Friday, February 6–Utility Group Not Fond Of Power Purchase Auction

BERLIN – Berlin should pursue a more traditional power buying deal instead of attempting a new auction-based method of bidding out power purchasing, the Berlin Utilities Commission (BUC) will advise elected officials next week.

The BUC hashed out that decision at its Tuesday evening meeting, comparing the traditional approach to a power purchase agreement reached through an auction. Members concluded there were too many unknowns with the auction process. The group will continue to look into power purchase auctions for future contracts.

The recommendation to pursue the power-buying contract with Florida Power and Light (FPL) came with the stipulation that satisfactory terms must be reached before the contract is accepted. The BUC did not approve a blanket recommendation.

“There are some serious issues that need still to be resolved in the contract,” said Berlin town administrator Tony Carson.

The auction option, through World Energy Concepts, prompted the majority of the discussion at the meeting. Under this approach, an online bid process would be opened up on a selected day, with the hopes of attracting energy providers to bid. Unlike the typical auction, bidders would aim to submit the lowest bid. The town of Berlin would then have to decide by the end of the day whether to accept the low offer.

If the town rejected all bids, the contract with World Energy Concepts would restrict the town from signing a power purchase agreement for one to two months. The town would have no idea which companies planned to bid, preventing any credit or background check on bidders. While the identity of the bidders would be revealed to the town during the auction itself, staff would have just a few hours to study those companies before a decision had to be reached.

Longtime BUC member Rick Baldwin also questioned who would make the final decision and what the decision-making process would be in an auction situation.

“That’s yet to be determined,” BUC Chair Erik Quisgard said during the extensive discussion.

While he felt that the auction process could be positive, Quisgard said, “There’s a little bit of hesitancy in me.”

Mike Beaman, a BUC member, said that an auction was chancy and could be a shot in the dark.

Quisgard wondered whether anyone could come up with a reasonable estimate of savings through the auction approach. Estimates did show a substantial savings, alternate BUC member Jennifer Smith pointed out.

Another item to consider was the exclusion period the town would have to agree to if contracting with World Energy to find power suppliers through an auction. The town would be prevented from signing a power contract with an outside provider for 60 days, if it chose to reject all auction bids.

Berlin could negotiate to have that exclusion period dropped to 30 days, said BUC member Sean Coughlin.

“My thought is, give it a try and see what happens on the auction end,” said Coughlin.

Although the FPL contract is not a done deal, with several areas to negotiate, taking the World Energy approach is not likely to get the town a power contract more quickly.

“What they’re telling us is the timeframe would be the same for both,” said Carson.

Waiting to go through an auction which might not turn up an acceptable bid, and then waiting to contract with another company, would also keep expensive attorneys and consultants working longer, Quisgard said.

The BUC has been at this point several times,” Baldwin said.

Last spring, the market price was better than the power purchase agreement bids in hand, although those prices were followed by the infamous unexpected spike in power costs last summer.

Using the auction process would result in a price probably based on market conditions that day, according to Baldwin, which is a narrow window.

“The last time the town of Berlin tried to time the market we got burned … I for one don’t think we should be playing trying to time the market. I think we see a good window and we should close,” Baldwin said.

Booth and Associates, Berlin’s electric power consultants, believe that the town can get good terms from FPL, Quisgard reported, although they also expressed support for the auction option.

The auction process needs to be more established before Berlin gets involved, one BUC member said.

“Right now we don’t want to be the guinea pig for that,” said Jason Walter.  

The BUC also considered the length of the power purchase contract, concluding that a medium-length, two- to three-year, contract made the most sense for Berlin.        

The town should realize savings from a three-year contract, Smith said, and would not be locked into a five-year deal.

While electric customers should see some savings from the contract under consideration, consumers should not expect to see massive reductions in their bills.

“Let’s not be thinking we’re going to get a real bargain from this bid process,” said Baldwin.

“I felt like the Florida Power and Light contract was good enough,” said Smith. “Either way is an improvement on our current situation.”