Monday, March 18, 2019

NYISO Commissions New Social Cost of Carbon Study

By Michael Kuser

RENSSELAER, N.Y. — NYISO on Thursday said it has commissioned Analysis Group to model the social cost of carbon in order to finalize a carbon pricing scheme for its wholesale electricity markets.

“In the last week we decided to have Analysis Group and Sue Tierney and Paul Hibbard do a fresh analysis,” Executive Vice President Rich Dewey told the Installed Capacity/Market Issues Working Group, referring to a senior adviser and principal, respectively, at the consulting firm.

“The scope of work for the Analysis Group is to build on the analysis previously done by [The] Brattle [Group] and (a) validate the findings, (b) extend the assessment based on the newly announced more aggressive policy goals and (c) identify any complementary benefits that might have been overlooked in the scope of the Brattle study,” Dewey said.

Dewey’s surprise announcement came near the end of a meeting devoted to new Tariff rules on carbon emissions and pricing. Stakeholders had begun to push ISO staffers to explain the timeline ahead of an anticipated vote on carbon pricing in the second quarter and describe exactly how the grid operator is learning whether the state supports their efforts.

“We all recognized when we started that this was new ground, uncharted territory,” Dewey said, indicating that the ISO would not present a carbon pricing package to FERC without state support. “We’re not going to take a vote and put forth a [Federal Power Act Section] 205 filing without state support. … We’re not going to ram through a vote by June without all on board.”

NYISO has commissioned Analysis Group to model the social cost of carbon in order to finalize a carbon pricing scheme for its wholesale electricity markets. The above graph is from an U.S. Interagency Working Group study in 2013. | U.S. Government Interagency Working Group on Social Cost of Greenhouse Gases

Howard Fromer, director of market policy for PSEG Power New York, said timing is critical.

“While we are figuring out how to price carbon, the state is moving forward with significant implementation of its policies,” Fromer said. “Renewables, a host of storage solicitations and draft air emission regulations were just issued for comment that impact over 3,000 MW of peakers in the New York City-Long Island area, all affecting how the market responds and thinks about what’s happening. We can’t wait too long to decide on how to act.”

Mark Reeder, representing the Alliance for Clean Energy New York, said, “The only thing we can affect is whether or not to have a carbon price, not whether or not the state’s environmental goals are admirable.”

Filling the Gaps

A task force created in October 2017 by NYISO and the New York Public Service Commission worked for more than a year developing a proposal to price carbon into wholesale markets. In December, it turned the proposal and final details over to the ISO’s stakeholder process. (See IPPTF Hands off Carbon Pricing Proposal to NYISO.)

“What we worked on in our stakeholder process is to get to a package that people are comfortable with, and at the end of March we’ll know what are the gaps,” Dewey said.

He added that the contract with Analysis Group is not meant to undermine the initial analysis done by Brattle, but “to look at unmonetized benefits,” whether in public health or other areas. The ISO will post details of the study as soon as possible, he said.

Couch White attorney Michael Mager, who represents Multiple Intervenors, a coalition of large industrial, commercial and institutional energy customers, said he had no issues with the decision to conduct another study on the impacts of carbon pricing, but he was critical of the ISO’s decision to commission the study without even consulting stakeholders on the decision and, in particular, on the scope of the study.

Before Dewey’s announcement, Mager said, “It might be helpful to get a list of what the ISO considers to be open issues. Right now we have no clarity, and we want to understand the [carbon pricing] proposal on a comprehensive basis and go back to our clients.”

“We want more than silence from the state; we need a positive statement of support, at least when we go to FERC,” said Luthin Associates’ Aaron Breidenbaugh, representing Consumer Power Advocates, an unincorporated group of nonprofit institutional customers.

Rochester Energy Storage Hub | NY-BEST

Breidenbaugh said his clients already have uncertainties regarding subsidies, questioning how the state would structure thousands of megawatts of renewable energy contracts and whether the contracts will reflect carbon pricing effects or be layered atop them. He said they are “profoundly skeptical” about carbon pricing, especially in the context of a potential carbon tax being imposed by the state.

NYISO will discuss Tariff revisions and price calculation — specifically identifying marginal units — on March 18, and Tariff revisions again on March 28.

There will likely be at least one more meeting after that, said Nicole Bouchez, NYISO’s principal economist.

Tariff Terms, Penalties

NYISO on Thursday also proposed new Tariff sections to describe carbon charges, payments and residual allocation.

The ISO requires new Tariff definitions of carbon emissions and the cost of such emissions to effectuate carbon pricing, said Ethan D. Avallone, an ISO senior energy market design specialist. He also reviewed the work done so far on carbon residuals. (See NYISO Ponders Response to Carbon Charge Shortfalls.)

New sections of Rate Schedule 18 will include carbon charges and payments for import and export transactions, as well as for wheel-throughs and the carbon residual allocation, Avallone said. New sections of Rate Schedule 9 will include carbon charges for suppliers.

The Tariff language defines emissions as “point-of-production carbon dioxide emissions that result from energy injected, or start-up to inject energy, in connection with participation in the wholesale market.”

The ISO proposed a price on carbon emissions equal to the SCC — presumably as determined by the PSC — minus the value of any other state, multistate or federal charges for carbon emissions that a supplier must pay, including but not limited to emission allowance costs.

Penalties for failing to report or underreporting carbon emissions ramp up according to the severity of the lapse, from 0.5 times the applicable charge for failure to report emissions data by day 60, to 1.5 times the applicable invoice charge for failure to report by day 170, to double the charge for underreporting.

One stakeholder questioned the procedures for levying such penalties but was reassured that generators have a significant window in which to correct emissions data before being subject to penalties for underreporting or failing to report.

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