On October 15th, FERC proposed a policy statement clarifying that it has authority over organized wholesale electric market rules that incorporate a state-determined carbon price in those markets. The proposed policy statement is also meant to encourage regional electric market operators to investigate and consider the benefits of instituting such rules.
The planned policy statement follows the September 30th technical conference at which attendees recognized a diverse range of likely benefits from proposals to integrate state-determined carbon pricing into the regional markets. Those benefits include the development of technology-neutral, transparent price signals within the markets and providing market certainty to support investment.
State policymakers are leading the charge to take on climate change by implementing policies to decrease GHG emissions within their regions. Eleven states now impose some form of carbon pricing, and other entities are exploring this approach, including the regional markets. Participants at the September event agreed that carbon pricing is an example of an efficient, market-based tool to incorporate state public policies into regional markets without minimizing state authority.
The proposal determined that regional market rules adding a state-determined carbon price can be within FERC’s jurisdiction over wholesale prices. Specific facts and circumstances will drive the determination of whether the rules proposed in any particular Federal Power Act (FPA) section 205 filing fall under FERC jurisdiction. FERC is welcoming comment regarding relevant information to consider when assessing this type of filing, including feedback on the following inquiries:
How are the relevant market design considerations altered depending on how the state or states determine the carbon price? How will that price be updated?
By what means does the FPA section 205 proposal guarantee price transparency and improve price formation?
How will the carbon price or prices be reflected in locational marginal pricing?
In what way will the inclusion of the state-determined carbon price into the regional market affect dispatch? Will the state-determined carbon price affect how the regional market optimizes both energy and ancillary services?
Does the proposal result in economic or environmental “leakage,” causing production to switch to more expensive generators in other states without regard to their carbon emissions? How does the proposal approach leakage?
Comments on the proposed policy statement, identified by “Docket No. AD20-14-000”, are due on or before November 16, 2020, while reply comments are due on or before December 1, 2020. For more information, contact Craig Cano with FERC at (202) 502-8680 or firstname.lastname@example.org.