Energy auctions: Real-time power purchasing

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CAP Power Auction

At first glance, with Central Arizona Project employees eying graphs and data on a flat-screen television monitor and making their picks, one might conclude this was a fantasy football draft.

But the selections made this month were no fantasy – this was a real-life energy auction.

Nearly a dozen virtual participants, during 5- or 10-minute sessions, made bids to sell blocks of energy to CAP, which allocated contracts to the lowest bidders. Those individual purchases are to be used to power reliable deliveries of Colorado River water during certain periods of time from 2021-22.

Here’s an example of this precision planning: CAP purchased 75 megawatts of energy to be used from Jan-March in 2022, Mondays through Saturdays from 11 p.m.-6 a.m., and all day during Sundays and holidays.

What’s the benefit? It takes significant power to move water uphill — CAP lifts Colorado River water nearly 3,000 vertical feet from Lake Havasu to the terminus south of Tucson.  By identifying future gaps of needed power, and locking in the lowest rates currently available, CAP ensures stakeholders rates that are stable and cost-effective.

Since the closure of Navajo Generating Station in Oct. of 2019, CAP began looking for alternative ways to ensure the 2.8 million megawatt-hours (MWh) it takes to deliver 1.6 million acre-feet of CAP water each year. This was CAP’s fourth energy auction (three took place in 2019).

CAP will have another auction later this year to fill more products needed for 2022, and begin looking at market pricing in 2023.

CAP, the largest single power user in Arizona, does not pay to participate in such auctions. Rather, bidders pay the auction host to participate. CAP keeps the end game in mind: using cost-effective methods to reliably deliver water to central and southern Arizona.

In this case, the method involves moving graphs, bouncing bids and awarded contracts.