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
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