CPS Emergency Rulemaking – the What, the Why, and the What Comes Next
This is the fourth blog in our “2024 Clean Peak Standard” blog series. Read the first three blogs here.
On late Friday afternoon (7/12), the MA Department of Energy Resources (DOER) sent an email notice announcing that it had filed emergency regulations making changes to the Clean Peak Energy Standard (CPS), effective immediately. The emergency regulations made two related changes:
- Adjusted the Minimum Standard (the percent of retail load that load serving entities must meet with Clean Peak Energy Certificates) for compliance year 2024 from 7.5% to 4% (lower than 2022’s value of 4.5%).
- Deleted language specifying that the Minimum Standard will increase by 1.5% each year, instead referencing the updated table (see below, directly from the redlined regulations). Here’s the language itself: “(a) The CPS Minimum Standard shall
increase by 1.5% each yearbe set to the percentage identified in 21.07 (1)(a) [the section that contains this language and the table], and subject to the conditions described in 21.07 (1)(b).” Section 21.07 (1)(b) of the regulations lay out the dynamic mechanism for the Minimum Standard, whereby the compliance obligation increases by 3% or 4.5% when market surpluses meet specified thresholds.
| Compliance year | Cumulative Minimum percentage |
|---|---|
| 2019 | 0% |
| 2020 | 1.5% |
| 2021 | 3.0% |
| 2022 | 4.5% |
| 2023 | 6.0% |
| 2024 | |
| 2025 | 9.0% |
| 2026 | 10.5% |
| 2027 | 12.0% |
| 2028 | 13.5% |
| 2029 | 15.0% |
| 2030 | 16.5% |
| 2031 | 18.0% |
| 2032 | 19.5% |
| 2033 | 21.0% |
| 2034 | 22.5% |
| 2035 | 24.0% |
| 2036 | 25.5% |
| 2037 | 27.0% |
| 2038 | 28.5% |
| 2039 | 30.0% |
| 2040 | 31.5% |
| 2041 | 33.0% |
| 2042 | 34.5% |
| 2043 | 36.0% |
| 2044 | 37.5% |
| 2045 | 39.0% |
| 2046 | 40.5% |
| 2047 | 42.0% |
| 2048 | 43.5% |
| 2049 | 45.0% |
| 2050 | 46.5% |
Breaking Down the Immediate Impact
In short, for folks on the supply side of the market, there is effectively no immediate impact. While you’ll need to become a subscriber to get more detail, we can share (and, you can figure out with some rough math and reasonable assumptions), that, even with the reduction in the 2024 Minimum Standard, there is likely to be a deficit in 2024. So, the primary impact would be to reduce cost of the CPS obligation to suppliers (though, we note that, depending on change of law provisions, the timing and duration of the contract, etc., it’s possible that end-use customers may not see the full benefit). Folks selling 2024 Clean Peak Energy Certificates (CPECs) should still expect prices to be close to the Alternative Compliance Payment (ACP).
It’s worth noting this change is also not all that surprising. As we discussed in a previous blog post, DOER was likely considering options for reducing ACP collections, as large, persistent ACP collections can invite criticism of a portfolio standard. There is, as described in that post, precedent for using changes in the Minimum Standard to achieve reduced ACP collections.
A Small Point of Potential Confusion
Outside of the reduction in ACP collections (and, hopefully, reduction in customer bills), the impact of this change is limited. Still, it raises questions about what may come next.
First, the edit creates some confusion about how, in the absence of additional changes to the regulations, the Minimum Standard may be set in the future. The regulations, before the emergency rulemaking, laid out how the Minimum Standard would change each year. Specifically, any time Market Supply (CPECs generated within a given year divided by total obligations within the same year) is 100% or less, the Minimum Standard would increase by 1.5% in the subsequent year, greater than 100% to 120% would trigger a 3% increase, and any Market Supply greater than 120% would lead to a 4.5% increase in the subsequent year. While the table included in the regulations did not directly account for the potential for 3% and 4.5% increases, it was implicit that the overall trajectory would diverge from the one indicated in the table should such larger increases be triggered. And, the language explicitly defined that the default increase would be 1.5%.
The changes, however, create some challenges in interpreting the regulations. The emergency regulations eliminate the language indicating that the Minimum Standard would, by default, increase by 1.5% each year, although the table in the regulations demonstrate that a 1.5% annual increase appears to be the default. If a 3% or 4.5% change in the Minimum Standard is triggered in the future, which would lead to a trajectory that differs from what is captured in the table, there is no longer language that specifies what the Minimum Standard would be in the subsequent year (again, because the edits remove mention of a 1.5% increase). One would assume that the 1.5% increase would apply in this situation (Market Supply is 100% or less), but this is not explicit in the updated regulations. Perhaps there will be some clarification included in changes that flow from the 2024 Program Review process.
Looking Ahead – What Additional Changes Might This Portend?
A quick look at the new Minimum Standard chart leads to an obvious question: what is going to happen in 2025? While one can imagine (and we’ve modeled through our CPMO briefings) how a temporary pause or reduction in the Minimum Standard could allow time for supply to catch up with demand, there’s little information that suggests the market could supply the CPEC demand associated with a 9% Minimum Standard in 2025.
In a version of this post available to CPMO subscribers, we discuss what this likely means for future possible changes. Subscribers get critical information on how CPS policy might change, critical drivers of CPEC supply, and, where the CPS market (supply, demand, prices) is going, allowing them to make informed decisions now, provide informed feedback as policies change, and anticipate what is happening next. While the immediate impact may be fairly limited, the change reflected in the emergency rulemaking is likely a down payment on additional changes to the policy, and we’re here to help you stay informed as we progress through the 2024 Program Review. Get in touch with us to receive additional information about the service and pricing.
