CASE 88-E-241 AVOIDED COSTS In establishing general guidelines for the formulation of bidding proposals, we directed the utilities to project their own costs of meeting future resource requirements, that is, costs that could be avoided if they purchased power (or equivalent conservation) from independent suppliers.1 We contemplated that the utilities' costs would be derived from their respective, administratively-determined schedules of long-run avoided costs (LRACs), but that was not adopted as a requirement. Orange and Rockland chose not to rely on the administratively-determined LRAC stream. Instead, it adopted an avoided-cost schedule that contemplated the completion in 1995 of a 175 MW gas-fired combined-cycle plant at its Lovett site. Staff and SEO have raised technical questions about the company's computation of its avoided generation capacity cost. Staff argues that the annualized carrying charges should be calculated using the method adopted in the Long-Run 3 Avoided Costs case. Orange and Rockland has agreed to this modification. 1 Case 29409, supra, Opinion No. 88-15, mimeo p. 34. 2 3 Id., pp. 37-39; Case 28962, et al., Long-Run Avoided Costs, Opinion No. 88-13 (issued May 10, 1988). Case 28962, supra, Opinion No. 88-13, mimeo pp. 31-33. CASE 88-E-241 SEO notes that Orange and Rockland's LRAC schedule assumes that the costs of the Lovett plant would be recovered over 30 years, while the company initially stated that it would not enter into a contract with a term longer than 20 years. In order to make the utility construction alternative comparable to non-utility proposals, SEO claims, the capital recovery period should be reduced to 20 years. Orange and Rockland has responded that "the capital cost of that plant over the first 20 years of its life should be levelized in real terms.' ,1 Orange and Rockland has also stated that it will consider supply bids proposing contract terms exceeding 20 years, but it will give primary emphasis to performance during the first 20 years in evaluating those bids. These are proper responses to the SEO's concerns. SEO has also questioned the load forecast underlying Orange and Rockland's LRAC projection. According 1 Orange and Rockland's Response, p. 5. DIANTUND LIBRARIES CASE 88-E-241 A similar issue was raised by SEO in the Long-Run Avoided Costs case, wherein the utilities' projection of the statewide summer peak was well below the actual peak. We rejected SEO's position, concluding as follows: Although the actual 1987 summer peak was basis of one year's experience.1 We reach a similar conclusion here. A long-run trend cannot be discerned from only two years' experience. There is no evidence on this record demonstrating that the abnormal conditions in those years (when compared to other historic years) will be normal conditions in future years. The company may rely on its demand forecast to estimate avoided costs. 1 Case 28962, supra, Opinion No. 88-13, mimeo p. 18. CASE 88-E-241 THRESHOLD CONDITIONS General As the term implies, "threshold conditions" are conditions that must be met before a bid will even be considered. The parties have objected to numerous specific conditions, and several have raised general objections as well. DIANTURU LIDRAKIES Perhaps the most fundamental objection is raised by SESCO, a DSM vendor opposed to Orange and Rockland's proposal to adopt separate RFPs for supply and DSM options. SESCO considers the supply-side RFP, with its longer contract terms and periodic per-kWh payments, to be clearly preferable. The biggest obstacle to allowing DSM vendors to bid under the supply-side RFP is that conservation results in a utility's losing revenue and, thus, only the DSM RFP takes lost utility revenues (that is, revenues lost from conservation) into account in setting the maximum prices paid to winning DSM bidders (other factors are also considered). As discussed later in this Opinion, Orange and Rockland should gain experience in conducting a DSM auction with reasonable maximum prices that reflect a variety of considerations. Accordingly, we will not adopt SESCO's position in this case. However, we favor integrated supply and DSM bidding, and proposals from utilities willing to conduct such auctions are welcomed. SEO, pointing to the extensive number of precise threshold conditions, argues that Orange and Rockland should CASE 88-E-241 be required to establish a "dispute resolution process, -1 under which the company would be required to (1) inform project sponsors immediately if their bids appear not to satisfy a threshold condition, and (2) allow sponsors either to bring their bids into compliance or demonstrate that the condition has been satisfied. SEO contends that adoption of such a process would reduce the potential for errors and assure that threshold conditions are fairly and uniformly applied. SEO's position has merit. Orange and Rockland should (1) give bidders prompt notice of failure to meet a threshold condition; (2) continue to review the substance of the allegedly non-complying bids; and (3) allow correction of the non-compliance, if doing so would not delay the bid selection process or prejudice other bidders (e.g., in instances of inadvertent omissions). The RFPS should be so amended. SEO notes in addition that Orange and Rockland's RFPs contain provisions stating that the company may reject proposals "in whole or in part," or "waive irregularities," should the company consider doing so to be in its "best interests." SEO argues that the wording of the provision is too broad and, under the terms of the RFPs, could be invoked before the objective (ranked) criteria were considered. SEO proposes that the provision be substantially rewritten or |