Speaking at the Federal Energy Regulatory Commission Technical Conference regarding Carbon Pricing in Organized Wholesale Electricity Markets, adjunct senior research scholar David R. Hill delivered a statement on issues surrounding carbon pricing in the FERC-jurisdictional markets. The purpose of this conference was to discuss considerations related to state-adoption of mechanisms to price carbon dioxide emissions, commonly referred to as carbon pricing, in regions with Commission-jurisdictional organized wholesale electricity markets (i.e., regions with regional transmission organizations/independent system operators, or RTOs/ISOs). The conference focused on carbon pricing approaches where a state (or group of states) sets an explicit carbon price, whether through a price-based or quantity-based approach, and how that carbon price intersects with RTO/ISO-administered markets, addressing both legal and technical issues.

Opening Statement

I want to thank the Commission for inviting me to present some views today concerning the integration of state carbon pricing and control regimes into the FERC-jurisdictional wholesale electricity markets.  This is an important topic and I’m pleased to be able to offer a few thoughts on some legal considerations relevant to these issues.

My views can be summed up pretty quickly.  Yes, I believe the authority and jurisdiction exist under sections 205 and 206 of the Federal Power Act for an ISO or RTO tariff and market design to integrate state carbon pricing and carbon control policy.  And it potentially could be unjust, unreasonable or unduly discriminatory for it not to do so.

The plain words of the Federal Power Act give FERC authority over “rates and charges … for or in connection with” wholesale sales of energy, and all rules and regulations “affecting or pertaining to such rates or charges.”  The courts have said that the rules or regulations must “directly” affect rates.  But just as the Supreme Court found wholesale demand response did, so also may state carbon pricing and carbon control regimes directly affect jurisdictional rates and charges.

FERC has determined it has sufficient authority to direct and enable the development and operation of competitive wholesale power markets.  In the FERC v. EPSA case, the Supreme Court noted approvingly that FERC “undertakes to ensure ‘just and reasonable’ wholesale rates by enhancing competition.”

FERC has done that by accepting or directing rates, terms and market designs that promote market efficiency and seek to produce lower costs for consumers.  And it already has determined – correctly in my view – that it has jurisdiction over wholesale energy sales that include statecreated renewable energy credits, emissions allowances, and Regional Greenhouse Gas Initiative costs.  

In the absence of preemptive federal laws or regulations, states can lawfully establish their own climate change policies and can price carbon.  The FERC-jurisdictional markets’ incorporation of state carbon pricing would help promote the efficient and transparent markets both FERC and the courts have supported in the past.  Moreover, I think an interpretation of the FPA that FERC has jurisdiction over these matters may well be compelled by applicable administrative law doctrine.

Of course whether a sufficient factual showing has been made in any particular case to demonstrate that a tariff filing is just and reasonable under FPA section 205 – or to show that an existing tariff is unjust, unreasonable or unduly discriminatory under section 206 – depends on the facts and circumstances in a particular case.  But I believe given an adequate factual showing, the FPA gives FERC sufficient jurisdiction to allow or require the incorporation of state carbon pricing and control policies into a FERC-jurisdictional rate and market design.

Read the Technical Comments