Emerging Practices for Capital Adequacy © Copyright 2003, CCRO. All rights reserved. 73 Duct firing - Also called supplemental firing. Burners can be added to the HRSG (heat recovery steam generator) that allow for the generation of more steam and can increase the capacity or output of a plant. This reduces the overall efficiency of a combined-cycle plant. Economic capital – Capital a company is required to hold to support the risk of unexpected loss in the value of its portfolio. This capital protects investors and creditors against loss. This capital equates to the amount of shareholders’ investment, which is either at risk in a business or has already been allocated for current transactions or activities. It is also called risk capital or unexpected loss. Economic value - The value of an asset deriving from its ability to generate income in excess of its opportunity cost of capital. Efficiency - The rate at which a plant is able to convert Btu content in fuel to kWh. A 100% efficient plant converts approximately 3,414 Btu into 1 kWh. A plant with a heat rate of 7,000 Btu/kWh is 49% efficient. Expected loss – The mean of the credit loss distribution. Exposure indicator – Financial measure reflecting the size of a subsidiary business activity. Exposure indicators are necessary to relate historical operational risk loss experience to the current level of business activity. External/physical assets risk - Variation of portfolio market value due to the actions of third parties, including external fraud, damage to physical property or assets, or change in regulations that would alter the company’s ability to continue doing business in certain markets. Fixed O&M - Operating costs that must be paid whether or not a plant operates. Includes items such as salaries for plant personnel. Forced outage rate - An assumption about the percentage of time that a plant will not be available to generate because of unplanned or unexpected outages. Fuel cost - The cost in $/MWh of the fuel to operate the plant. Equals the cost of fuel per multiplied by the appropriate heat rate conversion. Heat rate - A measure of the Btu required by a particular plant to produce one kWh of energy. High-frequency low-impact events - Recurrent operational risk events that generate small dollar losses for example, trade confirmations and short-term IT system slowdown. HRSG - Heat recovery steam generator. A boiler that converts the exhaust heat from a combustion turbine into steam that drives a steam turbine and generator. Invested capital – Total investment generated through the issuance of equity, the retention of profits, issuance of debt, etc., which is invested in assets. Loss given default (LGD) – Fraction of each dollar of exposure that cannot be recovered in the event of a default. Loss given event (LGE) - Dollar amount loss given that the event has occurred. Low-frequency high-impact events - Rare operational risk events that generate extraordinary dollar losses for example, terrorist attacks and long nuclear outages. Marginal cost - The total variable cost, including fuel cost and variable O&M, to generate electricity. Usually expressed in $/MWh. Market risk - Variation of portfolio market value due to a change in a market price or rate, as well as a change in energy demand. This risk includes variation in commodity prices, interest rates, foreign exchange rates, weather, and load. Mean positive exposure - the averageexposure based on a calculation where negative credit exposures have been set to zero.