MAKING THE MOST OF THE POWER PLANT MARKET: BEST PRACTICES FOR ALL-SOURCE ELECTRIC GENERATION PROCUREMENT

The report examines the procurement processes of vertically integrated utilities in the United States, highlighting how monopsony power and financial incentives often lead to the over-procurement of capacity and a bias toward self-built, gas-fired generation. Using Xcel Colorado as a model, the authors recommend five best practices for regulators: determining technology-neutral needs through resource planning, requiring competitive all-source bidding with robust evaluation, conducting advance review of procurement terms, ensuring utility ownership does not conflict with competitive bidding, and upholding rules for fairness and transparency. The report analyzes case studies from Colorado, New Mexico, Georgia, Minnesota, Indiana, Texas, California, Virginia, and North Carolina to illustrate the effectiveness of all-source RFPs in reducing costs and increasing renewable energy deployment.

• Vertically integrated utilities often act as monopsonies, using their market power to control information, impose biases on procurement, and force sellers to accept below-market prices, which can lead to the procurement of uneconomic resources.
• Financial incentives, such as the Averch-Johnson effect, drive utilities to over-procure capacity and prefer self-built generation to increase capital investment and shareholder returns, even when clean energy alternatives are more cost-effective.
• Xcel Colorado's all-source procurement process resulted in "shockingly" low prices for wind and solar, with median bid prices of $18 per MWh for wind and $30 per MWh for solar in its 2018 Clean Energy Plan.
• Regulators should determine procurement needs based on load forecasts and plant retirements rather than specific numeric capacity targets or technology specifications to ensure a technology-neutral process.
• All-source procurements are more effective than single-source RFPs because they use system planning models to evaluate a diverse mix of bids simultaneously to create optimal portfolios, rather than ranking bids individually.
• Advance regulatory review and approval of procurement assumptions, contract terms, and bid evaluation criteria are essential to prevent utilities from biasing the process or excluding emerging technologies.
• In Georgia, the use of comprehensive single-source RFPs and a "firm" capacity requirement effectively limited the ability of renewable energy and storage to compete for capacity needs.
• Minnesota Power's procurement of the Nemadji Trail Energy Center (NTEC) gas plant was criticized for using unreasonable modeling assumptions and constraints that biased the result in favor of a utility affiliate.
• NIPSCO's 2018 all-source RFP revealed that wind and solar were significantly less expensive than new gas-fired generation, leading to a projected cost reduction of $1.1 billion compared to its 2016 scenario.

APA

WILSON, J. D., O’BOYLE, M., LEHR, R., & DETSKY, M. (2020). MAKING THE MOST OF THE POWER PLANT MARKET: BEST PRACTICES FOR ALL-SOURCE ELECTRIC GENERATION PROCUREMENT. Energy Innovation. https://energyinnovation.org/wp-content/uploads/All-Source-Utility-Electricity-Generation-Procurement-Best-Practices.pdf

Chicago

WILSON, JOHN D., MIKE O’BOYLE, RON LEHR, and MARK DETSKY. MAKING THE MOST OF THE POWER PLANT MARKET: BEST PRACTICES FOR ALL-SOURCE ELECTRIC GENERATION PROCUREMENT. Energy Innovation, 2020. https://energyinnovation.org/wp-content/uploads/All-Source-Utility-Electricity-Generation-Procurement-Best-Practices.pdf.

Wikipedia

{{cite report |last1=WILSON |first1=JOHN D. |last2=O’BOYLE |first2=MIKE |last3=LEHR |first3=RON |last4=DETSKY |first4=MARK |title=MAKING THE MOST OF THE POWER PLANT MARKET: BEST PRACTICES FOR ALL-SOURCE ELECTRIC GENERATION PROCUREMENT |publisher=Energy Innovation |date=April 2020 |url=https://energyinnovation.org/wp-content/uploads/All-Source-Utility-Electricity-Generation-Procurement-Best-Practices.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{wilson2020making, author = {WILSON, JOHN D. and O’BOYLE, MIKE and LEHR, RON and DETSKY, MARK}, title = {{MAKING THE MOST OF THE POWER PLANT MARKET: BEST PRACTICES FOR ALL-SOURCE ELECTRIC GENERATION PROCUREMENT}}, institution = {Energy Innovation}, year = {2020}, month = apr, url = {https://energyinnovation.org/wp-content/uploads/All-Source-Utility-Electricity-Generation-Procurement-Best-Practices.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }