20201028Falls Water to Staff Attachment 1 - OPUC UI 385.pdf

VIA ELECTRONIC FILING

December 28, 2018

Public Utility Commission of Oregon
Attn: Filing Center
201 High Street SE, Suite 100
Post Office Box 1088
Salem, Oregon 97308-1088

Re: Docket UI 385; Updated Master Services Agreement
Docket UM 1804; Stipulated Condition 26e Compliance Filing

Northwest Natural Gas Company, dba NW Natural (“NW Natural” or the “Company”),
files herewith an updated Affiliated Master Services Agreement (MSA) between NW Natural
and its affiliates. For the purpose of this application, “affiliates” means persons or
corporations having an affiliated interest with NW Natural under ORS 757.495.

The attached MSA supersedes the previously filed MSA between NW Natural and its
affiliates. The purpose for filing the MSA is to comply with Commission Order 17-526 in
Docket UM 1804, Stipulated Condition 26e.

Pursuant to OAR 860-001-0070 and ORS 192.345, some of the information
contained in these materials is confidential, constitutes a trade secret, or is otherwise
protected from disclosure. Accordingly, the company respectfully requests that it be
considered exempt from public disclosure.

Please address correspondence on this matter to me with a copy to the following:

eFiling
NW Natural, Rates & Regulatory Affairs
220 NW Second Avenue
Portland, Oregon 97209
Email: [e-mail]
Telephone: [phone], ext. 3589

Very truly yours,

/s/ Zachary D. Kravitz

Zachary D. Kravitz
Director, Rates and Regulatory Affairs

enclosures
Zachary D. Kravitz
Associate Counsel
Tel: [phone]
Fax: [phone]
email: [e-mail]  
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Cost Allocation Manual – Northwest Natural Gas Company 1
NORTHWEST NATURAL GAS COMPANY
COST ALLOCATION MANUAL
Overview
The purpose of Northwest Natural Gas Company’s (“NWN”) Cost Allocation Manual is to
describe the methodologies for allocating direct, indirect and shared services costs between
NWN, and any affiliates of NWN, and its non-regulated or non-utility affiliates and activities.
NWN is a natural gas local distribution company, which operates in Oregon and Washington,
and is regulated by the Public Utility Commission of Oregon (“OPUC”) and Washington Utilities
and Transportation Commission (“WUTC”). NWN is owned by NWN Holdings. NWN Holdings
also owns certain other businesses. NWN, NWN Holdings, and the other businesses owned by
NWN and NWN Holdings are “affiliated interests” to NWN under ORS 757.015, and RWC
80.16.10. As such, the allocation of costs between these entities is subject to regulation by the
OPUC and WUTC, and this manual sets out the methodologies, policies, and procedures for
ensuring that the allocation of costs is done appropriately.
This document is intended to provide an overview of the different types of allocations and the
processes employed to direct costs to the proper affiliate or activity.
This Cost Allocation Manual (“CAM”) has been completed in accordance and conformance with
the NARUC Guidelines for Cost Allocations and Affiliate Transactions (“NARUC Guidelines”) as
follows:
1.To the maximum extent practicable, in consideration of administrative costs, costs
should be collected and classified on a direct basis for each asset, service or product
provided.
2.The general method for charging indirect costs should be on a fully allocated cost
basis. Under appropriate circumstances, regulatory authorities may consider incremental
cost, prevailing market pricing or other methods for allocating costs and pricing
transactions among affiliates.
3.To the extent possible, all direct and allocated costs between regulated and non-
regulated services and products should be traceable on the books of the applicable
regulated utility to the applicable Uniform System of Accounts. Documentation should be
made available to the appropriate regulatory authority upon request regarding
transactions between the regulated utility and its affiliates.
4.The allocation methods should apply to the regulated entity's affiliates in order to
prevent subsidization from, and ensure equitable cost sharing among the regulated
entity and its affiliates, and vice versa.
5.All costs should be classified to services or products which, by their very nature, are
either regulated, non-regulated, or common to both.
6.The primary cost driver of common costs, or a relevant proxy in the absence of a
primary cost driver, should be identified and used to allocate the cost between regulated
and non-regulated services or products.
7.The indirect costs of each business unit, including the allocated costs of shared
services, should be spread to the services or products to which they relate using
relevant cost allocators.
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Cost Allocation Manual – Northwest Natural Gas Company 2
Overall, the approach to allocating costs is to directly assign costs when applicable and to
allocate costs based on the primary cost driver of the common cost, or relevant proxy, and to
ensure that unauthorized subsidization of unregulated activities by regulated activities, and vice
versa, does not occur. Except where otherwise approved, goods or services provided to the
utility by an affiliate are provided at the lower of cost or prevailing market price. Goods or
services provided by the utility to an affiliate are provided at the higher of cost or market price.
Costs allocated can take the form of: direct labor, direct purchased goods or services, and
indirect labor and other indirect common costs. These costs are charged by the providing party
to the receiving party at fully loaded costs. For the indirect labor and common costs that cannot
be direct charged or allocated based on the primary cost driver of the common cost an indirect
general allocator of the Massachusetts Formula will be used as a relevant proxy. The general
allocator (“Massachusetts Formula”) will be developed using an average of plant, revenues, and
employee headcount for the preceding year ended December 31st. Refer to “Indirect Costs -
Allocation of Common Costs” below.
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Cost Allocation Manual – Northwest Natural Gas Company 3
Affiliates & Non-Regulated Activities
Refer to the subsequent organizational chart for the list of all affiliates and subsidiaries of
NWN that currently meet the requirements of ORS 757.015 and RCW 80.16.010,
respectively.1 2
The following is a list of NWN’s non-regulated activities with additional cost allocation
considerations:
1.Appliance Center/Miscellaneous Merchandising
2.Interstate Storage
NW Natural Organizational Chart – as of November 1, 2018
1 BlackRock, Inc. and The Vanguard Group hold more than five percent of the voting securities of NWN, however
they are not allocated any direct, indirect and shared services costs by NWN. The ownership of voting securities held
by these entities are reported pursuant to ORS 757.511 and OAR 860-027-0175.
2 On October 1, 2018, NWN consummated a holding company reorganization, whereby Northwest Natural Holding
Company became the sole shareholder of all of the outstanding shares of NWN, and NWN transferred to Northwest
Natural Holding Company all outstanding interests of each of its subsidiaries other than Northwest Energy
Corporation and its subsidiary, NWN Gas Reserves LLC.
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Cost Allocation Manual – Northwest Natural Gas Company 4
Labor Allocation Methods
Management oversight and other labor performed by NWN employees for the benefit of
affiliates or non-public utility activities are recorded in accordance with the labor allocation
methods described below.

Direct Labor - Shared Services

NWN has several departments that may provide services to affiliates that specifically benefit
another entity. These departments direct-charge time incurred in aggregate of 30 minutes per
day directly to the respective affiliate, or non-utility activity in which the time relates to in the
SAP time reporting system to the extent possible. The costs are assigned directly to the entity
for which the service is being provided through intercompany accounts. NWN charges labor
rates for these shared services at cost per the payroll systems, grossed up for payroll
overheads. Refer to ‘Payroll Loadings and Overheads’ below.
The departments that direct charge time incurred include:
Accounting, including Shared Services Management
Accounts Payable
Clerical Administrative Services
Corporate Communications
Engineering and Operations
Environmental
Executives – Management Oversight
Facilities and Security
Gas Accounting
HR and Payroll
Information Technology & Services
Legal
Marketing
Public Policy and Government Affairs
Purchasing and Stores
Rates and Regulatory
Risk and Land
Safety
Strategic planning, business development
Tax
Treasury

Indirect Labor - General and Administrative Services
NWN has several departments that perform administrative and general functions for the benefit
of NWN, NW Natural Holdings and its affiliates as well as public company related activities in
service of NWN and other affiliates. These departments’ labor costs are indirectly charged via a
corporate allocation to the affiliates that benefit from their services. See ‘Indirect Costs -
Allocations of Common Costs’ below. The below departments are determined to be indirect
labor costs as they cannot be identified with a particular service or product to be charged and
the labor benefits all affiliates. As such, the labor costs of these departments are allocated using
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Cost Allocation Manual – Northwest Natural Gas Company 5
allocation factors designed to equitably allocate costs between NWN and its affiliates. These
allocation factors are designed with an emphasis on recognizing cost drivers, or a relevant
proxy in the absence of a primary cost driver.
These departments include:
Corporate Governance and Compliance
Corporate Secretary
Financial Planning & Budgeting
Financial Reporting
Internal Audit
Investor Relations
Shareholder Services

Payroll Loadings and Overheads
NWN Employee payroll overhead (POH) is comprised of Vacation and Holiday Overhead Load
and Benefits Overhead Load. The Company’s payroll overheads loading rate is reviewed and
updated annually by HR, Accounting, and Finance. Quarterly, any over or under allocation of
costs recorded to the payroll overhead clearing accounts is reviewed and allocated to corporate
expense and non-utility activities consistent with the underlying payroll charged.
Vacation and Holiday Overhead Load
A vacation and holiday overhead load is included in the payroll overheads which includes the
estimated cost of all vacation, sick and company designated holiday days earned by an
employee so that these costs appropriately follow where an employee charges their time.
Benefits Overhead Load
The benefit overhead load includes the cost of health care, pension, post-retirement medical,
workers’ compensation, 401K plans, payroll taxes, and annual incentive plan and key goal
bonuses. If exception time is reported (see “Labor Allocation Methods”), the benefits overhead
load follows the payroll dollars. The benefits overhead load is set at a rate adequate to fully
allocate by year-end all actual benefit costs. The rate is determined at the beginning of the year
based on estimated costs. Because benefit cost rates may differ depending on employee
grade, employees are categorized into two classes, with different benefits overhead load rates
for each class. The employee classes are: (1) Executives, and (2) Non-executives.

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Cost Allocation Manual – Northwest Natural Gas Company 6
In 2017, the following costs were allocated as payroll overhead loadings (company averages):

Executives
Vacation & Holiday Overhead Load 15.57% of payroll
Benefits Overhead Load 91.09% of payroll
Total Executive Payroll Overhead3 106.66% of payroll
Non-Executives
Vacation & Holiday Overhead Load 15.57% of payroll
Benefits Overhead Load 79.89% of payroll
Total Non-Executives Payroll Overhead 95.46% of payroll

Overtime and Doubletime Overhead4 15.80% of payroll
Service Provider and Administrative Allocations
For affiliate labor charges, both direct and indirect charged, an additional administrative
overhead load of 27.5% of the labor cost is added to cover the cost of rented space, office
supplies, IT costs, utilities, furniture and equipment and other administrative costs. 5 In like
manner, an appropriate administrative overhead load is also charged from an affiliate to NWN
when an affiliate provides services to NWN. The Company’s administrative overhead is
reviewed annually by Accounting.
Other Goods or Services

Direct Costs

Affiliates or non-regulated utility activities are charged directly for materials, supplies and
services (e.g., consulting services, accounting software, office supplies, Kelso-Beaver Pipeline
demand charge6) purchased by NWN on behalf of the affiliate on the basis of the full cost of the
items supplied.
Indirect Costs - Allocation of Common Costs Incurred
Common costs incurred by NWN that may benefit other affiliates that are not able to be directly
assigned will be allocated to the affiliates using the general corporate allocation methodology.

3 The executive payroll overhead rates do not include expenses for various elements of our executive compensation program
such as stock option expense, restricted stock unit expense or long-term incentive plan expenses, because these expenses are
excluded from rate base and are therefore, not necessary to allocate out.
4 The overtime overhead rates do not include a vacation and holiday component, and only include those benefit costs that are
incurred when additional salary is incurred including payroll taxes and 401k match.
5 The administrative overhead load will not be charged if the employee providing the Services is located on affiliate premises
for which all facilities related costs are borne by the Affiliate receiving the Services. 
6 Under the Gas Transportation Agreement be between Kelso-Beaver Pipeline Company (“KBPC”) and NWN dated September
26, 1991, NWN pays KBPC a monthly demand charge which is charged directly. Additionally, if KBPC actually transports gas
for NWN, there is an additional volumetric/commodity charge payable by NWN to KBPC for gas transported. The rates charged
by KBPC to NWN for gas transportation services on the Kelso-Beaver Pipeline were approved by FERC in KBPC’s 1991
certificate order.
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Cost Allocation Manual – Northwest Natural Gas Company 7
These common costs include the indirect labor of the General and Administrative departments
listed above as well as indirect department costs. See summary below.
Additionally, commons costs incurred by NWN Holdings that benefit NWN and other affiliates
will be allocated using the general corporate allocation methodology and NWN will be charged
its portion intercompany. NWN Holdings’ structure as a publicly traded holding company
provides substantial benefits to its regulated utilities and other affiliates. Indeed, the NWN
Holdings’ without any operations of its own, exists for the purpose of, and in service to, its
subsidiaries. For these costs that benefit various functional areas and affiliates, it is not
practical to charge the costs directly. Costs incurred by NWN Holdings directly related to the
publicly traded company structure will be allocated to the affiliates using the general corporate
allocator.
The following table shows the formulas that shall be used to allocate the cost of services and
costs incurred which are not directly charged. These allocators shall be updated annually based
on the preceding year ended December 31st data. However, if a significant or material event
occurs during the year the Company will update the allocators to reflect such an event on a pro-
rata basis. The following table includes functions and costs that do not have a direct cost
causation. The general corporate allocator (“Massachusetts Formula”) will be developed using
an average of plant, operating revenues, and payroll expense for the preceding year ended
December 31st.
NWN Indirect Costs Incurred7 Basis of Allocation
Corporate Governance and Compliance
Department
General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Corporate Secretary Department General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Financial Planning and Budgeting
Department
General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Financial Reporting Department General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Internal Audit Department General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Investor Relations Department General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense

7 The departments include the departmental payroll and non-payroll costs incurred and additional administrative overhead charge
on payroll costs.
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Cost Allocation Manual – Northwest Natural Gas Company 8
Shareholder Services Department General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Insurance Premiums Allocation to affiliates and non-regulated
activities covered by the group insurance
based on the underwriting principles for each
type of policy.
Property Taxes Allocation to affiliates and non-regulated
activities based on the value of the property
owned that the taxes relate to.

NW Natural Holdings Common Costs
Incurred
Basis of Allocation
Costs related to publicly traded company
structure
General corporate allocation: 33.3% plant,
33.3% operating revenues, 33.3% payroll
expense
Income tax Expense or Benefit Allocated based on the adjusted pre-tax
income or loss of the affiliate or activity

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Cost Allocation Manual – Northwest Natural Gas Company 9

Other Goods and Services related to Individual NWN Non-Regulated Activities
Appliance Center
NWN’s Appliance Center is a retail store that demonstrates and sells natural gas appliances to
the general public. In addition to the allocations described within, an additional charge for
management oversight of 1.5% of NWN’s selling expenses is charged to the Appliance Center
business. Certain NWN employees work exclusively on matters related to the operation of the
Appliance Center. The cost of the employees and all related payroll overheads are charged to
directly to the appliance center. In addition, all expenses incurred in the operation of the
Appliance Center are charged to directly.
Interstate Storage
NWN owns and operates the Mist underground natural gas storage facility in Columbia County
near Mist, Oregon. In addition to the allocations described within NWN provides the interstate
storage service under a limited jurisdiction blanket certificate issued to it by FERC under Section
284.224 of FERC’s regulations. See, Northwest Natural Gas Company, 95 FERC ¶ 61,242
(2001). Under that certificate, NWN is authorized to provide FERC-jurisdictional bundled firm
and interruptible storage and related transportation services to and from its Mist storage field in
interstate commerce. In addition, NWN provides an intrastate firm storage service for eligible
intrastate customers and sites in Oregon under Tariff Schedule 80 (experimental). The terms of
Rate Schedule 80 mirror NWN’s FERC-authorized interstate service. Since the provision of the
storage services is accomplished by the use of some shared storage and transportation assets
that are included in the core rate base, NWN has sharing agreements in place with its Oregon
and Washington regulators. In Oregon, the sharing arrangement for both storage services and
asset optimization assistance is set forth in NWN’s Tariff Schedules 185 and 186. These
sharing agreements are in lieu of specific allocations of costs.

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