Examples of Economic Consulting Experience …
Cost-based rate making analyses
Environmental compliance impact analyses
Electricity standard market design position strategies
Railroad Jurisdictional Threshold & Maximum Rate determination
Market Forecasts & Asset Valuation
L. E. Peabody & Associates, Inc. understands the need for decision makers involved with the services and commodities market to comprehend the complex interactions of supply, demand, pricing and costing issues. Our expertise includes the ability to assess competitive markets through the analysis of supply, demand, correlated markets and regulatory constraints to arrive at market views and insights specific to client needs.
Many of our market assessments examine not only what we expect to happen but what might happen if existing drivers change or if new drivers are introduced to markets, such as potential environmental compliance or market design regulations. This type of risk assessment is easily constructed with the proper structuring of a fundamental model plus the proper modeling of correlated variables.
Our market assessments are based on the aggregation of public information, internal knowledge and experience, and our proprietary views on market drivers, past, current and future. Our market assessments also consider drivers that may be specific to a client's disposition but not to the market in general, such as equipment/facility characteristics and access to transmission, rail, water, pipelines, etc.
Critical asset decisions need to consider the range of an asset’s risk and opportunity. For many of our clients, the volume of business and nature of their business, such as electric generators and railcars, carry a high degree of risk. L. E. Peabody & Associates, Inc. experience in asset valuations places us in a great position to evaluate the life-cycle and expectations of key equipment and capital for our clients. The Firm uses several methods to value the current worth of assets, including the income approach, cost approach and comparable sales approach.
The income approach to asset valuation is based on real option analysis. This approach considers the extrinsic value inherent in having the option, but not the obligation to undertake certain business initiatives under uncertain market conditions. A common application of this approach is for the valuation of electric generating assets, where an asset owner has the option to start or stop a power plant depending on market conditions. Common outcomes (sometimes a combination) for older generators include replacement, retrofits, and retirement.
L. E. Peabody & Associates, Inc. uses several methods to value the current worth of assets, including the income approach, cost approach and comparable sales. The understanding of asset value is vital to making rational asset and capital decisions. This includes acquisitions, divestitures, retrofits or retirement of assets. Within the utility and transportation industries, a few examples of key assets and capital include electric generators and railcars.
Our models consider operating flexibility as well as market uncertainty around correlated variables to calculate the extrinsic value of assets. Our approach relies on "Monte Carlo" simulation which replicates decision making under varied market conditions to arrive at an expected value of an asset and to define a probability distribution around expected results.
L. E. Peabody & Associates, Inc. has experience with valuing electric power generating assets, energy commodity contracts, transportation infrastructure, railroad equipment fleets as well as entire companies. With more and more reliance on embedding optionality in economic decisions, we offer the ability to price optionality whether it is related to a physical asset or a contract with reopeners, early termination rights or volume flexibility. Our valuations rely not only on sophisticated tools but also on the business acumen needed to understand markets and the drivers that impact client value.
Our Generation Asset Valuation (“GAV”) Model determines the real option value of power facilities and contracts by relying on "Monte Carlo" simulation. Inputs to the model are plant or contract operating characteristics, market prices, price volatilities and price correlations. Model outputs are asset expected values as well as probability distributions around asset expected values so that asset risks can be assessed. The GAV model is used to support asset decisions related buy/sell/retire, capital additions, and risk management strategies.
Based on complex economic models, L. E. Peabody & Associates, Inc. forecasts several published price and cost indices and prices for various commodities. Our proprietary forecasting models reflect historical data and the underlying changes in trends that impact prices, costs and indices. Our forecasts include, for example, projections of overall inflation, economic growth trends, production capacity changes, and advancements in technology and productivity and other economic factors. The Firm has also developed an economic model that forecasts changes in a railroad's annual costs and unit costs. Major inputs into the model include projected changes in traffic levels, commodities handled, movement characteristics, productivity, and inflation.
Forecasts are developed at regular intervals for railroad industry price and cost indices such as the Rail Cost Adjustment Factor (both unadjusted and adjusted for productivity). We also develop forecasts of several U.S. Department of Labor, Bureau of Labor Statistics indices such as the Producer Price Index ("PPI") specific to various commodities and categories of equipment and materials, as well as the PPI general commodity index. The U.S. Department of Commerce, Bureau of Economic Analysis indices that we forecast include both the Gross Domestic Product/Implicit Price Deflator ("GDP/IPD") index and several specific component GDP/IPD indices.
L. E. Peabody & Associates, Inc. also forecasts fuel surcharges, coal prices, natural gas prices, crude oil prices on a regional basis, as well as the New York Mercantile Exchange Futures Prices for natural gas. While forecasts of general industry indices are available from the Firm, L. E. Peabody & Associates, Inc. also provides unique contract specific indices (or market basket of indices) utilized by our clients.