# Cost Assignment and Allocation Principles

- **operation:** document
- **citation:** 4 CCR 723-4 Rule 4502
- **title:** Cost Assignment and Allocation Principles
- **source type:** regulation
- **agency:** Colorado Public Utilities Commission
- **status:** current
- **official:** true
- **published on:** Not available
- **effective on:** Not available
- **summary:** In determining fully distributed cost, the utility shall apply the following principles (listed in descending order of required application in paragraphs 4502 (a), (b) and (c) below). (a) Tariff services provided to an activity will be charged to the activity at the tariff rates. (b) If only one act
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- **app url:** https://regulus.evalyn.ai/document/co-ccr-4-723-4-4502
- **source url:** https://www.sos.state.co.us/CCR/DisplayRule.do?action=ruleinfo&ruleId=2260&deptID=18&agencyID=96&deptName=Department%20of%20Regulatory%20Agencies&agencyName=Public%20Utilities%20Commission&seriesNum=4%20CCR%20723-4
**body:**

In determining fully distributed cost, the utility shall apply the following principles (listed
in descending order of required application in paragraphs 4502 (a), (b) and (c) below).
(a) Tariff services provided to an activity will be charged to the activity at the tariff
rates.
(b) If only one activity or jurisdiction causes a cost to be incurred, that cost shall be
directly assigned to that activity or jurisdiction.
(c) Costs that cannot be directly assigned to either regulated or non-regulated
activities or jurisdictions will be described as common costs. Common costs shall
be grouped into homogeneous cost categories designed to facilitate the proper
allocation of costs between regulated and non-regulated activities or jurisdictions.
Each cost category shall be fairly and equitably allocated between regulated and
non-regulated activities or jurisdictions in accordance with the following
principles.
(I) Cost causation. All activities or jurisdictions that cause a cost to be
incurred shall be allocated a portion of that cost. Direct assignment of a
cost is preferred to the extent that the cost can easily be traced to the
specific activity or jurisdiction.
(II) Variability. If the fully distributed cost study indicates a direct correlation
exists between a change in the incurrence of a cost and cost causation,
that cost shall be allocated based upon that relationship.
(III) Traceability. A cost may be allocated using a measure that has a logical or
observable correlation to all the activities or jurisdictions that cause the
cost to be incurred.

(IV) Benefit. All activities or jurisdictions that benefit from a cost shall be
allocated a portion of that cost.
(V) Residual. The residual of costs left after either direct or indirect
assignment or allocation shall be allocated based upon an appropriate
general allocator to be defined in the utility’s CAAM.
(d) For cost assignment and allocation purposes, the value of all transactions from
the Colorado utility to a non-regulated activity shall be determined as follows:
(I) if the transaction involves a product or service provided by the utility
pursuant to tariff, the value of the transaction shall be at the tariff rate;
(II) if the transaction involves a product or service that is not provided
pursuant to a tariff, the value of the transaction shall be the higher of the
utility’s fully distributed cost or market price. Market price shall be either
the price charged by the utility, or if this condition cannot be met, the
lowest price charged by another person for a comparable product or
service; or
(III) if the transaction involves the sale of an asset, the value of the transaction
shall be the higher of net-book cost or market price. If the transaction
involves the use of an asset, the value of the transaction shall be the
higher of fully distributed cost or market price. Market price shall be either
the price charged by the utility or if this condition cannot be met, the
lowest price charged by another person in the market for the sale or use of
a comparable asset, when such prices are publicly available.
(e) For cost assignment and allocation purposes, the value of all transactions from a
non-regulated activity to the utility shall be determined as follows:

(I) if the transaction involves a product or service that is not provided
pursuant to a tariff, the value of the transaction shall be the lower of the
fully distributed cost or the market price except if the transaction results
from a competitive solicitation process then the value of the transaction
shall be the winning bid price. Fully distributed cost in this circumstance,
shall be the cost that would be incurred by the utility to provide the service
internally. Market price shall be either the price charged by the supplying
non-regulated activity or if that condition is not met, the lowest price
charged by other persons in the market for a comparable product or
service, when such prices are publicly available; or
(II) if the transaction involves the sale of an asset, the value of the transaction
shall be the lower of net-book cost or market price. If the transaction
involves the use of an asset, the value of the transaction shall be at the
lower of fully distributed cost or market price. Market price shall be either
the price charged by the non-regulated activity or, if this condition cannot
be met, the lowest price charged by another person in the market for the
sale or use of a comparable asset, where such prices are publicly
available.
(f) If it is impracticable for the utility to establish a market price pursuant to
paragraphs (d) or (e), the utility shall provide a statement to that effect, including
its reasons in its’ fully distributed cost study as well as its proposed method and
amount for valuing the transaction. Parties in a Commission proceeding retain
the right to advocate alternative market prices pursuant to paragraphs (d) and
(e).
(g) A utility may classify non-jurisdictional services as regulated if the services are
rate-regulated by another agency (i.e., another state utility commission or the
FERC) and where there are agency-accepted principles or methods for the
development of rates associated with such services. This rule may apply, for
example, to a provider's wholesale sales of electric power and energy. For such
services, the utility shall identify the services in its manual, and account for the
revenues, expenses, assets, liabilities, and rate base associated with these
services as if these services are regulated.
(h) For cost assignment and allocation purposes, the value of all transactions
between regulated divisions within a utility shall be determined as follows:
(I) if the transaction involves a service provided by the utility pursuant to tariff,
the value of the transaction shall be at the tariff rate, or
(II) if the transaction involves a service or function that is not provided
pursuant to a tariff, the value of the transaction shall be at cost.

(i) If the utility offers a service that is a combination of regulated and non-regulated
activities (i.e., a bundled service), the utility shall assign and/or allocate costs to
the regulated and non-regulated activities separately.
(j) A utility may classify incidental activities as regulated activities. If an incidental
activity is classified as a regulated activity, the utility shall clearly identify the
activity as an incidental activity, and account for the revenues, expenses, assets,
liabilities and rate base items as if that activity were a regulated activity.
(k) To the extent possible, all assigned and allocated costs between regulated and
non-regulated activities should have an audit trail which is traceable on the books
and records of the applicable regulated utility to the applicable accounts pursuant
to the Federal Energy Regulatory Commission Uniform System of Accounts.
(l) In a rate proceeding involving the calculation of revenue requirements, a
complaint proceeding where cost assignments or allocations are at issue, or a
proceeding where CAAM approval is sought, the utility or any party may
advocate a cost allocation principle other than that already in use, if the
Commission has already approved the principle for that cost. The party
requesting the alternative approach shall have the burden of proving the need for
an alternative principle and why the particular principle is appropriate for the
particular cost.
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