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.