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Variable Operations & Maintenance (VOM) Costs QSE Managers Working Group Meeting August 15, 2007

Variable Operations & Maintenance (VOM) Costs QSE Managers Working Group Meeting August 15, 2007. Ino Gonzalez Lead, ERCOT Settlements and Billing. Objectives. Three-Part Offer Variable Operations and Maintenance (VOM) Costs - Startup - Minimum energy

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Variable Operations & Maintenance (VOM) Costs QSE Managers Working Group Meeting August 15, 2007

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  1. Variable Operations & Maintenance (VOM) CostsQSE Managers Working Group MeetingAugust 15, 2007 Ino Gonzalez Lead, ERCOT Settlements and Billing © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.1

  2. Objectives • Three-Part Offer • Variable Operations and Maintenance (VOM) Costs • - Startup • - Minimum energy • - Energy Offer – Real Time Mitigation • 3. Options for submitting VOMCosts • - PJM’s Maintenance Methodology • - California ISO approach • - Other proposals © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.2

  3. Three-Part Supply Offer Consists of: Startup Offer Minimum-Energy Offer Energy Offer Curve $/MWh to Operate at Given MW Quantity Above Low Sustained Limit $/MWh to Operate at Low Sustained Limit $ to Startup © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.3

  4. Three-Part Supply Offer (continue) • The Startup Offer component represents all costs incurred by a Generation Resource in starting up and reaching breaker close. • The Minimum-Energy Offer component represents the costs incurred by a Resource in producing energy up to and including the Resource’s Low Sustained Limit (LSL) after breaker close. • The Energy Offer Curve represents • an offer to sell energy at or above a certain price and at a certain quantity in the DAM or • a willingness to dispatch a given unit in Real-Time. • Startup Offers, Minimum-Energy Offers, and Energy Offer Curves are capped. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.4

  5. Start-Up Offer Cap Note: Assuming a gas-fired unit © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.5

  6. Minimum Energy Cost Cap Note: Assuming a gas-fired unit © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.6

  7. Energy Offer Curve Mitigated Cap Note: Assuming a gas-fired unit © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.7

  8. Options for creating and Verifying VOMS Option 1: PJM Operating and Maintenance Guidelines • Uses FERC Accounts to estimate maintenance dollars • Uses Handy Whitman Index to determine Escalation Factor • CT maintenance adder based on Equivalent Service Hours • Steam Units maintenance adder based on total dollars per fuel ($/MMBtu) • Allows for Long-Term variable maintenance costs to be included • Maintenance period = rolling 20-year historical period • Uses standard equation to calculate Equivalent Service Hours • Resources no longer required to submit costs to FERC © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.8

  9. PJM Approach – Thermal Units Nuclear and Fossil Steam Units Sample Formula of Maintenance Adder for the Year 1998 TMD = (A +B – C)97 X F98/F97 + (A +B – C)96 X F98/F96 + … (A +B – C)78 X F98/F78 TFuel = TFuel97 + TFuel96 + TFuel95 +……+ TFuel78 TSD = C97 X F98/F97 + C96 X F98/F96 + … C78 X F98/F78 TS = S97 + S96 + … S78 MA98 = TMD / Tfuel ($/MMBtu) SMA98 = TSD / TS ($/start-up) Where: TMD = Total Maintenance Dollars (for the Maintenance Period). A = Total dollars in FERC Account 512. B = Total dollars in FERC Account 513. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.9

  10. PJM Approach – Thermal Units Where: C = Costs included in FERC Accounts 512 and 513 that a company determines are start-up related. F = Escalation Factor for a particular year (Handy - Whitman Index.) TFuel = Total fuel burn or heat released (for same years as used in TMD). Fuel = Total annual fuel consumed. TS = Total Starts TSD = Total Start maintenance Dollars S = Number of Starts per year. MA = Maintenance Adder ($/unit of fuel or heat) SMA = Start Maintenance Adder ($/start-up) © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.10

  11. PJM Approach – Thermal Units • Comments: • Total Maintenance Dollars (TMD) plus Total Start maintenance Dollars (TSD) cannot exceed Total dollars in FERC Accounts 512 and 513. • 2. Units with less than seven years of history are considered immature. Such • units can be assigned their calculated MA and/or SMA, or a forecast value, • subject to approval by the PJM MMU. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.11

  12. PJM Approach – Combustion Turbines • Combustion Turbine Maintenance Cost Calculation • The Maintenance Adder for combustion turbines will be calculated and • applied on a "per equivalent service hour" basis. The calculation will be • based on actual operation and escalated maintenance expenses for all • available years in the Maintenance Period. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.12

  13. PJM Approach – Combustion Turbines CALCULATION OF HISTORICAL RATE Equivalent service hours (ESH) ESH = (A x Number of Starts) + Z hours + (B x Y hours) Where: A = Cyclic starting factor (A = 5.0 for aircraft - type   CT's; A = 10.0 for industrial - type CT's) For example, the incremental maintenance charged to one start on an industrial - type CT is equivalent to the incremental maintenance attributable to ten hours of base load operation. B = Cyclic peaking factor (B = 3.0 for all CT's) This means that the additional incremental maintenance charged to the incremental energy between base and peak loads is equivalent to the incremental maintenance attributable to three hours of base load operation. Z = Total unit operating hours at any load level. Y = Hours above base load temperature limit. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.13

  14. PJM Approach – Combustion Turbines Note: ESH must be calculated using all available history in the Maintenance Period. PJM members may propose alternative cyclic starting factors or cyclic peaking factors for individual units. Such alternative factor proposals should include supporting documentation (e.g., manufacturer recommendation) of this new factor, to be reviewed for approval by the PJM MMU, on a case-by-case basis. Total Maintenance Dollars (TMD) sample calculation for 1998 TMD = D97 x F98/F97 + D96 x F98/F96 + … D78 x F98/F78 Where: D = Total dollars in FERC Account 553 for a particular year. F = Escalation Factor for a particular year based on Handy - Whitman Index. Note: TMD must be calculated for the same historical period as ESH. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.14

  15. PJM Approach – Combustion Turbines • Equivalent Hourly Maintenance Cost (in $/hour) (EHMC) • ESH = TMD / EHMC  EHMC = TMD / ESH • Where: • TMD = Total maintenance dollars • ESH = Equivalent service hours • Comments: • Units with less than seven years of history are considered immature. • Such units can be assigned either their calculated EHMC, or a forecast • value, subject to approval by the PJM MMU. • If any unit in a block is at least seven years old, then all like units on • the block may be considered mature. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.15

  16. PJM Approach – Combustion Turbines APPLICATION OF EHMC TO FUTURE OPERATION Rates assigned to future operation. Starting Maintenance Cost ($/start) = A x EHMC Where: A = Cyclic starting factor as defined above Hourly Maintenance Cost ($/Hour) = EHMC This hourly value is assigned as a capacity cost and is independent of unit loading. Peak Incremental Maintenance Rate ($/MWh) = B/peak pickup X EHMC B = Cyclic peaking factor as defined under Section Peak pickup is equal to the difference between a CT's energy outputs at base and at peak loading levels. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.16

  17. PJM Approach – Combustion Turbines • Comments: • The above formulations are applicable for determination of Maintenance • Adders for both aircraft and industrial type combustion turbines. • 2. CT incremental costs can be developed and applied on either a unit-by-unit • basis or by groups of units. © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.17

  18. PJM Approach – Combustion Turbines Example: Combustion Turbine Maintenance Adder (Industrial Unit) Peak Hours y = 200 Hrs. Service Hours Z = 2000 Hrs. (Total Base Peak Hours) No. of Starts = 300 Peak Pickup = 5 MW © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.18

  19. PJM Approach – Combustion Turbines Calculation 1. TMD = $100,000 (Actual historical maintenance data escalated to present value). 2. A = 10, B = 3 (Note: A = 5 for aircraft engine CT's). Equivalent Hourly Maintenance Cost = EHMC EHMC = $100,000 / [ (10X300) + 2,000 + (3X200) ] = $17.86 /Hr. 3. Calculation of maintenance rates Starting Maintenance Cost = A X EHMC = 10 x $17.86 = $178.60/start Hourly Maintenance Rate = EHMC = $17.86/Hr. Peak Incremental Maintenance Rate = B/(peak pickup) x EHMC Peak Incremental Maintenance Rate = 3 X $17.86/5 = $10.72/MWh © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.19

  20. Options for creating VOM Costs Option 2: QSE Specific Methodology • Approved by ERCOT in advance Pros • Applicable to specific resource company Cons • May be difficult to verify by ERCOT • May require additional ERCOT staffing © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.20

  21. Options for creating VOM Costs Option 3: Use a fix value for VOM • California ISO uses a $6/MWh value • May fix value by unit type • May fix value for each cold, intermediate and hot start Pros • No need to verify • Easy for market to understand • No need for additional ERCOT staffing Cons • Market has to agree to actual value (s) • May not represent true VOM costs © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.21

  22. Options for creating VOM Costs Option 4: Use actual VOM submitted by resource • Actual VOM of resource • Values signed by an officer of company • Values signed by a licensed (PE) engineer in state of Texas Pros • Simple verification • No need for additional staff Cons • ERCOT will have some limited verification • ERCOT may audit anytime © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.22

  23. Table 1: Generic Unit Characteristics (in 2005 Dollars) Typical VOM Values Source: US Department of Energy: CRA No.D08554-00 © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.23

  24. Typical VOM Values Table 3. Gas Turbine Non-Fuel O&M Costs (Year 2000) (14) O&M costs are based on 8,000 operating hours expressed in terms of annual electricity generation Source: Technology Characterization: Gas Turbines; Climate Protection Partnerships Division, Environmental Protection Agency, Washington, DC. February 2002 © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.24

  25. Summary - Options for creating VOM Costs Option 1: PJM Operating and Maintenance Guidelines Option 2: QSE Specific Methodology Option 3: Use a fix value for VOM by resource type Option 4: Use actual unit VOM submitted by resource What is the best option? © 2005 - 2006 Electric Reliability Council of Texas, Inc.  All rights reserved.25

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