1. (a) If a lessee or its affiliate processes qualified gas in an affiliated gas processing plant, the processing allowance used to determine the monthly value of that lessee's qualified gas must be the plant affiliate's allowable actual and reasonable costs allocated to the royalty reporting period as provided in 11 AAC 25.060 - 11 AAC 25.090 and 11 AAC 25.230 - 11 AAC 25.260.
2. (b) The processing allowance for a non-arm's length contract or an arrangement without a contract is based upon the plant affiliate's actual and reasonable, directly attributable and allocable processing costs in the form of operating and maintenance expense, overhead, depreciation, and a return on undepreciated capital investment as provided in (d) of this section. Allowable capital costs are the original costs for depreciable fixed assets, including costs of delivery and installation of capital equipment that is an integral part of the processing plant.
3. (c) To compute depreciation for the purposes of this section, the lessee shall use straight-line depreciation based on the economic life of the processing plant. A change in ownership of a processing plant does not alter the depreciation schedule established by the original processor or lessee for purposes of calculating a processing allowance under this chapter. Notwithstanding a change in ownership, a processing plant may only be depreciated once. Equipment may not be depreciated below a reasonable, positive salvage value.
4. (d) Each February, the department will determine and publish the prevailing yield during the preceding January on corporate bonds whose relevant characteristics are comparable to those for which Moody's Investor Services, Inc., published its Moody's Seasoned Baa Corporate Bond Yield - All Industries for January 2010. The prevailing yield published by the department is the rate of return for purposes of calculating the return for that calendar year on undepreciated capital investment under (b) of this section.
5. (e) For new processing plants processing gas involved in a non-arm's length transaction, the lessee shall include in its initial processing allowance estimates of the allocable gas processing costs allowed under (b) of this section for the applicable royalty reporting period. Cost estimates must be based upon the most recently available operations data for the plant; if these data are not available, the lessee shall base cost estimates upon industry data for similar gas processing plants. To the extent that a processing allowance is based on estimates, the lessee shall file royalty reports revising the allowance after actual costs are known.

6. (f) The billing determinant to be used in calculating a processing allowance under this section is throughput for the processing plant, except that the billing determinant is contract capacity if

   1. (1) the processing plant is constructed after FERC issues a certificate of public convenience and necessity for the Alaska mainline; and
   2. (2) the processing plant solicits and accepts bids for firm processing capacity.
7. (g) A reasonable share of overhead directly attributable and allocable to the operation and maintenance of a processing plant involved in a non-arm's length transaction is an allowable operating expense for purposes of this section.

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