83 Ill. Adm. Code 791.80
Annual Cost Study Components
Section 791
Section 791.80 Annual Cost
Study Components
a) Depreciation.
1) Depreciation shall represent the periodic recognition of
investment cost as dictated by accounting rules (83 Ill. Adm. Code 710).
Depreciation costs for a service shall be computed based upon the projected
life of plant at age zero underlying the depreciation rates most recently
approved by the Commission. (For purposes of a cost study submitted in a rate
proceeding which includes a depreciation represcription proposal, a
telecommunications carrier may, as an alternative, use the projected life of
plant at age zero filed for approval in that proceeding, subject to final
Commission action on represcription proposal.)
2) For a carrier seeking approval of an alternative regulatory
plan under Section 13-506.1 of the Act, the Commission shall make a finding of,
or adopt a methodology for determining the projected life of plant at year zero
underlying the carrier's rates of depreciation for purposes of this Part in any
order approving an alternative regulatory plan.
b) Cost
of capital.
1) The cost of capital associated with an investment shall be the
weighted average of the carrier's costs of debt and equity applied to the net
investment. The development of this component shall be based upon the current
amount and weighted cost of debt. Carriers shall use the cost of equity
approved by the Commission in the carrier's latest proceeding in which cost of
money was litigated. (For purposes of a cost study submitted in a rate
proceeding in which the telecommunications carrier is presenting evidence on
its cost of capital, the telecommunications carrier may, as an alternative,
base the return components upon the costs submitted in the proceeding, subject
to the final Commission action on such issue.)
2) For a carrier seeking approval of an alternative regulatory plan
under Section 13-506.1 of the Act, the Commission shall make a finding of, or
adopt a methodology for determining the carrier's cost of equity, for purposes
of this Part in any order approving an alternative regulatory plan.
c) Federal, State, and local income taxes. The Federal, State,
and local income tax expenses shall be determined based on rates which are
expected to be in effect at the time of the cost study development for the
service. Since Federal, State, and local taxes are applicable, recognition
shall be given to the "tax-on-tax" situation that results from the
deductibility of State and local tax when Federal taxes are paid.
d) Maintenance. Maintenance costs are those costs incurred to
keep equipment resources in usable condition and the cost incurred to rearrange
cable or other facilities, if applicable. In calculating the cost of a
service, the carrier may use an investment-related annual maintenance factor to
arrive at an annual maintenance cost estimate or service-specific maintenance
cost for the service. If a maintenance factor is used, the factor shall be
specific to Investment and Expense accounts associated with the service.
Maintenance costs may be based upon historical costs if it can be demonstrated
that those historical costs are relevant to the study of forward-looking costs.
e) Ad valorem taxes. For telecommunications services, an ad
valorem tax factor shall be applied against investment. This factor shall be
based on the quotient of the most current ad valorem taxes paid by the carrier
divided by the carrier's total current investment.
f) Other costs. Other service-specific costs shall be identified
and attributed to particular services or groups of services and included in the
cost study of those services or groups of services. These costs may be based
upon historical costs if it can be demonstrated that those historical costs, in
particular the estimated labor hours, are relevant to the study of
forward-looking costs. In the case of labor costs, the carrier shall provide a
breakdown of these costs to reflect loaded labor rates and estimated labor
hours.