Common use of SUPPLIER CONCENTRATION Clause in Contracts

SUPPLIER CONCENTRATION. In this year’s solicitation, PG&E stated in its protocol that averting excess supplier concentration would be an evaluation criterion. During the selection process this criterion played a role: the PG&E team limited the volume of selected Offers from any individual counterparty. In some cases where a Participant had its most attractive Offers selected, the PG&E team chose to reject remaining Offers from that Participant even though they were higher valued than Offers from other Participants that were also selected. PG&E also chose to reject some rather large proposals from a developer with whom the utility has already contracted large-volume projects that have not yet achieved commercial operation. One way that PG&E avoided excess supplier concentration was to reject some rather high-volume Offers with high valuations in favor of smaller Offers with lower valuations from the same developer. This enabled the short list to include a larger number of Participants whose smaller Offers were selected, instead of fewer Participants with only large Offers. The result is a more robust solicitation in the sense that more companies are likely to complete contracts and that PG&E’s counterparty credit risk will be diversified. It also means that total ratepayer cost will be higher than an alternative scenario in which only the very highest-valued, viable Offers were selected regardless of volume. In future years the transparency of solicitations would be improved if this aspect or consequence of the supplier concentration criterion were communicated more clearly in the bidders’ conference and in the protocol. Xxxxxx believes that it is unlikely that most Participants were aware that submitting large projects could disadvantage those proposals.