Click! Asset and Expense Allocations 3/18/13 DRAFT Summary Rates, Planning & Analysis (RPA) along with staff members of Click! and Utility Technology Services (UTS) performed a study of the assets and expense allocations shared between Tacoma Power and Click!. The underlying need for the study was determined by the outdated allocations developed over 10 years ago when the Gateway program was being ramped up and a full Automated Metering Infrastructure (AMI) roll-out was expected in the near-term. The Click! and AMI landscape has changed significantly from that time resulting in a fundamental change in how assets and expenses should be allocated between Click! and Tacoma Power going forward. This comes at a critical point in Click!’s business lifecycle as a new strategy for this operating unit of Tacoma Power is being developed. Solid, baseline financials are needed in order to make prudent future business decisions. Below is a summary of our findings and recommendations: · Tacoma Power should “own” all of the Hybrid Fiber Coaxial (HFC) plant shared between Tacoma Power and Click! up to the customer meter. Assets on the customer side of the meter used to deliver Click! service should be owned and funded by Click!. Although technically this is not a change from current practice, this philosophy of asset ownership should be clearly understood and communicated internally and externally. Click! should be considered a “user” of the HFC assets and be charged a usage fee accordingly (see next recommendation.) · Click! should be charged a usage fee similar to a lease or rent for use of the HFC network. We recommend the “usage fee” be based on re-designing the Operating Expense allocation factors for three Cost Centers that directly support and maintain the HFC network. The split would be based on usage rather than the arbitrary 50%/50% or 100% splits as used currently. This includes Cost Center 555300 within Click! and Cost Centers 562700 and 562800 within the T&D Section of Tacoma Power. Further, we should move cost center 555300 inside of Tacoma Power to be consistent with 562700 and 562800. This recommendation is analogous to charging rent based on the maintenance cost to keep the asset operational. The impact to the 2013/2014 budget would be an increase in Click! O&M by $2.9 million or $1.45 million per year. · Click! should bear the full cost of other O&M Expenses supporting the delivery of Click! services. The methodology used to determine the updated allocations of existing cost centers was based on contribution of labor to Tacoma Power or Click! applications. Many of the Cost Centers that are currently split 50%/50% or 100% Power are almost entirely functioning to support Click! Service. The impact to the 2013/2014 budget would be an increase in Click! O&M of $9.8 million or $4.9 million per year. · Tacoma Power continues to fund the HFC capital asset expansion for the sole reason of supplying Click! service. Although this practice fits into the Tacoma Power asset “ownership” paradigm, the business case for expansion of the coaxial cable and Click! Fiber portion of the HFC network should be fully transparent, i.e. that the only return is derived from Click! revenue. There is no near term plan to build out a larger scale AMI system that would leverage the HFC network. · Click! should not include depreciation expense on any of the HFC Network, all HFC depreciation should be accounted for by Tacoma Power. Click! should only track depreciation on assets such as set-top boxes, testing equipment, Hub Electronics, and other assets used solely for serving Click! customers. The impact to this recommendation is unknown at this point. Follow-up work is needed to determine the impact to retail rates if any. · Additional work is needed to determine the Power retail rate impacts of changing the asset allocation between Click! and Power. Increasing the Power asset by the historical base cost of the HFC network that is currently considered Click! asset base would most likely shift a higher percentage of the rates to be paid by the Residential customer class since it would be considered Distribution. · Tacoma Power should review the future need for Data Conduit Requirements that are included in the Customer Requirements for Commercial Secondary Service. Data Requirements state that the data conduit system shall be installed wherever electrical power conduits are being installed. The data conduit requirements were established when a full AMI roll-out to the service territory was expected. Summary of Financial Impact to Click! If Recommendations Were Implemented Current Methodlogy as of 11/30/2012 All $'s in 1000's 2012 Budget 2012 Actual 2012 Diff. Recommended 2013 2014 2013 2014 1,661 $19,403 5,592 1,297 690 $19,540 6,890 1,444 634 $19,403 5,592 1,297 690 $19,540 6,890 1,444 634 Commercial Operating Revenue CATV ISP Broadband Other $16,053 4,970 1,379 2,326 $24,729 ($3,792) Total Commercial Operating Revenue $19,846 4,743 941 666 $26,195 ($1,466) $26,982 $28,508 $26,982 $28,508 Total Commercial Operating Expenses $19,553 $18,305 ($1,248) $19,217 $19,421 $25,708 $25,589 $6,642 $6,424 ($218) $7,765 $9,087 $1,274 $2,919 $3,576 5,847 ($2,781) $3,557 5,847 ($2,980) $3,724 5,945 ($1,904) $3,843 5,945 ($700) $3,724 5,945 ($8,395) $3,843 5,945 ($6,868) $5,945 2,200 $1,841 $5,945 2,200 $3,044 $5,945 2,200 ($4,650) $5,945 2,200 ($3,124) Earnings before Int., Taxes, Dep, & Amort. (EBITDA) Taxes Depreciation and Amortization* Net Income (no interest allocated) 227 439 ($19) (6,933) $6,734 *Note more work is needed on the assets to determine recommended Depreciation Cash Flow Reconciliation plus Depreciation and Amortization less Commercial Capital Paid from Current Fund Net Cash Flow - Commercial $5,847 4,094 ($1,029) $5,847 3,219 ($352) $0 (875) ($875) Background RPA was asked to investigate and document Tacoma Power’s methodology for allocating assets and expenses between Click! and Tacoma Power and recommend changes based on its findings. Although Click! is an operating unit of Tacoma Power and its financial statements are shown on a consolidated basis, Click! needs to be understood and managed as a stand-alone business. This determination is very complex given that the genesis of the Click! business model was to utilize Tacoma Power infrastructure originally put in place to support future Tacoma Power AMI. The decision to sell Cable TV and Internet services was based on bringing in additional revenues. The additional infrastructure needed to sell Cable TV and Internet services was minimal and it was assumed this additional infrastructure would be paid off quickly with the additional anticipated Click! revenues. A brief History of Click!/Tacoma Power Allocations In April 2000, PriceWaterhouseCoopers, an external consulting firm, performed a review of Click! Network’s financial performance 1. One of the recommendations that emerged from the review was that Click! separate its capital and operating costs into Commercial (i.e. Click!) and Power (i.e. Tacoma Power) service categories. This cost segregation would better enable policy makers to judge performance of Click!. On August 26, 2002, Dana Toulson, Tacoma Power Telecommunications Manager, responded in an email to the Tacoma Power Audit Team with the results of an effort to address the allocation concern and outlined a methodology to determine Capital Investments and Allocations of Operating Expenses 2. 1 Click! Network Financial Performance Review, PriceWaterhouseCoopers, April 24 2000 See Email dated August 26, 2002 from Dana Toulson, Telecommunications Manager, to Tacoma Power Audit Team 2 “To allocate total capital investment and estimate depreciation for the two business categories, each of the thirty-two Telecommunications Project work orders were evaluated to determine their commercial and power related portions. The team asked itself “Would these investments have been made if Tacoma Power was not offering Cable TV, Internet or other commercial broadband services?” If the answer was no, the investment costs were allocated to Commercial Applications.” Based on this test, the team determined that approximately 27.4%/72.6% of the total $85.8 million initial investment in Click!/Power Telecomm assets should be allocated to Click!/Power respectively. This is the split that determined depreciation expense on the initial investment for Click! and Power. Further, starting in the 2001/2002 Biennium, all work orders were designated either Commercial or Power under the framework that Power owned all assets up to the Customer Meter, and Click! owned all assets on the customer side of the meter (and set-top boxes and other obvious capital equipment). This is still the asset allocation methodology used today. In the same email from Dana Toulson, the results of the Operating Expense Allocation were provided. The team performed the same test on the “Org” (i.e. 5511, 5532, etc) to determine the split. Orgs were split either 100% or 50%/50% between Click! and Tacoma Power. It was recognized at the time that the methodology would not always be perfect but it was reasonably reflective of Commercial and Power costs and had the advantage of being easy to administer and track. In 2003, Click! hired external consulting firm Virchow Krause & Company to assess the reasonableness of the Capital and Operating Expense Allocations 3. Virchow Krause applied a Net Present Value of AMI costs and benefits attributable to the HFC network to determine the asset allocation scheme. In general, the hybrid fiber (Fiber) portion of the network and the 97% of the coaxial cable (Coax) portion of the network costs were determined to be Power’s assets. Overall, the report supports the existing asset allocation split (26%/74%) and also supports the Operating Expense split. In summary, what is left is a general split of the initial investment from 1997-2000 being 27.4% Click! and 72.6% Power for purposes of calculating depreciation. Further, starting in 2001 until present, all assets that were purchased or developed up to the customer meter are considered Power’s and considered Click!’s if they are on the customer side of the meter (or clearly belong to Click! like Set to Boxes, etc.). Further, the Operating Expense allocation is the same scheme as developed in 2002, Orgs are either 100% or split 50%/50% between Power and Click! based on their work function at that time. 3 See ”Review of Cost Allocations For Click! Network Tacoma Power”, Virchow Krause & Company July 23, 2003 Asset Study The main purpose of the asset study was to help inform the recommended expense allocations. We have not completed a comprehensive review of the assets at this time to determine whether they should be a Click! or a Power asset. This is an important next step as it would have a material effect on how the power rates are allocated across the customer classes. Adding HFC Asset Base to Tacoma Power’s rate model would most likely increase the proportion of rates paid by the Residential customer class since it would be considered Distribution. The first step in this exercise was to obtain a full listing of the Fiber/Coax system infrastructure and understand how it is currently split between Click! and Tacoma Power. The data was separated into understandable categories in order to facilitate discussion. There are some issues with the data and accounting classifications have changed over time, but overall it was deemed sufficient for this exercise. Below is the breakout that was used: Row Labels Coax Fiber HTU/Converter-Descrambler_HTU/Converter-Descrambler Capital Connect Sonet Equipment Sonet Construction MDU Head End Equipment Land and Structures_Hub Electronics Land and Structures_Hub Labor/Assembly Immaterial Grand Total Historical Cost - Historical Cost Book Value Book Value Comm. Pwr. Comm. Pwr. 14,781,385 87,373,426 3,667,421 43,171,879 1,995,061 7,458,972 560,397 3,026,195 17,728,326 1,752,854 4,536,495 5,732,630 5,776,209 3,864,838 2,648,467 5,081,400 2,064,760 1,809,290 523,121 3,004,760 4,713,587 1,503,851 2,051,205 1,460,282 5,267,545 457,035 1,973,418 3,557,380 826,517 1,952,574 577,117 5,746,817 6,197,580 1,178,652 930,850 1,922,189 1,218,434 1,602,467 989,303 7,068,627 9,625,484 1,499,917 1,299,457 68,078,857 132,275,367 22,632,938 57,191,012 Note that overall, there is approximately $200 million in historical cost and approximately $80 million in book value of the Fiber/Coax system today. The initial capitalization date was around 1999 and certain parts of the system are still being added today. The “immaterial” classification includes several asset classes, mostly capitalized in the late 1990’s or early 2000’s. A more detailed description of the assets by year of capitalization are as follows: "Hunt-I I Cu? - HID-DH VI Ill- - V. - Mr Gen-mm ll-uulr Ina-{1m ml P1141 Hi? H4 PEE- I run-1:qu 2:1? 934.3419 H.691 .1 Id 1m; - - 20.1 145551111211 m1 - - h_u4a_um rpm-.351 311 6.39.936- Flu- 1?3'9?3 1.1mm 1.11.1.5? zona- 1 . 2-Cl- 4.142 5m I 541' 1 gill-?- I B4 489 1(l'l_ 1 2:1? BEIJJLH-H .1 41 .1133- 2411-?: - I - mm? - 4?.124 331.595 memm?mm 195D: I - - .2133} 5.22233 ?I'll-I 1.115;" 1 Eir'_ ?I?ll Lena-mun 4E5. 7' - 2&1 .533 31!} ?3.102321 - - m: I - - I - CIPI-I 1D ?ll-l? 91.15.34? :muan: PEI-1 2011:: 1.091 -440 HID-him 953.549 EET.3-15 T311933- 505.53) 4.595 {Elf?[J i" - J'I'S-Cr'jilr? - I I Era San-null: Wynn-Ii: f?ul?? I planar. mun 144.134 331.503 41.040 1DE-..T42 41.11:: 1 I I nu: 111.314 [95354 ?I'll-I ?it-1'4 IJ - - EEG-5E - 1mm 201 1 Milli-1 - 1 19.509 - I I - - I - 19$ dill-H. I'd-Ll .251 fit-I I 2? 31.31 19.3-19- 2599 CHE-EI- 20m: 3-1-1356 3929:?) ?nna 343545 514:79 2W4 5133-455 55-4.IEI4 3.1415- 41-13-15-5- E. I 29.?14 .DIJ 1999 mun-u 3.31-3155 mm mun- 433.52 4-5.. 1w.? .2132" 9.045 BEEN-T 2TIJ1 T. IDE- NIL flit) 33.47? 3-912!? Ihb 14 I .913 4E-3.E-3I diIiJI-?: 21m: 1 IE. LII-H- 1 1" - - Ell? Ell-Effie?! - - - . Ilia-.54? 1.41:4 El- Lean-11:1" 35513:? 11 5.3112 3111.456 -lld Sham?u m; 1995 1.5-le ?nna 35.4!? I 5"_913 13-55-55-3- 4 2:103 9E?.4f? 399.331 {.133- fl:- H1- 41.31.3312 41mm 4.1.5.352 E11 - - 129.291 shl?FI?H Will-Trill! 1 95B 5-5. 1 16.4.10? 3m BEE-H 131.1% ma? - 334.221 I32. 1 J- D13. ma: - - mun 4155.529 153.345 EELS-45- 132.315- 2515 319.044 341 I I - - I MIMI-II 1999 2.213. 51 man-u? 5.30.531 20m 31.29-1- - - 2:301 I .. HIE. 1?4.?1 EI- 533- 21314 2?53.? 1. - I - .0335?? Faun?!- I1 1.41:4 I: I I 1 :1 Jill? .r 114:" 2:103 IELZJEIZJ 4112223 2.31? 455.525 I I - - - Til-bl HIJJTE. 132.2?5. a? 21mm Coaxial Cable The coaxial cable infrastructure is the bulk of the cost of the HFC network. The Coax runs from the Click! node. The Click! node, is connected to the Fiber Ring with coax extended from the node by amplification and splitting to the service “Tap” where coaxial cable (coax) drops extend the system to individual residences and businesses. Coax is necessary for Click! CATV and High-Speed Internet Services. It is also necessary for backhaul of meter data for AMI. Currently, Tacoma Power owns and pays for all Coax infrastructure maintenance and capital investment for replacements, and for new services. Click! Commercial has not been allocated any Coax since the initial overall 27/73 split was applied to all assets in the early 2000’s. Note also that the Coax build-out has slowed considerably in the last few years as can be seen in the chart above. It is important to understand that there are only 18,000 two-way meters in the Gateway program that are actively using the Coax assets to transmit meter data. However, since it is understood that Tacoma Power will be installing two-way meters throughout its service territory at some point in the future, Power continues to pay for all capital costs up to the meter, and O&M costs to support the asset which is 100% of the capital and maintenance cost of the Coax asset. This issue is particularly acute when new customers request Click! services where there is not currently Coax to the house. Power pays for all the trenching and other costs to enable Click! service to the house, even though there is no intention of using the Coax for meter data any time in the near future. Although the Coax build-out has slowed in recent years, there has been about $30 million spent and capitalized as Coax within the last 5 years, and about $50 million since 2004. O&M costs and Personnel expenses related to supporting the Coax is recognized in Cost Center (555300) for Click!, and two cost centers located in the T&D Section (562700 & 562800). Please see the Expense Study Section of this paper for the recommendation to change the allocation. Fiber The Fiber ring that runs from the Headend ties all of the substations together, and connects all the Click! Distribution Hubs, is currently considered Power’s asset and all maintenance/replacement costs of the Fiber ring is allocated to Tacoma Power. Power is using this asset currently for many Distribution/SCADA operations and will continue to do so in the future. There are unused Fiber strands and then there are Fiber networks such as the PCON, I-Net, HFC, SONET, and Carrier Ethernet. Fiber is considered a “passive” asset and does not require proactive maintenance and is thus relatively inexpensive to maintain. Currently two cost centers located in the T&D Section (562700 and 562800) support the Fiber and Coax asset, as well as other infrastructure such as service drops and vaults. Please see the Expense Study Section of this paper for the recommendation to change the allocation. Capital Connect This asset class is comprised mostly of capitalized labor of all related installation services of Click! to the home. The installation costs include the wires and capitalized labor included in connecting the house wires to the “demarcation” point where the “inside” meets the “outside” of the meter. Based on the data above, it appears that Capital Connect costs are being correctly allocated to the Click! asset base. However, on the expense side to support this effort, Cost Center 553500, Service Installation, which is comprised of approximately 24 Click! employees is being allocated 50% to Power and 50% to Click!. The reason this was originally split in this way was the Installation Group was installing Gateway meters as well as Click! service. Now there are very few Gateway installations given the program is not being expanded. Please see the Expense Study Section of this paper for the recommendation to change the allocation. SONET Equipment SONET Equipment is for the sole purpose of transporting Click! data across the Fiber. For that reason, all SONET Equipment should be capitalized as a Click! asset and all maintenance/support costs for this equipment should be allocated to Click!. Note also that there is an Asset class called “Sonet” above. Per discussion with Click! engineers, this is most likely more representative of Fiber. In the early stages of building the infrastructure, the accounting classifications were most likely not appropriate and attempted to be too granular. Most of the “Sonet” asset was trenching in order to lay the Fiber in the ground (for which the SONET equipment would leverage). All SONET Equipment and SONET has been allocated to Click! since 2004, which appears reasonable. SONET Construction Per discussion with Click! this cost accounting does not appear to be used anymore. It is thought that the costs that used to map to this activity are now captured in the Fiber asset. No further work was done on this asset class. Multiple Dwelling Units (MDU) Per discussion with Click! this cost accounting does not appear to be used anymore. It is thought that the costs that used to map to this activity are now captured in the Fiber asset. No further work was done on this asset class. Headend Equipment Most of the equipment in the Headend is used for Click! video content for Commercial operations. The data center houses applications to monitor and troubleshoot the HFC Network and Commercial Services offered by Click!. Cost Center 555500, Click! Network Engineering, supports this work and is currently allocated 100% to Power. Please see the Expense Study Section of this paper for the recommendation to change the allocation. Land and Structures_Hub Electronics This represents Hub buildings: Northwest, Northeast, Southwest, Southeast, Downtown North and Downtown South. The equipment in the hubs is used to deliver CATV, High Speed internet, Ethernet and SONET services and is primarily used for Commercial operations. Cost Center 555300, Network Operations and cost center 555400, Broadband Services supports the work performed in these six hub buildings. Please see the Expense Study Section of this paper for the recommendation to change the allocation. Land and Structures_Hub Labor/Assembly This breakout represents labor to install the equipment at the hub buildings: Northwest, Northeast, Southwest, Southeast, Downtown North and Downtown South. Expense Study After the team obtained an understanding of the asset base the O&M cost centers were studied. The purpose of this exercise was to determine a “usage” fee for the Cost Centers that support and maintain the HFC network and to ascertain the true cost to run the Click! business by examining the remaining Cost Centers. Allocation Factor Summary Old New Cost Center Description HFC Network Support 555300 Click Network Oper 562700 PwrT&D HFC NtwrkCnst 562800 PwrT&D HFC Ntwrk Eng Customer Installation Support 553500 Click Svc Install 553200 Click Tech Op Admin 553600 Click Dispatch Network Services 555400 Click Broadband Svcs 555500 Clk!Ntwk Engineering 555600 Click Net Svc Assur Admin/IT Cost 551100 Click Admin 552200 Click Mkt Admin 552100 Click MrktBusOpsAdm 552600 Click Busns Sys Other (Unchanged) 552300 Click Marketing Svc 552400 Click ISP Adv 552500 Click Cust Sales 553700 Click Converter Inv Total Projected 2013/2014 Expenses Old Allocation New Allocation Comm. Comm. Pwr 0% 100% 0% 100% 0% 100% 56% 44% 56% 44% 56% 44% 50% 50% 50% 50% 100% 0% 100% 0% 86% 14% 100% 0% $ 2,769,997 $ 2,769,997 $ 5,539,994 $ $ 343,805 $ 343,805 $ 590,753 $ $ 983,500 $ $ 983,500 $ 96,857 - $ 2,769,997 $ (2,769,997) $ 246,948 $ (246,948) $ $ 50% 50% 0% 100% 0% 100% 99% 1% 95% 5% 95% 5% $ 1,222,868 $ 1,222,868 $ 2,421,278 $ $ 1,350,400 $ 1,282,880 $ $ $ 1,899,167 $ 1,804,208 $ $ - 24,457 67,520 94,958 $ 1,198,410 $ (1,198,410) $ 1,282,880 $ (1,282,880) $ 1,804,208 $ (1,804,208) $ 143,317 $ $ $ - $ 1,596,010 $ (1,596,010) $ $ $ $ $ 888,323 $ (888,323) $ $ $ - Pwr. Comm. Pwr. Difference Comm. Pwr. $ 2,965,634 $ 1,673,646 $1,291,988 $ 1,607,885 $ 907,405 $ 700,480 $ 516,393 $ 291,424 $ 224,968 50% 50% 100% 0% 100% 0% 50% 50% 95% 100% 100% 100% 5% 0% 0% 0% $ 1,409,103 $ 1,739,328 $ 3,005,113 $ 2,433,826 $ $ 2,433,826 $ 399,491 $ 399,491 $ $ 888,323 $ 888,323 $ 1,776,647 100% 0% 100% 0% 100% 0% 100% 0% 75% 25% 100% 100% 100% 100% 96% 0% 0% 0% 0% 4% $ 31,466,262 $ $ 524,000 $ $ 2,850,440 $ $ 913,340 $ $ 46,204,956 $15,303,799 $ 31,466,262 $ $ 524,000 $ $ 2,850,440 $ $ 913,340 $ $ 58,864,208 $2,644,547 Comm. Pwr. $ 1,673,646 $ (1,673,646) $ 907,405 $ (907,405) $ 291,424 $ (291,424) $ $ $ $ $ 12,659,252 $ $ $ $ $ (12,659,252) A description of the Cost Centers and support for the recommended changes are as follows: HFC Support (555300, 562700, 562800) – All three of these cost centers support and maintain the HFC plant. It is unclear why Cost Center 562800 (HFC Engineering and Design) and 562700 (HFC Construction and Maintenance) were positioned inside of the T&D Group and 555300 (HFC system performance maintenance and testing) was positioned under Click! (and allocated 50% to Power). However, the purpose of each cost center is similar in that they maintain the operations of the HFC plant which includes engineering, design, conversion work, safety equipment, repairs, Operating supplies, etc to keep both the Fiber and Coax assets running as intended. As discussed in the summary of this paper, it was agreed that the ownership structure for the HFC plant is that Power is considered to “own” all of the assets and Click! is a user of those assets to deliver its service. The usage “fee” that we propose is equivalent to Click!’s portion of the maintenance of the asset based on a set of allocators. In order to determine this “fee” we first allocated the cost of the Fiber portion based on the Fiber count of Click! and Power applications and then allocated the cost of the Coax portion based on customer count of Click! and Power (Gateway). In order to put this overall allocation scheme into context, it is analogous to a homeowner charging rent to tenants based on maintenance cost of the house only. Note all expenses used for this allocation were based on 2012 actual amounts. Fiber Allocation The methodology used to recalculate the allocations was to first separate the costs for the Fiber portion and Coax portion of the assets based on miles of each. Miles_Fiber Miles_Coax Total Miles 527 1,400 1,927 % of Total 27% 73% 100% Each respective percentage was then multiplied by the base 2012 total cost of the three cost centers to assign a total cost to maintain the Fiber and Coax asset respectively. 2012 Total Cost 562700, 562800, 555300 $ 2,643,601 Cost Allocated to Fiber (x 27%) $ 723,047 Cost Allocated to Coax (x 73%) $ 1,920,554 2012 Total Cost 562700, 562800, 555300 $ 2,643,601 The next step was to allocate the Fiber and Coax to Power and Click respectively. For the Fiber portion of the cost, the Fiber Count for all of the Plant was used. For Click! the portion of the Fiber used was based on the Broadband Services (BBS), and for the Click! Network, the remainder of the Fiber was assumed to be for Power (Dark, City-Net, PASS, AMR-Gateway). The Fiber count is broken out as follows: BBS Click! Network Total Click Fiber Dark City-Net PASS AMR/Gateway Total Power Fiber Total Fiber Count Fiber Count 307 547 854 % of Total 10% 19% 23% 1,904 594 396 38 2,932 3,786 65% 20% 14% 1% 77% 100% When aggregated into the Click! and Power Fiber as described above, the allocation to Click! and Power applied to the 2012, Cost Allocated to Fiber is as follows: 23% $ 77% $ 100% $ Click! Fiber Allocation (%) Power Fiber Allocation (%) Total 162,838 560,209 723,047 Coax Allocation For the Coax asset, the allocation was based on customer count of Click! and Gateway users as shown in the table below. Cable Customers ISP Customers Click! Total Gateway Customers Customer Count 22,983 17,753 40,736 18,129 % 39% 30% 69% 30.8% When applied to the 2012 Cost Allocated to Coax, the Coax cost is allocated to Click! and Power as shown in the table below. : % Click! Coax Allocation Power Coax Allocation Total $ 69% $ 1,329,069 31% $ 591,484 100% $ 1,920,554 In total, the sum of the Click! costs for Fiber and Coax results in an allocation that is 56% Click! and 44% Power across the three cost centers as shown in the table below. Click Total Fiber/Coax Power Total Fiber/Coax Total $ $ 1,491,908 $ 1,151,693 $ 2,643,601 % 56% 44% 100% Customer Installation Support 553500 Click Svcs Install – The Service Install cost center is primarily the labor and supplies needed to physically hook the customer up to the meter for Click! services. When Gateway was being expanded some installs were for Gateway meters and some were for Click! services, and is most likely the cause for the original 50%/50% split. As the Gateway population is now almost static, all of this group’s time and resources are for Click! services and supports a change to allocate 100% of this Cost Center to Click!. 553200 Click Tech Op Admin – The Click! Tech Op Admin cost center is primarily service technician management labor and support staff. Very little time from this group of employees is spent on projects that benefit Power only, however, it was difficult to ascertain the amount that may be spent on Power applications. As such, the methodology we used to determine the allocation was to use the total overall average of the operational cost center re-calculated allocation. The operational cost centers were determined to be all cost centers except for the Administration. A straight average was used. Network Services 555400 – Click Broadband Svcs - Based on interviews with Click! staff, two employees in this cost center work in the ISP team that configures, provisions and maintains the cable modem termination systems (CMTS). They estimate they spend less than 2% of their time working on support of the Gateway cable modems. Duties include Gateway cable modem priorities, Pay as you Go and support of approximately 25 Tacoma Power Commercial accounts and the incidental work being performed on maintaining and upgrading the Click! internet product. Other work consists of confirming that DNS entries are correct, supporting questions from UTS regarding Gateway modems, and supporting installation of new Tacoma Power Commercial account cable modems. As this cost center is made up of seven employees, and given the fact that two of the employees within this cost center spend less than 2% of their time on Gateway applications, the overall time spent supporting Tacoma Power was estimated to be 1% overall for this cost center. 555500 – Clck!Ntwrk Engineering – Based on interviews with employees in the Cost Center, very little of their time is spent Engineering the network for the benefit of Tacoma Power or Gateway. One of the three Engineers, the Internetworking Engineer is responsible for the design, performance and capacity requirements of the ISP routed network which includes the CMTS, a small amount of time of which supports the Gateway program. The other two engineers, Video and Broadband Services Engineer spend all their time planning, designing and maintaining their networks to support the commercial CATV and Broadband Services products. 555600 – Click Net Svcs Assurance – Based on interviews employees in this cost center it is estimated they spend less than 5% of their time working on support of the Gateway Cable Modems. It is estimated that 40% of the NSA's (Network Service Assurance) time is spent on monitoring CATV, high speed internet, Ethernet and SONET services. A portion of that 40% is dedicated to monitoring and support of the Gateway cable modems. Monitoring includes the incidental monitoring of the Gateway cable modems along with the monitoring of Click retail cable modems. A system cable modem outage would affect the Gateway cable modems and as part of the reporting process would include an email sent to UTS notifying them of the outage event. The NSA sends out network status updates and planned maintenance notifications as well, which the UTS receives. The NSA indirectly monitors the physical infrastructure, Fiber and Coax which Tacoma Power owns. The devices monitored which are connected to the Fiber and Coax are lasers, receivers, nodes, amplifiers, HFC power supplies, cable modems, Ethernet switches and SONET multiplexers. Admin/IT Cost 551100 Click Admin – The Click! Admin cost center is primarily the Section Manager and support staff and office supplies for Click!. Very little time from this group of employees is spent on non-Click! projects that benefit Power only. The methodology used to determine the allocation was the total recalculated Click! allocation from all of the cost centers above. 552600 Click Busns Sys – This cost center consists of the financial and IT group within Click! comprised of approximately 4 FTEs. Based on discussions and interviews with the manager of this group, very little time is spent on matters pertaining to Power only. For this reason, it was determined that 100% allocation to Click! was more appropriate than an arbitrary 50%/50% split between Click! and Power. When the Gateway program was being developed and the 50%/50% split was created, these employees were more involved in integrating 2-way metering data and financial planning for an AMI type environment.