This document, produced in 1992 by RAP’s Jim Lazar for the Arizona Corporation Commission, provides the basis for “Dividing the Pie: Cost Allocation, the First Step in the Rate Design Process,” Appendix A of “Smart Rate Design for a Smart Future.” It explores the fundamentals of embedded cost of service analysis and the classification and allocation of production plant, transmission and distribution plant, and expenses. These concepts are then applied to a cost of service study performed by Tucson Electric Power Company.