Posted: September 7th, 2024
Spring 2016 â EBF304W Final Project Assignment
Spring 2016 â EBF
304W
Final Project
Assignment
Due: 5:00pm on
Wednesday, 4 May 2015
200 points
Instructions:
For the course project, you will be asked to evaluate an export decision for a
shale oil field in Pennsylvania. You
will need to make an export commitment decision in the face of uncertainty over
the magnitude and timing of key market variables. Students may work in groups
of two or three on this assignment. Groups must be formed by Friday, April 15th.
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Your final response is due back to me by
5:00 pm on Wednesday, May 4 via ANGEL (and a hard copy is due to my office in
121 Hosler Bldg.
Please prepare your response exactly as you would in the
real world. Among other things, write in a professional manner and make any
graphics or tables easy to understand. Further, your response must conform to
the following guidelines:
1.
Include a cover page with your name and a brief
title for your report.
2.
Include a one-page executive summary (this does
not count against your page limit). We
will discuss the format for this summary in classâbe sure to follow the format.
3.
Your response must be typed, including all
tables and graphics. No handwritten responses or hand-drawn graphics will be
accepted.
4.
Please prepare your response in 12 point Times
New Roman font, with one-inch margins on all sides (left, right, top, bottom).
5.
Please double-space your response.
6.
Please be sure to number your pages.
7.
All figures and tables should be numbered
consecutively
8.
Your response should not exceed 20 single-sided
pages or 10 double-sided pages, including all tables, graphics and text. The
cover page and the executive summary will
notcount against this page limit.
9.
You may not
use any material outside of class notes and readings.
10.
Groups may
notconsult with one another in preparing reports. Any questions or issues
should be raised with the instructor directly. We will also devote some class
time to answering questions on the project.
11.
Some (possibly all) of the information contained
in the handout has been invented for the purposes of this assignment. Please
treat everything in the handout as fact, even if it does not seem realistic to
you. You may not invent facts or
documents yourself. If you need to make assumptions that are not part of
the problem, please make them explicit. (If you find yourself making lots of
assumptions, you might want to talk with me. If I see lots of assumptions that
I judge to be outlandish, I will lower your grade on the assignment).
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Assignment Schedule
Friday, April
15th, 5:00 pm (via ANGEL or email). Let the instructor know
whether or not you will be working in a group, and if so, who your group
members will be.
Wednesday, May 4th, 5:00 pm.Final project reports due
to the instructor via ANGEL as a pdf document and as a hard copy to my office
in 121 Hosler Bldg. Any supporting information such as spreadsheets,
appendices, and other tables, equations, or code should be submitted in a
separate file from your final report.
Grading:
Grades for this assignment will be
allotted as follows:
30%
- Presentation {60 points}
60%
- Content {120 points}
10%
- Group Evaluation {20 points}
âPresentationâ includes clarity and
completeness of your writing, the formatting and ease of understanding your
tables and graphs, overall organization of your report.
âContentâ includes the logic and completeness
of your analysis, appropriate calculations, assumptions, and simulations, as
well as the description of such work as a sufficient level, which can be
replicated by a knowledgeable
âGroup Evaluationâ will involve an assessment
of your own and your group membersâ level of effort on this project. Each
individual member of a group must separately complete and submit the group
evaluation form. For students who choose to complete the project individually,
this evaluation will be a 1-page personal reflection essay on lessons learned
in this class, and their application to this project and other real world
situations.
Good luck and have fun!
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Power Plant Development
Decision
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Background:Thomas Edison opened the
first central power generating station in New York City in 1882 and ushered in
the dawn of the electric age. Since that time, almost all aspects of the power
industry have been heavily regulated through a combination of state and federal
agencies. Utilities were granted a monopoly in certain geographies to build
power generating facilities and all the necessary transmission and distribution
infrastructure needed to deliver electricity to the homes and businesses in
that region. Those regulated utilities were allowed to recover the costs of
building that infrastructure through rates charged to consumers and set by the
state Public Utility Commissions. Other aspects of the industry, including the
wholesale purchase and sale of electricity (between utilities) and the
interstate transmission of electricity were monitored by the Federal Regulatory
Commission (FERC).
It was a series of federal
orders issued by FERC between 1996 and 2003 that deregulated much of the
electricity industry and opened up those markets to wholesale competition. Some
of the major changes included the formation of Independent System Operators
(ISOs) to control the regional transmission grid, providing open access to that
transmission grid on a nondiscriminatory basis and standardizing the rules for
new generation interconnection to the grid. FERC also focused on the creation
of a robust wholesale market for electricity, where generators would compete
based on price to sell electricity and utility owned generation would not have
an advantage over non-utility owned generation.
The combined effect of these
rules was profound and ushered in a new age of competition in the electric
industry. New companies called Independent Power Producers (IPPs) were able to
pursue building power generating facilities as a business model. In 1990,
approximately 94% of all electric generating plants in the United States were
owned by a regulated utility. In 2010, that number had dropped to 58%.
Electricity
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Generation
Hours: The
power plants do not run continuously. Instead, they generate electricity on
certain peak and off-peak hours, and use the remainder of the time to conduct
necessary maintenance. However, mostly this is due to the fact that more power
generation capacity exists than is necessary for low demand times of day and
parts of the year.
Each
turbine will have the ability to run during on-peak and off-peak hours. On-peak hours are Monday through Friday, 7 am
until 11 pm; generally, the hours which the most electricity is used and when
it is the most expensive. Off-peak hours
are Monday through Friday, 12 am until 7 am and 11pm
until 12 am. Off-peak also includes all day Saturday and
Sunday, and NERC holidays. NERC holidays
are New Yearâs, Memorial, Independence, Labor, Thanksgiving, and Christmas. Off
Peak hours are when electricity is not being used as much and is cheaper. Base
your total number of on-peak and off- peak days based on January 1 of a
non-leap year.
Electricity
Since a power plant does not run every hour of the year,
you will have to find the amount of electricity generated per month/year
based on the percentage of hours the plant will be expected to produce
electricity. Provided below are the
generation percentage for On-Peak and Off-Peak hours for each month supplied
by your companyâs Operations Group. Once you have found out the total number
of hours in each month, you will have to multiply that by the percent of
generation to determine the total number of hours of expected run time each
month.
Prices:
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Electricity prices include both capacity payments and
payments received per MWh of electrical power produced. For the purposes of
this project, these two factors have been combined into a single value. The
amount expected to be received for each MWh produced for the next 20 years is
anticipated to be as follows (this data has also been provided in the
supplemental Excel worksheet).
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Gas
Prices: An energy economics firm has provided a forecast of possible future
gas prices, which are as follows in the table below. This data has also been
provided in the supplemental Excel worksheet.
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Your
Assignment: Your team has been asked by the company
to evaluate the decision of which power plant to build at the Philadelphia
site. To that end, you need to perform the following:
1.
Calculate the expected MWh output and the
expected fuel use and fuel expenditures for each power plant.
2.
Generate a complete Pro Forma statement for the
two power plant options including the profit and loss and cash flow statements.
Use annual accounting for these statements.
3.
Evaluate the tax benefits to the company of
using the 10-year MACRS depreciation tables versus 10-year straight-line
depreciation of the power plant capital expenditures.
4.
Conduct a sensitivity analysis and consider the
robustness of your decision for 20% increases or decreases in the following
factors:
a. Capital
expenditures
b. Gas
prices
c. Electricity
revenues
5.
Fit a reasonable statistical distribution to
electricity prices and gas prices and conduct a Monte Carlo simulation for both
power plant options accounting for all three uncertain factors. Report the risk
that these power plants will not have a positive NPV, and the risk that one
power plant will be a less viable choice than the option not recommended.
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Gas Transportation and
Storage Decision
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Transport
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Modes: Your
company has 3 transportation modes available for transporting gas to your power
plant. Your company has several existing gas fields and can supply sufficient
gas to meet all the needs of the selected power plant. Your team must develop a
transport strategy to maximize the efficient delivery of that gas as
needed.
Pipeline
The
pipeline has a minimum capacity of 20,000 MMBTU per day, and a maximum of
40,000 MMBTU per day. The investment costs for the two pipeline routes as
given in the previous memo assignment remain the same. The transportation
costs for the pipeline total $0.50/MMBTU.
Rail
Rail
cars can transport smaller amounts of gas up to large amounts, yet they
require less initial investment. The investment for a rail transfer depot at
the power plant is $80 million. The minimum for the rail transport is 5,000
MMBTU per day, and a maximum of 30,000 MMBTU
per
day. The transportation costs for rail are
$1.00/MMBTU.
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Truck
Trucks
have no minimum shipment size, and a very small
initial
investment of only $1 million. There is no maximum amount that the trucks can
carry, but for each increment of 10,000 MMBTU, the cost of transport
increases by $2.00/MMBTU. The starting cost is also $2.00/MMBTU.
Leak
Detection
For each transportation option, if it is chosen, the
transported gas must remain above the minimum for that option for the
year.
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System:
There is a
leak detection system available to be purchased for the pipeline system. The
cost of implementing the leak detection system is $500,000. The accuracy of
such a system is described in the conditional probability table below.
Leak
No Leak
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Leak Detected
0.99
0.02
No Leak Detected
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0.01
0.98
If a leak is
detected, then it can be contained before any damages occur. If a leak is not
detected, then damages occur as described in the section below. A false alarm
results in a cost of $25,000 to the company. The probability of a leak is 1 in
10,000.
Disaster
Severity
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Modeling: Disasters may result from any of the natural gas transportation
options. In these events, natural gas leaks from the transport vessel and is
then ignited by sparks or high temperatures or open flames and an explosion
results. If a leak occurs, the severity of such a leak in millions of dollars
of damages is given by the following expression ????
= 2????, where .gif"> is a number following a Poisson distribution
with a mean value of 2.5 (????
= 2.5).
Your
Assignment: Your team should
investigate the following decisions and justify your recommendations to
management on:
1.
Generate a gas transport strategy for meeting
the needs of the selected power plant.
2.
Determine the value of the leak detection
system.
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