FERC Commissioners Weigh In On Southeast Energy Exchange Market Vote
October 25, 2021
by Paul Ciampoli
APPA News Director
October 25, 2021
Commissioners at the Federal Energy Regulatory Commission (FERC) recently weighed in with their views on a proposed agreement for a Southeast automated, intra-hour energy exchange. The agreement recently took effect as a result of a deadlock on the Commission.
In an Oct. 13 notice, FERC noted that pursuant to section 205 of the Federal Power Act (FPA), in the absence of Commission action on or before Oct. 11, 2021, the proposed Southeast Energy Exchange Market (SEEM) agreement became effective by operation of law.
The Commission did not act on the proposed SEEM agreement “and concurrences thereto because the Commissioners are divided two against two as to the lawfulness of the change,” the notice said. Under a provision added to the FPA in 2018, each Commissioner must provide a statement explaining the Commissioner’s views on any filing that goes into effect as a result of such a deadlock.
“Expanding regional electricity markets is one of the single most important steps that the Commission can take to save customers money, enhance reliability, and integrate intermittent resources most efficiently,” said FERC Chairman Richard Glick. He believes regional transmission organizations (RTOs) and independent system operators (ISOs) “are, by far, the best way to achieve these benefits.”
“From my perspective, utilities and other stakeholders in this region should be working to establish an RTO/ISO in the Southeast for the benefit of consumers and to promote grid reliability. But that is not the proposal presented to us in this docket,” he said in an Oct. 20 statement.
Glick said he believes that much of the SEEM proposal arguably satisfies the standard for FERC approval under Section 205 of the FPA. “However, I voted no in large part because the filing parties’ proposal to apply the Mobile-Sierra public interest presumption to the Southeast EEM Agreement violates well-established Commission precedent. When Mobile-Sierra applies, the Commission must presume that the relevant agreement meets the statutory just-and-reasonable standard, so the agreement can only be changed if it seriously harms the ‘public interest,’ a significantly higher evidentiary hurdle,” he wrote.
“Considering the history of entrenched resistance to organized markets in the Southeast, the Southeast EEM represents at least a positive step forward,” Glick said. “Currently, several large incumbent utilities serve most of the consumers in the Southeast as bundled retail customers. Delivering power across multiple balancing authority areas in the region requires multiple transmission reservations and payment of pancaked transmission rates. A centralized and competitive wholesale market in the Southeast, or at least something closer to that model, is a step in the right direction.”
But finding a proposal just and reasonable and not unduly discriminatory or preferential under Section 205 of the FPA requires that it be more than just a step in the right direction, he said. The filing parties initially proposed to apply Mobile-Sierra to the entire SEEM agreement and later narrowed that to a smaller subset of “enumerated provisions.”
“I cannot support this part of the proposal because I believe that application of the Mobile-Sierra presumption here violates Commission precedent. Under that well-settled precedent, the Mobile-Sierra presumption applies to a contract ‘only if the contract has certain characteristics that justify the presumption,’” Glick said.
He argued that the SEEM agreement fails this test. Applying the Mobile-Sierra public interest presumption to at least the enumerated provisions of the SEEM agreement departs from FERC’s precedent without justification, he said.
“We must always tread cautiously when determining whether a presumption that an agreement satisfies the statutory ‘just and reasonable’ standard is applicable,” wrote Glick.
Had the Commission been able to reach agreement on the Mobile-Sierra issue, “I believe that our existing statutory protections against undue discrimination would have been sufficient to address protestors’ concerns about the Southeast EEM and to protect consumers and market participants in the region. Applying the Mobile-Sierra presumption in these circumstances will make it more difficult for third parties or even the Commission to mount legitimate challenges in the future to the justness and reasonableness of the Southeast EEM. Put simply, there is no need (and no basis) to apply the Mobile-Sierra presumption here — and there is considerable risk to the public in doing so.”
Aside from his disagreement on the Mobile-Sierra issue, Glick was willing to support the SEEM proposal, as modified by the filing parties’ June 7 and August 11 responses to Commission deficiency letters, because he believes the modified proposal otherwise meets the “just and reasonable” standard of section 205 of the FPA.
Glick said the stated benefits of this platform, “though unverified, appear to be meaningful: The filing parties project over $100 million per year in market-wide savings by 2037 assuming higher renewable and energy storage penetration across the region, or $40 million per year relative to the current bilateral market under a more conservative estimate.”
For customers to realize such benefits, however, “market outcomes must be the product of genuine competition, not market manipulation. For this reason, I share the concern of many that the Southeast EEM Agreement may present opportunities for the participants to engage in manipulation.”
He noted that the SEEM parties made commitments, in their responses to deficiency letters, to provide additional transparency safeguards.
“While the original filings, not those subsequent responses, go into effect by operation of law, I urge the parties to stand by their additional commitments on transparency,” wrote Glick.
“Beyond what the parties have offered, the Commission has the tools — and stands ready — to investigate any potential fraudulent or manipulative conduct and take any corrective action as needed, including imposing civil penalties. As I have often stated, guarding against market manipulation remains one of the core obligations vested in this agency by Congress. I intend for the Commission to continue to remain vigilant on this front.”
“To be very clear, my lack of support for the instant proposal is not because I would prefer a different market structure or that I fail to appreciate the parameters of the legal inquiry that Section 205 prescribes,” said Commissioner Allison Clements.
“I am cognizant of Section 205’s requirements that we not let perfect be the enemy of the good and that we can only review the proposal in front of us. But legal insufficiency must foreclose Commission approval. In my view, the Southeast EEM, as proposed, contains infirmities that compel the Commission to find that the Filing Parties have not satisfied their legal burden,” she wrote in a statement.
She voiced concern that the SEEM may expose participants to unjust and unreasonable rates and said she agreed with Glick’s conclusion that applying the Mobile-Sierra standard to the generally applicable SEEM Agreement provisions, even the “enumerated provisions” identified in the response to the first deficiency letter from FERC, would violate Commission precedent.
By failing to reject the SEEM as proposed, FERC “compromises its fundamental principles of transparency, oversight and fair and open market access,” Clements said. “Failing to apply these principles to this market is dangerous not only because of the discriminatory and unjust rate impacts it may impart in the region, but because it may inhibit the Commission’s ability to ensure that other organized markets, existing or forthcoming, are just and reasonable and not unduly discriminatory.”
She argued that failing to reject the proposal “is likely to invite future attacks on the Commission’s fundamental market design safeguards in existing and future markets across the country.”
Commissioner Mark Christie said that the SEEM proposal meets the standard for approval under section 205 of the FPA.
“The opposition to this proposal stems from one core issue: the goal of many interest groups to force the Southeastern states into a Regional Transmission Organization (RTO) or at least into a halfway-house to an RTO now, with full submission later,” Christie asserted.
Christie said he would have voted to accept the SEEM proposal as a package. The filings “unquestionably meet the statutory criteria for acceptance under section 205 and should have been approved by majority vote of this Commission,” wrote Christie in his statement. He said he would have voted to approve the SEEM proposal as a package within the deadline of August 6, 2021 created by a May 4 FERC deficiency letter.
He said that “any claim in this record that an RTO would provide ‘more’ benefits than those offered by the Southeast EEM is purely speculative and unpersuasive.” The issue of RTO benefits versus costs and disadvantages, “in terms of both reliability and consumer protection, are complex and multi-faceted.”
The only proposal before the Commission is the SEEM “and under section 205 the Commission’s analysis is limited to whether this proposal is just and reasonable and not whether some other proposal is more just or more reasonable,” he wrote in his Oct. 20, 2021 statement.
For his part, Commissioner James Danly said that the Commission’s “deficient notice is just one more in a line of improper procedural maneuvers that have unjustifiably delayed the establishment of this market and delayed the issuance of a merits order by half a year.”
Danly said that “in the face of all of the potential benefits that could be realized by the creation of the Southeast EEM, and the fact that there is virtually no downside to its implementation, there is simply no lawful basis upon which to reject this submission.”
While protestors raise concerns with various aspects of the SEEM proposal, “we should have found that the filing parties have satisfied their burden under FPA section 205, and we should have ruled on the proposal before us and not upon protestors’ alternatives.”
He noted that FERC will get a second chance to issue a merits order in response to requests for rehearing. “I sincerely hope that wisdom prevails, and that the Southeast EEM proposal is ultimately accepted,” he said in his statement.
However, should this matter eventually come to the court under FPA section 205(g), “the court should remand it back to FERC for an order in the first instance. Failing that, if the court chooses to issue a decision on the merits, it should deny the petitions for review and remand with instructions that every aspect of the filers’ submission — in all related dockets — be accepted,” Danly said.
Background on SEEM
On Feb. 12, 2021, Southern Company Services, Inc., as agent for Alabama Power Company, filed the SEEM agreement on behalf of itself and the other prospective members of the SEEM. In addition, seven prospective SEEM members on Feb. 12, 2021 submitted certificates of concurrence to the SEEM agreement.
Over the summer, SEEM members offered changes to the proposal that they said would create greater oversight ability for FERC and more transparency for all participants.