Nonregulated Cost Allocations & Affiliate Transactions

Transcription

1 Nonregulated Cost Allocations & Affiliate Transactions

2 Course Outline Overview of Part 64 Rules Cost allocation manuals Review of a sample CAM Affiliate transaction pricing rules Annual cost allocations Cost allocation examples Be thinking of questions 2

3 Nonregulated Activities Types of nonregulated activities: Sale of customer premise equipment (CPE) Installation and maintenance of inside wire CATV Long distance Internet Cellular 3

4 The Goal of Part 64 Regulated services may not subsidize nonregulated services Services included in the definition of universal service may not bear more than a reasonable share of joint and common costs of the facilities used to provide those services. 4

5 FCC Rules Part 64 Cost Allocations

6 FCC Rules Part 32 Accounting Rate Base = $10,000,000 Expenses & Taxes = $5,000,000 Part 64 Cost Allocations Nonregulated Rate Base = $500,000 E&T = $200,000 Regulated Rate Base = $9,500,000 E&T = $4,800,000 Part 36 Separations Intrastate Interstate Part 69 Access Charges Part 69 Access Charges Access Elements Non-Access Services Access Elements Non-Access Services 6

7 FCC Rules Part 64 Part 64 is a compilation of Miscellaneous Rules Relating to Common Carriers through cover some very important issues Allocation of Costs Transactions with Affiliates Cost Allocation Manuals Independent Audits Annual Certification 7

8 Part 64 Cost Allocations There are 3 different types of costs identified in Part 64 Regulated Costs costs solely associated with regulated activities Nonregulated Costs costs solely associated with nonregulated activities Common Costs costs that are associated with regulated and nonregulated activities Specific Cost Allocation Manual (CAM) requirements 8

9 Part 64 Cost Allocations Costs are to be directly assigned to regulated and nonregulated operations whenever possible Common costs are those that cannot be directly assigned to either regulated or nonregulated Direct analysis of costs Cost causative linkage to another cost category General allocator of directly assigned or attributed to regulated and nonregulated 9

10 Cost Allocation Manuals

11 Part 64 Cost Allocation Manuals Description of each of the nonregulated activities Description of incidental activities A chart showing corporate affiliates Statement identifying each affiliate that engages in transactions with carrier Cost apportionment table Description of the time reporting procedures 11

12 Cost Allocation Manual Sample Telephone Company Trial Balance - Cost Allocation Manual Trial Balance Cost Allocation Manual YE 12/31/04 YE 12/31/14 Total Non- Dr/Cr Type 2004 Regulated Regulated Classification Assignmnet Allocation Factor LAND AND GENERAL SUPPORT ASSETS D A LAND D A 50,000 48,408 1,592 Common Indirect Assignment Labor Hours BUILDINGS D A 750, ,854 41,146 Common Indirect Assignment Building Allocation FURNITURE AND OFFICE EQUIPMENT D A 75,000 72,611 2,389 Common Indirect Assignment Labor Hours VEHICLES * D A 250, ,038 7,962 Common Indirect Assignment Labor Hours OTHER WORK EQUIPMENT D A 260, ,720 8,280 Common Indirect Assignment Labor Hours OTHER COMMUNICATIONS EQUIPMENT D A 5,000 4, Common Indirect Assignment Labor Hours COMPUTER HARDWARE D A 100,000 96,815 3,185 Common Indirect Assignment Labor Hours CENTRAL OFFICE SWITCHING D A DIGITAL SWITCHING EQUIPMENT D A 1,950,000 1,920,000 30,000 Common Direct Assignment Internet Equipment Allocation OTHER SWITCHING EQUIPMENT D A 75, ,000 Non-Regulated Direct Assignment N/A CENTRAL OFFICE TRANSMISSION EQUIPMENT D A INTEREXCHANGE CIRCUIT EQUIPMENT D A 605, ,000 0 Regulated Direct Assignment N/A INTEREXCHANGE CIRCUIT EQUIPMENT - RADIO D A 240, ,000 0 Regulated Direct Assignment N/A SUBSCRIBER CIRCUIT EQUIPMENT ANALOG D A 185, ,000 0 Regulated Direct Assignment N/A SUBSCRIBER CIRCUIT EQUIPMENT DIGITAL D A 460, ,000 0 Regulated Direct Assignment N/A DSL EQUIPMENT D A 80,000 80,000 0 Regulated Direct Assignment N/A INFORMATION ORIGINATION/TERMINATION ASSETS D A PAYSTATIONS D A 25, ,000 Non-Regulated Direct Assignment N/A CABLE AND WIRE FACILITIES ASSETS D A POLE LINES D A 50,000 50,000 0 Regulated Direct Assignment N/A UNDERGROUND CABLE D A 225, ,000 0 Regulated Direct Assignment N/A BURIED CABLE D A 4,500,000 4,500,000 0 Regulated Direct Assignment N/A BURIED CABLE - FIBER D A 2,500,000 2,500,000 0 Regulated Direct Assignment N/A AERIAL CABLE - METALLIC D A 225, ,000 0 Regulated Direct Assignment N/A 12

13 Cost Allocation Manual Steps Step 1: Classify all relevant trial balance accounts Regulated nonregulated Common Step 2: Determine account assignment by classification Regulated direct assign to regulated nonregulated direct assign to nonregulated Common indirect assignment by factor or analysis 13

14 Direct Expenses By definition - costs of assets and resources incurred exclusively for providing either regulated or nonregulated activities. If separate trial balances for nonregulated companies, identified by account numbers If included with telephone company, normally in 7xxx.xx or 8xxx.xx accounts. 14

15 Cost Allocation Manual Steps Step 3: Determine appropriate method of allocating common costs Direct Analysis of Costs analyze each journal entry or invoice by account Cost Causative Linkage costs associated with other accounts with a direct analysis General Allocator use of measurable factors to spread costs (appropriate factors are not defined) Labor Hours Volume of Use (Minutes, Bandwidth, Square Footage, etc.) End Users/Revenue Etc. 15

16 Cost Allocation Manual Steps Step 4: Develop general allocators based on best available information Use actual data where available Employee/expert estimates secondary Nonregulated usage should be forecast for 3 years Use the greatest nonregulated usage from 3-year forecast 16

17 Cost Allocation Manual Steps Step 5: Apply factors to common costs in trial balance Step 6: Adjust cost study inputs to reflect nonregulated allocations Show beginning balance with nonregulated removed as an adjustment, even if the entire account is nonregulated 17

18 Cost Allocation Manual Sample Telephone Company Labor Hours Allocation YE YE 12/31/04 12/31/ Account Description Classification Hours CONSTRUCTION WORK IN PROGRESS SHORT TERM Regulated VEHICLES AND OTHER WORK EQUIPMENT EXPENSE Common LAND AND BUILDING EXPENSE Common CENTRAL OFFICE SWITCHING EXPENSE Regulated 2, CENTRAL OFFICE TRANSMISSION EXPENSE Regulated BURIED CABLE EXPENSE Regulated 6, AERIAL WIRE EXPENSE Regulated NETWORK OPERATIONS OTHER Regulated ENGINEERING EXPENSE Regulated CUSTOMER SERVICES Regulated 4, CUSTOMER BILLING TOLL Regulated CUSTOMER BILLING OTHER Regulated CARRIER ACCESS BILLING (CABS) Regulated EXECUTIVE DEPARTMENT Common 1, GENERAL ACCOUNTING AND FINANCE Common 2, INFORMATION MANAGEMENT Common NON REGULATED INSIDE WIRE MAINTENANCE REVENUE Non-Regulated NON REGULATED MISC REVENUE AND EXPENSE Non-Regulated INTERNET EXPENSE Non-Regulated 250 Total Hours 20,000 Allocation Hours Factor Regulated 15, % Non-Regulated % Common 4,300 N/A Total Hours 20, % 18

19 Cost Allocation Manual Building AllocationBuilding Allocation YE 12/31/14 YE 12/31/04 Sample Telephone Company Allocation Regulated Non-Reg. Regulated Non-Reg. Building Use Factor Investment Factor Factor Allocation Allocation Alpha Business Office Common Labor Hours 350, % 3.18% 338,854 11,146 Alpha Central Office Common Rack Sq. Ft. 150, % 20.00% 120,000 30,000 Delta Central Office Regulated N/A 100, % 0.00% 100,000 0 Gamma Central Office Regulated N/A 50, % 0.00% 50,000 0 Kappa Central Office Regulated N/A 100, % 0.00% 100,000 0 Total 750, ,854 41,146 Alpha Central Office - Rack Square Footage Regulated Investment 144 Non-Regulated Investment 36 Total % 5.49% 19

20 Cost Allocation Manual Sample Telephone Company Trial Balance - Cost Allocation Manual YE 12/31/04 Trial Balance Cost Allocation Manual YE 12/31/14 Total Non- Dr/Cr Type 2004 Regulated Regulated Classification Assignmnet Allocation Factor LAND AND GENERAL SUPPORT ASSETS D A LAND D A 50,000 48,408 1,592 Common Indirect Assignment Labor Hours BUILDINGS D A 750, ,854 41,146 Common Indirect Assignment Building Allocation FURNITURE AND OFFICE EQUIPMENT D A 75,000 72,611 2,389 Common Indirect Assignment Labor Hours VEHICLES * D A 250, ,038 7,962 Common Indirect Assignment Labor Hours OTHER WORK EQUIPMENT D A 260, ,720 8,280 Common Indirect Assignment Labor Hours OTHER COMMUNICATIONS EQUIPMENT D A 5,000 4, Common Indirect Assignment Labor Hours COMPUTER HARDWARE D A 100,000 96,815 3,185 Common Indirect Assignment Labor Hours CENTRAL OFFICE SWITCHING D A DIGITAL SWITCHING EQUIPMENT D A 1,950,000 1,920,000 30,000 Common Direct Assignment Internet Equipment Allocation OTHER SWITCHING EQUIPMENT D A 75, ,000 Non-Regulated Direct Assignment N/A CENTRAL OFFICE TRANSMISSION EQUIPMENT D A INTEREXCHANGE CIRCUIT EQUIPMENT D A 605, ,000 0 Regulated Direct Assignment N/A INTEREXCHANGE CIRCUIT EQUIPMENT - RADIO D A 240, ,000 0 Regulated Direct Assignment N/A SUBSCRIBER CIRCUIT EQUIPMENT ANALOG D A 185, ,000 0 Regulated Direct Assignment N/A SUBSCRIBER CIRCUIT EQUIPMENT DIGITAL D A 460, ,000 0 Regulated Direct Assignment N/A DSL EQUIPMENT D A 80,000 80,000 0 Regulated Direct Assignment N/A INFORMATION ORIGINATION/TERMINATION ASSETS D A PAYSTATIONS D A 25, ,000 Non-Regulated Direct Assignment N/A CABLE AND WIRE FACILITIES ASSETS D A POLE LINES D A 50,000 50,000 0 Regulated Direct Assignment N/A UNDERGROUND CABLE D A 225, ,000 0 Regulated Direct Assignment N/A BURIED CABLE D A 4,500,000 4,500,000 0 Regulated Direct Assignment N/A BURIED CABLE - FIBER D A 2,500,000 2,500,000 0 Regulated Direct Assignment N/A AERIAL CABLE - METALLIC D A 225, ,000 0 Regulated Direct Assignment N/A 20

21 Affiliate Transaction Pricing Rules

22 Affiliate Transactions Asset transfers between regulated and nonregulated affiliates Tariffed rate Prevailing price valuation > 25% of asset sales to 3rd parties qualifies for PPV All other transactions Reg to Nonreg Higher of fair market value and net book Nonreg to Reg Lower of fair market value and net book $500K Threshold Average Schedule Exemption 22

23 Part 32 Affiliate Transactions Services provided between regulated and nonregulated affiliates Tariffed or contract rate Prevailing price valuation > 25% of service sales to 3rd parties qualifies for PPV All other transactions Reg to Nonreg Higher of fair market value and fully distributed cost Nonreg to Reg Lower of fair market value and fully distributed cost $500K Threshold Average Schedule Exemption 23

24 Intercompany Accounts Ensure that intercompany accounts between affiliate companies agrees. A/R from affiliate in one company should agree to A/P to affiliate in other company. Revenues agree to expenses. Should be able to identify all intercompany transactions between affiliates. 24

25 Annual Cost Allocations Each year we need to: Revisit our allocation methods and look at new accounts, services or changes to the network. Determine the most appropriate method to allocate common costs (direct analysis, general allocator, etc.). Develop the cost allocators & apply to common costs. The results are either book or off-book entries (i.e., study adjustments). 25