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News Analysis

Fortnightly Magazine - November 1 1998

Much of the voice communications equipment used by distribution systems is analog electronic. Nearly all of the analog electronic distribution equipment is 'stand-alone' as opposed to digital electronic devices that are essential to EMS [energy management services] and SCADA systems [supervisory control and data acquisition]."

Surprisingly, the fix for the Y2K problem may end up actually doing some good for come companies, especially for small municipal distribution systems, according to Bob Cave, executive director of the American Public Gas Association.

"In our survey," notes Cave, "about 50 percent of the folks who answered said they were ready today. We find a lot of our people have mechanical equipment and never went to digital. That's probably why so many say they are already Y2K-compatible.

"Also," adds Cave, "a lot of the numbers you're seeing are due to buying new equipment. A lot of [municipal gas utilities] are tied in to their city government with outsourcing of information technology. The problem has prompted companies not just to look at Y2K, but to evaluate their equipment overall."

All in all, the Y2K problem may prove to be just a matter of perspective, as NERC pointed out in its report. "It is somewhat ironic that initial contacts with the telecommunications industry indicate that they feel they will be Y2K ready - if the lights stay on. From the electric industry perspective, the feeling is reciprocal."

Bruce W. Radford is editor of Public Utilities Fortnightly magazine.

Financial Disclosure

SEC finds material effect on corporate operations. Firms must divulge risk, readiness, costs and contingency plans.

On July 29 the U.S. Securities and Exchange Commission issued interpretive regulations offering guidance to publicly traded companies on how to determine whether issues surrounding year 2000 computer conversions will have a material effect on business, results of operations or financial condition, and whether they must disclose such effects on financial statements in the so-called "MD&A" section, Management's Discussion and Analysis of Financial Condition and Results of Operations.

WHEN TO DISCLOSE. Any publicly traded company must disclose Y2k information if its assessment of its own exposure is not complete, or if Y2k would have a material financial effect even without taking into account its own remediation efforts. To be considered "complete," any assessment must evaluate third-party risk. "In our view," said the SEC, "a company's Year 2000 assessment is not complete until it ¼ takes reasonable steps to verify the Year 2000 readiness of any third party that could cause a material impact."

WHAT DO DISCLOSE. Once a company confirms its disclosure obligation, it must consider the release of four categories of information: (1) state of readiness, (2) costs to be incurred, (3) anticipated risk, and (4) contingency plans for worst-case scenarios.

"Readiness" assumes a look at embedded microcontrollers (chips) outside of information technology systems. "These types of systems are more difficult to assess and repair than IT systems," explained the SEC. And companies must disclose the replacement cost of a non-compliant IT system as a Y2k expense even if it had already planned to replace the system and merely accelerated the replacement