1. General Overview Of Resource CostsBy
Ino González
Welcome to ERCOT Nodal Market Education.
This program is designed to facilitate entry into the Nodal Market, with a combination of instructor-led and web-based training courses and materials.
All Nodal Market Education courses focus on nodal terms and processes, the nodal impacts on business and operations, readiness requirements and sources for additional nodal information.
Nov 8, 2010 1

2. Proxy for marginal operating costs
Resource Costs
Resource Costs
Proxy for marginal operating costs
Fuel Costs
Operation and Maintenance (“O&M”) costs.
ERCOT uses Verifiable Costs as a proxy for the costs a Resource incurs when operating, either in a startup mode or at minimum-energy conditions.
Verifiable Costs are a function of two types of costs:
Fuel Costs and
Operation and Maintenance (“O&M”) costs. 2

3. How are Resource Costs Used
Used in the three stages of the power generation cycle:
Startup to LSL
Startup Fuel and Incremental O&M
Operation at LSL
Fuel at LSL and Incremental O&M
Operation above LSL
Mitigated Offer Curve for Incremental Cost Above LSL
The use of Verifiable Costs, rather than Protocol-defined generic amounts capped according to Resource Category, is optional for Resources that do not receive RUC instructions.
Replace offer caps used in the Day-Ahead Market
Costs are determined and allocated according to the three discrete stages of the power generation cycle:
Startup to LSL;
Operation at LSL; and
Operation above LSL 3 3 3

4. Use of Resource Costs in Three-Part Supply Offers
Startup Offer
Minimum-Energy Offer
Energy Offer Curve
$ to Startup
$/MWh to operate at sustained level
<This is an animated slide. Click as described below:>
As you may recall, the Three-Part Supply Offer contains three components:
Click 1: The Startup Offer reflects all costs incurred by a Generation Resource in starting up and reaching breaker close. It is expressed in dollars per start. The Start-Up Offer can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Minimum-Energy Offer reflects the costs incurred by a Resource in producing energy up to and including Low Sustained Limit (LSL). It represents a proxy for the costs incurred by a Resource in producing energy up to and including the Resource’s LSL after breaker close. The Minimum Energy Offer, like the Start-Up Offer, can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Energy Offer Curve is a proposal to sell energy at a Settlement Point at a monotonically increasing price with increasing quantity. It is resource specific and can be submitted independently of the Startup Offer and Minimum-Energy Offer. The Energy Offer Curve remains active until it is selected or until it expires.
If a QSE with a Resource chooses to submit that Resource for consideration in the DAM, the QSE has two choices. The QSE may opt to submit the Three-Part Supply Offer or just an Energy Offer Curve. We will look at both of these options over the next few slides.
What the QSE actually generates and gets paid in the real-time is another matter and may be impacted by many events occurring between now and the operating hour.
Key Points:
Review Three-Part Offer components
Offer to sell energy from a specific resource
Emphasize it is a financial position only
What I generate and get paid in RT is another matter
$/MWh to operate at given MW quantities above sustained level

5. $/MWh to operate at sustained level
Offer Caps – DAM and RUC
Cap Supply Offers
Startup Offer
Minimum-Energy Offer
$ to Startup
$/MWh to operate at sustained level
<This is an animated slide. Click as described below:>
As you may recall, the Three-Part Supply Offer contains three components:
Click 1: The Startup Offer reflects all costs incurred by a Generation Resource in starting up and reaching breaker close. It is expressed in dollars per start. The Start-Up Offer can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Minimum-Energy Offer reflects the costs incurred by a Resource in producing energy up to and including Low Sustained Limit (LSL). It represents a proxy for the costs incurred by a Resource in producing energy up to and including the Resource’s LSL after breaker close. The Minimum Energy Offer, like the Start-Up Offer, can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Energy Offer Curve is a proposal to sell energy at a Settlement Point at a monotonically increasing price with increasing quantity. It is resource specific and can be submitted independently of the Startup Offer and Minimum-Energy Offer. The Energy Offer Curve remains active until it is selected or until it expires.
If a QSE with a Resource chooses to submit that Resource for consideration in the DAM, the QSE has two choices. The QSE may opt to submit the Three-Part Supply Offer or just an Energy Offer Curve. We will look at both of these options over the next few slides.
What the QSE actually generates and gets paid in the real-time is another matter and may be impacted by many events occurring between now and the operating hour.
Key Points:
Review Three-Part Offer components
Offer to sell energy from a specific resource
Emphasize it is a financial position only
What I generate and get paid in RT is another matter

6. $/MWh to operate at given MW quantities above sustained level
Real Time Mitigation
Cap Supply Offer
Energy Offer Curve in
SCED
$/MWh to operate at given MW quantities above sustained level
<This is an animated slide. Click as described below:>
As you may recall, the Three-Part Supply Offer contains three components:
Click 1: The Startup Offer reflects all costs incurred by a Generation Resource in starting up and reaching breaker close. It is expressed in dollars per start. The Start-Up Offer can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Minimum-Energy Offer reflects the costs incurred by a Resource in producing energy up to and including Low Sustained Limit (LSL). It represents a proxy for the costs incurred by a Resource in producing energy up to and including the Resource’s LSL after breaker close. The Minimum Energy Offer, like the Start-Up Offer, can only be submitted as part of the Three-Part Supply Offer.
Click 2: The Energy Offer Curve is a proposal to sell energy at a Settlement Point at a monotonically increasing price with increasing quantity. It is resource specific and can be submitted independently of the Startup Offer and Minimum-Energy Offer. The Energy Offer Curve remains active until it is selected or until it expires.
If a QSE with a Resource chooses to submit that Resource for consideration in the DAM, the QSE has two choices. The QSE may opt to submit the Three-Part Supply Offer or just an Energy Offer Curve. We will look at both of these options over the next few slides.
What the QSE actually generates and gets paid in the real-time is another matter and may be impacted by many events occurring between now and the operating hour.
Key Points:
Review Three-Part Offer components
Offer to sell energy from a specific resource
Emphasize it is a financial position only
What I generate and get paid in RT is another matter

7. How are Startup Offer Caps Calculated
Startup Offer Cap ($/Start)
Startup Offer Cap = Fuel Costs + O&M
O&M = Operation & Maintenance Costs
Calculated for each Startup Type
Cold Start
Hot Start
Intermediate Start
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 7 7

8. How are Min Energy Offer Caps Calculated
Minimum Energy Offer Cap ($/MWh)
Minimum Offer Cap = Fuel Costs + O&M
Costs at LSL
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 8 8

9. Startup Offer and Min Offer Caps
Using
Generic Costs 9

10. How are Startup Offer Caps Calculated
Startup Offer Cap ($/Start) – Using Generic Costs
Startup Offer Cap = Fuel Costs + O&M
O&M = Generic value in the Protocols by technology
Same value for each start type
Cold Start
Hot Start
Intermediate Start
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 10 10

11. How are Startup Offer Caps Calculated
Generic Startup Offer Cap ($/Start) for CCP > 90MW
Startup Offer Cap = $6,800/Start
Startup Offer Cap applies to all configurations
Same value for each start type
Cold Start
Hot Start
Intermediate Star
Use as default value by ERCOT if no other costs are filed Note: CCP = Combined Cycle Plant
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 11 11

12. How are Min Energy Offer Caps Calculated
Min Energy Offer Cap ($/MWh) – Using Generic Costs
Minimum Offer Cap = Fuel Costs + O&M
Costs at LSL
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 12 12

13. How are Min Energy Offer Caps Calculated
Generic Min Energy Offer Cap ($/MWh) for CCP > 90MW
Minimum Offer Cap = 10 MMBtu/MWh * FIP
Costs at LSL
Fuel costs based on generic heat rate
Use as default value by ERCOT if no other costs are filed
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 13 13

14. Startup Offer and Min Offer Caps
Using
Verifiable Costs 14

15. Permissible Verifiable Cost
Verifiable Costs include:
Fuel consumption rates (actual)
Incremental Operation & Maintenance (O&M) costs
Variable O&M
Emission credit costs
Nodal Surcharge Factor
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT 15

16. How Verifiable Costs are Used
Startup Fuel and Incremental O&M
Verifiable Startup Offer costs
Replace generic caps on Startup Offers
Are calculated using
FIP/FOP
Verifiable fuel rates
Incremental O&M
The Verified Startup costs will be used to set the Cap on Startup Offers by the QSE. If a Resource does not have approved Verifiable Startup costs, the Cap on Startup Offers will be set by the Generic Startup Costs in the Nodal Protocols for the specific resource technology.
QSE’s Startup Offer _
<
Startup Offer Cap calculated using verifiable costs 16

17. How Verifiable Costs are Used
Minimum-Energy Fuel and Incremental O&M
Minimum Operating Costs
Replace generic caps on Minimum Energy Offers
Are calculated using
FIP/FOP
Verifiable fuel rates at LSL
Incremental O&M
The Verified Minimum Energy operating costs will be used to set the Cap on Minimum Energy Cost Offers by the QSE. If the Resource does not have approved Verifiable Minimum Energy Costs, the Cap on Minimum Energy Offers will set by the Generic Minimum Energy Costs in the Nodal Protocols for the specific resource technology.
QSE’s Minimum Energy Offer
Minimum Energy Offer cap calculated using verifiable costs _
< 17

18. How are Verifiable Costs used
Verifiable Startup Costs ($/Start)
Startup Offer Cap = Fuel Costs + O&M
O&M = Verifiable Operation & Maintenance Costs
Calculated for each Startup Type
Cold Start
Hot Start
Intermediate Start
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 18 18

19. How are Verifiable Costs used
Verifiable Fuel Cost to Start ($)
Fuel Quantity = MMBtu
Fuel Quantity Price = $/MMBtu
Fuel Cost = Fuel Quantity x Fuel Price x Fuel Percentage
FUEL COST AT LSL ($/MWh)
FCLSL = [VFCLSL/LSL] X [FIP X Gasperme% + FOP X Oilperme% +
SFP X Sfperme
Where:
FCLSL = Fuel cost at LSL ($/MWh)
VFCLSL = Verified fuel consumed at LSL (MMBtu/hr)
LSL = Low Sustained Limit of Resource (MW)
FIP = The fuel price index for gas($/MMBtu)
FOP = The fuel price index for oil($/MMBtu)
SFP = The price index for solid fuel = $1.50 ($/MMBtu)
GASPERME = Percent of gas used at LSL
OILPERME = Percent of oil used at LSL
SFPERME = Percent of solid fuel used at LSL 19 19

20. How are Verifiable Costs used
Verifiable O&M to Start ($)
O&M Cost = O&M costs + Emissions Costs + Nodal Surcharge
FUEL COST AT LSL ($/MWh)
FCLSL = [VFCLSL/LSL] X [FIP X Gasperme% + FOP X Oilperme% +
SFP X Sfperme
Where:
FCLSL = Fuel cost at LSL ($/MWh)
VFCLSL = Verified fuel consumed at LSL (MMBtu/hr)
LSL = Low Sustained Limit of Resource (MW)
FIP = The fuel price index for gas($/MMBtu)
FOP = The fuel price index for oil($/MMBtu)
SFP = The price index for solid fuel = $1.50 ($/MMBtu)
GASPERME = Percent of gas used at LSL
OILPERME = Percent of oil used at LSL
SFPERME = Percent of solid fuel used at LSL 20 20

21. How are Verifiable Costs used
Verifiable Minimum Energy Costs ($/MWh)
Minimum Offer Cap = Fuel Costs + O&M
Costs at LSL
This slide shows the final results of the calculation of startup O&M including the costs of emission credits.
Note the effect of verifiable O&M due to the inclusion of the cost of emission credits. For instance, at cold startup, the O&M costs increase from $15,000 to $19,280, using the assumption regarding emission rates and emission price indices. 21 21

22. How are Verifiable Costs used
Verifiable Minimum Energy Fuel Cost at LSL ($/MWh)
Fuel Quantity = MMBtu/MWh
Fuel Cost = Fuel Quantity x Fuel Price x Fuel Percentage
FUEL COST AT LSL ($/MWh)
FCLSL = [VFCLSL/LSL] X [FIP X Gasperme% + FOP X Oilperme% +
SFP X Sfperme
Where:
FCLSL = Fuel cost at LSL ($/MWh)
VFCLSL = Verified fuel consumed at LSL (MMBtu/hr)
LSL = Low Sustained Limit of Resource (MW)
FIP = The fuel price index for gas($/MMBtu)
FOP = The fuel price index for oil($/MMBtu)
SFP = The price index for solid fuel = $1.50 ($/MMBtu)
GASPERME = Percent of gas used at LSL
OILPERME = Percent of oil used at LSL
SFPERME = Percent of solid fuel used at LSL 22 22

23. How are Verifiable Costs used
Energy Offer Curves may be subject to mitigation in Real-Time operations using a Mitigated Offer Cap
ERCOT will construct an incremental Mitigated Offer Cap Curve
Generating Resources online after January 1, 2004 the Mitigated Offer Cap Curve will be the greater of (point by point):
14.5 MMBtu/MWh x minimum of FIP or FOP OR
Resource’s IHR Curve x ((percentage of FIP x FIP) + (percentage of FOP x FOP))/ verifiable variable O&M costs times a multiplier
For Resources online before January 1, 2004 the Mitigated Offer Curve will be the greater of (point by point)10.5 MMBTU/MWh or the IHR curve
Mitigated Offer Curve 23 23

24. Where Verifiable Costs are Used
Protocol Requirements for Calculating Make-Whole Payments
Price used for Make-Whole payments is as follows:
Before ERCOT Approval
After ERCOT Approval
Generic Startup Offer Cap for the Resource Category; and
Startup Offer Cap based on approved verifiable unit-specific costs; and
Generic Minimum-Energy Offer Cap for the Resource Category
Minimum-Energy Offer Cap based on approved verifiable unit-specific costs
Protocol Requirements
5.6.1: Make-Whole Payments for a Resource are based on the Startup Offers and Minimum-Energy Offers for the Resource, limited by caps.
Until ERCOT approves verifiable unit-specific costs for that Resource, the caps are the Resource Category Startup Generic Cap and the Resource Category Minimum-Energy Generic Cap. $ 24 24

25. Standard Costs 25

26. Permissible Standard Costs
Standard Costs Include:
Fuel consumption rates (actual)
Operation & Maintenance (O&M) costs
As defined in the Protocols
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT 26

27. Differences Between
Generic Costs
Verifiable Costs
Standard Costs 27

28. Differences in Cost Categories
Type of Cost
Filing with ERCOT
Generic
Not required
Verifiable
Required*
Standard
Required**
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT
* For Resources receiving 5 RUC deployments in a year
** May substitute Standard Costs (O&M) in lieu of actual verifiable O&M
** Only valid through 12/31/2011 unless Board approves changes/extension
Note: Cannot mix costs, part generic, part verifiable or part Standard 28

29. Differences in Cost Categories
Start Up Cost
Startup Fuel Rate
(MMBtu)
O& M
($)
Generic
None
Protocol value
( )
Verifiable
Resource actual
Standard
( )
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT 29

30. Differences in Cost Categories
Min Energy Cost
Heat Rate
(MMBtu/MWh)
O& M
($/MWh)
Generic
Protocol value
( )
None
Verifiable
Resource actual
Standard
( )
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT 30

31. Differences in Cost Categories
RT Mitigation
Fuel Rate
(MMBtu/MWh)
O& M
($/MWh)
Generic
Generic Heat Rate
( )
None
Verifiable
Resource actual
Standard
Verifiable Costs also include:
Fuel consumption rates during startup or while operating at minimum energy conditions.
Incremental Operation & Maintenance costs during startup or while operating at minimum energy conditions
The cost of purchasing emission credits required to satisfy environmental conditions.
The Nodal Surcharge imposed by ERCOT 31

32. Any Questions?
Note to instructor: Inform the class that there is a time limit to the Q&A session, depending on where we are at in the course.
Before we proceed to the next Module are there any questions on this Module of the course? 32

33. Verifiable Costs template
Module Summary
Related Links
Verifiable Costs template
Verifiable Costs Manual 33