As noted in the DERs Rulemaking Comments of various entities, the issue of double compensation was a considerable concern for some, while the issue generally dismissed by the DER industry generally. For example, the New York Transmission Owners (NYTOs) explained to FERC that they support the participation of DERs in wholesale markets, but suggested that “a review of each retail-level program by the relevant RTO/ISO is required so that the compensation at the retail and wholesale level is for distinct services and not the same service.” Speaking specifically to Value of DER (“VDER”) tariffs, the NYTOs suggested that rules should allow a DER to receive wholesale compensation from NYISO, but that the resource should not receive overlapping compensation as part of the Value Stack under the VDER tariff. In contrast, Sunrun stated: “the Commission should rebuttably presume that state programs aim to compensate a value that is different than what the DER provides to the wholesale market. A rebuttable presumption along these lines is justified because states have no incentive to create retail programs that waste their ratepayers’ money by duplicating services procured in wholesale markets.” The complexity surrounding determining whether dual compensation is occurring recently was highlighted when a group of large industrial, commercial, and institutional energy consumers and an association of independent power producers recently petitioned the New York State Public Service Commission for expedited prospective relief from double payments that may occur if carbon pricing is implemented in the NYISO.
The petition relates to the NYISO’s recent Carbon Pricing Straw Proposal (Straw Proposal) to incorporate the cost of carbon dioxide emissions into the NYISO-administered wholesale markets. Because existing programs compensate certain resources for their low-carbon attributes, the Petitioners are concerned that if implemented, carbon pricing (i.e., the Straw Proposal) would result in double-payments for the same attribute to resources that already receive compensation under existing programs. More recently, Nucor Steel Auburn, Inc. submitted a statement in support of the petition.
Petitioners identified three New York state retail programs that provide compensation to generation resources based on their reduced carbon emissions:
- Clean Energy Standard – requires load serving entities to procure renewable energy credits (RECs), which result in renewable generation facilities receiving compensation for the RECs that they earn.
- Value of Distributed Energy Resources tariffs – provides compensation based on various components of a “Value Stack,” including compensation for “Environmental Value,” which has similar criteria to RECs under the Clean Energy Standard.
- Offshore Wind – to implement a new offshore wind strategy aimed at reducing greenhouse gas emission, a proposal would require load serving entities to procure Offshore Wind Renewable Energy Credits.The Petition illustrates the very concerns that were raised before FERC in Docket No. RM18-9. Additionally, the Petition reflects the difficult policy discussions that are likely to play out in other regions as the role of DERs in wholesale markets develops.
Under the Straw Proposal, the cost of carbon per ton of carbon dioxide emissions would be set and embedded in the energy offers in NYISO-administered wholesale markets. Because fossil-fuel generators typically set the market clearing price for generation, this embedded additional cost would increase the price paid to all generators that clear the market. In particular, the carbon pricing mechanism imposes costs on resources relative to their emissions. When the market clears based on an offer that is higher due to embedded cost of carbon emissions, any resource that does not incur similar expenses for carbon emission would receive additional compensation if it clears the market at a price set by a higher emitting generator. In turn, consumers pay higher prices to cover the emissions costs, although resources that do not incur those costs simply receive compensation for not emitting. Petitioners are concerned that under the Straw Proposal that resources compensated for their low-carbon attributes under the various state retail programs may also receive compensation for the same attribute through the wholesale market.