1. (a) Rates for purchases.

   1. (1) Rates for purchase shall:

      1. (A) Be just and reasonable to the electric consumer of the electric utility and in the public interest; and
      2. (B) Not discriminate against qualifying cogeneration and small power production facilities.
   2. (2) Nothing in this subpart requires any electric utility to pay more than the avoided costs for purchases.

2. (b) Relationship to avoided costs.

   1. (1) For purposes of this subsection, "new capacity" means any purchase from capacity of a qualifying facility, the construction of which was commenced on or after November 9, 1978.
   2. (2) Subject to subdivision (b)(4) of this section, a rate for purchases satisfies the requirements of subsection (a) of this section if the rate equals the avoided costs determined after consideration of the factors set forth in subsection (e) of this section.
   3. (3) Rates for purchases from new capacity shall be in accordance with subdivision (b)(2) of this section, regardless of whether the electric utility making such purchases is simultaneously making sales to the qualifying facility.

   4. (4)

      1. (A) Purchases from facilities whose construction commenced earlier than November 9, 1978, may be ten percent (10%) less than avoided cost.
      2. (B) However, such purchases are not allowed if the utility simultaneously sells power to the qualifying facility.
   5. (5) In the case in which the rates for purchases are based upon estimates of avoided costs over the specific term of the contract or other legally enforceable obligation, the rates for such purchases do not violate this subpart if the rates for such purchases differ from avoided costs at the time of delivery.
   6. (6) Whenever a utility is required to make payments for purchases from a qualifying facility, which payments include avoided capacity costs, then any rates for purchase of energy from such qualifying facility shall be based upon the same capacity assumed for purposes of calculating the avoided capacity cost.

3. (c) Standard rates for purchases.

   1. (1) There shall be put into effect, with respect to each electric utility, standard rates for purchases from qualifying facilities with a design capacity of one hundred kilowatts (100 kW) or less.
   2. (2) There may be put into effect standard rates for purchases from qualifying facilities with a design capacity of more than one hundred kilowatts (100 kW).

   3. (3) The standard rates for purchases under this subsection:

      1. (A) Shall be consistent with subsections (a), (b), and (e) of this section;
      2. (B) Shall use estimates of avoided costs based on the assumed total output of qualifying facilities of less than one hundred kilowatts (100 kW) that are expected to offer their output for sale during the next twelve (12) months; and
      3. (C) May differentiate among qualifying facilities using various technologies on the basis of the supply characteristics of the different technologies.
   4. (4) The electric utility shall provide justification and support for the assumed output of qualifying facilities of less than one hundred kilowatts (100 kW) that is used in the calculation of avoided costs for the standard tariff (see subdivision (c)(3)(C) of this section).

   5. (5)

      1. (A) Standard tariffs will provide qualifying facilities under one hundred kilowatts (100 kW) with the option of either selling only the facility's output net of its own use to the utility or selling its entire output and simultaneously purchasing its requirement from the utility.
      2. (B) Should the qualifying facility elect the option of simultaneous purchases and sales, it will be expected to pay any additional interconnection costs as specified in 23 CAR § 454-306.

4. (d) Purchases “as available” or pursuant to a legally enforceable obligation. Each qualifying facility shall have the option either:

   1. (1) To provide energy as the qualifying facility determines such energy to be available for such purchases, in which case the rates for such purchases shall be based on the purchasing utility's avoided costs calculated at the time of delivery; or

   2. (2) To provide energy or capacity pursuant to a legally enforceable obligation for the delivery of energy or capacity over a specified term, in which case the rates for such purchases shall, at the option of the qualifying facility exercised prior to the beginning of the specified term, be based on either:

      1. (A) The avoided costs calculated at the time of delivery;
      2. (B) The avoided costs calculated at the time the obligation is incurred; or
      3. (C) Any other specific conditions agreed to in the legally enforceable obligation.

5. (e) Factors affecting rates for purchases. In determining avoided costs, the following factors shall, to the extent practicable, be taken into account:

   1. (1) The data provided pursuant to 23 CAR § 454-302, including review of any such data;

   2. (2) The availability of capacity or energy from a qualifying facility during the system daily and seasonal peak periods, including:

      1. (A) The ability of the utility to dispatch the qualifying facility;
      2. (B) The expected or demonstrated reliability of the qualifying facility;
      3. (C) The terms of any contract or other legally enforceable obligation, including the:

6. (i) Duration of the obligation;

   1. (ii) Termination notice requirement; and

      1. (iii) Sanction for noncompliance;
      2. (D) The extent to which scheduled outages of the qualifying facility can be usefully coordinated with scheduled outages of the utility's facilities;
      3. (E) The usefulness of energy and capacity supplied from a qualifying facility during system emergencies, including its ability to separate its load from its generation;
      4. (F) The individual and aggregate value of energy and capacity from qualifying facilities on the electric utility's system; and
      5. (G) The smaller capacity increments and the shorter lead times available with additions of capacity from qualifying facilities;
   2. (3) The relationship of the availability of energy or capacity from the qualifying facility as derived in subdivision (e)(2) of this section, to the ability of the electric utility to avoid costs, including the deferral of capacity additions and the reduction of fossil fuel use; and

   3. (4) The costs or savings resulting from variations in line losses from those that would have existed in the absence of purchases from a qualifying facility, if the purchasing electric utility:

      1. (A) Generated an equivalent amount of energy itself; or
      2. (B) Purchased an equivalent amount of electric energy or capacity.

7. (f) Periods during which purchases are not required.

   1. (1) Any electric utility that gives notice pursuant to subdivision (f)(2) of this section will not be required to purchase electric energy or capacity during any period during which, due to operational circumstances, purchases from qualifying facilities will result in costs greater than those that the utility would incur if it did not make such purchases, but instead generated an equivalent amount of energy itself.
   2. (2) Any electric utility seeking to invoke subdivision (f)(1) of this section must notify, in accordance with applicable Arkansas law or rule, each affected qualifying facility in time for the qualifying facility to cease the delivery of energy or capacity to the electric utility.
   3. (3) Any electric utility that fails to comply with the provisions of subdivision (f)(2) of this section will be required to pay the same rate for such purchase of energy or capacity as would be required had the period described in subdivision (f)(1) of this section not occurred.
   4. (4) A claim by an electric utility that such a period has occurred or will occur is subject to such verification by the Arkansas Public Service Commission as it determines is necessary or appropriate, either before or after the occurrence.

Codification Notes: This section was promulgated as Section 3.4 of the Cogeneration Rules prior to codification in the Code of Arkansas Rules.