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Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers. Data Availability: Contact the authors.

SYNOPSIS: In this paper, we provide a framework in which to view management earnings forecasts. Specifically, we categorize earnings forecasts as having three components—antecedents, characteristics, and consequences—that roughly correspond to the timeline associated with an earnings forecast. By evaluating management earnings forecast research within the context of this framework, we render three conclusions. First, forecast characteristics appear to be the least understood component of earnings forecasts—both in terms of theory and empirical research—even though it is the component over which managers have the most control. Second, much of the prior research focuses on how one forecast antecedent or characteristic influences forecast consequences and does not study potential interactions among the three components. Third, much of the prior research ignores the iterative nature of management earnings forecasts—that is, forecast consequences of the current period influence antecedents and chosen characteristics in subsequent periods. Implications for researchers, educators, managers, investors, and regulators are provided.

An important problem facing managers is how to enhance the credibility, or believability, of their earnings forecasts. In this paper, we experimentally test whether a characteristic of a management earnings forecast-namely, whether it is disaggregated-can affect its credibility. We also test whether disaggregation moderates the relation between managerial incentives and forecast credibility. Disaggregated forecasts include an earnings forecast as well as forecasts of other key line items comprising that earnings forecast. Our results indicate that disaggregated forecasts are judged to be more credible than aggregated ones and that disaggregation works to counteract the effect of high incentives. We also develop and test an original model that explains how disaggregation positively impacts three factors that, in turn, influence forecast credibility: perceived precision of management's beliefs, perceived clarity of the forecast, and perceived financial reporting quality. We show that forecast disaggregation works to remedy incentive problems only via its effect on perceived financial

This paper reports the results of a content analysis of comment letters submitted to the Financial Accounting Standards Board in response to the Board's Comprehensive Income Reporting Exposure Draft (FASB, 1996). Although comment letters are an integral component of the FASB's standard setting process, little is known about their content and the types of arguments made by letter writers. In this study, we categorize and analyze the arguments contained in these comment letters, focusing on how firms attempt to persuade the FASB. Our analysis documents the relative frequency of theoretical, outcome-oriented, and other arguments included in the letters. Despite the FASB's suggestion that comments focus on theoretical (conceptual framework) aspects of proposed standards, our analysis suggests that many of the arguments in the letters are non-theoretical, or outcome-oriented, focusing on anticipated negative effects for particular firms and industries from the Exposure Draft. Our findings help to provide a better understanding of the comment letter and standard setting process and provide insights into how letter writers believe accounting information is used. The setting of our study is particularly interesting as the changes proposed in the Comprehensive Income Reporting Exposure Draft were strictly presentation-related and did not affect companies’ reported net income or financial condition. Therefore, the contractual motivations related to debt covenants and/or management compensation offered in previous research to explain comment letter writing, are mostly not present in this setting.

Analysis suggests that modest amounts of wind receive payments (net of charges for regulation and intrahour balancing) almost equal to the marginal cost of power production. Integration costs are low because the correlations between wind output and system load, as well as their forecast errors, are very low. However, as the amount of wind capacity installed in an area increases, the payment drops.

We examine how fair-value-income measurement affects commercial bank equity analysts' risk and value judgments. Normatively, holding information and other underlying economics constant, bank analysts' risk and valuation assessments should distinguish between banks with different risks, but should not depend on how banks measure income. In our experiment, we vary income measurement—full-fair-value (all fair-value changes recognized in income) versus piecemeal-fair-value (some fair-value changes recognized in income, others disclosed in the notes). We also vary interest-rate-risk exposure (exposed versus hedged). We find that bank analysts' risk and value judgments distinguish banks' exposure to interest-rate risk only under full-fair-value-income measurement. Our evidence contributes to research concerned with financial performance reporting, risk, and fair-value accounting by demonstrating that differences in income measurement affect fundamental judgments of specialist analysts. Our findings are striking because they: (1) point toward an important role for measurement and recognition of fair-value gains and losses in income, and (2) suggest that note disclosure is not a substitute for financial-statement recognition (even for professional analysts specializing in banks and working in a context that involves assessment of core operations of a bank). These results should be of interest to accounting standard setters as they evaluate whether to require full-fair-value-income measurement.

The current method of charging transmission customers on the basis of energy production or consumption has nothing to do with cost causation and is therefore inequitable and economically inefficient. The authors propose a two-part method for assigning the contingency-reserves costs. The first part would be a function of the number and size of forced outages that required the use of contingency reserves. The second would be a function of the largest single contingency each hour.

AAA Financial Accounting Standards Committee INTRODUCTION On January 9, 2002, the Financial Accounting Standards Board (FASB) added a project to its technical agenda titled Disclosure of Information about Intangible Assets Not Recognized in Financial Statements. The FASB undertook this action based on constituents' responses to the August 17, 2001 request for comments on the FASB's Proposal for a Project on Disclosure about Intangibles. Since adding the project to its technical agenda, the FASB decided to restrict the scope of the project to intangible assets that currently are not recognized in the balance sheet, but would be recognized if acquired in a business combination under Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations (FASB 200la). Such intangibles encompass those grounded in contracts or other legal rights and those that are separable from the business. The project's scope also includes in-process research and development (R&D) costs that are written off to expense on the day they are acquired under FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method. Although deliberations on the project have been temporarily suspended to allow the FASB's staff to work on higher priority projects, the FASB plans to resume the project at some point in the future. The Financial Accounting Standards Committee of the American Accounting Association (hereafter, the Committee) responded to the FASB's request for comments on a Proposal for a Project on Disclosure about Intangibles. Additionally, based on the FASB's request for information about academic research related to intangibles, the Committee prepared a document summarizing this research and its implications for the FASB's project on intangibles. The Committee and the FASB discussed this document at a meeting at the FASB offices in May 2002. This paper contains the Committee's summary of research related to intangibles and the Committee's evaluation of the implications of the research for disclosure related to and recognition of intangible assets, (1) We expand the discussion of intangibles beyond that contained in the FASB's project on intangibles in two ways. First, we discuss research that has implications for intangibles not included in the restricted scope of the FASB's project described above. Second, we examine implications of research for recognition of intangibles, in addition to implications for disclosure of information related to intangibles. RESEARCH RELATED TO INTANGIBLE ASSETS We categorize research on intangibles into three areas that we discuss in turn: (1) research related to current financial reporting for intangible assets, (2) research related to disclosures about intangible assets, and (3) research related to recognition of intangible assets. Most of this research is empirical-archival in nature and focuses on R&D-related intangibles. Overview of the Nature of Intangibles Research For pragmatic reasons, most research on intangibles focuses on those intangibles generated by R&D expenditures. Data on R&D spending are widely available because R&D expenditures must be disclosed separately under SFAS No. 2, Accounting for Research and Development Costs. Because there is no such requirement for other types of intangibles expenditures, Lev (2001, 54-55) notes that empirical-archival research on intangibles is hindered. The focus on R&D raises the question of whether the results of this research generalize to other types of intangibles. It seems to us that the answer to this question depends on whether R&D assets are economically similar to other intangibles and on how familiar investors are with information about other types of intangibles. If the economic process involved in developing these other intangibles is different from that of R&D intangibles, it is not clear that evidence based on R&D has direct implications for other types of intangibles. …

ITCs could perform all the functions of an ITP provided an effective performance-based rate, such as a price cap, is in place to provide incentives that ensure the ITC does not unfairly discriminate against other transmission owners, generation, or demand management.

Given the necessity of making tradeoffs among operational efficiency, short- and long-term economic efficiency, independence, profit incentives, and market power, FERC and industry participants should remain flexible, accept regional differences in ITP structure and design, and focus on progress rather than perfection.

INTRODUCTION In its new project on Codification and Simplification, the FASB indicates its intent to evaluate the feasibility of issuing concepts-based standards rather than issuing detailed, rule-based standards with exceptions and alternatives.' Related to this project, members of the FASB board and staff asked the Financial Accounting Standards Committee of the American Accounting Association (hereafter, the Committee) to provide comments on concepts-based standards and to recast two standards as concepts-based. (2) This article summarizes comments of the Committee on issues related to concepts-based vs. rules-based standards. Comments in this article reflect the views of the individuals on the Committee and not those of the American Accounting Association. The Committee strongly supports the commitment by the FASB to evaluate the feasibility of concepts-based standards. (3) We believe that the economic substance, not the form, of any given transaction should guide financial reporting and standard setting, and that concepts-based standards represent the best approach for achieving this objective. Rules-based standards provide companies the opportunity to structure transactions to meet the requirements for particular accounting treatments, even if such treatments don't reflect the true economic substance of the transaction. We recognize, however, that the current plethora of detailed rules has been demand-driven, suggesting that companies may request more guidance than that provided by concepts-based standards. Additionally, a change from rules-based to concepts-based standards magnifies the importance of informed professional judgment and expertise for implementation of standards. Overall, however, we believe that concepts-based standards, if applied properly, b etter support the FASB's stated mission of "improving the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability...." RULES-BASED VS. CONCEPTS-BASED STANDARDS An Illustration of Rules-Based and Concepts-Based Standards In order to make our discussion of concepts-based vs. rules-based standards more concrete, we characterize the accounting standard-setting process and its products as a continuum ranging from unequivocally rigid standards on one end to general definitions of economics-based concepts on the other end. An example of the extreme left (rigid) end of the continuum is: Annual depreciation expense for all fixed assets is to be 10 percent of the original cost of the asset until the asset is fully depreciated. Such a rule leaves no room for judgment or disagreement about the amount of depreciation expense to be recognized. Comparability and consistency across firms and through time is virtually assured under such a rule. However, such a standard lacks relevance due its inability to reflect the underlying economics of the reporting entity, which differ across firms and through time. At the opposite (right) end of the continuum is a provision or rule such as the following: Depreciation expense for the reporting period should reflect the decline in the economic value of the asset over the period. (4) Such a standard requires the application of judgment and expertise by both managers and auditors. The goal is to record economic depreciation of the asset, something about which the manager arguably has more information than anyone else. Many might agree that such a rule reflects the underlying purpose of financial reporting, but argue that it is too costly to implement and would likely lead to results that are neither comparable across firms nor consistent through time. Benefits and Costs of Rules-Based vs. Concepts-Based Standards Rules-Based Standards Evidence abounds that detailed standards cannot meet the challenges of a complex and rapidly changing financial world, and that they frequently provide a benchmark for determining compliance in form but not in substance (Finnerty 1988). …

With planned improvements in New York, suppliers and consumers will face efficient prices for electricity, congestion, and ancillary services that encourage the appropriate amounts and locations for production, consumption, and investment.

INTRODUCTION The May 22, 2002 FASB Exposure Draft, Guarantor's Accounting and Disclosure Requirements, Including Indirect Guarantees of Indebtedness of Others (hereafter ED), addresses initial recognition, initial measurement, and disclosure issues related to guarantees. Although it undertook the guarantee project in conjunction with its project on consolidation guidance related to special-purpose entities (SPEs), the FASB addressed guarantees in a separate project because guarantees also arise in situations other than those associated with SPEs. The ED calls for recognition and increased disclosure of the liability associated with a guarantor's obligations under guarantees. It takes the position that a guarantee obligates the guarantor in two respects: (1) the guarantor undertakes a noncontingent obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur and (2) the guarantor undertakes a contingent obligation to make future payments if those triggering events or conditions occur. The noncontingent obligation occurs when the guarantor commits to the guarantee, while the contingent obligation occurs only when certain future conditions arise; for example, the entity whose debt is guaranteed defaults on payments. While the ED is not explicit on the nature of the noncontingent liability, we believe it is best characterized as deferred revenue for most guarantees. An example in the ED sets the stage for this interpretation: "if a seller-guarantor issues to its customer's bank a guarantee of the customer's loan whose proceeds are used to pay the seller for the assets being purchased, the failure to recognize a liability for the issuance of the guarantee overstates the profit on the sale." (1) Just as an insurer charges a premium as compensation for its exposure to losses, the guarantor in this example must be compensated for its guarantee commitment and resulting exposure under the guarantee--the noncontingent element. (2) This example suggests that a portion of the proceeds from the sale be deferred, and recognized over the period of time covered by the guarantee. The ED calls for the guarantor to recognize as a liability the fair value of the noncontingent element of the guarantee, (3) and confirms the applicability of FASB Statement No. 5, Accounting for Contingencies, to the contingent element of the guarantee. The ED also identities four disclosure items to be provided by the guarantor. These include: * the nature of the guarantee, including how it arose and the circumstances that require the guarantor to perform under the guarantee, * the maximum potential amount of (undiscounted) payments the guarantor could be required to make under the guarantee, * the current carrying amount of the liability, and * the nature of (1) any recourse provisions that enable the guarantor to recover from third parties any of the amounts paid under the guarantee, and (2) any assets held either as collateral or by third parties that the guarantor can obtain and liquidate to recover all or a portion of the amounts paid under the guarantee. The ED raises issues related to valuation of contingent liabilities, financial statement recognition vs. footnote disclosure, and effects of increased footnote disclosure. This article examines academic research relevant to the issues raised in the ED and presents the views of the AAA Financial Accounting Standards Committee (FASC) (hereafter the Committee) on the ED. The Committee based these views on inferences from existing research findings, an understanding of the Conceptual Framework, and views expressed in previous Committees' communications with the FASB and IASC on guarantees related to transfers of financial assets and contingent liabilities. (4) REVIEW OF RELATED ACADEMIC LITERATURE Capital Markets (Archival) Research Valuation Implications of Contingent Liabilities Capital markets research provides evidence that contingent liabilities are relevant to capital market participants' valuation decisions. …

Several researchers (e.g., Lundholm 1999; Ryan 1997; Petroni, Ryan, and Wahlen 2000) have proposed a reporting mechanism to enhance the reliability of estimates and other forward-looking information in financial reports. Their proposals require companies to report reconciliations of prior-year estimates to actual realizations as supplemental information in their financial reports. Such disclosures would enable investors to distinguish between accurate and opportunistic reporting behavior, and, arguably, should create incentives for companies to estimate accurately in the first place. Our study provides evidence on these proposals. Specifically, we conduct two experiments within the context of an important intangible asset requiring estimation - software development costs. Our results show that the proposed reporting mechanism is effective in communicating information about the accuracy of financial estimates. We find, however, that not all disclosures are equally useful. The most effective disclosures explicitly describe the implications of misestimation (if any) on both the balance sheet and on earnings, thereby reducing the computational complexity associated with less explicit disclosures. Furthermore, our results show that when the disclosures explicitly describe the implications of misestimation, investors reward accurate estimators but do not explicitly punish those who are inaccurate. We conclude that information about previous estimate accuracy is useful to investors and that regulators should consider the type of disclosure, because not all disclosures may be equally effective in creating management incentives for accurate estimation. Moreover, the competitive advantage conferred on firms that provide accurate estimates arguably should create incentives for all companies to estimate accurately in the future.

INTRODUCTION This article summarizes comments of the Financial Accounting Standards Committee of the American Accounting Association (hereafter the Committee) on issues related to disclosure of nonfinancial performance measures. At the Committee's May 2001 meeting with the FASB, some Board members stated that an evaluation of academic research related to nonfinancial performance measures could be useful in the Board's future deliberations on performance reporting. The Committee took up the challenge and offers this overview of relevant academic research along with some preliminary recommendations on disclosure of nonfinancial performance measures. Comments in this article reflect the views of the individuals on the Committee and not those of the American Accounting Association. REVIEW OF ACADEMIC LITERATURE RELATED TO NONFINANCIAL PERFORMANCE MEASURES The Committee believes that nonfinancial performance measures should be judged against the same criteria as financial performance measures, namely, the characteristics of relevance, reliability, and comparability espoused in Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information. Accordingly, we structure the discussion of academic research on nonfinancial performance measures along these three dimensions. Relevance Various individuals and groups have called for greater disclosure of nonfinancial information by corporations (AICPA 1994; Boulton et al. 2000; Norton 2000; Eccles et al. 2001; Lev 2001). These individuals and groups argue that traditional financial measures have diminished relevance due to changes in business models said to reflect the "new economy." Additionally, critics raise concerns about the backward-looking nature of financial measures and suggest that financial measures provide little insight into a company's future performance. (1) The demand for external reporting of nonfinancial performance measures also has been driven by companies' adoption of internal performance evaluation frameworks that incorporate nonfinancial measures, such as the Balanced Scorecard (Kaplan and Norton 1996). Investors have asked that external reporting include performance evaluation metrics used internally and that these measures be integrated into a discussion of the company's strategy. Frameworks such as PricewaterhouseCo opers' ValueReporting[TM] model (Eccles et al. 2001) exemplify such an approach. There is abundant anecdotal evidence that some firms disclose nonfinancial performance information on a voluntary basis (see Eccles et al. [2001] and Upton [2001] for examples). In addition, professional financial analysts refer to nonfinancial measures in their company reports (Previts et al. 1994) and maintain that they use these measures to evaluate the long-term performance of a firm (Dempsey et al. 1997). Nonetheless, these results do not provide evidence on the underlying linkages between nonfinancial data, future financial performance, and equity values. Studies take two approaches to examine these linkages and document the relevance of nonfinancial information: (1) establish a direct link between nonfinancial measures and equity values and (2) demonstrate a link between current nonfinancial measures and future financial information, indicating that nonfinancial information should be useful to investors and creditors. The first category typically is referred to as value relevance tests, while the second category is termed predictive ability tests. By necessity, value relevance and predictive ability studies examine industries in which nonfinancial performance measures are publicly available, which can raise concerns over small sample or self-selection biases. Research in this area, however, examines the relevance of a fairly diverse set of industries and nonfinancial measures, including measures related to airline performance statistics, customer satisfaction, air pollution, patents, quality, and market growth/penetration. …

Transmission planning today is much more complicated, and perversely, much more uncertain, than it was several years ago. The process therefore needs to be made more rigorous.

Implementing price-responsive demand programs requires policymakers to understand and accept the insurance aspects of dynamic pricing. Like other forms of insurance, the benefits are greatest when you most need them.

Wind farms have three characteristics that complicate their widespread application as an electricity resource: limited control, unpredictability and variability. Therefore the integration of wind output into bulk power electric systems is qualitatively different from that of other types of generators. The electric system operator must move other generators up or down to offset the time-varying wind fluctuations. Such movements raise the costs of fuel and maintenance for these other generators. Not only is wind power different, it is new. The operators of bulk power systems have limited experience in integrating wind output into the larger system. As a consequence, market rules that treat wind fairly—neither subsidizing nor penalizing its operation—have not yet been developed. The lack of data and analytical methods encourages wind advocates and sceptics to rely primarily on their biases and beliefs in suggesting how wind should be integrated into bulk power systems. This project helps fill this data and analysis gap. Specifically, it develops and applies a quantitative method for the integration of a wind resource into a large electric system. The method permits wind to bid its output into a short-term forward market (specifically, an hour-ahead energy market) or to appear in real time and accept only intrahour and hourly imbalance payments for the unscheduled energy it delivers to the system. Finally, the method analyses the short-term (minute-to-minute) variation in wind output to determine the regulation requirement the wind resource imposes on the electrical system. Copyright © 2002 John Wiley & Sons, Ltd.

Legislative and regulatory barriers deriving from state efforts to protect retail customers from the vagaries of competitive markets have hindered a move toward price-responsive market structures. Limited use of metering, communication, computing, and control technologies has also slowed adoption.

Analysis indicates that generation regulation output contributes in only a minor and ambiguous way to meeting reliability performance standards, but load-following output is essential to maintain compliance.

Given the enormous difficulties associated with siting transmission lines and utility uncertainty over regulatory treatment of new investments, the nation should err on the side of overbuilding.

Participation in ancillary-services markets may increase generator profitability by 10 to 50 percent, but planning bidding strategy and operations can be complicated. The profit-maximizing model described here will help find good, if not optimal, solutions.

While market-based methods for generation expansion are the preferred long-term approach, there is currently too much uncertainty regarding how consumers and suppliers will respond to spot price signals. Therefore, policymakers should encourage demand-side experiments and investments to ensure that, when prices rise, customers will be able to respond.

Most of the commercially important ancillary services involvemaintaining or restoring the generation and customer load real-powerbalance over varying time frames . Traditionally utilities have addressedthis problem almost exclusively by controlling generation.It does not have to be this wa y, however . The important concept isto balance user consumption and generation, which can be done usingeither side of the balancing equation. Controlling user load may be thesingle largest untapped resource currently available to the electricityindu str y.Restructuring is beginning to pro vide a framework within whichthis resource could be exploited. Several obstacles exist (primarily re-lated to aggregation, communications, and economic incentives) buttechnical and commercial solutions to these problems also exist.

Together, regulation and load-following address the temporal variations in load (and generation that does not accurately follow control signals). The key distinction between load-following and regulation is the time period over which these fluctuations occur. Regulation responds to rapid load fluctuations (on the order of one minute) and load following responds to slower changes (on the order of five to thirty minutes). Load-following is defined as the 30-minute rolling average of system load; regulation is then the difference between actual load for each 30-second interval and the rolling average. Hourly load-following is defined as the difference between the highest and lowest values of the rolling average within the hour. Regulation is defined as the standard deviation of the 120 regulation values for the hour. Finally, the implications of the current block-scheduling conventions on load following and regulation are discussed, as is the need for a new scheduling convention.

Performance requirements set by the North American Electric Reliability Council (NERC) to protect the grid from problems associated with major generator or transmission outages need to be revised or more fully documented. NERC’s Disturbance Control Standard needs particular scrutiny.

Operating reserves are the front lines in the defense of electric systems against major generation and transmission outages. Operating reserves are provided by generating units that can increase their output rapidly to restore the system to generation/load balance after a major disturbance occurs. We examine the functions of and the requirements for operating reserves, and the data and analysis that support minimum-operating-reserve requirements. We obtained data on the number and severity of generator outages for three large US electrical systems, including a power pool, a regional reliability council, and a utility. These data show a range of 15 to 40 major (>500 MW) outages a year for systems ranging in size from 20 000 to 48 000 MW of peak demand. Finally, we discuss several emerging issues related to the underlying technical support for minimum reserve requirements, alternative ways to pay for these reserves, the data needed to support the analysis of these requirements, and the mix of functions that are currently included within operating reserves.

Cost-recovery and true-up mechanisms may be the last unresolved transition-costs dilemma facing state policymakers. Two mechanisms that allow for a 100 percent adjustment for changes in exogenous factors are a good place to start.

As the US electricity industry is restructured, the generation, transmission, and system-control equipment and functions that maintain voltages within the appropriate ranges are being deintegrated. These changes in industry structure require new institutional rules and markets to plan for additional voltage-support capacity, to reserve capacity for future use, and to deploy capacity in real time to meet current and contingency conditions. These services can be obtained through engineering mandates or through markets. Whether the location-specific nature of voltage control will permit the creation of competitive markets is not yet known. Voltage control is accomplished by managing reactive power on an alternating-current power system. Reactive power can be produced and absorbed by both generation and transmission equipment. Reactive-power devices differ substantially in the magnitude and speed of response and in their capital costs. System operators, transmission owners, generators, customers, power marketers, and government regulators need to pay close attention to voltage control as they restructure the US electricity industry. When generators are required to supply excessive amounts of reactive power, their real-power production must be curtailed. These opportunity costs are not currently compensated for in most regions. Current tariffs are based on embedded costs. These embedded-cost tariffs average about $0.51/MWh, equivalent to $1.5 billion annually for the United States as a whole. Although this cost is low when compared with the cost of energy, it still aggregates to a significant amount of money. This paper explains why power systems require reactive power. It then examines the various types of generation and transmission resources used to supply reactive power and to control voltage. Finally it discusses how these resources are deployed and paid for in several reliability regions around the country.

As climate change negotiators from around the world prepared together in 1996 to consider new international targets and policies for greenhouse-gas reductions, the US Department of Energy asked the authors to review the options available to the electricity sector to reduce CO{sub 2} emissions. The charge was to focus on supply-side options and utility demand-side management (DSM) programs because other researchers were considered energy efficiency options for the residential, commercial, and industrial sectors. The next section presents the EIA baseline projections of electricity production, use, and CO{sub 2} emissions to the year 2010. Subsequent sections briefly summarize the options available to the electricity industry to reduce its CO{sub 2} emissions, speculate on how industry restructuring might affect the ability of the industry and its regulators to reduce CO{sub 2} emissions, and discuss the policies available to affect those emissions: research and development, voluntary programs, regulation, and fiscal policies.

Once they decide how much of its transition costs a utility should be allowed to recover, regulators need to implement workable cost-recovery mechanisms. Such mechanisms should encourage competition in the generation sector and should neither unduly favor nor hamper the interests of utilities, independent power producers or customers.

Estimates of transition costs for U.S. investor-owned utilities vary widely, with many falling in the range of $100 to $200 billion. These potential losses exist because some utility-owned power plants, long-term power-purchase contracts and fuel-supply contracts, regulatory assets, and expenses for public-policy programs have book values that exceed their expected market values under competition. This paper quantifies the sensitivity of transition-cost estimates to various factors that lead to these above-market-value estimates. We created a hypothetical utility with a substantial transition-cost problem. Between 1996 and 2000, the portion of retail load that ‘leaves’ the utility increased from 8 to 42%. We analyzed the consequences of this retail wheeling from two perspectives: utility shareholders (in which case customers face the same rates with or without wheeling) or remaining retail customers (in which case utility shareholders earn the same return on equity with or without wheeling). The key variables that most affect losses include the year that wheeling begins, wholesale prices (or, equivalently, utility marginal production costs), the percentage of customers that wheel, fixed production costs, regulatory assets, and capacity-related charges for ancillary services.

Estimates of transition costs for U.S. investor-owned electric utilities range from $20 to $500 billion. These potential losses are a consequence of the above-market book values for some utility-owned power plants and long-term power-purchase contracts, as well as deferred income taxes, regulatory assets, and public-policy programs. Because of the wide range of estimates and the potentially large dollar amounts involved, state and federal regulators need a clear understanding of the methods used to calculate these estimates. In addition, they may want simple methods that they can use to check the reasonableness of the estimates that utilities and other parties present in regulatory proceedings. This paper explains various methods to calculate transition costs. Top-down methods, because they use the utility as the unit of analysis, are simple to apply and to understand. However, their aggregate nature makes it difficult to determine what specific assets and liabilities affect their estimates. Bottom-up methods use the individual asset (e.g. power plant) or liability (e.g. power-purchase contract) as the unit of analysis. These methods have substantial data and computational requirements.

This paper discusses the potential financial consequences, or transition costs, of transforming electricity generation from a regulated to a competitive market in the US. Industry-wide estimates suggest potential monetary losses could exceed $100 billion as a result of the move to competition. The paper discusses the most prominent strategies suggested to address these potential losses. For each strategy, the paper identifies the parties most likely to bear the financial consequences. Most strategies do nothing to reduce the total costs to society, but instead shift costs from one set of economic actors to another. The exceptions are those strategies that result in economic-efficiency gains, which can then be used to offset the transition costs. Most of the strategies examined require the cooperation of several parties, including regulators, to be implemented successfully.

The pro-competitive, deregulatory forces sweeping the electricity industry could cost electric-utility shareholders $100–200 billion in transition costs. These potential losses reflect the difference between regulated prices for electricity generation and the prices that might occur in a fully competitive power market. This paper discusses alternative ways to calculate transition costs, focusing on differences between aggregate (top-down) vs. disaggregate (bottom-up) methods to calculate these losses. The paper also discusses the relative importance of different factors that determine transition-cost amounts and the strategies that utilities and their regulators can use to address these potential losses.

Ancillary-service costs comprise a substantial share—as much as 25 percent—of total bulk power costs. The cost levels and the great variation in the cost of different services suggests that additional work is needed to define each service and identify how much of it is required.

Analytical procedures have become an increasingly important part of financial statement auditing over the last 10 years. First recommended for audits by the Auditing Standards Board in 1978, analytical procedures are mandated for planning and overall review purposes by Statement on Auditing Standards (SAS) No. 56. In response to increased concerns about audit efficiency and effectiveness, analytical procedures are increasingly being used in place of and as a supplement to substantive tests of details. Despite their increased use, little is known about how analytical procedures are performed in practice. The purpose of this study is to describe how auditors perform analytical procedures at the planning, substantive testing, and overall review stages of the audit. To accomplish this, we conducted a series of interviews with 36 audit professionals at various levels of experience and responsibility (i.e., seniors, managers, and partners) representing all the U.S. Big Six accounting firms. The contributions of our study are threefold. First, by contributing to a more complete understanding of how analytical procedures are performed, we provide the basis for accounting researchers to identify current analytical procedure problems/issues and, thus, perform more relevant research. Second, we provide the Auditing Standards Board members with relevant information about current practice for their deliberations on revised guidance for analytical procedures. Third, we provide educators with a characterization of analytical procedures as performed in practice, thereby facilitating their classroom coverage of this important topic. Resume. Depuis une dizaine d'annees, les procedes analytiques jouent un role de plus en plus important dans la verification des etats financiers. D'abord recommandes en 1978 par l'Auditing Standards Board pour les verifications, les procedes analytiques sont exiges par le Statement on Auditing Standards (SAS) n° 56 pour la planification et l'examen global. Compte tenu des preoccupations accrues que soulevent l'efficience et l'efficacite de la verification, l'on fait de plus en plus appel aux procedes analytiques en remplacement et en complement des procedes de corroboration detailles. Malgre cette utilisation croissante, le mode d'application concrete des procedes analytiques est peu connu. Les auteurs se sont donne pour but de decrire comment les verificateurs appliquent les procedes analytiques aux etapes de planification, d'application des procedes de corroboration et d'examen global de la verification. Pour y parvenir, ils ont procede a une serie d'entrevues avec 36 experts de la verification possedant divers degres d'experience et assumant divers niveaux de responsabilites (premiers verificateurs, chefs de groupe et associes), qui representaient les six principaux cabinets d'experts comptables des Etats-Unis. L'etude contribue a l'avancement des connaissances de trois facons. Premierement, en permettant de mieux comprendre comment les procedes analytiques sont appliques, elle munit les chercheurs en comptabilite des elements necessaires au diagnostic des problemes ou des questions actuellement souleves par les procedes analytiques et, partant, a la realisation de travaux de recherche plus pertinents. Deuxiemement, elle offre aux membres de l'Auditing Standards Board de l'information pertinente relative aux methodes courantes afin d'alimenter les deliberations relatives a l'orientation a donner aux procedes analytiques. Troisiemement, elle munit les enseignants d'une definition des procedes analytiques tels qu'ils sont appliques concretement, ce qui facilitera l'etude de cette importante question en classe.

The relevance of the historic rationales for energy-efficiency programs has changed: the basis for future programs will depend on electricity industry structure, environmental policies, and public perception of remaining barriers in energy service markets.

During the past several years, more and more electric utilities have been running demand-side management (DSM) programmes. These programmes improve the efficiency with which customers use electricity and affect the timing of that use (eg to shift it away from high-cost times). Utilities run such programmes for two primary reasons. One is to improve customer service. The second is to acquire resources that, just like power plants, can meet customer energy service needs. DSM programmes often are less expensive and environmentally cleaner than power plants. By 1994, US utility DSM programmes had cut potential summer peak demand by 7% and annual electricity use by 2%. We examine the economics of DSM in the late 1990s, reviewing current estimates of avoided supply costs and the cost of conserved electricity for DSM programmes. We review the environmental effects of electricity production and the environmental benefits of DSM programmes. Finally, we consider alternative electric industry structures and how DSM can operate within these alternatives.

Today's typical vertically integrated utility sells electricity and associated services as a bundled product. These ancillary services support and make possible the provision of the basic services of generating capacity, energy supply, and power delivery. These ancillary services include the following: management of generating units; reserve generating capacity to follow variations in customer loads, to provide capacity and energy when generating units or transmission lines suddenly fail, to maintain electric-system stability, and to provide local area security; transmission-system monitoring and control; replacement of real power and energy losses; reactive-power management and voltage regulation; transmission reserves; repair and maintenance of the transmission network; metering, billing, and communications; and assurance of appropriate levels of power quality.

The heated and prolific debates over the future structure and operation of the U.S. electricity industry are long on policy and short on specifics. Ultimately, decisions on industry structure will be based largely on judgment, based in turn on incomplete facts and analysis. Decision makers should at least have the best information we are able to provide them if we expect them to make sound decisions.

There are substantial questions as to what end-state the electricity industry should move toward—and an even more astonishing plethora of fundamental issues about the transition—that should be answered before the restructuring spaceship takes off.

Integrated resource planning (IRP) seeks to identify the mix of resources that can best meet the future energy-service needs of customers. These resources include new sources, types, and owners of power plants plus demand-side management (DSM) programs. However, little explicit attention is given to utility shareholders in the typical resource-planning proceeding. Because of the complexity of state regulatory practices and tax policies, it seems unlikely that different resources that provide comparable services to customers will yield comparable returns to shareholders. This study examines a typical US investor-owned utility's financial operations and performance using a spreadsheet model we developed for this project. The model simulates an electric utility's financial operations, and produces an annual income statement, balance sheet, and cash-flow statement. We calculated the net present value of realized (cash) return on equity as the primary factor used to represent shareholder interests. We examined shareholder returns for these resources as functions of public utility commission regulation, taxes, and the utility's operating environment. Given the increasingly competitive nature of electricity markets, we examined shareholder returns for these resources in an environment where the utility competes with other suppliers solely on the basis of electricity price.