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NRG Seeks To "Eliminate" New Jersey Basic Generation Service, Auction Customers To Retail Suppliers

May 20, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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In a New Jersey BPU proceeding addressing resource adequacy and potential changes to the default Basic Generation Service (BGS), NRG Energy proposed, "a reform plan for BGS, where a transition to a fully competitive retail market occurs, accompanied by higher customer-protection and clean-energy standards than presently exist."

NRG said in its comments, "Competitive retail markets also ensure resource adequacy. A truly competitive retail market imposes a significant incentive on TPSs [third party suppliers] to cover the positions they are contractually obligated to serve, or that they expect to serve in the future given expectations of their market share. In ERCOT, for example, only 10-20% of total energy volumes transacted in the market were unhedged by a bilateral contract. In other words, a well-designed retail marketplace will lead to voluntary bilateral agreements that ultimately fulfill a resource adequacy function that presently is left to the PJM capacity market and the BGS. This creates a virtuous cycle for renewable development, as many of those hedges take the form of renewable PPAs, like the ones NRG has entered." NRG said that, in 2019, NRG entered into power purchase agreements with an average tenure of 10 years for 1.6 GW of solar generation in ERCOT, "to satisfy the growing demand for renewable resources from its retail customers in that market."

NRG said that the BPU should, "1) eliminate BGS, 2) remove the utilities from the role of providing supply service, 3) open the New Jersey market fully to retail competition, and 4) provide New Jersey customers with full access to innovative energy options, including renewable resources that the competitive retail market can deliver."

NRG noted that, "When the legislature adopted EDECA it provided the Board with broad authority not only to determine how BGS should be structured, but it also permitted the Board to eliminate BGS should the Board find it 'to be no longer necessary or in the public interest.' Moreover, the Board has the authority to determine whether to allow TPSs to provide BGS service on a competitive basis. Such authority enables the Board to pursue a transition to a fully competitive retail market."

NRG proposed the following high-level steps for its proposal:

• Within one year of issuing an order to transition to a fully competitive retail market, the Board or its agent would hold a competitive transition auction in each utility service territory. Similar to the BGS auctions, where qualified wholesale providers make offers to serve tranches of demand of a single utility, this would be a multi-party auction where TPSs make offers for tranches of utility customers. In this auction, TPSs would bid to inherit the responsibility of making wholesale supply arrangements and to bill and supply tranches of customers on a retail basis. The Board would establish the rules and procedures of the auction.

• Licensed TPSs in good standing would submit applications to the BPU to be a qualified participant in the auction. The BPU would set sufficient customer service and credit qualifications, likely stricter than those that exist for the present set of TPSs. Qualified participants would compete to provide for an initial period of the transition a fixed-price, term-limited (e.g., 12 or 24-month) product. TPSs would be obligated to sell this product to the tranche of customers they won; however, customers would unilaterally possess the right to terminate or cancel early, switching to another provider that offered more attractive terms, a higher quality product, or for any other reason the customer chose.

• The auction would not be winner-take-all but have provisions to ensure no TPS had a market concentration greater than a certain percentage to ensure the ongoing competitiveness of the retail marketplace (e.g., a ceiling of 25% market share per TPS in a utility territory would guarantee at least four TPSs, as opposed to the single BGS utility).

• Winning TPS offerors would be required to comply with the existing RPS, as TPSs presently do, or to meet possibly a higher level of compliance or be required to commit to supplemental actions (such as by buying a number of RGGI allowances sufficient to cover a certain part of the portfolio, assuming a system average emissions rate).

• TPSs electing to participate in the assignment process would be required to pay certain fees and provide consolidated billing services and would be required to follow all billing and collections rules as set forth by the BPU that currently apply to BGS, including the rules governing the management of bad debt. They also could be required to fund an educational program designed to inform customers of the competitive market for electricity.

• After the initial period of the auction, the market would transition to be fully competitive, with no regulatory obligation on any TPS to serve customers. However, the Board would conduct a process to select one or more qualifying TPSs to provide a Provider of Last Resort service at a non-discountable price, which would be available to any customer whose TPS defaulted and exited the market, or who was otherwise without a TPS. Otherwise, all customers would select a TPS for electricity service, just as they select broadband, cellular, and cable service providers today.

• All TPSs after the initial period would be on an equal regulatory footing, with each having to comply with a clean energy standard, customer protection provisions, and resource adequacy requirements that the Board may impose.

NRG also proposed that New Jersey adopt a 100% clean energy standard implemented through a Forward Clean Energy Market, a mechanism previously proposed by NRG and detailed in our prior story here. In brief, the Forward Clean Energy Market would be a new forward, centrally cleared clean energy obligation imposed on competitive retail electric suppliers and other LSEs

NRG offered a Forward Clean Energy Market (FCEM), conducted prior to PJM's base residual capacity auction, as an alternative to the Fixed Resource Requirement under consideration in New Jersey. NRG proposed that payments under the Forward Clean Energy Market not be defined as state subsidies, to avoid triggering the PJM capacity market MOPR

NRG said that a resource's receipt of payments under the Forward Clean Energy Market would allow such resource to bid a lower price into RPM

"Conceptually, an owner of CEACs [clean energy attribute credits] or a developer of a new project that would create CEACs would make a supply offer of CEACs into FCEM three years in advance of their delivery. If their offer cleared the market, they would then be able to participate in the forward capacity auction at a lower economic offer than otherwise they would," NRG noted

With respect to the FRR, NRG said, "There is no compelling reason for New Jersey’s utilities to utilize an FRR alternative and the various negative consequences of electing such an option."

Docket No. EO20030203

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