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Anatomy of Sealed-Bid Auctions

Bringing flexibility and efficiency to energy RFPs.

Fortnightly Magazine - June 2009

Is There a ‘Best’ Competitive Bid Process?,” The Electricity Journal , Volume 20, Issue 3, April 2007. These researchers suggest that the most important consideration for ensuring a competitive procurement is that the process be fair and transparent. The Federal Energy Regulatory Commission has also established similar guidelines for conducting successful competitive power procurements with the focus on preventing affiliate abuse [ see, generally, Allegheny Energy Supply Company, LLC, 108 FERC ¶ 61,082 (2004)].

3. Numerous fair and transparent RFPs successfully have been carried out over the last several years. See, e.g. , approvals of procurements issued by regulatory agencies in Connecticut, Maryland, Delaware, and Pennsylvania, at: http://depsc.delaware.gov/orders/7405.pdf (accessed Dec. 11, 2008); http://webapp.psc.state.md.us/Intranet/Casenum/CaseAction_new.cfm?CaseNumber=9064 (accessed Dec. 12, 2008); http://www.dpuc.state.ct.us/dockcurr.nsf/f7de85eded62752a8525655d005653b8/e3a3481f152dc47a852573cc007093a2?OpenDocument (accessed Dec.12, 2008).

4. Full-requirements load-following power refers to a wholesale electricity product where the buyer pays a single fixed price in exchange for the seller’s commitment to obtain all of the services necessary to meet the utility’s customer loads. In this regard, “full-requirements” typically refers to energy, capacity, ancillary services, congestion management, transmission and distribution losses, risk management, renewable energy credits, and any other services necessary to completely supply the utility’s customer load; “load-following” refers to the seller’s commitment to supply a specified percentage ( i.e., “tranche”) of the utility’s hourly load.

5. The contract terms for the solicitations shown in Table 1 vary from three months to three years.

6. Non-shopping customers often are grouped by the classification of their load ( e.g., residential, or small, medium or large commercial and industrial). In many instances, utilities can use rate schedules as a means of creating these customer groupings. In other instances, customers can be grouped by peak demand level; however, this may result in customers on the same rate schedules being assigned to different groupings for the purposes of establishing energy supply rates.

7. The tranche size reported in Table 1 is the approximate amount of supply that a supplier will have to provide at the time of peak load. However, suppliers ultimately are responsible for a percentage of load such that the tranche quantity varies hour to hour based on actual hourly customer load. Suppliers can estimate hour-to-hour load based on historical data and expected future market conditions.

8. Pepco Holdings Inc., Maryland SOS Public Disclosure of Information Web site (accessed Dec. 12, 2008).

9. Given that solicitations are laddered over time to prevent purchasing all of the power needed to supply customers at any one time, customer rates typically are based on the average of the prices in the winning bids across several different solicitations. Where the utilities have different prices for different rate schedules, utilities typically employ specific formulas to determine the rates from the average of the winning prices across these solicitations.

10. United Illuminating and Connecticut Light & Power also allow to varying degrees the ability for suppliers to make “contingent” offers so that suppliers can submit linked offers and also limit their sales to a specified maximum total quantity.

11. The Maine PUC allows bidders to link the sale of wholesale power to a