1. (a) If a lessee, its marketing affiliate, or any affiliate other than a transportation affiliate transports qualified gas using an LNG transportation affiliate, transportation costs must be the LNG transportation affiliate's allowable actual and reasonable costs incurred between the outlet of a liquefaction plant and the inlet of a regasification plant, as those costs are determined under (b) - ( l) of this section, 11 AAC 25.160, and 11 AAC 25.210. However, if 11 AAC 25.160(b) applies, the amount determined under 11 AAC 25.160(b) must be used for transportation costs.

2. (b) For purposes of (a) of this section, the applicable costs of transportation are

   1. (1) an allowance for operating and maintenance expense;
   2. (2) annual depreciation on capital investment;
   3. (3) a return on capital investment; and
   4. (4) positioning costs, amortized over 36 months.
3. (c) For purposes of (b)(1) of this section, the allowance for operating and maintenance expense is the amount of expense actually incurred that is the direct cost of operation and maintenance attributable to a lessee's qualified gas.
4. (d) For purposes of (b)(2) and (3) of this section, a cost of capital allowance that consists of depreciation and a return on invested capital will be allowed.

5. (e) For purposes of (b)(2) and (3) of this section, depreciation and a return on capital investment must be calculated using the methodology set out in the Department of Revenue publication Computation of a Cost-of-Capital Allowance under 15 AAC 55.196, Incorporating Depreciation and Return on Invested Capital for Marine Vessels and Improvements, Second Edition, dated September 19, 2003; that publication is adopted by reference except as follows:

   1. (1) the methodology is applied as if the term "vessel" read "LNG pipeline or tanker";
   2. (2) the useful life for purposes of the methodology is 30 years;
   3. (3) the weighted average cost of capital is 0.2 percentage point greater than that otherwise calculated under the methodology.
6. (f) A cost of capital allowance under this section for a vessel will be allowed only for days when the vessel is in allowable service, in allowable lay up, or in allowable dry dock as provided in (g) of this section.

7. (g) For purposes of this section,

   1. (1) a vessel is in allowable service if the vessel is

      1. (A) in service within the meaning given in 15 AAC 55.900, unless the vessel is in dry dock; or
      2. (B) idle for a period of fewer than 90 consecutive days immediately before operation in allowable service under (A) of this paragraph; for purposes of this subparagraph, a vessel is not idle if it is in dry dock;
   2. (2) a vessel is laid up if it is idle for a period of 90 or more consecutive days; for purposes of this paragraph, a vessel is not idle if it is in dry dock;
   3. (3) a vessel is in allowable lay up if the vessel is laid up during a calendar year, but only to the extent that the total number of days it is or has been laid up while owned or effectively owned by the lessee or its affiliate through the end of that calendar year does not exceed the total number of days it is or has been in allowable service while owned or effectively owned by the lessee or its affiliate through the end of that calendar year;
   4. (4) a vessel is in allowable dry dock if the vessel is in dry dock during a calendar year, but only for that fraction of the total days in dry dock that equals the sum of the number of days during the year that the vessel is in allowable service and the number of days during the year that the vessel is in allowable lay up, divided by the sum of the number of days during the year that the vessel is in allowable service, the number of days during the year that the vessel is laid up, and the number of days during the year that the vessel is in alternative service;
   5. (5) a vessel is in alternative service if it is not in lay up, dry dock, or allowable service; and
   6. (6) if necessary to determine a vessel's status during a month, the vessel's status at later times will be considered.

8. (h) The following requirements apply to the timing of changes in vessel status:

   1. (1) a vessel changing from operation in allowable service to lay up or operation in alterative service begins lay up or operation in alternative service on the day after the last day of cargo discharge in allowable service;
   2. (2) a vessel changing from operation in alternative service to lay up or operation in allowable service begins lay up or operation in allowable service on the day after the last day of cargo discharge in alternative service;
   3. (3) a vessel changing from lay up to operation in allowable service or operation in alternative service begins operation in allowable service or operation in alternative service on the day after the vessel departs from the location where the vessel was laid up;
   4. (4) a vessel going into dry dock begins dry dock status on the day after the last day of cargo discharge or, if going into dry dock from lay up, on the day after the vessel departs from the location where the vessel was laid up;
   5. (5) a vessel finishing dry dock changes from dry dock status to the immediately subsequent status on the day after the vessel departs the dry dock facility;
   6. (6) a vessel begins operation in allowable service on the day that its useful life begins or, in the case of a used vessel newly acquired by a lessee or its affiliate, on the day that its remaining useful life for that lessee or its affiliate begins, if the vessel proceeds directly to enter operation in allowable service; otherwise, the vessel begins operation in alternative service on the day specified in this paragraph; for purposes of this paragraph, the beginning of a vessel's useful life or remaining useful life is determined in accordance with generally accepted accounting principles.

9. (i) Allowable voyage and port costs for a vessel are costs actually incurred for the following purposes:

   1. (1) fuel for the vessel while in port and at sea not to exceed the actual cost if purchased from a third party, or if the fuel is not purchased from a third party, the spot market price of comparable fuel as reported in the latest Platt's Oilgram Price Report published on or before the date of the fuel purchase for the market nearest the point of refueling, plus related allowable fuel taxes and handling charges;
   2. (2) stores and provisions for the vessel and its captain and crew;
   3. (3) wages and benefits of the vessel's captain and crew;
   4. (4) routine maintenance;
   5. (5) drydocking costs, expensed in the year paid;
   6. (6) port and dock fees;
   7. (7) demurrage;
   8. (8) tug and pilotage fees;
   9. (9) marine agents' fees in port;
   10. (10) lightering;
   11. (11) transshipment charges;
   12. (12) customs fees and duties;
   13. (13) taxes incurred due to the ownership and operation of the vessel, except for income taxes and other taxes (including certain franchise taxes) measured by income;
   14. (14) regular and customary gratuities that are also legal;
   15. (15) insurance premiums actually paid to third-party insurers;
   16. (16) loading and unloading inspection fees;
   17. (17) a reasonable management fee for operating a vessel; this fee is set at six percent of the allowable costs set out in (1) - (3) of this subsection; this set fee covers all general and administrative costs related to vessel operations, including all costs for accounting services, clerical services, administrative services, secretarial services, data processing services, legal services, corporate and operations management, overhead pass-throughs, facility costs and depreciation, corporate planning, risk management, environmental planning and risk evaluation, public affairs, governmental affairs, political affairs, dues and subscriptions, long-range scheduling, and long-range planning; additional deductions will not be allowed for these costs;
   18. (18) other costs directly associated with the operation or maintenance of a vessel, including costs for port services and operations, cargo scheduling and planning, fleet staffing, fleet scheduling, fleet staff training, fleet safety, engineering for repair, engineering for maintenance, engineering for drydocking, quality assurance for vessel operations, communication systems, navigation systems, United States Coast Guard certifications, and utility services; these costs include costs for personnel performing the functions listed and the first level of supervision of these personnel.
10. (j) For purposes of this section, allowable voyage and port costs for a vessel do not include taxes or fees on the receipt of LNG at a marine terminal from a vessel.
11. (k) The lessee's actual or reasonable marine transportation cost, as otherwise determined under this section, for a lessee that transports gas produced in the state through a charter, contract of affreightment, sublease, or other arrangement on behalf of a person not affiliated with the lessee, in addition to the cost of transporting the lessee's own gas produced in the state, includes the cost of transporting that non-affiliated person's gas produced in the state and is reduced by the revenue received by the lessee for providing that transportation.
12. (l) In this section, "positioning cost" includes the cost borne by the lessee for placing an LNG tanker into position before the LNG tanker's first voyage in service for that lessee.

(Eff. 5/29/2010, Register 194)