The outcome of an open bid process by PacifiCorp to build a new power plant in Utah is under attack by some who say it was confusing and unfair and could end up costing the state's ratepayers millions of dollars in excess costs.

Last week a utility expert described PacifiCorp's selection process as "seriously flawed" and charged that the Portland-based utility — which operates as Utah Power in Utah — was choosing its own "best interests over the best interests of its customers."

The controversy stems from PacifiCorp choosing itself last November to build a 525-megawatt, natural gas-fired power plant near Mona, Juab County. Under PacifiCorp's proposal, the plant's capital cost is about $343 million.

The power plant still needs regulatory approval from the Utah Public Service Commission. Hearings on the matter begin next week.

PacifiCorp maintains that its self-build option was $320 million less expensive (over the life of the plant) than the next-best cost alternative bid it received.

However, Lincoln Wolverton, an expert in electric-energy economics on behalf of the Utah Association of Energy Users, said in a filing to the Public Service Commission last week that PacifiCorp made several key errors in its comparison of bids.

"My overriding conclusion is that PacifiCorp has not demonstrated that the manner in which it compared bids to its Currant Creek project was fair or reasonable," Wolverton said. "This is hardly surprising, however. It is simply contrary to human nature to expect PacifiCorp simultaneously to be a fierce competitor in its (bid) process and a fair and impartial judge."

Wolverton said those inconsistencies include:

An inappropriate cost-analysis comparison.

Improper comparisons of so-called "peaking bids" against "base-load" and peaking operations.

Unreliable long-term market-price projections.

"We reached basically the same conclusion that the industrial users' expert reached," said Steve Mecham, an attorney representing Spring Canyon Energy LLC, one of the bidders. "What you have is a situation where somebody can come in and offer a lower price to build the plant, and yet the way that it's analyzed it winds up costing more over the life of the plant."

Mecham, a former member of the Utah Public Service Commission for more than 12 years, said PacifiCorp's incentive in choosing itself to build the plant is that it gives the utility a return on the investment to shareholders.

"The conclusion that we reach is that no, it is not the least-cost alternative," Mecham said, "and therefore it is not in the best interest of customers and in the public interest, and therefore they shouldn't get a certificate to build it."

Gary Dodge, an attorney for the Utah Association of Energy Users, said PacifiCorp limited bid contracts to 20 years. Yet under PacifiCorp's plan, costs of the plant were amortized over a 39-year period.

"It's like saying I have a $100,000 mortgage, and option A is I'm going to finance it over 40 years, or option B is I mortgage it over 20 years," Dodge said. "At the end of 20 years, which was cheaper? Well, of course, the 40-year one was cheaper. That's what PacifiCorp did."

Dave Eskelsen, a spokesman for PacifiCorp, said the company's model took into account corrections for comparing the value of one project to another fairly.

"We can argue that point, and we will," Eskelsen said. "One of the things that a regulated monopoly like PacifiCorp will do is it will intentionally recover the costs of a resource over its useful life, and that's not something other businesses do. Typically other businesses want to recover the cost of their investment as quickly as possible.

"The reason that regulated utilities recover the costs over the life of the generating unit is that it's lower cost for customers."

Calpine Corp., a California-based company and one of the bidders, said the bid process was confusing.

PacifiCorp solicited bids for 200 megawatts of "peaking" electricity — generation that can be called upon within minutes during high-use periods. Yet PacifiCorp's self-build option included not only a peaking portion, but also a base load component, which Calpine maintains changed the entire process.

"I think we're saying, 'Hey, if the parties knew you could actually do a base-load, peaker combo, you probably would have got different bids,' " said Joe Ronan, senior vice president of government and regulatory affairs for Calpine. "I would think the bid would deal with the award. The award didn't quite match the bid."

The Utah Division of Public Utilities, which conducted its own investigation into the bidding process, concluded that PacifiCorp's self-build option was the best alternative of 79 individual bids competing for the award.

In testimony filed last week with the commission, Artie Powell, an economist with the division, said that the closest bid to PacifiCorp's was more than four times "less economic."

Because of that, Powell recommended that PacifiCorp be granted the go-ahead to build.

Powell also said that he was satisfied with the bid process and pointed to an outside evaluator, Navigant Consulting Inc., which concluded that the bid process was conducted in a fair manner. Navigant was chosen by PacifiCorp and was paid its review fees by the utility.

"The division recognizes that the process followed by PacifiCorp was not without problems," Powell said in a filing to the commission last week. "Nevertheless, the division does not believe that these problems are of a substantive nature to preclude the commission from awarding the certificate."


E-mail: danderton@desnews.com