TITLE: B-298583; B-298583.2, SunEdison, LLC, October 30, 2006
BNUMBER: B-298583; B-298583.2
DATE: October 30, 2006
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B-298583; B-298583.2, SunEdison, LLC, October 30, 2006

   DOCUMENT FOR PUBLIC RELEASE
   The decision issued on the date below was subject to a GAO Protective
   Order. This redacted version has been approved for public release.

   Decision

   Matter of: SunEdison, LLC

   File: B-298583; B-298583.2

   Date: October 30, 2006

   Gerald H. Werfel, Esq., Pompan, Murray & Werfel, PLC, for the protester.

   Gary R. Allen, Esq., Department of the Air Force, for the agency.

   Jennifer D. Westfall-McGrail, Esq., and Christine S. Melody, Esq., Office
   of the General Counsel, GAO, participated in the preparation of the
   decision.

   DIGEST

   Where solicitation required offerors to propose fixed prices and offeror
   proposed pricing contingent upon "successful completion" of an agreement
   with a third party, the offer was conditional and should not have been
   considered for award.

   DECISION

   SunEdison, LLC protests the award of a contract to PowerLight Corporation
   under request for proposals (RFP) No. FA4861-06-R-B501, issued by the
   Department of the Air Force for the construction and operation of a
   photovoltaic array to supply solar power to Nellis Air Force Base (AFB) in
   Nevada. The protester contends that the agency's evaluation of offerors'
   prices was flawed.

   We sustain the protest.

   BACKGROUND

   The RFP explained that the agency's goal in awarding a contract under the
   RFP was to reduce its unit cost for electrical service to Nellis AFB to
   below the rate it was paying the Nevada Power Company, and, thus, if all
   proposals received were for more than the cost of service from Nevada
   Power, the government might elect not to award a contract. RFP sect.
   B.2.3. The RFP also explained that a photovoltaic array produces both
   renewable energy (solar power) measured in kilowatt-hours (kWh) and
   renewable energy credits (REC), and that while the agency was aware that
   an offeror would need to sell both outputs to have a viable project, the
   government was interested in acquiring the kWh only.[1]

   The RFP further explained that the contractor was to operate its solar
   array, which was to be located on land leased to the contractor by Nellis,
   "in parallel" with the electricity supplied to Nellis by the Nevada Power
   Company from outside the base. RFP sections C.2.3.1, C.2.3.2. Accordingly,
   offerors were required to furnish all equipment (e.g., inverters and
   transformers) necessary to connect to the base electrical distribution
   system. Offerors were also required to submit evidence with their
   proposals that a request to Nevada Power for an interconnect agreement had
   been made, with no contract to be awarded until an interconnect agreement
   with Nevada Power had been secured.

   The RFP provided for award to the offeror whose technically acceptable
   proposal was determined to represent the lowest cost to the government.
   Proposals were to be evaluated on a pass/fail basis with regard to four
   "mission requirements" (performance plan, financial capability,
   implementation plan, and quality plan) and with regard to past
   performance. Price was to be the deciding factor in the selection of a
   proposal for award from among those determined to be technically
   acceptable.

   The RFP's price schedule asked each offeror to furnish a projection as to
   the monthly output (in kWh) of its proposed solar array and a fixed unit
   price per kWh. The schedule also asked offerors for an escalation factor
   to adjust subsequent year prices for inflation. The RFP explained that
   total evaluated price would be the net present value of the stream of
   monthly payments that the government would be expected to make to the
   contractor over a projected contract term of 20 years. RFP sections
   M.2.1.1, M.3.4. For purposes of the price evaluation, each monthly payment
   was to be calculated by multiplying the offeror's projection of the output
   of its proposed solar array in kWh by the offeror's proposed unit price
   per kWh. RFP sect. M.3.4. The solicitation further explained that the
   evaluated first year annual price would be the sum of the monthly payments
   and that subsequent year annual prices would be calculated by multiplying
   the previous year's annual price by the escalation factor proposed in the
   schedule. Id.

   Offerors were instructed to explain how they had derived their kWh price
   in their proposals. In particular, they were instructed to furnish
   information regarding "tax credits, other incentives, sale of RECs, [and
   expenses for] operation and maintenance." RFP sect. L.7.6.2.

   The RFP provided for evaluation of the reasonableness and realism of
   offerors' proposed prices. In addition, the RFP provided for a comparison
   of the cost of acquiring electricity generated by solar power pursuant to
   the RFP here with the cost of continuing to acquire it from the Nevada
   Power Company. RFP sect. M.3.4.3.

   Three offerors submitted proposals by the June 16, 2006 closing date.
   After the initial proposals had been evaluated, the contracting officer
   furnished each of the offerors with "evaluation notices" describing
   required information that had not been fully addressed in the proposal or
   that required clarification. Offerors were instructed to respond to each
   evaluation notice and to incorporate their responses into a revised
   proposal.

   Upon receipt of revised proposals, the agency evaluators assigned all
   three proposals ratings of pass with regard to all four mission
   requirements and with regard to past performance. Accordingly, price
   became the deciding factor in the selection of an awardee. PowerLight
   offered a unit price of $0.0223 per kWh, with no escalation factor for
   subsequent years, whereas SunEdison offered a unit price of [deleted].[2]
   The price evaluators determined the prices of all three offerors to be
   within a reasonable and realistic range based on the proposed array size
   and projected output, projected REC price, tax benefits, operation and
   maintenance costs, and assumptions for construction and financing rates.
   The Source Selection Authority selected PowerLight's proposal for award on
   the ground that "[a]ll offers ranked equally in Mission Capability and
   Past Performance and PowerLight Corporation's proposal offers the lowest
   proposed price per kWh." Source Selection Document, July 21, 2006, at 1.
   On July 27, the Air Force awarded a contract to PowerLight.

   DISCUSSION

   The protester primarily argues that the agency's evaluation of the
   offerors' prices was flawed in that it failed to take into consideration
   that PowerLight's price was offered contingent upon "successful completion
   of an REC purchase agreement with Nevada Power," whereas its own price was
   offered on an unconditional basis. As explained below, we agree with the
   protester that the agency's price evaluation was flawed and we find that
   PowerLight's inclusion of a contingency in its pricing rendered the
   proposal ineligible for award.[3]

   In its initial price proposal, PowerLight made clear that it did not
   believe that it could confidently predict the amount that Nevada Power
   would be willing to pay for RECs. In this regard, the proposal provided as
   follows:

   [deleted]

   Where a solicitation requests offers on a fixed-price basis, an offer that
   is conditional and not firm cannot be considered for award. Omega World
   Travel, Inc.; Sato/Travel, Inc., B-288861.5 et al., Aug. 21, 2002, 2002
   CPD para. 149 at 6. Here, not only did PowerLight make its offer
   conditional upon successful completion of an REC purchase agreement, but
   further, it acknowledged the uncertainty of such an agreement being
   reached. In this connection, for an REC purchase agreement to be
   successfully completed, both parties will need to be satisfied with the
   REC purchase price, meaning that not only must Nevada Power be willing to
   buy the RECs, but also PowerLight must be willing to accept Nevada Power's
   price. Because the RFP here requested prices on a fixed-price basis, it
   was improper for the Air Force to make award to PowerLight on the basis of
   its contingently priced offer.

   To the extent that the agency argues that it was permissible for it to
   accept PowerLight's offer despite its pricing contingency because the
   proposals of the other two offerors contained similar contingencies, we
   disagree. While Offeror A's proposal did provide for adjustment of its
   offered price in the event that the REC price received differed from the
   price that it had assumed, see Offeror A Revised Price Proposal at
   Revision Page IV-4--meaning that Offeror A's price, like PowerLight's, was
   not fixed--SunEdison's proposal did not. In this connection, SunEdison
   noted in its final price proposal (in response to an evaluation notice
   virtually identical to the one furnished to PowerLight instructing that
   the Air Force did not intend to renegotiate rates after award of the
   contract and that failure of assumptions to materialize was not considered
   to be justification for renegotiation of rates) that one of the key
   assumptions on which its price was based was a portfolio energy credit
   price of [deleted].[4] Sun Edison explained that this price was in
   accordance with a Portfolio Energy Credit Purchase Agreement (PCPA) that
   it had negotiated with Nevada Power, and that while the agreement had yet
   to be finalized, "SunEdison assumes the risk of final PCPA pricing and the
   final PCPA price will not [a]ffect Nellis' Energy Price." SunEdison Price
   Proposal, July 14, 2006, at first unnumbered page and at 3. Thus,
   SunEdison, in contrast to PowerLight, did not make its pricing contingent
   on negotiation of an agreement with Nevada Power for sale of the RECs at a
   price that it regarded as acceptable; to the contrary, SunEdison expressly
   assumed the risk that the final price negotiated with Nevada Power for the
   RECs might differ from the price that it had used in developing its kWh
   price and guaranteed that the price that it had offered would not be
   affected by such a change.

   Because we find that the Air Force improperly made award to PowerLight on
   the basis of an offer that contained conditional pricing, we sustain the
   protest.[5] We recommend that the agency either reopen negotiations with
   the offerors to determine whether the pricing contingencies can be
   eliminated or that it terminate the contract awarded to PowerLight and, if
   otherwise appropriate, proceed with award to SunEdison as the only offeror
   to propose fixed prices.[6] We also recommend that the protester be
   reimbursed the reasonable costs of filing and pursuing the protest,
   including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1). The
   protester's certified claim for costs, detailing the time spent and costs
   incurred, must be submitted to the agency within 60 days after receiving
   this decision.

   The protest is sustained.

   Gary L. Kepplinger

   General Counsel

   ------------------------

   [1] In responding to the protest, the agency furnished the following
   additional background regarding RECs. RECs are "proof" that renewable
   energy of a certain amount was generated by a certain renewable energy
   project. The credits are sold independently from the electricity. Air
   Force Request for Summary Dismissal, Aug. 21, 2006, at 4, citing Ed Holt,
   Renewable Energy Certificates and Generation Attributes, Regulatory
   Assistance Project Issuesletter (May 2003), p. 1. Many states have
   mandatory renewable energy portfolio standards that require that a certain
   amount or percentage of a utility company's generation portfolio be
   comprised of electricity generated by renewable energy projects. In lieu
   of building renewable energy generation facilities themselves, utility
   companies can purchase RECs to meet these requirements. According to the
   agency, Nevada, where Nellis AFB is located, is such a state. The agency
   further explains that under Nevada state law, RECs belong to the owner of
   the renewable energy system, which would be the contractor selected to
   construct and operate the system here. Accordingly, the contractor
   selected here would be entitled to sell the RECs generated by the project
   and use the revenue to discount the rate at which it sells the electricity
   to the government.

   [2] The price of the third offeror (Offeror A) was still higher.

   [3] In its initial protest, SunEdison also argued that it had been granted
   "Tier One Award" status by Nevada Power, whereas PowerLight had not been,
   and that it was therefore entitled to sell RECs to Nevada Power, whereas
   PowerLight was not. (The protester never explained what Tier One Award
   status signified.) The agency responded that SunEdison was not the only
   prospective contractor from which Nevada Power would be willing to acquire
   RECs, citing a letter from Nevada Power to Nellis Air Force Base's Deputy
   Base Civil Engineer dated February 21, 2006, which provided in relevant
   part as follows:

     . . . NPC [Nevada Power Company] is interested in purchasing the RECs
     generated by [a renewable energy facility at Nellis AFB]. However, NPC
     can only agree to purchase RECs from a Nellis project after Nellis
     selects a developer for the project.

     . . . [A]ny agreement between NPC and a developer of renewable resources
     located at Nellis or any other Air Force facility is contingent upon the
     Air Force selecting the developer best suited to the Air Force's
     requirements. . . .

     After the Air Force selects a developer, and the developer's REC price
     is acceptable, Nevada Power Company expects to enter into or continue
     discussions with that developer to purchase RECs generated by the
     project. . . . [A]ll renewable energy contracts by Nevada Power Company
     are contingent upon Public Utility Commission of Nevada approval.

   Agency Report (AR), Tab 25. In responding to the agency report, the
   protester did not attempt to rebut the agency position that it was not in
   fact the only offeror that would be able to sell RECs to Nevada Power;
   accordingly, we consider it to have abandoned this issue.

   [4] The price evaluators noted that the reference to an REC price of
   [deleted] appeared to be [deleted], and that the protester had in fact
   used a price of [deleted] in the calculations used to explain the
   derivation of its price. The evaluators further noted that definitive
   clarification of the point was not considered necessary to determine the
   low price offeror since either REC price supported the price offered in
   the schedule. Price Evaluation Report for SunEdison at 3.

   [5] We have considered the protester's alternative argument--that
   PowerLight's proposal should have been determined technically unacceptable
   for failing to offer evidence that PowerLight had sought an interconnect
   agreement with Nevada Power--and find it to be without merit.

   [6] As noted above, Nevada Power Company has stated that it will enter
   into discussions regarding purchase of the RECs only with the firm
   selected for award under the RFP. Given that, in view of Nevada Power's
   position, no offeror can enter into a binding agreement for sale of the
   RECs until after award is made, we would have no objection if the agency,
   as an alternative to proceeding with award under the RFP as currently
   structured, instead chose to reexamine whether requiring offerors to
   propose fixed prices is the best approach to meeting its needs.