FERC deadlock clears the way for launch of controversial Southeast energy market

After nearly a year of debate, a controversial plan by utilities in the Southeastern U.S. to create the region’s first energy-trading market has cleared a federal regulatory hurdle that will allow it to go into effect.

But opponents say the plan fails to create the competitive structures that could drive down costs and enable far faster clean energy growth in the region — and they’re vowing to fight for their preferred alternatives.

Given the way the Southeast Energy Exchange Market (SEEM) was cleared to move ahead this week by the Federal Energy Regulatory Commission, those opponents may well have an opportunity to challenge it in the months to come.

That’s because FERC’s two Democratic and two Republican members were ​“divided two against two as to the lawfulness of the change,” as the commission reported on Wednesday. FERC’s lack of a decision on whether this agreement between utilities is ​“just and reasonable” — the standard by which FERC imposes authority over interstate energy activities — allows it to take effect under federal law.

This means that Duke Energy, Southern Company, the Tennessee Valley Authority and the dozen other investor-owned, public and cooperative utilities that have pledged to join SEEM are free to move ahead with the trading structure. But it also means that opponents can file rehearing requests with FERC that ask for the decision to be reconsidered.

By the time such requests are heard, Willie Phillips, the Democrat nominated by President Joe Biden to fill FERC’s fifth vacant seat, may have been confirmed by the U.S. Senate, giving FERC its first Democratic majority since the early days of the Trump administration.

While FERC didn’t reveal how commissioners voted, it’s likely that Democrats Richard Glick and Allison Clements challenged the SEEM plan’s legality while Republicans James Danly and Mark Christie voted to allow SEEM to go into effect. Phillips could break that tie by siding with fellow Democrats.

Whether this strategy could alter SEEM’s momentum depends on FERC Chair Glick’s ​“intention to try to reopen this docket once there’s a fifth commissioner seated,” said Bryn Baker, policy director for the Renewable Energy Buyers Alliance. Her group represents large corporate energy buyers including Amazon, Google and Walmart that have been lobbying for broader access to clean energy in Southeast markets and across the country.

FERC could also hold a technical conference to take up the many complaints filed against SEEM and consider the alternatives that groups like REBA have proposed, Baker said. REBA isn’t opposed to expanding the Southeast’s energy market structure, but in the group’s view, ​“SEEM is not a true market,” she said. ​“It lacks all the features of a true market.”

SEEM versus alternative market structures

The Southeast is one of only two major regions in the U.S. that doesn’t have an organized energy market to coordinate utility investment and day-to-day trading of power between power plants and transmission lines. While Southeast utilities can trade energy bilaterally, they must negotiate those trades on a case-by-case basis.

SEEM will replace this system with one that enables computerized energy trading in 15-minute increments across utilities’ shared transmission networks. Its backers say this more efficient energy-trading regime will save customers across the region between $100 million and $150 million over 20 years.

Noel Black, Southern Company’s vice president of governmental affairs, said in a Wednesday statement that SEEM will also ​“enable and encourage new technologies and approaches necessary to deliver more economic and clean energy to our customers.” Both Southern Company and Duke Energy, the two utilities leading the push for SEEM, have pledged to reach net-zero carbon emissions by 2050.

But a host of clean energy developers, large energy consumers and environmental advocates have challenged the SEEM proposal. They insist that the Southeast could save much more money if it were to shift to a more competitive and open energy market structure like those already in place across most of the country. This could also drive a far faster replacement of the region’s fossil-fuel-dominated generation mix with wind, solar, energy storage and other lower-carbon alternatives, they say.

That view is backed up by a study released last month that found far greater cost reductions and clean energy shifts are possible under two other market structures — an energy imbalance market (EIM) like the one operating across much of the U.S. West, or a regional transmission organization (RTO) like those managing the electricity markets serving about two-thirds of U.S. electricity customers.

The study by Vibrant Clean Energy, conducted on behalf of the American Council on Renewable Energy industry group, found that over the next two decades an EIM would save $111 billion and an RTO would save $119 billion compared to SEEM. As for carbon emissions, while the SEEM framework would lead to a 30 percent reduction from today’s levels by 2040, an EIM would drive a 67 percent reduction and an RTO would deliver a 70 percent reduction over the same time period, the study projected.

What’s at stake for the Southeast’s clean energy future

There are many reasons for these differences, Baker said. One is that EIM and RTO market structures require more transparent disclosure of the prices they’re offering other market actors, and they make those offers available to all participants. SEEM, by contrast, will allow individual utilities to choose which other utilities they trade with and limit which generators they make available for trades. That could allow utilities to organize trading in ways that increase revenue from their fossil-fueled power plants, she said.

SEEM also doesn’t open up the Southeast to competition from third-party developers of wind and solar farms, battery installations and other forms of grid resources. ​“The SEEM proposal is not a real market, and it will only serve the interests of entrenched monopoly utilities,” Gizelle Wray, director of regulatory affairs at the Solar Energy Industries Association trade group, said in a Wednesday statement.

Nor does SEEM create a system for utilities to jointly plan for the generation resources needed to maintain grid reliability across the region — a major function of RTOs that can yield big savings by reducing redundant generation. The following chart from the Vibrant Clean Energy study shows the significant reduction in generation capacity that could be achieved for the region by market structures that go beyond SEEM.

Both Duke and Southern Company are facing opposition from clean energy and environmental groups for their plans to build new natural-gas-fired power plants to replace coal-fired plants that are being closed down. The utilities argue they’re needed to ensure grid reliability in future years.

Maggie Shober, director of utility reform at the Southern Alliance for Clean Energy, noted in a Wednesday statement that SEEM’s trading structure could ​“potentially be used as a way for utilities to sell off excess generation that is a result of overbuilding fossil gas resources.”

FERC had previously directed two ​“deficiency letters” to SEEM’s backers, asking them to clarify how its structure would address issues of transparency and oversight. FERC’s failure to take action this week has allowed SEEM to move ahead ​“without any…direction on how the new platform should be implemented” in relation to those concerns, Jeff Dennis, managing director and general counsel at the Advanced Energy Economy industry group, said in a Wednesday statement.

At the same time, Shober said, ​“the failure of some of the largest monopoly utilities in the country to convince a majority of commissioners that SEEM is legal is yet another reason why it cannot be the last step toward wholesale market reform in the Southeast.”

“One intention for SEEM may have been to shield Southeast utilities from more meaningful market reforms,” she continued, ​“but could that backfire and speed up the transition of the Southeast toward true electricity competition? Only time will tell.”