Analysis and Recommendations Ron McNamara, PhD September 14, 2011 - PowerPoint PPT Presentation

Variable Operations & Maintenance Cost Adder Analysis and Recommendations Ron McNamara, PhD September 14, 2011

Introduction  The Tariff requires the CAISO to develop a Default Energy Bid (DEB)  Three options: • Variable Cost • Negotiated Rate • LMP  Variable O&M costs are a component of the Variable Cost Option  Two current values are used  Established in 2005.  $2/MWh for all generation resources other than combustion turbine or reciprocating engine.  $4/MWh for combustion turbine and reciprocating engines.  Tariff and Business Practice Manuals do not specify how to create the adder.  Current methodology reflects cost causation principles, i.e. that major maintenance costs are a function of the number of starts and should be recovered through start-up costs. Utilicast Public Document 2 www.utilicast.com

Development of Current Values  Described in: “California ISO White Paper for Default Energy Bids”, August 16, 2005.  Analysis of Henwood and EIA data in combination with Stakeholder discussion. Utilicast Public Document 3 www.utilicast.com

Methodology Used by Other RTOs/ISOs  Two broad methodologies: granular/specific or averaged.  Existing methodology used by CAISO is unique.  Benefits: • Process and values are transparent. • Values are certain. • Ease of implementation. • Low transaction costs. Utilicast Public Document 4 www.utilicast.com

Methodological Considerations  Issues:  Generation technology specific.  Vintage/age of the individual units within a given technology.  Accounting protocols: • Allocation between fixed and variable O&M costs  Allocation of major maintenance. Utilicast Public Document 5 www.utilicast.com

Relevant Analysis and Research  Multitude of studies – all using different methodologies and hence with different values.  EIA is the most widely used and referenced. Structural change beginning in 2011.  Indicates that more than 2 adders are appropriate:  Solar  Nuclear  Coal  Wind  Hydro  Combined Cycle  Geothermal  Landfill Gas  Combustion Turbine/Reciprocating Engine  Biomass Utilicast Public Document 6 www.utilicast.com

Other Sources  EIA isn’t the only relevant source:  Differences between numbers are largely caused by assumed allocation between fixed and variable costs. Utilicast Public Document 7 www.utilicast.com

Recommendation  Must achieve appropriate allocation between Fixed and Variable O&M as well as eliminating the expenses due to major maintenance: Utilicast Public Document 8 www.utilicast.com