Policy Statement on Carbon Pricing in Organized Wholesale Markets News Release
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175 FERC ¶ 61,036
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
[Docket No. AD20-14-000]
Carbon Pricing in Organized Wholesale Electricity Markets
(Issued April 15, 2021)
AGENCY: Federal Energy Regulatory Commission.
ACTION: Notice of policy statement.
SUMMARY: The Commission is issuing this Policy Statement to clarify how it will
approach filings under section 205 of the Federal Power Act that seek to incorporate a
state-determined carbon price in organized wholesale electricity markets.
DATES: This Policy Statement is effective April 15, 2021.
FOR FURTHER INFORMATION CONTACT:
John Miller (Technical Information)
Office of Energy Market Regulation
(202) 502-6016
john.miller@ferc.gov
Adam Pan (Legal Information)
Office of the General Counsel
(202) 502-6023
adam.pan@ferc.gov
Alan Rukin (Legal Information)
Office of the General Counsel
(202) 502-8502
alan.rukin@ferc.gov
SUPPLEMENTARY INFORMATION:
175 FERC ¶ 61,036
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Richard Glick, Chairman;
Neil Chatterjee, James P. Danly,
Allison Clements, and Mark C. Christie.
Carbon Pricing in Organized Wholesale Electricity
Markets
Docket No. AD20-14-000
POLICY STATEMENT
(Issued April 15, 2021)
On September 30, 2020, the Commission convened a technical conference on
state-determined carbon pricing in organized wholesale electricity markets operated by
regional transmission organizations and independent system operators (RTO/ISO)
(Carbon Pricing Technical Conference)
in Organized Wholesale Electricity
Markets
Docket No. AD20-14-000
POLICY STATEMENT
(Issued April 15, 2021)
On September 30, 2020, the Commission convened a technical conference on
state-determined carbon pricing in organized wholesale electricity markets operated by
regional transmission organizations and independent system operators (RTO/ISO)
(Carbon Pricing Technical Conference). As discussed further below, the record in this
proceeding identified numerous potential benefits of incorporating a carbon price set by
one or more states into RTO/ISO markets.1 On October 15, 2020, the Commission
issued a Proposed Policy Statement, and sought comments on whether the information
and considerations discussed in the Proposed Policy Statement are appropriate for the
Commission to take into account or whether the Commission should consider different or
1 Panelists that participated in the Carbon Pricing Technical Conference were
invited to submit for the record before the conference their choice of testimony in the
form of prepared opening remarks, detailed written comments, or both. Any submitted
panelist testimony was posted to eLibrary in this docket on October 5, 2020, and a
transcript of the conference was posted on October 30, 2020.
Docket No. AD20-14-000
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additional considerations.2 After considering those comments, we issue this Policy
Statement to explain how the Commission will approach filings submitted pursuant to
Federal Power Act (FPA) section 2053 that propose RTO/ISO market rules that
incorporate a state-determined carbon price.
I.
Proposed Policy Statement and Comments
On October 15, 2020, the Commission issued the Proposed Policy Statement
considerations.2 After considering those comments, we issue this Policy
Statement to explain how the Commission will approach filings submitted pursuant to
Federal Power Act (FPA) section 2053 that propose RTO/ISO market rules that
incorporate a state-determined carbon price.
I.
Proposed Policy Statement and Comments
On October 15, 2020, the Commission issued the Proposed Policy Statement. In
the Proposed Policy Statement, the Commission identified certain information and
considerations that the Commission believed, based on the record of the Carbon Pricing
Technical Conference, may be germane to the Commission’s evaluation of an FPA
section 205 filing to determine whether an RTO/ISO’s market rules that incorporate a
state-determined carbon price into RTO/ISO markets are just, reasonable and not unduly
discriminatory or preferential. The Commission sought comments on whether the
information and considerations discussed in the Proposed Policy Statement are
appropriate for the Commission to examine or whether the Commission should consider
different or additional considerations.4
2 Carbon Pricing in Organized Wholesale Electricity Markets, 85 FR 66965 (Oct.
21, 2020), 173 FERC ¶ 61,062 (2020) (Proposed Policy Statement).
3 16 USC 824d.
4 Proposed Policy Statement, 173 FERC ¶ 61,062 at P 16.
Docket No. AD20-14-000
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Initial comments were due on November 16, 2020, and reply comments were due
on December 1, 2020. The attached Appendix identifies the names of those that
submitted comments.5
II.
Policy Statement
This Policy Statement explains how the Commission will approach rate filings
submitted under FPA section 205 to establish market rules for incorporating a state-
determined carbon price into RTO/ISO markets.6 In so doing, we identify a non-binding
list of potential considerations that the Commission may use to evaluate such a filing to
establish market rules for incorporating a state-determined carbon price into an RTO/ISO
market
Commission will approach rate filings
submitted under FPA section 205 to establish market rules for incorporating a state-
determined carbon price into RTO/ISO markets.6 In so doing, we identify a non-binding
list of potential considerations that the Commission may use to evaluate such a filing to
establish market rules for incorporating a state-determined carbon price into an RTO/ISO
market. The Policy Statement makes clear that the Commission will determine whether
the filing meets the FPA section 205 standard based on the particular facts and
circumstances presented in that proceeding. We believe that this discussion will help
RTOs/ISOs and stakeholders considering the value of establishing wholesale market rules
that incorporate a state-determined carbon price and help RTOs/ISOs to make appropriate
filings with the Commission if they seek to implement such rules.
5 This Appendix will not be published in the Federal Register.
6 While RTOs/ISOs typically hold FPA section 205 filing rights to change
RTO/ISO market rules, the Commission recognizes that in some regions other entities
may hold such FPA section 205 filing rights. The Commission intends for this Policy
Statement to apply to FPA section 205 filings submitted by any holders of FPA section
205 rights to change RTO/ISO market rules.
Docket No. AD20-14-000
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This Policy Statement addresses only filings pursuant to FPA section 205.7 In
addition, as this is a policy statement, it provides only a general expression of our policy.
It does not establish any binding rule, regulation, or other precedent.8 When this Policy
Statement is applied in specific cases, parties can challenge or support the application of
this Policy Statement in those proceedings.9
A.
Background on State Emissions-Reduction Policies and Commission-
Jurisdictional RTO/ISO Markets
States are currently taking a leading role in efforts to address climate change by
adopting policies to reduce greenhouse gas (GHG) emissions
en this Policy
Statement is applied in specific cases, parties can challenge or support the application of
this Policy Statement in those proceedings.9
A.
Background on State Emissions-Reduction Policies and Commission-
Jurisdictional RTO/ISO Markets
States are currently taking a leading role in efforts to address climate change by
adopting policies to reduce greenhouse gas (GHG) emissions. The electricity sector is a
frequent focus of those policies. Several states have adopted laws or regulations that
7 This limitation is unchanged from the Proposed Policy Statement, but we
reiterate this point here in response to certain comments requesting clarity on whether the
Policy Statement has any bearing on proceedings initiated pursuant to FPA section 206.
See, e.g., MISO Nov. 16, 2020 Comments at 5; R Street Nov. 16, 2020 Comments at 1-2.
8 See Pac. Gas & Elec. Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974) (“A general
statement of policy is the outcome of neither a rulemaking nor an adjudication; it is
neither a rule nor a precedent but is merely an announcement to the public of the policy
which the agency hopes to implement in future rulemakings or adjudications.”) (footnote
omitted).
9 See Inquiry Regarding the Commission’s Policy for Recovery of Income Tax
Costs, 164 FERC ¶ 61,030, at P 6 (2018), order dismissing clarific’n, 168 FERC ¶ 61,136
(2019).
Docket No. AD20-14-000
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require substantial or total decarbonization of the electricity sector in the coming
decades.10 Many others have adopted goals or targets to the same effect.11
Placing a value on GHG emissions has emerged as an important market-based tool
in state efforts to reduce GHG emissions, including efforts to reduce GHG emissions
from the electricity sector
2019).
Docket No. AD20-14-000
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require substantial or total decarbonization of the electricity sector in the coming
decades.10 Many others have adopted goals or targets to the same effect.11
Placing a value on GHG emissions has emerged as an important market-based tool
in state efforts to reduce GHG emissions, including efforts to reduce GHG emissions
from the electricity sector. In this Policy Statement, we use the term “carbon pricing” to
include both “price-based” methods adopted by states that establish a specific price on
GHG emissions as well as “quantity-based” approaches adopted by states that do so
indirectly through, for example, a cap-and-trade system.12 Currently, 12 states impose
10 Thirteen states—California, Hawaii, Maine, Maryland, Massachusetts, Nevada,
New Jersey, New Mexico, New York, Oregon, Vermont, Virginia, and Washington—and
the District of Columbia have adopted clean energy or renewable portfolio standards of
50% or greater. See C2ES, U.S. State Electricity Portfolio Standards,
https://www.c2es.org/document/renewable-and-alternate-energy-portfolio-standards/; see
also Database of State Incentives for Renewables and Efficiency,
https://programs.dsireusa.org/system/program?type=38&.
11 For example, a number of states—including Colorado, Connecticut, Nevada,
Rhode Island, and Wisconsin—have established 100% clean electricity goals or targets
by executive order or other non-binding commitment. See Natural Resources Defense
Council, 100% Clean Electricity Targets, https://www.nrdc.org/resources/race-100-clean.
12 “Price-based” methods, such as a carbon fee, use an explicit charge on each ton
of GHG emitted. “Quantity-based” methods, such as a cap-and-trade system, limit the
amount of permissible GHG emissions. Cap-and-trade systems establish a total quantity
of GHGs that can be emitted collectively by all entities covered by the policy within a
fixed period (a cap). “Allowances” are created for each ton of GHG emissions that can
be emitted
e, use an explicit charge on each ton
of GHG emitted. “Quantity-based” methods, such as a cap-and-trade system, limit the
amount of permissible GHG emissions. Cap-and-trade systems establish a total quantity
of GHGs that can be emitted collectively by all entities covered by the policy within a
fixed period (a cap). “Allowances” are created for each ton of GHG emissions that can
be emitted. Covered entities must obtain one allowance for each ton of GHG emitted.
Covered entities obtain allowances from either: (1) initial allocation or auctioning of
allowances; or (2) trading of allowances. Carbon prices thus emerge from the initial
allocation of allowances and the trading of allowances on the secondary market. The
term “state-determined carbon price” refers to any state mechanism to place a value on
GHG emissions, including but not limited to a charge directly imposed on emissions, and
may refer to either a single state or multi-state initiative (e.g., the Regional Greenhouse
Gas Initiative (RGGI)). For example, a “state-determined carbon price” may refer to a
Docket No. AD20-14-000
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some version of carbon pricing.13 Those programs include the 11-state RGGI14 in the
Northeast and the cap-and-trade program administered by CARBMultiple other states are
considering adopting a carbon pricing regime,15 or currently use a carbon price to inform
state agency actions.16 In addition, numerous entities, including RTOs and ISOs, have
value on GHG emissions, set by a state regulation or law, to be applied consistently
throughout the electricity industry.
13 State carbon pricing programs that are currently implemented include:
e other states are
considering adopting a carbon pricing regime,15 or currently use a carbon price to inform
state agency actions.16 In addition, numerous entities, including RTOs and ISOs, have
value on GHG emissions, set by a state regulation or law, to be applied consistently
throughout the electricity industry.
13 State carbon pricing programs that are currently implemented include:
(1) California’s cap-and-trade program (see California Air Resources Board (CARB),
Cap-and-Trade Program, https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-
program/about); (2) Massachusetts’ cap-and-trade program (see Mass. Dept. of Env.
Protection, Reducing GHG Emissions under Section 3(d) of the Global Warming
Solutions Act, https://www.mass.gov/guides/reducing-ghg-emissions-under-section-3d-
of-the-global-warming-solutions-act); and (3) the 11-state RGGI, infra n.14 (see RGGI,
Inc., Elements of RGGI, https://www.rggi.org/program-overview-and-design/elements).
See C2ES, U.S. State Carbon Pricing Policies, https://www.c2es.org/document/us-state-
carbon-pricing-policies/.
14 Those states are: Connecticut; Delaware; Maine; Maryland; Massachusetts;
New Hampshire; New Jersey; New York; Rhode Island; Vermont; and Virginia. RGGI,
Inc., https://www.rggi.org.
15 Pennsylvania and Washington are pursuing carbon pricing through rulemakings.
Pennsylvania intends to join RGGI (see Penn. Dept. of Env. Protection, RGGI,
https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx), and Washington is seeking
to adopt a statewide cap-and-trade program (see State of Washington, Dept. of Ecology,
Clean Air Rule, https://ecology.wa.gov/Air-Climate/Climate-change/Greenhouse-
gases/Reducing-greenhouse-gases/Clean-Air-Rule)
through rulemakings.
Pennsylvania intends to join RGGI (see Penn. Dept. of Env. Protection, RGGI,
https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx), and Washington is seeking
to adopt a statewide cap-and-trade program (see State of Washington, Dept. of Ecology,
Clean Air Rule, https://ecology.wa.gov/Air-Climate/Climate-change/Greenhouse-
gases/Reducing-greenhouse-gases/Clean-Air-Rule). Fourteen states are currently
considering carbon pricing legislation: Connecticut, Georgia, Hawaii, Indiana, Kansas,
Maryland, Massachusetts, Montana, New Hampshire, New York, Oregon, Rhode Island,
Texas, and Washington (see National Conference of Energy Legislators, Carbon Pricing,
State Information, https://www.ncel.net/carbon-pricing/#stateinfo).
16 At least 11 states—California, Colorado, Illinois, Maine, Maryland, Minnesota,
Nevada, New Jersey, New York, Virginia, and Washington—use a state-determined
carbon price as a decision-making tool in various contexts, such as policy analysis, utility
integrated resource planning, and retail ratemaking for distributed energy resources. See
Docket No. AD20-14-000
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begun examining approaches to incorporating state-determined carbon prices into
wholesale electricity markets.17
As with any state regulation of electricity generation facilities, state efforts to
reduce GHG emissions in the electricity sector may affect matters subject to the
Commission’s jurisdiction.18 And while the Commission does not directly administer
environmental statutes, the Commission may be called upon to review proposals
submitted under FPA section 20519 that address rules that incorporate a state-determined
carbon price into RTO/ISO markets.
Policy Integrity, The Cost of Carbon Pollution, States Using the SCC,
https://costofcarbon.org/states.
17 This includes, for example, ISO-NE’s stakeholder discussions regarding carbon
pricing (see van Welie Oct. 5, 2020 Opening Comments at 2-3; Tr. 100:1-6 (van Welie);
ISO-NE Oct
er FPA section 20519 that address rules that incorporate a state-determined
carbon price into RTO/ISO markets.
Policy Integrity, The Cost of Carbon Pollution, States Using the SCC,
https://costofcarbon.org/states.
17 This includes, for example, ISO-NE’s stakeholder discussions regarding carbon
pricing (see van Welie Oct. 5, 2020 Opening Comments at 2-3; Tr. 100:1-6 (van Welie);
ISO-NE Oct. 5, 2020 Pre-Technical Conference Statement at 6-7); NYISO’s carbon
pricing draft proposal (see Dewey Oct. 5, 2020 Opening Remarks at 3-5; Tr. 89:20-90:3
(Dewey); NYISO, Carbon Pricing, https://www.nyiso.com/carbonpricing); and PJM’s
Carbon Pricing Senior Task Force (see Giacomoni Oct. 5, 2020 Comments at 2-3; Tr.
146:13-147:3 (Giacomoni); PJM, Carbon Pricing Senior Task Force,
https://www.pjm.com/committees-and-groups/task-forces/cpstf.aspx).
18 See, e.g., Coal. for Competitive Elec., Dynegy Inc. v. Zibelman, 906 F.3d 41, 57
(2d Cir. 2018), cert. denied sub nom. Elec. Power Supply Ass’n v. Rhodes, 139 S. Ct.
1547 (2019) (explaining that the state payments to address environmental externalities at
issue in that case had “(at best) an incidental effect” on RTO/ISO markets); see also
FERC v. Elec. Power Supply Ass’n, 136 S. Ct. 760, 776 (2016), as revised (Jan. 28, 2016)
(EPSA) (noting that the federal and state spheres of jurisdiction under the FPA “are not
hermetically sealed from each other”).
19 16 USC 824d(a) (“All rates and charges made, demanded, or received by any
public utility for or in connection with the transmission or sale of electric energy subject
to the jurisdiction of the Commission, and all rules and regulations affecting or
pertaining to such rates or charges shall be just and reasonable.”) (emphasis added).
the FPA “are not
hermetically sealed from each other”).
19 16 USC 824d(a) (“All rates and charges made, demanded, or received by any
public utility for or in connection with the transmission or sale of electric energy subject
to the jurisdiction of the Commission, and all rules and regulations affecting or
pertaining to such rates or charges shall be just and reasonable.”) (emphasis added).
Docket No. AD20-14-000
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RTO/ISO markets already address various matters related to federal and state
environmental regulations. For example, the Commission has long permitted generating
resources to recover through wholesale rates the costs of complying with environmental
regulations, including the costs of emissions pricing regimes.20 Permitting generating
resources to recover through wholesale rates in the RTO/ISO markets the costs associated
with a state-determined carbon price is consistent with that precedent.21
The Commission has also accepted filings to establish wholesale market rules that
address how a state-determined carbon price operates within markets that encompass
more than one state. As one example, CARB administers a multi-sector cap-and-trade
program that includes the electricity sector.22 As part of its Western Energy Imbalance
20 See Policy Statement and Interim Rule Regarding Ratemaking Treatment of the
Cost of Emissions Allowances in Coordination Rates, 59 FR 65,930, at 65,935 (Dec. 22,
1994) FERC Stats. & Regs. ¶ 31,009, at 31,207 (1994) (cross-referenced at 69 FERC ¶
61,346) (Policy Statement on Costs of Emissions Allowances) (Policy Statement on
Costs of Emissions Allowances) (“We will allow the recovery of incremental costs of
emission allowances in coordination rates whenever the coordination rate also provides
for recovery of other variable costs on an incremental basis.”); see also Grand Council of
Crees v. FERC, 198 F.3d 950, 957 (D.C. Cir
69 FERC ¶
61,346) (Policy Statement on Costs of Emissions Allowances) (Policy Statement on
Costs of Emissions Allowances) (“We will allow the recovery of incremental costs of
emission allowances in coordination rates whenever the coordination rate also provides
for recovery of other variable costs on an incremental basis.”); see also Grand Council of
Crees v. FERC, 198 F.3d 950, 957 (D.C. Cir. 2000) (holding that just and reasonable
rates may account for a seller’s “need to meet environmental requirements,” which “may
affect the firm’s costs”); see generally Peskoe Oct. 5, 2020 Pre-Conference Filing at 1-2
(discussing these orders in greater detail); Konschnik Oct. 5, 2020 Opening Statement at
1; Tr. 25:5-18 (Konschnik) (similar).
21 See Peskoe Oct. 5, 2020 Pre-Conference Filing at 1 (“The Commission has
recognized that environmental compliance costs are appropriately included in wholesale
rates, and there is no basis for the Commission to treat carbon price costs any
differently.”).
22 See supra n.13. Nineteen other states—Colorado, Connecticut, Hawaii,
Louisiana, Maine, Massachusetts, Michigan, Minnesota, Montana, Nevada, New
Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Virginia,
Vermont, and Washington—and the District of Columbia have adopted economy-wide
Docket No. AD20-14-000
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Market (EIM), California Independent System Operator Corporation (CAISO) proposed,
and the Commission has accepted, tariff provisions to address how resources located
outside California offer into the EIM in light of California’s carbon pricing regime.23
Those rules permit a resource to fashion its offers into the EIM such that they include a
carbon price if they are dispatched to serve load in California and not include a carbon
price if they are dispatched to serve load in the rest of the EIM.24 Similarly, CAISO
proposed, and the Commission has accepted, measures for addressing resource shuffling
in the EIM25 by more accurately assessing which resources are dispatched
to fashion its offers into the EIM such that they include a
carbon price if they are dispatched to serve load in California and not include a carbon
price if they are dispatched to serve load in the rest of the EIM.24 Similarly, CAISO
proposed, and the Commission has accepted, measures for addressing resource shuffling
in the EIM25 by more accurately assessing which resources are dispatched to serve load
in California.26
decarbonization goals or targets of 50% or greater. See C2ES, U.S. State Greenhouse
Gas Emissions Targets, https://www.c2es.org/document/greenhouse-gas-emissions-
targets/.
23 Cal. Indep. Sys. Operator Corp., 153 FERC ¶ 61,087, at PP 9-11, 57 (2015).
24 Id.
25 In this context, CARB determined that CAISO’s initial method for accounting
for emissions from EIM resources that serve California load incorrectly assumed that the
least-emitting resources served California load, when instead some of those resources
would have already been dispatched to serve load outside of California. Therefore, there
was a “backfill” of higher-emitting resources to serve non-California load, or a
“shuffling” of resources. CARB concluded that, but for California’s demand in the EIM,
those higher-emitting resources would not have been dispatched at all and therefore those
emissions should be attributed to serving California load. See, e.g., Wolak Oct. 5, 2020
Comments at 2-3; Hogan Oct. 5, 2020 Comments at 4-5; Tr. 101:16-24 (Wolak).
26 Cal. Indep. Sys. Operator Corp., 165 FERC ¶ 61,050, at PP 7, 17 (2018).
s. CARB concluded that, but for California’s demand in the EIM,
those higher-emitting resources would not have been dispatched at all and therefore those
emissions should be attributed to serving California load. See, e.g., Wolak Oct. 5, 2020
Comments at 2-3; Hogan Oct. 5, 2020 Comments at 4-5; Tr. 101:16-24 (Wolak).
26 Cal. Indep. Sys. Operator Corp., 165 FERC ¶ 61,050, at PP 7, 17 (2018).
Docket No. AD20-14-000
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B.
Discussion
1.
Incorporating a State-Determined Carbon Price into RTO/ISO
Markets
In this section, we explain the Commission’s jurisdiction to review RTO/ISO
market rules that would incorporate a state-determined carbon price filed under FPA
section 205. We also explain that it is the policy of this Commission to encourage efforts
of RTOs/ISOs and their stakeholders to explore and consider the value of incorporating a
state-determined carbon price into RTO/ISO markets.27
a.
Commission Jurisdiction Regarding Rules that
Incorporate a State-Determined Carbon Price into
RTO/ISO Markets
Wholesale market rules that incorporate a state-determined carbon price into
RTO/ISO markets can fall within the Commission’s jurisdiction as a practice affecting
wholesale rates. Whether the rules proposed in any particular FPA section 205 filing do,
in fact, fall under the Commission’s jurisdiction, or whether any such proposal is
consistent with FPA section 205, is a determination we will make based on the facts and
circumstances in any such proceeding. Accordingly, rather than make any jurisdictional
27 Certain commenters recommend that we refer more broadly to “emissions
pricing” or state environmental policies more generally, rather than limiting it to “carbon
pricing.” See, e.g., Public Interest Orgs. Nov. 16, 2020 Comments at 2. This Policy
Statement is a response to specific issues raised in the record developed at and after the
Carbon Pricing Technical Conference
jurisdictional
27 Certain commenters recommend that we refer more broadly to “emissions
pricing” or state environmental policies more generally, rather than limiting it to “carbon
pricing.” See, e.g., Public Interest Orgs. Nov. 16, 2020 Comments at 2. This Policy
Statement is a response to specific issues raised in the record developed at and after the
Carbon Pricing Technical Conference. As that record was limited to the specific issue of
carbon pricing, we decline to address other state environmental policies as outside the
scope of this proceeding.
Docket No. AD20-14-000
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or merits determination in this Policy Statement, we present a framework for exercising
our FPA section 205 jurisdiction.28
In EPSA, the Supreme Court articulated a two-part test for evaluating whether a
Commission action is within its jurisdiction to regulate practices affecting wholesale
rates. First, the activity being regulated must “directly affect” wholesale rates.29
Although the Court did not exhaustively define what it means to “directly affect”
wholesale rates, it noted that the wholesale market rules established in Order No. 74530
“meet that standard with room to spare.”31 As the Court explained, those rules address
how demand response resources participate in the RTO/ISO markets, including the levels
at which they bid and are compensated.32
Wholesale market rules that incorporate a state-determined carbon price into
RTO/ISO markets can satisfy that “directly affect” standard. Like the rules at issue in
28 For these reasons, we reject the suggestion that we are “prejudg[ing] the
jurisdictional merits of any future section 205 proposals.” See Danly Concurrence in Part
and Dissent in Part at PP 2-3.
29 EPSA, 136 S. Ct. at 774 (citing Cal. Indep. Sys. Operator Corp. v. FERC,
372 F.3d 395, 403 (2004)).
30 Demand Response Compensation in Organized Wholesale Energy Markets,
Order No. 745, 76 FR 16,657 (Mar 24, 2011), 134 FERC ¶ 61,187, order on reh’g &
clarification, Order No
ictional merits of any future section 205 proposals.” See Danly Concurrence in Part
and Dissent in Part at PP 2-3.
29 EPSA, 136 S. Ct. at 774 (citing Cal. Indep. Sys. Operator Corp. v. FERC,
372 F.3d 395, 403 (2004)).
30 Demand Response Compensation in Organized Wholesale Energy Markets,
Order No. 745, 76 FR 16,657 (Mar 24, 2011), 134 FERC ¶ 61,187, order on reh’g &
clarification, Order No. 745-A, 137 FERC ¶ 61,215 (2011), reh’g denied, Order No. 745-
B, 138 FERC ¶ 61,148 (2012), vacated sub nom. Elec. Power Supply Ass’n v. FERC, 753
F.3d 216 (D.C. Cir. 2014), rev’d & remanded sub nom. EPSA, 136 S. Ct. 760.
31 EPSA, 136 S. Ct. at 774.
32 Id. at 774-75.
Docket No. AD20-14-000
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Order No. 745, wholesale market rules that incorporate a state-determined carbon price
could, depending on the particular circumstances, govern how resources participate in the
RTO/ISO market, how market operators dispatch those resources, and how those
resources are ultimately compensated.33 As such, those wholesale market rules can affect
wholesale rates in essentially the same way described in EPSA.
Second, EPSA explained that the Commission cannot regulate a matter that FPA
section 201(b) reserves for exclusive state jurisdiction, “no matter how direct, or
dramatic, its impact on wholesale rates.”34 The Court explained, however, that the effects
that wholesale market rules have on retail rates or other matters subject to exclusive state
jurisdiction do not, in and of themselves, cause the Commission to exceed its
jurisdiction.35 Instead, those effects are the inevitable result of the fact that the FPA
33 See, e.g., Tr. 23:3-22 (D. Hill); 28:24-29:8, 52:24-53:13 (Peskoe); D. Hill Oct.
5, 2020 Comments at 5-7; Peskoe Oct. 5, 2020 Pre-Conference Filing at 2-3; Price Oct. 5,
2020 Comments at 8-9; Rossi Oct. 5, 2020 Pre-Conference Filing at 3. See generally
Transmission Planning and Cost Allocation by Transmission Owning and Operating
Public Utilities, Order No. 1000, 76 FERC 49,842 (Aug
FPA
33 See, e.g., Tr. 23:3-22 (D. Hill); 28:24-29:8, 52:24-53:13 (Peskoe); D. Hill Oct.
5, 2020 Comments at 5-7; Peskoe Oct. 5, 2020 Pre-Conference Filing at 2-3; Price Oct. 5,
2020 Comments at 8-9; Rossi Oct. 5, 2020 Pre-Conference Filing at 3. See generally
Transmission Planning and Cost Allocation by Transmission Owning and Operating
Public Utilities, Order No. 1000, 76 FERC 49,842 (Aug. 11, 2011), 136 FERC ¶ 61,051,
at PP 203-224 (2011), order on reh’g, Order No. 1000-A, 139 FERC ¶ 61,132, order on
reh’g and clarification, Order No. 1000-B, 141 FERC ¶ 61,044 (2012), aff’d sub nom.
S.C. Pub. Serv. Auth. v. FERC, 762 F.3d 41 (D.C. Cir. 2014) (requiring that regional
transmission planning processes consider transmission needs driven by public policy
requirements (which can include state public policies)).
34 EPSA, 136 S. Ct. at 775.
35 Id. at 776 (“[A] FERC regulation does not run afoul of [section 201](b)’s
proscription just because it affects—even substantially—the quantity or terms of retail
sales.”).
Docket No. AD20-14-000
- 13 -
divides jurisdiction over the electricity sector between the Commission and the states.36
In turning to the specifics of Order No. 745, the Court concluded that the rule did not
regulate retail rates because “every aspect of [the rule] happens exclusively on the
wholesale market and governs exclusively that market’s rules” and “the Commission's
justifications for regulating demand response are all about, and only about, improving the
wholesale market.”37 Under those circumstances, the Court explained, “[section 201(b)]
imposes no bar” on Commission authority.38
Wholesale market rules that incorporate a state-determined carbon price into
RTO/ISO markets can satisfy this standard as well
y that market’s rules” and “the Commission's
justifications for regulating demand response are all about, and only about, improving the
wholesale market.”37 Under those circumstances, the Court explained, “[section 201(b)]
imposes no bar” on Commission authority.38
Wholesale market rules that incorporate a state-determined carbon price into
RTO/ISO markets can satisfy this standard as well. Such rules would not regulate a
matter reserved exclusively to the states under the FPA, or otherwise displace state
authority, including state authority over generation facilities.39 Instead, wholesale market
rules that incorporate a state-determined carbon price into RTO/ISO markets can “govern
exclusively” the wholesale market and do so for the purpose of improving that market.40
Rules that meet that standard could affect matters within state jurisdiction, including a
36 Id. (“It is a fact of economic life that the wholesale and retail markets in
electricity, as in every other known product, are not hermetically sealed from each other.
To the contrary, transactions that occur on the wholesale market have natural
consequences at the retail level. And so too, of necessity, will FERC’s regulation of
those wholesale matters.”).
37 Id. (citing Oneok, Inc. v. Learjet, Inc., 575 U.S. 373, 385 (2015)).
38 Id.
39 See 16 USC 824(b).
40 EPSA, 136 S. Ct. at 776.
Docket No. AD20-14-000
- 14 -
state’s regulation of generation facilities, without running afoul of section 201(b)’s
limitation on the Commission’s jurisdiction.41 Under those circumstances, the state
would retain authority over that carbon price as well as other measures for regulating
generation facilities, as in the CAISO EIM example discussed above.42 For these
reasons, incorporating a state-determined carbon price into RTO/ISO markets would not
in any way diminish state authority to establish a carbon price or modify an existing state
carbon price.43
Finally, we note that incorporating a state-determined carbon price into RTO
as well as other measures for regulating
generation facilities, as in the CAISO EIM example discussed above.42 For these
reasons, incorporating a state-determined carbon price into RTO/ISO markets would not
in any way diminish state authority to establish a carbon price or modify an existing state
carbon price.43
Finally, we note that incorporating a state-determined carbon price into RTO/ISO
markets could represent another example of the type of “program of cooperative
federalism” that the Court noted with approval in EPSA.44 RTO/ISO market rules that
incorporate a state-determined carbon price could, as discussed above, improve the
efficiency and transparency of the organized wholesale markets under Commission
jurisdiction by providing a market-based method to incorporate state efforts to reduce
GHG emissions, a matter self-evidently under state jurisdiction.
41 Id.
42 See supra P 10.
43 This position is unchanged from the Proposed Policy Statement, but we clarify
this point here in response to certain comments that expressed concern that the Policy
Statement could serve to diminish existing state authority. See, e.g., EKPC Dec. 1, 2020
Comments at 2-10; Joint NY Consumers Nov. 16, 2020 Comments at 2; NESCOE Nov.
16, 2020 Comments at 5-6; Ohio Commission Nov. 16, 2020 Comments at 6-7.
44 Id. at 779-80.
Docket No. AD20-14-000
- 15 -
b.
Commission Encouragement of Efforts of RTOs/ISOs and
their Stakeholders to Explore and Consider the Value of
Incorporating a State-Determined Carbon Price into
RTO/ISO Markets
Participants at the Carbon Pricing Technical Conference identified a diverse range
of potential benefits that could arise from incorporating a state-determined carbon price
into RTO/ISO markets
14-000
- 15 -
b.
Commission Encouragement of Efforts of RTOs/ISOs and
their Stakeholders to Explore and Consider the Value of
Incorporating a State-Determined Carbon Price into
RTO/ISO Markets
Participants at the Carbon Pricing Technical Conference identified a diverse range
of potential benefits that could arise from incorporating a state-determined carbon price
into RTO/ISO markets. Those benefits include the development of technology-neutral,
transparent price signals within RTO/ISO markets and market certainty to support
investment.45 In addition, participants explained that carbon pricing is one example of an
efficient market-based tool that incorporates state public policies into RTO/ISO markets
without in any way diminishing state authority.46
We agree that proposals to incorporate a state-determined carbon price into
RTO/ISO markets could potentially improve the efficiency of those markets.47
45 See Tr. 24:1-3 (D. Hill), 85:17-21 (Bowring), 95:14-16 (Olson), 171:1-10
(White), 177:1-3 (Mukerji), 219:6-25 (Wadsworth), 261:24-262:5 (“From a pure business
perspective, clarity and certainty are so important. And for those of us that are involved
in making these long-term capital-intensive investments in energy infrastructure, having
this mechanism that can provide long-term price signals for investment would be hugely
valuable.”) (Beane), 264:17-19 (Crane), 278:8-10, 279:10-15 (Segal), 283:17-19
(Wiggins), 300:20-301:12 (Beane), 312:22-313:15 (Beane), 314:14-22 (Crane),
317:11-20 (Segal), 326:17-327:7 (Wiggins).
46 See, e.g., Tr. 27:7-11, 29:9-24 (Peskoe), 31:15-32:12 (Price), 85:9-21
(Bowring), 200:11-23 (Breidenich).
47 See, e.g., Tr. 31:15-25 (Price), 99:16-22 (van Welie), 150:6-23 (Mukerji),
169:5-12. (Hogan), 170:1-15 (Mukerji), 170:20-171:10 (White), 175:5-20 (Rothleder),
219:1-221:4 (Wadsworth), 265:4-21 (Crane), 271:1-5 (T. Hill), 282:15-22 (Tierney).
7:11-20 (Segal), 326:17-327:7 (Wiggins).
46 See, e.g., Tr. 27:7-11, 29:9-24 (Peskoe), 31:15-32:12 (Price), 85:9-21
(Bowring), 200:11-23 (Breidenich).
47 See, e.g., Tr. 31:15-25 (Price), 99:16-22 (van Welie), 150:6-23 (Mukerji),
169:5-12. (Hogan), 170:1-15 (Mukerji), 170:20-171:10 (White), 175:5-20 (Rothleder),
219:1-221:4 (Wadsworth), 265:4-21 (Crane), 271:1-5 (T. Hill), 282:15-22 (Tierney).
Docket No. AD20-14-000
- 16 -
Accordingly, it is the policy of this Commission to encourage efforts of RTOs/ISOs and
their stakeholders—including States, market participants, and consumers—to explore and
consider the value of incorporating state-determined carbon prices into RTO/ISO
markets.48 That encouragement does not indicate a preference for a state-determined
carbon pricing approach over other state policies. Whether and how a state chooses to
address GHG emissions is a matter exclusively within that state’s jurisdiction. Instead,
our intention is only to encourage discussions among RTOs/ISOs and their stakeholders
regarding wholesale market rules that would incorporate state-determined carbon pricing,
in light of what we view as the potential benefits of carbon pricing.
2.
Considerations for Evaluating an FPA Section 205 Proposal to
Incorporate a State-Determined Carbon Price into RTO/ISO
Markets
The Commission will review any FPA section 205 filing that proposes to establish
wholesale market rules that incorporate a state-determined carbon price into RTO/ISO
markets based on the particular facts and circumstances presented in that proceeding,
48 See Proposed Policy Statement, 173 FERC ¶ 61,062 at P 15 (proposing “to
make it the policy of this Commission to encourage efforts by RTOs/ISOs and their
stakeholders—including States, market participants, and consumers—to explore
establishing wholesale market rules that incorporate state-determined carbon prices in
RTO/ISO markets”); see also id. PP 1, 7.
presented in that proceeding,
48 See Proposed Policy Statement, 173 FERC ¶ 61,062 at P 15 (proposing “to
make it the policy of this Commission to encourage efforts by RTOs/ISOs and their
stakeholders—including States, market participants, and consumers—to explore
establishing wholesale market rules that incorporate state-determined carbon prices in
RTO/ISO markets”); see also id. PP 1, 7.
Docket No. AD20-14-000
- 17 -
with the filer bearing the burden of demonstrating that the proposal meets the FPA
section 205 standard.49
Nevertheless, based on our review of the record in this proceeding, we believe that
certain questions and issues are likely to arise in any such filing. Below, we identify
considerations that we believe may be germane to the Commission’s evaluation of an
FPA section 205 filing, which filers should consider including, as appropriate, in any
FPA section 205 filing to incorporate a state-determined carbon price into RTO/ISO
markets.
a. How, if at all, do the relevant market design considerations change
depending on the manner in which the state or states determine the carbon
price (e.g., price-based or quantity-based methods)? How would
state-determined carbon prices, including any changes to these prices, be
reflected in RTO/ISO tariffs or market designs?
b. How would the FPA section 205 proposal provide adequate price
transparency and enhance price formation?
c. How would the carbon price or prices be reflected in locational marginal
prices (LMP)?
d
carbon
price (e.g., price-based or quantity-based methods)? How would
state-determined carbon prices, including any changes to these prices, be
reflected in RTO/ISO tariffs or market designs?
b. How would the FPA section 205 proposal provide adequate price
transparency and enhance price formation?
c. How would the carbon price or prices be reflected in locational marginal
prices (LMP)?
d. How would the incorporation of the state-determined carbon price into the
RTO/ISO market affect dispatch? Would the state-determined carbon price
affect how the RTO/ISO co-optimizes energy and ancillary services?
Would any reforms to RTO/ISO co-optimization rules be necessary in light
of the state-determined carbon price? Would any reforms to other market
design elements be necessary, such as to market power mitigation rules or
other rules that affect whether the market produces just and reasonable
rates?
49 See, e.g., Ala. Power Co. v. FERC, 993 F.2d 1557, 1571 (D.C. Cir. 1993)
(stating that “the party filing a rate adjustment with the Commission under § 205 bears
the burden of proving the adjustment is lawful”) (citation omitted).
Docket No. AD20-14-000
- 18 -
e. Would the filer’s proposal result in economic or environmental leakage?50
If so, how might the proposal address any such leakage?
f. What elements of the proposal affect the wholesale rates paid by
customers? How does the proposal consider this impact and the impact on
consumers overall?
These considerations are intended to provide guidance to RTO/ISOs and their
stakeholders regarding the kinds of issues that the Commission may consider when
evaluating FPA section 205 filings that seek to incorporate a state-determined carbon
price in RTOs/ISOs
sal affect the wholesale rates paid by
customers? How does the proposal consider this impact and the impact on
consumers overall?
These considerations are intended to provide guidance to RTO/ISOs and their
stakeholders regarding the kinds of issues that the Commission may consider when
evaluating FPA section 205 filings that seek to incorporate a state-determined carbon
price in RTOs/ISOs. We emphasize that this list is intended to provide guidance but does
not alter the Commission’s intention to consider the facts and circumstances presented in
each proceeding and does not bind or limit the Commission with respect to which
considerations the Commission will weigh in applying the legal standard articulated in
FPA section 205.
III.
Document Availability
In addition to publishing the full text of this document in the Federal Register, the
Commission provides all interested persons an opportunity to view and/or print the
contents of this document via the Internet through the Commission’s Home Page
(http://www.ferc.gov). At this time, the Commission has suspended access to the
Commission’s Public Reference Room, due to the proclamation declaring a National
50 See Hogan Oct. 5, 2020 Comments at 4; Wolak Oct. 5, 2020 Comments at 2;
Singh Oct. 5, 2020 Comments at 2-3. See also Tr. 56:12-57:10 (Price) (generally
discussing economic and environmental leakage), Tr. 46:2-18 (Peskoe) (discussing the
Commission’s jurisdiction over proposals from public utilities to address leakage).
Public Reference Room, due to the proclamation declaring a National
50 See Hogan Oct. 5, 2020 Comments at 4; Wolak Oct. 5, 2020 Comments at 2;
Singh Oct. 5, 2020 Comments at 2-3. See also Tr. 56:12-57:10 (Price) (generally
discussing economic and environmental leakage), Tr. 46:2-18 (Peskoe) (discussing the
Commission’s jurisdiction over proposals from public utilities to address leakage).
Docket No. AD20-14-000
- 19 -
Emergency concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020.
From the Commission’s Home Page on the Internet, this information is available
on eLibrary. The full text of this document is available on eLibrary in PDF and
Microsoft Word format for viewing, printing, and/or downloading. To access this
document in eLibrary, type the docket number excluding the last three digits of this
document in the docket number field.
User assistance is available for eLibrary and the Commission’s website during
normal business hours from the Commission’s Online Support at (202) 502-6652
(toll free at 1-866-208-3676) or email at ferconlinesupport@ferc.gov, or the Public
Reference Room at (202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference
Room at public.referenceroom@ferc.gov.
By direction of the Commission. Commissioner Danly is concurring in part and
dissenting in part with a separate statement attached.
Commissioner Christie is concurring in part and
dissenting in part with a separate statement attached.
( S E A L )
Nathaniel J. Davis, Sr.,
Deputy Secretary.
ference
Room at public.referenceroom@ferc.gov.
By direction of the Commission. Commissioner Danly is concurring in part and
dissenting in part with a separate statement attached.
Commissioner Christie is concurring in part and
dissenting in part with a separate statement attached.
( S E A L )
Nathaniel J. Davis, Sr.,
Deputy Secretary.
Docket No. AD20-14-000
- 20 -
Note: the following appendix will not appear in the Federal Register.
Appendix: List of Commenters
Short Name
Full Name
ACORE
American Council on Renewable Energy
AEE
Advanced Energy Economy
Americans for Prosperity,
et al.
Americans for Prosperity, Alliance for Wise Energy
Decisions, Americans for Tax Reform, Caesar Rodney
Institute, Citizens Against Government Waste, Committee
for a Constructive Tomorrow, Competitive Enterprise
Institute, Energy & Environment Legal Institute, Heritage
Action for America, Mississippi Center for Public Policy,
National Center for Public Policy Research, Roughrider
Policy Center, Texas Public Policy Foundation, The
Heartland Institute, and 60 Plus Association
America’s Power
America’s Power
API
American Petroleum Institute
AWEA, et al.
American Wind Energy Association and the Alliance for
Clean Energy – New York
BCSE
Business Council for Sustainable Energy
Brookfield Renewable
Brookfield Renewable Trading and Marketing LP
Buckeye Power
Buckeye Power, Inc.
CAISO
California Independent System Operator Corporation
CAISO Market Monitor
CAISO Department of Market Monitoring
Calpine
Calpine Corporation
CARB
California Air Resources Board
Carbon Free NY
Carbon Free New York
CEA
Canadian Electricity Association
CEI
Competitive Enterprise Institute
Covanta
Covanta Holding Corporation
Cricket Valley
Cricket Valley Energy Center, LLC
David Hill
David R. Hill, Columbia Univ
tem Operator Corporation
CAISO Market Monitor
CAISO Department of Market Monitoring
Calpine
Calpine Corporation
CARB
California Air Resources Board
Carbon Free NY
Carbon Free New York
CEA
Canadian Electricity Association
CEI
Competitive Enterprise Institute
Covanta
Covanta Holding Corporation
Cricket Valley
Cricket Valley Energy Center, LLC
David Hill
David R. Hill, Columbia Univ. Center on Global Energy
Policy
EDF
Environmental Defense Fund
EEI
Edison Electric Institute
EKPC
East Kentucky Power Cooperative, Inc.
ELCON
Electricity Consumers Resource Council
EPSA
Electric Power Supply Association
ETI
Energy Trading Institute
Docket No. AD20-14-000
- 21 -
Short Name
Full Name
Eversource
Eversource Energy Service Company, The Connecticut
Light and Power Company, NSTAR Electric Company,
and Public Service Company of New Hampshire
Exelon
Exelon Corporation
Heritage Foundation
Katie Tubb and Nicolas Loris of The Heritage Foundation
HQUS
H.Q. Energy Services (U.S.) Inc.
IER
Institute for Energy Research
Industrial Customer Orgs.
American Forest & Paper Association and Industrial
Energy Consumers of America
Int’l. Energy Credit Ass’n.
International Energy Credit Association
IPPNY
Independent Power Producers of New York, Inc.
ITC Companies
International Transmission Company, Michigan Electric
Transmission Company, LLC, ITC Midwest LLC, and
ITC Great Plains, LLC
Joint Attys. Gen
Research
Industrial Customer Orgs.
American Forest & Paper Association and Industrial
Energy Consumers of America
Int’l. Energy Credit Ass’n.
International Energy Credit Association
IPPNY
Independent Power Producers of New York, Inc.
ITC Companies
International Transmission Company, Michigan Electric
Transmission Company, LLC, ITC Midwest LLC, and
ITC Great Plains, LLC
Joint Attys. Gen.
Attorneys General of Massachusetts, California,
Delaware, Maryland, Michigan, Minnesota, New Mexico,
Pennsylvania, Rhode Island, Wisconsin, and the District
of Columbia
Joint California Parties
Pacific Gas & Electric Company, San Diego Gas &
Electric Company, and Southern California Edison
Joint Consumer Advocates Office of the People’s Counsel for the District of
Columbia, Delaware Division of the Public Advocate,
Citizens Utility Board, Maryland Office of People’s
Counsel, New Jersey Division of Rate Counsel, and
Pennsylvania Office of Consumer Advocate
Joint NY Consumers
New York Energy Consumers Council, Inc., Real Estate
Board of New York, and Building Owners and Managers
Association of Greater New York
LS Power
LS Power Development, LLC
Mass. Atty. Gen.
Massachusetts Attorney General Maura Healey
Michigan Commission
Michigan Public Service Commission
Microsoft
Microsoft Corporation
MISO
Midcontinent Independent System Operator, Inc.
National Grid
National Grid
NEI
Nuclear Energy Institute
NEPGA
New England Power Generators Association, Inc.
NEPOOL
New England Power Pool Participants Committee
NESCOE
New England States Committee on Electricity
NY State Entities
New York State Public Service Commission, New York
State Energy Research and Development Authority, and
New York Power Authority
nt System Operator, Inc.
National Grid
National Grid
NEI
Nuclear Energy Institute
NEPGA
New England Power Generators Association, Inc.
NEPOOL
New England Power Pool Participants Committee
NESCOE
New England States Committee on Electricity
NY State Entities
New York State Public Service Commission, New York
State Energy Research and Development Authority, and
New York Power Authority
Docket No. AD20-14-000
- 22 -
Short Name
Full Name
NGSA
Natural Gas Supply Association
NMA
National Mining Association
NRG
NRG Energy, Inc.
Nucor Gallatin
Nucor Steel Gallatin, LLC
NYISO
New York Independent System Operator, Inc.
ODEC
Old Dominion Electric Cooperative
Ohio Commission
Public Utilities Commission of Ohio’s Office of the
Federal Energy Advocate
PJM
PJM Interconnection, L.L.C.
PJM Power Providers
PJM Power Providers Group
Policy Integrity
Institute for Policy Integrity, New York Univ. School of
Law
Public Interest Orgs.
Sustainable FERC Project, Clean Air Task Force, Natural
Resources Defense Council, Union of Concerned
Scientists, Southern Environmental Law Center,
Conservation Law Foundation, and Acadia Center
R Street
R Street Institute
Real Estate Roundtable
The Real Estate Roundtable
RFF
Karen Palmer, Dallas Burtraw, Todd Aagaard, and
Kathryne Cleary of Resources for the Future
Roger Caiazza
Roger Caiazza, Private Citizen
Roy Shanker
Roy J. Shanker, Ph.D., Independent Consultant
SAFE
Securing America’s Future Energy
SEIA
Solar Energy Industries Association
Shell Energy
Shell Energy North America (US), L.P.
Trane
Trane Technologies plc
Utah Dept. of Commerce
Utah Department of Commerce
Vistra
Vistra Corp.
WPTF
Western Power Trading Forum
for the Future
Roger Caiazza
Roger Caiazza, Private Citizen
Roy Shanker
Roy J. Shanker, Ph.D., Independent Consultant
SAFE
Securing America’s Future Energy
SEIA
Solar Energy Industries Association
Shell Energy
Shell Energy North America (US), L.P.
Trane
Trane Technologies plc
Utah Dept. of Commerce
Utah Department of Commerce
Vistra
Vistra Corp.
WPTF
Western Power Trading Forum
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Carbon Pricing in Organized Wholesale Electricity
Markets
Docket No.
AD20-14-000
(Issued April 15, 2021)
DANLY, Commissioner, concurring in part and dissenting in part:
Any party with a rate on file can submit a Federal Power Act section 2051 filing at
any time. I therefore cannot oppose the policy statement’s effective acknowledgement
that section 205 has yet to be repealed and thus the Commission is obligated to consider
such filings, including those related to carbon pricing initiatives.2 So, as seemingly
unnecessary as it may be to announce a policy of “non-binding . . . potential
considerations,” I see no basis upon which to oppose that aspect of the policy statement.3
Also “non-binding” is the majority’s view of our jurisdictional powers as they
memorialize them in this policy statement.4 I accordingly dissent from the policy
statement to the extent it attempts to prejudge the jurisdictional merits of any future
section 205 proposals. Congress grants our jurisdiction, and the courts decree its limits
when we overstep it. Anyone considering a section 205 filing following this issuance
would be well-advised to read the courts’ decisions in order to inform themselves as to
the proper bounds of a legitimate tariff proposal; interested parties should do the same
when formulating protests
s of any future
section 205 proposals. Congress grants our jurisdiction, and the courts decree its limits
when we overstep it. Anyone considering a section 205 filing following this issuance
would be well-advised to read the courts’ decisions in order to inform themselves as to
the proper bounds of a legitimate tariff proposal; interested parties should do the same
when formulating protests.
Finally, my prior statement in this proceeding that the Commission “ha[s]
jurisdiction to entertain section 205 filings that seek to accommodate state carbon-pricing
policies” meant no more and no less than that.5 The Commission has the duty “to
1 16 U.S.C. § 824d.
2 See Carbon Pricing in Organized Wholesale Elec. Mkts., 175 FERC ¶ 61,036, at
P 4 (2021).
3 Id.
4 See id. PP 8-17.
5 Compare Carbon Pricing in Organized Wholesale Elec. Mkts., 173 FERC
¶ 61,062 (2020) (Danly, Comm’r, concurring in part and dissenting in part at P 1), with
Exelon Corporation December 1, 2020 Reply Comments, Docket No. AD20-14-000, at
Docket No. AD20-14-000
- 2 -
entertain” any section 205 filing. I reiterate now in case any party wishes to disregard my
plain meaning: the Commission cannot prejudge whether future section 205 filings
designed to accommodate state carbon-pricing initiatives will pass jurisdictional muster.6
For these reasons, I respectfully concur in part and dissent in part.
________________________
James P. Danly
Commissioner
7-8.
6 See Carbon Pricing in Organized Wholesale Elec. Mkts., 173 FERC ¶ 61,062
(Danly, Comm’r, concurring in part and dissenting in part at P 4) (“I would have waited
until we had an actual 205 filing before us rather than pre-judging the issue based on
unstated assumptions about how such programs might work. It is easy to imagine any
number of RTO/ISO carbon-pricing proposals that would violate the Federal Power Act .
. . .”).
holesale Elec. Mkts., 173 FERC ¶ 61,062
(Danly, Comm’r, concurring in part and dissenting in part at P 4) (“I would have waited
until we had an actual 205 filing before us rather than pre-judging the issue based on
unstated assumptions about how such programs might work. It is easy to imagine any
number of RTO/ISO carbon-pricing proposals that would violate the Federal Power Act .
. . .”).
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Carbon Pricing in Organized Wholesale Electricity
Markets
Docket No.
AD20-14-000
(Issued April 15, 2021)
CHRISTIE, Commissioner, concurring in part and dissenting in part:
I concur that any filing under Section 205 proposing some form of carbon pricing
will be evaluated on the facts and circumstances attendant to that filing.1
I dissent from those parts of the Policy Statement2 to the extent those provisions
may be interpreted to appear to invite proposals for carbon pricing that are inconsistent
with the following general principles.3
First, it’s important to be straightforward with the public about what is being
considered in this proceeding. For a government to retain the trust of the people, it is
imperative to avoid what George Orwell criticized as language that disguises the truth
about government actions behind euphemisms and other distortions.4
So let’s be clear: the term carbon “price” as used in this docket,5 and by many
commenters advocating for it, is a carbon tax. This is not just a matter of semantics.
Using terms accurately will not only better serve and inform the public, but is essential to
clarify, and avoid obfuscating, the legal – including constitutional – questions regarding
this Commission’s authority, as discussed further below.
1 See Policy Statement at PP 20 and 22.
2 See, e.g., id. PP 11, 17-19.
3 Any future filing will come with its own evidentiary record and be considered
individually
curately will not only better serve and inform the public, but is essential to
clarify, and avoid obfuscating, the legal – including constitutional – questions regarding
this Commission’s authority, as discussed further below.
1 See Policy Statement at PP 20 and 22.
2 See, e.g., id. PP 11, 17-19.
3 Any future filing will come with its own evidentiary record and be considered
individually.
4 See, e.g., George Orwell, Animal Farm (1945); George Orwell, Nineteen Eighty-
Four (1949).
5 See Policy Statement at P. 7.
Docket No. AD20-14-000
- 2 -
As advocated by many commenters herein, a carbon “price” is intended – just like
the tax it is– to raise the price to consumers of a product, in this case an energy resource
based on its carbon attributes. Raising the price, of course, is the whole point of the
policy.6 Whether in the form of an ad valorem add-on to the market price, similar to a
sales tax, or a price floor set above the market price, or a cap-and-trade system, such as
the Regional Greenhouse Gas Initiative (RGGI), the term carbon “price” as used in this
Policy Statement and advocated by many in this docket means carbon tax.7 As one
commenter quite accurately describes it:
Regardless of the program design, the carbon price will likely increase
periodically, either administratively through a pre-set carbon price
schedule or through periodic contraction of the number of emissions
allowances introduced into the market, which will tend to drive up the
price.
. . .
Incorporating a carbon price in wholesale electricity markets will raise
[Locational Marginal Prices] . . . .8
6 See, e.g., Public Interest Organizations November 16, 2020 Comments at 3
(“Taxes and supports are equal but opposite measures: a tax (or fee) increases costs and
thus reduces the quantity of a good or activity the state deems undesirable, while a
support lowers costs and increases the quantity of those the state deems desirable
y markets will raise
[Locational Marginal Prices] . . . .8
6 See, e.g., Public Interest Organizations November 16, 2020 Comments at 3
(“Taxes and supports are equal but opposite measures: a tax (or fee) increases costs and
thus reduces the quantity of a good or activity the state deems undesirable, while a
support lowers costs and increases the quantity of those the state deems desirable. Both
are economic policy tools intended to move a market away from the equilibrium it would
have achieved absent policy intervention.” (emphasis added)).
7 I would also note that while RTO/ISO markets may be more administrative
constructs than true markets, the goal of these markets is to use the operation of supply
and demand to produce prices that reflect the competitive results obtainable in a true
market. A carbon “price” is imposed with the obvious intent to increase the prices of
certain energy resources above those that reflect competitive results, based on a single
criterion, carbon content. See, e.g., Institute for Policy Integrity at New York University
School of Law November 16, 2020 Comments at 6 (“Because a carbon price would
increase the production costs of covered sources relative to the production costs of
uncovered sources, some production will shift to uncovered sources.” (citation omitted)
(emphasis added)).
8 Resources for the Future November 16, 2020 Comments at 6, 7 (emphasis
added).
Policy Integrity at New York University
School of Law November 16, 2020 Comments at 6 (“Because a carbon price would
increase the production costs of covered sources relative to the production costs of
uncovered sources, some production will shift to uncovered sources.” (citation omitted)
(emphasis added)).
8 Resources for the Future November 16, 2020 Comments at 6, 7 (emphasis
added).
Docket No. AD20-14-000
- 3 -
Of course, use of the euphemism carbon “price” meshes with what may be called
the “nothing to see here” argument, which goes something like this: FERC’s sanctioning
of carbon “prices” in RTO/ISO markets is part of the natural evolution in the long
continuum of FERC’s regulation of wholesale rates under the Federal Power Act,9 and
carbon “pricing” is simply part of and will improve price formation10 in FERC-regulated
wholesale markets, with the carbon “price” properly added to address an externality.11
A carbon tax, however, does not cease being a tax just because its ostensible
purpose is to address a single externality (while ignoring the universe of other relevant
externalities, both positive and negative). Just like litter and bottle taxes enacted by many
9 See, e.g., Exelon Corporation December 1, 2020 Reply Comments at 7, n.27 (“At
the outset, we note that the Commission is responsible under the [Federal Power Act] to
ensure rates, terms and conditions of service are just, reasonable and not unduly
discriminatory.”). See also David R. Hill Columbia University Center on Global Energy
Policy October 5, 2020 [filed] Statement at 6 (“It is only an incremental additional step to
determining that an RTO/ISO rate design may incorporate a price for carbon in
recognition of a state-established carbon control program.”); see generally Matthew E
tions of service are just, reasonable and not unduly
discriminatory.”). See also David R. Hill Columbia University Center on Global Energy
Policy October 5, 2020 [filed] Statement at 6 (“It is only an incremental additional step to
determining that an RTO/ISO rate design may incorporate a price for carbon in
recognition of a state-established carbon control program.”); see generally Matthew E.
Price October 5, 2020 [filed] Technical Conference Comments (October 2020 Price
Comments) at 2 (for example, “so long as the ultimate decision is reached in accordance
with the RTO’s internal governance requirements, the Commission’s task is simply to
review the outcome of that internal process—the proposed tariff—and decide whether it
is reasonable.”).
10 See, e.g., Resources for the Future November 16, 2020 Comments at 6 (“In
general, carbon pricing policies will help improve price formation by increasing the offer
prices of emitting generators to supply energy and capacity in wholesale markets. Thus,
when a carbon-emitting generator is at the margin in these markets, prices will be higher
than they would be without the carbon policy.” (emphasis added)).
11 See, e.g., Exelon Corporation May 21, 2020 Comments on Request for
Technical Conference at 3, 4 (“Pollutants such as carbon dioxide are negative
externalities because they impose costs on society, yet the polluter does not have to
internalize those costs in its production . . .
argin in these markets, prices will be higher
than they would be without the carbon policy.” (emphasis added)).
11 See, e.g., Exelon Corporation May 21, 2020 Comments on Request for
Technical Conference at 3, 4 (“Pollutants such as carbon dioxide are negative
externalities because they impose costs on society, yet the polluter does not have to
internalize those costs in its production . . . . Carbon pricing is simply the mirror image of
[state policies that subsidize certain resources based on environmental attributes],
imposing a cost on emitting generation for their negative environmental
attributes.”(citation omitted)); The American Wind Energy Association and the Alliance
for Clean Energy – New York November 16, 2020 Initial Comments at 3 (“A carbon
price would cause market participants to internalize what is currently an externality in
wholesale electricity markets, resulting in prices that more accurately reflect the true and
total costs of generating electricity at a particular location.”); October 2020 Price
Comments at 1.
Docket No. AD20-14-000
- 4 -
states and localities to defray the costs of roadside trash pick-up, it’s still a tax, not just a
minor element of price formation.
So let’s be honest with the public about what this proceeding is really about and
not hide behind the euphemism carbon “price.”
At this point let me emphasize that simply labeling a carbon tax proposal
accurately does not determine whether it is good or bad public policy, at either federal or
state levels. Indeed, that’s not for an administrative agency to decide
nt of price formation.
So let’s be honest with the public about what this proceeding is really about and
not hide behind the euphemism carbon “price.”
At this point let me emphasize that simply labeling a carbon tax proposal
accurately does not determine whether it is good or bad public policy, at either federal or
state levels. Indeed, that’s not for an administrative agency to decide.
At the federal level, Congress could conclude that from an economic standpoint a
federal carbon tax is a more transparent and less harmful way to decarbonize the
economy than a rent-seekers’ paradise of subsidies (the euphemism is “policy support”),
mandates, wealth transfers and regulatory actions that threaten both reliability and
affordable consumer costs.12 Congress could couple it with rebates to the consumers and
taxpayers who will pay it. But those are questions for Congress to consider.
Some may even call a federal carbon tax the ‘textbook solution’ to achieving
decarbonization. And it may be, if the textbook is an economics textbook. In the United
States, however, there is always another textbook that must be consulted when deciding
major questions of public policy, and that is the textbook of constitutional law and
government.
The power to tax is one of the most important powers any government can
exercise.13 If democracy and self-government mean anything, they mean that only those
elected by the people should have the power to make the major policy decisions that
affect people’s lives in such important ways, and the power to tax clearly falls under any
concept of major policy decision.14
12 See, e.g., David R. Hill, Columbia University Center on Global Energy Policy
December 1, 2020 Reply Comments at 5 (“These [set-asides, subsidies and mandates]
can serve both to mask the cost of the carbon control measures being enacted, and also
make carbon emissions reduction more expensive for consumers than it can be and
should be.”).
13 McCulloch v. Maryland, 17 U.S
cy decision.14
12 See, e.g., David R. Hill, Columbia University Center on Global Energy Policy
December 1, 2020 Reply Comments at 5 (“These [set-asides, subsidies and mandates]
can serve both to mask the cost of the carbon control measures being enacted, and also
make carbon emissions reduction more expensive for consumers than it can be and
should be.”).
13 McCulloch v. Maryland, 17 U.S. 316, 439 (1819) (“The power to tax, involves,
the power to destroy. . . .”).
14 See, e.g., Food and Drug Administration v. Brown & Williamson Tobacco
Corp., 529 U.S. 120, 159 (2000) (“Finally, our inquiry into whether Congress has directly
spoken to the precise question at issue is shaped, at least in some measure, by the nature
of the question presented. Deference under Chevron to an agency’s construction of a
statute that it administers is premised on the theory that a statute’s ambiguity constitutes
Docket No. AD20-14-000
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So the broader question providing context for this and future proceedings goes to
the heart of democratic government itself and, that is: Who should have the power to
tax?
And we don’t have to answer that question because the Constitution already has.
It makes it clear that only those elected by the people to the legislative branch have this
power.15 Congress can legislate to grant this power to an administrative agency through a
clear and specific statute – and take accountability for its decision – but in the case of
taxing carbon no one has made a convincing case that Congress has granted this power to
FERC.
With the above general principles in mind, let’s look at four general questions
pertinent to this proceeding that are implicitly raised by the Policy Statement and which
have been alluded to by the many commenters:
Can states impose carbon taxes? As the Policy Statement notes, the answer is
clearly yes, under their plenary police powers, as long as they don’t attempt to tax
transactions where federal law has explicitly pre-empted them
’s look at four general questions
pertinent to this proceeding that are implicitly raised by the Policy Statement and which
have been alluded to by the many commenters:
Can states impose carbon taxes? As the Policy Statement notes, the answer is
clearly yes, under their plenary police powers, as long as they don’t attempt to tax
transactions where federal law has explicitly pre-empted them. They don’t need FERC’s
permission to impose carbon taxes on retail sales or energy production, if they choose;
they can do it now. Several states have already used their sovereign powers to impose
carbon taxes, either directly or indirectly.16 RGGI, adopted by several eastern states, is
an example of an indirect carbon tax.17
Can FERC impose a carbon tax at the wholesale level through its power to
regulate RTOs/ISOs? As noted above, Congress would have to empower FERC by a
clear and specific statute to impose carbon taxes in RTO/ISO markets and no one in this
record has presented a convincing argument that Congress has done so.
an implicit delegation from Congress to the agency to fill in the statutory gaps. . . . In
extraordinary cases, however, there may be reason to hesitate before concluding that
Congress has intended such an implicit delegation. Cf. Breyer, Judicial Review of
Questions of Law and Policy, 38 Admin. L. Rev. 363, 370 (1986) (“A court may also ask
whether the legal question is an important one. Congress is more likely to have focused
upon, and answered, major questions, while leaving interstitial matters to answer
themselves in the course of the statute’s daily administration”) (citation omitted)).
15 U.S. Const. Art. 1, § 8.
16 See, e.g., Policy Statement at nn.12-13.
17 See id. n.12.
L. Rev. 363, 370 (1986) (“A court may also ask
whether the legal question is an important one. Congress is more likely to have focused
upon, and answered, major questions, while leaving interstitial matters to answer
themselves in the course of the statute’s daily administration”) (citation omitted)).
15 U.S. Const. Art. 1, § 8.
16 See, e.g., Policy Statement at nn.12-13.
17 See id. n.12.
Docket No. AD20-14-000
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Can FERC allow an RTO/ISO to impose a carbon tax on wholesale sales of
power? To a certain extent, this question implicates the broader question about the nature
of RTOs/ISOs. Some argue that they are merely private utilities and FERC’s only role is
to review a rate filing from an RTO/ISO and to approve the filing unless FERC finds it to
be “unjust, unreasonable or unduly discriminatory.”18
Rather than being little more than private utilities, however, RTOs/ISOs in their
present incarnation were essentially created by FERC, as part of the “restructuring” era of
the late 1990s/early 2000s, to carry out FERC-driven rate policies.19 In form, substance
and practice, not to mention in their complex governing structures and processes
(especially in multi-state organizations), RTOs/ISOs have evolved to resemble somewhat
more the hybrid entities that the British not so lovingly call “QANGOs” (quasi-
autonomous non-governmental organizations) than they do purely private utilities. This
is especially true with regard to multi-state RTOs/ISOs, in which utilities from many
different states participate and in which the interests and policies of those multiple states
are implicated
have evolved to resemble somewhat
more the hybrid entities that the British not so lovingly call “QANGOs” (quasi-
autonomous non-governmental organizations) than they do purely private utilities. This
is especially true with regard to multi-state RTOs/ISOs, in which utilities from many
different states participate and in which the interests and policies of those multiple states
are implicated. Over the past two decades these organizations have taken on various
regulatory roles that are more governmental in nature than private, in some cases literally
displacing state regulatory authority.20
18 See, e.g., October 2020 Price Comments at 2 (“To reject such a Section 205
filing, the Commission would need to conclude that it is unreasonable for a private party
– the RTO, after all, is not a public regulator – to make these choices.” (emphasis
added)).
19 See, e.g., Regional Transmission Organizations, Order No. 2000, FERC Stats.
& Regs. ¶ 31,089 (1999) (cross-referenced at 89 FERC ¶ 61,285), order on reh’g, Order
No. 2000-A, FERC Stats. & Regs. ¶ 31,092 (2000) (cross-referenced at 90 FERC ¶
61,201), aff’d sub nom. Pub. Util. Dist. No. 1 of Snohomish Cty. v. FERC, 272 F.3d 607
(D.C. Cir. 2001); Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036
(1996) (cross-referenced at 75 FERC ¶ 61,080), order on reh’g, Order No. 888-A, FERC
Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220), order on reh’g, Order
No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶
61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group
v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1
at 75 FERC ¶ 61,080), order on reh’g, Order No. 888-A, FERC
Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220), order on reh’g, Order
No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶
61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group
v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1
(2002).
20 FERC Order Nos. 2222 and 2222-A are the two most recent examples where the
RTOs/ISOs displace state regulatory authority, in these examples at FERC’s explicit
direction. See Participation of Distributed Energy Resource Aggregations in Markets
Operated by Regional Transmission Organizations and Independent System Operators,
Docket No. AD20-14-000
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So, just as FERC cannot directly impose a carbon tax without a clear grant of
congressional authorization, arguably it would be a distinction without a difference for
FERC to approve a proposal from an RTO/ISO to impose a carbon tax (as opposed
simply to recognizing an individual state’s carbon tax, as discussed below.)
This would include efforts by a multi-state RTO/ISO (and its market
participants21) to address “leakage” (a euphemism for “states that won’t impose carbon
taxes”)22 by penalizing resources in states within the RTO that have not imposed a carbon
tax;23 such as, for example, attempting to levelize the costs of state-imposed carbon taxes
by imposing a higher offer floor (MOPR anyone?) on untaxed resources from the non-
conforming “leakage” states in the RTO/ISO.
Can FERC allow an RTO/ISO to recognize carbon taxes imposed by one or more
states? If a state has used its sovereign authority to impose a carbon tax, directly or
indirectly, and that tax is simply incorporated into the production costs of a resource from
that state offered into the RTO/ISO markets, there is no reason for FERC to intervene.24
Order No. 2222, 85 FR 67094, 172 FERC ¶ 61,247, on reh’g, Order No. 2222-A, 174
FERC ¶ 61,197 (2021)
posed by one or more
states? If a state has used its sovereign authority to impose a carbon tax, directly or
indirectly, and that tax is simply incorporated into the production costs of a resource from
that state offered into the RTO/ISO markets, there is no reason for FERC to intervene.24
Order No. 2222, 85 FR 67094, 172 FERC ¶ 61,247, on reh’g, Order No. 2222-A, 174
FERC ¶ 61,197 (2021).
21 For example, Exelon argues that “[f]ailure to address emissions leakage in a
coordinated manner is causing wholesale rates to become unjust, unreasonable and
unduly discriminatory.” Exelon Corporation November 16, 2020 Comments at 8.
22 See, e.g., Exelon Corporation December 1, 2020 Reply Comments at 6
(“Instead, resources in states with no carbon price seek to preserve the artificial and
unintended advantage that they currently enjoy as a result of other states joining RGGI by
opposing Commission action. Thus, their positions in this proceeding are efforts to throw
carpet tacks in the path of progress toward properly functioning carbon pricing
mechanism(s) that include leakage mitigation.”).
23 See, e.g., id. at 10 (“[T]he Commission must act under section 206 to rectify the
[leakage] situation – such as by requiring RTO/ISOs that have states with carbon pricing
to implement a leakage mitigation mechanism . . . . In other words, the intent and effect
of leakage mitigation is to remove the impact of an unwanted carbon price from states
with no carbon pricing.” (citation omitted) (emphasis in original)).
24 See, e.g., Ari Peskoe October 5, 2020 [filed] Opening Statement at 1 (“The
Commission allows sellers to recover in wholesale rates compliance costs associated with
emissions regulations, and the Commission would have no basis to prevent regulated
entities from passing through the costs of a state-set carbon price.”).
tes
with no carbon pricing.” (citation omitted) (emphasis in original)).
24 See, e.g., Ari Peskoe October 5, 2020 [filed] Opening Statement at 1 (“The
Commission allows sellers to recover in wholesale rates compliance costs associated with
emissions regulations, and the Commission would have no basis to prevent regulated
entities from passing through the costs of a state-set carbon price.”).
Docket No. AD20-14-000
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State-imposed regulatory costs, which of course differ from state to state, are already
“baked in” to a bidder’s costs and present no cause for FERC’s concern.
Just as with proposals to accommodate other state policies, however, consideration
of each specific proposal will be highly fact-intensive and one key question will be to
determine whether the line has been crossed between simply recognizing an individual
state’s carbon tax versus imposing that state’s tax on generating resources – and
consumers – in other states that have not consented to be taxed, an especially salient
question in multi-state RTOs/ISOs.
All future proceedings under Section 205, 206 or other statutory provisions will, of
course, come with their own individual evidentiary records and will be judged
individually at that future time. To the extent, however, the Policy Statement may be
interpreted to invite proposals inconsistent with the general principles stated above, I
respectfully dissent.
For these reasons, I respectfully concur in part and dissent in part.
______________________________
Mark C. Christie
Commissioner
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.