By Michael Kuser
ALBANY, N.Y. — NYISO stakeholders on Wednesday offered broad support for incorporating a $40/ton carbon charge into the ISO’s markets, but some expressed concern over how the costs of New York’s decarbonization effort would be allocated.
The comments came at a Sept. 6 public hearing jointly run by NYISO and the New York Department of Public Service (DPS).
Both New York Public Service Commission Chair John Rhodes and NYISO CEO Brad Jones, who opened the hearing, signed off last month on a much-anticipated Brattle Group report on pricing carbon into generation offers and energy clearing prices. (See NYISO Study Sees Little Cost Impact from Carbon Charge.)
Brattle’s Sam Newell presented a summary of the report, saying more than 90% of the increased energy costs could be offset through carbon rebates to customers, reduced prices for renewable energy credits and zero-emission credits (ZECs), and improved investment signals. The report predicts the net impact on customer electric bills will be between a 1% reduction and a 2% increase.
Steps Forward
Scott Weiner, DPS deputy for markets and innovation, said the plan being developed by his agency, the ISO and the New York Energy Research and Development Authority envisions fossil fuel generators incurring a penalty based on carbon emissions levels. The carbon adder idea was prompted by the PSC’s decision to subsidize the state’s nuclear plants through ZECs.
Jones noted that New York hopes to implement the plan in the markets within three years, a time frame that Weiner called reasonable. Weiner said officials will have a clearer picture in January, after additional outreach.
As first steps, Weiner said, the DPS would seek stakeholders’ comments on, and alternatives to, Brattle’s proposal by Nov. 1. NYISO and the department will hold a series of technical conferences on the issue, with the first likely to be held around Thanksgiving, he said.
“The exact format has yet to be determined, but we have zeroed in on two topics. One is the issue of borders and seams … and the second topic is revenue allocation,” Weiner said.
Underselling Offsets?
During the hearing, Mark Younger of Hudson Energy Economics contended that the Brattle report understated the volume of expected offsets. Brattle did not account for the New York Power Authority, “which has a lot of green resources also [selling] a fair amount of generation at market prices,” he said.
The Brattle report concluded that a $40/ton carbon charge would raise energy prices by approximately $19/MWh on a load-weighted average basis, but that after accounting for static energy price offsets, net customer costs would rise only $6/MWh.
“And so, this is a source of revenues, certainly to the state, that could be used either to reduce taxes or to be rebating people, but that’s not included anywhere in [the report’s] estimate of savings and offsets against this $19/MWh cost,” Younger said.
“As we get rid of net metering, we end up with a value stack, and part of the stack is a credit for CO2 savings,” he said. “And obviously the more the market represents the CO2 savings, the less you have to essentially subsidize this behind-the-meter stuff, and that would be another savings because that would bring an out-of-market payment more directly into the market, and that’s not captured anywhere.”
While Newell conceded Younger’s “good point,” he said Brattle’s goal was to make reasonable assumptions in the middle of the range of predicted outcomes.
Kelli Joseph, director of New York market and regulatory affairs for NRG Energy, pointed to the major challenge of the state trying to achieve a variety of goals through different methods. Among them: RECs, ZECs, the Clean Energy Standard and Reforming the Energy Vision.
“And is the $40 price sufficient to not only handle ZEC, but get 50% renewable and achieve whatever the REV goals are?” she asked.
Informing FERC
Matthew Schwall, director of market policy and regulatory affairs for the Independent Power Producers of New York, referred to FERC’s interest in price formation, a subject brought up at a May technical conference on harmonizing public policy with wholesale markets. (See NYISO Sees Carbon Adder as Way to Link ZECs to Markets.)
“FERC is looking for guidance,” Schwall said. “Would it be possible for NYISO to work through its stakeholder process to come up with a conceptual filing to submit to FERC — prior to any Tariff filing, prior to coming to a complete market design — in order to get some guidance from FERC?”
NYISO Chief Information Officer Rich Dewey responded that in May the commission said that any proposal would require “a great deal of stakeholder support” to be successful.
“And we want to have the most thoroughly vetted design before we go down to FERC,” he said.
Weiner added, “Importantly, nobody should assume that FERC is not aware of what we are doing here today and going forward. The DPS staff and NYISO staff have ongoing conversations with FERC staff, so they’re well aware of this process, and I think it’s fair to say they’re encouraged by it.”
Reconciling Competing Interests
David Clarke, director of wholesale market policy for the Long Island Power Authority (LIPA), questioned the allocation of carbon costs, saying they might be disproportionately borne by consumers in southeastern New York.
“Right now, everyone has a pro rata share of REC requirements,” Clarke said. “LIPA takes on a proportional share of those renewable energy requirements. … Those collections are going down because the costs of the RECS are going down, but the collections from locational-based marginal prices are going up because you’re [reducing] carbon. Those effects are not remaining in the same proportion and they have different effects for downstate New York than for upstate.”
Newell said New York may want to consider allocating carbon revenues evenly to make up for the non-proportional impacts.
“The total wholesale cost, if it goes up about $20/MWh times about 150 TWh, that’s about $3 billion in total wholesale costs, and then the carbon fund is about half of that, or about $1.5 billion,” Newell said. “The incidence of who’s seeing prices increase more or less is not even, and that is why you might want to consider [proportional rebates],” Newell said.
Weiner said the topic of revenue allocation is key. “How do you divide it up? Is there a way to reconcile these competing interests? The status quo is the status quo, but maybe that’s not the best way, either.”
Reliability is Job One
Stuart Nachmias, Consolidated Edison’s vice president for energy policy and regulatory affairs, said “markets have worked well in meeting the reliability needs of customers in the state but haven’t yet incorporated clean energy goals.”
The capacity markets address reliability, and Con Ed spends a lot of time trying to figure out how the energy market price impacts the capacity market, Nachmias explained. “And more importantly, how does that affect the resources we need for reliability to manage a variable future?” he said.
Dewey said reliability is always the grid operator’s first concern.
“The reality is there’s a lot more renewables coming onto our system, so we need to look at what changes might be necessitated in our existing market products and our existing capacity markets, energy markets or ancillary services to be able to accommodate that grid in the future,” he said.
Nuclear Power not ‘Clean’
Manna Jo Greene, environmental action director for Hudson River Sloop Clearwater, said, “I implore you not to use the word ‘clean’ when talking about nuclear energy. I ask you to think about the communities who had the benefit of the goose that laid the golden egg for so many years and are now faced with massive amounts of high-level radioactive waste.”
Jessica Azulay, program director at Alliance for a Green Economy, echoed Greene’s view and suggested that the DPS and NYISO consider a charge on other greenhouse gases, such as methane.
Erin Hogan, of the New York Department of State’s Utility Intervention Unit, asked if Brattle could share the study’s spreadsheet model, which might help the formation of independent proposals. Weiner said he didn’t want to put Newell “on the spot … but I think that’s a very good point.”
Hogan said she knew people had different perspectives: “Those who don’t want combined cycle, those who don’t want nuke, and there’s those who don’t want transmission, but they want the emissions to go down. The reality is … the most challenging part is to maintain reliability, and the other part is to achieve the environmental goals, and the third part is trying to do this in the most cost-effective way possible. … I’m asking people to come at it with a pragmatic perspective. Often people look at it as if we’re going to optimize to achieve the perfect evolved frame. I think what we really do is choose the least imperfect solution.”