Anatomy of Sealed-Bid Auctions

With the introduction of retail competition in the electricity industry, regulatory authorities in many jurisdictions are now overseeing the purchase of electricity at wholesale by electric utilities for customers that do not otherwise obtain supply from independent retailers. There are two primary ways in which, under the supervision of regulatory authorities, electric utilities purchase electricity for these non-shopping customers: through simultaneous descending clock auctions or through fairly common sealed-bid auctions, commonly known as Requests for Proposals (RFPs).

Descending clock auctions have received a lot of coverage in the trade press and academic literature on electricity. In comparison, sealed-bid auctions have not received as much attention. This discrepancy may be explained by the myriad approaches to purchasing wholesale electricity that entail issuing RFPs that tend to obscure the fact that RFPs simply are sealed-bid auctions.