How not to award a contract to run an alternative energy program

Not alternative energy: Bituminous coal

Earlier this month, Pennsylvania’s Public Utility Commission (PUC) decided to give Clean Power Markets – part of Georgia company Comverge – another three years administrating the state’s alternative energy credits (AEC) program.

This is a program in which generators of alternative energy can sell credits to utilities for every megawatt-hour of power they sell, which provides them an added incentive (on top of the income for the power itself) to generate their electricity from alternative sources, rather than, say, coal, oil, gas or nuclear sources.

Utilities must buy enough of these credits to meet their annual targets to supply alternative energy in Pennsylvania each year (rising to 18% by 2021).

One of the main jobs that Clean Power Markets is supposed to do, as administrator, is to verify that the electricity generators selling “alternative” power and picking up the extra incentives (as paid for by utility ratepayers) are actually generating “alternative” power.

Because you shouldn’t get an incentive for alternative energy, ultimately paid for by utility ratepayers, if you aren’t producing alternative energy.

Clean Power Markets administrated the AEC program from March 2007, some three years after the scheme began.

This month, the Pennsylvania Public Utility Commission decided to renew the contract for another three years, with the option of two one-year extensions.

One of the four commissioners voted against the $2.7 million deal.

Reading the opinion of the dissenting commissioner, Commission vice chairman Tyrone J Christy, you can just about work out why he did not support the new contract.

But why three other commissioners did support it – that is a little harder to fathom.

“Alternative” alternative energy

It appears that up until August 2009, projects in Pennsylvania that are apparently registered to sell alternative energy credits included:

23 plants, totaling 1,589MW capacity, using “bituminous coal” as their fuel source (not alternative energy under Pennsylvania’s system).
8 plants, totaling at least 3,092MW, using natural gas as their fuel source (again, not alternative energy).
8 plants, totaling 928.1MW whose fuel sources were listed in the registry as “unknown”.
2 facilities, totaling 297.8MW whose fuel sources were listed as “partially unknown”
1 landfill gas generating project listed with a 193MW capacity (most landfill gas projects are less than 20MW, the largest landfill gas plants in the world are around 50MW).

Now to be fair to Clean Power Markets, it did inherit a bit of a tangle in the 200 facilities registered with the state’s Department of Environmental Protection.

But accidentally overlooking more than five gigawatts of generating capacity – the equivalent of five nuclear power stations, or 1,600 of the largest onshore wind turbines available – is a little tricky to explain.

And, it took two years for the company do start looking into the registry, apparently because CPM “does not have sufficient contact information for many of them”.

“This work could be done at a cost to the Commission of approximately $1.0 million for five years” - Commissioner Tyrone Christy

Only last month, three years after taking over the program, did CPM issue a questionnaire seeking to update the registry.

Then, Commissioner Christy points out that much of this inaccurate information on the state’s alternative energy program has been kept in a section of its website that can only be accessed by CPM.

The Commission has access to this part of the website, but was only informed about the existence of the “regulator only read” part of the website two weeks before the new contract was awarded, when the Commission asked for information regarding the reawarding of the contract.

So far, so transparent. Why was the information not made public? Because nobody asked them to. Lovely.

“Not overly complex”

According to Commissioner Christy, two employees could probably run the AEC program on their own. “It is not overly complex,” he states.

“Assuming each employee’s annual salary and benefit package was $100,000, this work could be done at a cost to the Commission of approximately $1.0 million for five years, or roughly 35% of the cost of the CPM contract.”

Which all must mean there was a pretty good reason to hand the contract back to Clean Power Markets, rather than perhaps do the work in-house.

Over to Commission Wayne E Gardner, who voted to re-award the contract.

“The issues raised by my colleague with regard to the winning contractor stem from what was admittedly a lack of clear direction and processes in the first Alternative Energy Credit Program contract,” he says.

“As we enter into negotiations of the terms of the instant contract, we now have six years of real-time experience which will allow us to better craft detailed and comprehensive contract terms that will specify what is expected of the Program Administrator.”

So they didn’t do a great job, but we didn’t ask them to do a great job – now we know how to ask them to do a great job.

Good work, Commissioner Gardner, good work. Now watch this drive.