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

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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.

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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.

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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.

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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.

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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

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Other Sources

• EIA isn’t the only relevant source:
• Differences between numbers are largely caused by assumed

allocation between fixed and variable costs.

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Recommendation

• Must achieve appropriate allocation between Fixed and Variable

O&M as well as eliminating the expenses due to major maintenance: