Volume 3 — Valuation and Risk Metrics © Copyright 2002, CCRO. All rights reserved. 53 APPENDIX F – PERCENTAGE HEDGED ON A VALUE BASIS This is a more detailed discussion of the value-based hedge metric with examples to illustrate its practical application. Value-based Metric: Contracted Revenue Stream of Hedges without Overheads = C / (A + B – D) Total Net Hedged Asset Value where: Total Net Hedged Asset Value = A + B – D A: Fair Market Value of Asset without Hedges B: MTM of Hedges E.g., Qp : quantity of power sold in MWh Ppc : price/MWh of at which sold Qg : quantity of fuel bought in MMBtu Pgc : price/MMBtu at which bought PpM : current market price / MWh of power PgM : current market price/MMBtu of fuel • MTM of the hedge: I Qi x [PiM – Pic ] ith commodity. C: Contract Revenue Stream of Hedges without Overheads Qp x Ppc - Qg x Pgc Note: We have ignored the products and price differences for elements on the power side and also on the fuel side for simplicity. D: Any other elements of cost (overheads, etc.) Assumptions used in examples: Assume that the output equivalent of a gas-fired plant is 800 MWh, that 50% of the volume is hedged at $35 for power, $32 MWh equivalent for gas, and that market prices are as indicated. Other cost elements (overheads, transaction expenses, etc.) are zero.