Sunday, February 13, 2011

Is this Legal?

Recently it was announced that in the interest of saving money on utility bills, the borough of Dumont changed electric power supplier from Public Service Electric & Gas (PSE&G) to Viridian Energy.

The availability of third party power suppliers have become abundant recently as electrical power prices on the open market have declined to a level where resellers can still make a profit while claiming to save the consumer money over the local incumbent electrical power supplier, which is PSE&G.

There is nothing wrong in saving money, so what can go wrong? For one, Dumont is now paying "market rates" for electricity, which means if the "market" goes haywire and prices spike into space, the borough (and consequently taxpayers) will be stuck with the bill. Meanwhile, PSE&G has announced a rate decrease. Will there be any cost savings left?

Unlike you or I; however, the borough cannot just arbitrarily change vendors. In an article published by the NJ League of Municipalities in which Dumont is a member:

First, it is important to emphasize that the procurement of power supply must be consistent with the Local Public Contracts Law (LPCL). The bottom line is: when the estimated amount of spending for power supply is above the municipality’s bid threshold, power supply must be publicly bid or purchased subject to an exception to the bid law.

Under the LPCL, power purchases from regulated public utilities that use their BGS-FP tariff are exempt from bidding. And while there are several other public bidding exemptions on the books that apply to unique electricity purchasing scenarios, none of these is applicable to purchasing retail supply from a TPS. In other words, procuring power supply from a TPS (directly or through a broker) requires a public bid. Moreover, for electric accounts large enough to warrant attention from a third-party supplier, the contract value will be above the bid threshold.

Also to be considered is the time and cost aspects of preparing bid specifications and conducting the bidding process. This can be a time-consuming and possibly labor-intensive process. Municipal officials should carefully consider all these factors in determining whether they should proceed with a public bid or stick with the BGS-FP tariff.

In awarding the electric supply contract to Viridian Energy, did the borough of Dumont:
  • Prepare Bid Specifications? No
  • Approve resolution for public bidding? No
  • Receive evaluated bids? No
  • Prepare decision matrix of bidders based on bid specifications? No
  • Choose winning bidder based on decision matrix? No
  • If claiming exemption from public bid, request authorization per statute? No
  • Approve resolution awarding electric supply to Viridian Energy? No
From a practical perspective, how does Dumont Boro know they signed with the lowest cost vendor if there was no documented evidence of shopping around for the best deal?  According to the borough attorney, this award was legal.

I ask again - is this legal?