- Special Projects
It looked as though the end was finally in sight.
In February, Hawaii Electric Light Co. selected Ormat Technologies Inc. to provide an additional 25 megawatts of geothermal energy to the Big Island grid, completing a drawn-out bidding process that began nearly four years ago.
In many ways, the selection seemed a logical one for HELCO. Ormat is the Nevada-based owner of Puna Geothermal Ventures, which operates Hawaii’s sole geothermal plant that already produces up to 38 megawatts of power for the Big Island’s electric utility.
The entire deal, in theory, could be complete within a matter of weeks. HELCO now only needs the state Public Utilities Commission to sign off on its power purchase agreement with Ormat — which, according to the company’s schedule, will be submitted for the PUC’s review by the end of the month.
But not so fast.
HELCO’s critics, including Ormat’s bidding competitors, are vowing to challenge the deal. They contend that the entire bidding process was rigged from the get-go in favor of Ormat, which has long enjoyed a chummy relationship with HELCO.
And they say their arguments are bolstered by a whistleblower lawsuit making its way through a federal court in Nevada.
As Civil Beat recently reported, two former Ormat employees sued the company in 2013, alleging that it lied to the U.S. Treasury Department to land more than $130 million in federal grants. In March, a federal judge rejected Ormat’s effort to have the case tossed out on technical grounds and gave the company until April 28 to respond to the allegations.
If it were to lose the case, Ormat could find itself liable for more than $400 million in penalties — an amount far exceeding the company’s revenue from its electricity operations.
The critics say this calls into question the company’s ability to live up to the terms of its latest contract with HELCO — which, in turn, could hamper efforts to meet a statewide goal to generate 70 percent of Hawaii’s electricity from renewable sources by 2030.
Mililani Trask, consultant for Huena Power LLLP, which bid against Ormat, says that, if the whistleblowers’ allegations are true, Ormat got an unfair leg up against its competitors by illegally receiving subsidies from the federal government.
And, if that’s the case, allowing Ormat to bid “violated the competitive framework — the bidding process is supposed to put all bidders on the equal footing,” Trask said.
An Ormat spokesman declined to comment for this story.
HELCO, through its spokeswoman, issued a statement to Civil Beat: “The geothermal bidding process was fair and conducted in accordance with a structured framework that has been approved by the Hawaii Public Utilities Commission. Every phase of the process, including the design of the (request for proposals), issuance of the RFP, bid evaluation and contract negotiations, have been conducted under supervision of an independent observer selected by and reporting to the Public Utilities Commission.”
The winding path that led to Ormat’s selection in February dates back to June 2011, when HELCO issued a “request for information” to pave the way for the competitive bidding for its contract.
From the beginning, the process was controversial.
For one thing, it took an unusually long time for HELCO to get it going. It wasn’t until February 2013 that the company finalized the language for its request for proposals and got the PUC’s stamp of approval. The official bidding process finally began on Feb. 28, 2013.
But, by the end of 2013, HELCO had rejected all the proposals — including Ormat’s — saying that “none of the submitted bids sufficiently met both the low-cost and the technical requirements of the geothermal RFP.” The selection, it announced, would be “delayed indefinitely.”
The move fueled criticism that HELCO was intentionally dragging its feet. Even the PUC-appointed independent observer for the bidding process, the Boston Pacific Co., voiced its frustration.
“The continued delays in the RFP are due to HELCO ‘putting the cart before the horse’ by not having performed sufficient planning before the issuance of the RFP.” — the Boston Pacific Co.
“It is apparent to us that the continued delays in the RFP are due to HELCO ‘putting the cart before the horse’ by not having performed sufficient planning before the issuance of the RFP,” the independent observer wrote to the PUC.
Eventually, the PUC itself joined the fray and ordered HELCO to produce a “detailed explanation of the corrective actions” it planned to complete the bidding process. Such action was necessary, the PUC declared, “due to HELCO’s lack of timely, decisive action and urgency in completing the bid evaluation and selection processes.”
Throughout this process, the critics were also voicing concern that the way the bidding process was designed by HELCO unfairly favored Ormat.
They say their suspicion was confirmed in September 2014, when HELCO submitted a request to the PUC to modify the terms of the bidding process in an effort to expedite it. The modifications would allow the company to solicit “best and final offers” from bidders and reduce the cost of the electricity by setting the threshold — or maximum — price at 12 cents per kilowatt-hour.
The critics say the terms were tailor-made for Ormat.
Malama Solomon, then the state senator representing a Big Island district, wrote this in a Oct. 6, 2014, letter to the PUC: “Clearly, it is HECO’s intent to continue its monopoly arrangement with (Ormat) and to set an artificially low standard price threshold that only (Ormat) can meet because they are the only one with an existing power plant already built on island with capital improvements and assets.”
The independent observer also chimed in on that point, questioning “the reasonableness of HELCO’s methodology in determining the threshold price” given that it was calculated based on the cost of producing wind-generated power.
Meanwhile, others were trying to steer the PUC’s attention to the ongoing whistleblower lawsuit against Ormat in Nevada. Ed Wagner, who is suing the State of Hawaii for failing to adequately oversee electric utility companies, forwarded an entire copy of the Ormat case’s complaint to the PUC.
“If the plaintiffs prevail in this lawsuit, and HECO/HELCO award the geothermal contract to (Ormat) anyway, then its decision to do so should be vigorously challenged,” Wagner wrote to the PUC.
In the end, though, HELCO was allowed to go ahead with its modified bidding process in October 2014. Four months later, it awarded the contract to Ormat.
“If the PUC does not, based on expert evidence, make a ruling in our favor, it leaves us no other recourse but to file litigation against HELCO, and possibly the PUC.” — Roberta Cabral, founder of Innovations Development Group
“Ormat was selected based on numerous criteria, including attractive pricing, technical design and capability, financial soundness, as well as commitment to resolving all environmental issues and to working with our Hawaii Island communities,” Jay Ignacio, HELCO’s president, said in a statement released at the time.
But Wagner says the PUC should, at the very least, wait for Ormat’s lawsuit to be resolved. “The PUC, under the circumstance, shouldn’t approve (HELCO’s) power purchase agreement,” he said.
Roberta Cabral, founder of Innovations Development Group — which formed Huena Power, an Ormat competitor — says she’s planning to file a complaint with the PUC.
“HELCO should have declared in the RFP process that the contractor it’s been dealing with for the last 20 years had certain advantages over its competitors,” Cabral said. “It wasn’t a fair playing field.”
Cabral says the PUC should reject the deal.
“In our complaint, we will be able demonstrate that HELCO’s RFP, as written, was not within the compliance of the industry standard and therefore should be invalidated,” Cabral said. “If the PUC does not, based on expert evidence, make a ruling in our favor, it leaves us no other recourse but to file litigation against HELCO, and possibly the PUC.”