DOER issues (another) set of emergency CPS regulations

This is the fifth blog in our “2024 Clean Peak Standard” blog series. Read the first four blogs here.

For the Clean Peak Energy Standard (CPS) enthusiast, it has been an exciting week!

On July 19, 2024, the Massachusetts Department of Energy Resources (DOER) filed new emergency regulations amending the Clean Peak Energy Standard (CPS) under 225 CMR 21.00. It informed stakeholders of the new emergency regulations by email. These changes supersede the previous emergency rulemaking from July 12, 2024, which we discussed in our post last week.

Changes in the Emergency Regulations

The new emergency regulations, which went into effect immediately, incorporate the following changes:

• Minimum Standard Adjustments (2025-2050): The Minimum Standard for CPS compliance is adjusted from 2025 through 2050. Initially, the Minimum Standard is reduced for the years 2024-2028, relative to the original CPS regulations, to alleviate ratepayer costs due to high Alternative Compliance Payment (ACP) collections that DOER expected would occur during this period. After 2028, the Minimum Standard is increased relative to the original regulations to reflect DOER’s anticipated growth in Clean Peak Resources. The updated obligations are represented in the graph below. After 2034, the Minimum Obligation will increase by 1.5% per year.
• Removal of Minimum Obligation Ratchet: The original regulations included a minimum obligation ratchet mechanism, by which the Minimum Obligation would be increased by more than the default 1.5% in the compliance year following a year in which market supply exceeds demand. The emergency regulations remove this minimum obligation ratchet, although, we note, it does not remove a complementary portion of the regulations that accelerates the reduction in the ACP rate following market surpluses.
• Near-Term Resource Multiplier: The emergency regulations introduce a 2x multiplier for resources connected to the distribution system and that are either 1) Qualified Energy Storage Systems that are not co-located with a Qualified RPS Resource or 2) Demand Response Resource but are interconnected to the distribution system. Resources that have not received a Statement of Qualification before January 1, 2025 and must have a commercial operation date before January 1, 2027. The 2x multiplier applies to the first 10 years following the effective date on the resources Statement of Qualification. DOER announced that it “may” publish a guideline with further details. This multiplier is limited to 50 MW of capacity, though the regulations note that “after notice and opportunity for public comment, [DOER] may increase this cap in the future.”

Rationale for the Changes

In its email announcement, DOER cited several factors in explaining its use of an emergency rulemaking process:

• The July 12, 2024 emergency rulemaking aimed to implement the 2024 Minimum Standard change before the commencement of the CPEC trading year on July 15, 2024, to realize significant ratepayer savings, estimated by DOER to be between $22 million and $73 million.
• The decreased Minimum Standard for 2024-2028 is similarly intended to reduce ACP collections during market deficits DOER anticipates during this time period.
• DOER anticipates that increasing the Minimum Standard post-2028 will help to maintain supply demand balance as a substantial volume of CPS-eligible resources that are currently under development reach commercial operation.
• In discussing the Near-Term Resource Multiplier, DOER cites challenges faced by developers of these resources, including interconnection challenges and uncertainties related to state-jurisdictional Operational Parameters tariffs and wholesale distribution tariffs to be filed with FERC. DOER notes that many potentially eligible projects will need to make decisions on whether to make 25% interconnection payments in the near future.

Implications

The most immediate impact of the changes will be to, through 2028, reduce the cost of CPS to ratepayers. The Near-Term Resource Multiplier is a significant boost to projects that are able to secure this multiplier, but the 50 MW cap will limit its impact on the overall market (though, as the regulations notes, DOER may revisit this cap in the future).

The longer-term implications are more complex. The original regulations used complementary mechanisms, the minimum obligation and ACP ratchets, to help the market self-correct during surpluses, by increasing demand while simultaneously reducing the ACP rate. Now, should the market enter a period of surplus, a reduction in the ACP will tend to suppress prices, without the counterbalancing effect of an increase in demand. The new Minimum Obligation includes an aggressive increase starting in 2028 – this may mean that the issue of market surplus simply does not arise. If, however, it does, the impact on CPEC prices would be more prolonged than it would have been had the minimum standard ratchet not been eliminated. This could increase the likelihood that DOER would need to make additional adjustments to the minimum standard in the future.

DOER’s email also reiterates that it intends to conduct the full 2024 review of CPS. While this may lead to changes to updates made through emergency regulations, the fairly extensive nature of the changes included in the emergency regulations and a desire to signal some level of policy stability may lead to a reluctance to make further changes to the Minimum Standard.

Taken together, the changes suggest that DOER sees substantial challenges for storage in the near-term, but optimism that large volumes of CPS resources will start operating by the end of the decade. Given DOER’s latitude to make changes to CPS (demonstrated by these changes) and to implement other policy mechanisms (such as storage procurements), these views matter.

The CPMO Team will conduct modeling evaluating the impact of the proposed changes on the CPS market, including an initial analysis that we’ll share with our subscribers by the end of July, followed by a full set of briefings in late August.

Next Steps

DOER will publish guidance on applying for the Near-Term Resource Multiplier shortly. Additionally, the DOER will hold a public hearing and comment period to solicit stakeholder feedback on the new regulations. These events will be announced via email and posted on DOER’s website. For detailed information on the specific regulatory changes, stakeholders are encouraged to review the clean and redline documents available on the DOER website.

As noted above, DOER still plans to conduct a comprehensive review of the CPS. More information on the Program review may be found on the 2024 CPS Programmatic Review website. For questions regarding the CPS emergency rulemaking, stakeholders can contact DOER at [email protected].

For questions on the impact of these emergency regulations and what my follow through the CPS 2024 Program Review process, reach out to the Clean Peak Market Outlook team.