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Section 3 <br /> - 10 - <br /> <br />Allocation of Costs <br />Based on an analysis of customer class service characteristics, the classified costs <br />summarized above were allocated to the major ERMU customer classes. <br />Allocation of costs was performed on a fully-distributed, embedded cost allocation <br />basis. Specific allocation factors were utilized in each of the cost classification <br />categories as described below. Exhibit 3-E contains a summary of the <br />development of the various allocation factors. <br />Demand Allocations <br />Customer class demands on a system can be reflected in various ways. Two <br />primary demand allocation types were utilized in this analysis. Coincident peaks <br />(‘CP’) represent a class’ share of the overall system peak. A 12 CP method, <br />reflecting each class’ estimated contribution to each month’s system peak, was <br />employed for allocating the power supply demand portion of the wholesale <br />purchased power and production expenses. Non-coincident peaks reflect a class <br />maximum demand regardless of when it occurs. The non-coincident peak is an <br />indication of the amount of fixed local system required to serve individual groups <br />of customers. A 1 NCP method, an estimate of each class’ maximum annual <br />demand on the system, was utilized for allocating local system demand related <br />costs. <br />Energy Allocations <br />Each class’ share of energy requirements was used to allocate energy related <br />costs. The predominant energy related costs are the energy portions of the <br />purchased power and local generation expenses.