Competitors complain about Portland General Electric bids



PORTLAND — Contrary to popular belief, electric utilities don’t make their money selling power. They do that, of course. But their profits come from building and buying power plants and transmission lines, then earning a regulated profit after convincing regulators the money was prudently invested.

On the building front, Portland General Electric is doing very well indeed of late. Oregon’s largest utility just wrapped up a two-year bidding process to choose suppliers for its biggest acquisition of new resources in decades. The scope of the investment plan is breathtaking: three power plants, three years, $1.3 billion, plus more to come on transmission. That’s a 40 percent addition to its regulated assets, all built simultaneously.

To bankroll the expansion, PGE is issuing stock. It will add hundreds of millions in debt. And its 830,000 customers can expect rate hikes every year for the foreseeable future.

And the winner is?

Dozens of companies offered bids, including long-term contracts to sell power, build new plants, or serve as PGE’s contractor. PGE offered self-build proposals at two of its existing sites.

On June 3, when final results were unveiled, PGE chief executive James Piro applauded his company’s rigorous process and said he was confident “we selected the least-cost, lowest-risk proposals for our customers.”

As it turns out, the winning bidder for all three resources was PGE, or a contractor building a plant for PGE. For shareholders, it was a clean sweep of a capital investment program that should drive earnings growth for years.

Other bidders, however, were left agape. Some say their bids were cheaper, sometimes significantly so. They contend PGE used outdated information on its transmission plans that skewed bid scoring in favor of PGE’s Boardman site. Finally, they say the opaque process left them with no explanation of the results.

One competitor filed a formal request asking the Oregon Public Utility Commission to declare that some of the investments are imprudent and that PGE can’t recover the costs. Another bidder met with commissioners last week to register its own concerns.

“People are uniformly upset,” said Robert Kahn, executive director of the Northwest & Intermountain Power Producers Coalition. “They sincerely believe that they were offering projects at a fraction of the cost. There was a lot of money left on the table.”

PGE says that’s not the case and that its own sites have “very significant advantages” that drive down its total cost and risk. The company says it will offer a detailed response to the PUC filing next week, but ultimately it insists that its ratepayers got the best deal after a very rigorous and lengthy process that was vetted by the PUC.

Independent review

From the outside, it’s impossible to judge whether it’s sour grapes or self dealing. Regulators openly acknowledge utilities’ “self-build bias.” They require competitive bidding expressly so ratepayers don’t end up paying for gold-plated power plants. But the process is still closed and directed by the utilities.

PGE, for example, set up the bid requirements. It developed the scoring, reviewed the bids and chose the winners. On the other hand, an independent evaluator based in New Hampshire oversaw the process. The Accion Group’s report said it was above board, and that “PGE personnel went to great lengths to treat all bidders equally and without bias.”

In the end, the utility isn’t required to immediately share details of its decision. There’s no formal appeals process. Years will pass before outsiders weigh in on whether PGE’s choices were prudent. That happens when the power plants are complete and the utility seeks recovery of the costs in rates years later.