OAR 860-034-0740: Allocation of Costs by Type 2 Cooperatives

(1) As used in this rule: (a) "Affiliate transaction" means a transfer of assets, a sale of supplies, or a sale of services between accounts for services for which a joint rate is charged or for through services offered by a Type 2 cooperative and accounts for nonregulated activities of a separate entity that is either an affiliated interest or another company in which the Type 2 cooperative owns a controlling interest; (b) "Asset" means any tangible or intangible property of a Type 2 cooperative or other right, entitlement, business opportunity, or other thing of value to which a Type 2 cooperative holds claim; (c) "Cost" means fully distributed cost, including all overheads and rate of return as defined in section (1)(h) of this rule; (d) "Fair market value" means the potential sales price that could be obtained by selling an asset in an arm’s-length transaction to a nonaffiliated entity, as determined by commonly accepted valuation principles; (e) "Market rate" means the lowest price that is available from nonaffiliated suppliers for comparable services or supplies; (f) "Net book value" means original cost less accumulated depreciation; (g) "Nonregulated service" means a service that is neither a through service nor a service for which a joint rate is charged, as defined by OAR 860-034-0015; and (h) "Rate of return" means the rate or return established by the Commission for the calculation of a rate for a through service or for which a joint rate is charged. (2) A Type 2 cooperative that provides both regulated and nonregulated intrastate service shall: (a) Allocate intrastate investments, expenses, and revenues between regulated activities and nonregulated activities according to principles, procedures, and accounting requirements, which the Federal Communications Commission (FCC) adopted December 23, 1986, and amended on reconsideration September 17, 1987, in CC Docket No. 86-111, except as otherwise provided in this rule. (b) Part 64, Subpart I, Allocation of Costs, adopted by the Federal Communications Commission on October 11, 2001, is hereby adopted and prescribed. (3) For intrastate purposes, FCC rules governing affiliate transactions (Section 32.27) are replaced as follows: (a) When an asset is transferred to regulated accounts from nonregulated accounts, the transfer shall be recorded in regulated accounts at the lower of net book value or fair market value; (b) When an asset is transferred from regulated accounts to nonregulated accounts, the proceeds from the transfer shall be recorded in regulated accounts at the higher of net book value or fair market value; (c) When an asset is transferred from a regulated account to a nonregulated account at a fair market value that is greater than net book value, the difference shall be considered a gain to the regulated activity. The Type 2 cooperative shall record the gain in a manner that will enable the Commission to determine the proper disposition of the gain in a subsequent rate proceeding; (d) When services or supplies are sold by a regulated activity to a nonregulated activity, sales shall be recorded in regulated revenue accounts at the Type 2 cooperative’s cost; and (e) When services or supplies are sold to a regulated activity by a nonregulated activity, sales shall be recorded in regulated accounts at the nonregulated activity’s cost or the market rate, whichever is lower. The nonregulated activity’s cost shall be calculated using the Type 2 cooperative’s most recently authorized rate of return. (f) Income taxes shall be allocated among the regulated activities of the Type 2 cooperative, its nonregulated divisions, and members of an affiliated group. When income taxes are determined on a consolidated basis, the Type 2 cooperative shall record income tax expense as if it were determined for the Type 2 cooperative separately for all time periods.