3.3.4. Treatment of Ancillary Services in the Avoided Cost Calculator
Several parties included discussion of the treatment of costs and revenue from ancillary services and other CAISO markets in their comments on the proposed decision. The treatment of CAISO market participation within the protocols is complicated, because revenues earned in those markets are considered in three separate calculations within the DR cost-effectiveness framework. These costs are considered in the following ways:
First, as part of the combustion turbine simulation, the Avoided Cost Calculator determines the revenue a combustion turbine would earn in energy markets, including Ancillary Services, as part of the gross margins calculation. The gross margins are subtracted from the fixed and variable operating costs of the combustion turbine to determine the "residual capacity value" which represents the avoided generation capacity cost (essentially, the cost that Demand Response, and other demand-side programs, is avoiding).
Second, the Avoided Cost Calculator determines the Avoided Cost of Ancillary Services. This calculation determines the extent to which the use of a demand-side resource avoids the procurement of ancillary services by the CAISO. It has been determined that, at the present time, DR programs avoid little or no ancillary services procurement, since current CAISO practices do not include forecasts of DR events in the Day Ahead markets where most Ancillary Services are procured. However, this issue should be revisited in the future as CAISO practices more clearly incorporate DR into their scheduling process.
Finally, the revenues a particular DR program is expected to earn from participation in ancillary services or other CAISO markets is considered to be a benefit of that program.19 The value of this benefit is input into the Demand Response Reporting Template, separate from the results from the Avoided Cost Calculator.
19 Considering ancillary services revenue a benefit for DR is consistent with the approach of including ancillary services Revenue in the calculation of gross margin for a combustion turbine. In both cases ancillary services revenue counts as a benefit that reduces the net cost of that resource to the utility and its ratepayers.
