Competitive Bidding for Electric Power: Comparing Evaluation Methods

Competitive bidding for new electric supply is a recent but rapidly growing trend which originated as a reform of the Public Utility Regulatory Policies Act process. This study focuses on utility bidding systems that provide potential suppliers with explicit self-scoring procedures. These systems facilitate comparisons of the utility's treatment of various nonprice factors: uncertainties associated with the project development process, project operational characteristics and their benefits to the utility, environmental impacts, fuel choice and flexibility, and economic risks to ratepayers because of front-loaded bids. We then illustrate differences among the bid evaluation systems of three utilities by scoring the same set of eight bids in hypothetical auctions. Our analysis suggests that developing more realistic measures of project viability is a key area that needs improvement in utility bidding systems.