Power plant seeks cost allocation methodology alternatives

Client need

Per contractual requirements between a power plant’s joint owners, the majority owner and operator was required to examine the appropriateness of corporate administrative and general (A&G) charges assessed to the minority owner. The organization need to evaluate the accuracy of its current cost allocation methodology and recommend alternative approaches that aligned with industry best practices and ensured transparency and fairness.

Baker Tilly solution

Baker Tilly executed a thorough review of all A&G departmental charge accounts assigned to the minority owner, including accounting, environmental and regulatory management, operations support, records management and supply management. We also examined the allocation methodologies for assigning these costs and tested sample transactions to ensure originating costs were assigned and allocated appropriately to the minority owner.

Results

The majority owner is considering recommendations to improve its cost allocation methodology including consolidating cost pools for simplicity, aligning cost allocations methods with industry best practices and directly assigning costs to eliminate redundancies.

For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.