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Home My WebLink About20180126Avista to Staff_DR_208(H1) Attachment A.PDFSP 0804 R1 This document may have been revised since it was printed. Approved current version is posted in HODS Page 1 of 3 Shared Corporate Services Cost Allocation and Transfer Pricing Policy Purpose and Scope This document specifies accounting policies for the allocation of shared services and transfer pricing for the transactions between Hydro One Inc.’s regulated businesses and their Affiliates and is consistent with the OEB’s Affiliate Relationships Code (ARC). Revision Statement The current revisions have been made to reflect the requirements of US Generally Accepted Accounting Principles (GAAP) as defined in the Accounting Standards Codification (ASC) of the Financial Accounting Standards Board (FASB). Governing Principles The allocation of costs relating to shared corporate services shall occur in a manner such that Hydro One’s regulated businesses do not cross-subsidize their Affiliates. 1.0 Requirements The cost allocation methodology shall conform to the following general requirements: 1. Direct Costs: Where costs can reasonably be identified with a specific unit of product or service or with a specific operation or cost centre, they should be assigned on a direct basis. Application of this principle should take into consideration the materiality of such Direct Cost assignments relative to the cost of implementing such assignments. 2. Common Corporate Costs: In contrast, shared corporate services costs (Common Corporate Costs, see ARC, Section 1.2 definition of ‘shared corporate services’ for examples) are genearlly allocated to the receiving Utility or Affiliate using activity drivers and using a Fully Allocated Costs model. Proposals to charge any Common Corporate Costs directly to work projects or programs need to be reviewed and approved by the Director, Business Planning and Decision Support to ensure they are not double counted. 3. The Cost Driver to derive the allocation rate shall be selected based on the principle of cost Causality. If a strong causal relationship cannot be established, the principle of benefit should be used. In such case, the Cost Driver measures the proportional degree of benefit provided to the recipient unit(s). 4. If the appropriate theoretical Cost Driver cannot be used due to system constraints or the absence of required information, a proxy that best meets the Causality/Benefit principle shall be selected. 5. The overall cost allocation methodology is required to be periodically reviewed for continued propriety. This generally occurs at the time of cost of service rebasing for Hydro One’s regulated businesses. Activity drivers and rates are required to be updated on an annual basis, for inclusion in updated business plans. All changes in Staff_DR_208(H1) Attachment A Page 1 of 3 SP 0804 R1 This document may have been revised since it was printed. Approved current version is posted in HODS Page 2 of 3 Direct and Indirect Costs, the allocation methodology, or Cost Drivers shall be appropriately documented within the model files and approved by the Director, Business Planning and Decision Support prior to publishing final results. 2.0 Definitions Term Definition Affiliate Affiliated body corporate: one body corporate shall be deemed to be affiliated with another body corporate if, but only if, one of them is the subsidiary of the other or both are subsidiaries of the same body corporate or each of them is controlled by the same person. Business Corporation Act, R.S.O. 1990, c. B.16, s. 1 (4) Causality The existence of a causal relationship between a particular cost and a triggering unit, product or service is determined by analyzing whether the cost would have occurred had the triggering item not existed. Cost Driver Method or ratio used to apportion Indirect Costs. It can be a measurable event or quantity identified with a specific unit of product or service, a cause and effect relationship between the Indirect Cost and the causing/benefiting activity, or one or more factors referred to as general drivers. Direct Cost A cost that can reasonably be directly associated with a specific unit of product or service, or with a specific operation or cost centre. For Direct Costing to occur, a relevant direct charge mechanism must exist. Fully Allocated Costs The sum of all Direct Costs plus a proportional share of Indirect Costs. Indirect Cost A cost that cannot be identified with a specific unit of product or service, or with a specific operation or cost centre. When no Direct Cost charging mechanism exists, Direct Costs can be treated as Indirect Costs. Utility A licensed electricity transmitter or distributor. 3.0 References SP1100 R2 Costing and Pricing of Non-Regulated Products, Services and Work Policy Staff_DR_208(H1) Attachment A Page 2 of 3 SP 0804 R1 This document may have been revised since it was printed. Approved current version is posted in HODS Page 3 of 3 4.0 Document Management Owner/Functional Responsibility Director, Business Planning and Decision Support Approver Director, Business Planning and Decision Support Approval Date July 2016 Effective Date July 2016 Last Reviewed Date July 2016 Next Review Date July 2018 5.0 Appendices None Staff_DR_208(H1) Attachment A Page 3 of 3