1CHAPTER 3POWER SYSTEM PRODUCTION COST SIMULATION FORSHORT-TERM RELIABILITY EVALUATIONProduction cost models include economic and reliability analyses which are widely usedthroughout the electric utility industry to support long-range system investment planning,midterm hydro and fuel budgeting, and short-term system operation. Production cost simulationsconsider power system constraints for supplying the load forecast. Production cost models whichcalculate a generation system's probabilistic production cost, consider energy imports,availability of energy for sales to other systems, regulatory and environmental requirements,hydro scheduling and fuel consumption, and impacts of system uncertainty and resourcevariability on production cost evaluations. Since generating units are not perfectly reliable andfuture load levels cannot be forecast with certainty, many production cost programs are based onprobabilistic models which are used to compute the statistically expected need for emergencyenergy and capacity supplies or the need for controlled load demand reductions.3.1 APPLICATIONS OF PRODUCTION COST SIMULATIONProduction cost simulations find extensive applications by electric power companies for theinvestment and operation planning. The major applications include:(1)System Planning Studies. These studies are conducted for a 20-40 year horizons to evaluateannual operating expenses for several alternative system plans in power system planning. Theprocedure will evaluate annual operating expenses along with those of capital charges forintroducing new generation and transmission assets, and determine the total present-worth costof several alternative plans by applying financial analyses.(2)Fuel Budgeting. These studies are similar to long-range system planning studies except thatthe horizons are shorter (a few months to years). These simulations are used for fuel purchasingdecisions, midterm corporate projections for fuel and hydro scheduling, and filing reports toregulatory agencies for near-term planning. Midterm studies are generally performed withgreater simulation detail than longer-range studies.(3)Load Management Studies. Studies can be performed to evaluate midterm and long-termdemand growth, customer mix, demand profiles (industrial/commercial/residential) andelectricity pricing structures.(4)Cost-of-Service Studies. Production cost simulations are useful in studying the cost ofelectricity services for electricity rate analyses. Production cost simulations are used to evaluateshort-term potential benefits associated with contractual purchases or sales of electricity.Especially important are the analyses of the cost of electric services as a function of time andlocation in power systems.
