Colorado commission rejects Black Hills wind project

Citing some issues with the bid results, the Colorado Public Utilities Commission on Oct. 16 issued a rejection of an application from Black Hills/Colorado Electric Utility Co. LP for approval of the results from a wind solicitation from earlier this year for up to 30 MW of capacity.

According to the company’s bid evaluation report submitted on Aug. 2, Black Hills initially received bids from only two developers, the unnamed Bidder A and also the affiliated Bidder B. Bidder A submitted two bids offering 31.5 MW of new wind facilities, one in the form of a 25-year power purchase agreement (PPA) and the other as a build-transfer option. Bidder B, a Black Hills non-regulated affiliate, submitted one bid for 29.25 MW and an alternative bid offering more than 30 MW of new wind facilities.

Due to the limited response to the RFP, Black Hills re-opened the bidding process. As a result of the second round of bidding, Black Hills received additional bids and determined that five bids were compliant with the RFP and therefore eligible for further evaluation. Two bids were from Bidder A, including a PPA and an ownership proposal; two bids were from Bidder B including a PPA and a build-transfer option; and one bid from Bidder C (which did not participate in the first round).

In the bid evaluation report, the company identified the PPA bid from Bidder B as the winning bid with the lowest net present value of revenue requirements and the highest score in the company’s non-economic analysis of the bids. Black Hills further indicated that the bid from Black Hills IPP would result in $1.46m worth of customer savings over the 20-year term of the contract while helping move Black Hills closer to complying with the state renewable energy standard (RES).

“Black Hills bears the burden of proof, by a preponderance of the evidence, that its choice of the Bidder B PPA is the most cost effective bid of the five considered in the second round of bidding,” the commission said in the decision, which was made at the commission’s Oct. 9 meeting and officially issued on Oct. 16. “However, too many questions remain regarding the Company’s bid evaluation to determine that the project is likely to produce cost savings for customers. For example, it appears that much of the projected $1.5 million of savings derives from a forecast for natural gas prices that we will not endorse at this time based on the criticisms raised by certain parties here, but which will be addressed more fully in Black Hills’ [Electric Resource Plan] ERP proceeding. There are also unanswered questions surrounding the costs to deliver and integrate the wind on Black Hills’ system.”

The commission said it is also concerned that the Bidder B PPA failed to meet Black Hills’ own test for net economic benefits over the first ten years of the contract.

“In sum, Black Hills has not met its burden of proof that entering into a PPA with Bidder B is a cost effective resource acquisition,” the commission wrote. “We therefore deny approval to Black Hills to enter into a PPA with Bidder B, because the Company’s projected savings from entering into the contract are both speculative and limited.”

Commission says it can’t act right now to approve Bidder A

Given the potential significance of the federal production tax credit (PTC), which can currently only go to projects that begin construction by the end of this year, the commission said it understands why certain parties have urged it to authorize Black Hills to enter into a PPA with Bidder A.

“Because the Bidder A PPA would produce more eligible energy for Black Hills to use for RES compliance from essentially the same sized project, it may be the case that the Bidder A PPA could provide wind energy to Black Hills at a reasonable cost and rate impact,” the commission added. “We are also uncomfortable with the prospect of Black Hills failing to take advantage of the federal PTC to the benefit of its customers. We therefore encourage Black Hills to explore entering into a PPA with Bidder A.”

The commission noted that it is unable to grant Black Hills a presumption of prudence to enter into a PPA with Bidder A based on the record of this proceeding. “We simply do not have enough information on the viability of the bid,” it added. “In addition, we intend to explore the reasonableness of Black Hills acquiring wind resource for RES compliance purposes, as well as the proper treatment of bids with respect to firm transmission and regulation service requirements, in Proceeding No. 13A-0445E.”

The clock on a 20-day deadline to file applications for rehearing, reargument, or reconsideration of this decision begins on the first day following the effective date of the decision.

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.