(1) A cost of service study filed with the commission must be calculated using an embedded cost method.

(a) Electric studies shall use the FERC accounts outlined in Table 1 in subsection (3) of this section to functionalize the cost of service. Costs shall be directly functionalized where information is available. Functionalized costs will be classified and allocated by the methods outlined in Table 2 in subsection (3) of this section.

(b) Natural gas studies shall use the FERC accounts outlined in Table 3 in subsection (3) of this section to functionalize the cost of service. Costs shall be directly functionalized where information is available. Functionalized costs will be classified and allocated by the methods outlined in Table 4 in subsection (3) of this section.

(c) FERC accounts not included in Table 1 or Table 3 in subsection (3) of this section but identified in a cost of service study must be accompanied by a rationale for the functional method chosen in the supporting testimony.

(d) If an allocation method in Table 2 or Table 4 in subsection (3) of this section requires direct assignment, any similar remaining costs in the account may not be allocated to the classes included in the direct assignment; except in circumstances where that class derives a direct benefit from the nondirect assigned costs. If a particular account contains several cost items, of which only certain items in the FERC account are directly assigned, the cost items that are not directly assigned will be allocated as appropriate.

(e) The abbreviations for the functionalized costs are:

"Comm" is an abbreviation meaning the common function;

"Cust" is an abbreviation meaning the customer function;

"Dist" is an abbreviation meaning the distribution function;

"Gen" is an abbreviation meaning the generation function, for electric;

"Prod" is an abbreviation meaning the production function, for natural gas;

"Stor" is an abbreviation meaning the storage function, for natural gas; and

"Tran" is an abbreviation meaning the transmission function.

(2) In addition to filing a cost of service study as required in subsection (1) of this section, a party may file a cost of service study based on a system-wide econometric study, a system-wide marginal cost study, or an embedded cost of service study with modifications to the methodologies outlined in Tables 1 through 4 in subsection (3) of this section provided that each modification is explained in narrative testimony and the party shows that each modification materially improves the cost of service study and is in the public interest.

(3) Tables 1 through 4 of this subsection outline the functionalization, classification, and allocation methods required by subsection (1) of this section.

Table 1

Electric Cost of Service Approved Functionalization Methodologies

Table 2

Electric Cost of Service Approved Classification and Allocation Methodologies

Table 3

Natural Gas Cost of Service Approved Functionalization Methodologies

Table 4

Natural Gas Cost of Service Approved Classification and Allocation Methodologies