The R Street Institute has filed an amicus brief in the case of Advanced Energy Economy v. FERC. This is to the D.C. Circuit supporting the challenge of the Federal Energy Regulatory Commission’s approval of the Southeast Energy Exchange Market.

Read The Brief Below:

No. 22-1018

IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
ADVANCED ENERGY ECONOMY, ET AL.,

Petitioners,

v.

FEDERAL ENERGY REGULATORY

COMMISSION,

Respondent.

BRIEF FOR AMICUS CURIAE
THE R STREET INSTITUTE

On Petition for Review of a Final Order of the United States Federal Energy

Regulatory Commission

Josiah Neeley
The R Street Institute
1212 New York Ave. N.W.
Suite 900
Washington, D.C. 20005
Counsel for Amicus Curiae
* Admitted to practice in Texas

DISCLOSURE STATEMENTS

In accordance with Rule 26.1 of the Federal Rules of Appellate Procedure and
D.C. Circuit Rule 26.1, the R Street Institute makes the following disclosures:

R Street Institute is a nonprofit, nonpartisan, public policy research organization.
Our mission is to engage in policy research and outreach to promote free markets
and limited, effective government. R Street has no parent companies, subsidiaries,
or affiliates and has not issued shares or other securities to the public. No publicly
held corporation owns any stock in R Street.

STATEMENT REGARDING CONSENT TO FILE

AND SEPARATE BRIEFING

All parties have consented to the filing of this brief. Subsequent to receiving
consent to file an amicus brief in support of petitioners, R Street learned that a
separate amicus brief in support of petitioners was being prepared by the Harvard
Electricity Law Initiative. Pursuant to Circuit Rule 29(d), R Street consulted with
counsel for the Harvard Electricity Law Initiative about the possibility of doing a
joint amicus, but were unable to reach agreement about the content of a joint brief,
and ultimately concluded a single brief was impractical.

TABLE OF CONTENTS

Disclosure Statement ii
Statement Regarding Consent to File and Separate Briefing ii
Table of Contents iii
Table of Authorities iv
Statement of Interest 1
Argument 1
Conclusion 8
Certificate of Compliance 10
Certificate of Service 11

TABLE OF AUTHORITIES

CASES
Blumenthal v. FERC, 552 F.3d 875 (D.C. Cir. 2009). 6
STATUTES
16 U.S.C § 824d 1-2, 5
16 U.S.C. §§ 824j. 2

OTHER AUTHORITIES
Promoting Wholesale Competition Through Open Access Nondiscriminatory
Transmission Services by Public Utilities; Recovery of Stranded Costs by Public
Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. p
31,036, 61 Fed. Reg. 21,540 (1996) 1, 2, 3, 5, 6, 7
Jennifer Chen, “Evaluating Options for Enhancing Wholesale Competition
and Implications for the Southeastern United States,” Nicholas Institute for
Environmental Policy Solutions, March 2020 8
Jennifer Chen and Michael Bardee, “How Voluntary Electricity Trading
Can Help Efficiency in the Southeast,” R Street Policy Study, No. 201, August
2020…………………………………………………………………………………8

STATEMENT OF INTEREST OF AMICI CURIAE

The R Street Institute is a nonprofit, nonpartisan, public-policy research
organization with a mission to engage in policy research and outreach to promote
free markets and limited, effective government. R Street has a long history of
writing, research, and advocacy on electricity law and policy issues, and has
written extensively about the importance of competition in wholesale electricity
markets. No one other than the amicus curiae or its counsel paid for the preparation
of this amicus curiae brief or authored this brief, in whole or in part.

ARGUMENT

In 1996 the Federal Energy Regulatory Commission (Commission or FERC)
enacted Order 888, which sought to remove discriminatory barriers to competition
from electric transmission. Promoting Wholesale Competition Through Open
Access Nondiscriminatory Transmission Services by Public Utilities; Recovery of
Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888,
FERC Stats. & Regs. p 31,036, 61 Fed. Reg. 21,540 (1996). Order 888 was
grounded in two legislative enactments that provide the underlying foundation for
electricity regulation in the United States. First, Section 205 of the Federal Power
Act of 1934 prescribes that “[n]o public utility shall, with respect to any
transmission or sale subject to the jurisdiction of the Commission, (1) make or
grant any undue preference or advantage to any person or subject any person to
any undue prejudice or disadvantage, or (2) maintain any unreasonable difference in rates, charges, service, facilities, or in any other respect, either as between
localities or as between classes of service.” 16 U.S.C. § 824d(b). Second, in the
Energy Policy Act of 1992, Congress gave FERC new powers to order utilities to
transmit power from third party generators over the utility’s transmission lines in
order to promote competition. 16 U.S.C. §§ 824j.

In Order 888, FERC recognized that new generation entrants were being
discouraged by a lack of access to transmission services. FERC found that
potential consumer benefits could be derived from more efficient generating plants
obtaining access to regional transmission grids. The problem, however, was that
“many traditional vertically integrated utilities still did not provide open access to
third parties and still favored their own generation if and when they provided
transmission access to third parties, barriers continued to exist to cheaper, more
efficient generation sources.” 61 Fed. Reg. at 21,546. In an area with a vertically
integrated utility, the utility is at once a competitor with any independent
generators and also the sole provider of transmission services within their service
area. The utility thus has a financial incentive to deny transmission access to other
generators or provide them inferior service in order to hobble their competition in
the generation market.

To remedy this, Order No. 888 specifically required all public utilities that
own, control or operate interstate transmission facilities to file open access non-
discriminatory transmission tariffs that include minimum terms and conditions of
non-discriminatory service. Id. at 21540. Further, Order 888 makes clear that
simply filing an open access tariff by itself will not cure undue discrimination in
transmission if utilities can “continue to trade with a selective group… that
discriminatorily excludes others from becoming a member.” Id. at 21593.

The Southeast Energy Exchange Market (SEEM) is a new, multilateral
wholesale energy trading platform proposed by a select number of transmission-
owning utilities located in the Southeast United States. It was filed before FERC
on February 12, 2021. On Oct. 12, 2021, SEEM became effective by operation of
law resulting from a 2-2 deadlock at the Commission. On Nov. 8, 2021, the
Commission issued a related order approving the utilities’ proposed revisions to
their Open Access Transmission Tariffs (OATT), resulting in restricted access to a
new transmission service to entities participating in SEEM.

SEEM has several features that are relevant to its compatibility with Order
888. First, membership in SEEM is limited to utilities operating within the SEEM
territory. According to the SEEM Agreement, to be a member of SEEM, an entity
must be:
(i) a Load Serving Entity located in the Territory; (ii) an association,
Cooperative or Governmental Utility that is a Load Serving Entity located in the Territory; or (iii) an association, Cooperative or Governmental Utility
created for the purpose of providing service that includes Energy to a
Cooperative or governmental Load Serving Entity (or the Load Serving Entities
being served by an association, Cooperative or Governmental Utility) located in
the Territory.

Southeast Energy Exchange Market Agreement, III.2.1 (JA__).

SEEM is governed by a Membership Board which is made up of one
representative from each Member. Id. at IV.1.2. The Membership Board holds
substantial authority over the operation of the SEEM market, overseeing and
approving budgets, approving manuals developed by the Operating Committee,
and directing the functions of the Market Auditor. Id. at IV. There is little to no
requirement for transparency in the operation of SEEM. The SEEM Agreement
provides no requirement that its materials, minutes, or actions taken during a
Membership Board meeting be made public, with the exception of a once a year
“Stakeholders Meeting” held with only seven days’ notice. Id. at IV.4.

SEEM’s membership restrictions and governance structure are unduly
discriminatory. By requiring participants to own or control a resource in the
territory or be contractually obligated to directly serve customers in the territory,
the agreement forbids resources outside the territory with the physical capability of
providing electricity to the territory from participating and it restricts the ability of
non-physical market actors, such as traders, to participate. Many independent
power producers, who do not directly serve end-use consumers, are ineligible for membership, and thus cannot access the benefits of SEEM. This unequivocally
thwarts competition and blocks transmission access for physical and financial
third-party suppliers and eliminates market options for consumers to contract with
independent suppliers. SEEM’s closed membership model directly contradicts the
open membership model required by Order 888, which states that “membership
provision[s] must allow any bulk power market participant to join, regardless of
the type of entity, affiliation, or geographic location.” Id. at 21594.

SEEM denies “open access” to electric transmission facilities, which is the
bedrock of just and reasonable rates under the Federal Power Act. SEEM erodes
the foundational principles of open access transmission service and establishes a
system that is a market in name only, where incumbent transmission utilities have
the motive and ability to discriminate against third party suppliers and exercise
market power in a manner that raises costs to consumers, resulting in unjust and
unreasonable rates under the Federal Power Act. 16 U.S.C. § 824d(b).

In his official statement explaining his vote to approve SEEM,
Commissioner James Danly argues that SEEM is not inconsistent with the Federal
Power Act because it is “no more than an enhancement to an existing bilateral
regime which is obviously permissible under the FPA.” Statement of James P.
Danly, p. 17 (JA at _). This is incorrect. SEEM imposes certain modifications to
the existing market structures in the southeast United States that would restrict market access compared to the status quo, rendering the market unduly
discriminatory and preferential to predetermined incumbent utilities. Specifically,
SEEM’s membership restrictions, preferential market rules and lack of
independent governance are unduly discriminatory. Before FERC can approve a
market-based tariff, it must be satisfied that approval would not allow sellers to
exercise anticompetitive market power. Blumenthal v. FERC, 552 F.3d 875, 882
(D.C. Cir. 2009). In this case, the combination of preferential rule and lack of
oversight exposes consumers to exercises of market power by incumbent utilities
that increase rates above what a competitive marketplace would provide.

Under the status quo in the Southeast region, rules governing bilateral
transactions are not dictated by one party or a consortium of parties. However,
SEEM would impose rules that highly restrict membership and grant preferences to
its members over other parties. This is in direct violation of Order 888’s
requirement for open, non-discriminatory membership provisions for such
arrangements. Order 888 at 21,593 (undue discrimination occurs where utilities
can “continue to trade with a selective group… that discriminatorily excludes
others from becoming a member.”)

SEEM establishes a select group of members with exclusive transmission-
related rights. These preferential rights include SEEM members’ ability to
effectively control the SEEM agent, administrator, auditor and governance structure. SEEM permits a small sub-class of market participants to conduct
operational control and oversight for administering service across a footprint
comprised of many different transmission owners. The complexity of the
operational platform, in addition to the ability of SEEM members to determine the
auditor’s actions, would accommodate anticompetitive conduct by members. This
discriminatory structure is why open access for multilateral energy exchanges
elsewhere in the country have always been implemented by an independent agent,
administrator and auditor or market monitor.

Incumbent SEEM members have unmitigated authority over who is
permitted to enter enabling agreements to become a SEEM participant. Given the
financial motives of incumbent members to deter competition from third parties,
expected economic behavior of SEEM participants under this structure would be to
provide favorable transmission services to members while inhibiting their non-
SEEM member competitors in the generation market by providing them with
inferior transmission service. In this regard, SEEM structurally emulates a
sanctioned cartel, which directly violates Order 888 requirements. Id.

There are various market structures consistent with Order 888 that are
upgrades to the bilateral-only status quo in the Southeast. For example,
independent administration of a voluntary energy exchange with open membership
and nondiscriminatory transmission services rendered in a transparent governance framework would be an upgrade to the current bilateral market that would be
perfectly consistent with Order 888. See Jennifer Chen, “Evaluating Options for
Enhancing Wholesale Competition and Implications for the Southeastern United
States,” Nicholas Institute for Environmental Policy Solutions, March 2020. Such
initiatives to incrementally upgrade form the bilateral-only model are underway in
many western states. Jennifer Chen and Michael Bardee, “How Voluntary
Electricity Trading Can Help Efficiency in the Southeast,” R Street Policy Study,
No. 201, August 2020. SEEM does not resemble these productive,
nondiscriminatory structures. There is thus a danger that allowing SEEM to go
forward will not only lead to excessive and discriminatory rates in the southeast,
but established a roadmap for incumbent utilities to pursue a downgrade in
competition in other regions of the country. For this reason, the Commission’s
approval of SEEM was arbitrary and capricious.

CONCLUSION

For the foregoing reasons, amicus curiae asks this Court to grant the

Petition for Review, set aside FERC’s orders, and remand to FERC.

Respectfully submitted,
/s/ Josiah Neeley
Josiah Neeley
The R Street Institute 1212 New York Ave., N.W.
Suite 900
Washington, D.C. 20005
Telephone: 512.415.2012

CERTIFICATE OF COMPLIANCE

Pursuant to Fed. R. App. P. 32(g), I certify that this filing complies
with the type-volume limitations of Fed. R. App. P. 29(a)(5) & 32(a)(7)(B)
because this document contains 1,733 words, excluding the parts
exempted by Fed. R. App. P. 32(f). I further certify that this filing complies
with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type
style requirements of Fed. R. App. P. 32(a)(6) because this filing has been
prepared using a proportionally spaced typeface in Microsoft Word using
Times New Roman 14-point.

/s/ Josiah Neeley

Josiah Neeley
The R Street Institute
1212 New York Ave., N.W.
Suite 900
Washington, D.C. 20005
Telephone: 512.415.2012

CERTIFICATE OF SERVICE

I hereby certify that on September 29, 2022, I electronically filed the
foregoing with the Clerk of Court for the United States Court of Appeals for
the District of Columbia Circuit through this Court’s CM/ECF system, which
will serve a copy of the on all registered users.

/s/ Josiah Neeley

Josiah Neeley
The R Street Institute
1212 New York Ave., N.W.
Suite 900
Washington, D.C. 20005
Telephone: 512.415.2012