If you mouse-over KE on peakd it explains that it's just a simple number that adds your author and curation rewards together and divides it based on your current stake. Delegations actually muddy the KE as you now have another account earning curation rewards in your favor and giving you liquid Hive instead which you can power up to "fake" a good KE rating.
I guess it was something else I saw that took into account HIVE delegated out. Maybe it was a bot that someone created. I could have swore it was part of that equation though.