RGGI states propose tighter carbon budget

The nine states participating in the Regional Greenhouse Gas Initiative have announced consensus on proposed revisions to that program that would provide a further 30% reduction in the regional limit on emissions by 2030, relative to 2020 levels.  The proposed regional program changes are now available for stakeholder comment, after which each participating state will follow its own specific statutory and regulatory processes to propose updates to their own carbon dioxide budget trading programs.

Nine Northeast and Mid-Atlantic states -- Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont -- currently participate in RGGI, the first mandatory market-based regulatory program in the U.S. to reduce greenhouse gas emissions.  RGGI is composed of individual CO2 budget trading programs in each state, based on each state’s independent legal authority.  The program imposes an annual aggregate cap on greenhouse emissions from covered sources like fossil-fueled power plants in participating states.  For 2017, the cap is 84.3 million short tons (62.5 million short tons adjusted for banked allowances); it declines 2.5 percent each year until 2020.  Since 2008, participating states have reduced power sector carbon emissions by nearly 50 percent, while generating more than $2.7 billion in allowance auction proceeds for reinvestment in programs to benefit consumers.

RGGI participating states periodically conduct a "program review".  Following their 2012 Program Review, the RGGI states implemented a new 2014 RGGI cap of 91 million short tons -- 45 % below the prior 2014 cap of 165 million short tons. At that time, the participating states decided to commence the next program review no later than 2016.

RGGI's 2016 Program Review is ongoing.  According to an August 23, 2017 announcement, the participating states have reached consensus on proposed changes to the program design.  Proposed changes include a regional cap of 75,147,784 tons in 2021, which will decline by 2.275 million tons per year thereafter, resulting in a total 30% reduction in the regional cap from 2020 to 2030.  The proposed changes also include modifications to the existing Cost Containment Reserve and implementation of a new Emissions Containment Reserve which would add some flexibility to the cap size.

On behalf of participating states, RGGI, Inc. has announced a meeting on September 25 to gather stakeholder input.  According to the announcement, after reviewing stakeholder comments, conducting additional economic analysis, and updating materials, each participating state is expected to execute its own statutory and regulatory process to update its own carbon budget trading program.

RGGI states comment on Clean Power Plan

The nine Northeastern and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI) have submitted joint comments to the United States Environmental Protection Agency in connection with its Clean Power Plan rule.

RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce carbon dioxide emissions from the electric power sector.  The program establishes a regional cap on the amount of carbon dioxide that power plants can emit through the issuance of a limited number of tradable allowances.  RGGI's first three-year compliance period began on January 1, 2009, making it the nation’s first market-based emissions trading program to reduce greenhouse gas pollution.

On August 3, 2015, the EPA announced its "Clean Power Plan," new regulations limiting power plant carbon emissions under Section 111(d) of the Clean Air Act.  While states are free to build their own compliance plans, the rule establishes emission guidelines for states to follow in developing plans to reduce greenhouse gas emissions from existing fossil fuel-fired electric generating units.  The rule also encourages states and regions to work together in developing compliance plans.

States are now tasked with developing their compliance plans.  The Clean Power Plan gives states until September 6, 2016, to either submit a final carbon-cutting plan or to submit an initial plan along with a two-year extension request.  Many observers have noted that for states already participating in RGGI, that program may be able to serve as a mechanism for Clean Power Plan compliance.  This prospect is natural, as RGGI and the Clean Power Plan share some common goals and features.

This week, the nine RGGI states submitted joint comments to the EPA on the Federal Plan (FP) and Model Rules (MR) proposed as part of the Clean Power Plan.  In those comments, the RGGI states "welcome EPA's continued recognition that well-designed multi-state, market-based programs like RGGI can deliver cost-effective emissions reductions."

In an accompanying press release, the RGGI states note their own "track record of success."  As cited in the joint comments, the "RGGI states have seen benefits to the economy and public health, as well as consumer savings, experiencing 8 percent GDP growth across the region while reducing power sector carbon pollution by more than 40 percent since 2005," while maintaining electric reliability.

Based on this experience, the RGGI states encouraged EPA to select mass-based approaches as the most cost-effective, transparent, and reliable way to achieve emission reductions.  (Mass-based approaches set limits on the total mass of carbon allowed to be emitted -- like 100 million tons.  By contrast, rate-based approaches might limit the rate of carbon emissions per unit of useful electric energy.)

Recognizing that trading platforms can play an important role in markets, increasing participation, access, and liquidity, the RGGI states urged EPA to "adopt a trading platform that is flexible and customizable to encourage broader trading markets."

The RGGI states also asked EPA to encourage auctioning of carbon allowances, and reinvestment of the auction proceeds.  In so doing, the RGGI states pointed to their own reinvestment of RGGI auction proceeds in efficiency and consumer relief.

Finally, the RGGI states encouraged EPA to prevent "leakage" of carbon emissions from existing sources to new sources, by including new sources in a mass-based program or some other equally effective alternative method of allocation.

With states now working to develop Clean Power Plan compliance strategies, how will the RGGI experience shape state plans to comply with the Clean Power Plan?

NERC suggests Clean Power Plan reliability considerations

The electric reliability organization for North America has issued an assessment of reliability considerations it thinks state electricity and environmental regulators should take into account in crafting state plans to comply with the Clean Power Plan.

The North American Electric Reliability Corporation (NERC) is a not‐for‐profit regulatory authority whose mission is to assure the reliability of North America's bulk power system.

Last year, the U.S. Environmental Protection Agency (EPA) issued its Clean Power Plan, a final rule limiting carbon dioxide emissions for existing electric generation facilities.  States are expected to prepare individual or collaborative plans to comply with the regulation.  Because reducing the carbon intensity of electric power generation is the goal, EPA expects that some plans will include a shift from coal-fired power plants to less carbon-intensive sources.  As NERC wrote in its assessment:

The BPS is already undergoing a broad transformation with retirements of coal units and some nuclear units, and additions of resources fueled by natural gas, wind, and solar. Distributed generation, energy efficiency, and demand response are also changing the way in which system planners must account for resources. The CPP has the potential to hasten the transformation of the electric system started by market and political factors such as natural gas supply and pricing and federal and state policy decisions with respect to renewables and energy efficiency and other environmental regulations.

But reliability is a key issue at stake in any shift in the portfolio of generating resources.  The Clean Power Plan rule explicitly requires that states consider reliability as part of their plans.

NERC's assessment, Reliability Considerations for Clean Power Plan Development, presents its view of "aspects of plan design that need to be considered to reliably accommodate this broad transformation."  NERC's ten key reliability considerations are:

• State coordination with system planning entities - planners and coordinators working together
• Essential reliability services - "In order to maintain an adequate level of reliability through this transition, generation resources need to provide sufficient voltage control, frequency support, and ramping capability — essential components to the reliable operation of the BPS. It is necessary for policy makers to recognize the need for these services by ensuring that interconnection requirements, market mechanisms, or other reliability requirements provide sufficient means of adapting the system to accommodate large amounts of variable and/or distributed energy resources (DERs)."
• Timing considerations for energy infrastructure development - "Retirements can happen quickly, but adequate replacement facilities must be in service prior to retirement. As natural gas‐fired generation replaces coal‐fired generation the requisite timeline for natural gas pipeline infrastructure becomes even more relevant."
• Electricity imports and exports - "If a state intends to use resources from nearby states as part of a compliance strategy, it is important to determine if the necessary transmission capability is available to reliably transport electricity from those resources."
• Change in generator cycling and operations - coal plants may serve more seasonal peak demands, so "states should take account of changes in maintenance requirements likely due to cycling and the risk of increased forced outages of these coal‐fired plants. Additionally, increased and sufficient coordination between gas and electric system operators becomes much more critical to ensure adequate amounts of fuel are available."
• Reserve margin assessment - "As more variable and energy ‐ limited resources are added, the system will likely require additional reserve capacity to maintain a similar level of reliability compared to a system with all conventional generation."
• Energy efficiency - "Given that EE can be used as a potential CPP compliance tool, it is important that states evaluate the realistic potential for EE to displace load and the likely duration of those impacts. Shorter term EE measures may serve as a potential bridge to meet CPP requirements."
• Emissions trading - "In general, emissions trading promotes additional reliability compliance options by effectively broadening the compliance region as well as the availability of allowances and credits. However, some resource options that might be assumed available through emissions trading may not be, due to another state’s plan. Because trading is optional, states should coordinate to ensure the most beneficial approach of trading is considered."
• Reliability safety valve - "States must understand how the Reliability Safety Valve works and its limits, recognizing that it cannot be used as a planning tool to meet CPP requirements."
• North American and European precedents - states should review carbon market precedents like RGGI and shifts in Canada and Europe toward renewable and distributed resources as case studies for potential strategies, lessons learned in implementation, and insights as they develop their plans.

Some states are already developing Clean Power Plan compliance plans.  Meanwhile, judicial challenges have been filed.  Initial plans are due to the EPA later this year.

FERC enforcement report cites screenshots, keylogger

The Federal Energy Regulatory Commission has issued an Order to Show Cause and Notice of Proposed Penalty against Coaltrain Energy, L.P. and six individuals relating to alleged fraudulent transactions in PJM Interconnection L.L.C.'s energy markets.  The Order, and a supporting Enforcement Staff Report, also includes allegations that Coaltrain made false and misleading statements and material omissions during the investigation.  Notably, the report describes FERC Enforcement staff's discovery of troves of documents allegedly covered up by the respondents, including keystroke logs and computer screenshots recorded by the company's software.  This e-discovery aspect gives FERC's Coaltrain enforcement case a unique character.

Fundamentally, the Coaltrain case presents FERC Enforcement staff's allegations that the respondents violated of the Commission’s Prohibition of Energy Market Manipulation, and that Coaltrain violated a Commission market behavior rule about accurate communications.  At issue is an alleged scheme involving trades from June 15 until September 2, 2010.  Traders allegedly engaged in a large volume of marginally profitable Up To Congestion (UTC) trades -- not to make money on those UTC trades, but with the intent to earn outsize payments from PJM's Marginal Loss Surplus Allocation (MLSA) program. FERC Enforcement staff's report describes its view of these trades as similar to those at issue in other recent enforcement cases, and different from normal arbitrage or "spread" trades.

The FERC Enforcement staff report in the Coaltrain case sheds light on another aspect of enforcement activity: how did Enforcement staff conduct its investigation of Coaltrain and the other respondents?  In this case, the company’s computer security monitoring software, called Spector 360, played a key role.  According to the report, Spector 360 "recorded every keystroke on employees’ computers (other than co-owners Peter Jones and Sheehan) and took screen shots of every employee monitor every twenty seconds all day long".

As staff noted in a footnote:

A large portion of the evidence in this matter is derived from the documents and other materials recorded by Spector 360. While the keystroke text data is not much different from ordinary documents, the screen shots taken by Spector 360 are very different, and create a visual record of what Respondents were working on, what they were looking for, how they conducted their analyses, and what they actually saw—as if standing over their shoulders while they work. This evidence will be reproduced as images taken from the screen shots.

Indeed, the Enforcement staff report includes a series of screenshots allegedly captured by Coaltrain's software.  According to the report, the evidence captured by Spector 360 shows how the respondents developed, implemented, and communicated about their scheme.

Not only does the FERC Enforcement staff report allege that this evidence exists, but moreover it alleges respondents made false and misleading statements about Spector 360 and the data it logged, including claims that they "forgot" about it.  According to the report, the Spector 360 data included material responsive to data requests issued as part of the investigation - but Coaltrain allegedly only provided it to Enforcement after a former employee told Enforcement that the Spector 360 data existed:

Enforcement sent several data requests to Coaltrain beginning in August 2010. In June 2012, Enforcement discovered from a former Coaltrain employee that Respondents had failed to produce an enormous set of documents that were highly relevant to the matters under investigation and responsive to Enforcement’s prior data requests. As it turned out, for nearly two years Respondents had failed to tell Enforcement that before, during, and after the summer of 2010, Coaltrain had deployed computer monitoring software, called Spector 360, that had recorded every keystroke (saved as text files) and made screenshots every twenty seconds of every monitor (saved as image files) on the work and home computers of every employee other than the co-owners, Peter Jones and Sheehan. Enforcement then asked Respondents to produce the missing materials. Respondents admitted that they still retained the data, but they at first refused to produce it by falsely denying that they could access the Spector 360 materials. Respondents belatedly produced the materials only after Enforcement arranged with the software manufacturer to give Respondents a new license at no cost. Once produced, the Spector 360 documents proved to be an enormous trove of responsive and relevant materials—about 10 gigabytes per employee during the summer of 2010.

FERC has docketed the case as IN16-4-000.  In its show cause order, the Commission directs Coaltrain and its co-owners to show cause why they should not be jointly and severally required to disgorge unjust profits of $4,121,894, and directs all Respondents to show cause why they should not be assessed civil penalties in the following amounts:

• Coaltrain: $26,000,000
• Peter Jones: $5,000,000
• Shawn Sheehan: $5,000,000
• Robert Jones: $1,000,000
• Jeff Miller: $500,000
• Jack Wells: $500,000
• Adam Hughes: $250,000