# methods_of_allocation_021_duration

entity_id: C011022
filing_name: Black_Hills_Service_Company,_LLC_form60_Q4_1680894838
publication_time: 2023-04-07 15:13:58.000000
start_date: 2022-01-01
end_date: 2022-12-31
disclosure_of_service_department_or_function_and_basis_for_allocation_used_text_block:
  <div><div style="font-family: sans-serif; text-align: center;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-weight: bold; line-height: 14.4px;">Direct Costs versus Indirect Costs</font></div>
  <div style="font-family: sans-serif; text-align: center;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Below defines the key definitions and ratios used to directly and indirectly allocate costs from BHSC to the subsidiaries of BHC. The complete Cost Allocation Manual for BHSC is filed with FERC.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; font-weight: bold; line-height: 14.4px;">Direct costs </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">are those costs that are specifically associated with an identified subsidiary or collection of subsidiaries.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Methods of Direct charges include:</font></div>
  <div style="font-family: sans-serif; padding-left: 36pt; text-indent: -18pt;">
  <ul>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px; padding-left: 14.85pt;">Direct Cost Assignable: Costs which can be directly identified to support a subsidiary.</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px; padding-left: 14.85pt;">Direct Cost Distributed: Costs that benefit all subsidiaries within a business line (e.g. gas utilities or electric utilities) are allocated to business lines based on a designated percentage.</font></li>
  </ul>
  </div>
  <div style="font-family: sans-serif; margin-top: 8pt;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; font-weight: bold; line-height: 14.4px;">Indirect costs </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">are those costs which are not associated with an identified subsidiary. This means that the costs indirectly support all companies or directly support the operation of the Service Company, or all the gas and electric Utilities. In other words, costs that would be directly charged to the Service Company using the definition and examples above would be classified as indirect costs.</font></div></div>

disclosure_of_other_cost_allocation_methods_text_block:
  <div><div style="font-family: sans-serif; text-align: center;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-weight: bold; line-height: 14.4px;">Allocation Ratios</font></div>
  <div style="font-family: sans-serif; text-align: center;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">The Service Company costs are either directly charged to a subsidiary or business lines, or indirectly allocated when they support all companies. Indirect and Direct Cost Distributed are allocated using one of several pre-defined allocation ratios. Each department has been assigned one of these allocation ratios. All Indirect and Direct Cost Distributed costs of that department are then allocated using that ratio. When determining which allocation ratio should be assigned to each department, a ratio is selected based on the specific cost driver of that department. For instance, the expenses incurred by a Human Resources department are primarily related to their support of all company employees. In this example, the cost driver for the Human Resources department indirect costs is employees. Therefore, their indirect costs will be allocated based upon the Employee Ratio.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">For certain departments, a specific cost driver may not be clearly identifiable or the driver may not be cost effective to compute on a continuing basis. In these instances, a three-factor general allocation ratio is used, which is referred to as the Blended Ratio. This ratio equally weights three different general ratios: Gross Margin, Asset Cost, and Payroll Dollars. These factors were chosen to be included in the Blended Ratio because they best allocate costs based on the diverse nature of BHC operations.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">A list of all allocation ratios, including a brief description of the ratio, the basis for the calculation of the ratio, and the department to which that ratio has been assigned, is listed below.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Asset Cost Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated on the net cost of assets as of September 30th for the prior year, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries. Assets are limited to the direct property, plant and equipment, and include construction or work in process less accumulated depreciation, depletion and amortization (compliance with GAAP). In addition to the BHC subsidiaries cost, the Assets shall also include the cost of any third party assets or minority interests in assets the subsidiaries operate. The Asset Cost Ratio measures the level of investment in the businesses.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Gross Margin Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on the total gross margin for the trailing twelve months ending September 30th, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries. Gross margin is defined as revenue less cost of sales. Certain intercompany transactions may be excluded from gross margin if they would not have occurred if the revenue relationship was with a third party instead of a related party. The Gross Margin Ratio measures where the businesses make money.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Payroll Dollars Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on the total payroll dollars for the trailing twelve months ending September 30th, the numerator of which is the direct payroll charges from all BHC subsidiaries charging the applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries. Payroll dollars include all bonuses and compensation paid to employees, but do not include items that are only included on an employee&#8217;s W-2 for gross-up and income tax purposes, such as life insurance premiums over $50,000. The Payroll Dollar Ratio measures where the business&#8217;s employees spend their time.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Blended Ratio </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">(SC All) - A composite ratio comprised of an average of the Asset Cost Ratio, the Payroll Dollars Ratio, and the Gross Margin Ratio. These ratios are equally weighted. This ratio is sometimes referred to as the three-factor blended ratio.</font></div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">The Service Company is utilizing the following segment variations and additional variations may be added if addition product lines are added or in the event that additional segmentation is deemed appropriate to most effectively allocate costs from a specific department.</font></div>
  <div style="font-family: sans-serif; text-indent: 36pt;">
  <ul>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">SC All-Blended - No BHES (Black Hills Energy Services Company)</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">SC All-Blended - No BHEA (Black Hills Energy Arkansas, Inc.)</font></li>
  </ul>
  </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Blended Ratio </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">(SC Utility) - A composite ratio comprised of an average of the Asset Cost Ratio, Payroll Dollar Ratio and the Gross Margin Ratio. These factors are equally weighted. This factor is sometimes referred to as the three-factor blended ratio.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">There are currently several variations of the Utility Blended Ratio that are specific to the segment that is appropriate for which charges are being allocated. For example, charges for electric engineering department labor would utilize an electric blended ratio whereby no allocations would be charged to a gas utility.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">The Service Company is utilizing the following segment variations and additional variations may be added if additional product lines are added or in the even that additional segmentation is deemed appropriate to most effectively allocate costs from a specific department</font></div>
  <div style="font-family: sans-serif; text-indent: 36pt;">
  <ul>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Utilities</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Electric</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Natural Gas</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Natural Gas - No BHEA</font></li>
  </ul>
  </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Employee Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on the number of employees as of September 30th for the prior year, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Power Generation Capacity Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Based on the total power generation capacity as of September 30th for the prior year, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries. Power generation includes capacity in service and capacity under construction.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Nameplate Generation Capacity Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on the total facility&#8217;s power generation capacity at the end of September 30th for the prior year, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries. Nameplate generation includes capacity in service and capacity under construction at the facility.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Square Footage Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">The total square footage of a given facility, the numerator of which is for an applicable BHC subsidiary and the denominator of which is for all applicable BHC subsidiaries.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Regulated Electric Transmission/Distribution Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on a simple average of a multiple of cross-sectional drivers for the transmission function as of September 30th for the prior year that includes customer counts, peak load, number of substations, number of feeders, number of distribution and transmission miles, and number of remote terminal units. The numerator of which is for an applicable operating company and the denominator of which is for all applicable operating companies.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">Customer Count Ratio - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">As of January 1st, ratios are updated based on the number of customers as of September 30th for the prior year, the numerator of which is for an applicable operating company and the denominator of which is for all applicable operating companies.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">There are currently several variations of the Customer Count ratio that are specific to the type of customers that are appropriate to the department for which charges are being allocated. For example, a department that supports gas engineering would be allocated based on gas customers only whereas a general customer service department would be allocated based on total customers.</font></div>
  <div style="font-family: sans-serif;"> </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">The Service Company is utilizing the following customer counts to calculate customer count ratios additional variations may be added if additional product lines are added or in the even that additional segmentation of customers are deemed appropriate to most effectively allocate costs from a specific department</font></div>
  <div style="font-family: sans-serif; text-indent: 36pt;">
  <ul>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">All Customers</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Electric Customers</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Natural Gas Customers</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Regulated Natural Gas Customers - No NEGD (Nebraska Gas Distribution)</font></li>
  <li><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Products and Services Customers - Non-Regulated</font></li>
  </ul>
  </div>
  <div style="font-family: sans-serif;"><font style="font-family: Arial, sans-serif; font-size: 9pt; font-style: italic; line-height: 14.4px;">GDPM - </font><font style="font-family: Arial, sans-serif; font-size: 9pt; line-height: 14.4px;">Allocates Generation Dispatch &amp; Power Marketing based on Generating Capacity Managed per the GDEMA (Generation Dispatch and Energy Management Agreement).</font></div></div>


