KRS 278.2203: Cost allocation of regulated and nonregulated activity.

(1) A utility that engages in a nonregulated activity shall identify all costs of the

nonregulated activity and report the costs in accordance with the guidelines in the

USoA and the cost allocation methods described in subsection (2) of this section.

(2) In a llocating costs between regulated and nonregulated activities, a utility shall

utilize one (1) of the following cost allocation methods:

(a) The fully distributed cost method; or

(b) A cost allocation method recognized or mandated by the rules of the SEC

promulgated pursuant to 15 U.S.C. sec. 79, et seq., or promulgated by the

FERC or by the USDA.

(3) A utility's compliance with federal cost allocation methods shall constitute

compliance with the provisions of KRS 278.010 to 278.450.

(4) Notwithstanding sub sections (1) to (3) of this section, a utility may report an

incidental nonregulated activity as a regulated activity if:

(a) The revenue from the aggregate total of the utility's nonregulated incidental

activities does not exceed the lesser of two percent (2%) of the utility's total

revenue or one million dollars ($1,000,000) annually; and

(b) The nonregulated activity is reasonably related to the utility's regulated

activity.

(5) Nothing contained in this section shall be construed as requiring a utility to violate

any cost allocation methods required to be employed under any service agreement

validly existing as of July 14, 2000, for the term of the existing agreement, except

where the commission makes the determination that a service agreement was

executed for the purpose of avoiding provisions of KRS 278.010 to 278.450.