New comment letter on CAISO regionalization

Michael Wara and I just submitted a comment letter to CAISO and CARB, both of which have put forward proposals for how to modify operation of the interstate Energy Imbalance Market (EIM) and, potentially, to apply these models to full regionalization of the CAISO energy markets.

Source: CAISO

Source: CAISO

On the process side, we continue to be concerned that the pace of CAISO expansion discussions is overly ambitious given the lack of clear state authority to price carbon after 2020—in order to maintain its climate leadership, California will need to secure that authority before committing to a regional energy market. We also recommend that CAISO and CARB separate discussion of pre-2020 EIM operational reforms from the post-2020 regional energy market design process, since the carbon price trajectory in California and across the west is likely to be much higher in the post-2020 period. We will likely see additional carbon pricing regimes in the West if the D.C. Circuit upholds the Clean Power Plan; any regional market design will need to accommodate the possibility of multiple carbon pricing regimes. 

In addition to these procedural issues, Michael and I also address two legal aspects of the new market design proposals. We believe that the next round of market mechanisms need to explicitly address the dormant commerce clause risks of differential attribution of GHG emissions from in-state and out-of-state resources. CARB's proposal would shift away from the source-specific attribution found in the EIM today and apply different GHG attribution rules to in-state and out-of-state resources; both proposals would apply different GHG accounting to out-of-state resources with bilateral contracts with California load-serving entities, compared to merchant resources that do not have bilateral contracts. Similarly, these different attribution methods raise potential non-discrimination issues under the Federal Power Act. 

We are finally getting to the point where CAISO and CARB are articulating specific mechanisms for regional electricity market integration. Thanks to both entities for the hard work their staff put into developing descriptions, numerical examples, and for the continued commitment to cooperating on the regional GHG implications of energy market design. This is important technical work—now it's time to harmonize the legal and economic discussions.