Study of the treatment of construction work in progress and tax-timing differences for rate-making purposes in the electric utility industry

Technical Report · Fri Mar 25 04:00:00 EST 1977

OSTI ID:6381729

A study encompassing a background analysis of the effects of the inclusion of Construction Work in Progress (CWIP) in the rate base and normalization of all income-tax costs of the electric utility industry is presented. These effects would be in relation to consumers of electricity, the investor-owned electric utilities, bondholders, stockholders, and the public. The study begins with a review of the construction requirements of the industry during recent years and as projected by the industry for the next ten years (Section I) and an analysis of the problems facing the industry in financing these requirements (Section II). Each of these two rate-making concepts were analyzed and compared to other possible concepts as a means of determining the effect of each on consumers, investors, and the public. The analysis of the rate-making concept of including CWIP in the rate base is summarized in Section III. Section IV summarizes the analysis of the rate-making concept of full normalization of income taxes. Section V presents a bibliography of books, articles, speeches, Regulatory Commission orders, public testimony, and other sources of information reviewed. Section VI contains the report and independent conclusions of Duff and Phelps, Inc. They conclude that large construction investments increase the cost of capital but such cost could be avoided to the extent of 30 to 70 basis points if CWIP were included in rate base in contrast to excluding it from the rate base and capitalizing the allowance for funds used during construction. It was also their opinion that the overall cost of capital to a utility could be reduced 25 to 50 basis points if full-normalization accounting were utilized for rate-making purposes in contrast to flow-through accounting for income-tax costs.

• Research Organization: Andersen (Arthur) and Co., Washington, DC (USA)
• OSTI ID: 6381729
• Report Number(s): TID-28900
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
296000* -- Energy Planning & Policy-- Electric Power
ACCOUNTING
AFUDC
CAPITAL
COMPARATIVE EVALUATIONS
CONSTRUCTION
CWIP
DEMAND FACTORS
ECONOMIC ANALYSIS
ECONOMIC IMPACT
ECONOMICS
ELECTRIC UTILITIES
FINANCING
INCOME
MANAGEMENT
PUBLIC UTILITIES
RATE STRUCTURE
TAXES