Alaska Gasline Development Corporation (AGDC) Cost Assignment and Allocation Manual (CAAM)

Transcription

1 Alaska Gasline Development Corporation (AGDC) Cost Assignment and Allocation Manual (CAAM) As of September 2014

2 Table of Contents 1. Introduction Corporate Organization AGDC Organizational & Project Structure Alaska Gasline Development Corporation G&A Alaska Stand Alone Pipeline Alaska LNG Transactions with Affiliates Cost Assignment and Cost Allocation Process Cost Assignment Cost Allocation Cost allocation for budgetary purposes Appendix A Terms Appendix B TWO FACTOR AGDC G&A ALLOCATION PERCENTAGE METHOD... 7

3 1. INTRODUCTION This Cost Assignment and Allocation Manual (CAAM) documents the process followed by the Alaska Gasline Development Corporation (AGDC) to charge costs to each AGDC company, business unit, division, service or internal fund ( Allocated Unit ). The processes are intended to ensure each Allocated Unit is charged for the services it uses and that AGDC is in compliance with applicable Federal Energy Regulatory Commission (FERC) and/or Regulatory Commission of Alaska (RCA) laws and regulations to support just and reasonable tariff rates 1. As of September 2014, this CAAM has been designed to accommodate the current phases of projects that AGDC is either conducting or participating in during fiscal years 2015 and It is expected that AGDC will evaluate these cost assignment and allocation processes periodically to determine if changes to such processes are appropriate, and to revise this CAAM as necessary. AGDC expects to develop a comprehensive Cost of Service (COS) Manual that will include Cost Assignment and Allocation practices used to develop tariff rates required for a filing with a regulatory agency to establish regulated tariffed services and rates. 2. CORPORATE ORGANIZATION AGDC is an independent, public corporation of the State of Alaska established to develop, finance and potentially operate natural gas pipelines and other energy transportation systems within the state as well as develop an Alaskan liquefied natural gas project. The organization is staffed by AGDC employees and embedded contractors. Employees and contractors generally belong to AGDC s Corporate General and Administrative ( G&A ) division, the Alaska Stand Alone Pipeline ( ASAP ) project division or the Alaska LNG ( AKLNG ) project division. In the future, other entities, divisions, business units or internal funds could be added to AGDC s business activities. 3. AGDC ORGANIZATIONAL & PROJECT STRUCTURE 3.1 Alaska Gasline Development Corporation G&A AGDC G&A expenses are primarily shared services costs which include wages and salaries, rents, travel, insurance, supplies, contract services, depreciation and other expenses that often cannot be directly assigned, nor easily associated on a cost-causative basis with a particular Allocated Unit. All travel and other incidental costs for staff in the G&A functional departments will be included in the G&A cost pool to be allocated among the Allocated Units in accordance with the procedures in this manual. To the extent G&A costs can be directly allocated to an Allocated Unit (for instance salary for a G&A position that is dedicated solely to one particular Allocated Unit), those costs will be charged directly and not included in the allocation of the other G&A costs. 3.2 Alaska Stand Alone Pipeline The ASAP Project activity consists of engineering, design, environmental, regulatory and land related activities for the Project. The Project team has several divisions including: project management; project services; construction planning; pipeline; facilities; environmental, regulatory and land; interface; and 1 AK LNG anticipates regulation by the Federal Energy Regulatory Commission under Section 3 of the Natural Gas Act; ASAP anticipates regulation by the Regulatory Commission of Alaska under AS applicable to contract carriage by in-state natural gas pipelines. Each body has rules and case history dealing with affiliated interest transactions and cost-causer/cost-payer standards although no rules have been developed at this date.

4 health, safety security and environmental. Direct costs of the ASAP Project and a portion of G&A costs will be accounted for as Project costs. 3.3 Alaska LNG AGDC is responsible for advancing the State of Alaska s interest in the AKLNG project as a minority owner in one or more segments of the project. The AKLNG project will have direct costs consisting of staff including a Vice President, Program Manager, Engineers and Subject Matter Experts (SMEs) to provide oversight of AGDC s non-operated interest in Alaska LNG. Other direct expenses will include capital contributions, legal and commercial costs that are attributed solely to the AKLNG project. 4. TRANSACTIONS WITH AFFILIATES AGDC incurs and pays for all of its costs, including services provided to AGDC from the State of Alaska or from State of Alaska owned entities. Those services are primarily for legal services from the Department of Law and regulatory and permitting work under the normal course of pipeline and facility project development. All services from the State of Alaska or any other State entities are provided at usual and customary rates 2. All service costs incurred by affiliates are covered under Reimbursable Service Agreements (RSAs) between AGDC and the entity providing the service. The services are directly assigned or charged to the Allocated Unit based upon identification of the specific activity. 5. COST ASSIGNMENT AND COST ALLOCATION PROCESS 5.1 Cost Assignment AGDC will directly charge costs to one or more Allocated Units if the cost can be associated solely with a specific activity. Labor costs including salary and benefits for AGDC employees will be directly charged to the activity at the actual labor and benefits cost for each payroll period. 5.2 Cost Allocation AGDC will allocate AGDC s G&A costs that cannot be directly assigned to one or more Allocated Units using an allocation factor that follows cost causation principles, reflects the benefits received by each Allocated Unit, and results in a fair and reasonable allocation of costs. Specifically, allocations will be based upon a two factor AGDC G&A Allocation Method. AGDC G&A Allocation Method A two factor allocation method based upon budget appropriations and staffing levels: Factor 1: Funding: State of Alaska budget appropriation funding for ASAP and AK LNG projects in proportion to the total AGDC project funding. For purposes of the allocation, the capital contribution portion of the AKLNG Project will be excluded from the AKLNG appropriation amount as it will be paid by large monthly cash calls and including those cash calls would result in a disproportionate allocation of costs to the project. The factors will be updated if and when a new Allocated Unit is established within AGDC. 2 A state entity is defined by AS (b) as a state department, authority, or other administrative unit of the executive branch of state government, a public university, or a public corporation of the state. AS (d) provides that the Department of Natural Resources shall grant a right-of-way lease at no appraisal or rental cost under certain circumstances.

5 Factor 2: ASAP and AK LNG project staffing: Full Time Equivalent (FTE) project headcount (Employee and Embedded Contractor) in proportion to the total Allocated Unit FTE headcount. 50% of the allocator will be based upon Funding and 50% will be based upon Staffing. The end result will be used to allocate AGDC G&A costs to one or more Allocated Units. The two factor allocation method is required because there is no single allocation factor that could provide a cost causative link. The two factor allocator is designed to measure distinct aspects of company activity and results in an overall fair assignment of costs based on legislative intent and cost-causation principles. During fiscal years FY15 and FY16, the AGDC G&A allocation will be recorded in AGDC financial records based upon the Two Factor AGDC G&A Allocation Percentage presented in Appendix B. A True- Up will occur at the end of each fiscal year. Given the status of the two projects AGDC is currently tasked with and the potential for other projects to be added, the factors presented in this document will be reevaluated, as needed, after each fiscal year. 6. COST ALLOCATION FOR BUDGETARY PURPOSES The allocation of costs to Allocated Units will be done on a gross basis for budgetary purposes. Each Allocated Unit s budget will include a line item entitled Allocated G&A and the respective allocations will be included thereon. There will be no attempt to spread those allocated costs beyond that line item.

6 7. APPENDIX A TERMS Activity - a business activity, product, or service, whether offered by an entity, a division of an entity, or an affiliate of an entity. For the purpose of direct cost assignments, activities will be delineated to the extent reasonably practicable by company, business unit, division, service or internal fund. Affiliate - a subsidiary of an entity, a parent company of an entity, a joint venture organized as a separate company or partnership to the extent of the entity s involvement with the joint venture, a subsidiary of a parent company of an entity or where the entity or the parent company has a controlling interest over an entity. For the purposes of this CAAM, an affiliate also may include a unit, division, separate business activity or operating part that is within the entity and which provides assets, goods, services, information having competitive value, personnel, or financial resources other than, or in addition to, the entity s service. Affiliate Transaction - a transfer of a good, service or tangible or intangible asset from one entity to an affiliated entity, or from an affiliate to an affiliated entity. Business Unit a discrete part of a business that is part of a larger business entity or company. Common Cost - costs that are incurred by an entity that benefit one or more Allocated Units. Company A legal entity such as anything other than a natural person that can function legally, enter into a contract, sue or be sued, and make decisions through agents. A legal entity, under the law, is responsible for its actions and can be sued for damages. For example, a corporation is a legal entity. Cost Allocation - the distribution of a Common Cost to one or more companies that benefit from the provisioning of the service. Cost Assignment / Direct Assignment charging a cost that is specifically identified with a particular activity to that activity. Division one of the parts into which a business, organization or company is divided and is similar to a business unit. Internal Fund a set of accounts to show how money is spent for specific purposes. Service a set of actions or solutions that are put in place or are performed to provide a repeatable and consistent set of outcomes, deliverables, and performance for people, organizations, and systems that represent consumers or beneficiaries of such results. Services can be executed or delivered either directly by people, such as in the case of professional services, or by systems, such as in the case of utilities. A specific function of an Organizational Area can be a service and examples include but not limited to: Executive Management, Internal Audit, Payroll and Marketing and Sales. Shared Services Activities - Activities performed by functional departments of an entity on behalf of one or more Allocated Unit. Shared services functions include, but are not limited to, the following: Accounting, Finance, Tax, Treasury, Human Resources, Information Technology, Purchasing/Supply Chain Management, Commercial, Legal, Facilities and Fleet Management, Customer Accounting and Service.

7 8. APPENDIX B TWO FACTOR AGDC G&A ALLOCATION PERCENTAGE METHOD Two Factor AGDC A&G Allocation Percentage Weighted Two Factor Allocation Percentage AGDC ASAP 84% AKLNG 16% 100% AGDC FY15 - FY16 Current Budget $ - million FY15 FY16 Total Total for Projects % of Total for Projects Weighting AGDC ASAP % 37% AKLNG % 13% % 50% Note: Excludes EOA and TC Buy Out. FTE Headcount (as described under 5.2) FY15 - FY16 Total for Projects % of Total for Projects Weighting AGDC 32.0 ASAP % 47% AKLNG % 3% % 50%