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Anatomy of Sealed-Bid Auctions

Bringing flexibility and efficiency to energy RFPs.

Fortnightly Magazine - June 2009

utility to a same-term purchase of power supply from the utility (with Maine PUC oversight). In Maine, utilities have historical entitlements to power supplies ( i.e., non-utility generators). These supplies are sold at the same time wholesale suppliers are solicited. The prices for both purchases and sales can be linked by the bidder. However, this approach is not the same as allowing a bidder to condition acceptance of one tranche of its supply offer on the utility’s purchase of other tranches.

12. United Illuminating’s offering structure also allows for linking of different term offers; however, each unique product term is defined as a separate tranche.

13. Utilities in Connecticut, Washington, D.C., and Maryland convert these prices on the bid sheet so that bidders can see the price per tranche they are offering when the bid sheet is completed. In contrast, utilities in Massachusetts do not provide the weighting calculation that is used by bidders.

14. There can be situations in these auctions where offers are rejected by the utility commission if the prices are above a level considered reasonable.

15. For example, there could be a particular aspect of the credit requirements or default provisions of the proposed contract that a supplier may indicate are unnecessarily costly.

16. Combinatorial Auctions, 2006, edited by Peter Cramton, Yoav Shoham, and Richard Steinberg, at 616.

17. A similar comparison can be made to United Illuminating’s auction structure instead of PPL Electric’s format.

18. Such cost structures can arise from economies of scale and scope in production and distribution technologies, as well as the supplier’s approach to managing wholesale supply and delivery.

19. Given the bid format, the price of the subsequent tranches cannot decline, but either remain the same or increase.

20. See, e.g. , Baumol, William J., and Alan S. Blinder, Economics: Principles and Policy , 1988, at 605-606.

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