Dive Brief:

• Federal regulators sent Southeast utilities back to the drawing board last week on their proposal to develop a centralized energy exchange market. 

• The Federal Energy Regulatory Commission told Duke Energy, Southern Company, Dominion Energy and other utilities in the region that their proposal to create a Southeast Energy Exchange Market (SEEM) was "deficient" and needs significantly more details in order for regulators to determine what kind of impact it might have on the region. Specifically, the commission asked utilities to clarify how exactly the proposal will improve existing energy transactions in the Southeast, and for greater transparency in how the market changes will work.

• FERC's response follows a number of comments from the renewables industry and others who were concerned that the proposal might not increase competition in the region, but rather might increase monopoly utilities' hold on the power market. It also comes in the context of broader concerns about whether the utilities' proposal included broad enough stakeholder support, and whether it could undermine efforts to increase competition in the Southeast.

Dive Insight:

Utilities have said SEEM would provide $40 million to $50 million annually in benefits to customers and grid operators in the near-term, and $100 million to $150 million annually in later years as more solar and other variable energy resources are added, citing an analysis from Guidehouse and Charles River Associates.

In its May 4 directive, FERC asked the utilities to detail how the proposal would save customers money, and how exactly pricing will be determined. It also asks the utilities to clarify how the proposal might impact their existing market power in the Southeast and for more specifics on what the governance structure might look like, echoing many of the concerns raised by the renewables industry.

"It's a detailed set of questions," said Jeff Dennis, managing director and general counsel at Advanced Energy Economy, one of the intervenors in the case. "It's going to require the utilities to really provide a lot of detail to the commission on price transparency and how this thing won't result in the extension of market power in the region ... Utilities are going to have to explain how this is going to enhance market activities beyond the status quo."

Further, Dennis said, the commission's response shows they won't accept the utilities proposal "at face value … The utilities are going to have to demonstrate the value here."

For AEE and clean energy industry groups including the Solar Energy Industries Association, the Advanced Energy Buyers Group and the Renewable Energy Buyers Alliance, who filed comments as a coalition, the big question remains as to whether this proposal is a "stepping stone" toward more competition or whether it will "retrench" the status quo of the region.

Regional stakeholders were skeptical about the SEEM proposal from its onset, in part because of the "behind the scenes" nature of its development, according to Gudrun Thompson, a senior attorney with the Southern Environmental Law Center.

The plan was developed in the midst of broad stakeholder conversations in North Carolina examining, among other things, potential wholesale market reform in the region. 

"Halfway through the stakeholder process, ... you started seeing media reports about this potential Southeast energy market," Thompson said. "And frankly, a lot of stakeholders were pretty alarmed to learn that Duke had been in these negotiations that they hadn't disclosed to the larger stakeholder group."

The stakeholder group ultimately recommended the North Carolina legislature direct the state utilities commission to conduct a study on the benefits and costs of creating a regional transmission organization within North and South Carolina, joining an existing RTO, or forming some other structure. The final stakeholder report describes SEEM as a "more modest" reform, compared to forming an RTO or joining an existing one.

The utilities behind the proposal, including the Tennessee Valley Authority, Santee Cooper, Duke, Dominion, Southern and others, argued in their own comments that stakeholder concerns go beyond the scope of what the coalition is actually proposing.

"Looking only to some of the protests as guideposts, one might think the Southeast EEM Members had filed a very different proposal," utilities wrote. "The lengthiest protests in particular attempt to shoehorn arguments and issues into this proceeding that are irrelevant to the Southeast EEM Filings."

They define the proposal as a "centralized, automated, intra-hour energy exchange" which seeks to lower customer costs by more efficiently using existing transmission capacity. The proposal is really only offering "two small but significant enhancements" to the existing Southeast market's bilateral construct, they say. The plan would make unused transmission capacity available on an intra-hour basis, and automate some of the transaction process.

The utilities said they are "eager to provide additional details so FERC can use all that information to inform their decision."

"While we had hoped to bring SEEM's benefits – which are many — to customers as soon as possible, we respect the Commission's interest in learning more," said Todd Terrell, spokesperson for Southern Company and the SEEM proposal broadly, in an email. A response to the commission's letter must be filed within 45 days.