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Determining the correct Inputs for a multi-service utility

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William Plank

I am currently building an analysis for an upcoming paper and there are a few questions my co-author and I are debating.

First, we are looking at the value generation of a utility that operates in both fiber broadband and electric distribution. Currently we are allocating fiber revenues to industry 433 – Wired Telecommunications Carriers and contributions made to the electric system under 533 – Local Government Electric Utilities. This is a local public utility. Is it appropriate to split these revenues up or should it all be allocated to 533?

Second, we are using fiber revenues currently, but we have considered using fiber net revenues (revenues less expenses). Is it preferable to use total operating revenues or net?

Third, we have opted for a contribution analysis for the fiber revenues as the industry has been in operation for over 20 years locally. We want to be conservative in the estimate, and this seems the correct path to me. Would contribution analysis or industry output be more appropriate?

Thanks for your assistance.

 

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    Michael Nealy

    Hello William!

     

    Apologies for the delayed response - a majority of our team has been out at various points for the holiday and PTO throughout the week. 

     

    It's perfectly fine to model different business functions separately, especially when their operations differ significantly. So yes, you can split up the revenue and model the different operations using the two Industries. As far as the public vs private conversation; while the activity associated for these types of activity may be captured in a government enterprise Industry (within IMPLAN's underlying data), users often times find that the production makeup of the private Industry (such as Industry 433) more closely aligns with that they are trying to model.

     

    In regards to your question about revenue, it sounds like total revenue would be most appropriate, but you may find it helpful to understand Output and its components, as you will be using the value as the input for Output in the Event. An Industry’s Output is the sum of its Intermediate Inputs and its Value Added. Intermediate Inputs (II) are the goods and services required for the Industry to produce its own good(s) and/or service(s). II is typically considered an expense. Another expense is Labor Income, which is a component of Value Added. You can learn more in our support site article Understanding Output. 


    Industry Contribution Analysis (ICA) is a unique method which applies a constraint upon the model by removing feedback linkages (buybacks) to the Industry being analyzed. This method can also be used with single firms, but if/when it is, the results of this method should be considered conservative, which you mentioned is your intention. When a study is estimating the effect of the existing state of a firm it is up to the analyst to determine whether or not it is appropriate to allow for the buybacks to the Industry, creating Indirect and Induced Effects to the Industry. A rule of thumb is whether or not the firm makes up less than half of the production in the entire Industry it falls within (for the Region). You can learn more about this in the support article ICA: Introduction to Industry Contribution Analysis.

     

    Hope this helps! Please let us know if you have any additional questions.

     

    Best,

    Michael Nealy

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