20180215INT to Staff Attach Request 7 - Instructions - Revised.doc

2018-2022 Capital Budget Instructions

Officers, Directors, and Managers:

In preparation for the 2018-2022 Capital Budget and Forecast, please use this instruction memo along with the request forms for office and computer equipment. We request that you complete the 2018 and 2019 capital budget in detail by July 31, 2017. The 2020 through 2022 capital forecast is provided on a summarized level by the General Office Department Managers and is also due by July 31, 2017.

Key Capital Budget Items

As you create new specific funding projects or make changes to existing funding projects and budget amounts for the budgeting process in PowerPlan, you may have a few items that need clarification. See below for further clarification on some key capital budget items:

Individual general plant projects, other than land and structures, up to $100,000 can be budgeted under a blanket funding project for the related equipment purchase or construction.

Blanket funding projects for electric distribution lines and natural gas distribution mains and services blankets in year’s 2018 and 2019 must be budgeted for both growth and replacement costs.

For IGC only, gas mains and services will be calculated and entered into the PowerPlan system by Fixed Asset Accounting after the numbers have been approved by management.

Generation, transmission, and distribution blanket funding projects are intended for individual standard blanket work orders or specific work orders under $100,000.  Individual projects over $100,000 should be budgeted in a separate specific funding project.

For MDU distribution operations only, during the year projects up to $100,000 can be included under the blanket funding projects if there are dollars available. Each project will have to be submitted as a specific work order under the appropriate blanket funding project. Please plan projected spending in the blanket funding projects accordingly.

Communication equipment (FERC 397X) installed on transmission lines and transmission/distribution substations, electric generation stations, and in gas regulator stations are budgeted under the transmission, distribution, or electric generation funding projects.

For General Office budgeters, funding projects need to be split between electric, gas, and common business segment, if applicable. They should also be split by state, if possible.

Going forward, the Billings office is budgeted to the appropriate gas business segment funding projects. If you have questions on what funding project to use, please contact a member of Fixed Asset Accounting.

It is important in the monthly cash planning process to input budgeted expenditures in the month(s) of expected payment or charge to the work order. Equally important for specific work orders are the planned start, planned in service, and planned completion dates. These dates are used to estimate capitalized interest and depreciation in the planning system. The planned start date should be the day of the first expected charge to the work order or in the case of purchased plant, the date the item is ordered. The planned in service date for construction projects is the day the asset is ready for its intended use and for purchased assets, the date the asset is received. The planned completion date is the day the as-built is completed and final costs are expected to be charged to the project. December is not to be used for planned in service or planned completion dates unless it truly is December.

Please review the instructions on creating a funding project to determine which fields are required in setting up a funding project. If a new location needs to be created, please contact Fixed Asset Accounting to create the location as this is a required field on a funding project.

Remove/Cancel Funding Project from Budget – Contact a member of Fixed Asset Accounting to have a funding project removed from the Budget or cancel a funding project if it’s determined that it won’t be needed.

Year 6 & Forward – If a funding project will have significant estimated expenditures (over $100,000) for specific projects extending beyond the first five years, make sure the estimated planned complete date is 2023 and update the Grid Estimate with the Year 6 amount.

Status - All new specific funding projects will be automatically set up with a status of initiated. The newly created funding project must be sent for Review to be included in the 2018-2022 Capital Budget. After you submit, Fixed Asset Accounting will review all funding projects and the initiator will receive email notification when the review is complete. If at anytime you need to inactivate or cancel a funding project, please contact a member of Fixed Asset Accounting.

Expenditure Type – They are as follows:
Additions (Cost of New Facilities less Contributions – Nonrefundable)
Retirements (Cost of Removal less Salvage and Contributions – Nonrefundable)

Estimated Charge Type - There are three resources available for budgeting. The available resources are as follows:

Direct - Base Capital Budget: All expenditures including internal labor costs, payroll taxes and benefits. Cost of removal should also be budgeted in this resource. A labor loading factor of 50% should be used on all internal labor costs to estimate payroll taxes and benefits.

For IGC users only: If you pull your project costs of the Project Cost Estimator (PCE), you will need to back out the overhead rate before inputting the dollars into PowerPlan.

CIAC - Non Refundable (CIAC): Any nonrefundable contributions in aid of construction must be entered as a negative amount.

Salvage – Proceeds received from sale/trade-in of an asset. Salvage is typically used for vehicles and work equipment. Salvage must be entered as a negative amount and is under the Retirement Expenditure Type.

CIAC Estimated Charge Type - If a project has an associated nonrefundable contribution, budget the expenditures for the project in the Grid Estimate in the Direct Estimated Charge type and then offset these expenditures by the dollar amount being contributed to the project in the CIAC Estimated Charge Type as a negative amount so the net total expenditure to the company is reflected for the project. Be sure to code the funding project’s reimbursement class code field with an “N-Non Refundable Contribution”. If a funding project’s nonrefundable contribution is based on a percentage of the total project cost as in the case of a 100% reimbursable project, enter a negative amount in the CIAC Estimated Charge Type which equals the percentage contribution multiplied by the total budgeted to the Direct Estimated Charge Type. Also, note the reimbursement percentage in the description field of the project so Fixed Asset Accounting can adjust the contribution once ES/GA and AFUDC estimates are applied. Both specifics and blanket projects should reflect any nonrefundable contributions in the CIAC Estimated Charge Type. Some examples of types of contributions that qualify as nonrefundable contributions may include the following: nonrefundable customer contributions and 3rd party nonrefundable contributions. Any joint trench contributions should be netted out against the Direct Estimated Charge Type.

Capital Budget Process for 2018 and 2019
(Budgeted by Department Heads and Region/Power Plant Managers)

All new specific funding projects will be created in PowerPlan. Updating attributes of any existing funding projects to be included in the 2018 and 2019 Capital Budget will take place in the Working Version in PowerPlan. The pre-established blanket funding projects are to be used for construction projects generally costing less than $100,000 or purchase items (office furniture, minor tools, etc.) individually costing less than $100,000. You should not budget Engineering and Supervision (ES), General and Administrative (GA), or Allowance for Funds Used During Construction (AFUDC) for any funding projects as they will be automatically calculated and loaded for each project by the Fixed Asset Accounting department. Projects over $100,000 (except vehicles and work equipment) should be budgeted individually on a specific work order. Projects involving contributions in aid of construction (nonrefundable) can be budgeted under specific or blanket funding projects including electric and gas distribution projects.

Enter all budget dollars for years 2018 and 2019 by month in the Working Version of each funding project in PowerPlan. Standardized budget reports have been created and can be run during the budget process showing your current project budget. Blanket budget items are at a Region/State level for MDU and GPNG and State level for CNG. Blanket Budget items for electric lines and natural gas distribution mains are split between growth and replacement funding projects.

An annual inflation factor of 2.0% should be used for estimating increases in budget costs excluding internal labor. An annual inflation factor of 3.0% should be used for estimating increases in internal labor costs. A labor loading factor of 50% should be used on all internal labor costs to estimate payroll taxes and benefits.

We no longer seed blanket funding projects with prior year actuals. Please use 2016 amounts if you are unsure what amount to budget for Year 2 on blanket funding projects. If you need assistance running reports for 2016 blanket funding project actual expenditures, please contact Fixed Asset Accounting.

A parent/child relationship should be used for projects that last more than one year where in each year a phase of the project is completed and put in service. In this case, budget only at the parent funding project. Be sure to select “Multi-Phase” in the Blanket/Specific field in the Class Codes tab of the funding project for this type of project.

If you have a specific project that will span beyond 2018 and 2019, contact the appropriate General Office manager to determine how to budget these projects.

The special instructions for the Capital Budget Forecast Years 3-5 are detailed below.

Capital Budget Forecast - Years 3 through 5
(Budgeted by General Office Managers)

For those preparing the capital budget for forecast years 3-5, you must enter the dollars in the Working Version funding project grid estimate in PowerPlan for each fiscal year. Individual projects scheduled to begin in year 3 or beyond, with planned expenditures of $250,000 or more should be individually identified in the budget. Projects under $250,000 should be included in the year 3-5 blanket funding project amount. You do not have to enter amounts by month or breakout retirement costs. Pick a month in each year where the concentration of expenditures may occur for that year and enter all expenditures on the addition account (Direct Estimated Charge Type and Additions Expenditure Type) for that year. The annual inflation factor of 2.0% should be used for estimating increases in budget costs excluding internal labor for years 2020 through 2022. An annual inflation factor of 3.0% should be used for estimating increases in internal labor costs. A labor loading factor of 50% should be used on all internal labor costs to estimate payroll taxes and benefits. The forecast must be entered by July 31, 2017.

Special Considerations

1. For FutureSource and Nevada Solar only:

Effective January 1, 2018, the asset capitalization threshold will be $2,500. Please be aware of this change when budgeting.

2. Office Furniture, Equipment and Minor Structure Remodel Projects (plant accounts 3900, 3911 and 3980):

Funding projects are set up by state and utility within each Region. The field office is responsible for the budgeting of these types of items. Any items individually costing less than $1,000 should be included in your O&M Budget. Any items over $100,000 must be handled as a specific budget item. General Office requests should be submitted to Kathy Peterson, Administrative Services Manager by July 14, 2017. Please use the attached Furniture/Equipment request form for these purchases. Also, attached is a Rearrangement request form that should be completed, if applicable, and sent to the Administrative Services Manager.

3. Minor Tools and Work Equipment (plant accounts 3930, 3941, 3950):

Funding projects are set up by state and utility within each Region for utility purchases. Any requests for minor work equipment within the Substation Department should be submitted by email request to Rob Frank in Electric Transmission Engineering no later than July 14, 2017 for inclusion in the General Office budget (FP-311912). FP-100933 is used to budget for all of Montana-Dakota Utilities non-utility purchases and FP-100932 is used to budget for all of Great Plains Natural Gas non-utility purchases. Any requests for non-utility minor tools and work equipment for Region or General Office use should be submitted by e-mail request to Fixed Asset Accounting no later than July 14, 2017 for inclusion in either FP-100933 or FP-100932. Any of the above items individually costing less than $1,000 should be included in your O&M Budget. Any of the above items over $100,000 must be handled as a specific work order.

4. Land and Land Rights (plant accounts 3040, 3501, 3502, 3601, 3602, 3651, 3652, 3741, 3742 3890):
Costs to obtain land and land rights as well as the actual cost of the land or land rights should be budgeted in the proper blanket or specific funding project.

5. Computer Equipment (plant account 3911):

Effective January 1, 2018, the $0 exception for computers will be eliminated. All computer equipment individually costing less than $1,000 should be included in your O&M Budget. Please be aware of this change when budgeting. The Enterprise IT department will be handling the budgeting for all computer equipment. Any questions should be submitted to Troy Walker, Enterprise Security and Governance Director.

Funding projects are established by company and utility and should be budgeted to accordingly.

6. Vehicles and Work Equipment Including Trailers (plant accounts 3921, 3922, 3961, 3962):

Separate blanket funding projects are set up for vehicle and work equipment expenditures. Individual purchases up to $100,000 can be budgeted under the blanket funding project. They have been established by company and utility. All requests, including the General Office, should be submitted to Jeremy Wentz, Fleet and Travel Manager, who will prepare the budget input data. Jeremy will be contacting you about your budget requests if he has not already done so.

7. Distribution Meters, Regulators, Line Transformers and Capacitors, etc. (plant accounts 3680, 3700, 3810, 3830):

MDU/GPNG:
Blanket funding projects will be used for the centralized purchase of gas and electric meters and gas regulators. Al Jirges, Measurement Manager, in the General Office Engineering and Operations Services Department will be handling your requests for gas and electric meters and gas regulators. All other equipment expenditures are budgeted in the Region/State project cost centers. Also note that electric meters, transformers, and capacitors, as well as gas meters require the estimated installation cost to be budgeted in the Direct Expenditure Charge Type amount along with the material costs.

CNG: Blanket funding projects will be used for the centralized purchase of gas meters and regulators. Brett Hudson, Gas Measurement Manager, in the Kennewick General Office Measurement Department will be handling your requests for gas meters and regulators.

IGC:
Tim Wold, Gas Measurement Manager, will be handling the entry of the data into the PowerPlan system.

8. Other Communication Equipment (plant account 3971, 3972, 3973, 3974, 3975, 3976, 3978, 3979):

Effective January 1, 2018, the $0 exception for mobile communication equipment will be eliminated. All mobile communication equipment individually costing less than $1,000 should be included in your O&M Budget. Please be aware of this change when budgeting. Requests should be submitted by July 14, 2016 to Curt Breimeier, Supervisor of Communications, except for purchase of telephone systems that can be budgeted as specific items within the Region.

Funding projects are established by company and utility and should be budgeted to accordingly.

Communication equipment (FERC 397X) related to transmission lines and transmission and distribution substations, electric generation, and in gas regulator stations are budgeted under the transmission, distribution, or electric generation funding projects.

9. The standard capital budget reports are:
FP-BDG-2002-MDU-Unloaded – 5 Year Estimates-Base
FP-BDG-2001-MDU-Unloaded – Monthly-Base

These reports are located under Projects>ProjFund>Reports>Budgeting Reports. Click on the Filter tab and select company 00001 and 00040. Click on the department tab to only select your departments. You will need to type in the Year 2018, 2019, 2020, 2021, or 2022 as these years are not available as a dropdown selection on the report. The bottom right corner of the report selection screen asks you to pick a budget version. To view any newly created funding projects, select Wish List. To view any funding projects already in PowerPlan, select Working. After July 31st, a new version will be created incorporating funding projects from the Wish List and Working version. You will then only have to pick this version to run reports. Additional correspondence will be sent out on this towards the end of July.

If there are any additional reports you would like created, contact Fixed Asset Accounting for assistance.

If you have any questions or need assistance in preparing the capital budget, please contact your appropriate UG Fixed Asset Accounting representative:

Judy Feiring 4 digit direct dial #7709
Matt Schatz 4 digit direct dial #7714
Scott Wanner 4 digit direct dial #4528
Jake Emery 4 digit direct dial #6106

Thanks!

Jeremy Hauff

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