For the past two years, states, advanced energy developers, and corporate buyers of clean energy have expressed interest in creating competitive wholesale electricity markets in the Southeast. They see these markets as potentially reducing consumer costs and facilitating the cost-effective achievement of state and corporate clean energy goals. As calls in the region to study the creation of competitive wholesale market mechanisms in the region steadily grew, surprising news leaked in July that several utilities in the Southeast, including Southern Co., Duke Energy, and the Tennessee Valley Authority, were talking about a new platform for power trading called the Southeast Energy Exchange Market (SEEM), culminating in a filing with FERC in February. The question now: is SEEM a step toward wholesale market competition and greater access to advanced energy in the region, or a preemptive strike by the region’s utilities to avoid true competition?
The Southeast stands apart from the rest of the nation for its lack of any kind of regional competitive wholesale electricity market independent of incumbent vertically integrated utilities. Two-thirds of electricity consumers in the United States live in a region with organized competitive wholesale power markets operated by a Regional Transmission Organization or Independent System Operator (RTO/ISO), while much of the West is is now part of the California Independent System Operator’s more limited Energy Imbalance Market (CAISO EIM). RTOs/ISOs operate day-ahead and real-time (every five minutes) markets for the purchase and sale of wholesale electricity among multiple entities, independently administer access to the transmission system across multiple utility systems at a single rate, and allow for sharing of generation reserves and reliability services on a regional (as opposed to utility-by-utility) basis. The CAISO EIM operates a real-time market across CAISO and several utilities in the Western Interconnection, allowing them to share generation resources to resolve imbalances between supply and demand on a five-minute basis.
By contrast, the Southeast largely retains the decades-old vertically integrated utility model, with each utility separately operating its own generating resources and transmission system. While these utilities are interconnected and there is limited trading of wholesale electricity between them, they each continue to rely almost exclusively on their own generation resources to meet customer needs. Under this structure, third-party advanced energy generators face hurdles to contracting with customers and to accessing transmission capacity and liquid day-ahead and real-time energy markets to deliver and sell their energy. As a result, there is little competition in the generation and supply of wholesale power.
SEEM does not propose to upend this existing model. Instead, the sponsoring utilities – which cover most of the Southeast and parts of the Midwest not already in an RTO/ISO – say it will establish a new platform to provide for trading of wholesale power supplies in 15-minute intervals.
The proposed SEEM platform would match bids to sell and offers to buy energy among the participating utilities, which would submit those bids on a voluntary basis when they have available generation or potential need for additional supply. SEEM would match bids to sell and offers to buy and consummate transactions through an algorithm that, according to the sponsoring utilities, determines when such transactions will “maximize” total benefit for the trading interval in question. The algorithm would, according to the filing, calculate prices based on a “split the savings” approach; under this approach, a $20/megawatt-hour bid and a $10/megwatt-hour offer would settle at $15/megwatt-hour (minus a discount for the cost of energy lost during transmission). SEEM relies on a new transmission service that utilizes unused capacity; the purchaser must secure new service from each individual utility between the generation source and its load. There would be no charge for this transmission service, but it has the lowest priority and will be curtailed first in the event of congestion on the transmission system.
With few non-utility generators able to operate in the region today and no clear path for them to join SEEM, the end result of the process is this: if no utility is offering excess generation, no utility is seeking additional generation, and no transmission capacity is sitting idle, no deal – and no savings for customers, even if in a competitive market such opportunities would be revealed.
That this approach to power trading would serve utility interests above all should come as no surprise. As described in the filing, SEEM would be governed by a board that consists solely of the member utilities. That board appoints a SEEM Agent, who acts as signatory for the members and appoints a SEEM Administrator to run day-to-day operations. A SEEM Auditor would conduct periodic audits of market rules.
To be clear: SEEM is not an RTO/ISO, nor is it analogous to the CAISO EIM (and its sponsors do not argue that it is). In fact, SEEM bears few similarities to other structural options for wholesale energy markets, and takes only very small competitive steps away from the vertically integrated status quo.
While SEEM bears some similarity to a power pool in the sense that it allows for greater sharing of generation resources among the participants (analogous to a “loose” power pool under FERC regulations), it does not provide for coordinated generation planning that allows for lower reserve margins and reduced costs. In addition, while SEEM provides for 15-minute trading of wholesale electricity on a voluntary basis, it does not resolve all imbalances in the region through a five-minute real-time market or utilize dedicated transmission capacity like the CAISO EIM, which has produced over $1 billion in benefits since it was created. In short, as a step toward true wholesale market competition in the Southeast, SEEM barely seems to ante up.
On March 15, AEE led a coalition of industry groups in asking FERC to carefully examine the SEEM proposal, and to separately launch a broader examination of the future of wholesale electricity markets in the Southeast. The coalition included AEE, the Advanced Energy Buyers Group, the Renewable Energy Buyers Alliance, and the Solar Energy Industries Association. Together, the coalition supports the development of competitive wholesale market options in the Southeast and beyond.
In its FERC filing, the coalition explains that the SEEM proposal falls far short of the competitive market options that are ultimately needed to reduce consumer costs and put the region on a market-based path to decarbonization; it also lacks sufficient detail on many important issues for either FERC or customers and stakeholders to determine whether it represents a first step toward competition. The groups also express concern that many of these missing details could have significant cost, transparency, and market implications for customers and stakeholders, and could end up moving the region away from the competitive options that states and consumers increasingly seek.
Specifically, AEE and the coalition asked FERC to closely examine, and require the sponsoring utilities to provide additional information on, several aspects of the SEEM proposal, including:
- Whether the proposed governance of SEEM, including the utility-only membership board, will ensure that the SEEM platform is independently administered, that there are no discriminatory barriers to membership, and that impacted stakeholders (including non-utility wholesale power sellers, customers, public interest groups, state commissions, and other state officials) can have meaningful input into market design and operation.
- Whether there will be sufficient transparency regarding SEEM market activity and appropriate auditing, independent market monitoring, and market power mitigation tools in place to allow all potential sellers to fairly participate and prevent the exercise of market power by incumbents with already large market shares. Unlike other wholesale market constructs like an RTO/ISO or the CAISO EIM, SEEM as proposed includes no independent market monitoring or market power mitigation.
- Whether the benefits claimed by the SEEM proponents have been supported with evidence, and shown to outweigh the costs, risks, and potential downsides of the construct.
In addition, AEE and the coalition also asked that FERC, regardless of how it rules on the SEEM proposal, convene a technical conference with state leaders and customers to explore future competitive wholesale market development in the Southeast. Evidence is mounting that establishing competitive wholesale market structures in the region would resolve long-standing barriers to the development and purchase of advanced energy in the region, save customers money, and reduce carbon emissions. One recent study found that a competitive wholesale market in the form of an RTO could yield as much as $384 billion in consumer savings by 2040, reducing retail costs by 23%, and reduce emissions by 37% compared to 2018 levels (without any additional policies or mandates). Another study found that taking the less extensive step of forming an energy imbalance market would itself produce benefits of $100 million to $600 million annually in Duke Energy’s territory alone, more than double the projected annual region-wide benefits of SEEM.
Seeing these potential benefits, Southeastern states are exploring ways to bring competition to the region’s wholesale markets. North Carolina policymakers recently engaged in a lengthy collaborative process that, among other things, initiated study of wholesale market reforms and designs that would support that state’s 2019 Clean Energy Plan. In South Carolina, the legislature passed and the Governor signed Act No. 187 of 2020, which creates an Electricity Market Reform Measures Study Committee tasked with (among other things) assessing the benefits to South Carolina customers of establishing or joining a broader regional wholesale market such as an RTO or energy imbalance market.
The technical conference requested by AEE and other members of the coalition would establish a forum for dialogue between leaders in these and other Southeast states regarding the goals that states and their customers seek to achieve through wholesale electricity market reforms. Such a dialogue is especially important in light of the fact that state regulators and policymakers were not consulted on the design of SEEM or its objectives, and thus have not had an opportunity for any meaningful regional dialogue with customers, independent advanced energy developers, utilities, or other stakeholders about SEEM and other options to bring true competitive reforms to the Southeast wholesale electricity markets. This dialogue – and not the utilities’ self-serving proposal for a closed-shop market – is long overdue.
Click below to download "Organized Wholesale Markets and Corporate Advanced Energy Procurement," a report by the Advanced Energy Buyers Group.