FERC sparks firestorm with landmark carbon pricing move

Source: By Arianna Skibell, E&E News reporter • Posted: Sunday, October 18, 2020

The nation’s top energy regulators last week paved the way for states to incorporate a carbon tax into regional power markets in an unprecedented move that is garnering mixed reviews, including pushback from conservatives and progressive environmentalists.

The Federal Energy Regulatory Commission issued a proposed policy statement saying the influential panel is willing to consider grid operators’ requests to set a carbon price (Greenwire, Oct. 15). There are now 30 days to comment on the proposal, and some groups are already starting to weigh in.

“Instead of trying to find new ways to put the right ‘price’ on pollution, we need to get off fossil fuels altogether,” Mitch Jones, policy director for Food & Water Action, said in a statement. “Carbon price schemes only give fossil fuel interests new life.”

The commission also took new action to change rules in a regional power market overseen by PJM Interconnection, the nation’s largest grid operator, whose footprint includes 13 Midwestern and Mid-Atlantic states and Washington, D.C.

FERC yesterday partially accepted PJM’s plan for complying with a controversial market rule that the commission approved last December. PJM’s filing has been largely viewed as an attempt to soften the impact of the agency’s minimum offer price rule. The MOPR has angered renewable and nuclear developers, which say it disadvantages them.

Republican FERC Chairman Neil Chatterjee has said the change is necessary to keep markets fuel neutral and competitive by blocking state subsidies from tipping the scales toward any one resource.

PJM will now need to revise the part of the compliance plan that FERC rejected, further delaying capacity market auctions, which many generators rely on for revenue.

Praise, pushback on CO2 pricing

The proposed carbon pricing policy statement — led by Chatterjee and Democratic Commissioner Richard Glick — follows a FERC technical conference late last month where expert panelists largely defended the agency’s authority to address carbon pricing proposals from grid operators (Energywire, Oct. 1).

Chatterjee was quick to draw a distinction between a proactive approach to pricing carbon and his openness to consider proposals to improve what he called the “efficiency of organized wholesale markets by incorporating state-determined carbon prices into their rules.”

“I may sound like a broken record here, but I’ll say it again: The [Federal Power Act] does not give us authority to act as an environmental regulator,” he said during the commission’s monthly meeting yesterday, held virtually due to the ongoing coronavirus pandemic. “We have neither the expertise nor the authority to drive emissions policy in this space.”

Commissioner James Danly, FERC’s only other sitting Republican, called the move “unnecessary and unwise.”

He said the commission should wait until states have filed proposals before deciding whether it can work with carbon tax efforts.

“It’s premature to opine on jurisdictional questions when we are denied the benefit of actually seeing details on what might be proposed,” he said.

This sentiment was echoed by Travis Fisher, who worked on President Trump’s FERC transition team and served as adviser to former Republican Commissioner Bernard McNamee. Fisher also said the commission should have held off on any policy proposals until it heard from more impacted parties.

“For example, there was only one consumer representative at the conference. What are the odds the consumer perspective is reflected in the policy statement?” said Fisher, who now serves as president and CEO of the Electricity Consumers Resource Council, an industry group representing large users of electricity like manufacturing plants.

“The commission’s press release includes five questions about what information FERC should consider if a carbon pricing rule is proposed under Section 205 of the [Federal Power Act],” Fisher added. “Not one question is about impacts on consumers, and that is unfortunate, given that the FPA is fundamentally a consumer protection statute.”

FERC received similar criticism from environmental advocates who felt they should have been more represented at the technical conference (Energywire, Sept. 30).

Still, several power industry representatives praised FERC’s move.

Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), whose members own mostly fossil-fueled power plants, said FERC’s efforts will meaningfully advance the conversation on carbon pricing.

“EPSA supports market-based solutions to address emissions and is fully supportive of developing a durable regulatory framework that can enable sustainable environmental progress,” he said in a statement. “Ensuring reliable electricity remains paramount while considering how to best unify economic and environmental goals.”

Dena Wiggins, president and CEO of the Natural Gas Supply Association, likewise praised the commission.

“Chairman Chatterjee demonstrated outstanding leadership in bringing carbon pricing up for discussion before the Commission and we are delighted that he continues to advance the issue with bipartisan support,” Wiggins said in a statement. “We believe carbon pricing is a critical policy for securing a clean, reliable and affordable energy future.”

MOPR ‘Band-Aid’?

Gregory Wetstone, president and CEO of the American Council on Renewable Energy, said he’s grateful for FERC’s push to “look positively” on carbon pricing, but he lambasted the commission’s actions on the MOPR.

“These policies take us in the wrong direction from where we need to be to address our climate imperatives and grow the renewable energy economy, and are being challenged in court by ACORE and allied groups,” he said in a statement.

Glick said the commission’s MOPR actions represent the “truly ugly” by stifling certain resources’ ability to bid into electricity markets.

He said last December’s order would hurt the country’s transition to a clean energy economy and noted that states are becoming “increasingly restless” with FERC on the issue.

Referring to the commission’s recent efforts to boost renewable energy and storage technologies with Orders 841 and 2222, Glick said the regulator cannot support these new technologies and “then turn around and MOPR them the next minute.”

Jeff Dennis, general counsel and managing director at Advanced Energy Economy, said Glick’s comments reflect the reality that no FERC order on PJM’s compliance filing will fix the “fundamental problems” with the MOPR policy, which he said pit markets and states against each other.

While the text of FERC’s order on the compliance filing was not available by press time, Dennis said PJM’s efforts will likely serve as a “Band-Aid that buys time to resolve those fundamental problems.”

“If the approval makes significant changes, it will only accelerate us down the collision course and increase state distrust of FERC and the markets, at a time when we need them most,” he said.

Chatterjee, however, said the MOPR and carbon pricing are two sides of the same coin. The MOPR, he said, controls for market distortions caused by state mandates for renewable energy. Carbon pricing, too, has the potential to keep markets fuel neutral and transparent, he said.

“The market-driven approach, to me, is the smart and right way to protect consumers, protect the environment and drive economic growth,” Chatterjee said.