The Federal Energy Regulatory Commission (FERC) recently proposed a policy statement to clarify that it has jurisdiction over organized wholesale electric market rules that incorporate a state-determined carbon price in those markets. The proposed policy statement also seeks to encourage regional electric market operators to explore and consider the benefits of establishing such rules.
FERC’s move follows its September 30th conference on carbon pricing, with attendance that surpassed FERC technical conference records. Participants at that conference noted a number of possible advantages if state-determined carbon pricing is integrated into the regional markets, especially technology-neutral, transparent price signals within the markets and more market certainty to support investment. Eleven states currently impose some version of carbon pricing.
The conference deliberated on the possibilities and potential legal and technical difficulties of state-adopted carbon pricing in places with existing regional transmission organizations (RTOs) and independent system operators (ISOs). RTOs and ISOs, under the jurisdiction of the FERC, are responsible for managing the transmission networks that currently deliver electricity to two-thirds of the country. Discussions occurred across three different panels: one on legal considerations, one on carbon pricing mechanisms and their relationship with wholesale (RTO/ISO) markets, and one on market design.
The conference was held in response to requests by power generators, industry groups, and clean-energy advocates. According to Dave Kovaleski, these groups believe that “carbon pricing could be a cost-effective tool to drive down emissions and achieve state goals while preserving the economic benefits of competitive wholesale electricity markets.” The conference came to this same conclusion.
The panel on legal considerations also decided that the FERC does have legal authority to implement a carbon price, as long as the tariff in question is brought through a grid operator’s proposal. Additionally, cap-and-trade policies were deemed valid, as part of larger market designs, by conference Chairman Neil Chatterjee. He also assured participants that any plan for carbon pricing set forth by the FERC would be subject to rigorous analysis to ensure its fairness and advantage to the states, the market, and consumers.
An archived recording of the full conference can be downloaded here.
This commitment to fairness seems to be an effort to address states’ concerns that FERC has been undermining their own mandates and incentives around clean energy. However, many conference participants concluded that carbon pricing has the potential to align market incentives and state policies while driving down emissions more efficiently than the states’ subsidies and mandates alone.
Ultimately, stakeholders and panelists considered the conference to be productive, and Chairman Chatterjee made comments indicating that FERC is heading in a direction of compatibility and coordination between state and federal policies, for the good of the environment, the economy, and the consumer.
As regulators and policymakers debate the pros and cons of pricing and market reforms, carbon-emission restrictions, renewable energy mandates, storage, advanced metering, distributed energy resources, and other changes affecting electricity markets, the Energy Choice Coalition is here to remind them that competitive markets are the most effective way to give consumers what they want—abundant, affordable electricity that is reliable, secure, and clean.