Colorado consumer counsel criticizes Black Hills wind RFP

The Colorado Office of Consumer Counsel (OCC) in a Sept. 6 final report was sharply critical of how Black Hills/Colorado Electric Utility Co. LP conducted its 2013 Request for Proposals (RFP) for 30 MW of wind power.

The Colorado Public Utilities Commission and the parties selected Accion Group to serve as the Independent Evaluator (IE) for the 2013 RRP. The IE submitted its report on Aug. 13 and the Sept. 6 OCC comments were on that report.

The OCC in prior testimony cited many problems with the Black Hills solicitation in its testimony. These include the small 30 MW size of the bid, the initial $10,000 bid fee, and the stated preference for an existing large generator interconnection agreement (LGIA). The OCC also said that Black Hills  failed to initially explain its net economic benefits charge, proposed to use a 10-year evaluation period, and then ignored this when the bid from the Black Hills affiliate didn’t meet the requirement.

“The result was that some bidders believed that the RFP was rigged to be won by a Black Hills affiliate,” said the Sept. 6 OCC report. “The IE acknowledged this on page 29, ‘There exists a perception on the part of some that the result of the RFP was predetermined, and the Affiliate would be deemed the winner.’ The result was a low response – initially only two bidders submitted, but on the second round a total of three bidders participated. It is therefore surprising that the IE gave the Black Hills RFP a glowing recommendation. The IE report on p. 28 states, ‘We believe 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. We are satisfied that Black Hills adhered to the established RFP protocols and consistently demonstrated its commitment to a fair and objective process.’ There is not even a hint of qualification in the IE overall conclusion. This is surprising given that the IE report provides three pages of reported problems with the RFP. Our only explanation is that the problems started prior to the IE’s entry into the process.”

It appears that Black Hills decided on the 30 MW size, the $10,000 bid fee, the LGIA preference, and the net economic benefits test prior to IE’s involvement. The IE appears to be saying that once all those “bad decisions” had been made, that Black Hills RFP was run fairly, the OCC said.

“The IE hints at the same frustration that everyone has: that Black Hills limited the RFP to 30 MW instead of taking the maximum amount of capacity that it could in order to take advantage of the Production Tax Credit (PTC) before it expires at the end of 2013 and before the 1.25 times multiplier for Renewable Energy Credits (RECs) for wind expires on January 1, 2015 pursuant to Senate Bill 252,” the OCC wrote. “The IE’s evaluation appears to be focused on modeling and analysis of the bids and not of the issues that lead to the perception of a rigged bid, the poor response, the high costs of bids and the low number of RECs obtained.”

Page 16 of the IE’s Report states, “Given Black Hill’s projected shortage of RECs, it is expected that additional renewable procurement will need to take place in the near future. With the expiration of the Federal PTC program, future bids may be substantially higher than bids that reflect the receipt of the PTC.”

This means that it appears that the current 30 MW RFP will provide only sufficient RECs to meet Black Hills RES requirement through 2015 with banking and the 1.25 multiplier, the OCC noted. As the IE hints, Black Hills will likely not meet its 2016 RES requirement. Thus, Black Hills may be setting itself up for another 30 MW solicitation in a couple of years. “If Black Hills does issue another 30 MW solicitation, it is likely to have a similar response and problems as this RFP,” the OCC said.

The OCC said that one problem is that a commission rule sharply limits it access to the IE by saying that no party to the case can directly initiate contact with the IE. Therefore the OCC was not allowed to email or phone the IE to raise and discuss problems and concerns or to suggest that the IE investigate certain aspects of the RFP.

“On the two occasions that the OCC met with the IE in person (meetings were initiated by the IE), the IE appeared to welcome comments from the OCC,” the OCC said. “But once the IE left the room, the OCC was not allowed to email or phone the IE with comments. The OCC would have more confidence in the IE’s independence, analysis and conclusions if the OCC had been able to work with the IE throughout the bid evaluation. To the contrary, Black Hill was not restricted from initiating contact with the IE and therefore the IE was only able to get the perspective of the utility. The OCC recommends that in the future, the OCC have full access to the IE.”

Black Hills says it choice of an affiliate as the winner was appropriate

Black Hills in a Sept. 3 brief filed at the 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 OCC and Colorado Independent Energy Association (CIEA) regarding the IE 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.

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.

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.