Commissioner Allison Clements Statement
March 24, 2022
Docket Nos. ER21-1115-003, et.al.
At its heart, this case is about a simple question. May a group of transmission owners join together as a member group to render transmission service to each other on preferential terms, while only providing that same service to non-members if (1) the member group approves the non-member’s access, and (2) the non-member agrees to a set of rules that offer it inferior rights and protections? The clear answer is no. The Federal Power Act (FPA) does not permit services to be rendered in this discriminatory manner, nor does it permit such a barrier to open access. The transmission service at issue here, known as Non-Firm Energy Exchange Transmission Service (NFEETS), must be openly offered, without unduly discriminatory terms, conditions, and rights available only to preferred customers.
To justify their conclusion that a group of transmission providers may restrict their service and offer it on discriminatory terms, the majority engages in a confusing path of circuitous logic—first finding, based on no discernible principle, that the service arrangement at issue is not a loose power pool, and next finding that because it is not a loose power pool, the Members’ decision to provide themselves with preferential rights is not directly prohibited by existing regulations. Yet nothing in the order confronts the basic question at the heart of the dispute: Are the terms of service for NFEETS set forth in the proposed Open Access Transmission Tariffs (OATTs) unduly discriminatory? And if not, why not?
The majority avoids this question because the answer is inescapable. As I explained at length in my dissent to the underlying order in this case and my Fair Rates Act (FRA) Statement concerning the Southeast Energy Exchange Market (Southeast EEM or SEEM) proposal,[1] the SEEM arrangement discriminates against non-Members and therefore erects an unlawful barrier to open access. Each OATT at issue in this order enshrines the Southeast EEM agreement and provides SEEM Members with preferential rights concerning the provision of NFEETS.
There are numerous flaws in the majority’s reasoning that render the Commission’s approval of the OATTs at issue deficient, and this dissent does not attempt to detail them all. Rather, I emphasize two points: First, the majority’s characterization that NFEETS is not provided via a loose power pool is arbitrary and capricious, contrary to Order Nos. 888 and 888-A, and at odds with the FPA’s bar on undue discrimination. The majority’s suggestion that transmission owners may discriminate in offering lowest priority service has no basis in Order Nos. 888 and 888-A, or in the FPA. Second, the rehearing requests’ persuasive arguments that the OATTs at issue erect impermissible barriers to open access stand largely unrebutted. The majority principally contends that barriers to accessing NFEETS are necessary to the operational provision of the service. But this logic presumes that the filing parties are entitled to provide NFEETS, even if they do so in a manner contrary to open access. They hold no such entitlement. Order No. 888’s insistence on open access is a basic floor that all transmission service must meet.
NFEETS is provided through a loose power pool. The majority’s determination to the contrary is arbitrary and capricious, and inconsistent with Order Nos. 888 and 888-A, and the FPA.
As the majority acknowledges, Order No. 888-A defines a “loose power pool” as: “any multi-lateral arrangement, other than a tight power pool or a holding company arrangement, that explicitly or implicitly contains discounted and/or special transmission arrangements, that is, rates, terms, or conditions.”[2] Loose power pools must “allow open membership,” “make the transmission service in the loose pool agreement available to others[,]” and must not establish “rates, terms or conditions of transmission service that favor members over non-members ….”[3] Through this definition and requirements, Order Nos. 888 and 888-A ensure that “a selective group” of public utilities cannot “discriminatorily exclude[] others from becoming a member” so as to provide each other with “preferential intra-pool transmission rights and rates.”[4]
The structure of Order No. 888’s definition of loose power pools ensures that it captures all efforts by public utilities to join together to provide one another access to preferential transmission service, and thereby ensures that membership and governance for such service is not unduly discriminatory. “Discounted” service suggests cases where the members have access to service priced lower than the same or similar service available elsewhere. “Special” service, on the other hand, suggests service that is distinctive or unique. Common sense thus leads to the conclusion that “special transmission arrangements” are agreements to provide a distinctive service unique to the pool. Here, NFEETS is a “special transmission arrangement” because it is only offered to SEEM participants and is a distinct service that is not otherwise available.[5]
The common-sense conclusion that NFEETS is a special transmission arrangement is also consistent with the broader structure and purpose of Order No. 888. By requiring arrangements for either “discounted” or “special” services to conform to certain rules, Order No. 888 ensures that member groups cannot provide themselves with preferential rights over transmission service.[6] If the service at issue is not unique or distinct (i.e., is otherwise available outside the pool) and is not discounted, then preferential terms and conditions for membership in a pool that provides that service would not pose a problem because non-members could obtain the same service outside of the pool at the same price.[7]
In a sharp divergence from the natural meaning of “special,” the majority states that NFEETS is not a “special transmission service arrangement” because it provides “the lowest-priority transmission service, cannot be used to satisfy reliability obligations of Southeast EEM Participants, and does not replace existing transmission service.”[8] The majority provides no reasonable explanation for why these criteria render the service arrangement at issue non-special or otherwise disqualify it from being a loose power pool, much less a reasonable explanation of how Order No. 888-A could possibly define “special transmission arrangements” in a manner that is the very opposite of the words’ natural meanings and that runs contrary to the order’s purpose of preventing undue discrimination.[9] Ironically, the characteristics the majority cites are some of the very features that make NFEETS distinctive (i.e., special). Indeed, the Commission’s underlying order asserts that because NFEETS does not replace “other non-firm services, it cannot be a discount of any non-firm transmission service[,]”[10] thereby suggesting that NFEETS is distinctive and unique (i.e. special). The closest the majority comes to providing a reason for its determination is its suggestion that special “connote[s] something favorable.”[11] Yet this only proves the point further that NFEETS is special. While NFEETS is lowest priority service, it is provided at zero cost. Having access to such a service is clearly favorable.
Nor does the majority offer any reasons why concerns of undue discrimination would not apply to transmission service simply because it is “the lowest-priority transmission service, cannot be used to satisfy reliability obligations of Southeast EEM Participants, and does not replace existing transmission service.”[12] Order No. 888’s requirements for loose power pools ultimately flow from the FPA’s requirement that rates and terms of service must be just and reasonable and not unduly discriminatory.
Even if, for some unexplainable reason, NFEETS does not constitute a “special transmission arrangement,” the majority offers no reason why the underlying logic of the membership and governance requirements of Order No. 888 would not equally apply to the case at hand. The majority has not cited anything in Order No. 888 suggesting that the characteristics of NFEETS should provide a free pass for discrimination and control by a preferential member group. Nothing in Order No. 888 or the FPA suggests that transmission providers may discriminate in mutually arranging for lowest priority service, services that are not used to satisfy reliability obligations, or services that do not replace other existing transmission services.
Today’s order uses its interpretation of “special transmission arrangement” as the basis to conclude that Commission and judicial precedent concerning the Mid-Atlantic Power Pool (MAPP) “is inapposite.”[13] Yet nothing about the MAPP decisions suggests that their precedential value should be limited to pooling arrangements,[14] and Order No. 888 was concerned with expanding the Commission’s open access principles, not narrowing them.[15] Further, the majority fails to provide an affirmative reason as to how discriminatory membership and governance provisions are permitted by the FPA and do not constitute undue discrimination.[16] The burden is on the filers to demonstrate that what they have put forward is just and reasonable and not unduly discriminatory, meaning that such an affirmative showing is compulsory. Simply stating that the filing is not directly precluded by existing precedent is not sufficient to meet this burden.
Section 205 of the FPA places a burden on filing parties to not only demonstrate that “rates and charges made” are “just and reasonable and not unduly discriminatory,” but also to demonstrate that “rules and regulations affecting or pertaining to such rates or charges” are likewise just and reasonable and not unduly discriminatory.[17] The order states that “all participants in the Southeast EEM—including Members and non-Members alike—will be able to access NFEETS on the same terms and conditions….”[18] But this simply is not true. As the Clean Energy Coalition identifies, SEEM Members alone have “operational control of the complex and important market platform that allocates [NFEETS],” and have “unique auditing and oversight abilities not shared with other Participants.”[19] The majority gives no explanation as to how these plainly discriminatory differences in the terms on which NFEETS is provided do not constitute “terms and conditions” of service, or otherwise constitute “rules and regulations affecting or pertaining to” NFEETS rates and charges.[20] Because filing parties have failed to affirmatively demonstrate how these terms and conditions are just and reasonable and not unduly discriminatory, they have failed to carry their burden under section 205 of the FPA.
The OATTs at issue erect barriers to open access in violation of Order No. 888
Whether or not SEEM is in fact a loose power pool, the terms enshrined in the OATTs at issue here violate Order No. 888’s requirement for open access.[21] The majority dismisses the concerns articulated in the rehearing requests that the OATTs impose impermissible barriers to accessing NFEETS, namely: (1) participants must control a source or be contractually obligated to serve a sink within the relevant service territories; (2) execute a Participation Agreement with the SEEM Agent at the direction of the Operating Committee comprised of SEEM Members, and (3) execute Enabling Agreements with at least three eligible counterparties in the SEEM footprint.[22] But as I previously stated, “it is difficult to surmise a more direct and problematic barrier to open access than granting a subset of market participants veto power over whether others may access a market platform that allocates transmission service.”[23]
The principal thrust of the majority’s rebuttal to these concerns appears to be that the SEEM participation requirements are “necessary from an operational perspective,” or necessary to “address[] concerns regarding the potential for market manipulation ….”[24] These justifications ring hollow. Nothing in Order No. 888 or the FPA permits open access to be denied because the filing utility has designed a new transmission service for which barriers to its competitors are necessary from an operational perspective. Further, while the majority appears to suggest that such restrictions are the only means by which the proposed Tariff could facilitate participation while addressing the potential for market manipulation, it ignores that other markets are able to operate with far more participants without these sorts of discriminatory measures.[25] The barriers to participation, and failure to develop non-discriminatory means of addressing the issues they intend to solve, are market design decisions made by the filing parties.[26] Such design choices are prohibited by the FPA.
And while operational and manipulation concerns are the majority’s inadequate justification for the source/sink and Enabling Agreement requirements, it has offered no justification for the barrier to open access posed by the Participation Agreement requirement.[27] Under the proposed tariffs, NFEETS is only granted to prospective participants that obtain a countersigned Participation Agreement from the SEEM Agent, who reports to SEEM Operating Committee which is selected exclusively by the SEEM Members.[28] The majority declares in conclusory fashion that they have not “shift[ed] the burden of proof from Filing Parties to protestors.”[29] In the face of this express barrier to open access, however, it is difficult to describe in any other way their insistence on smoking gun evidence that the SEEM Members have express plans to block market access for a competitor or otherwise utilize the leverage they have expressly chosen to give themselves over all prospective SEEM participants.
The majority also states in conclusory fashion that their dismissal of Public Interest Organizations (PIOs)’ well-founded concerns “does not create an ‘impossibly high standard,’” but they offer no explanation for how PIOs could possibly demonstrate, before the provision of NFEETS even commences, that the SEEM Members have in fact utilized their leverage in directing the SEEM Agent to sign (or refrain from signing) a Participation Agreement, thereby denying NFEETS under the proposed OATTs.[30] In evaluating MAPP participation criteria, the Commission previously stated “[a] finding of discrimination in the terms of an agreement without its actual implementation has not previously nor will it now prevent the Commission from remedying such discrimination.”[31] Those same words apply equally today to the barrier to open access enshrined in the OATTs at issue here: a finding that discriminatory terms for the provision of NFEETS have in fact been implemented is not a necessary predicate to deny the relevant OATTs’ proposals for restricted service pursuant to FPA section 205.
The majority also continues to suggest that the Participant Agreement requirement’s blatant barrier to access is permissible because the Commission can simply trust that SEEM Members will refrain from either denying market access or exercising their leverage over prospective market participants.[32] Contrary to the majority order, the evidence regarding Members’ economic incentives to block competitors from accessing NFEETS remains unrebutted. While the majority notes that Filing Parties currently trade with counterparties and have asserted that their purpose in developing SEEM is to “maximiz[e] the number of potential bilateral transactions[,]”[33] this amounts to a description of a counter-incentive, not a rebuttal of the core concern that exercising leverage over competitors stands to increase SEEM Member shareholder profits.[34] Nothing has been offered to suggest that those economic incentives are not present. As explained previously in my dissent, there is nothing inconsistent about Members having both an economic incentive to execute certain participation and enabling agreements while simultaneously having an economic incentive to use access decisions as leverage, or to block access to key competitors.[35]
Regulations such as Order No. 888’s express prohibition on barriers to open access are necessary because “one cannot simply assume that monopoly utilities will act in the best interest of their retail customers.”[36] Whatever one might speculate about whether or how the Filing Parties may or may not exercise the leverage they have given themselves in the relevant OATTs, the OATTs’ barriers to accessing NFEETS violate this prohibition.
Conclusion
As I explained in my FRA Statement, I am an ardent supporter of electric markets when they are used to meaningfully harness competition and ensure better outcomes for customers, including through reduced costs and reliability benefits.[37] Nevertheless, I deeply disagree with the majority’s decision, which I fear puts a camel’s nose of discrimination under FERC’s tent, threatening to despoil the principles this Commission has long held dear. Whatever the potential market benefits of SEEM, the means by which utilities transition towards such a market cannot be permitted to undermine the bedrock principle of ensuring open access to non-discriminatory rates and service.
Today’s order blesses an arrangement that runs contrary to fundamental principles enshrined in Order No. 888 and which flow from the FPA: transmission services must be open, accessible, and provided without undue discrimination.
For these reasons, I respectfully dissent.
[1] See Duke Energy Progress, LLC, 177 FERC ¶ 61,080 (2021) (November 2021 Order) (Clements, Comm’r, dissenting) (Clements Dissent November 2021 Order) (attaching and incorporating by reference as Appendix A Clements dissent in Alabama Power Co., Docket No. ER21-1111-002, Statement of Comm’r Clements, October 20, 2021 (Clements Dissent November 2021 Order, 177 FERC ¶ 61,080 at App. A (FRA Statement)).
[2] Majority Order at P 20 (quoting Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048, at 30,241 (1997) (cross-referenced at 78 FERC ¶ 61,220).
[3] Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 at 30,241-42.
[4] Majority Order at P 28 (quoting Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036, at 31,726 (1996) (cross-referenced at 75 FERC ¶ 61,080).
[5] To the extent that NFEETS is interpreted as not providing a distinct, special transmission service because it is similar to other non-firm service, then it would qualify under the “discounted” prong of the loose power pool definition because it is offered for free.
[6] Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 at 30,241-42 (discussing primary goal of Order No. 888).
[7] That Order No. 888 intended to broadly address all cases of utilities entering into agreements to provide each other with preferential service is further supported by the regulations issued via Order No. 888, which require a “joint pool-wide or system-wide” OATT for every “arrangement or agreement that contains transmission rates, terms or conditions.” 18 C.F.R. § 35.28(c)(3), enacted by Order No. 888, FERC Stats. & Regs. ¶ 31,036). The majority acknowledges that this regulation requires a joint system-wide OATT in this circumstance but waives the requirement. Majority Order at P 28.
[8] Majority Order at P 21.
[9] While the majority theorizes that the Public Service Company of Colorado decision it relies upon “necessarily found that the Joint Dispatch Agreement [at issue] was not a ‘special transmission arrangement[,]’” that decision includes no discussion whatsoever regarding what constitute “special transmission arrangements.” Majority Order at P 21; see Public Service Company of Colorado, 154 FERC ¶ 61,107, at PP 84-85 (2016) (never once even mentioning the term “special transmission arrangements,” and simply assuming that the Joint Dispatch Agreement at issue did not constitute a loose power pool). Doubling down on this lack of reasoning, as the majority does, is arbitrary and capricious. See Amerijet Int’l v. Pistole, 753 F.3d 1343, 1350 (D.C. Cir. 2014) (A “fundamental requirement of administrative law is that an agency set forth its reasons for decision . . . . [C]onclusory statements will not do; an agency’s statement must be one of reasoning.”) (citations omitted; emphasis in original).
[10] November 2021 Order, 177 FERC ¶ 61,080 at P 64 n.110. Today’s order creatively reinterprets the underlying order as suggesting that the fact that NFEETS service does not substitute for non-firm service is instead (or also) relevant to whether the service is “special,” but does not provide any rational explanation for this conclusion.
[11] Majority Order at P 21.
[12] Id. (quoting November 2021 Order, 177 FERC ¶ 61,080 at
P 64).
[13] Id. P 22.
[14] See, e.g. MAPP, 58 FPC 2622 (1977) (rejecting proposed restrictive membership criteria and ordering them to be modified, where membership criteria conferred advantages and negatively impacted parties denied membership), petition for rev. den. Cent. Iowa Power Coop., 606 F.2d 1156, 1171 (1979) (“We are satisfied that the Commission, in modifying the membership provisions, reached a reasoned decision based on substantial evidence.”).
[15] Order No. 888, FERC Stats. & Regs. ¶ 31,036.
[16] The majority concludes that several challenges are out of scope, including challenges to membership and governance structure, as well as challenges to the application of the Mobile-Sierra public interest presumptions, reasoning that this case is limited to the “OATT amendments, which incorporated NFEETS[.]” Majority Order at P 22. But these OATT amendments incorporate NFEETS, which provides service only for transactions carried out and governed by the Southeast EEM Agreement. In these dockets, for the first time, these utilities (Duke Energy Progress LLC, Duke Energy Carolinas LLC, Louisville Gas and Electric Company, Alabama Power Company, Georgia Power Company, Mississippi Power Company, and Dominion Energy South Carolina, Inc.) now include these discriminatory governance provisions in their respective OATTs. To approve them, the Commission must conclude that they are just and reasonable and not unduly discriminatory, which in turn requires determinations on governance and Mobile-Sierra. That the rehearing arguments concerning the Southeast EEM Agreement itself were rejected as untimely does not absolve the Commission of the duty to consider the justness and reasonableness of the OATT amendments in this case. Id. P 21 n.65 (citing Ala. Power Co., 177 FERC ¶ 61,178 (2021)). In particular, the governance issues remain squarely within the scope of this order given Order No. 888’s requirements for loose power pools. Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 at 30,241-42.
[17] See 16 U.S.C. § 824d.
[18] Majority Order at P 23.
[19] Clean Energy Coalition Request for Rehearing at 14 (quoting Clements Dissent November 2021 Order, 177 FERC ¶ 61,080 at App. A (FRA Statement) P 33). SEEM Members’ preferential rights include the exclusive ability to sit on the SEEM Membership Board, which has sole authority to address “all Significant Matters”, including the hiring and firing of the SEEM Agent, Administrator, and Auditor; to appoint the Operating Committee that supervises the day-to-day operation of the SEEM system; and to direct the Auditor to perform auditing function, including whether to investigate further any complaints received from a Participant. As Order No. 888-A explains, the Commission “consider[s] any rates, terms or conditions of transmission service that favor members over non-members to be unduly discriminatory and preferential, whether embodied explicitly or implicitly in a loose pooling agreement.” Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 at 30,242.
[20] In contending that waiver of 18 C.F.R. § 35.28(c)(3) is appropriate, the majority suggests that individual OATTs are permissible because the Commission can employ “an equally effective measure to protect against . . . undue discrimination,” by insisting that “each individual OATT contains the same rates, terms, and conditions for providing NFEETS ….” Majority Order at P 28. But as the majority appears to concede, a joint OATT would bar preferential rights and rates that discriminate in favor of the parties signing onto the joint OATT. This concern is not addressed by “each individual OATT contain[ing] the same rates, terms, and conditions for providing NFEETS” where those conditions are unduly discriminatory. The majority’s conclusion that “there would be no practical difference between a joint system wide OATT and the identical NFEETS provisions that each Participating Transmission Provider has filed” is also flawed. Majority Order at P 28 n. 85 (citing November 2021 Order, 177 FERC ¶ 61,080 at P 73). As the Clean Energy Coalition echoes from my dissent to that order, “one clear difference” between individual OATT filings at issue here and a joint OATT is that “a joint OATT would have to either include or not include Tennessee Valley Authority (TVA), requiring TVA to choose whether to voluntarily join into an OATT that they are not required to file themselves, or else refrain from joining the SEEM and experiencing its benefits.” Clean Energy Coalition Request for Rehearing at 11-12 (quoting Clements Dissent November 2021 Order, 177 FERC ¶ 61,080 at P 22.
[21] Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,635, 31,651-53.
[22] Public Interest Organizations Request for Rehearing at 6-10; Clean Energy Coalition Request for Rehearing at 13, 14 (Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,635, 31,651-53).
[23] Clements Dissent November 2021 Order, 177 FERC ¶ 61,080 at P 4.
[24] Majority Order at P 23. Notably, while the operational and market manipulation concerns are responses to the source/sink and Enabling Agreement requirements, respectively, the majority does not appear to cite any justification for the Participation Agreement requirement.
[25] See, e.g. Cal. Indep. Sys. Operator Corp., 147 FERC ¶ 61,231 (2014); Sw. Power Pool, Inc., 173 FERC ¶ 61,267 (2020).
[26] See FRA Statement at P 24 (“Permitting transmission providers to evade open access requirements via their own market design choices . . . would fundamentally undermine open access.”).
[27] The underlying order states that “it is not uncommon to require execution of an agreement like the Participant Agreement for voluntary structures like the Southeast EEM,” without examining whether previously-approved structures allow the filing utilities to grant themselves total discretion over whether to sign such agreements, or whether such discretion is permissible under the FPA. November 2021 Order, 177 FERC ¶ 61,080 at P 69.
[28] See Alabama Power Company/Market Based Rate Tariff, Rate Schedule No. 1011, Southeast EEM Agreement, § 5 Operating Committee membership (0.0.3). Furthermore, except for one narrow exception, Southeast EEM Membership is exclusive to load serving entities. See Id. § 3.2.1.
[29] Majority Order at P 27.
[30] Id.
[31] MAPP, 58 FPC 2622, 2623 (1977).
[32] Majority Order at P 23.
[33] Id.
[34] Further, a statement by the Filing Parties about their own intentions in forming SEEM is extremely thin evidence of this counterincentive, considering the many reasons that may have caused the Filing Parties to create SEEM, and their express choice to give themselves discretion to allow or deny market access for competitors.
[35] Clements Dissent November 2021 Order, 177 FERC ¶ 61,080 at App. A (FRA Statement) P 17.
[36] Id. P 5.
[37] Id. App. A (FRA Statement) P 2.