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FERC Begins to Flex its Jurisdictional Muscles on Carbon Pricing

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By Kelly A. Daly

Yesterday, the Federal Energy Regulatory Commission (FERC) weighed-in on the important role that carbon pricing, associated with state initiatives to reduce greenhouse gas emissions, could have on the nation’s electric market.  Not surprisingly, as the governmental entity with jurisdiction over the organized electric markets, FERC acknowledged that regional market rules that incorporate state-determined carbon prices can fall within the Commission’s jurisdiction over wholesale rates.  Exactly what does this mean for the future?  We may not know for a while, but the Commission has issued a proposed policy statement that seeks public comments by November 16, 2020 and reply comments by December 1, 2020.

While FERC’s position on its jurisdiction tracks closely to the opinion of legal experts voiced at a September technical conference on this subject, FERC has concluded, for now, that any determination of whether a specific regional market rule contained in a Federal Power Act section 205 filing raises FERC jurisdictional issues will need to be analyzed based on a case-by-case basis depending on the specific facts and circumstances.  In the meantime, FERC is interested in understanding the details of how the way a state determines the carbon price could impact the relevant market design considerations, including issues of price formation and transparency, locational marginal pricing, market dispatch, energy optimization and ancillary services.

Carbon pricing is a widely recognized tool for lowering global warming emissions by assigning a monetary price for carbon so that low carbon energy options are better reflected in production and consumption choices.  Carbon pricing programs are already in use in 11 states, including California, and the nine Northeast states that belong to the Regional Greenhouse Gas Initiative.