Background

More than 40 percent of states have formal regulations or guidance that requires or encourages utilities to use competitive bidding programs for the procurement of new electric generation capacity.  These states recognize that competition exists in the generation sector and that competitive bidding is one way to lower costs.

Most of the first bidding programs established in the 1980s were limited to QFs.  These programs were used by those states to fulfill their responsibilities under the Public Utility Regulatory Policies Act (PURPA).  Bidding was viewed as a more efficient method than administrative procedures to allocating capacity payments to QFs and for determining the avoided costs.

In Summary

ELCON supports competitive bidding and believes that workably competitive bulk power markets can assure the availability of the lowest cost power possible, consistent with an adequate and reliable supply.

In Detail

Specifically, ELCON believes that:

• States should be allowed to take the lead in the implementation of competitive programs.  Allowing states to tailor programs subject to federal guidance can result in varying experiences and ultimately improved and more efficient programs.
• State regulatory oversight is necessary to assure a fair and equitable bidding process.  State oversight is necessary for estimating the benchmark, bid certification, protection against self-dealing if a utility affiliate is allowed to bid, determining the need for capacity, and other matters where there is a risk of utility self-dealing.
• It is important for FERC to retain its PURPA oversight function to ensure proper implementation of bidding programs.
• The utility is in the best situation to design, specify, solicit, and evaluate a competitive program, once it has determined that it needs new capacity.
• The need for capacity that triggers a bid solicitation should be determined by the utility and reviewed and approved by the state commission on a periodic basis.
• DSM programs should not be considered in utility bid solicitations because they have not been proven to avoid capacity.  However, DSM technologies such as direct load controls on certain customer appliances or end-use equipment may be an exception if they can be effectively dispatched on a kW-by-kW basis with the same reliability as conventional generators.
• To prevent self-dealing and manipulation of the bidding process, both utilities and utility affiliates should be prohibited from bidding on capacity needs of their own franchise territory.  Utility affiliates also should be prohibited from bidding anywhere within the parent company’s “zone of economic influence.”
• If a utility’s affiliate is allowed to bid, it is essential that there be detailed regulatory oversight to avoid conflict-ridden bidding schemes.
• There should be a benchmark calculation, based on the utility’s capacity expansion plan and estimates of future construction costs, that establishes the ceiling or backstop for cost recovery from consumers, including situations where utilities build rate-based units.
• Life cycle analysis should play a role in the evaluation of bids to assure that various supply options are put on an equal basis.
• States may elect to use bidding programs to price purchases for all, some, or none of the utility’s capacity needs but no capacity may be sheltered from QFs.  Once a utility’s capacity needs are fulfilled, QFs are only entitled to energy payments.
• Appropriate non-price factors such as reliability and security of fuel supply while minimizing cost should be recognized in bid selection, but price should be the dominant factor.