Black Hills defends choice of affiliated developer in wind RFP

Black Hills/Colorado Electric Utility Co. LP in a Sept. 3 brief filed at the Colorado Public Utilities Commission defended its choice of an affiliate developer to meet its 30-MW wind project needs.

Black Hills was responding to comments filed by commission staff, the Office of Consumer Counsel (OCC), and Colorado Independent Energy Association (CIEA) regarding the Independent Evaluator’s Report in this docket.

Commission staff agreed with the economic evaluation of the IE showing Bidder B, Black Hills IPP, as having the least cost bid. Nonetheless, staff recommended that the commission order Black Hills to contract with Bidder A based on: the higher capacity factor of the generation site of Bidder A; the corresponding increase in generated renewable energy credits (RECs); the higher leveraging of the production tax credits (PTCs); the higher level of avoided carbon emissions stemming from the higher level of generation; and the purported benefits of locational diversity.

Black Hills said about the staff contentions: “To be sure, a higher capacity factor wind project produces more wind-generated energy, more RECs and more avoided carbon emissions. Assuming the estimated capacity factors are accurate, Bidder A and Bidder C’s respective locations have better wind regimes than Bidder B’s site. Staff’s Comment overlooks the fact that the economic value of the capacity factor, which is dependent on the location of the wind project, is already reflected in the valuation of the bids. … In sum, inclusion of the capacity factor as a driving factor in the evaluation process effectively double-counts the benefits that a higher capacity factor provides to Black Hills’ customers.”

Black Hills added that while the unnamed Bidder A offers a better wind resource in terms of capacity factor, it suffers from other “dispositive infirmities.” Bidder A’s bid is noncompliant with the terms of the wind request for proposals (RFP), Black Hills added. For one thing, it is not located near the Black Hills system and wind energy does not benefit Black Hills’ customers if it cannot be economically transported to the customers. Also, Black Hills said it agrees that Bidder A would produce more RECs; however, these RECs are purely theoretical if the project never gets built. The company said it questions the viability of Bidder A’s bid given its repeated failure to include regulation services in its bid. “Black Hills believes the bid of Black Hills IPP is the least cost bid and most certain to be constructed and in-service prior to January 1, 2015,” the company added.

Among the CIEA complaints is that Black Hills parent company Black Hills Corp. would not allow the winning site to be opened to projects sited by third-party bidders. “Black Hills cannot speak on behalf of its parent; however, CIEA appears to suggest that the IE or the Commission should be able to force Black Hills Corporation or any other private property owner to sell or lease its property to a third party,” said Black Hills. “Forcing an open access regime to wind, or other, power generation sites is a rather precipitous step, bringing perverse economic incentives and Takings Clause concerns. When tried, mandatory access to others’ property, networks or facilities has rarely worked well. Not only does it destroy long-term incentives for all would-be generators to prudently seek and acquire sites, CIEA’s recommendation would invite the interminable regulatory fights over use of, access to and pricing of facilities. Presumably, IPPs would not want Black Hills or Black Hills IPP to have access to their respective sites.”

Said Black Hills in conclusion: “Although this competitive solicitation was conducted on an expedited basis, the Company explicitly allowed for comments regarding the Draft RFP and the evaluation processes. No alternatives were offered. After these Comments, the IE’s Report still stands as the most definitive, complete and unbiased review of this process – and that process has yielded a winning bid, which Black Hills believes the Commission should endorse.”

While there were complaints from some wind developers, Accion Group, selected with the approval of the Public Utilities Commission to serve as the Independent Evaluator, said in an Aug. 13 final report that the RFP was fairly conducted.

Black Hills issued this RFP on April 23, soliciting proposals for up to 30 MW of wind. The company was soliciting proposals to take advantage of the extension of the production tax credits through the end of 2013 provided by the American Tax Relief Act (ATRA). Therefore, successful bidder(s) were required to be able to show sufficient progress on the project to comply with the requirements of ATRA. This RFP was open to responses by Black Hills affiliates, and was conducted exclusively on a website.

The selected Bush Ranch site, controlled by a Black Hills affiliate, is directly connected to the Black Hills transmission system. A number of bidders expressed a desire to propose new generation on that site. Some of them expressed the belief that the Black Hills affiliate was pre-determined to win, simply because the affiliate was able to bid using the Bush Ranch site.

Accion said it is unaware of any authority for the commission to require the parent corporation to permit third-party developers to construct wind generation at the Bush Ranch. “While an appearance of preferential access exists on the part of the parent corporation, the IE understands that actual control of the Bush Ranch site is not held by Black Hills,” said the Aug. 13 report. “Accordingly, while mindful of the relationship, the IE evaluated the Affiliate bid on the same basis as all other bids.”

Accion said it believes the company conducted the RFP fairly and without bias towards or against any bidder or type of generation acceptable under the terms of the 2013 Wind RFP.

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.