A structural question arises when evaluating the California Independent System Operator (CAISO) expansion. What will drive the greenhouse gas (GHG) reductions in a regional independent system operator (ISO) or regional transmission operator (RTO) that spans multiple states and out of state transmission and generator owners?

To answer this question, we will discuss how California, other states, and the federal government address or will address reductions from electric generation. What becomes clear from this discussion is that GHG reductions requirements are separate and apart from wholesale electric markets and that wholesale ISOs/RTOs respond to state policy but are not platforms to drive state policy in light of their federal nature.

Our discussion will address California, the Regional Greenhouse Gas Initiative(RGGI) in the New England and Mid-Atlantic, and the Clean Power Plan.

California

California is the only western state that operates under a federal ISO market structure. Structurally, GHG emissions from electric generation are regulated under the California Air Resources Board’s Cap-and-Trade program implementing AB 32: California Global Warming Solutions Act of 2006. Covered entities include electricity generating facilities that produce 25,000 metric tons or more of CO2e per data year, electricity importers with specified sources that emit 25,000 metric tons or CO2e per data year, and all emissions from imported electricity from unspecified sources. 17 California Code of Regulation Section 95812(c). Other reductions are driven by California energy efficiency programs, demand response, the renewable portfolio standard, distributed generation programs, energy storage program, and a procurement loading order that prioritizes energy efficiency, demand response, renewable energy, and then fossil fuel to meet forecasted load.

These laws, regulations, and policies determine the current energy mix and future procurement in California. This mix is the available in-state resources in California as well as imported resources from out-of-state. The CAISO markets use this mix of resources to balance supply and demand at the wholesale market level.

The CAISO oversees both day-ahead and real-time wholesale markets to balance supply and demand as well as the flow of electricity across approximately 80% of the high-voltage transmission system in California. The CAISO ensures just and reasonable rates and nondiscrimination in its markets and transmission system to enforce the Federal Power Act (FPA) and Federal Energy Regulatory Commission (FERC) orders. Beyond its role in the infrastructure and generation procurement for reliability (including local, flexible, and system resource adequacy (RA)) requirements as part of the Alignment of Key Infrastructure Planning Processes that helps inform the California Energy Commission’s (CEC) biennial Integrated Energy Policy Report (IEPR) and California Public Utilities Commission’s (CPUC) biennial Long Term Procurement Process (LTPP), the CAISO plays a specific, limited role in the rulemakings, regulations, and implementation of policy for generation procurement and GHG reduction in California.

The regulations and programs that reduce GHG emissions are always separate from ISOs and RTOs. This is consistent across the United States.

Regional Greenhouse Gas Initiative (RGGI)

The RGGI system is the only multi-state cooperative cap-and-trade system in the United States for electric power generation. Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont are the current participants that – after a comprehensive 2012 Program Review – implemented a new 2014 RGGI cap of 91 million short tons of CO2 with a subsequent CO₂ cap that then declines 2.5 percent each year from 2015 to 2020. The first control period began in 2008 with a cap of 188 million short tons and the second control period began in 2012 with a cap of 165 million short tons.

Under the cooperative system, each state signed a non-binding memorandum of understanding (MOU) (which avoids Compact clause issues under the U.S. Constitution) that outlined the program and led to the creation of a model rule for establishing the budget-trading program (equivalent to California’s cap-and-trade emission system). Each state that joined then passed explicit statutory authority authorizing the cap and trade program (except for New York which already had requisite authority to join through the passage of a regulation).

Again, the GHG reduction structure exists separate and apart from existing ISO or RTOs. The states that comprise RGGI are members of different ISOs and RTOs demonstrating that ISO or RTO membership is irrelevant and not causal to regional or multi-state GHG reductions. The following states belong to the following ISOs or RTOs:

• PJM: Delaware and Maryland (New Jersey left RGGI in 2012)
• NYISO: NY
• ISO New England: Connecticut, Maine, Rhode Island, Vermont, Massachusetts, and New Hampshire.

We will next move to the federal level and again find that the existence of regulations and programs to reduce GHG emissions remain separate from ISOs and RTOs.

The EPA’s Regulation of Power Plant Emissions

At the federal level, the EPA has promulgated regulations to drive GHG reductions from electric power generation. This section will provide an overview of these regulations as it relates to the overall discussion.

First, the now stayed Clean Power Plan for Existing Power Plants creates a state-based program under the Clean Air Act Section 111(d) that, if fully implemented, will reduce GHG emissions 32% from power plants by 2030. Second, the Final Carbon Pollution Standards for New, Modified, and Reconstructed Power Plants set specific emission standards for coal and natural gas plants.

These regulations serve as the federal mechanism to determine what power plants remain in operation over the next 14 years or will be built. This in turn, determines the generation mix that is available to all balancing authorities, ISOs, and RTOs. It is also the only nationwide regulation that will decrease the GHG emissions from existing power plants. Because of this, the Clean Power Plan specifically allows for regional or multi-state agreements to serve as the basis for compliance under required state implementation plans (SIPs).

However, with the stay of the CPP and the legal and regulatory uncertainty over its survival, there presently exists no federal mechanism to drive regional or multi-state GHG reduction agreements. This issue is important because the generation mix of the West – and a consequently regionally expanded western ISO – depends on whether the CPP survives legal challenge. If the CPP does not survive legal challenge, then the present emissions factor of about 550 lbs/MWh of CO2e for the overall CAISO power pool will increase as other generation that is not regulated by GHG reduction regulations joins the pool.

Conclusion

Power plant GHG emissions reduction remains separate and apart from wholesale ISO and RTO markets. ISOs and RTOs are not platforms to drive state regulatory goals primarily because ISOs and RTOs are subject to federal oversight and authority. To achieve GHG reductions in the west, California will need to come to agreement with other states through a regional cap-and-trade program like RGGI or under regional or multi-state agreements pursuant to SIPs for CPP compliance to ensure reductions under an expanded regional ISO in the west.