Retail Suppliers Oppose New Jersey Fixed Resource Requirement

Exelon, PSEG Propose FRR, Allocation Of Capacity Costs To Retail Suppliers

Clean Energy Group Urge Consideration Of Long-Term Contracts For BGS

May 20, 2020

Email This Story
Copyright 2010-20 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The following story is brought free of charge to readers by EC Infosystems, the exclusive EDI provider of EnergyChoiceMatters.com

Various retail suppliers filed comments with the New Jersey BPU opposing, or otherwise expressing concerns with, a Fixed Resource Requirement (FRR), while PSEG and Exelon Generation Company, LLC proposed an "Integrated FRR Procurement" to address resource adequacy and clean energy goals in light of the PJM MOPR

Retail Suppliers

Direct Energy said that it, "opposes the adoption of a Fixed Resource Requirement ('FRR') plan primarily because history has shown that FRR adoption leads to higher costs for consumers."

Direct Energy noted that it serves more than 116,000 residential and commercial customers throughout New Jersey.

However, to the extent an FRR were adopted, Direct Energy said that the rules established to implement an FRR should be done in a way that there will be no impact to the retail competitive market options consumers have today. To do this the state must ensure all consumers pay the same price and no consumer purchases more than their peak load contribution requires, Direct Energy said

Specifically, Direct Energy proposed that FRR costs should be billed as a wires charge. Direct Energy also said that transmission charges should be collected through a non-bypassable wires charge and removed from the generation (BGS or retail supplier) bill.

"To ensure equitable and level application of any adopted FRR the NJBPU should mandate that (a) FRR costs are billed via a wires side charge; (b) FRR procurement is based on no more than actual customer need and based solely on PJM’s reliability requirements; and (c) that consumers are charged based on their PLC as they are today and that such charges are by $/MW and not by $/MWh," Direct Energy said

"This places full regulatory control into the hands of the NJBPU to ensure no market manipulation, ensure consumers are charged and billed according to their actual capacity obligation and ultimately transfers what will be non-market-based Load Serving Entity charges to the non-market based utility side of the bill. In order to fully move what will now no longer be market based or market hedgeable costs, both transmission and capacity should be removed from the state’s Basic Generation Service ('BGS') auction and Third Party Supplier ('TPS') rates and collect those costs through a non-bypassable wires charge via the utility distribution bill," Direct Energy said

In separate comments, the Retail Energy Supply Association said, "RESA is concerned that the FRR alternative will likely reduce market competition and have an adverse financial impact on customers as well as TPSs [third party suppliers]."

RESA also expressed concerns with changes to the BGS process to facilitate either resource adequacy or clean energy goals

"Rather than altering the BGS construct in a way that would expand the basic services offering far beyond its intended statutory purpose, RESA members urge the Board to implement policies that stimulate the competitive electric supply market and promote clean energy and energy efficiency products and services offered by the TPSs. These policies would include the establishment of an AMI Data Stakeholder Process as it is the customer’s access to AMI data that will allow the state to meet many of the clean energy goals laid out in the EMP. AMI data would allow TPSs to tailor more specific clean energy products and services of interest to customers. Green energy municipal aggregations and the state’s community solar initiatives would also be advanced by the use of AMI data. In addition, the availability of more granular AMI data would allow renewable energy project developers to create DER hosting capacity maps," RESA said

"Furthermore, RESA has long sought the unbundling of transmission charges for both BGS and TPS suppliers through a non-bypassable charge in the utilities’ distribution rate. This change would provide customers greater price transparency and would ensure consistent collection of these charges. In addition, modifications to the BGS process to shorten the three-year procurement cycle and to place the BGS and TPS products on an equal price footing would assist both customers and retail suppliers in efforts to offer tailored clean energy products and services of interest to New Jersey customers," RESA said

In separate comments, Calpine Retail Holdings, LLC said, "Calpine Retail submits that the FRR alternative cannot coexist with a vigorous competitive retail market, in which companies like Calpine Retail, who are not looking to shift their demand-based wholesale risk onto all captive distribution rate customers of the utility, wish to continue to offer innovative products and services to customers based on their own needs and demands."

"Moving to an FRR construct presents a number of challenges that will harm the retail market and could end retail electric competition in longstanding markets that bring products and services including more efficient use of existing resources as well as renewable products and services that are under competitive forces. Should Third Party Suppliers – and by extension their customers - be required to take and pay for a 'slice of the system' from the incumbent utility or a single prescribed LSE for capacity, these costs are no longer based on a competitive market, and the customer may incur costs which include out of market rents and may be exaggerated. Furthermore, if every TPS faces the same cost curve, the opportunity to be innovative and creative in the procurement of capacity and other wholesale services and the opportunity to bring those benefits forward will be eviscerated," Calpine Retail said

Vistra Energy also expressed cost and other concerns from the FRR

Exelon-PSEG FRR Proposal

PSEG and Exelon Generation Company, LLC proposed an Integrated FRR Procurement for capacity and clean energy, with capacity costs assigned to LSEs including retail suppliers

"The design ... below would integrate the procurement of capacity with the procurement of environmental attributes, in order to standardize the State’s support for clean electricity resources and encourage competition among different types of clean resources," PSEG and Exelon Generation said

"The State would establish a limit on the all-in price it is willing to require customers to pay for capacity bundled with environmental attributes, to ensure the program remains affordable. Additionally, the offset for forecasted energy prices would protect consumers from excessive costs if energy prices are projected to rise, and prevent over-compensation if RGGI is expanded or an energy market carbon dispatch price is implemented in addition to RGGI," PSEG and Exelon Generation said

PSEG and Exelon Generation said that the FRR proposal would not inhibit retail competition

"Nor will the FRR Alternative inhibit the retail competition facilitated by EDECA. Most retail competition in New Jersey takes place with respect to energy, and not capacity. While a few third-party suppliers may self-supply capacity, the vast majority do not own or contract for their own capacity resources. Instead, PJM purchases capacity on their behalf and bills them, at the same rate, for the volume of customers that each supplier serves for each Delivery Year. Similarly, if a utility initiates an FRR plan, the supplier would pay the FRR Entity, at the same rate, for the volume of customers that each supplier serves in the FRR zone for the Delivery Year. To the extent that a third-party supplier does wish to compete with regard to its retail supply of capacity, it has the option under the PJM tariff of committing resources that it either owns or with which it has contracted to be included in the FRR Entity’s FRR Capacity Plan. And even if a third-party supplier does not avail itself of that option, but instead compensates the FRR Entity for the latter’s procurement of capacity, the third-party supplier still can decide whether to pass along in its retail charges the full amount that it pays the FRR Entity for capacity, or instead to absorb some of that cost to enhance its competitive position. Thus, the FRR Alternative is sufficiently flexible to allow for the possibility of retail competition with respect to capacity charges. EDECA’s pro-competition policy will not in fact be frustrated by the FRR Alternative," PSEG and Exelon Generation said

PSEG and Exelon Generation said that their FRR proposal would require legislation to implement

PSEG and Exelon's proposal would feature two tiers as follows

"Tier One. The FRR Entity would first attempt to fill as much of its Capacity Plan as possible with resources targeted by FERC’s new MOPR because they receive State support: offshore wind eligible for ORECs, new grid-connected solar eligible for State support programs, and nuclear resources selected to receive ZECs," PSEG and Exelon said

"These resources would compete to enter into long-term contracts with the FRR Entity to sell their capacity bundled with environmental attributes, for an all-in price set at the beginning of the contract term. Bundling capacity with attributes will ensure that New Jersey can achieve its EMP goals more efficiently than it otherwise would, as State-supported resources will be able to monetize the value of their capacity. The FRR Entity would solicit proposals for an all-in price and winning resources would be paid based on their as-bid all-in prices. Each year’s payment would be equal to the all-in price bid by the resource, less projected energy revenues, based on futures prices for energy at a liquid trading hub for that delivery year, and an allowance for average ancillary services revenues. Accordingly, customers will be protected from excessive costs if energy prices rise, for example, due to higher market prices caused by fuel cost increases, changes in market rules, or the enactment of a carbon price or expansion of RGGI," PSEG and Exelon said

"The FRR Entity would select resources as follows: In order to achieve the technology-specific goals of the EMP, while at the same time harnessing competition to reduce prices for offshore wind and new solar, the procurement would contain a carve-out for offshore wind and a carve-out for solar. Each of these carve-outs would be subject to a not-to-exceed price, recognizing that New Jersey’s preference for certain technology types must be balanced with a concern for customer affordability," PSEG and Exelon said

"Thus, the FRR Entity would first select a pre-determined quantity of capacity (consistent with the EMP) from offshore wind resources, subject to a not-to-exceed price based on recent offshore wind procurement results, escalating annually for inflation. The FRR Entity would then select a pre-determined quantity of capacity (again, consistent with the EMP) from new grid-connected solar resources, subject to a not-to-exceed price based on recent estimates of solar development costs in New Jersey, escalating annually for inflation. Finally, the FRR Entity would procure up to the remaining quantity needed for the FRR zone from either offshore wind, grid-connected solar, or the nuclear units selected to receive ZECs, subject to a still lower not-to-exceed price (escalated for inflation) to be determined," PSEG and Exelon said

"Tier 2. To the extent that the full amount of capacity needed for the FRR zone cannot be procured through the process just described, the FRR Entity would then conduct a residual procurement for one-year contracts for capacity only. Potential suppliers would include nuclear, hydro, renewable generation, and other clean technology types recognized in New Jersey’s Class I RPS program, as well as demand response and energy efficiency resources, located in EMAAC and, to the extent possible, MAAC. There are approximately 15 gigawatts of such clean capacity (not including the state-supported clean resources in Tier 1), so this residual tier should be very competitive. If for some reason the procurement is undersubscribed, the FRR Entity can open the residual procurement to gas-fired resources as well. Resources would be paid as bid," PSEG and Exelon said

"For subsequent years, the FRR Entity would then repeat this procurement process, each year attempting to attract an additional quantity of offshore wind and new grid-connected solar, consistent with EMP goals. Once the level of capacity procured for the zone under Tier 1 approaches the full zonal demand, and significant levels of Tier 2 residual capacity are no longer needed for that zone, the Board can designate an additional EDC to become an FRR Entity, thereby enabling continued growth in clean energy resources," PSEG and Exelon said

"While we recommend that the State begin reclaiming control over its clean energy future by directing an FRR arrangement for a single EDC zone, we emphasize that the arrangement benefits all of the State’s residents, and accordingly the costs should be allocated equitably to all customers in the State. For retail cost allocation purposes, the customers within the FRR zone should pay the same total capacity charge as they would have paid if their EDC had not become an FRR Entity. The balance of the Integrated FRR Procurement cost is appropriately treated as payment for the resources’ environmental attributes, which benefit the State as a whole and should properly be billed to all retail customers in the State. The other EDCs can collect those charges on their distribution bills for remittance to the FRR Entity, much as they do today for electric supply provided by third-party suppliers," PSEG and Exelon said

Specifically, PSEG and Exelon proposed that, each delivery year, the Board should calculate the total capacity charge that would have been paid by retail customers in the FRR Entity’s zone (including customers of third-party suppliers within that zone) if capacity for those customers had been procured through the RPM auction instead of the FRR procurement. That amount should be billed to load-serving entities (including BGS and third-party suppliers) in the FRR Entity’s zone.

"The remaining cost is properly socialized across all of the customers in the State as compensation for environmental attributes that benefit the state as a whole. For ease of administration, the Board should direct that the FRR Entity can recover its costs via a 'Clean Capacity' charge assessed on all retail customers in the State, which could be collected by EDCs acting as agents for the FRR Entity—similar to the manner in which the EDCs currently collect electric supply charges from customers of third-party suppliers and then remit those amounts to the third-party suppliers. To eliminate any concern regarding the balance-sheet impact on the EDC selected to be the FRR Entity that could result from carrying long-term capacity and attribute contracts, legislation should allow the EDC to securitize its cost recovery," PSEG and Exelon said

"This approach ensures that customers will pay no more for capacity than they would have paid if the capacity needed to serve the zone had been procured through the PJM market, and will allow clean resources to be procured more efficiently than if those resources were unable to monetize their capacity. Moreover, this approach is compatible with the current retail market structure in the state, including both retail competition and service provided by third-party suppliers, as well as the Basic Generation Service ('BGS') procurement auctions," PSEG and Exelon said

PSEG and Exelon said that the Board should not modify the basic generation service construct.

"New Jersey’s BGS procurement processes functions reasonably well and can accommodate the FRR Alternative with little modification. The BGS auction occurs after capacity has been procured for a given delivery year. Currently, BGS suppliers include in their bids the capacity price set by the PJM capacity auction. Under an FRR arrangement, BGS suppliers would instead include in their bids the implied capacity price paid by the FRR entity, for those zones under an FRR arrangement. That price will be known at the time of the BGS auction," PSEG and Exelon said

Clean Energy Groups

The Advanced Energy Economy ('AEE'), the American Wind Energy Association ('AWEA'), the Mid-Atlantic Renewable Energy Coalition ('MAREC') and the Solar Energy Industries Association ('SEIA') filed comments that said, with respect to the BGS, that, "One mechanism that warrants consideration is a potential change to the BGS process to include a specified portion of the load being procured via long-term contracts for clean energy resources."

"Long-term contracts will allow New Jersey to take more control with respect to resource adequacy and rely less on capacity markets. They will also provide a greater hedge on volatile energy and REC pricing," the clean energy groups said

"Right now, the function of supplying electricity and RECs to the BGS customers is filled by the BGS suppliers. However, there appears to be no legal impediment to transferring the long-term contract procurement to the EDCs. In this way the EDCs can deal directly with the multitude of clean energy providers potentially achieving lower pricing and helping to ensure a long-term supply of clean energy to meet the goals of the EMP," the clean energy groups said

Load Interests

The New Jersey Division of Rate Counsel said of the FRR, "With respect to the Fixed Resource Requirement (FRR) option at PJM, while at first glance it may appear to be a means for avoiding some of the negative impacts of recent FERC actions, Rate Counsel notes that this option likely brings with it many unwanted and expensive consequences."

With respect to the BGS auctions, the Rate Counsel said, "Rate Counsel strongly urges the Board not to attempt to transform the Basic Generation Service (BGS) auction into something it is not."

"The BGS process was expressly designed to procure resources from the competitive market to maintain stability and keep prices low for participants. The BGS process was not designed to meet New Jersey Clean Energy goals of 100% clean energy by 2050. Currently BGS suppliers are responsible for procuring RECs associated with their obligations. Changing the BGS process to meet the State’s long term goals is simply not compatible with the BGS process’s original intent," Rate Counsel said

"Rate Counsel does not recommend using the BGS construct to drive the changes needed for the State’s ambitious long-term clean energy objectives. For many years, the BGS construct has effectively provided reliable, competitively-priced electricity to New Jersey’s residential and small commercial customers," Rate Counsel said

Noting FERC has defined SOS auctions as state subsidies, Rate Counsel said, "Discussions of altering the purpose of the BGS auction to further other goals, such as the promotion of clean energy, will serve to ensure that our BGS auction is seen as a means to provide subsidies to certain favored generation resources. In fact, just the discussion alone could have the damaging effect of discouraging bidders to participate, thus diminishing competition and threatening the effectiveness of this important State program. Moreover, if we alter the purpose of the BGS auction in a manner that increases prices, customers will flee the auction for Third Party Suppliers, thus diminishing the effectiveness of the auction overall, including as a tool to promote clean energy."

Separately, the New Jersey Large Energy Users Coalition, "urges the Board not to pursue the Fixed Resource Requirement alternative, as this largely untested, uncertain and risky remedy would represent a clear case of the prescribed 'cure' being far worse than the disease."

BPU Docket No.: EO20030203

ADVERTISEMENT
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Pricing Analyst -- Houston
• NEW! -- Senior Energy Intelligence Analyst -- Energy Procurement
• NEW! -- Channel Partner Sales Manager -- Retail Supplier
• NEW! -- Energy Procurement Manager
• NEW! -- Channel Relations Manager -- Retail Supplier