In February 2021, several entities in the Southeast sought authority from the Federal Energy Regulatory Commission (“FERC”) to create a bilateral, 15-minute market for energy transactions dubbed the Southeastern Energy Exchange Market, or SEEM (see FERC Docket No. ER21-1111). The parties proposing SEEM include investor-owned utilities such as subsidiaries of Southern Company, Dominion, and Duke Energy, as well as non-IOU entities such as PowerSouth Energy Cooperative and Tennessee Valley Authority – collectively, SEEM parties. The stated purpose of SEEM is to facilitate bilateral energy sales between members to decrease consumer costs. The SEEM proposal has not received full support, even though the SEEM parties estimate consumers will save approximately 40 million dollars per year.
The SEEM parties propose a market design that will use available transmission capacity between balancing areas to match pairs of buyers and sellers, with the transaction price consummating at the midpoint of the matched bid and offer prices. A matching algorithm will pair buyers and sellers to maximize total savings in each fifteen-minute interval. Additionally, the proposed market design indicates there will be no transmission cost (besides transmission line losses) associated with a transaction. However, the non-firm transmission service used by SEEM will have the lowest curtailment priority of all transmission types. The transactions will include energy only and no other products such as capacity or ancillary services.
A SEEM party can reduce costs by backing down a high-cost resource after pairing with a lower cost resource. A SEEM party also can lower consumer costs by selling excess power and revenue crediting consumers. Despite these mechanisms for reducing costs, the SEEM proposal has not received full support outside its own membership. The Georgia Association of Manufacturers is seeking FERC’s assurance that if the benefits of SEEM outweigh the costs, the benefits are passed through to retail customers of electricity. Entergy protested the filing and is requesting that FERC require an amendment to the SEEM Agreement that ensures transactions occurring in SEEM will not exceed the physical capability of the most limiting transmission interface on the contract path between transacting members. Such a requirement would limit SEEM’s ability to rely on third-party transmission systems, such as those under the purview of the Midcontinent Independent System Operator (MISO).
The SEEM proposal also received comments from a variety of environmental organizations, including the Environmental Defense Fund (EDF) and the Clean Energy Coalition (comprised of Advanced Energy Economy, Advanced Energy Buyers Group, Renewable Energy Buyers Alliance, and Solar Energy Industries Association). These environmental agencies called for increased transparency regarding transaction data, expanded governance roles, and enhanced market monitoring. EDF is seeking more information about how demand response and distributed energy resources could participate in the market. The Clean Energy Coalition argues that the SEEM proposal constitutes a loose power pool and requests that SEEM have an Open Access Transmission Tariff on file with FERC. Ultimately, several intervenors requested that FERC convene a technical conference to more broadly discuss the expansion of market opportunities in the Southeast. R Street, the Clean Energy Coalition, state Senator Tom Davis of South Carolina, and the Southern Renewable Energy Association all support such a technical conference.
In early May, FERC issued a deficiency letter to the filing entities, requesting additional information primarily related to market power mitigation and price transparency. FERC raised twelve questions in its deficiency letter, including a directive to explain how SEEM will interact with MISO and other neighboring regional transmission organizations (“RTOs”) at the seams. Other questions include how the SEEM match price would be adjusted to the mitigated price cap set forth in the Southern Companies’ market-based rate (MBR) Tariff, how market power would be mitigated under the SEEM mechanisms, how information would be made available to the Commission or reported by the SEEM Administrator to avoid potential market manipulation, and how the zero-charge transmission service (termed the Non-Firm Energy Exchange Transmission Service, or NFEETS) will impact rates for network service transmission customers in a manner consistent with the cost-causation principle. Furthermore, the Commission requests the SEEM parties to demonstrate that regulatory approval of the filing would be in the public interest consistent with the standard of review set forth in the Mobile-Sierra doctrine.
The SEEM parties responded to the deficiency letter in early June. To broadly address concerns related to market power, manipulation, and transparency, the SEEM parties propose to submit data to FERC on a weekly basis (which is comparable to RTO data submissions under Order No. 760). To mitigate concerns related to the uncompensated use of neighboring transmission facilities, the SEEM parties clarify that the available transmission capacity for each leg of a contract path for a matched transaction will be modeled to ensure there are no overloads. Finally, the SEEM parties revised the agreement such that issues and changes related to the market rules will be reviewed under the just and reasonable standard, whereas other issues that pertain to the rights and obligations of SEEM parties will be reviewed under the public interest standard in accordance with the Mobile-Sierra doctrine.
Few would argue that increased voluntary coordination among utilities in the Southeast is a step in the wrong direction. But, for some, the question remains as to whether SEEM goes far enough in the right direction. For example, in a letter dated June 2, 2021, nine former FERC Commissioners note the “growing interest in the Southeast for more ambitious market reform” and “urge the Commission to use the broad authorities and tools available under the Federal Power Act to move toward well-structured organized power markets in all regions of the country.” The SEEM proposal makes clear that it is not proposing to establish a mandatory regional market. Now that the SEEM parties have responded to the deficiencies identified in their initial filing, FERC will have to decide whether to encourage this modest step toward integration.