On July 14, 2023, the District of Columbia Court of Appeals released a decision in our appeal of the Federal Energy Regulatory Commission’s (FERC’s) approval of the Southeast Energy Exchange Market, or SEEM. The filings and decision have several pieces, but overall we view this decision as a win as we work toward inclusive competition and transparent oversight of electric utilities in the Southeast.

The SEEM proposal, while touted by the utilities that designed it as a way to increase competition in the region, was likely intended as a distraction to keep state legislatures in the region from exploring actual improvements to competition in the region’s electricity sector. Since SEEM began operations in November 2022, its use has been very limited and only by monopoly utilities.

“The Southeast deserves an energy market that facilitates independent clean energy generation and brings down costs for consumers. SEEM did neither, and instead unlawfully privileged coal and gas powered, monopoly-owned generation over the independent, clean energy that our region needs.”

– Maia Hutt, Southern Environmental Law Center Attorney (SELC represented SACE in this proceeding)

The recent Court decision addresses two types of filings required for SEEM:

1. The SEEM Proposal sets up the rules of “market” trading, member participation, and governance.
2. The SEEM Tariff sets up rules for the use of transmission through the execution of SEEM trades.

The Court ruling treats these two requirements differently, so we will explain exactly what the court said about each.

SEEM Proposal Approval: Remanded on Timing Issue

If an entity disagrees with a FERC decision, it must undergo a number of steps to appeal that decision. The first step is to file for a rehearing, basically asking FERC to look again at certain issues in the case. The second is to appeal the decision to the courts. A request for rehearing, and a response from FERC, is required before a FERC decision can be appealed to the courts. Furthermore, there are very specific time limitations for bringing a rehearing request, for FERC to act on that rehearing request, and for bringing a court appeal.

Bear with me while we go through the timeline, which explains how the court came to this decision…

• August 11, 2021: The final SEEM Proposal filing submitted in Docket No. ER21-1111.
  
• October 12, 2021: SEEM “became effective by operation of law” because of the “absence of Commission action on or before October 11, 2021,” according to a notice issued by the Federal Energy Regulatory Commission (FERC).
• November 12, 2021: SACE and other intervenors brought a request for rehearing on FERC’s 2-2 deadlocked decision allowing the SEEM Proposal to go through. FERC denied the request, not because of the merits, but because FERC said it was “untimely,” i.e. past the deadline.

The Devil’s in the Details

Based on the final filing by SEEM utilities, the last day FERC could have acted would have been October 10, 2021, which was a Sunday. The next day, October 11, 2021, was a federal holiday (Columbus Day), so the last day FERC could act was actually October 12, 2021. Using that date, the last day to file a request for rehearing should have been November 11, 2021, which itself is a federal holiday (Veteran’s Day), making the actual last day to file a request for rehearing November 12, 2021. Petitioners in this case (i.e. SACE and our co-intervenors) in fact were not ‘untimely,’ but rather came in just at the deadline, filing on the last allowable date.

Last week’s Court decision vacates FERC’s finding that our request for rehearing was too late, and thus FERC now has to go back and consider our request for rehearing. The decision also helps to clarify for the future how to calculate deadlines for rehearing and other requests.

SEEM Transmission Tariff Approval: Vacated on Two Issues

Courts’ reviews of FERC decisions are generally less about whether the Court agrees with the decision and more about whether the Court thinks FERC provided enough explanation for its decision. Our appeal to the Court included several arguments, three of which were discussed in detail in the Court’s decision (listed below) and two on which the Court based its decision to vacate FERC’s approval of the SEEM Transmission Tariff.

1. SEEM is anti-competitive
2. SEEM tariff isn’t superior to the status quo
3. SEEM is a loose power pool

SEEM is Anti-competitive

While the Court stated that our argument that SEEM is anti-competitive is “not without merit,” it ultimately accepted FERC’s conclusion that SEEM utilities are incentivized against anti-competitive behavior within the SEEM framework because the SEEM utilities are motivated to contract with as many potential counterparties as possible to maximize transactions. The standard a court uses to review an agency’s decision is very high, so even if the court did not decide to reverse FERC’s decision, that the court found our argument compelling enough to warrant distinct discussion in the decision is something utility regulators and state policymakers should pay attention to.

SEEM Tariff not Superior to Status Quo

The SEEM Transmission Tariff, as filed by SEEM utilities, requires that for an entity to participate in SEEM it must have a source (generation) or sink (load) located in the geographic footprint of the SEEM utilities. One thing FERC must consider when approving or denying transmission tariff proposals is whether it is superior to the status quo. Since the status quo does not exclude trades with entities outside the geographic footprint of the SEEM utilities, the Court asked FERC to reconsider its decision and provide “a more fulsome explanation” on why the SEEM Transmission Tariff’s exclusion of entities outside the geographic footprint is superior to the status quo. The Court notes in its decision that the SEEM utilities did not provide an explanation for why they did not require the SEEM software to be able to include sources and sinks outside the geographic footprint.

SEEM May be a Loose Power Pool

Loose power pools have specific requirements around open membership that were not applied to SEEM because FERC accepted the SEEM utilities’ arguments that SEEM is not a loose power pool. Under FERC’s definitions, there are two requirements for something to be deemed a “loose power pool:”

1. It is a multi-lateral agreement, i.e. agreement between two or more utilities, and
2. It “explicitly or implicitly contains discounted and/or special transmission arrangements.”

SEEM clearly meets requirement #1; SEEM utilities argued that it does not meet requirement #2 citing a previous decision that free transmission service is not necessarily discounted transmission. While this may seem counter-intuitive to a layperson (isn’t free the ultimate discount?), the argument in this case is that because SEEM utilizes excess transmission service it isn’t a substitute for another transmission product, and thus can’t be a discount.

The decision notes that FERC’s determination that SEEM’s $0 transmission product is not “discounted” directly contradicts language in FERC Order 888, which includes “non-pancaked” rates as an example of a “discounted rate.” Since, absent SEEM’s $0 transmission product, SEEM utilities would absolutely be exposed to pancaking to get power from one end of the SEEM footprint to another, the Court decided that FERC should have provided “a more cogent explanation” of its decision on whether the transmission product proposed in the SEEM Transmission Tariff is “discounted” or not, and thus whether or not SEEM is a loose power pool.

Brief aside to define “Transmission Pancaking”

Before we go further into this issue, some background on transmission rate “pancaking” is helpful. Transmission “pancaking” is when electricity is transacted across multiple utilities, so utility A is transacting with utility D and the path for the electricity between A and D is A –> B –> C –> D. That would mean that in addition to what utility D is paying utility A for the power itself, it would also need to pay utilities B and C for use of their transmission to get the power from A to D. The term “pancaking” is used because the transmission rates for the utilities between source and sink stack up like a stack of pancakes.

The Future is Uncertain

SEEM, which already began operating in November 2022, has a questionable future – but it is not, based on this decision, completely dead. SEEM’s ultimate future is in the hands of the SEEM utilities and FERC.

Now that the Courts ruled that FERC’s denial of our request for rehearing on the SEEM Proposal was not ‘untimely,’ FERC must go back and consider our request for rehearing again. The Court did not rule on the merits of FERC’s original decision on the SEEM proposal (which remember was a deadlocked (2-2) decision on whether it was just and reasonable). Therefore, if FERC denies our request for rehearing we can bring another court appeal, this time allowing the Court to consider the merits of FERC’s decision on the SEEM Proposal similar to the way the Court considered the issues at stake in FERC’s approval of the SEEM Transmission Tariff.

And separately, but in parallel, the Court has vacated FERC’s approval of the SEEM Transmission Tariff. This means that SEEM will have to pause operations after the Court’s mandate is issued (likely in ~52 days) unless there is an appeal. In its reconsideration of the Transmission Tariff, FERC could come to the same conclusion and approve it, and provide the deeper explanations of its decisions the Court has asked for. Or FERC could ask for changes to the Transmission Tariff, or even disapprove of it outright.

It is also important to note that FERC’s current membership is not the same as it was when the SEEM Proposal and Transmission Tariff were previously decided. While the FERC still have four members, making another 2-2 decision possible, then-Chair Richard Glick is no longer on the Commission and a new Commissioner, Willie Phillips, is now Chair. In the previous decisions, Chair Glick voted against approving the SEEM Proposal, along with  Commissioner Clements; Commissioners Danly and Christie voted for approval. Commissioner Clements voted against approving the SEEM Transmission Tariff while Chair Glick and Commissioners Danly and Christie voted for approval. The President has the ability to appoint a fifth FERC Commissioner, which would require approval by the Senate Energy Committee and ultimately the Senate. But as of publication, no nominee has been announced.

SEEM utilities have told news outlets that they will “work through the FERC process” and continue to operate SEEM.

So many questions remain about SEEM’s future. It is largely dependent on how this FERC and SEEM utilities react to the Court’s decision. We will continue tracking and pushing for inclusive competition and transparent oversight of electric utilities in the Southeast.

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