20160812Dedden Exhibit 10.pdf

Ronald L. Williams, ISB No. 3034
Williams Bradbury, P.C.
1015 W. Hays St.
Boise, ID 83702
Telephone: [phone]
Email: [e-mail]

Attorneys for Intermountain Gas Company

BEFORE THE IDAHO PUBLIC UTILITES COMMISSION

IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
THE AUTHORITY TO CHANGE ITS RATES
AND CHARGES FOR NATURAL GAS
SERVICE TO NATURAL GAS CUSTOMERS
IN THE STATE OF IDAHO

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Case No. INT-G-16-02

EXHIBIT 10

Intermountain Gas
Company
Cost Allocation Manual
2016

Exhibit No. 10
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Table of Contents
Overview ......................................................................................................................................... 1
MDU Resources Group, Inc. (MDUR) Allocations ........................................................................... 2
Shared Services ........................................................................................................... 3
Payroll Shared Services ......................................................................................................................... 3
Procurement Shared Services ............................................................................................................... 3
Enterprise Technology Service .............................................................................................................. 3
General and Administrative Services ........................................................................... 4
Montana-Dakota/Great Plains Allocation of Cost to/from Others ................................................ 5
Allocations to/from other MDUR Companies ................................................................ 5
Allocations to other Utility Companies .......................................................................... 6
Standard Labor Distributions .......................................................................................................... 7
Labor/Reimbursable expense allocations ............................................................................................. 7
Intermountain Gas Company Allocations ....................................... Error! Bookmark not defined.
Exhibit I- MDUR Corporate Overhead factor .................................................................................. 8
Exhibit II- MDUR Shared Services Pricing Methodology ................................................................. 9
Exhibit Ill- Utility Operations Support Allocation Methodology ................................................... 12
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Overview
Intermountain Gas Company (IGC), a subsidiary of MDU Resources Group,
Inc. (MDUR), conducts business in Idaho with regulated gas distribution
operations.

Below is an overview of the operational structure for the purpose of
assigning costs. The diagrams presented are intended to provide an
overview for cost allocation only and are not intended to represent the legal
structure of the Corporation. Note that costs from MDUR and FutureSource
are directly assigned or allocated and charged to the operating companies
(i.e. Utilities Group, WBI Energy, etc.)

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This document is intended to provide an overview of the different types of
allocations and the processes employed to direct costs to the proper utility
for Intermountain Gas Company.

This document will discuss the allocations from:
 MDUR and FutureSource to Intermountain Gas Company
 Montana-Dakota/Great Plains (MDU) and Cascade Natural Gas (CNG)
to Intermountain Gas Company
 Intermountain Gas to MDU and CNG
Overall, the approach to allocating costs at each level is to directly assign
costs when applicable and to allocate costs based on the function or driver of
the cost.

MDU Resources Group, Inc. (MDUR) Allocations
The MDUR corporate staff consists of shared services departments (payroll,
procurement and enterprise technology) and administrative and general
departments.
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Shared Services
MDU Resources Group, Inc. has several departments that provide specific
services to the operating companies. These departments have developed a
pricing methodology which is updated annually for the allocation of costs to
the MDUR operating companies that utilize their services. (See Exhibit II)
These departments include:
Payroll Shared Services
Payroll Shared Services department provides comprehensive payroll
services for MDUR companies and employees. It processes payroll in
compliance with appropriate federal, state and local tax laws and
regulations. Payroll Shared Services is also responsible for preparation,
filing and payment of all payroll related federal, state and local tax
returns. It also maintains and facilitates payments and accurate
reporting to payroll vendors for employee benefits and other payroll
deductions. For Intermountain Gas Company, the payroll shared services
department is also responsible for the accumulation of time entry records
and maintenance of employee records. Intermountain Gas Company does
not have any departments that provide these payroll related services.
Procurement Shared Services
Procurement Shared Services creates and maintains the Corporation’s
national accounts for the purchase of products, goods and services.
National accounts take advantage of the combined purchasing power of
all of the Corporation’s operating companies. National accounts, or
preferred vendor agreements, typically are negotiated at the corporate
level rather than at the local company level. Procurement Shared
Services also is responsible for monitoring the level of services,
quantities, discounts and rebates associated with established national
accounts. Intermountain Gas Company has a single procurement
department that places specific purchase requests for materials and
services required to conduct business with approved vendors.
Enterprise Technology Service
Enterprise Technology Services (ETS) provides policy guidance,
infrastructure related IT functions and security-focused governance. ETS
seeks to increase the return on investment in technology through
consolidation of common IT systems and services, while eliminating
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waste and duplication. ETS works to increase the quality and consistency
of technology, increase functionality and service to the enterprise,
provide governance for managing and controlling risk and reduce costs
through economies of scale.

Intermountain Gas Company’s IT department consists of Montana-
Dakota/Great Plains employees physically located in Kennewick,
Washington, Boise, Idaho, and Bismarck, North Dakota. This Department
is responsible for supporting applications specific to the utility group such
as the Customer Care & Billing System, the JD Edwards financial
software, Scada and mobile applications, Enterprise GIS, and PowerPlan
which is the project and fixed asset accounting software. In addition the
utility group IT department develops business continuity plans in the case
of disaster recovery.
General and Administrative Services
Administrative and general functions performed by MDUR for the benefit of
the operating companies include the following departments:
 Corporate governance, accounting & planning
 Communications & public affairs
 Human resources
 Internal audit
 Investor relations
 Legal
 Risk management
 Tax and compliance
 Travel
 Treasury services
Intermountain Gas Company receives an allocation of these corporate costs.
Corporate Policy No. 50.9 states “It is the policy of the Company to allocate
MDU Resources Group, Inc.’s (MDU) administrative costs and general
expenses to the MDU’s business units”. Business units described in the policy
have been referred to as operating companies in this document. The policy
states that costs that directly relate to a business unit will be directly
assigned to the applicable business unit and only the remaining unassigned
expenses will be allocated to the operating companies using the corporate
allocation methodology. The allocation factor developed to apportion
MDUR’s unassigned administrative costs is a capitalization factor which is
based on 12 month average capitalization at March 31, effective July 1 and
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at September 30, effective January 1 each year. Capitalization includes total
equity and current and non-current long-term debt (including capital lease
obligations). The computation of the Corporate Overhead Allocation Factors
is shown in Exhibit I.

Intermountain Gas Company is reflected as IGC in the Corporate Overhead
Allocation Factors in Exhibit I. Operating companies that receive allocated
costs on a monthly basis from MDUR include:
 Montana Dakota – Electric utility segment
 Montana Dakota/Great Plains – Gas utility segment
 Cascade Natural Gas (CNG)
 Intermountain Gas Company (IGC)
 WBI Energy Transmission
 WBI Midstream
 Knife River Construction (KRC)
 MDU Construction Services Group, Inc. (CSG)
Corporate costs are recorded in the administrative and general (A&G)
function for IGC.
Montana-Dakota/Great Plains Allocation of Cost to/from
Others
Allocations to/from other MDUR Companies
Certain Montana-Dakota/Great Plains owned assets, such as the General
Office/Annex facility, located at the utility headquarters in Bismarck, and the
assets associated with the contribution made for FutureSource assets, are
also used for the benefit of other MDUR operating companies. To cover the
cost of ownership and operating costs associated with these owned assets, a
revenue requirement (asset return plus annual operating expenses) is
computed for the shared assets. The expense component included in the
return is composed of operating and maintenance costs, depreciation,
income tax and property tax expenses. The resulting revenue requirement
is billed to the other MDUR operating companies, including CNGC and IGC,
as a monthly fee. The costs are allocated based on the number of customers
served by each utility.

Intermountain Gas Company owns the customer care center located in
Meridian, ID. To cover the cost of ownership and operating costs associated
with that owned asset, a revenue requirement (asset return plus annual
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operating expenses) is computed similarly to Montana-Dakota owned assets.
The expense component included in the return is composed of operating and
maintenance costs, depreciation, income tax and property tax expenses.
The resulting revenue requirement is billed to the Montana-Dakota/Great
Plains and Cascade as a monthly fee. The costs are allocated based on the
number of customers served by each utility.

Certain Cascade owned assets, such as the portion of the General Office
facility used for Shared Services (i.e. Gas Control, IT), located at the utility
headquarters in Kennewick, are also used for the benefit of other MDUR
operating companies. To cover the cost of ownership and operating costs
associated with these owned assets, a revenue requirement (asset return
plus annual operating expenses) is computed for the shared assets. The
expense component included in the return is composed of operating and
maintenance costs, depreciation, income tax and property tax expenses.
The resulting revenue requirement is billed to the other MDUR operating
companies, including MDU and IGC, as a monthly fee. The costs are
allocated based on the number of customers served by each utility.

Allocations to other Utility Companies
Montana-Dakota/Great Plains has several departments that provide services
to all four utility operating companies (Montana-Dakota, Great Plains,
Cascade Natural Gas Co. and Intermountain Gas Company). These
departments include:
 Leadership Group - composed of the Executive Group and Directors
that oversee shared utility specific functions
 Customer Services - (Call Center, Scheduling and Online Services)
 Information Technology and Communications- (Management
Information Systems, Technology and Compliance)
 Administrative Services - (Procurement, Office Services, Fleet
Operations)
 Gas Supply & Control
These operational groups have calculated the proper allocation to use to
allocate the costs to the utility companies based on services performed for
each utility company. The allocation methodology is included in Exhibit III.

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Standard Labor Distributions
Labor/Reimbursable expense allocations
The development of standard labor distributions for Intermountain Gas
Company employees is described below based on the type of employee.
Standard labor distributions are used for all employees to account for certain
expenses as detailed below.

Labor, benefit costs and reimbursable expenses are directly assigned to a
jurisdiction where possible. If the expense is not direct, the appropriate
jurisdiction is charged as follows:
Union Employees
Time tickets are required for productive time when working on capital
projects. The employee specifies the proper capital project work order
created to track project costs. To account for Operations,
Maintenance, and non-productive time, standard payroll labor
distributions are established for all employees. These standard labor
distributions are calculated for union employees based on the historical
actual charges.
Non-Union Employees
Non-union employees are not required to submit detailed time tickets
with applicable general ledger accounts specified. Rather each
employee has a “standard” set of general ledger accounts that split the
labor costs based on an expected ratio of work. This split can be
unique and is based on the employee’s position. Costs are distributed
based on this standard labor distribution for each employee, and the
allocations are reviewed periodically.

Common Facilities
Customer Service Center
The Utility Group operates a Customer Service Center in Meridian, Idaho for
the purpose of providing telephone customer service to customers served by
Montana Dakota Utilities (MDU), Intermountain Gas Co. (IGC), and Cascade
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Natural Gas Corp. (CNG). Operating expense allocations of the Customer
Service Center are described on Page 6 – Allocations to other Utility
Companies; Customer Services.

Capital costs of the Customer Service Center are recorded on IGC’s books.
Allocable costs of the facility and equipment include depreciation expense, a
return on the invested capital of the facility using Cost of Capital, and
income taxes associated with the return on invested capital (net of cost of
debt associated with the facility). The allocable costs are billed monthly to
CNG and MDU.

The cost driver for the allocations is customers served by each utility.

Boise General Office
The Boise General Office provides office facilities for administrative and
general functions of Intermountain Gas Co.. In addition to IGC corporate
staff in the General Office, the facility is also utilized by Information
Technology (IT) and Geographic Informations Systems (GIS) staff that serve
the Utility Group. A cost recovery process exists for the Boise General Office
that is identical to the Customer Service Center process, however also
includes occupancy expenses of the facility in addition to depreciation
expense, a return on the invested capital of the facility, and income taxes
associated with the return on invested capital (net of cost of debt associated
with the facility). The allocable costs are billed monthly to CNG and MDU.

The cost driver for the allocations is customers served by each utility.

Exhibit I- MDUR Corporate Overhead factor

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Exhibit II- MDUR Shared Services Pricing Methodology

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Exhibit III- Utility Operations Support Allocation
Methodology

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Exhibit No. 10
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