Black Hills comes out of hearing defending its Colorado wind RFP

Black Hills/Colorado Electric Utility Co. LP again on Sept. 16 defended its April 23 solicitation for 30 MW of wind power and the fact that it picked an affiliate to supply that power from a project located on the Busch Ranch site in Colorado.

“At its core, this case is about two issues – cost to customers and process,” said Black Hills in a post-hearing brief filed at the Colorado Public Utilities Commission. “Black Hills initiated this solicitation to obtain lower costs for its customers afforded by the benefits associated with the extension of the Production Tax Credit (PTC). This solicitation was offered to comply with the statutory Renewable Energy Standard (RES) in the most cost effective manner possible. Bidder B, Black Hills Colorado IPP, LLC (BH IPP), offered the undisputed least cost bid. Further, Accion Group, the Independent Evaluator (IE), concluded that the Company conducted the solicitation process ‘fairly and without bias to any Bidder….’ Accordingly, the Company requests that the Commission approve its proposal to enter into a Power Purchase Agreement (PPA) with Bidder B, BH IPP. This outcome best takes advantage of the PTC, aids compliance with the RES, and results in the undisputed least cost to Black Hills’ customers.”

Black Hills said it conducted a fair and unbiased solicitation. It responded to various criticisms about the solicitation, including its size (30 MW), and the fact that two other bidders didn’t have the advantage of the Busch Ranch site, which has direct access to the Black Hills transmission system.

“Notwithstanding the compliance issues stemming from Bidder A’s and Bidder C’s failure to provide regulation services as part of their respective bid packages, Black Hills worked with the IE to develop a regulation services adder for bids that did not directly connect to the Black Hills system,” the company said. “The IE Report supported the Company’s calculation of the regulation services adder to allow for side-by-side comparison of the bids. Moreover, the IE disagreed with the [Office of Consumer Counsel’s] alternative regulation services calculation based on use of the Western Area Power Administration (WAPA) regulation service tariff because: (1) it failed to include a transmission service cost and (2) ‘a review of documented current business practices of WAPA effective December 1, 2012 indicates that WAPA likely does not supply regulation service for an intermittent generator.’ As to transmission issues, the IE ultimately found ‘that the transmission portion of the bid evaluation was fair and uniformly applied for all Bidders.’”

Other parties level various criticisms of the bid process

The Interwest Energy Alliance said in its Sept. 16 post-hearing brief that Black Hills has indicated that it would commence negotiations with its affiliate (Bidder B) to acquire the 29.25 MW Rattlesnake Butte PPA for a 20-year term. Further, the company indicated it may seek to include a build transfer option.

Interwest requested that the commission “scrutinize” the bidding process and require corrections to the errors which led to the existing scenario, which have put the commission “between a rock and a hard place.” It said: “Either the Commission grants the Application, which potentially further weakens the competitive bidding environment in Colorado applicable to the Company, or it denies the Application, costing ratepayers the benefit of at least one project, if not two, which will likely benefit from the PTC and save ratepayers millions over the terms of the PPAs.”

There are several procedural issues raised by the Black Hills application, said Interwest, which should make the commission scrutinize the bidding review process:

  • the application is filed for the acquisition of resources outside of the company’s electric resource plan;
  • the application was presented on a short time frame, and for limited amounts determined by the utility rather than by the determination based on need and cost-effective variety of bids; and
  • there were very few bids, and the non-utility bids were eliminated in the review process.

The process was heavily criticized by the Office of Consumer Counsel and the Colorado Independent Energy Association, Interwest noted. The Independent Evaluator summarized comments from bidders to be that “the process was rigged” and in the end, the utility’s affiliate bid is proposed as the winner, Interwest said. Interwest asked the commission to order Black Hills to continue talks with Bidder A.

Western Resource Advocates said in its Sept. 16 brief that it also favors Bidder A, and is not opposed to affiliate Bidder B. “Permitting the Company to acquire wind resources at this time will allow the Company to take advantage of certain time-sensitive incentives, such as the PTC, while ensuring compliance with the State’s Renewable Energy Standard (RES) in a manner that is cost-effective to customers,” WRA wrote. “As such, WRA supports the acquisition of wind resources through this RFP process. WRA believes the benefits of acquiring wind at this time justify the acquisition of two 30 MW bids – the PPAs bids submitted by both Bidder A and Bidder B. WRA does not agree with the Company’s characterization of Bidder A’s PPA bid as ‘noncompliant’ or ‘disqualified.’”

The state Office of Consumer Counsel (OCC) said in its Sept. 16 brief that this application should not be approved. “The OCC is concerned that the Black Hills’ Wind RFP did not take advantage of the significant value available through current opportunities nor was it designed with a long term view towards cost-effective renewable energy standards (‘RES’) compliance,” the OCC wrote. “Rather, Black Hills’ RFP was too small to be cost effective and created a number of restrictions and preferences in both the solicitation and the evaluation that advantaged its own IPP affiliate. While the OCC recognizes that the Black Hills’ IPP affiliate was the lowest cost of the three 30-MW wind bids received, the OCC nevertheless recommends that the Commission deny the Black Hills’ Wind RFP and deny its request to acquire its affiliate’s wind resources. The infirmities in Black Hills’ RFP process raise serious questions about the validity of its outcome. The solicitation does not appear to have been designed to meet the RES in the most cost effective manner nor does it appear that it was designed to solicit competitive responses.”

Said commission trial staff in their Sept. 16 brief: “Staff recommends that the Commission deem the five (5) bids declared compliant by the Company and IA in their respective bid reports compliant; find that the cost difference between the three PPA bids are minimal; consider capacity factor and the benefits derived therefrom in the evaluation of the five (5) bids as contemplated by the Company’s RFP; and determine that the Bidder A 25-year purchase power agreement (PPA) provides the best overall customer value. If the Commission finds that only the Black Hills affiliate bid is compliant, then the RFP and Model PPA should be deemed flawed and the application should be denied in whole.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.