United States

United States

Utility suspends process because of manipulative bidding

The BRPU process (see main story) has had a bumpy ride. The first phase of bid selections is far from over yet following accusations that some have tried to manipulate the system. The main delay is being caused by Southern California Edison (SCE) which, in a startling move, did not give a preliminary ranking to projects, but instead suspended its bidding process. SCE said it was halting it largely because a wind company used unusual pricing in numerous bids submitted to the utility. SCE in total received 490 MW in wind bids alone.

Some describe SCE's action as an attempt to challenge the BRPU process. Other utilities in the past have tried to derail it (Windpower Monthly, May 1993). But SCE denies it is trying to torpedo the Final Standard Offer No 4 Solicitation and says it is just objecting to abuse of the process. And the Independent Energy Producers describe SCE's action as "proper."

It has not been made public which wind bidders are the sources of what SCE calls "clever" bidding, or even whether one or more wind developer is involved. (PG&E describes the irregular bidding it has received as having been done specifically by one wind developer). But SCE Qualifying Facility Resources Manager Don Fellows does confirm that "the majority" of irregular pricing was done by wind, although he says that hydro bidding was also involved in the entanglement. He says no technologies other than wind and hydro were involved. "It's gaming the system so that they're a winning bid, but are paid much more than they should be," he adds. He also describes the bids as "manipulating the system." SCE sent formal notification to the California Public Utilities Commission (PUC) and notified bidders on December 9 that it was suspending the process. The culprit or culprits submitted bids with what SCE called very high negative energy costs of minus $0.60-0.70/kWh, unrealistically high capacity factors of 90% to 100% and unrealistically high fixed capital costs of $5,000+/kW, says Fellows.

"It makes a mockery of those that are in the wind plant development process," adds Bill Adams of Whitewater Energy/San Gorgonio Farms, which has bids caught up in SCE's suspension. "I think that all those companies that had gamed so that prices were below the benchmark should be disqualified," he angrily comments. The benchmark is about $0.07/kWh.

Almost half of SCE's potential winning bids would have won on the basis of unconventional bidding, says the utility in a letter to the PUC. SCE is working on a report on the anomaly and was to have submitted it to the PUC within 15 working days. Officials say the strange bidding results in too large a difference between bid prices and the lowest losing price in the "second price" auction (in which a winner is paid the price of the auction's first lowest-price loser) and that contract provisions permitting the utility to dispatch the Qualifying Facilities' output economically are now moot because of unrealistic energy costs being bid.

Some industry observers describe SCE's suspension as part of a trend. "They're following PG&E's same lead in taking one last stab at challenging the BRPU process," says industry analyst Paul Gipe. "If this is a serious attempt, it's very late in the game." But Jan Smutny-Jones of Independent Power Producers says: "It was probably a proper decision." Does he think the utility is trying to derail the BRPU process? "I don't think the BRPU is de-railable," he says, although comments that SCE is using the suspension to re-visit issues it has had problems with in the past.

The same strange bidding was also received by PG&E and SDG&E, although it forms a smaller proportion of the total bids they received -- the clever bidding was apparently concentrated in submissions to SCE. Both PG&E and SDG&E, however, are raising the issue with the PUC, although they are proceeding with the solicitation, say officials.

SDG&E's Wayne Sakarias from the planning and projects division says those who bid negative energy costs to SDG&E were all wind bidders. However, one or more cogeneration bidders bid using a zero heat rate. No hydro bidders were involved. At PG&E, Dory Culver says one wind bidder used an "irregular" pricing mechanism. "He scores lowest but ends up getting paid twice as much as the benchmark cost," she says.

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