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BRPU Scenario ‘Fantastic’
tothe Editor
BRPU Scenario 'Fantastic' n his paper on the California QF auction, the Biennial Resource Planning Update (BRPU) ("Designing an Auction for QF Generation Resources in California: What Went Wrong?", TEJ April 1995), Paul Gribik spins a fantastic scenario to illustrate his contention that under the BRPU bid rules, bidder QFA could have, hypothetically, bid a price that differed from its actual cost. Mr.
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"the aucn o n s seconcl pnce rules "if: (1) the bidder is bidding a large project, e.g., one the size of the IDR; and (2) the bidder believes that there is a high probability his project would be downsized if he wins" (i.e., the bidder thinks a limited number of other bids will beat his), then he could increase his price to just below the level he thinks the next bidder (the first losing bidder) will bid. Mr. Gribik's hypothetical is tantamount to saying that in a second price auction, if a bidder knows the prices and quantities of the bidders who will beat him and the price of the next bidder after him, he could set his quantity to fill the block and set his price to just below that of the next bidder. Of course, if a bidder had such perfect knowledge, he could exploit any auction regardless of
whether it was a first price, second price, or any other type. This hypothetical case is not unique to the rules of the California auction; it is true for auctions for Treasury bills, oil leases and, in fact, the California Public Utilities Commission's proposed Poolco. Our company was bidder QFA of Mr. Gribik's paper. Despite the complexity of the BRPU rules, we behaved just as economists predicted. We had no way of knowing whether we would win, where w e would be in the ranking, whether the combination of winning quantities that would cause the last winning bid to "straddle" would occur, or what the second price would be. We bid our actual costs. One other fact gets overlooks in Mr. Gribik's theorizing: we beat the price of the utility offer by 40 percent.
--Frank De Rose, U.S. GeneratingCompany Oligopoly Danger Lurks in Mergers t is ironic that while the Wisconsin PSC is debating competition, and one of its roundtable groups has just recommended an independent transmission company, and while the Minnesota PSC is opening an investigation into the same subject, and FERC Commissioner Massey has opined publicly that policies on utility mergers may have to be made more restrictive in a lessregulated electric generation sec-
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See Letters, page 84
The ElectricityJournal
BRPU Scenario 'Fantastic' n his paper on the California QF auction, the Biennial Resource Planning Update (BRPU) ("Designing an Auction for QF Generation Resources in California: What Went Wrong?", TEJ April 1995), Paul Gribik spins a fantastic scenario to illustrate his contention that under the BRPU bid rules, bidder QFA could have, hypothetically, bid a price that differed from its actual cost. Mr.
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2
"the aucn o n s seconcl pnce rules "if: (1) the bidder is bidding a large project, e.g., one the size of the IDR; and (2) the bidder believes that there is a high probability his project would be downsized if he wins" (i.e., the bidder thinks a limited number of other bids will beat his), then he could increase his price to just below the level he thinks the next bidder (the first losing bidder) will bid. Mr. Gribik's hypothetical is tantamount to saying that in a second price auction, if a bidder knows the prices and quantities of the bidders who will beat him and the price of the next bidder after him, he could set his quantity to fill the block and set his price to just below that of the next bidder. Of course, if a bidder had such perfect knowledge, he could exploit any auction regardless of
whether it was a first price, second price, or any other type. This hypothetical case is not unique to the rules of the California auction; it is true for auctions for Treasury bills, oil leases and, in fact, the California Public Utilities Commission's proposed Poolco. Our company was bidder QFA of Mr. Gribik's paper. Despite the complexity of the BRPU rules, we behaved just as economists predicted. We had no way of knowing whether we would win, where w e would be in the ranking, whether the combination of winning quantities that would cause the last winning bid to "straddle" would occur, or what the second price would be. We bid our actual costs. One other fact gets overlooks in Mr. Gribik's theorizing: we beat the price of the utility offer by 40 percent.
--Frank De Rose, U.S. GeneratingCompany Oligopoly Danger Lurks in Mergers t is ironic that while the Wisconsin PSC is debating competition, and one of its roundtable groups has just recommended an independent transmission company, and while the Minnesota PSC is opening an investigation into the same subject, and FERC Commissioner Massey has opined publicly that policies on utility mergers may have to be made more restrictive in a lessregulated electric generation sec-
I
See Letters, page 84
The ElectricityJournal