Bidder cries foul on PUD turbine contract

EVERETT — A hydroelectric systems company near Bellingham says the Snohomish County Public Utility District improperly skewed its bid to build two turbines, which tipped the contract to a British competitor.

The district manipulated Canyon Hydro’s bid, adding $1 million in cost, for reasons that don’t hold up to engineering scrutiny, says the company’s president and owner, Richard New.

“This is right on the edge of fraud,” he said.

The company, which is based in Deming, has asked the district to reevaluate the bids.

The PUD rejects New’s allegations, saying that it acted appropriately and within industry standards in awarding the nearly $10 million contract for turbine systems on its Hancock Creek and Calligan Creek hydroelectric projects.

Federal regulators approved the projects on tributaries of the North Fork Snoqualmie River earlier this summer. Site work could start this year. When finished, the facilities will each generate as much as 6 megawatts of energy during the peak months in the fall and winter, according to the PUD’s estimates.

This past December, the district’s three elected commissioners passed a resolution classifying the projects as “special facilities,” a designation that exempts the PUD from following regular competitive bid requirements.

The district then requested bids from turbine system installers for the two projects. Seven companies sent bids, which were forwarded to McMillen Jacobs Associates, an engineering firm the district hired to vet them. The firm determined two bids — from Canyon Hydro and Gilbert Gilkes &Gordon Ltd. — met the district’s criteria. It tossed the others.

At $9,161,363, Canyon Hydro’s came in below Gilkes, which had a $9,871,246 estimate.

But when PUD staff presented the bid proposals to the commissioners at their June 30 meeting, Canyon Hydro’s bid estimate was $10,020,415, an increase of nearly $860,000.

Staff recommended and the commissioners approved awarding the contract to the new low bidder — Gilkes. The company also provided the turbine system for the PUD’s hydroelectric project on Youngs Creek near Sultan.

Canyon Hydro’s bid was increased for two reasons, PUD staff said.

The company offered two alternatives based on two different generators. The PUD eliminated the cheaper of the two. That raised Canyon Hydro’s bid by $502,000.

The bid was increased by another $410,548, because, PUD staff say, Canyon Hydro’s proposal would produce less energy over the generator’s lifetime compared to Gilkes’ proposal.

Two other changes were made to the bid. Another $75,000 was added pertaining to structural design. And about $128,500 was subtracted, because the bid included spare parts the PUD wouldn’t have to buy.

Altogether, the changes resulted in the new $10 million amount.

Canyon Hydro’s executives say none of the changes are justified and are wrong from an engineering standpoint. New said he has never seen anything like it in the nearly 40 years he has been in the industry.

He doesn’t want to “be a sore loser,” he said. “I’ve lost a lot of bids. That’s the game we play.”

But losing in a fair competition is one thing, losing when the results seem rigged is another, he said.

The company has won plenty of contracts, too. It is doing work for Puget Sound Energy at Snoqualmie Falls, he said.

It cost Canyon Hydro more than $50,000 to put its bid together. It stood to gain more than $1 million in revenue from the work.

Earlier this month, an attorney representing the company sent a letter protesting the outcome and asking the PUD to re-evaluate the bids without the changes. New and Brett Bauer, the company’s chief engineer, also voiced their concerns during the July 13 commissioners meeting.

Commission President Kathy Vaughn said that Canyon Hydro’s letter had been forwarded to PUD legal staff, which would respond to the company’s concern.

A PUD attorney sent a letter to the company the following day, saying that the time to protest or appeal had passed, and that the district had been justified in changing the bid price.

Bauer said the district’s explanation did not put the matter to rest.

“The technical reasons they used to justify the change are still bogus,” he said.

The PUD rejected the company’s cheaper alternative because it did not meet the district’s requirement that the generator have a proven track record in North America.

The generator had to have been used in at least five projects in North America for at least 10 years, said Scott Spahr, the PUD manager who oversees all engineering work on the district’s energy generating facilities. The PUD wanted to know if the generator could handle North American power standards.

But the bid documents require that the bidder have the proven track record, not the generator. “There’s no language that says the turbine had to have installations” in North America, Bauer said.

The second charge was necessary, PUD staff said, because according to its model, Canyon Hydro’s design would have generated less energy over the turbine’s lifetime, as compared to Gilkes. The difference was estimated to be one half of one percent.

That means the PUD would have less energy to sell. It estimated that difference to be worth about $410,000 over the turbine’s estimated 40-year lifespan.

Brad Spangler, a senior manager in the PUD’s power generation division, said that changing the proposed designs while evaluating them would be bid shopping. “We take it based on the proposals we receive.”

But the bid designs were rough drafts, not technical specs, and there is no engineering reason the proposed designs from Canyon Hydro and Gilkes can’t put out the same amount of energy, Bauer said. “This is not a proper analysis.”

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.

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