By Michael Kuser

ALBANY, N.Y. — When pricing carbon into the wholesale electricity markets, remember to keep it simple.

Also: avoid unintentional emissions increases, mind the transmission needed, incent new renewable resources, abate emissions efficiently without hurting consumers, allocate revenues fairly, and leave the legal hassles for the due processes of regulators and NYISO.

Those were some of the stakeholder comments Monday at the first technical conference of the Integrating Public Policy Task Force (IPPTF), which was established in October by NYISO and the state’s Public Service Commission to explore the carbon pricing issue as laid out in a Brattle Group report.

About 50 people attended the meeting, including PSC Chair John Rhodes. (See New York Works to Frame Carbon Policy.)

Paul Hibbard of The Analysis Group facilitated two roundtable discussions, each with 23 stakeholders. The morning session addressed border adjustment mechanisms to prevent “carbon leakage,” a parallel increase in emissions in regions neighboring New York.

“You don’t have to have the absolute perfect solution to leakage to go forward,” said Mark Reeder, an economist who represents the Alliance for Clean Energy New York at NYISO. “You just need to get most of the way there. Say if you can knock out 80 to 85% of the leakage problems at a $40 carbon price, you bring it down in essence to the latest we have now with a fairly small [Regional Greenhouse Gas Initiative] price and you’ve done the job.”

In looking at leakage issues in RGGI states and California, Reeder said “the unit-specific approach and the resource shuffling is a real bad idea and does create a lot of problems. The example here is that a nuclear plant in Pennsylvania that’s just selling spot-in in Pennsylvania could sign a contract to sell it to New York, and if New York declares that clean, we could work on that later, but it doesn’t work.”

Resource shuffling refers to the practice of utilities scheduling their lowest-emission generators to serve areas with emissions caps, while letting heavier polluters simultaneously serve customers in other regions.

“It’s important to move forward with carbon pricing principles and not use leakage as a way to delay,” said Gavin Donohue, president of the Independent Power Producers of New York. “We don’t need to reinvent the wheel.”

“You really get different answers depending on how you think about the question,” said David Clarke of the Long Island Power Authority. “For example, if you have a uniform carbon tax on all sectors, you’d be thinking about offsets; you think about where are the places where folks can make the investments that have the largest carbon reduction at the lowest cost.”

Baseline Leakage

“When you’ve got regions surrounding New York with such a wide range of marginal emissions rates, to start with a broad-brush approach, applying the New York rate to all of them will have pretty obvious unintended consequences,” said Stephen Molodetz, vice president of Hydro-Quebec. “Quebec is zero or near zero and Ontario is close to that; then you’ve got PJM, which is a higher emitter than New York.”

Don Tretheway, CAISO senior adviser for market design and regulatory policy, said some power producers outside the ISO have a resource portfolio with a significantly lower emissions profile than the default emissions rate for their region. In those cases, the ISO wants to give them the benefit of having cleaner resources.

“That’s relatively straightforward to implement from a market standpoint,” Tretheway said. “We can have each of the individual resources put their estimate of carbon compliance costs into their energy bids and we can dispatch away and everything works.”

Tretheway noted how the roll-out of the Western Energy Imbalance Market (EIM) further complicated CAISO’s treatment of greenhouse gas costs.

“The complexity CAISO introduced with the Energy Imbalance Market is that, not only did we need to solve to meet load in California that has a [greenhouse gas] program, but we had to actually solve to meet load in other states that don’t, and that’s where we had to separate those greenhouse gas costs into separate bids,” Tretheway said.

Mark Younger of Hudson Energy Economics said “what California is doing now is probably a mistake. [New York] should have a very high bar on resource-specific carbon pricing. Just because you can contract with what is nominally a clean resource, doesn’t mean that you in any way affected what the emissions were in the neighboring area other than by the fact that there was a bigger import to New York, regardless of resource.”

Allocating Carbon Revenue

The afternoon roundtable discussed how — and whether — New York would allocate revenues collected from a carbon pricing scheme.

NYISO Executive Vice President Rich Dewey said, “We’re conflating a couple issues here. First and foremost, we need to decide if there’s going to be a fund. When I think about how the NYISO settlements process works today, that revenue amount only exists for the microsecond it takes to do the calculation in the settlement itself, so there is no actual fund.

“At NYISO we’re not setting the policy, we’re administering the market,” he continued. “Be that as it may, you may have the desire, for the greater good, to create a fund in some capacity. Then we have to decide where is that fund.”

Miles Farmer of the Natural Resources Defense Council said that if the PSC determines what load-serving entities must do with carbon revenues, “that’s bounded under the legal constraints of PSC ratemaking, and you can’t have just general slush funds of money the way that it happens with RGGI.”

NYISO Senior Manager for Market Design Michael DeSocio said that when considering a carbon revenue fund, “we haven’t actually talked about what does the rate look like. And there are components of the rate that go into various funds already — a congestion rent fund, there’s a loss fund — all of that money is already allocated in some way based on various other markets. We want to do this in a way that doesn’t unnecessarily increase the cost to customers.”

Kelli Joseph, NRG Energy’s director of market and regulatory affairs, said that making carbon pricing sustainable requires considering how RGGI moneys have been used for energy efficiency and incenting renewables in to help reduce greenhouse gases.

“The [Brattle] report assumes a certain marginal emissions rate that may not be true over time,” Joseph said. “Over time, those marginal emission rates are going to decrease and there’s probably not going to be anything left to refund because there’s not going to be a lot of carbon-emitting resources on the system.”

Scott Weiner, Department of Public Service deputy for markets and innovation, cautioned roundtable participants about getting caught up in the legal details so early in the planning process.

“It’s going to be a collaborative effort and will be vetted legally,” Weiner said. “We will subject everything to the governance processes of NYISO, so there are a lot of legal issues, and in the absence of specific facts … I urge you to leave the legal discussion to another day.”

Task force co-chair Nicole Bouchez, a NYISO market design economist, said they had decided to cancel the Dec. 18 task force meeting and will next meet on Jan. 8, 2018.