This article proposes that local distribution companies (LDC) should use an Internet-based auction to procure inactively traded products, because the auction is a superior alternative to common procurement methods, such as bilateral negotiation and request for offers. Supporting the proposal is the empirical evidence from two auctions recently held by a municipal utility in Florida. The auction results show that an Internet-based auction can: 1. yield competitive price offers from prospective sellers, 2. achieve cost savings when compared to an LDC's benchmark for price reasonableness, 3. reduce the time required for transaction consummation, and 4. provide documentation that can withstand close scrutiny by an LDC's management and regulators. From the LDC's perspective, the auction helps uncover forward-contract prices that are otherwise unavailable or unreliable due to thin trading and other market imperfections. This aids the LDC in making a better-informed purchase decision. Copyright © 2003 Public Utilities Reports.
|Journal||Public Utilities Fortnightly|
|Publication status||Published - 15 Jan 2003|