Week Ending October 16, 2020

FERC Taking Comments on Carbon Pricing Policy; Danly Disagrees with Approach

This Article Appears as Published in Foster Report No 3320
FERC Taking Comments on Carbon Pricing Policy; Danly Disagrees with Approach

Wasting little time from a technical conference on carbon pricing in wholesale power markets, FERC issued a proposed policy statement to clarify its authority to act on any state carbon pricing plan that is included in the tariff of an independent system operator (ISO).

FERC Chairman Neil Chatterjee dubbed the move a historic action while cautioning that it does not signal any intent to have the Commission act as an environmental regulator and/or encourage states to adopt carbon pricing plans. During the Commission’s October 15 open meeting and a press conference afterwards, Chatterjee said the policy statement, which is subject to a 30-day comment period, is designed to give states a sense of what could pass muster legally under the Federal Power Act (FPA) for FERC to review and act on a carbon pricing plan for an ISO or regional transmission organization (RTO).

A consensus of speakers made clear at the September 30 technical conference that FERC has the authority under FPA Section 205 to consider a carbon pricing plan submitted to the agency by an ISO or RTO, Chatterjee said.

Commissioner James Danly dissented in part and concurred in part on the policy statement (AD20-14), stating that he views the move as premature and he would prefer to wait for any ISO or RTO tariff filings to be made. “It is certainly premature to opine on jurisdictional questions” before the Commission has seen any carbon pricing plan, Danly said.

The substance of the policy statement can be boiled down to an affirmation of FERC’s jurisdiction under FPA Section 205, which in general is not needed, Danly said.

Commissioner Richard Glick said the policy statement, if finalized, would be a positive step forward for FERC as a follow-up to the technical conference, though he was much less effusive than Chatterjee on the development. Glick said he would not term the move as groundbreaking, but a good development.

Glick said the “good” element of the carbon pricing policy statement was in contrast to the “bad” and “ugly” decisions FERC made on other meeting agenda items. Those latter two groupings involve natural gas pipeline orders that neglect to consider greenhouse gas emissions as directed by the courts, and orders on the New York ISO and PJM Interconnection that run counter to state clean energy policies, Glick said.

The technical conference on carbon pricing was held in response to a petition from a diverse group of stakeholders that asked the Commission to discuss different aspects of carbon pricing plans, including whether Congress will pass legislation, and thorny issues such as emission and economic leakage across state borders and multi-state ISO/RTO markets that present challenges for implementing state policies. There was essentially unanimous support among panelists that the Commission has the legal authority under FPA Section 205 to act on tariff proposals from ISOs that seek to include a price on carbon.

There was much less support for the notion that FERC could act on its own, through Section 206 of the FPA, with a finding that by not including a price on carbon, wholesale market prices are not just and reasonable. That proactive approach – which FERC used for its final rule to have ISOs and RTOs include aggregated distributed energy resources (DER) — was broached by a couple speakers. But when asked by Danly on that specific FPA Section 206 question, few expressed belief that FERC has the authority under the law to go that far on carbon pricing in organized markets.

Chatterjee said his primary takeaway from the technical conference “was that if states continue to pursue carbon pricing, and I fully expect this to be the case, RTOs and their stakeholders can and should explore the feasibility and benefits of market rules that incorporate the state-determined carbon price.  And when they do, they should have confidence that those proposals will be not be a dead letter on our doorstep . . . and confidence that we will bring our pragmatic, market-based lens to this conversation.”

Importantly, FERC is taking comment on any views it could or should take into account when reviewing an ISO or RTO proposal under FPA Section 205, Chatterjee said.

The policy statement was issued late in the day October 15, though reactions were starting already, with the Natural Gas Supply Association (NGSA) praising Chatterjee and the Commission for advancing the issue with bipartisan support. FERC’s action on the policy statement sends a signal to ISOs, states and other stakeholders of its willingness to consider carbon pricing plans, said Pat Jagtiani, executive vice president at NGSA.

“A price on carbon is the most effective long-term solution in power markets, enabling states and regions to achieve carbon reductions without compromising competitive power markets and the benefits they’ve provided to consumers,” Jagtiani said.

The American Council on Renewable Energy (ACORE) said the policy statement is a constructive signal that FERC may look favorably on carbon pricing plans and it is grateful for the move.

However, FERC’s PJM order reinforces the Commision’s adherence to the minimum offer price rule that will impose more costs from utility customers to subsidize fossil fuel generation at the expense of cleaner resources, ACORE President and CEO Greg Wetstone said in a statement. FERC policies favoring fossil fuel generation “take us in the wrong direction from where we need to be to address our climate imperatives and grow the renewable energy economy, and are being challenged in court by ACORE and allied groups,” Wetstone said.

During the meeting and press conference, Chatterjee repeatedly emphasized that he views a fuel-neutral, market-driven approach of a price on carbon as a more reasonable mechanism to move power markets toward decarbonization than what he termed subsidies or state preferences for certain resources. He declined to indicate what kind of carbon pricing mechanism FERC would consider unacceptable, stating that any review of an ISO proposal would be fact-specific for that particular market.

Chatterjee sought to underscore what the policy statement is not about, stating that the proposal is centered on FPA Section 205 and is not about actions by FERC under FPA Section 206. “These are really important points to understand about what we’re doing today, and we’ve endeavored to make  this clear in the proposed policy statement,” he said.

Also, “let me be clear on this point. This is not, in any way, shape or form, an effort by FERC to take proactive action to set a carbon price. I may sound like a broken record here but I’ll say it again: The FPA does not give us authority to act as an environmental regulator. We have neither the expertise nor the authority to drive emissions policy in this space. So that is not the objective here today.”

Currently, 11 states have some form of carbon pricing and grid operators are examining such an approach, FERC said in a news release on the policy statement.

Determining whether any proposal from an ISO or RTO falls under FERC jurisdiction will be based on the circumstances in such a proposal. The Commission is seeking comment on questions such as how any carbon price would be updated and how it would be reflected in locational marginal pricing at an ISO.

Also, how would a price on carbon affect dispatch of power generation or other resources, and if the proposal results in economic or environmental leakage across state borders – in which power production may be shifted to generators in other states – how would that leakage be addressed.

Comments on the proposed policy statement are due in 30 days, with reply comments due 15 days after that.

By Tom Tiernan ttiernan@fosterreport.com

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