D.C. Circuit Rules FERC’s Approval of Southern Utilities’ Scheme is Unlawful

Last week, the D.C. Circuit agreed with a coalition of environmental organizations, clean energy advocates, consumer advocates, and clean energy trade groups by ruling that the Federal Energy Regulatory Commission (FERC) had unlawfully approved the Southeast Energy Exchange Market (SEEM). The proposal to create SEEM came from some of the largest monopoly utilities in the country, including Southern Company, Duke Energy, and Dominion Energy.

“Today the court effectively shut down SEEM and ruled that FERC had failed to justify its approval under FERC’s own Open Access Rules,” said Danielle Fidler, Earthjustice senior attorney. “SEEM was disadvantaging independent clean energy generators and privileging its utility members, creating conditions that would allow some of the nation’s largest monopoly utilities to prop up their own expensive, carbon-intensive coal and gas resources. FERC needs to uphold the law to ensure energy markets do not exclude independent, clean energy resources.”

The court ruled that FERC failed to explain how SEEM’s exclusive, free transmission service was consistent with FERC’s own Open Access Rules for transmission. First, FERC did not justify SEEM’s exclusion of participants outside the SEEM footprint, including numerous existing trading partners. Second, FERC did not sufficiently explain its decision that SEEM was not governed by open access and open membership rules for power pools. Due to those errors, the court invalidated FERC’s approval of these transmission service provisions.

The court also revived other challenges to the SEEM proposal that FERC had rejected based on a statutory deadline. The court held that FERC had misinterpreted that deadline and directed it to address the merits of those claims in further proceedings.

“This decision shows that nobody, not even the country’s most powerful monopoly utilities, are above the law,” said Maia Hutt, SELC staff attorney. “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. This decision is a significant victory for independent clean energy producers, bill-paying families, and the environment of the Southeast.”

“A clean, affordable grid requires fair rules and proper opportunities for diverse resources to come online,” said Caroline Reiser, NRDC senior staff attorney. “The monopolistic platform introduced by SEEM and its governing utilities biases against renewables, inflates costs, and needlessly keeps cheap energy offline that customers in the south desperately need. A diverse grid is a reliable grid, and we need fair market rules to make that a reality. FERC needs to reject this program and ensure clean energy generators have a fair shot.”

The proceeding returns to FERC for further review in light of the Court’s decision. One FERC commissioner seat is vacant, and Commissioner Danly’s term comes to an end in January. This and many other decisions critical to accelerating the transition to lower cost, clean energy resources and ensuring a reliable and climate-resilient grid depend on FERC. FERC drives investment, shapes planning, and determines how quickly the U.S. transitions to clean energy — or how much longer we rely on climate-changing fossil fuels.

Background

Energy equity advocates, conservation groups, and renewable energy resources and trade groups from the Southeast challenged the proposal by several Southern utilities to create the so called Southeast Energy Exchange Market, a proposal which disadvantage independent power producers by providing member utilities with free transmission and lucrative trades while allowing these utilities to exclude independent producers from participating on equal terms.

This coalition asked that FERC reject the proposal for failing to comply with bedrock market design requirements that ensure a level playing field for all energy resources. The organizations urged FERC to critically evaluate SEEM to ensure that it did not benefit monopoly utilities at the cost of communities and the environment in the South. They also asked FERC to schedule a technical conference to consider the benefits of wholesale market reform in the South.

In May and August 2021, FERC told the SEEM utilities that their proposal was deficient because it did not contain sufficient information. FERC staff requested additional information on price impacts, market power, transparency, and independent oversight. These deficiency letters, along with significant critiques from advocates, prompted the utilities to make several minor improvements to proposed market transparency but left in place provisions that privileged member utilities and permitted exclusion of independent competitors.

In October 2021, FERC failed to reach a consensus on the proposed energy trading platform, resulting in the proposal taking effect by default according to federal law. In November 2021, FERC approved revisions to the utilities’ transmission tariffs that implemented free transmission service exclusively for SEEM transactions.

The organizations sought rehearing of these actions at FERC; when that failed, the organizations petitioned for review in the D.C. Circuit.

Earthjustice represents NRDC in partnership with the Southern Environmental Law Center, which represents Energy Alabama, Sierra Club, North Carolina Sustainable Energy Association, South Carolina Coastal Conservation League, Southern Alliance for Clean Energy, Southface Energy Institute, Inc., Vote Solar, Georgia Interfaith Power and Light, and Partnership for Southern Equity. Advanced Energy United, Solar Energy Industries Association, and Clean Energy Buyers Alliance represented themselves.