|
|
Enron Mail |
Mike and Frank,
Attached is a revised quote for options relating to the ACE deal. The changes include actual Daily MW Production from Gray and also a hedge ratio of 10.522 mmbtu's/MW. I calculated the hedge ratio 2 ways. First I put the SRAC formula in excel (tying to the Aug'00 SRAC calculation from SoCal Edison) and I increased the price of natural gas by $1 and noted the difference in the SRAC power price. That resulted in an increase in the SRAC of $1.0522 cents/kwh or converted to $10.522/mwh. I also looked at a change in mark-to-market profit based on a hedge of 10.522 mmbtu's for every 1 MW. So for every 1 mwh you need to hedge 10.522 mmbtu's. Next I took the SRAC formula below: Pn = {PBase + (PBase * (GPn - GPBase)/GPBase * Factor)} * TOU Where Pn = SRAC price PBase = Base Enery Price $2.0808 cents/kwh (constant) GPn = current Socal index GPBase = Base Gas Price $1.3975/mmbtu (constant) Factor = % change in enery price affected by gas price .7067 (constant) TOU = time of use (i.e. Summer on peak = 1.4251) If you look at just the piece that moves (GPn) and calculate a $1 increase: ($2.0808 * ($1 - $1.375)/$1.375 * .7067) = 1.0522. Gray had calculated the heat rate by taking the SRAC price divided by the gas price. This heat rate moves depending on the level of gas (decreases with an increase in gas price). This is a correct calculation for the heat rate, however, to calculate the hedge delta, the above calculation should be used and this hedge delta stays constant no matter the level of gas price. Please call with any questions or concerns. My number is (713) 853-6247. Thanks. John
|