March 29, 2018
Oregon, Wyoming

PUC staff blasts PacifiCorp over $1.5B wind power bidding process

By Pete Danko, Staff Reporter | Portland Business Journal | Mar 28, 2018 | www.bizjournals.com

PacifiCorp’s rush to add a billion and a half dollars of new wind power in Wyoming is facing a challenge – a scathing review by Oregon utility regulatory staff of a bidding process that led to projects that would be largely owned by the company.

The projects were still likely to deliver benefits to PacifiCorp customers, an independent evaluator said, but the staff said the process unfairly cut out competitors offering potentially better deals.

“The RFP process did not result in the selection of the best resources for ratepayers,” Public Utility Commission staff wrote in comments filed last week, adding, “Key decisions, especially near the end of the process, challenge the fairness and transparency necessary for a competitive RFP.”

As a result, the staff is asking commissioners to withhold acknowledgement of the shortlist. That could put at risk PacifiCorp’s plans to have 1,311 megawatts of new wind power – enough to power 450,000 homes – online before the end of 2020. That date is key because projects that go into operation afterward won’t reap the full benefit of a lucrative incentive.

“We disagree with staff’s conclusions and believe that deferring these investments – and losing at least 20 percent of the value of the federal production tax credit – is not in the best interest of customers,” PacifiCorp spokesman Bob Gravely said.

The wind projects are part of what PacifiCorp calls “Energy Vision 2020,” $3.5 billion worth of investments the six-state utility wants to make in new and refurbished wind power and transmission.

Oregon regulators, loath to turn away incentivized renewable energy, in December acknowledged PacifiCorp’s integrated resource plan that included the investments, but only after months of stewing over whether the company had adequately demonstrated a need for the new resources, and only then by a 2-1 vote.

Oregon, where the company operates as Pacific Power, is just one state where ratepayers could be asked to pay for the projects. Regulators in Utah, Wyoming and Idaho, where PacifiCorp operates as Rocky Mountain Power, are also considering the plan.

It’s not unusual for questions to be raised about the acquisition of new generating resources by investor-owned utilities, whose regulated return is based on the value of assets that regulators determine to be prudent investments. Adding to that asset base can help a utility’s bottom line, creating what’s known as a “self-build bias” over purchasing power from independent suppliers. A closely monitored competitive bidding process is intended to insure that the projects that win, whether owned by the utility or not, are the best buy for customers.

For a time, it appeared that this request for proposals by PacifiCorp, launched last October, was headed toward power purchase agreements, known as PPAs.

After an initial analysis of 59 bid options, Bates White, the “independent evaluator” hired to provide objective oversight of the PacifiCorp RFP, “believed that (a) PPA-heavy portfolio should be the top choice,” the firm wrote in a report on the process.

“When we voiced this opinion to the company they claimed that they had concerns regarding interconnection costs for some of the offers,” Bates White wrote.

The issue, according to the Bates White report made public with redactions, was PacifiCorp’s ambition to connect the wind projects to a new transmission line that was now on an “accelerated completion schedule.”

Toward the end of January – long after the bidding had closed – PacifiCorp released a fresh transmission study incorporating the new line. The company’s subsequent analysis determined that only projects high up in its interconnection queue could connect to its system without other costly transmission upgrades.

“Ultimately, only two bidders outside of PacifiCorp would now be capable of participating in this RFP because of the new interconnection issue,” Oregon’s PUC staff wrote, echoing what the independent evaluator had reported. The late change, the staff went on, “lacks fairness, transparency (and) subverts the RFP as a competitive process.”

PUC staff – and the independent evaluator – had additional qualms with the RFP, including how the company calculated the value of the production tax credits and the vetting of various risks, particularly of cost overruns.

Portland-based developer Avangrid Renewables, a loser in the bidding, weighed in similarly, alleging PacifiCorp had essentially – and erroneously – based qualification for the RFP on interconnection queue position, among other issues.

The group Industrial Customers of Northwest Utilities said the RFP “was riddled with errors and questionable modeling assumptions and, ultimately, proved to be fundamentally unfair to third-party bidders.” On the issue of the interconnection queue, it said “bidders had the rug pulled out from under them at the last minute when they learned that the company’s changes to its transmission planning eliminated their bids before they were even prepared.”

Still, Bates White, assessing the results in the context of what the new transmission study dictated, ultimately recommended that the PUC acknowledge PacifCorp’s shortlist.

“The bids do represent the top viable offers and are projected to provide net benefits,” the independent evaluator wrote.

Even that endorsement came with additional recommendations to protect ratepayers, however – but PUC staff said the commission has already indicated it would be unlikely to apply such conditions at this point.

“Therefore, if the commission does not accept the Bates White conditions, it calls (Bates White’s) ultimate recommendation for acknowledgement into question,” the staff wrote.

PacifiCorp said it will respond formally in a filing due by Friday. In an email, Gravely, the spokesman, focused on the forecast results of the wind projects.

“These new wind projects will significantly expand the amount of clean energy serving PacifiCorp’s customers, and will do so cost-effectively,” he said. “With the results of the RFP, the overall benefits of these projects exceed what was included in our acknowledged Integrated Resource Plan.”

The commission is scheduled to deliberate acknowledgement of the shortlist in a public meeting on April 30.

• Cedar Springs – 400 MW project. Half will be owned PacifiCorp, while the other half will sell power to the company under power purchase agreement.