Evaluation Methods in Competitive Bidding for Electric Power

In this study, we examine the bidding processes being used or proposed by utilities to evaluate bids made by producers. The design of bid evaluation systems is a challenging task because it requires an explicit externalization of many aspects of utility planning as well as treatment of the issues associated with long-term contracting. For example, contracting for new generating capacity requires utilities to unbundle various attributes of power projects that have not been priced in the market previously (e.g., operating characteristics, project viability, and price risks). This is a formidable and qualitatively new problem for utility planners. Moreover, the practical demands imposed by the need to have systems that are workable and reasonably simple means that short-cuts, approximations, and rules of thumb will be developed. In some cases, this can lead to unintended biases in bidding systems. In this study, we focus our analysis on those non-price factors that particularly affect the prospects for capital-intensive technologies.