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Unit-Specific Deployment based on Modified Generic Cost

Unit-Specific Deployment based on Modified Generic Cost. Presented at WMS December 15, 2003. Unit-Specific Deployment based on Generic Cost. Present Generic Compensation for Gas-Steam = 14.5 HR. Present Generic Compensation for Combined Cycle = 9.0 HR. ( $4.10 margin/revenue* )

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Unit-Specific Deployment based on Modified Generic Cost

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  1. Unit-Specific Deployment based on Modified Generic Cost PresentedatWMSDecember 15, 2003

  2. Unit-Specific Deployment based on Generic Cost Present Generic Compensation for Gas-Steam = 14.5 HR Present Generic Compensation for Combined Cycle = 9.0 HR ($4.10 margin/revenue*) * Typical debt service on new assets See next slide ($12.65 margin) $0 debt on assets Marginal Cost (7.2 HR * $4.50) +$4.00VOM= $36.40 Marginal Cost (10.8 HR * $4.50) +$4.00VOM= $52.60 7.2 10.8 Compensation from ERCOT 9.0 HR* $4.50 gas = $40.50 Compensation from ERCOT 14.5 HR * $4.50 gas = $65.25 Creates incentive to operate inefficient units Combine Cycle Gas - Steam

  3. Investment Conservative estimate, does not include cost of borrowing money, time value of money, cost of Letters of Credit to trade power, Letters of Credit to purchase gas, transaction capturing systems, IT infrastructure, labor, etc ………………………….. • New unit construction cost @ $4.00/kw • $400,000 cost to build 1 MW • 8,760 hrs/year * 7 years = 61,320 hrs • $400,000/61,320 = $6.52 • At a minimum, $6.52/MWh revenue needed to pay down debt on construction costs only

  4. Unit-Specific Deployment based on Modified Generic Cost 9.0 Generic + 1.0 HR = 10.0 HR 10.0 HR + (Inc. HR inefficiency >7.2) = (10.0 + (10.8 – 7.2)) = 13.6 HR ($8.60 revenue/margin*) * High debt on assets ($8.60 margin) * $0 debt on assets Marginal Cost (10.8 HR * $4.50) +$4.00VOM= $52.60 Marginal Cost (7.2 HR * $4.50) +$4.00VOM= $36.40 7.2 10.8 Modified Compensation by ERCOT 10.0 HR* $4.50 gas = $45.00 Previously ($40.50) Modified Compensation by ERCOT 13.6 HR * $4.50 gas = $61.20 Previously ($65.25) Equalizes compensation to all Market Participants Develop a method that compensates for increased costs, but does not reward for being inefficient Gas - Steam Combine Cycle

  5. Up Deployments • As part of the submittal of the Resource Plan, QSEs will specify bid premiums by Resource using the following formula: • Gas = FIP * [10.0 HR + ( Registered HeatRate – 7.2 HR)] • QSEs requesting compensation above the 10.0 HR level, must register documentation once a year, with ERCOT and the PUCT, attesting to the unit specific HR that will be used to calculate the bid premium. • For Nuclear, Hydro, Coal and Lignite, Diesel, Block Load Transfer, and Renewable, the Modified Generic Price will remain the same as the present Generic Price as follows: • Nuclear = $15.00/MWH • Hydro = $10.00/MWh • Coal and Lignite = $18.00/MWh • Diesel = FIP * 16 MMBtu/MWh • Block Load Transfer = FIP * MMBtu/MWh • Renewable = $0/MWh

  6. Down Deployments • As part of the submittal of the Resource Plan, QSEs will specify bid premiums by Resource using the following formula: • Gas = FIP * 7 MMBtu/MWh (Presently 5 to 12 HR * FIP) • Diesel = FIP * 7 MMBtu/MWh (Presently 12 HR * FIP) • For Nuclear, Hydro, Coal and Lignite, Block Load Transfer, and Renewable, the Modified Generic Price will remain the same as the present Generic Price as follows: • Nuclear = $0.00/MWH • Hydro = $0.00/MWh • Coal and Lignite = $3.00/MWh • Block Load Transfer = Not Applicable • Renewable = $0/MWh

  7. Level Playing Field • Modified Generic Cost Method equalizes compensation, above costs, for all market participants • Equalizing revenues among all units, removes the incentive to freeze efficient units below their maximum capabilities and forcing ERCOT to deploy other inefficient units in the area that provide higher revenues • Modified Generic Cost Method compensates for increase costs, but does not reward inefficiency • Premiums based on settlement compensation assures deployment in the most efficient manner

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