1. (a) For gas processed in a downstream gas plant for which the processing cost deduction is calculated under this section, the applicable processing cost deduction is based on the downstream gas plant's actual and reasonable, directly allocable and attributable processing costs in the form of operating and maintenance expense, overhead, depreciation, and a return on undepreciated capital investment as provided in (c) 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 plant.
2. (b) To compute depreciation for the purposes of this section, the producer shall use straight-line depreciation based on the economic life of the downstream gas plant. A change in ownership of a plant does not alter the depreciation schedule established by the original processor or producer for purposes of calculating a processing cost deduction under this section. Notwithstanding a change in ownership, a downstream gas plant may only be depreciated once. Equipment may not be depreciated below a reasonable, positive salvage value.
3. (c) 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 (a) of this section.
4. (d) For a new downstream gas plant, the producer shall include in its initial processing cost deduction estimates of the directly allocable gas processing costs allowed under (a) of this section for the applicable period. The producer shall base cost estimates upon the most recently available operations data for the plant; if these data are not available, the producer shall base cost estimates upon industry data for similar downstream gas plants. To the extent a processing cost deduction is based on estimates, the deduction must be revised after actual costs are known.
5. (e) The billing determinant to be used in calculating a processing cost deduction under this section is throughput for the downstream gas plant.
6. (f) A reasonable share of overhead directly allocable and attributable to the operation and maintenance of a downstream gas plant is an allowable operating expense for purposes of this section.

7. (g) A producer may not include the following capital costs in determining a processing cost deduction under this section:

   1. (1) a cost for a capital improvement or equipment that is not an integral part of the downstream processing plant;
   2. (2) nondepreciable property, including land and a pipeline right-of-way;
   3. (3) a facility used to store, deliver, or otherwise dispose of residue gas or gas plant products after extraction.

8. (h) A producer may not include the following non-capital costs in calculating a processing cost deduction under this section:

   1. (1) operating and maintenance cost not directly related to processing;
   2. (2) a cost associated with a capital improvement or equipment if the cost of the capital improvement or equipment is disallowed under (g) of this section;
   3. (3) federal, state, or other income taxes;
   4. (4) production or severance taxes;
   5. (5) royalty payments.

(Eff. 4/30/2010, Register 194)