BASIS, PURPOSE AND STATUTORY AUTHORITY.

The basis and purpose of these rules are to require each electric and gas utility to report and have approved cost allocation methodologies to properly account for investments, expenses, and revenues when the utility engages in both regulated and nonregulated services in Colorado. These rules are issued pursuant to §§ 40-2-108and 40-3-114, C.R.S. RULE (4 CCR) 723-47-1. APPLICABILITY.

These rules are applicable to all electric and gas public utilities. RULE (4 CCR) 723-47-2. DEFINITIONS.

723-47-2.1 Commission means the Colorado Public Utilities Commission. 723-47-2.2 Cost allocation manual (“CAM”) means the manual filed by the utility pursuant to Rule 6 that describes the cost allocation methodologies used by the utility when the utility performs a fully distributed cost study or provides documentation pursuant to Rule 3.1. 723-47-2.3 Nonregulated division, subsidiary, or affiliate means any division, subsidiary, or affiliate that does not exclusively offer public services as defined in Title 40, Articles 1 to 7, C.R.S. 723-47-2.4 Service means a good, product, or service.

723-47-2.5 Utility means an electric or gas public utility as defined in Title 40, Articles 1 to 7, C.R.S. RULE (4 CCR) 723-47-3. COST ALLOCATION.

723-47-3.1 If cost allocation is at issue in a formal Commission proceeding, the utility shall: 723-47-3.1.1 If the utility has the burden of proof in the proceeding, perform a fully distributed cost study and provide documentation, upon discovery or audit request, sufficient to allow another party to perform a fully distributed cost study;

1. 723-47-3.1.2 If the utility does not have the burden of proof in the proceeding, provide documentation, upon discovery or audit request, sufficient to allow another party to perform a fully distributed cost study.

723-47-3.2 Each utility shall have on file with the Commission an approved CAM. 723-47-3.3 When the utility performs a fully distributed cost study, the utility shall have the burden of demonstrating that the cost allocation documentation filed in support of the utility's study was prepared in a manner (a) consistent with the cost principles identified in Rules 4 and 5, and (b) consistent with the allocation methodologies approved in the utility's CAM. 723-47-3.4 At the utility's option, a certified audit report stating that the cost allocation documentation filed in support of the utility's study or provided pursuant to audit or discovery was prepared in a manner consistent with Rule 3.3 may be prepared by an independent third party, such as the utility's independent auditor. If prepared, this audit report shall be considered evidence that the utility has met the burden identified in Rule 3.3.

723-47-3.5 This Rule 3 shall not change the law in Colorado regarding which party has the overall burden of proof in administrative proceedings before the Commission. RULE (4 CCR) 723-47-4. COST ALLOCATION PRINCIPLES.

For purposes of fully distributed cost studies as required by Rule 3.1, costs shall be allocated as follows: 723-47-4.1 Direct Assignment: If only one service causes a cost to be incurred or benefits from a cost, to the greatest extent practicable, that cost is to be directly assigned to that service. 723-47-4.2 Allocation: If more than one service cause a cost to be incurred or benefit from a cost, to the greatest extent practicable, that cost shall be fairly and equitably allocated among the services that cause the cost to be incurred or benefit from the cost. Allocation methods for assigning such costs shall be specified in the utility's CAM. The following principles shall apply to such allocations:

1. 723-47-4.2.1 All services that cause a cost to be incurred or that benefit from a cost shall be allocated a portion of that cost.
   1. 723-47-4.2.2 If a direct correlation exists between changes in a cost and changes in the quantities sold of the service that cause the cost to be incurred or that benefit from the cost, that cost shall be allocated based upon those relationships. 723-47-4.2.3 A time-reporting method of allocation should be used where appropriate. For example, labor- intensive customer operations and service-related expenses and investments should employ time-reporting methods. For purposes of time-reporting allocations, use of a statistically valid sample is permissible. 723-47-4.2.4 If necessary, a cost may be allocated using any surrogate measure that has a logical or observable correlation to the changes in the quantities sold of the services that cause the cost to be incurred or that benefit from the cost. 723-47-4.3 The utility may employ another cost allocation mechanism for a particular cost, if the mechanism is already approved by the Commission for that cost, or if, for good cause shown, the Commission determines that the mechanism is in the public interest and consistent with the basis and purpose of these rules. The party requesting the alternative approach shall have the burden of proving the need for an alternative mechanism and why the particular- mechanism is appropriate for the particular cost.

RULE (4 CCR) 723-47-5. TRANSACTIONS BETWEEN THE UTILITY AND NONREGULATED DIVISIONS, SUBSIDIARIES, OR AFFILIATES.

For purposes of fully distributed cost studies required pursuant to Rule 3.1, the terms of all transactions between the utility and a nonregulated division, subsidiary, or affiliate shall be determined as follows: 723-47-5.1 Transfers from the utility to a nonregulated division, subsidiary, or affiliate 723-47-5.1.1 If the transaction involves a service provided by the utility pursuant to tariff, the terms of the transaction for purposes of a fully distributed cost study shall be the tariffed rate.

1. 723-47-5.1.2 If the transaction involves a. service that is not provided pursuant to a tariff, the terms of the transaction for purposes of a fully distributed cost study shall be the higher of the utility's fully distributed, cost or market rate. Market rate shall be either (a) the rate charged by the utility if the utility sells a significant quantity of the service to unaffiliated persons, or (b) if the condition in (a) cannot be met, the lowest rate charged by other persons in the market for a comparable service, where such rates are publicly available. If a market rate is not available, the utility's fully distributed cost shall be used for purposes of a fully distributed cost study.
   1. 723-47-5.1.3 If the transaction involves an asset, the terms of the transaction for purposes of a fully distributed cost study shall be the higher of net-book cost or market rate. Market rate shall be either (a) the rate charged by the utility if the utility sells a significant quantity of the asset to unaffiliated persons, or (b) if the condition in (a) cannot be met, the lowest rate charged by other persons in the market for a comparable asset, where such rates are publicly available. If a market rate is not available, net- book cost shall be used for purposes of a fully distributed cost study. 723-47-5.2 Transfers from a nonregulated division, subsidiary, or affiliate to the utility 723-47-5.2.1 If the transaction involves a service provided by the nonregulated division, subsidiary, or affiliate pursuant to tariff, the terms of the transaction for_ purposes of a fully distributed cost study shall be the tariffed rate. 723-47-5.2.2 If the transaction involves a service that is not provided pursuant to a tariff, the terms of the transaction for purposes of a fully distributed cost study shall be the lower of the fully distributed cost or market rate. Fully distributed cost shall be, at the utility's and supplying affiliated entity's option, either (i) the fully distributed cost of the supplying affiliated entity or (ii) the cost that would be incurred by the utility to provide the service internally. Market rate shall be either (a) the rate charged by the nonregulated division, subsidiary, or affiliate if it sells a significant quantity of the service or asset to unaffiliated persons, or (b) if the condition in (a) cannot be met, the lowest rate charged by other persons in the market for a comparable service or asset, where such rates are publicly available.

      723-47-5.2.3 If a market rate cannot be established and the utility and the supplying affiliated entity elect not to provide information necessary to establish either the fully distributed cost of the supplying affiliated- entity or the fully distributed cost of the utility to provide the service internally in the case of the provision of a service, or net-book cost in the case of an asset transfer, the utility shall not reflect the transaction in its fully distributed cost study.

   723-47-5.3 A utility may file an Application with the Commission to obtain clarification regarding the applicability of these pricing standards to a particular transaction or class of transactions. Moreover, the utility may employ terms for the purpose of a fully distributed cost study other than those identified above for a particular transaction, if the alternative terms have been approved by the Commission for that transaction, or if, for good cause shown, the Commission determines that the alternative terms are in the public interest and consistent with the basis and purpose of these rules. The party requesting the alternative terms shall have the burden of establishing that the alternative approach is both more appropriate for the particular transaction than the approaches contained in Rules 5.1 and 5.2, and that the approach is just and reasonable. RULE (4 CCR) 723-47-6. APPROVAL OF A COST ALLOCATION MANUAL. 723-47-6.1 Each utility shall file an application effective on thirty-days notice for approval of its CAM within 180 days of the effective date of these rules or such other time to accommodate a staggered filing schedule if one is established by the Commission. Two years after the date it filed its application for approval of its previous CAM, each utility shall file an application effective on thirty-days notice for approval of a new CAM.

723-47-6.2 The Commission shall process all applications filed pursuant to Rule 6.1 in accordance with its Rules of Practice and Procedure, 4 CCR 723-1.

723-47-6.3 Whenever cost allocation is at issue in a formal Commission proceeding, the utility shall notify the Commission of any changes in cost allocation methodologies prescribed by these rules as applied to a utility's operations that have transpired since the approval of the utility's CAM. The Commission shall review these modifications in the course of the proceeding and issue an order approving or rejecting the modifications. The utility shall have the burden of proof as to all modifications to its CAM. 723-47-6.4 The utility shall file an annual update of the information required in Rule 7 in the years it is not filing a CAM application. The update shall be filed on or before the anniversary of the date the application for approval of its previous CAM was filed, and distributed to the service list of the previous CAM docket. The update will be accepted but not approved by the Commission and shall not be considered a modification to the CAM.

RULE (4 CCR) 723-47-7. CONTENTS OF COST ALLOCATION MANUALS. Each utility's CAM shall contain the following information: 723-47-7.1 A list of all regulated and nonregulated divisions within the utility. 723-47-7.2 A list of all regulated and nonregulated affiliates. 723-47-7.3 A list of the services offered by the utility in Colorado to persons other than the utility, its divisions, subsidiaries, or affiliates.

723-47-7.4 A detailed description of how each service listed pursuant to Rule 7.3 is furnished. Such description- shall be sufficient to identify the types of costs associated with each service and shall identify which division, if the utility has more than one division, offers the service. 723-47-7.5 A classification of each service listed pursuant to Rule 7.3 as regulated or nonregulated applying the following concepts:

1. 723-47-7.5.1 Any service offered by a utility, a subsidiary or affiliate that is a public service as defined in Title 40, Articles 1 to 7, C.R.S. shall be classified as a regulated service. 723-47-7.5.2 A service may also be treated as regulated where the service is regulated by other agencies arid where there are Commission-accepted ratemaking mechanisms for treating the costs and revenues associated with such products. Rule 7.5.2 may apply, for example, to a provider's wholesale sales of electric power and energy. For such services, the utility shall (a) clearly identify the service in its CAM, and (b) account for the investments, expenses, and revenues associated with that service as if that service was regulated. 723-47-7.5.3 An incidental nonregulated service may be treated as regulated for purposes of Rule 7 if revenues associated with the service do not exceed $50,000 annually, or such other amount established by the Commission considering the nature and frequency of the particular service. If an incidental nonregulated service is considered regulated, the utility shall (a) clearly identify the service as an incidental nonregulated service, and (b) account for the investments, expenses, and revenues associated with that service as if that service was regulated. 723-47-7.6 For each Uniform, System of Accounts account and sub-account, (a) a specification of the service or services listed pursuant to Rule 7.3 that are allocated some or all of the costs associated with that account or sub- account and (b) a detailed description of the methodology used to perform the allocation. Such methodology shall be consistent with the principles identified in Rule 4. 723-47-7.7 A description of the expected nature (i.e. the services or assets involved) and frequency of all anticipated transactions between the utility and a nonregulated division, subsidiary, or affiliate. 723-47-7.8 A description of the expected terms of all anticipated transactions between the utility and a non- regulated division, subsidiary, or affiliate to the extent those terms are inconsistent with the principles identified in Rule 5.

723-47-7.9 Any additional information specifically required by Commission order. RULE (4 CCR) 723-47-8. DISCLOSURE REGARDING NONREGULATED GOODS AND SERVICES. 723-47-8.1 Whenever a utility engages in the provision or marketing of goods or services that are not subject to regulation by this Commission, there must be conspicuous, clear, and concise disclosure to prospective customers that such goods and services are not regulated by this Commission. This disclosure shall be consistent with the definition set forth at §4-1-201 (10) C.R.S. This requirement shall apply whenever the utility's name or logo is used in connection with the provision of nonregulated goods and services, regardless of whether the utility provides such goods or services directly or through a division, subsidiary, or affiliate. Disclosure to prospective customers shall be included in all advertising or marketing materials proposals, contracts, and bills for nonregulated goods and services. 723-47-8.2 Any jurisdictional utility to which this ' rule applies shall have 120 days after the effective date of these amended rules within which to make necessary changes to their systems and operations so as. to comply with this rule.

RULE (4 CCR) 723-47-9. RECORD KEEPING.

723-47-9.1 Each utility shall keep all records and supporting documentation for its cost allocation manuals until the subsequent CAM is approved by the Commission. 723-47-9.2 Each utility shall keep all records and supporting documentation for any fully distributed cost study performed pursuant to Rule 3 for two years following completion of the cost study. RULE (4 CCR) 723-47-10. PROPRIETARY INFORMATION.

723-47-10.1 A utility may request that certain portions of its CAM be treated as proprietary. Upon making such a request, the utility shall present evidence supporting such treatment. 723-47-10.2 If the Commission determines that portions of the cost allocation manual shall be treated as proprietary, the nonproprietary portions of the manuals shall be subject to review by the public and the utility shall file with the complete manual a detailed, nonproprietary summary of the manual for public review. Such a summary shall include a statement that portions of the manual have been deemed to be proprietary and may be subject to protective orders.

723-47-10.3 A utility may treat certain transactions as confidential if the terms of the transaction are not final as of the date the application for approval of the CAM is filed. In such a case, the utility shall generically identify the transactions (e.g.Transaction A) and provide in its CAM the expected date the transaction will be complete. On or before that date, the utility shall file an update with the Commission and other parties to the CAM approval proceeding either providing the information required by these Rules, amending the date, or stating that the transaction will not occur. 723-47-10.4 If the Commission issues rules regulating the treatment of proprietary information, those rules shall govern to the extent they are. inconsistent with the provisions of this Rule 10. RULE (4 CCR) 723-47-11. UNIFORM SYSTEM OF ACCOUNTS.

Each utility shall maintain its books and records in accordance with the Federal Energy Regulatory Commission system of accounts except as otherwise authorized by the Commission. RULE (4 CCR) 723-47-12. PRUDENCE REVIEW.

Conformance with these Rules shall not preclude the Commission from evaluating the prudence of any transaction, investment or expense.

RULE (4 CCR) 723-47-13. WAIVERS AND VARIANCES.

A utility may file an application for a waiver,or variance from any or all provisions of these Rules. Any such application shall demonstrate the basis of the utility's contention that it should be granted a waiver or variance, including, if appropriate, documentation regarding the costs and benefits of compliance. For good cause shown, and if not contrary to law, the Commission may grant a waiver or variance if the Commission finds that compliance with such provision is impracticable or unreasonable under the circumstances. The Commission may consider the size of the particular utility when deciding whether compliance is impracticable or unreasonable.