By Rich Heidorn Jr.

A broad coalition of independent power producers and renewable energy and trade groups petitioned FERC Monday to convene a technical conference on integrating carbon pricing into organized wholesale electric markets (AD20-14).

“Currently, certain FERC-jurisdictional wholesale electric energy and capacity markets are grappling with how to reconcile wholesale markets and state policies related to reducing carbon emissions, which has a bearing on FERC’s jurisdictional scope, such as how these markets function and the prices charged therein,” the group said. “In recognition of the fact that a number of organized markets are considering how to incorporate carbon pricing into organized wholesale electric markets to better align with state and regional carbon pricing mechanisms, the time appears ripe for the commission to convene a technical conference or workshop on these issues.”

Notably, the petitioners include both renewable energy advocates who support renewable portfolio standards and generators who say such state subsidies distort capacity markets. For example, the group includes independent power producer Calpine — whose complaint led to FERC’s December order requiring PJM to expand its Minimum Offer Price Rule (MOPR) to include all new state subsidized generation — and clean energy and renewable groups: Advanced Energy Economy, the American Council on Renewable Energy and the American Wind Energy Association.

Also signing the petition were IPP groups the Electric Power Supply Association (EPSA), the Independent Power Producers of New York and PJM Power Providers Group, as well as several of their members, including LS Power Associates, NextEra Energy, Brookfield Renewable, Competitive Power Ventures and Vistra Energy. The Natural Gas Supply Association (NGSA) and think tank R Street Institute also joined in.

Notably absent was carbon pricing supporter Exelon, whose nuclear plants have benefited from zero-emission credits (ZECs) and would be subject to PJM’s expanded MOPR. Exelon did not immediately respond to a request for comment.

The request suggests the scope of the conference include a discussion of ways in which carbon could be priced and how wholesale market pricing and dispatch could account for compliance costs, including a look at existing constructs such as the Regional Greenhouse Gas Initiative (RGGI) and the California-Quebec cap-and-trade agreement, which last month won a preliminary ruling in a challenge by the Trump administration.

“We think the commission could grant the request, particularly if other stakeholders welcome the idea of a discussion,” ClearView Energy Partners’ analyst Timothy Fox said in a report to clients. “… If FERC expresses no interest in participating in such discussions, then green-leaning states that have decarbonization of their electric portfolios as a central goal may find the organized markets as presently structured pose an impediment instead of a vehicle to reaching their goals.”

2017 Conference

The groups said the technical conference should “pick up where the commission left off” in its May 2017 technical conference on the interplay between wholesale markets and state policy choices (AD17-11). (See Power Markets at Risk from State Actions, Speakers Tell FERC and ISO-NE Two-Tier Auction Proposal Gets FERC Airing.)

Fox said FERC’s June 2018 order that proposed a “carve out” for state-sponsored resources in PJM “appeared to be a solid move” in support of one of five potential pathways discussed by FERC staff at the conference, that of “accommodating” state policies. “However, we think the commission abandoned that path in its December 2019 order” directing PJM to expand its minimum offer price rule to cover all new state subsidized resources, he added.

Since the 2017 conference, NYISO has proposed introducing a carbon price in its wholesale market to accommodate the state’s approval of ZECs for some of its nuclear fleet.

PJM has released a study on how it could implement carbon pricing for a subset of its states, with border adjustments to counteract leakage. (See PJM: Carbon Pricing the Answer to Subsidy Dispute.)

CAISO implemented a carbon adder in the Western Energy Imbalance Market for bids coming into California from states not subject to California’s cap and trade rules. (See FERC OKs CAISO Changes to EIM Bid Adders.)

In addition, ISO-NE CEO Gordon van Welie recently expressed his support for carbon pricing. (See ISO-NE: States Must Lead on Carbon Pricing.)

Not Seeking a Rulemaking

The petitioners emphasized that they were not asking the Republican-controlled commission to institute a rulemaking nor suggesting that FERC direct implementation of a carbon pricing mechanism.

“The aim of the technical conference would be to facilitate a dialogue among a broad range of stakeholders and interested parties regarding the opportunities and challenges associated with integrating carbon pricing in the organized wholesale electric energy markets, in recognition that such carbon pricing may be an approach that furthers state policies while preserving the benefits of market-based approaches to electric energy markets.”

Jeff Dennis, managing director and general counsel of Advanced Energy Economy, said in an email that the “set of signatories … suggests alignment on the broad view that implementing carbon pricing in some form would be a good thing for the markets and for achieving decarbonization policy goals.”

” … As the petition notes, the signatories do not necessarily agree on all aspects of the role of carbon pricing in wholesale markets, including the degree and manner in which state policies will evolve in the future as carbon pricing is more broadly implemented in the electricity sector and beyond.”

Other members of the coalition issued statements in support on Tuesday.

“Calpine’s core principles include support for competition and environmental stewardship,” CEO Thad Hill said. “We believe that placing an economy-wide price on carbon will spur competitive markets to produce the most cost effective and environmentally responsible solutions.”

EPSA CEO Todd Snitchler said, “America’s competitive electricity markets are a success story — and market-based mechanisms such as carbon pricing could be a powerful tool as we write the next chapter.”

“Our hope is that FERC’s willingness to convene a broad stakeholder discussion on carbon pricing will prompt states to seriously consider it as a solution to meeting consumers’ needs and clean energy targets,” said Dena Wiggins, CEO of the NGSA.

PJM Power Providers Group President Glen Thomas said “the piecemeal carbon policies that are emerging in the PJM footprint are growing increasingly problematic and leading to less efficient markets for consumers. It is time for a regional and national conversation in order to evaluate whether there is a better regional solution out there. We hope that FERC accepts this opportunity to facilitate that conversation.”

Texas-based Vistra Energy “strongly believes that a nationwide carbon-pricing policy, like the [Climate Leadership Council’s] Bipartisan Climate Roadmap sets forth, is the most effective, achievable and fair solution,” said CEO Curt Morgan. “Our company also holds that regional carbon pricing is a worthy intermediate step and a discussion at FERC could facilitate further discussions at the ISO and regional level.”