'SHINING THE LIGHT ON ELECTRIC UTILITY 10Q Y2k DISCLOSURES (Part 1 of 2)
By Bonnie Camp, Special to euy2k.com
Overview
Will the lights stay on? Anyone who is aware of the potential
problems Y2K may bring eventually asks themselves that question.
There are many other aspects in which year 2000 failures might affect
individuals, but none which seems so vital as the generation of reliable
electric power. My children delighted in learning how to flick a light
switch on even when they had to ask to be lifted up to reach it. This
was before they became enamored of telephones or curious about
check books. As adults, we understand better the interconnections
between power, telecommunications, banking, transportation and
many other aspects of our lives, but nevertheless there remains a
childlike conviction that electricity is THE magic ingredient to our
American well-being.
This is why I have focused my attention on the status of the U.S.
electric utility industry during my search for those elusive Year 2000
answers we're all in pursuit of. I gave myself the task of reading, filing
and correlating what I believe to be all the third quarter 1998 SEC
10Q filings of publicly held utilities, and have compiled a summary of
their self-reported status in four pertinent areas. These areas are:
1.Year 2000 Project Start Date
2.Year 2000 Costs Incurred to Date as a Percentage of
Estimated Total Costs
3.Year 2000 IT and Non IT Percentage of Project Completion
to Date/ Estimated Final Completion
4.Contingency Planning Estimated Completion Dates.
I have completed an overview of the first two areas and will address
them in this commentary. I expect to complete the last two areas
within a week or two and will submit those findings at that time.
The list of utilities used for the basis of this summary was taken from
the FERC (Federal Energy Regulatory Commission) list of "Major
and Nonmajor Investor Owned U.S. Electric Utilities" and the FERC
"Major U.S. Investor Owned Electric Utilities With Holding
Company Status". Those utilities gathered together under a Holding
Company used the single Holding Company SEC filing, which was a
composite and did not usually delineate the status of each individual
utility under the parent company. Therefore, I used only the Holding
Company Year 2000 statement and did not duplicate the same
statement for individual entities when figuring percentages. In the very
few exceptions wherein a Holding Company did give information on
the specific utilities which formed the company, I used those individual
figures.
Everyone brings an individual perspective, or bias, to any project they
undertake. I am going to tell you the bias I brought to this task, so that
each reader has the option of adjusting the overview presented here
to fit their own perceptions. I personally consider skepticism to be a
prudent method of addressing any report by a business which has a
vested interest in painting as good a picture of their overall health as
they can. Others may choose to believe that corporations relate their
status exactly like it is, warts and all, without downplaying any
negative aspects to their shareholders. I do not. I believe that any
report written by a corporation to inform stockholders and
government agencies will be formulated to present the most optimum
picture possible. Good news will be presented fully; bad news will
either be omitted or presented in a fashion designed to lessen any
negative connotations. For instance, if a Year 2000 report stated, "In
order to improve business information systems, the Company's
operating businesses began replacing major financial computer
systems in 1993," I did NOT assume this was the starting date for
their Year 2000 remediation because what was actually said in the
sentence did not address year 2000 problems. Several companies
began their Year 2000 reports by stating they had been investing in
new technology over recent years, then later reported that their Y2K
project had begun at a later time. I consider it to be a verifiable fact
that just because an information system was purchased in the last five
years does not automatically mean that system is Y2K compliant,
although some utility reports seemed to imply otherwise.
In compiling the percentages for Year 2000 costs, another bias was
my awareness of recent surveys and reports from reputable sources
which have indicated remediation costs have been underestimated by
businesses and have risen substantially in recent months. Therefore, if
a 10Q filing stated a range for total estimate of Year 2000 costs to be
incurred, I used the upper estimate when I figured my percentages.
For instance, if a utility stated they had spent $3 million and estimated
a total expense of $10 - 15 million, I used the number 15 in my
calculations. I also paid careful attention to the wording in these
reports, to be able to differentiate between "total" costs and words
such as "further", "additional", or "future" costs which indicated the
number given must be added to that already spent to obtain a true
total.
All mention of "to date" in this summary means "as of 30 September,
1998", the end of the third quarter of the year for which the SEC filing
was made. The filing itself was not due until November 15, 1998, and
very few utilities filed their statements earlier than one week before
that deadline. "Not Given" means specific dates or costs were omitted
from a company's report. I have endeavored not to duplicate or omit
any utility filings, but because of the recent merger mania brought
about by industry deregulation I cannot guarantee total accuracy. I
have done my best to obtain accurate data and to keep this summary
fact-based, so that individuals may draw their own conclusions. That I
did the best I could is the only claim I make.
Summary of Year 2000 Project Start Dates
Start of Project
% of Total Utility Filings
Not Given
47%
3rd quarter 1995
1%
1995 (no other specifics)
4%
2nd quarter 1996
2%
3rd quarter 1996
1%
4th quarter 1996
2%
1996 (no other specifics)
14%
2nd quarter 1997
2%
4th quarter 1997
1%
1997 (no other specifics)
13.8%
1998 (no other specifics)
1%
The remaining 11.2% of utilities either differentiated between a start
date for addressing IT systems (business software, for example) and
Non IT systems (embedded systems) or gave only a specific date for
addressing IT systems _only_ with a subsequent non-specific
statement about Non IT systems given afterwards.
These ranged from 1993 up to 2/24/1998 for the start of an IT
systems project and from 1997 to 5/31/1998 for the corresponding
start of a Non It project. For those statements which did differentiate
between investigating business systems and embedded systems, the
bulk of embedded systems start dates fell into the last half of 1997.
With nearly half of investor owned utilities declining to tell when they
began their Year 2000 Project, it's very difficult to get a handle on
when the majority started their fixes. I surmise that those not reporting
a start date would fall into a later start category than those who did,
but this is again my personal skepticism showing. However, of those
utilities which did report a start date, the bulk of them began either in
1996 or 1997. I did discover that utilities were more forthcoming
about their Y2K costs spent to date and estimated total costs. The
following addresses that issue.
Year 2000 Costs Incurred to Date as a Percentage of Estimated Total Costs
Year 2000 Costs Incurred
To Date as a Percentage of
Estimated Total Costs
Percentage of Total Utility
Filings Falling Into the 5%
Increments
Not Given
27.5%
0 to 5%
0.9%
5 to 10%
5.5%
10 to 15%
10.1%
15 to 20%
7.3%
20 to 25%
8.3%
25 to 30%
6.4%
30 to 35%
7.3%
35 to 40%
8.3%
40 to 45%
1.8%
45 to 50%
5.5%
50 to 55%
2.8%
55 to 60%
0%
60 to 65%
1.8%
65 to 70%
2.8%
70 to 75%
1.8%
75 to 78%
1.8%
As you can see for yourself, the answer to the oft-asked question,
"Are there any compliant utilities?" is "No," at least not for those
required to file with the SEC. I have not read any utility SEC filing in
which a utility is estimating compliance before sometime in 1999, and
the vast majority only speak of critical systems in their estimations, not
full compliance. Words such as "triage", "prioritized", or the phrase
"assessment to determine if assets are critical" are widely used.
Twenty-seven and a half percent of utility filers either did not give any
specific cost estimates, or only estimated their total costs and did not
report what they had spent to date. Of those which did report specific
cost estimates, just over 32% of the total utility SEC filers had spent
25% or LESS of their estimated total project costs. Nearly 45% of
the total had spent one-third or less of total estimated costs. Those
utility filers which have spent half or more of their estimated total Y2K
costs comprise 11% of the total. Contrary to my expectations, there
was no general rule apparent that larger utilities were farther ahead as
a group than smaller enterprises. Nor was the reverse true. There
were some in each group which were ahead of the rest, regardless of
the size of their budget. If we assume that the utility cost estimates
were fairly accurate (I know that's a big assumption!) then the
conclusion to be drawn seems to be that amounts spent thus far have
more to do with how seriously an individual filer is taking their
remediation project, than with the size of the company. I did notice
some correlation between the amount spent thus far and the starting
dates given. It would be logical to assume that the earlier a utility
began their project, the more they would have spent. While this does
hold true to some extent, the data did not indicate it was a hard and
fast rule. There were exceptions. Again, commitment to the project,
coordination between various levels of the project management and
possibly manpower dedicated to it would seem to be more of a key
factor.
I hope the information contained in this report will be of help to those
who are researching the status of the U.S electric utility industry.
Please keep in mind, however, that there are many more electric
utilities and rural co-ops in the United States which are not required to
file a report with the SEC, and for which specific data is very hard to
come by or not available to the public at all. My thanks to Rick
Cowles for providing the EUY2K Forum and a special thank-you to
Nick Laird (sharefin@cairns.net.au) for his encouraging "push" to
initiate this project. Finally, a hug to my husband for his cheerful
patience while I postponed or skipped household chores to have the
time for this research.
December 21, 1998
(This is Part 1 of a two part series.)
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