The complex issue of how to accommodate state-determined carbon pricing in U.S. wholesale power markets will persist no matter who wins the nation's presidential election, Federal Energy Regulatory Commission Chairman Neil Chatterjee said Oct. 1.
"Regardless of what happens in the election, I think this commission is going to have to confront these issues as states are going to continue to take it upon themselves to push for these policies," Chatterjee said on a call with reporters following a Sept. 30 technical conference on carbon pricing. "And I think it is our responsibility to ensure that our markets function effectively and efficiently and continue to provide that value for consumers, the economy and the environment."
Chatterjee's remarks came after a closing panel of utility industry CEOs expressed support for carbon pricing in FERC-jurisdictional power markets as a way to ensure they do not conflict with aggressive state climate policies in the absence of federal legislation. State action on energy and climate has become an increasingly thorny issue at FERC in recent years, with a divided commission issuing several controversial orders under Chatterjee's leadership aimed at countering alleged price distortion caused by state subsidies for clean energy resources.
To address the matter, a diverse group including clean energy advocates, merchant generators and a natural gas trade group in June urged FERC to convene a technical conference to explore the legal and practical questions surrounding carbon pricing in wholesale markets.
Legal experts generally agreed during the Sept. 30 event that FERC has the authority to approve carbon pricing proposals under Section 205 of the Federal Power Act, but views were more mixed on whether FERC can declare market rules without carbon pricing unjust and unreasonable under Section 206 of the statute.
"There seems to be a basic foundational agreement that FERC has the authority under Section 205 to evaluate the justness and reasonableness of a [regional transmission organization's] proposal to incorporate a state-imposed carbon price into its tariff," Chatterjee said. "Now as to what would meet muster clearly requires a fact-specific analysis."
Currently, the New York ISO is the only regional grid operator actively developing a plan to embed a carbon price in its market. However, panelists noted during the conference that offer prices from generators operating within the California ISO, PJM Interconnection, ISO New England and NYISO markets all reflect carbon prices set by regional cap-and-trade schemes.
Asked whether some state-level climate policies may cause more harm than good, Chatterjee noted a general consensus among panelists during the Sept. 30 event that market-oriented solutions are preferred over checkerboard approaches. "There was broad agreement that market mechanisms are the best solution to thorny problems, while out-of-market payments are a much less efficient path," Chatterjee said.
Power generators on board with carbon pricing in US wholesale markets
With pressure mounting to address global warming, major U.S. electric utilities and independent power producers said Sept. 30 that they support the adoption of carbon pricing in wholesale markets.
Such a mechanism "will unleash competitive market forces to provide affordable and reliable supply — in furtherance of the wholesale markets' mission — while also efficiently meeting state decarbonization goals," ENGIE North America Inc.'s Chief Renewables Officer Laura Beane said in closing remarks at the conference.
Exelon Corp. President and CEO Chris Crane said a price on carbon will be crucial to preserving the U.S. nuclear fleet, which has lost five plants in the past three years due to growing competition from renewable and natural gas-fired energy. In August, Exelon announced the closure of two nuclear plants in Illinois, citing adverse market rules.
Although several states have adopted carbon pricing programs or policies to support zero-emission energy, market rules including PJM's recent capacity market overhaul could complicate state efforts to transition to lower-carbon power. "All the eastern RTOs now have rules that are actively undermining state policies," Crane said during the technical conference's closing panel.
Representatives of Calpine Corporation and the Natural Gas Supply Association also backed a carbon pricing program but urged FERC to consider possibly requiring the price of power imports from states without a carbon price to be adjusted.
Despite broad support for carbon pricing, utilities and other stakeholders at the FERC event also urged caution.
Brett Mattison, president and COO of American Electric Power Co. Inc. subsidiary Kentucky Power Co., said AEP has already cut its emissions by 65% between 2000 and 2019 and has an aspirational goal of achieving zero emissions by 2050. But in looking at a carbon price, "it's very important… to pay attention to the impacts that it's going to have on our end-use customers," Mattison said. "We cannot overlook issues of cost or reliability."
And Chris Parker, executive director of the Utah Department of Commerce, said his state would "resist any direct, pre-dispatch carbon price mechanism" in regional wholesale markets, arguing that state policies should not have a direct effect on those markets.
"Carbon pricing mechanisms that might serve as cooperative federalism for some states are hostile federalism to others," Parker said. Rather than see FERC implement "a kind of bolt-on policy" with respect to carbon pricing, Parker said he would like the U.S. Congress to resolve the issue. (FERC docket AD20-14)