FERC issues policy statement on wholesale electric market rules
The Federal Energy Regulatory Commission (FERC) issued 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 statement also seeks to encourage regional electric market operators to explore and consider the benefits of establishing such rules.
“As states actively seek to reduce greenhouse gas emissions within their regions, carbon pricing has emerged as an important, market-based tool that has wide support from across sectors,” FERC Chairman Neil Chatterjee said. “The Commission is not an environmental regulator, but we may be called upon to review proposals that incorporate a state-determined state carbon price into these regional markets. These rules could improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to reduce GHG emissions.”
The proposed policy statement comes after a Sept. 30 technical conference where participants identified a diverse range of potential benefits from proposals to integrate state-determined carbon pricing into the regional markets. The benefits include transparent price signals within the markets and market certainty to support investment. Overall, the participants said carbon pricing is an example of a tool to incorporate state public policies into regional markets without diminishing state authority.
Currently, 11 states impose some version of carbon pricing. Other entities, including the regional markets, are examining this approach.
FERC finds that regional market rules incorporating a state-determined carbon price can fall within the Commission’s jurisdiction over wholesale rates. However, determining whether the rules proposed in any particular Federal Power Act section 205 filing do fall under FERC jurisdiction will be based on the specific facts and circumstances.
FERC is seeking comment on the appropriate information to consider when reviewing such a filing. The review will consider the following questions: How do the relevant market design considerations change depending on how the state or states determine the carbon price? How will that price be updated? How does the FPA section 205 proposal ensure price transparency and enhance price formation? How will the carbon price or prices be reflected in locational marginal pricing? How will the incorporation of the state-determined carbon price into the regional market affect dispatch? Will the state-determined carbon price affect how the regional market co-optimizes energy and ancillary services? Does the proposal result in economic or environmental “leakage,” in which production may shift to more costly generators in other states, without regard to their carbon emissions? How does the proposal address any such leakage?
Comments on the policy statement are due in 30 days.
Competitive power suppliers support FERC’s proposed policy statement.
“We are pleased to see that FERC is continuing to dig into the challenging but important issue of carbon pricing and seeking to meaningfully advance the conversation,” Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), said. “EPSA supports market-based solutions to address emissions and is fully supportive of developing a durable regulatory framework that can enable sustainable environmental progress.”
