# methods_of_allocation_021_duration

entity_id: C011361
filing_name: National_Grid_Engineering_&_Survey,_Inc._form60_Q4_1746134661
publication_time: 2025-05-01 21:24:21.000000
start_date: 2024-01-01
end_date: 2024-12-31
disclosure_of_service_department_or_function_and_basis_for_allocation_used_text_block:
  <div style="margin-top:15pt;text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:700;line-height:120%">Cost Allocation Principles</span></div><div style="text-align:justify"><span><br/></span></div><div style="text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%">The following principles guide the allocation of costs of products or services provided by the Service Companies to the Client or Operating Companies. These principles also pertain to transactions among Operating Companies for goods and services. </span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-align:justify;text-indent:-18pt"><span style="color:#000000;font-family:'Times New Roman',sans-serif;font-size:12pt;font-weight:400;line-height:115%">a.</span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%;padding-left:9.68pt">Direct charging or direct assignment is the preferred allocation methodology and should be used if the cost of providing a product or service can be identified with the specific affiliates receiving the benefit of that product or service. Direct charging should only be used if the cost of providing a product or service to an individual Client Company can be isolated and reported separately from costs to provide other products or services and from costs to provide the same product and service to other Client Companies.</span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">b.    The costs of products and services that cannot be direct charged should be allocated based on cost causative allocation bases representative of the underlying cost drivers of that product or service.</span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">c.    The cost allocation methodology should be comprehensive, transparent, stable and administratively manageable and cost effective. </span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-align:justify;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%">d.    The calculation of the cost allocation bases should be supported by a clearly defined methodology, model and supporting policy and procedure documentation. </span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-align:justify;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%">e.    The cost allocation methodology should accommodate changes in the size of the allocation bases from period to period based on changes in the underlying cost drivers; the allocation bases should not vary significantly from period to period for uncontrollable factors not related to the underlying cost drivers. For example, you would not choose an allocation basis that fluctuates significantly from period to period based on changes in weather if weather is not a cost driver for that activity.</span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-align:justify;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%">f.    The calculation of the allocation bases should be at least annually and more frequently if needed to reflect significant events (e.g., the sale of a significant affiliate).</span></div><div style="margin-top:15pt;text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:700;line-height:120%">Cost Apportionment Methodology</span></div><div style="text-align:justify"><span><br/></span></div><div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">Costs are defined into the following four categories for purposes of allocating the costs of Service Company products and services to the Operating Companies. This hierarchy represents the preferred order of methodologies to be used when allocating costs. These four cost categories are: </span></div><div style="padding-left:396pt;text-align:justify;text-indent:36pt"><span><br/></span></div><div style="text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:112%">Directly Assignable </span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">– Expenses incurred for activities and services exclusively for the benefit of an affiliate.</span></div><div style="text-align:justify"><span><br/></span></div><div style="text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:115%">Directly Attributable </span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:115%">– Expenses incurred for activities and services that benefit more than one affiliate and which can be allocated based on direct measures of cost causation; for example, number of employees or number of invoices processed.</span></div><div style="text-align:justify"><span><br/></span></div><div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:112%">Indirectly Attributable </span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">– Expenses incurred as a “cost of doing business” that do not relate to the provision of specific products and services. The costs typically benefit all entities within the corporate umbrella. Examples include governance costs, Corporate Secretary costs, and investor relations costs. These costs are typically allocated based on a general measure of cost causation, commonly referred to as the general allocator.     </span></div><div style="text-align:justify"><span><br/></span></div><div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-style:italic;font-weight:700;line-height:112%">Unattributable </span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">– Expenses incurred for activities or services that have been determined as not appropriate for apportionment to the operating company affiliates. These costs relate primarily to activities such as corporate diversification, political or philanthropic endeavors and, as such, are charged directly to the parent company, National Grid USA. </span></div><div style="text-align:justify"><span><br/></span></div><div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">It is expected that most costs charged to an affiliate will be based on the direct assignment or direct attribution of costs and that costs indirectly attributable to an affiliate will represent the smallest category of costs. </span></div><div><span><br/></span></div><div style="text-align:justify"><span><br/></span></div><div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:700;line-height:120%">Approved Cost Allocation Bases - Description and Source</span></div><div><span><br/></span></div><div><table style="border-collapse:collapse;display:inline-table;margin-bottom:5pt;vertical-align:text-bottom;width:92.864%"><tr><td style="width:1.0%"/><td style="width:17.971%"/><td style="width:0.1%"/><td style="width:1.0%"/><td style="width:20.624%"/><td style="width:0.1%"/><td style="width:1.0%"/><td style="width:58.105%"/><td style="width:0.1%"/><td colspan="3" style="display:none"/></tr><tr><td colspan="3" style="background-color:#d6d6d6;border-left:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div style="text-indent:5.35pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:700;line-height:112%">SAP Allocation</span></div><div style="text-indent:5.35pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:700;line-height:112%">Code</span></div></td><td colspan="3" style="background-color:#d6d6d6;border-left:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div style="text-indent:5.65pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:700;line-height:112%">Description</span></div></td><td colspan="3" style="background-color:#d6d6d6;border-left:1pt solid #000000;border-right:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div style="text-indent:5.9pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:700;line-height:112%">Definition / Source</span></div></td><td colspan="3" style="display:none"/></tr><tr style="height:68pt"><td colspan="3" rowspan="3" style="border-bottom:1pt solid #000000;border-left:1pt solid #000000;border-right:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div style="text-indent:5.7pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">G-xxx</span></div></td><td colspan="3" rowspan="3" style="border-bottom:1pt solid #000000;border-left:1pt solid #000000;border-right:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div style="text-indent:5.65pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">General Allocator</span></div><div style="text-indent:5.65pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">-Net margin, Net</span></div><div style="text-indent:5.55pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">plant, &amp; Net O&amp;M</span></div><div style="text-indent:5.55pt"><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:110%">expenses</span></div></td><td colspan="3" rowspan="3" style="border-bottom:1pt solid #000000;border-left:1pt solid #000000;border-right:1pt solid #000000;border-top:1pt solid #000000;padding:2px 1pt;text-align:left;vertical-align:top"><div><span><br/></span></div><div><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">“Net Margins” are Total Operating Revenues less “Cost of Goods Sold” and revenues related to recovery of stranded costs.</span></div><div><span><br/></span></div><div><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%"> “Net Plant” is the sum of Net Utility Plant and Net Non-Utility Plant.</span></div><div><span><br/></span></div><div><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">“Net O&amp;M Expenses” are all non “Cost of Goods Sold” expenses less costs allocated from the Service Company distributed to the Affiliate companies using the general allocator. A Special Report will be created to identify the amount to be excluded for Service Company Charges based </span></div><div><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:120%">on the General Allocator. </span></div><div><span><br/></span></div><div><span style="color:#000000;font-family:'Cambria',sans-serif;font-size:10pt;font-weight:400;line-height:112%">The source for this allocation basis are the Reports relating to Net O&amp;M, Net Plant and Net Margin. </span></div><div><span><br/></span></div><div><span><br/></span></div></td><td colspan="3" style="display:none"/></tr><tr style="height:68pt"><td colspan="3" style="display:none"/></tr><tr style="height:68pt"><td colspan="3" style="display:none"/></tr></table></div><div><span><br/></span></div><div style="text-align:justify"><span><br/></span></div><div style="text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:700;line-height:112%">Services Provided - Description and Allocation Methodology</span></div><div style="text-align:justify"><span><br/></span></div><div style="text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">The services provided include the following: </span></div><div style="text-align:justify"><span><br/></span></div><div style="padding-left:36pt;text-align:justify;text-indent:-18pt"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:104%">•</span><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:104%;padding-left:13.02pt">Operations – Activities include maintenance and construction, electric power plant operations, Management of Complex Construction Projects, Resource Planning and Response and Operations Performance activities.</span></div><div style="margin-top:15pt;text-align:justify"><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:700;line-height:112%">Manual Allocations</span></div><span style="color:#000000;font-family:'Calibri',sans-serif;font-size:10pt;font-weight:400;line-height:112%">There will be instances in which employees will choose to assign costs in a manner that is different from the allocation bases described above in order to ensure that costs are properly allocated among companies. To accomplish this requires a Manual Allocation. When employees choose to use a non-standard cost driver to allocate costs, the basis for that decision and the method used to allocate costs among companies should be thoroughly documented, approved by department supervision and sent to the Service Company Director in a timely manner for review.</span>


