June 2007 Capital Adequacy Extension © Copyright 2007, CCRO. All rights reserved. Page 78 of 92 9. CONCLUSION This white paper has expanded upon our previous white paper by going beyond utilizing a risk-based capital adequacy framework to analyze a company’s ability to meet both near-term and long-term obligations. We have included practical application for using the risk-based capital adequacy framework as a tool for enhanced strategic decision-making. Effects on capital adequacy caused by strategy changes can be simulated by defining functions that impact future earnings and cash flows and risk parameters and then dynamically modeling the implementation of the strategy. While the capital adequacy framework itself is a general, flexible, and useful paradigm for our industry, methodological and system limitations may prevent uniform implementation of all its components in a robust way. Thus, the practices described in this document should be viewed in terms of a continuum ranging from an accounting type of implementation to an economic-based adequacy calculation. Companies will initially find themselves on different parts of the continuum and will require time to gravitate toward more sophisticated implementations as required by their business model. With these in mind, the Committee has endeavored to provide as much guidance in this paper without being prescriptive. We expect energy companies and other stakeholders to read this document in the same spirit. Experienced companies outside our industry (notably the banking and insurance industries) point out that the discussion about and process for a capital adequacy framework are just as important as the actual numbers generated. The CCRO therefore encourages energy companies to adopt the framework even though specific implementation methods may still require further development. The Committee anticipates that as companies embrace the framework, they will find it worthwhile to invest in the technology infrastructure and human capital required to implement the framework in a meaningful way within their organizations. The benefits derived from capital adequacy modeling are insightful both internally and externally and provide additional assurance that risk awareness is imbibed in management’s strategy development for increasing value.