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conduits were added.
Qwest’s incremental cost allocation method is described as
follows: (1) Qwest allocated to the customer contracts what it
determined to be direct costs associated with those contracts;
(2) Qwest allocated to its retained assets what it determined to
be the direct costs associated with its retained conduits and
fibers; and (3) Qwest allocated what it determined to be indirect
costs incrementally between the customer contracts and its
retained assets. The incremental cost allocation method was used
for both the conduit installation projects and the IRU projects,
but the method varied slightly.
A. Incremental Cost Allocation Method in the Conduit
Installation Projects
To determine what costs should be allocated to Qwest’s
retained conduits in the conduit installation projects, Qwest
developed an incremental base rate. By evaluating Qwest’s
construction costs, Senior Vice President for Construction Daniel
O’Callaghan (Mr. O’Callaghan) and Qwest Assistant Vice President
Ronald Pearce (Mr. Pearce) determined that an incremental base
rate of $6,019 per conduit mile should be utilized. The
incremental base rate included: (1) $2,376 for conduit material,
assuming a cost to Qwest of 45 cents per foot; (2) $370 for other
material related to installation; (3) $2,640 for labor
attributable to the installation of the additional conduit; (4)
$581 for equipment costs; and (5) $53 for overhead. The
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