Pragmatic approach to construction work in progress

Journal Article · Thu Mar 03 04:00:00 EST 1977 · Public Util. Fortn.; (United States)

OSTI ID:7306128

Mattutat, E C

A number of factors are involved when a decision is made to include costs of construction work in progress (CWIP) in a public utility's rate base, with primary consideration given to the regulated industry's net cost of money and the ratepayer's alternative opportunities for investment. Relative benefits to the parties vary, but present conditions are shown to benefit both. An allowance for funds used during construction (AFUDC) can be claimed by companies not permitted to include CWIP in their rate base, with reimbursement on either a current or life-time basis. Either way is beneficial so long as construction is completed in one year. Beyond that point costs must be compounded at a net cost-of-money rate. AFUDC costs are beneficial only if the ratepayers can invest their funds elsewhere at a higher return. If CWIP is included in the rates there can be a more gradual increase in rates rather than a less-desirable drastic jump after construction is completed. Other advantages include improvement in cash flow, quality of earnings, coverages, and bond ratings, as well as lower financing requirements and the possibility of reduced property taxes. (DCK)

• Research Organization: Stone and Webster Management Consultants, Inc., New York
• OSTI ID: 7306128
• Journal Information: Public Util. Fortn.; (United States), Journal Name: Public Util. Fortn.; (United States) Vol. 99:5; ISSN PUFNA
• Country of Publication: United States
• Language: English

Related Subjects

20 FOSSIL-FUELED POWER PLANTS
200106 -- Fossil-Fueled Power Plants-- Economics
29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
296000 -- Energy Planning & Policy-- Electric Power
ACCOUNTING
CAPITAL
CHARGES
CONSTRUCTION
COST
ECONOMIC IMPACT
ECONOMICS
FINANCIAL INCENTIVES
FINANCING
INCOME
INVESTMENT
MANAGEMENT
PROFITS
PUBLIC UTILITIES
REGULATIONS
TAXES