A number of states as well as the Federal Energy Regulatory Commission have been considering whether traditional regulatory regimes in electricity and natural gas markets should be replaced with competitive bidding systems. This shift is designed to yield a more efficient allocation of energy resources within the existing legal framework The paper examines both the theoretical basis and empirical evidence on bidding processes in light of the characteristics of energy markets, especially electricity markets. It then discusses the extent to which one can draw policy conclusions about designing specific bidding processes for these markets. It concludes that given the underlying complexity of the products involved, the optimal system for procuring power should include a mix of bidding, negotiation and utility construction.
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