Federal Energy Regulatory Commission Calls for Carbon Pricing

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The Federal Energy Regulatory Commission (FERC) on October 15 proposed a policy statement to (1) “clarify its jurisdiction” over Regional Transmission Organization (RTO) and Independent System Operator (ISO) wholesale market rules that “incorporate a state-determined carbon price” and (2) “encourage RTO/ISO efforts to explore and consider the benefits of potential Federal Power Act (FPA) Section 205 filings to establish such rules.”

Some quick background. The Federal Power Act (FPA) authorizes FERC to regulate the sale and transmission of electric energy in interstate commerce, including both wholesale electricity rates and regulations “affecting” such rates. FPA Section 205 requires FERC to ensure that all rates subject to its jurisdiction, and the associated market rules, are “just and reasonable.” Utilities have the burden of demonstrating compliance by submitting documents to FERC called Section 205 filings. RTOs and ISOs are organizations that coordinate, control, and monitor multistate electric grids.

The FPA leaves to states jurisdiction over retail electric sales, and the associated intrastate regulations. Over the past two decades, a growing number of states have implemented climate policies. According to FERC, 13 states have adopted renewable electricity mandates of 50 percent or greater, 19 states have set economy-wide greenhouse gas reduction targets of 50 percent or greater, and 11 states have adopted cap-and-trade programs.

Such policies typically raise in-state electric rates but also affect wholesale electricity prices when utilities subject to those mandates buy power from or sell power to utilities in other states. In addition, FERC observes, RTOs and ISOs “have begun examining approaches to incorporating a state-determined carbon price in wholesale electricity markets.”

So, some activity by FERC in this policy space seems inevitable and arguably overdue. But as far as one can tell from the proposed policy statement, FERC’s press release, and FERC Chairman Neil Chatterjee’s remarks, the agency is not considering whether it is “just and reasonable” for ratepayers in states that reject carbon pricing and aggressive renewable energy quota to pay for the climate ambitions of policy makers in other states.

Travis Fisher, president and CEO the Electricity Consumers Resource Council, reports that there was only one consumer representative at the prequel event—FERC’s September 30 stakeholder conference on carbon pricing in wholesale power markets. “What are the odds the consumer perspective is reflected in the policy statement?” he asked (E&E News, subscription required). Of the five questions on which FERC’s policy statement invites public comment, “not one is about impacts on consumers” even though “the FPA is fundamentally a consumer protection statute,” Fisher pointed out.

FERC claims carbon pricing could “improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to incorporate state efforts to reduce GHG emissions.” That might be the case if carbon pricing replaced state renewable energy quotas and other policies that impose implicit carbon taxes on ratepayers. But Chairman Chatterjee went out of his way to reassure environmental advocates that incorporating carbon prices in wholesale power markets would supplement, not replace, state renewable energy mandates. That is bound to make electricity markets, already distorted by market-rigging mandates and subsidies, even less efficient.

FERC has opened a 30-day public comment period on the carbon pricing policy statement that closes on November 16. The Commission prefers comments to be filed electronically via the eFiling link on the FERC’s website at http://www.ferc.gov.​