SKM/A94Library

SKM/A94SoftwareLibrary© is a suite of analytical software, modules and data bases designed to conduct the research and analysis necessary to evaluate the effectiveness of the free market and regulatory cost containment points, along supply chains ending in regulated monopoly charges to U.S. customers. It will also accommodate and determine the effect of changes caused by current regulatory filings or national policy initiatives. SKM/A94Library© may facilitate the identification of potential alternative and niche markets and entry points along this chain.

Existing Models:

1. SKM/A94Rationale© is a historical financial analysis system using both GAAP and Regulatory financial statements to identify trends, anomalies, internal accounting relationships, impacts of accounting and policy changes and for benchmarking against other entities. The system integrates SKM’s in-depth and detailed knowledge of regulatory approaches and conventions into both the fundamental statistical analyses as well as the evaluation of the results. It is the starting point for SKM/A94Effective©.

SKM conceived the approach long ago, and first used it to analyze a chemical company’s financial assurance compliance with EPA rules. SKM has also used SKM/A94©Rationale© to test the effectiveness of the FERC’s formula ratemaking for electric transmission service and to correlate certain spending patterns to the effects of regulatory policy mandates. SKM/A94© provides background and contextual knowledge to support evaluations of plant lives, depreciation, cost allocations and cash flows regulated entities derive from customers rates.

The software is still in its infancy, but even now, SKM/A94Rationale© provides useful information to evaluate a company’s capital recovery mechanisms (base rate depreciation, capex trackers, etc.), capital needs, and ability to fund capital needs. SKM/A94Rationale© provides information useful to evaluate Return on Investment, Return on Equity, attrition, regulatory lag, revenue requirements, cost of service allocation procedures, and rate design. When fully developed it will provide the information required to measure and evaluate the overall effectiveness of the regulatory regimen under which these companies operate.

2. SKM/A94SCIAS© SKM’s Comprehensive Investment Analysis System provides the ability to analyze and evaluate property, plant and equipment asset mortality (addition and retirement) patterns to estimate projection lives and mortality characteristics. The system uses a variety of actuarial, semi-actuarial, and turnover techniques to conduct these analyses and has the capability to blend scientific, engineering, and economic information with accounting data to predict and synthesize impacts on plant lives and other capital activity. In addition to capital activity, SKM/A94SCIAS© can analyze and evaluate operating data such as annual maintenance and operation expenditures. Some of the inputs can be obtained from the SKM/A94Rationale© analysis; other inputs must be obtained independently. Over the years, SKM has accumulated much of this data. To date, Snavely King has used SKM/A94SCIAS© to analyze electric, gas, water, and telephone companies. For example, Snavely King used SKM/A94SCIAS© with U.S. Energy Information Administration data to conduct a National Study of Electric Steam Plant Unit Lives©.

3. SKM/A94COS© The results of SKM/A94SCIAS© or other models flow easily into the SKM/A94COS© model, which identifies the total cost [revenue requirement] implications of alternative policies, e.g. timing of installation of environmental controls and other operational decisions. SKM/A94COS© follows FERC, STB, FCC and other standard formats for converting the companies’ balance sheets and income statements into the “revenue requirement,” that is, the full cost, including return on investment, of utility service. Since it is populated with data from the Annual Regulatory Reports, many of the inputs can be obtained from the SKM/A94Rationale© analysis. Typically, the analysis augments cost inputs with special specific studies. Currently, the COS model is suitable for analysis at the individual company, however with data mining it will also be available at the regional and national levels.

4. SKM/A94CAM© The SKM/A94COS© outputs are the SKM/A94CAM© inputs. This model functionalizes the SKM/A94COS© into its primary elements, e.g., jurisdiction, generation, transmission, distribution, and general costs. The software distributes the functional costs to individual customer categories, such as, large industrial, commercial, and residential. The results can answer key questions facing the policymaker.

5. SKM/A94ComparableSales© is a multiple linear regression model relating the characteristics of packages of recently sold power plants to estimate the Competitive Market Value for Existing Generation Assets.

6. SKM/A94Effective© when completed will be a user-friendly tool sufficiently granular to analyze down to the company level the effectiveness of free market forces and the current regulatory cost containment points along the energy chain, along with any changes caused by current regulatory filings or national policy initiatives. It will be a suite of analytical programs, modules and data bases designed to enable users to view and analyze the regulatory cost containment points along the energy supply chains leading to the customers they are to protect from monopoly abuse. The SKM/A94Effective© system will consist of: (1) current SKM/A94© models with enhancements to provide more capabilities and integrated into the larger system, (2) new SKM/A94© models in the conceptual stage and (3) specific modules and data bases from the U.S. Department of Energy’s National Energy Modeling System (“NEMS”) and elsewhere.

Future Models:

3. SKM/A94MainStreetCost/Benefit© - a model to evaluate a cost/benefit ratio of policies being imposed on Main Street based on studies not reflective of Main Street’s discount rate.