SHARED SERVICES

INTRODUCTION:

Peterborough Distribution Inc (PDI) is an “asset” organization that receives 100% of its employment and services from Peterborough Utilities Services Inc. (PUSI). PUSI provides similar services to the following organizations:

  1. City of Peterborough Holdings Inc. (COPHI)
  2. Peterborough Utilities Services Inc. (PUSI)
  3. The Peterborough Call Centre Inc. (TPCCI)
  4. Peterborough Utilities Inc. (PUI)
  5. Campbellford-Seymour Electric Generation Inc. (CSEGI)
  6. Peterborough Distribution Inc. (PDI)
  7. Lakefield Distribution Inc. (LDI)
  8. Asphodel-Norwood Distribution Inc. (ANDI)
  9. Peterborough Utilities Commission (PUC)

OVERVIEW & HISTORY:

In 1999 PUSI engaged Corporate Renaissance Group to assist in developing an activity based costing / shared services costing methodology to

·  Ensure transactions between the associated companies are at cost

·  Ensure there is no cross subsidization amongst the associated companies

·  Determine, based upon PUSI’s accounting policies, the appropriate overhead rates to apply for direct and indirect costs which support the various activities to achieve proper costing.

·  Determine a method of allocating departmental support costs from PUSI

Our first objective was to “label” the departments as support or operating and then to identify the flow of activities from support to operating and operating to the associated companies. Our model has been designed to allocate costs by using a systematic hierarchal process as demonstrated below.

Shared Services / Mix / Operating /

Company

Corporate / Engineering / Electric Distribution / COPHI
Finance / Stores / Water Distribution / PUSI
PTS – IT Services / Water Treatment / TPCC
Customer Service / Customer Service Tech / PUI
Regulatory Compliance / Riverview Park & Zoo / CSEGI
Business Development / Meter Technical / PDI
Human Resources / PUSI Enterprises / LDI
Purchasing / Electricity Generation / ANDI

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PETERBOROUGH DISTRIBUTION INC. 2

The next step was to identify the sub components of the various shared services and the identification of the appropriate cost drivers for these activities. Examples of some cost drivers are:

  1. Number of invoices process
  2. Number of cheques generated
  3. Number of general ledger adjustments
  4. Number of purchase requisitions generated
  5. Number of purchase requests generated
  6. labour hours

All departments use a job cost (jc) system to monitor direct costs such as labour, equipment, material and outside purchases for each activity. The jc system also accumulates the accomplishment units for every task which enables us to upload the data as cost drivers into the ABC system. The ABC system uses the cost drivers and financial data to determine the value and level of support services that should be allocated to the activities of each company resulting in detailed and accurate results.

Operating departments direct charge time and material to an associated companies jc at cost. The ABC system determines the level of shared service amounts that is attributable to each operating department. These values are then allocated directly to an associated company based upon the operating departments direct activities as illustrated below.

Finance

Actual 27%

$408,000 $110,160

Finance Electric Operations PDI – 80%, $88,128

ANDI – 2%, $2,203

LDI - 5%, $5,508

PUSI - 12%, $13,219

PUI - 1%, $1,102

Shared service costs are expensed until year-end upon which time a study is performed to determine the level of support received from PUSI and the mix of the support. Typically 50% of the labour hours charged to PDI are for capital activities and therefore 50% of the shared service costs are capitalized back to the various capital programs. This approach has been reviewed and approved by our auditors, Collins Barrow Chartered Accountants. We have adopted for 2005 a capital overhead rate.

When setting up the shared services concept PUSI and it’s affiliates considered the following factors:

  1. Analysis of “true costs” is a complex, but important challenge
  2. The cost/benefit of generating efficiencies through the consolidation of internal services.
  3. The services required
  4. Drivers based upon cost causality
  5. Overall benefit to the ratepayer

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