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Note: the Tolling Project background information pdf is written for an in-person

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On September 17, 2024

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Note: the Tolling Project background information pdf is written for an in-person group project. For this project, you are going to value a tolling contract on an existing power plant on the PJM interconnection.

You are only required to do a discounted cash flow analysis. Start with the ‘General Background Information Link’ under the Tolling Project Assignment. Under ‘General Notes’ please make sure to read number 3. This is important. Under the ‘Data’ heading, there are links for LMP by hour and PNODE. You are to follow the links, you want the ‘‘Total LMP Real Time’ data and you need to sort by PNODEID (Found on the other pdf titled ‘Tolling Assisnment’). You also need the link for Henry Hub (these are historical natural gas spot prices i.e. your basis).

TEXTBOOK USED IN THIS COURSE

Ross, S. A., Westerfield, R. W., & Jaffe, J. (2009). Corporate finance (9th ed.). McGraw-Hill/Irwin.

6/23/24

Question

1.On the Henry hub website, we can download the “Natural Gas Spot Price” for a specific date, is that SG?

2. about SE, is that “total LMP Real time” for PnodeID 21601864 ?

3. Since we only have historical data, can I use the data from 06/01/2023 to 08/30/2023? should I consider the discount rate?

Reply from professor

Yes, the Henry Hub data from the EIA website will serve as our base price. You have the option to utilize either Henry Hub spot prices or futures prices. For example, you could calculate the average spot price for the month of June 2023 to establish a representative spot price for June 2024 (considering the highly seasonal nature of these prices). Alternatively, you may review the futures prices provided on the EIA website. There is no definitive ‘right’ answer in choosing between these methods; your approach should include a brief explanation of your methodology and the rationale behind your selection of the spot price. The spot price determined through your chosen method will be used as your 𝑆𝐺. **NOTE: Electricity prices are highly seasonal and also vary according to a common pattern throughout the day. They also can differ markedly by location. So do not use your PnodeID’s average price at 2pm in July 2013 to predict the average 2pm price for November 2013. Use the average 2pm price for November 2012.

Yes, the “total LMP Real Time” should be sorted for PnodeID 21601864 (Steel City).

Yes. The discount rate is also something that you choose along with a brief explanation of how you came up with it.

As an aside, you are given the heat rate (7.8) so you do not need to calculate the heat rate.

7/4/24

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