Jeff St. John of Canary Media has a great piece this week that unpacks the Southeast Energy Exchange Market (SEEM) proposal, an egregious attempt by monopoly utilities to block competition from creating more affordable and cleaner energy. Among its problems, SEEM slows the pace of decarbonization by allowing utility giants like Duke Energy and Southern Energy Corp to sell energy from fossil-fuel plants to one another and ignore competition from third-party renewable energy producers that is cheaper and cleaner.
Fiscally SEEM doesn’t add up either: “…a much broader market reform initiative could save the Southeast hundreds of billions of dollars per year over the next 20 years, much more than the $100 million to $150 million that an analysis sponsored by SEEM backers projects it could save over the next two decades.”
SEEM arrives at a critical juncture for U.S. energy policy. St. John’s piece shows why the Federal Energy Regulatory Commission should reject SEEM and take steps to increase competition to speed the pace of decarbonization in the Southeast.
Take a moment to read more from St. John below or here.
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Why are clean energy groups and big corporate electricity buyers so opposed to a plan to create the first regional energy-trading market in the Southeast U.S.?
Answering that question requires a bit of a dive into the esoteric world of regional energy market structures, and in particular, the differences between bilateral energy trading, an energy imbalance market and a full-scale regional transmission organization (RTO) or independent system operator (ISO). But in simple terms, it boils down to conflicting views of whether the move will help or hinder the region’s shift to a cleaner and more cost-effective grid.
RTOs and ISOs manage the bulk electricity systems serving about two-thirds of the country's population. The regions without them include most of the Western U.S. outside California, where utilities are joining energy imbalance markets, and the Southeast, where transmission systems are largely controlled by the region's biggest vertically integrated utilities, Duke Energy and Southern Company, along with the massive and federally owned Tennessee Valley Authority.
Last year, these three utilities proposed a new form of market to serve their region, called the Southeast Energy Exchange Market (SEEM). The Federal Energy Regulatory Commission is reviewing the plan and is expected to make a decision in August.
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But a panoply of renewable energy trade groups, environmental activists and corporate energy buyers’ associations fear that SEEM could forestall a broader move to open up the Southeast market to energy competition.
In fact, these groups warn, it could allow Duke, Southern and other regional utilities to secure more revenue for their fossil-fired power plants by allowing them to sell their power to one another — without facing competition from third-party solar, wind and battery projects that are cheaper as well as cleaner.
The SEEM / Southeast region
“Rather than establishing a more robust wholesale market that creates a platform for integrating and developing clean energy, SEEM’s bilateral transactions are likely to prolong the uncompetitive fossil generation that’s owned by the utilities,” said Bryn Baker, policy director for the Renewable Energy Buyers Alliance, which represents large corporate energy buyers, including Amazon, Google and Walmart.
According to an independent analysis from these groups, a much broader market reform initiative could save the Southeast hundreds of billions of dollars per year over the next 20 years, much more than the $100 million to $150 million that an analysis sponsored by SEEM backers projects it could save over the next two decades. Broader reform could also spur far more clean energy development than the region’s biggest utilities are now planning for.
At the same time, SEEM could allow utility members to bolster the profitability of fossil-fueled power plants that might otherwise face pressure from cheaper and cleaner alternatives, Baker said.
One big reason for this fear is the nature of the market-clearing algorithm that SEEM proposes. RTO and ISO energy markets are aimed at dispatching power plants on a “least-cost” basis, with the cheapest sources of power winning over those that are more expensive, which is why energy markets are credited with lowering power prices.
According to Maia Hutt, an attorney for the Southern Environmental Law Center, the SEEM algorithm would allow utilities to set their own bidding costs for power, without a clear and transparent way to assess whether they’re based on the actual cost of the generation they’re bidding for.
“In theory, the bids should reflect the bidder’s cost of generation, but that's not always true and the relationship between generation costs and the bids submitted could be warped through market manipulation,” she said in an email.
The fact that SEEM participants can pick and choose which counterparties they accept bids from further weakens the market’s ability to choose the least-cost generation available, Hutt said. A so-called “toggle” function would allow a SEEM member to exclude potential trading partners, even if those partners have the lowest-cost power available at the time. Buyers could also craft bids in ways that could exclude smaller generators that can’t fill the entirety of a bid, even if they have lower-cost power that could fill part of it, she said.
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These features distinguish SEEM’s proposal from the energy imbalance markets that have extended real-time energy trading across large parts of the U.S. West, the other major region of the country that lacks wholesale energy market structures.
A new report from clean energy trade groups SEIA, American Clean Power Association and the American Council on Renewable Energy (ACORE) notes that these energy imbalance markets, as extensions of existing RTOs and ISOs, include “centralized clearing prices, a transparent stakeholder process and an independent market monitor,” all features that SEEM lacks at present.
The lack of an independent market monitor — a standard feature of RTOs and ISOs — is another sticking point for SEEM opponents. While SEEM utilities have proposed sharing market information with FERC on a weekly basis and setting up an independent auditor position to examine complaints, critics say those steps aren’t a substitute for an independent office tasked with policing market operations.
Another feature of RTOs the SEEM proposal lacks is an “open access transmission tariff,” a set of rules that regulate how multiple parties share the transmission grid capacity that connects generators to where they’re delivering electricity.
A key feature of an open access transmission tariff is securing “non-discriminatory” access for all market participants to transmission owned by one utility. But as the American Council on Renewable Energy wrote in its recent paper, “There is no language in the SEEM filing that proposes to alter existing balancing practices or provide open transmission access to independent power producers.
That puts Tennessee Valley Authority, Southern Co. and Duke, the three utilities that own most of the region’s transmission capacity, in the position of dictating many aspects of how their transmission is used.