On September 30, 2020, FERC held a technical conference focusing on how state-adopted carbon pricing intersects with a Regional Transmission Organization/Independent System Operator (“RTO/ISO”) administered market, and specifically what considerations a carbon-pricing framework may raise for FERC and/or the markets it oversees. The conference included three panels focused on: (i) the legal considerations associated with the integration of state carbon prices in FERC-regulated markets, including FERC’s statutory authority to implement carbon pricing in RTO/ISO markets and prior FERC precedent on RTO/ISO proposals to incorporate costs associated with state cap-and-trade programs, (ii) carbon pricing mechanisms, including current RTO/ISO initiatives to consider the integration of state carbon pricing actions and challenges for carbon pricing in multi-state RTO/ISO markets, and (iii) market design considerations, such as methods to reduce leakage and the potential operational impacts arising from carbon pricing. Finally, the technical conference concluded with a roundtable discussion reflecting on key issues and insights raised during the conference (see September 10, 2020 edition of the WER).
Senator Sheldon Whitehouse began the conference by speaking about various financial threats associated with carbon emissions and assuring participants that there was bipartisan support for carbon pricing as the most effective intervention for these threats. In his opening remarks, Chairman Neil Chatterjee clarified that FERC was not an environmental regulator and did not have the expertise or authority to weigh in on the merits of various environmental policy goals or tools. That said, the Chairman noted that many states have chosen to adopt carbon policies (and others are currently considering adopting similar policies), which impose additional complexity upon energy markets and impact FERC’s mandate to ensure just and reasonable wholesale rates. According to the Chairman, because energy markets cannot be “hermetically sealed from state environmental policies,” FERC has been forced to grapple with “thorny issues” that arise at the intersection of state policies and FERC-jurisdictional markets. The Chairman therefore saw the technical conference as a natural extension of FERC’s market-protective work and concluded by noting a common theme through the panelists’ statements: that the perfect should not be the enemy of the good.
A webcast of the conference is available here.