (citing 
Indicated Energy Trade Associations Initial Comments at 24; PJM 
Interconnection, L.L.C., 110 FERC ] 61,053, at P 61, order on reh'g, 
112 FERC ] 61,031 (2005) (finding it appropriate to grandfather 
units for which construction commenced in reliance on a prior rule), 
order on reh'g, 114 FERC ] 61,302 (2006); Tenn. Gas Pipeline Co., 62 
FERC ] 61,062 (1993) (explaining that, the Commission had decided to 
``grandfather'' prior storage arrangements ``in light of the fact 
that . . . historical customers have already made their conversion 
elections in reliance on access to this storage'')).
    \593\ Reactive Service Providers Initial Comments at 67-76.
    \594\ Generation Developers Initial Comments at 33-34.
    \595\ EDPR Initial Comments at 5.
---------------------------------------------------------------------------

    215. In absence of an exemption for existing resources, or 
grandfathering of existing rates and generator agreements, commenters 
who oppose the proposal advocate for a transition period to comply with 
the final determination. Eagle Creek \596\ recommends a transition 
period of at least three to five years, Reactive Service Providers 
\597\ a period of five years, and Indicated Reactive Power Suppliers 
\598\ a period of seven to ten years respectively. Other commenters who 
ask for a transition period include AEP, requesting at least 120 
days,\599\ and ACORE, requesting a five to ten-year transition 
period.\600\ Calpine \601\ and AEP \602\ both expressed concerns of 
affected generators' ability to recover their costs as justification 
for a transition period and cite times that the Commission has approved 
of a transition period in the past.
---------------------------------------------------------------------------

    \596\ Eagle Creek Initial Comments at 5.
    \597\ Reactive Service Providers Initial Comments at 75-76.
    \598\ Indicated Reactive Power Suppliers Initial Comments at 2-
3.
    \599\ AEP Initial Comments at 7-8.
    \600\ ACORE Initial Comments at 4.
    \601\ Calpine Initial Comments at 4.
    \602\ AEP Initial Comments at 7-8 (citing PJM Interconnection, 
L.L.C., 117 FERC ] 61,331, at P 73 (2006) (``The adoption of a 
transition period must strike a reasonable balance between the need 
to implement RPM to generate relevant prices, and the provision of 
some period to enable parties to understand and make adjustments to 
the new market.''), order on reh'g, 119 FERC ] 61,318 (2007); 
Midcontinent Independent System Operator, 180 FERC ] 61,141, at PP 
248-249 (2022) (``The transition period appropriately balances the 
need to implement the SAC methodology with the recognition that 
resource owners and LSEs may need to adjust their operations--
including outage timing--and their contractual arrangements to 
maximize their potential SAC values.''); PJM Interconnection, 
L.L.C., 155 FERC ] 61,157, at PP 150-151 (2016) (accepting a phase-
in of PJM's capacity performance requirements as just and reasonable 
because the benefits of providing relevant entities adequate time to 
adjust Fixed Resource Requirement plans based on the new rules were 
weighed in conjunction with the interest in applying the 
requirements in an even-handed manner)).
---------------------------------------------------------------------------

    216. EDPR proposes a 10-year transition period for existing rates 
and PPAs. EDPR explains that it will under collect its revenues under 
PPAs that include an offset for reactive power compensation.\603\ 
Therefore, EDPR proposes that facilities with an established reactive 
rate schedule should be allowed to keep that established rate on file 
during a 10-year transition period. Similarly, Reactive Service 
Providers argue that the

[[Page 93452]]

Commission should allow PPAs to be reevaluated.\604\
---------------------------------------------------------------------------

    \603\ EDPR Initial Comments at 3-4.
    \604\ Indicated Reactive Power Suppliers Initial Comments at 2.
---------------------------------------------------------------------------

    217. Glenvale requests that if cost recovery is not possible for 
certain projects, the run-off for legacy projects be extended to 10 
years. Glenvale explains that eligible projects would be those which 
are unable to access revenue in the substitute market designated by the 
Commission, and reasonably rely on the current tariff.\605\ Glenvale 
claims that an extension would motivate these generators to build 
technologies that both support the transmission system and are a low 
cost to consumers.\606\
---------------------------------------------------------------------------

    \605\ Glenvale Initial Comments at 5.
    \606\ Id.
---------------------------------------------------------------------------

    218. Several commenters argue that a transition period is necessary 
for RTOs/ISOs to implement the NOPR. The NHA explains that a transition 
period would allow RTOs/ISOs to adjust their tariffs and market designs 
accordingly.\607\ Generation Developers assert that the Commission 
should direct RTOs/ISOs to propose a transition period that accounts 
for discrepancies between implementation of any market rule changes and 
when resources will be able to benefit from these changes.\608\ 
Similarly, NAGF states that a transition period specific to each market 
based on their design and rules allows generators to evaluate lost 
revenue, cost recovery options, and the possibility of retiring, all 
while also providing time for planners to contemplate other generation 
options.\609\ Clean Energy Associations ask that the Commission, should 
it proceed with its proposal, implement a transition period that takes 
into consideration regional and market differences.\610\ Additionally, 
Indicated Trade Associations state that PJM, ISO-NE, and NYISO each 
currently subtract expected energy and ancillary services revenues, 
including reactive power revenues, from the Net CONE value used to 
develop demand curves for capacity market auctions.\611\ Relatedly, 
Reactive Service Providers explain that PJM, ISO-NE, and NYISO have 
completed capacity auctions and assigned capacity obligations for years 
from now and that the Commission cannot reopen those auctions to make 
up for lost revenue.\612\
---------------------------------------------------------------------------

    \607\ NHA Initial Comments at 9-10.
    \608\ Generation Developers Initial Comments at 35.
    \609\ NAGF Initial Comments at 2.
    \610\ Clean Energy Associations Initial Comments at 2-3, 9-10.
    \611\ Indicated Trade Associations Initial Comments at 14-15.
    \612\ Reactive Service Providers Initial Comments at 57.
---------------------------------------------------------------------------

    219. NYISO notes that shifting to event-specific reactive power 
compensation only when a resource is instructed to operate outside its 
standard power factor range would require complex market design rules--
including developing market rules, incorporating reactive power into 
the NYISO's co-optimization of real power (i.e., energy to meet load), 
operating reserves, and regulation service which would require 
extensive software changes that would take years to develop and 
implement based on current obligations and initiatives.\613\ PJM 
requests that as part of their compliance filings implementing the new 
rate paradigm, RTOs/ISOs be permitted to propose rules around testing, 
monitoring, and penalties. PJM argues that this is to ensure that 
generators provide the reactive power capability that they are required 
to provide under their Commission-jurisdictional interconnection 
agreements when called upon, as correctly identified in the NOPR.\614\
---------------------------------------------------------------------------

    \613\ NYISO Initial Comments at 9-10.
    \614\ PJM Initial Comments at 6.
---------------------------------------------------------------------------

    220. NAGF \615\ and PJM \616\ both propose allowing transmission 
providers the flexibility to propose effective dates on compliance that 
will align with regional capacity market timelines. PJM further notes 
that compliance dates should align with billing and settlements 
timelines as well.\617\ In a similar manner, Calpine suggests that in 
PJM, any new reactive service compensation policy should take effect no 
sooner than the first delivery year of the first PJM capacity auction 
administered under comprehensively updated new rules.\618\ NAGF 
explains that alignment with capacity market timelines would allow 
costs associated with reactive power production to be incorporated into 
capacity market bids if the capacity market reforms permit recovery and 
to allow generators to better evaluate their cost recovery process and 
probability.\619\ Likewise, PJM argues that such timeline alignments 
will permit generators currently receiving reactive power revenues to 
continue to do so until the related offsets are removed from the 
capacity market auction parameters.\620\
---------------------------------------------------------------------------

    \615\ NAGF Initial Comments at 3.
    \616\ PJM Initial Comments at 4-6.
    \617\ Id. (requesting that ``transmission providers in regions 
with centralized capacity markets such as PJM be permitted 
flexibility to propose effective dates on compliance that will align 
with applicable capacity market and billing and settlements 
timelines'' to ``allow costs associated with reactive power 
production to be incorporated into capacity market bids, and also 
ensure alignment with applicable billing and settlements dates.'')
    \618\ Calpine Initial Comments at 4 & n.7 (noting that the 
Commission has recently approved a transition period associated with 
PJM's implementation of generator interconnection reforms (citing 
PJM Interconnection, L.L.C., 181 FERC ] 61,162, at PP 8, 60 
(2022))); PJM Initial Comments at 4-6 (explaining that a transition 
period could be ``to permit generators who are currently receiving 
reactive power revenues under Tariff, Schedule 2 to continue to do 
so until the Delivery Year of the first Base Residual Auction 
(``BRA'') where the removal of these reactive revenues from the 
Energy and Ancillary Services (``E&AS'') offset can be reflected in 
the auction parameters. This concept would be based on the idea that 
these generators submitted their bids in prior auctions without the 
knowledge that Tariff, Schedule 2 revenues would no longer exist, 
which may have impacted the bids they ultimately submitted.'').
    \619\ NAGF Initial Comments at 3.
    \620\ PJM Initial Comments at 4-6.
---------------------------------------------------------------------------

    221. The PJM IMM recommends a transition period as short as 
possible, emphasizing that a faster transition will speed up benefits 
to customers and reduced revenues to generation owners.\621\ The PJM 
IMM recommends reducing current approved rates under Schedule 2 that 
exceed the E&AS Offset to the level of the E&AS Offset that was 
applicable to the auctions for each RPM Delivery Year. The PJM IMM also 
suggests that pending reactive filings submitted prior to the NOPR 
proposal should not be approved exceeding the same aforementioned level 
of the E&AS Offset. The PJM IMM proposes that the E&AS Offset be 
reduced to zero dollars and removed from the rules immediately. As for 
Schedule 2 to the PJM OATT, the PJM IMM believes it should be revised 
to immediately remove the ability to file for new reactive capability 
rates and then eliminated in its entirety effective at the start of the 
first Delivery Year where the E&AS Offset included in the capacity 
market base residual auctions for such Delivery Year is zero 
dollars.\622\
---------------------------------------------------------------------------

    \621\ PJM IMM Initial Comments at 14.
    \622\ PJM IMM Initial Comments at 15 (``Given the schedule for 
upcoming capacity market auctions in PJM, the timing for the 
transition will be a direct result of the effective date of a final 
determination. Given this schedule, there will be a significant lag 
before the Offset can be removed for an identified delivery year. 
For example, if the effective date of the final determination were 
March 1, 2025, the Offset could be eliminated and payments under 
Schedule 2 eliminated effective June 1, 2027, the start of the 
delivery year for the base residual auction scheduled to be run in 
June 2025.'').
---------------------------------------------------------------------------

    222. The PJM IMM makes similar recommendations if PJM eliminates 
the E&AS Offset as a component of the market seller offer caps in the 
capacity market prior to the end of the proposed transition period: (1) 
that the E&AS Offset be reduced to zero dollars and removed from the 
rules immediately; (2) that Schedule 2 be eliminated from the 
OATT.\623\
---------------------------------------------------------------------------

    \623\ Id.

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

[[Page 93453]]

    223. PJM states that it would like flexibility to implement an 
interim rate during the transition period.\624\ PJM notes that it 
contemplates a number of different scenarios, including disallowing any 
units without existing reactive power rate schedules to collect 
reactive power revenue or an interim flat rate per MVAr of capability.
---------------------------------------------------------------------------

    \624\ PJM Initial Comments at 4-6.
---------------------------------------------------------------------------

2. Commission Determination
    224. For all transmission providers in an RTO/ISO or non-RTO/ISO 
region, we direct a compliance filing within 60 days of the effective 
date of the final determination, including a proposed effective date 
within 90 days from the date of the compliance filing, as proposed by 
the NOPR.\625\ We find that the NOPR's proposal to only allow 90 days 
from the date of the compliance filing for implementation of the 
proposed reforms to become effective is appropriate. However, in 
recognition of the concerns raised by commenters with respect to the 
interplay between existing reactive power revenue compensation 
mechanisms and energy and capacity market rules in ISO-NE, NYISO, and 
PJM, we will permit those RTOs/ISOs to each request a later effective 
date,\626\ for the Commission's consideration, in order to allow them 
to develop and propose any changes to their market rules that may be 
necessary in order to accommodate this final determination's 
elimination of compensation for the provision of reactive power within 
the standard power factor range. With any such request, the RTO/ISO 
must affirmatively demonstrate why such a requested effective date is 
necessary, given, for example, its existing market rules, and what 
market rule changes the RTO/ISO believes may be needed to accommodate 
this final determination. We find that this approach reasonably 
balances concerns about expediently addressing unjust and unreasonable 
transmission rates for reactive power with concerns raised by 
commenters about existing cost recovery rules in the organized markets 
and will ensure that the ability of generating facilities to seek any 
appropriate cost recovery will not be impeded.
---------------------------------------------------------------------------

    \625\ NOPR, 186 FERC ] 61,203 at P 54.
    \626\ Any RTO/ISO that proposes an effective date longer than 90 
days from the date of the compliance filing must include an 
indeterminate 12/31/9998 effective date in eTariff with their 
compliance filing and must provide the Commission with an estimate 
of when the changes will become effective and must make a filing 
with the Commission if they are unable to meet their estimated 
effective date. Further, the RTO/ISO must also notify the Commission 
at least 7 days prior to the effective date of their proposed 
changes so that Commission staff may make the required changes in 
eTariff.
---------------------------------------------------------------------------

    225. This flexibility would accommodate the potential section 205 
filings that some RTOs/ISOs mentioned may accompany any final 
determination compliance filings, such as PJM's adjustments to market 
rules to remove the offset in auction parameters as well as ``propose 
rules around testing, monitoring, and penalties, to ensure that 
generators actually provide the reactive power capability that they are 
required to provide under their Commission-jurisdictional 
interconnection agreements when called upon.'' \627\ The Commission 
welcomes these and similar section 205 filings to adapt markets to 
accommodate the final determination as well as to clarify each RTO's/
ISO's compensation scheme for reactive power service outside of the 
standard power factor range, if necessary.\628\
---------------------------------------------------------------------------

    \627\ PJM Initial Comments at 7.
    \628\ Generation Developers Initial Comments at 34-35 
(``Additionally, as part of any compliance filings submitted in 
response to a final rule in this proceeding, the Commission should 
require RTOs and [ISOs] to make revisions to their tariffs 
eliminating existing barriers to the recovery of reactive power 
costs through sales of other products. This would include, for 
instance, requiring RTOs/ISOs with organized capacity markets to 
revise their tariffs to permit resources to accurately reflect their 
investment in reactive power in their capacity offers. The 
Commission also should require RTOs/ISOs to revise their market 
power mitigation frameworks to permit generation resources to 
reflect reactive power costs in their cost-based energy curves.'').
---------------------------------------------------------------------------

    226. We decline to adopt a transition period in non-RTO/ISO regions 
beyond the 90-day implementation period proposed in the NOPR. Some 
generating facilities in non-RTO/ISO regions contend that the 
compliance period should extend until the termination of existing PPAs 
or request that we require all PPAs to be reevaluated to cover the 
foregone revenue. As explained above, the record lacks any concrete 
evidence showing whether, and to what extent, generating facilities 
factored reactive power revenues into their PPAs. And even if a 
generating facility were able to demonstrate that eliminating 
compensation under our rule might impact some generating facility's 
profitability, which they have not, we do not believe that potential 
disrupted expectations weigh in favor of a different outcome in this 
situation. As a general matter, the risk of regulatory change is 
inherent in any long-term PPA.\629\ Moreover, as explained above, we 
are skeptical of any purported reliance interests given that generating 
facilities have not had an inherent right to separate compensation for 
reactive power capability within the standard power factor range since 
Order Nos. 2003 and 2003-A (i.e., because such compensation is required 
only to ensure ``comparability''). Finally, developers and generating 
facilities have been on notice since at least 2003 that the Commission 
regards reactive power compensation within the standard power factor 
range as non-compensable (other than where the comparability standard 
applies)--a conclusion that was patent in those orders, and reinforced 
repeatedly in subsequent Commission orders accepting transmission owner 
filings under section 205 that eliminated reactive power compensation 
within the standard power factor range.\630\
---------------------------------------------------------------------------

    \629\ See, e.g., PJM IMM Reply Comments at 5 (``When buyers and 
sellers enter into power purchase agreements, the contracting 
parties define and assign regulatory risk. Customers are not 
responsible to manage or pay for suppliers' risks.'').
    \630\ See, e.g., Nev Power Co., 179 FERC ] 61,103; PNM, 178 FERC 
] 61,088 at PP 26-36; SPP, 119 FERC ] 61,199 at PP 20, 30-33.
---------------------------------------------------------------------------

    227. We disagree with commenters who request that generating 
facilities with reactive rates on file prior to the effective date of 
the final determination be provided legacy treatment.\631\ Given that 
the Commission finds above that allowing transmission providers to 
compensate generating facilities, affiliated and unaffiliated, for 
providing reactive power within the standard power factor range has 
resulted in unjust and unreasonable transmission rates, it would raise 
undue discrimination concerns to continue to provide payment through 
Schedule 2 for reactive power supply within the standard power factor 
range to generating facilities with rates already on file when those 
rates have been found to be unjust and unreasonable.\632\ Although 
commenters point to other situations where the Commission has provided 
legacy treatment for existing rates, in those situations the existing 
rate had not been found to be unjust and unreasonable.\633\
---------------------------------------------------------------------------

    \631\ Calpine Initial Comments at 2-3; EDPR Initial Comments at 
5; Generation Developers Initial Comments at 33-34; Glenvale Initial 
Comments at 6-7; Indicated Trade Associations Initial Comments at 
29-30; Middle River Power Initial Comments at 6-7; Reactive Service 
Providers Initial Comments at 67-76.
    \632\ See Dynegy Midwest Generation, Inc. v. FERC, 633 F.3d 
1122.
    \633\ See, e.g., Reactive Service Providers Initial Comments at 
67-76 (citing Order No. 2003, 104 FERC ] 61,103; Order No. 661, 111 
FERC ] 61,353; Order No. 827, 155 FERC ] 61,277; Order No. 2023, 184 
FERC ] 61,054; Cal. Indep. Sys. Op., 124 FERC ] 61,031, at PP 12, 
13, 20 (2008); Midcontinent Independent System Operator, Inc., 158 
FERC ] 61,003, at PP 44, 45, 59 (2017); Sw. Power Pool, Inc., 167 
FERC ] 61,275, at P 19 (2019)) (noting that ``[i]t is common for the 
Commission to allow grandfathering of existing agreements and rate 
schedules when making sweeping industry changes,'' that the 
Commission ``has long implemented new Tariff rules in view of the 
economic impact to late-stage projects,'' and ``woven throughout 
each transition period ordered by the [Commission] is a need to 
carefully balance interests and preserve the expectations of the 
parties'')); Indicated Trade Associations Initial Comments at 29-30 
(citing PJM Interconnection, L.L.C., 110 FERC ] 61,053 at P 61; 
Tenn. Gas Pipeline Co., 62 FERC at 61,306) (noting that when the 
Commission eliminated an exemption from market power mitigation, the 
Commission provided legacy treatment for units that commenced 
construction in reliance of the rule)).

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

[[Page 93454]]

IV. Information Collection Statement

    228. The Office of Management and Budget's (OMB) regulations 
require approval of certain information collection requirements imposed 
by agency rules. Upon approval of a collection(s) of information, OMB 
will assign an OMB control number and an expiration date. Respondents 
subject to the filing requirements of a rule will not be penalized for 
failing to respond to these collections of information unless the 
collections of information display a valid OMB control number.
    229. This final determination will amend the Commission's 
regulations pursuant to section 206 of the FPA, to eliminate 
compensation to generating facilities for the provision of reactive 
power within the standard power factor range set forth in each 
generating facility's individual interconnection agreement. To 
accomplish this, the Commission proposes to require each transmission 
provider to amend the pro forma LGIA, the pro forma SGIA, and Schedule 
2 in its OATT to implement the reforms proposed in this final 
determination. Such filings should be made under Part 35 of the 
Commission's regulations. Subsequently, the final determination would 
revise the following currently approved information collections: FERC 
516H (OMB control. No. 1902-0303): Pro Forma Open Access Transmission 
Tariff, FERC 516 (OMB control No. 1902-0096): Electric Tariff Filings, 
and FERC 516A (OMB control No. 1902-0203): Standardization of Small 
Generator Interconnection Agreements and Procedures [SGIA and SGIP].
    230. The Commission is submitting these reporting requirements to 
OMB for its review and approval under section 3507(d) of the Paperwork 
Reduction Act. Comments are accepted on whether the information will 
have practical utility, the accuracy of provided burden estimates, ways 
to enhance the quality, utility, and clarity of the information to be 
collected, and any suggested methods for minimizing the respondent's 
burden, including the use of automated information techniques.
    231. Please send comments concerning the collection of information 
and the associated burden estimates to: Office of Information and 
Regulatory Affairs, Office of Management and Budget, 725 17th Street 
NW, Washington, DC 20503, Attention: Desk Officer for the Federal 
Energy Regulatory Commission. Due to security concerns, comments should 
be sent electronically to the following email address: 
[email protected]. Comments submitted to OMB should refer to 
OMB Control No. 1902-0303, 1902-0096, or 1902-0203.
    232. Please submit a copy of your comments on the information 
collection to the Commission via the eFiling link on the Commission's 
website at https://www.ferc.gov. If you are not able to file comments 
electronically, please send a copy of your comments to: Federal Energy 
Regulatory Commission, Secretary of the Commission, 888 First Street 
NE, Washington, DC 20426. Comments on the information collection that 
are sent to FERC should refer to Docket No. RM22-2-000.
    233. Title: FERC 516H: Pro Forma Open Access Transmission Tariff, 
FERC 516: Electric Tariff Filings, and FERC 516A: Standardization of 
Small Generator Interconnection Agreements and Procedures [SGIA and 
SGIP].
    234. Action: Revision of the information collection in accordance 
with Docket No. RM22-2-000.
    235. OMB Control No.: 1902-0303, 1902-0096, 1902-0203
    236. Respondents for this Rulemaking: Public utility transmission 
providers, including RTOs/ISOs.
    237. Frequency of Information Collection: One-time compliance 
filing.
    238. Necessity of Information: The final determination will require 
that transmission providers submit to the Commission a one-time 
compliance filing proposing tariff revisions.
    239. Internal Review: The Commission has reviewed the changes and 
has determined that such changes are necessary. These requirements 
conform to the Commission's need for efficient information collection, 
communication, and management within the energy industry in support of 
the Commission's ensuring just and reasonable rates. The Commission has 
specific, objective support for the burden estimates associated with 
the information collection requirements.
    240. Public Reporting Burden: The Commission's estimate consists of 
our estimated effort related to updating the proposed revisions to the 
pro forma OATT, and subsequent revisions to the pro forma LGIA and pro 
forma SGIA, and the effort related to submitting a one-time compliance 
filing.
    241. The Commission estimates burden \634\ and cost \635\ as 
follows:
---------------------------------------------------------------------------

    \634\ ``Burden'' is the total time, effort, or financial 
resources expended by persons to generate, maintain, retain, or 
disclose or provide information to or for a Federal agency. For 
further explanation of what is included in the estimated burden, 
refer to 5 CFR 1320.3.
    \635\ Commission staff estimates that the respondents' skill set 
(and wages and benefits) for Docket No. RM22-2-000 are comparable to 
those of Commission employees. Based on the Commission's Fiscal Year 
2024 average cost of $207,786/year (for wages plus benefits, for one 
full-time employee), $100/hour is used.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     C. Annual
                                    B. Number of     number of       D. Total    E. Average  burden  Hrs. &   F. Total annual  Hr. burdens   G. Cost per
           A. Collection             respondents   responses per     number of        cost per  response          &  total annual cost       respondent
                                                     respondent      responses
                                                                    (Column B x                              (Column D x Column E)........   (Column F /
                                                                      Column C)                                                                Column B)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  FERC 516H: Pro Forma Open Access Transmission Tariff
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transmission Providers (Schedule 2            40                1            40  4 hrs.; $400..............  160 hrs.; $16,000............          $400
 one-time compliance filing).
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            FERC 516: Electric Tariff Filings
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transmission Providers (pro forma             43                1            43  4 hrs.; $400..............  172 hrs.; $17,200............           400
 LGIA one-time compliance filing).
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 93455]]

 
                                 FERC 516A: Standardization of Small Generator Interconnection Agreements and Procedures
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transmission Providers (pro forma             43                1            43  4 hrs.; $400..............  172 hrs.; $17,200............           400
 SGIA one-time compliance filing).
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Totals........................  ............  ...............  ............  ..........................  504 hrs.; $50,400............  ............
--------------------------------------------------------------------------------------------------------------------------------------------------------

V. Environmental Analysis

    242. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\636\ We 
conclude that neither an Environmental Assessment nor an Environmental 
Impact Statement is required for this final determination under Sec.  
380.4(a)(15) of the Commission's regulations, which provides a 
categorical exemption for approval of actions under sections 205 and 
206 of the FPA relating to the filing of schedules containing all rates 
and charges for the transmission or sale of electric energy subject to 
the Commission's jurisdiction, plus the classification, practices, 
contracts, and regulations that affect rates, charges, classification, 
and services.\637\
---------------------------------------------------------------------------

    \636\ Reguls. Implementing the Nat'l Env't Pol'y Act, Order No. 
486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Preambles 
1986-1990 ] 30,783 (1987) (cross-referenced at 41 FERC ] 61,284).
    \637\ 18 CFR 380.4(a)(15).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act

    243. The Regulatory Flexibility Act of 1980 (RFA) \638\ generally 
requires a description and analysis of proposed rules that will have 
significant economic impact on a substantial number of small entities. 
The Small Business Administration (SBA) sets the threshold for what 
constitutes a small business. Under SBA's size standards,\639\ 
transmission providers under the category of Electric Bulk Power 
Transmission and Control (NAICS code 221121), have a size threshold of 
950 employees (including the entity and its associates).\640\
---------------------------------------------------------------------------

    \638\ 5 U.S.C. 601-612.
    \639\ 13 CFR 121.201.
    \640\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. The 
Small Business Administrations' regulations at 13 CFR 121.201 define 
the threshold for a small Electric Bulk Power Transmission and 
Control entity (NAICS code 221121) to be 500 employees. See 5 U.S.C. 
601(3) (citing to Section 3 of the Small Business Act, 15 U.S.C. 
632).
---------------------------------------------------------------------------

    244. We estimate that there are 43 transmission providers that are 
affected by the reforms proposed in this final determination, based on 
the NERC Active Compliance Registry Matrix as of January 11, 2024.\641\ 
The Commission used a combination of sources to determine the number of 
employees within each entity using open-source data and information 
provided by Dunn & Bradstreet. We estimate that 6 of the 43 
transmission providers, approximately 14% (rounded), are small 
entities.
---------------------------------------------------------------------------

    \641\ NERC, NCR Active Entities List, (Jan. 12, 2024), 
NERC_Compliance_Registry_Matrix_Excel.xlsx.
---------------------------------------------------------------------------

    245. We estimate that one-time costs (in Year 1) associated with 
the reforms proposed in this final determination for one transmission 
provider (as shown in the table above) would be $1,200 to submit the 
compliance filing. Following Year 1, the Commission estimates no 
ongoing costs associated with this final determination.
    246. According to SBA guidance, the determination of significance 
of impact ``should be seen as relative to the size of the business, the 
size of the competitor's business, and the impact the regulation has on 
larger competitors.'' \642\ We do not consider the estimated cost of 
$1,200 to be a significant economic impact for any of the entities that 
would be impacted by this final determination. As a result, we certify 
that the reforms proposed in this final determination would not have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \642\ U.S. Small Business Administration, A Guide for Government 
Agencies How to Comply with the Regulatory Flexibility Act, 18 (Aug. 
2017), https://cdn.advocacy.sba.gov/wp-content/uploads/2019/06/21110349/How-to-Comply-with-the-RFA.pdf.
---------------------------------------------------------------------------

VII. Document Availability

    247. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
internet through the Commission's Home Page (http://www.ferc.gov).
    248. From the Commission's Home Page on the internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    249. User assistance is available for eLibrary and the Commission's 
website during normal business hours from FERC Online Support at 202-
502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202)502-8659. Email the Public Reference Room at 
[email protected].

VIII. Effective Date and Congressional Notification

    250. These regulations are effective January 27, 2025. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 351 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

    By the Commission. Commissioner Chang is not participating.

    Issued: October 17, 2024
Debbie-Anne A. Reese,
Secretary.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A: Abbreviated Names of Commenters

[[Page 93456]]

------------------------------------------------------------------------
         Abbreviation                         Commenter(s)
------------------------------------------------------------------------
ACORE........................  American Council on Renewable Energy.
AEP..........................  American Electric Power Service
                                Corporation.
Ameren.......................  Ameren Service Company.
Calpine......................  Calpine Corporation.
Clean Energy Associations....  Solar Energy Industries Association
                                (SEIA) and American Clean Power
                                Association.
C T Gaunt....................  Dr. Charles Trevor Gaunt.
Eagle Creek..................  Eagle Creek Reactive Generators.
EDPR.........................  EDP Renewables North America LLC.
Elevate......................  Elevate Renewables F7, LLC.
Generation Developers........  Vistra Corp. and Dynegy Marketing and
                                Trade, LLC.
Glenvale.....................  Glenvale LLC.
IPPNY........................  Independent Power Producers of New York,
                                Inc.
Indicated Reactive Power       KMC Thermo, LLC, Bitter Ridge Wind Farm,
 Suppliers.                     LLC, Guernsey Power Station LLC, Moxie
                                Freedom LLC, Safe Harbor Water Power
                                Corporation, BIF III Holtwood LLC,
                                Brookfield Power Piney & Deep Creek LLC,
                                Erie Boulevard Hydropower, L.P., Carr
                                Street Generating Station, L.P., Bear
                                Swamp Power Company LLC, Brookfield
                                White Pine Hydro LLC, Brookfield
                                Renewable Trading and Marketing LP, and
                                Reworld Waste, LLC f/k/a Covanta.
Indicated Trade Associations.  Electric Power Supply Association, The
                                PJM Power Providers Group the New
                                England Power Generators Association,
                                Inc., Independent Power Producers of New
                                York, Inc., the Coalition of Midwest
                                Power Producers.
ISO-NE.......................  ISO New England Inc.
Joint Consumer Advocates.....  Illinois Attorney General, Illinois
                                Citizens Utility Board, Maryland Office
                                of People's Counsel, the New Jersey
                                Division of Rate Counsel, the North
                                Carolina Utilities Commission Public
                                Staff, the Office of the People's
                                Counsel for the District of Columbia,
                                and the West Virginia Consumer Advocate
                                Division of the Public Service
                                Commission.
Joint Customers..............  Old Dominion Electric Cooperative,
                                Northern Virginia Electric Cooperative,
                                Inc., and Dominion Energy Services, Inc.
                                on behalf of Virginia Electric and Power
                                Company d/b/a Dominion Energy Virginia.
Liberty......................  Liberty Utilities.
Middle River Power...........  Middle River Power LLC.
MISO.........................  Midcontinent Independent System Operator,
                                Inc.
MISO Transmission Owners.....  Ameren Services Company, as agent for
                                Union Electric Company d/b/a Ameren
                                Missouri, Ameren Illinois Company d/b/a
                                Ameren Illinois, and Ameren Transmission
                                Company of Illinois; Arkansas Electric
                                Cooperative Corporation; City Water,
                                Light & Power; Cooperative Energy;
                                Dairyland Power Cooperative; East Texas
                                Electric Cooperative; Entergy Arkansas,
                                LLC; Entergy Louisiana, LLC; Entergy
                                Mississippi, LLC; Entergy Texas, Inc.;
                                Great River Energy; Indianapolis Power &
                                Light Company; Lafayette Utilities
                                System; MidAmerican Energy Company;
                                Minnesota Power (and its subsidiary
                                Superior Water, L&P); Missouri River
                                Energy Services; Montana-Dakota
                                Utilities Co.; Northern States Power
                                Company, a Minnesota corporation, and
                                Northern States Power Company, a
                                Wisconsin corporation, subsidiaries of
                                Xcel Energy Inc.; Northwestern Wisconsin
                                Electric Company; Otter Tail Power
                                Company; Prairie Power, Inc.; Southern
                                Indiana Gas & Electric Company (d/b/a
                                CenterPoint Energy Indiana South); and
                                Southern Minnesota Municipal Power
                                Agency.
NAGF.........................  North American Generator Forum.
NEPGA........................  New England Power Generators Association,
                                Inc.
NEPOOL.......................  New England Power Pool.
NESCOE.......................  New England States Committee on
                                Electricity.
New England Consumer           Office of Massachusetts Attorney General
 Advocates.                     Andrea Joy Campbell, the Connecticut
                                Office of Consumer Counsel, the Maine
                                Office of Public Advocate, the New
                                Hampshire Office of Consumer Advocate,
                                and the Rhode Island Division of Public
                                Utilities and Carriers
NEI..........................  Nuclear Energy Institute.
NYISO........................  New York Independent System Operator,
                                Inc.
NHA..........................  National Hydropower Association.
Ohio FEA.....................  Ohio Office of the Federal Energy
                                Advocate of the Public Utilities
                                Commission of Ohio.
Onward Energy................  Onward Energy Holdings, LLC.
PGE..........................  Portland General Electric Company.
PJM..........................  PJM Interconnection, L.L.C.
PJM IMM......................  Monitoring Analytics, LLC, acting in its
                                capacity as the Independent Market
                                Monitor for PJM.
PSEG.........................  Public Service Electric and Gas Company,
                                PSEG Power LLC, and PSEG Energy
                                Resources & Trade LLC, and each wholly-
                                owned, direct or indirect subsidiaries
                                of Public Service Enterprise Group
                                Incorporated.
Reactive Service Providers...  CIP, D. E. Shaw Renewable Investments,
                                L.L.C., Invenergy Renewables LLC,
                                Leeward Renewable Energy, LLC,
                                Lightsource Renewable Energy Operations,
                                LLC, NextEra Energy Resources, LLC,1
                                [Oslash]rsted Wind Power North America,
                                LLC, and RWE Clean Energy, LLC.
TAPS.........................  Transmission Access Policy Study Group.
------------------------------------------------------------------------

[FR Doc. 2024-24528 Filed 11-25-24; 8:45 am]
BILLING CODE 6717-01-P
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