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This is a sample proposal for an Electric and Gas Utility company for a
customized, inhouse presentation of FAI's Utility Finance and Accounting for
Non-financial Professionals.
This proposal shows the kinds of information needed to make the seminar most
relevant to the organization.
June 16, 2001
TO: J. Kilowatt
Your Electric and Gas Company
FROM:
L. Ross
Financial Accounting Institute
P.O. Box 118
Tenafly, NJ 07670
Phone: (201) 568-0249 Fax: (201) 568-4668
RE: Information Package regarding inhouse seminar
for XYZ Electric and Gas
Enclosed is some information for your review regarding our
Utility Finance & Accounting Seminar which will be useful should
we be asked to teach this course for your organization. Please
review Attachments I-VIII and particularly Attachment IV which
contains a list of the information we ask for to prepare and
present this customized course.
Attachment I Seminar
Outline
Attachment II Materials and Fee Description
Attachment III General Information &
Responsibilities of XYZ Electric and Gas
Attachment IV Questions to be answered by XYZ Electric
and Gas to customize Seminar
Attachment V Participant Form
Attachment VI Info Sheet for Instructor
Attachment VII Classroom Setup Description
Attachment VIII Instructor's Vita
Please let me know if you have any questions. Thanks.
UTILITY FINANCE & ACCOUNTING FOR NON-FINANCIAL PROFESSIONALS
LEARNING OBJECTIVE: To provide a working understanding of finance and accounting
as applied to both the regulated utility and non-regulated companies
(competitors,
customers and the future utility company).
UPON COMPLETION OF THE SEMINAR, PARTICIPANTS WILL BE ABLE TO:
-Understand accrual accounting
-"Read" an annual report of the company or its customers
-Calculate key financial ratios
-See the link between finance and accounting and the strategic
plans of the company
-Understand how a utility makes money now and what needs to be
done for the future
-Analyze whether shareholder value is being created as opposed to net income
-Do a capital budgeting analysis (engineering economics)
APPROACH:
Lecture and discussion with a note-taking outline provided to each
participant.
Extensive use of:
-A non-debit and credit approach
-Problem solving sessions
-Annual Report of your firm
-Homework assignment
-Actual utility financial statements
-Interaction with other participants
-Group case work
MATERIALS:
Notetaking Outline. A day by day detailed outline of the topics covered with
space for notes. This outline is the primary vehicle for the seminar.
ATTACHMENT I
UTILITY FINANCE & ACCOUNTING SEMINAR
XYZ Electric and Gas
PRECOURSE ASSIGNMENT:
Berk, Joel. Utility Financial Statements: Concepts & Analysis.
DAY ONE
Introduction
Basic Accounting Concepts
Balance Sheet
Income Statement
Regulatory Assets and Stranded Costs
Financial Statement Analysis
Return on Equity
Return to Common
Shareholder Value Created
The Utility's Four Sets of "Books"
Rate Regulation
Rate Base and Cost of Service
Operating versus Non-operating Income
Financial Reporting - GAAP
Income Tax Accounting
Managerial Accounting
HOMEWORK PROBLEMS: TRANSACTIONS ANALYSIS
DAY TWO
Accounting for Utility Plant
Capitalization Versus Expense
Methods of Capitalizing More or Less
Which is Better for the Utility
Straight Line Depreciation
Accelerated Depreciation
Taxes
Timing Differences
Deferred Taxes (Normalization)
Cost of Capital
Weighted Average Cost of Capital
Risk Premium Approach
Discounted Cash Flow (DCF) Method
XYZ Electric and Gas Cost of Capital Case
Shareholder Value
Free Cash Flow
Income versus Shareholder Value Maximization
Risk Considerations
How to Make Decisions
DAY THREE
Present Value Analysis
Present Value Exercise
Incremental Analysis
Cost Behavior
Decision Making
Capital Budgeting
Cash Flow as affected by Taxes & Rate Regulation
Which Discount Rate to Use
Creating Shareholder Value
Capital Budgeting Case
Conclusions
ATTACHMENT II
The Financial Accounting Institute will prepare and teach a seminar customized
to your company which incorporates your financial statements and other unique
company data and which follows the suggested outline (Attachment I).
SEMINAR MATERIALS:
A Detailed Notetaking Binder. This is the primary vehicle for the seminar.
This should
be handed out the first day of class.
SEMINAR FEE:
The fee for the seminar is $15,000 for the first 20 partic-
ipants and $550 per person for those attending over the first 20.
The number of participants for which this fee is charged is
determined approximately one week prior to the seminar when you
inform FAI as to how many Seminar Binders are needed for the
attendees.
The travel, food and lodging expenses of the instructor are additional.
ATTACHMENT III
INFORMATION REQUESTED OF XYZ Electric and Gas INCLUDES:
1. Answers to questions and material requests in ATTACHMENT IV. Please complete
and return to FAI at least four weeks prior to seminar.
2. List of Participants with titles and completed Participant Form, ATTACHMENT
V.
Please duplicate the Participant Form, ask each person planning to attend to
complete
the form, collect them and return to FAI at least three weeks before the seminar.
3. Answers to questions on Instructor's Information Sheet, ATTACHMENT VI, to be
returned to FAI at least three weeks before the seminar.
4. Your most recent Annual Report. Please have a copy for each participant the
first
day of the seminar.
5. A suitable classroom for the seminar and a/v equipment, coffee breaks and
lunch-
es. See enclosed sketch and description, ATTACHMENT VII.
ATTACHMENT IV
Questions & Materials
To Customize Program
Please have someone from the Rate Department (Regulatory Affairs,etc.) provide
writ-
ten answers for the following questions.
Please answer the following questions on a separate sheet if needed.
1. Prepare a chart similar to the one below for every jurisdiction (e.g. FCC
or FERC,
New York State, etc.) and/or for each type of utility service offered (e.g.,
Gas, Electric,
Telephone). What were the last stated allowed returns if none were stated in the
last rate
case.
Jurisdictions/Services
FERC STATE
1 STATE 2
% of Company Revenue
Date of Last Rate Order
Overall Allowed Return
Allowed Return on Equity
Allowed Return on Debt
Allowed Return on Preferred
Test Year Used
What would it cost today for the utility to borrow long term?
What would today's cost of preferred stock be?
What is the company's bond rating?
2. For the Jurisdictions above, what type of test year is generally used
(historic, project-
ed, etc.)?
3. If known, what test year will be used for the next rate case?
4. When will the next rate case be filed? Label this as to whether it is a known
date or
guess.
5. Why will the next rate case be needed?
6. What were the major issues in the last rate case in each jurisdiction?
7. What will be the major issues in the next rate case?
8. Are there any court actions between the company and any commissions with
respect
to rate issues?
9. Which industrial or business customer is the largest for each
jurisdiction?
10. Who are the parties to the last rate case in each jurisdiction?
11. What is the name of the individual and the name of the group he/she
represents
which intervenes in your rate cases on behalf of residential rate payers (List
this for each
jurisdiction)?
12. What activities of the utility in each jurisdiction are non-regulated as
to rates? What
percent of the utility's revenue are generated from such services?
13. What potential areas for future deregulation in each jurisdiction exist?
14. What kinds of non-regulated activities do separate subsidiaries of the
parent corpo-
ration engage in? What percent of total parent corporation revenue is involved
in
these non-regulated activities? Be sure to identify the name of the parent subs.
15. Have any of the jurisdictions in which the company operates attempted to
limit the
earned return on equity which the company will be allowed to keep? Please
explain.
16. What action if any has each jurisdiction taken with respect to the decrease
in the
income tax rate to 34% in 1986?
17. What action if any has each jurisdiction taken with respect to the excess
deferred
taxes?
18. Indicate whether the company has excess capacity or shortage of capacity.
Give
any relevant figures (e.g. peak vs capacity).
19. If the company has significant off balance sheet obligations like
take-or-pay con-
tracts please indicate the nature of these, the amount and the present value
amount if
available.
20. If the company has potentially stranded costs please indicate the
estimates for:
a. regulatory assets whether on or off the balance sheet
b. purchase commitments for gas or fuel
c. purchase power obligations
d. high cost plant
e. other
For each jurisdiction in which the company operates, indicate:
a. Whether there is a fuel adjustment clause or purchased gas adjustment
clause (or
other adjustment mechanism).
b. What is the clause called?
c. What are the additional charges or credits called on the ratepayers'
bills?
d. What is the definition of fuel cost in this adjustment clause? (What costs
are cov-
ered?) You may respond using FERC or NARUC Uniform System of Account classifica-
tions.
e. How long is the lag between the incurrance of the costs and the billing of
the ratepay-
ers for the cost?
f. Is the collection through an automatic procedure or does the company have to
re-
quest approval from the Commission?
g. How does the clause handle an improvement in the heat rate? (e.g., is savings
given
to the ratepayer through the clause?)
PLEASE SUPPLY 2 COPIES OF THE FOLLOWING:
a. last rate order from each jurisdiction and if the last rate case was
settled the rate
order from the last fully litigated case
b. cost of capital testimony from the last rate case or an upcoming rate case
c. any summarization of results of the last rate case (e.g., an internal memo
sent to
executives after the rate order)
d. any testimony or major issues in the last rate cases which would be important
to
discuss at the seminar
e. the latest Annual Report of the company (this is the report which is sent to
stockhold-
ers and/or bond holders)
f. the latest Annual Report of any parent corporation or of all regulated
subsidiaries of
the company
g. 10-K of the company and any 10-Q's issued this year
h. 10-K and 10-Q's of the parent or of a regulated subsidiary
i. a statistical summary of the company, parent and/or subs that are normally
sent to
financial analysts on Wall Street
j. Several pages from a detailed Budgeting and Control Report. This should be
the kind
of report which the attendees at the seminar would normally see. If different
attendees
would get reports which are different, provide the one which most would get.
This report
should have both actual and budget figures on it. (Use your judgment on which
pages. The only reason for this request is to illustrate the nature of these
detailed inter-
nal documents).
k. Pages 204-234 of the FERC Form 1 of the company. (Electric Utilities Only).
l. A few pages from the list of retirement units of property and the dollar
amount above
which items which are not part of retirement units nor retirement units
themselves are
capitalized.
m. A sample bill sent to a customer and a written description of how to read
this bill (if
one exists).
n. Copies of any recent financial analyst research reports from "Wall
Street" firms about
the company.
o. Copies of any financial press releases in the last year.
p. A videotape, audiotape or (if neither available) a transcript of the last
annual meeting
of shareholders.
q. A videotape, audiotape or (if neither available) a transcript of the last
presentation by
company management to the financial community.
r. An existing description of the Fuel or Gas Adjustment Clause (if one exists).
s. A sample of computer output from any standard program used at the company for
making capital investment decisions as well as any documentation on how the
process
and analysis is carried out.
TO THE EXTENT THE COMPANY IS ABLE TO SUPPLY THE MATERIALS BELOW, THE
PROGRAM CAN BE CUSTOMIZED FURTHER:
1. A description of the company's budgeting process including timing, who
participates,
approvals and review process.
2. A copy of one generating plant's budget or evaluation report including:
-costs versus budget (variances)
-performance measures such as available capacity, forced outage rates,
safety, heat rate.
3. Any analysis available of fixed versus variable costs at a plant.
4. A description of the company's overhead allocation process.
5. A description of any transfer pricing policies.
6. A variance analysis report.
7. Analysis of the company's cost of capital (i.e., discount rate
in the engineering economics analysis).
8. What is the hurdle rate used for capital budgeting decisions?
Is it the same for all projects?
9. Policy of the appropriate amount of fuel or materials & supplies
in inventory. Any optimal order quantity procedures.
10. Illustrations of benchmarking or comparisons with other companies.
11. A description of a contract with a customer.
Name of person completing this request____________________________________
Title____________________________Phone Number____________________
ATTACHMENT V
PARTICIPANT FORM
XYZ Electric and Gas
NAME __________________________________________________________
first last (nickname for nametag)
TITLE____________________________________________________________
ADDRESS (BUSINESS)______________________________________________
_____________________________________________________________
_____________________________________________________________
(HOME)______________________________________________________
_____________________________________________________________
DEPARTMENT____________________________________________________
NUMBER OF YEARS OF UTILITY EXPERIENCE _________________________
PLEASE LIST ANY ACCOUNTING EXPERIENCE OR COURSES
YOU HAVE TAKEN:
__________________________________________________________________
__________________________________________________________________
DID YOU EVER LEARN PRESENT VALUE ANALYSIS (Also called Present Worth, Dis-
counted Cash Flow, Time Value of Money)?
__________________________________________________________________
DO YOU REMEMBER HOW TO FIND THE PRESENT VALUE OF A FUTURE
CASH FLOW?
__________________________________________________________________
Please bring a simple calculator to the seminar.
Please complete this form and return to:
ATTACHMENT VI
INSTRUCTOR'S INFORMATION SHEET
XYZ Electric and Gas
Please provide us with the following information for the Instructor:
1. A recommendation as to where the Instructor should stay (nearby the
classroom location):
__________________________________________________
__________________________________________________
2. A map showing the area including nearest large airport, hotel suggested
above & seminar
location.
3. Driving time from the airport to the seminar site is about
___________________(minimum)
___________________(maximum)
4. Telephone number where Instructor can be reached during the seminar is
________________________.
5. Name of one person who will be attending the seminar and who will be
responsible for
getting help should some problem arise (bulb not in projector, room too hot,
etc.) is:
_______________________________________________
6. Name of contact at your company with daytime & evening phone:
_______________________________________________
_______________________________________________
7. Any special parking problems or security checks on entering the building
at the seminar
location should be noted.
8. A copy of any letter sent to participants informing them of the seminar and telling them the
hours, dates, etc.
ATTACHMENT VII
CLASSROOM SETUP & BREAK INFORMATION
DAY ONE 8 a.m.-4 p.m.
SETUP: CLASSROOM STYLE 2 PERSONS PER 6' TABLE
REGISTRATION TABLE
ONE 6' SCHOOLROOM TABLE IN FRONT CENTER AISLE FOR
OVERHEAD PROJECTOR
PANEL TABLE IN FRONT OF ROOM WITH SIX CHAIRS
AUDIO VISUAL:
FLIP CHART
7' OR 8' SCREEN
OVERHEAD PROJECTOR
COFFEE BREAK SETUP INSIDE ROOM:
7:30 COFFEE, TEA, JUICE & ASSORTED PASTRIES
9:30 REFRESH DRINKS AS NEEDED
2:00 SODAS, TEA & COOKIES
BREAKOUTS: BREAKOUT TABLES FOR ENTIRE GROUP-SIX PER TABLE.
NOTES: NO TELEPHONE CALLS PUT THROUGH TO ROOM
MESSAGES TO BE HAND DELIVERED
DAY TWO 8 a.m.-4 p.m.
SETUP SAME AS DAY ONE EXCEPT: NO PANEL TABLE
NO REGISTRATION TABLE
AUDIO VISUAL: SAME AS DAY ONE
COFFEE BREAKS: SAME AS DAY ONE
BREAKOUT SPACE: ROUNDS SEATING 6 PERSONS PER TABLE
DAY THREE 8 a.m.-3 p.m.
SETUP SAME AS PREVIOUS DAYS
AUDIO VISUAL SAME AS PREVIOUS DAYS
COFFEE BREAK SAME IN A.M. BUT NO P.M. BREAK
LUNCH: 12 NOON - 1 O'CLOCK
BREAKOUT: ROUNDS OF 6 PERSONS EACH
ATTACHMENT VIII
JOEL BERK
EDUCATION:
B.S.,MIT, Civil Engineering;B.S., MIT, Management, 1967
M.S., Stanford University, Civil Engineering, 1968
Ph.D., Columbia University, Business, 1978
UNIVERSITY EXPERIENCE:
Polytechnic Institute of New York 1973-1975
Columbia University, Graduate School of Business 1975-1990
BUSINESS EXPERIENCE:
Union Carbide 1968-71. Engineering Department. Management Information Systems.
SEMINARS PREPARED & TAUGHT INHOUSE FOR:
Alabama Public Service Commission
Allegheny Power
American Gas Association
Arizona Public Service
AT&T Communications
Atlantic Electric
Babcock & Wilcox
Baltimore Gas & Electric
BELLSOUTH
Bonneville Power
Bridgeport Hydraulic
British Columbia Telephone
Brooklyn Union Gas
Carolina Telephone & Telegraph
Central Vermont Public Service
Century Telephone
Chemical Bank Utility Group
Cincinnati Gas & Electric
CINergy
CoGen Technologies
Columbia University Executive
Programs
Columbia University-CITI
Consolidated Edison
Consolidated Gas Transmission
Consolidated Natural Gas
Consumers Gas Company
Contel
CRTC
Delmarva Power
Detroit Edison
District of Columbia PSC
Dept. of Energy-U.S.
Donaldson, Lufkin & Jenrette
Drexel Burnham Lambert
Duke Power
Duquesne Light
E.F. Hutton
Edison Electric Institute
Edmonton Power
Etobicoke Hydro
FERC
Fireman's Fund
Florida Power Corporation
Florida Power & Light
GPU
GTE of California
GTE of the South
Hawaiian Electric
Indiana Utility Regulatory Commission
Illinois Commerce Commission
Illinois Power
Indiana Gas Company
Johnson & Higgins
Jones Intercable
L.F. Rothschild
LILCO
MCI
Manufacturers Hanover Utility Group
Metropolitan Edison
Middle South Utilities
Minnegasco
Minnesota Power
Minnesota PSC
New England Electric System
New England Telephone
NJ Div. of Ratepayer Advocate
New Mexico PSC
New York Telephone
Newfoundland Power
NICOR
Nova Scotia Power
NYNEX
NYSEG
Northern States Power
Northeast Utilities
Northwest Central Pipeline
Northwest Territories Power Corp.
Old Dominion Electric Coop.
Oklahoma Gas & Electric
Orange & Rockland Utilities
Orlando Utilities Commission
Pacific Bell
Pacific Gas & Electric
Pacific Power Utah Power
Pacific Telesis
Panhandle Eastern Corp.
Paul, Weiss, Rifkin
Pennsylvania Electric
PECO Energy
Philadelphia Suburban Water Co.
PJM Interconnection Assoc.
Potomac Electric Power Company
Prudential-Bache Securities
Prudential Capital Utility Group
PSE&G
PSI Energy
Public Service Co. of Colorado
REA
Rutgers Executive Management Program
Salt River Project
Santee Cooper
SBC Warburg
South Central Bell
South Dakota PUC
Southern California Edison
Southern California Gas
Southwestern Bell
Tampa Electric
Texas PUC
Three Cities Research
Toledo Edison
TransAlta Utilities
Tucson Electric Power
United Telephone-Eastern Group
United Telephone of Florida
United Telephone of Ohio
United Telephone of the Northwest
United Telephone of Texas
United Telephone System, Inc.
University of Georgia-PULP
University of Idaho-PUEC
U.S. Dept. of Energy
U.S. State Dept.-Omsk, Russia
US West
Utilicorp
Virginia Power
Wisconsin Electric
Robert L. Vigeland
Texas Christian University
M.J. Neely School of Business
P.O. Box 32868
Ft. Worth, TX 76129
817-921-7215
Education:
Ph.D. Columbia University, New York, NY
October 1977 (Business)
M.Phil. Columbia University, New York, NY
December 1976 (Business)
B.S. Lehigh University, Bethlehem, PA
June 1971 (Business and Economics)
Academic Appointments:
1989 - Present Professor and Chair
Department of Accounting
Texas Christian University
1983 - 1989 Associate Professor & Director
Graduate Studies in Accounting
University of Minnesota
1977 - 1983 Assistant Professor of Accounting
University of Minnesota
1976 Preceptor in Accounting
Columbia University
Other Relevant Experience:
1981 - Present Faculty Instructor
Financial Accounting Institute
Training Consultant
First National Bank of Minneapolis
Minneapolis, MN
Summer 1981 Consultant
Northwestern Bell Telephone Company
Minneapolis, MN
1974 - 1977 Instructor in training programs
Chemical Bank
New York, NY
1970 - 1973 Audit staff
Arthur Andersen & Co.
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