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PGE asks to sidestep public bidding to build 68,000 acre Oregon wind farm

Ratepayer advocates and independent power producers are skeptical of Portland General Electric’s rush to develop a huge wind farm in Eastern Oregon – and its request to waive the competitive bidding normally required for a resource acquisition of that size.

PGE signed an agreement earlier this month to purchase development rights on the proposed Rock Creek wind farm near Arlington from Renewable Energy Systems Americas Inc.

Preliminary plans – RES is still seeking permits for the project – call for installing wind turbines with a production capacity of 400 to 550 megawatts over an area of 68,000 acres. A project of that scope could surpass the output and cost of PGE’s recently completed $1 billion Biglow Canyon wind farm near Wasco in Sherman County.

PGE still needs a big chunk of additional renewable energy sources to meet state green power mandates. The utility expects to meet 9 percent of its customers demand with renewable power in 2010, but needs to bump that up to 15 percent by 2015 and 25 percent by 2025 to meet the state renewable energy standard.

Rock Creek, the utility maintains, is a unique and fleeting opportunity because the best wind sites in the gorge are disappearing fast, many to serve California’s massive demand for renewable power. Jim Lobdell, a PGE vice president in charge of resource acquisition, said the prices the utility is discussing with RES are better than it has seen in recent, unsolicited bids from independent wind farm developers. Consquently, PGE wants to act quickly, avoiding a lengthy bidding process.

“This is a time limited opportunity and given the attractive economics of the project and the sellers desire to conclude the transaction soon, if PGE does not acquire the development assets for this project, it is highly likely that another buyer will purchase them,” the utility said in a regulatory filing earlier this month.

Utilities are required to put any resource acquisition greater than 100 megawatts, and with a duration of more than five years, out for competitive bidding, although regulators can make exceptions. The rule is designed to mitigate utilities built-in incentive to develop their own projects. Utilities earn a rate of return on their shareholders invested capital, while the cost of power purchased from a third party developer is simply a dollar-for-dollar pass-through to ratepayers.

“The rule is in place to make sure there’s not any kind of self dealing,” said Melinda Davison, a lawyer for the Industrial Customers of Northwest Utilities. “It should be a rare circumstance that the competitive bidding is waived.”

PGE ran a bidding process for 120 megawatts of renewable power in 2007 and 2008, but it didn’t act on any of the bids it received because it said the national financial crisis led to market upheaval, with uncertain financing and changing terms from developers.

Robert Kahn, executive director of the Northwest & Intermountain Power Producers Coalition, claims that a through investigation comparing wind farms owned and developed by utilities, versus those owned by independent power producers, would show independent developers bringing projects to market cheaper.

“We are paid to perform,” he said. “We only make money when we’re generating electricity, while a utility is paid based on their capital assets invested. We live and die by competition; they don’t.”

“They’re putting shareholder value in front of every other consideration,” he said of PGE’s request to waive competitive bidding. “Needless to say, we’re skeptical.”

Bob Jenks, executive director of the Citizen’s Utility Board of Oregon, said he wants PGE to be nimble enough to respond to good deals, and that the waiver is appropriate if the utility can demonstrate that. But he said an accelerated bidding process is still a possibility.

Jenks is also concerned whether PGE has the financial wherewithal to build a such a large wind farm while pursuing other projects, including a transmission line it has proposed across the Cascades and the possible need for replacement generation if it goes ahead with an early shutdown of its coal-fired power plant near Boardman.

Utility regulators will make a decision by mid-December. PGE’s preliminary agreement to acquire development rights on Rock Creek expires at the end of the year.