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14 Southeast utilities ask FERC to approve new energy exchange market


New market could not sell capacity

Aim is to improve existing bilateral market

  • Author
  • Glen Boshart    S&P Global Market Intelligence
  • Editor
  • Agamoni Ghosh
  • Commodity
  • Electric Power

New York — In a series of Feb. 12 filings, a large group of utilities led by the Southern Co. asked the Federal Energy Regulatory Commission to approve a new energy exchange market spanning parts of 10 Southeast US states.

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Unlike more sophisticated, centralized energy markets run by regional transmission organizations and independent system operators, the proposed Southeast energy exchange market is aimed at enhancing the existing bilateral market in the Southeast by making it more efficient.

At the core of the new energy-only market — it will not be used to sell capacity — is an automated trading platform designed to facilitate sub-hourly, bilateral transactions by matching trading partners that will utilize unused transmission capacity to achieve cost savings throughout the region.

The 14 founding members include most of the major utilities in the region, such as subsidiaries of Southern and Duke Energy, as well as the Tennessee Valley Authority. Several municipal utilities and electric cooperatives have also signed up, while five additional entities are actively pursuing membership, according to the filings (ER21-1111, et al.).

The founding entities collectively own approximately 160 GW of generating capacity and serve about 640 TWh of energy for load across 10 Balancing Authority Areas and two time zones.

Under the plan, the trading platform's algorithm would match bids and offers voluntarily submitted by participants for 15-minute intervals and price matched transactions on a "split-the-savings" basis. Split-the-savings pricing means that the transaction price would reflect the midpoint between the seller's offer price and the buyer's bid price, with an adjustment for losses.

In submitting the proposed SEEM agreement on behalf of the participants, Southern explained that current wholesale transactions in the region also occur bilaterally but the process is decentralized. As such, they require the parties to first "discover one another, negotiate the terms of the sale, arrange and pay for transmission service across all utilized transmission systems, and schedule the delivery of energy."

'Transactional friction'

All those steps however, are taking place using "traditional" methods of communication, even at times still by phone, creating "transactional friction."

Moreover, while intra-hour trading and trading with distant entities are possible, both are rare due to that friction and the added costs of transmitting power to distant potential counterparties. According to Southern, the result is some economic energy goes unpurchased and available transmission never gets used.

In contrast, Southern said the SEEM "will allow for shorter-term, intra-hour, transactions and greater flexibility through an automated matching system." And by providing a platform that uses the information input by buyers and sellers, the SEEM will expand the universe of potential trading matchups and automatically find counterparties.

The plan is "not – and was never intended to be – a top-to-bottom reimagining of the Southeast energy market," Southern stressed. Instead, the effort is aimed at improving the existing bilateral market.

According to the participants, the new trading platform is expected to result in more than $40 million in annual cost savings, largely from fuel cost savings. Annual start-up and ongoing costs for each of the participants are expected to be about $3.1 million.

Reduce curtailments

Southern said the SEEM would help integrate diverse generation resources, including rapidly growing renewables, and reduce renewable curtailments. Under a "carbon constrained scenario" that assumed increased penetration of renewables over time, benefits are projected to rise to about $100 million annually by 2037, Southern reported.

The utility said the relative simplicity of the reforms means that they could be implemented quickly. To that end, the participants asked FERC to approve the proposed SEEM agreement and related filings within 90 days. The parties said they hope to have the new market "go live" in the first quarter of 2022.