Section 20

3- or 4-Factor Allocators
Wyoming Office of Consumer Advocate
June 2006

New York – Allocations

This is a representative example taken from a holding company to allocate their costs to
regulated utility affiliates. These are included in Annual Reports filed with the SEC
[incidentally, these annual reports were eliminated by the recent Energy Policy Act]. The
allocation factor most widely used is probably the Global Allocation Factor.

Wayne

Allocations related to Distributed Services

The following ratios are used to allocate costs for services not directly assigned but pooled and
allocated based on a causal measurement:

Number of Employees Ratio - Based on the number of employees benefiting from the
performance of a service. This ratio is determined annually based on actual count of applicable
employees at the end of the previous calendar year and may be adjusted periodically due to a
significant change.

Global Allocator Factor - This formula is determined annually based on the average of gross
plant (original plant in service), gross payroll charges (salaries and wages, including overtime,
shift premium and lost time, but excluding pension, payroll taxes and other employee benefits)
and gross revenues during the previous calendar year and may be adjusted for any known and
reasonable quantifiable events or at such time as may be required due to significant changes.
This formula is commonly referred to as the Massachusetts Formula.

Regulated Global Allocator Factor - This formula is derived through utilization of the same data
as the global allocator noted above, but it is limited to only the data of the regulated utility
affiliates benefiting from the performance of a service.

Commodity - Global Allocator Factor - This formula is used to allocate the cost of commodity
planning, procurement, and sale when the service is applicable to or benefits all Client Entities,
regardless of whether they are a gas, electric, or combined company. The formula is derived
through utilization of the gas and/or electric supply costs of the Client Entities and reflects the
proportion of such costs occurring between these entities.

Commodity - Regulated Gas Allocator Factor - This formula is used to allocate costs for gas
commodity planning, procurement and sale for regulated gas utility companies. The formula is
derived through utilization of the gas supply costs of the regulated gas utility affiliates and
reflects the proportion of such costs occurring between these entities.

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Electric Transmission Allocator Factor - This formula is used to allocate costs for the
coordination and direction of electric transmission issues for the benefit of regulated electric
operating companies and departments. The formula is derived through utilization of the same
data as the global allocator noted above, but it is limited to data of electric operating
companies or departments.

Idaho – Allocation Factors

Typically it is Assets, Revenues and Payroll.

Kentucky – Allocation Factors

My recent experience with such allocation factors has been that utilities are tending to
utilize single or two component allocation factors. However, a three component factor that I've
seen recently involves Gross Margin Ratio - Labor Dollars Ratio - Property, Plant & Equipment
Ratio. This composite factor was determined using a weighted average ratio approach.

Florida – Allocation Factors

We use revenue, plant and operating expenses.

Wisconsin – Allocation Factors

For our energy holding companies, we have generally used a three-factor allocator based on
assets, revenues, and payroll. Sometimes plant in service is substituted for assets, although plant
tends to allocate more costs to utilities. In some cases we have substituted direct operating
expenses for revenues or just use a two-factor allocator excluding revenues. This is to remove
the circular affect of using revenues. You allocate costs to utilities based on revenues. This
impacts rates and revenues for utilities, which then impacts the allocator and starts the cycle
over.