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Construction Work in Progress (CWIP)

New major treatment facilities or development of long-term sources of supply may take a number of years before they become operational. Typically, these costs have been accounted for in one of two ways the use of CWIP in ratebase or Allowance for Funds Used During Construction (AFUDC). In a rising cost, capital-intensive industry, the use of CWIP should be recognized as a "Best Practice." The major reasons are that the AFDUC does not provide any current cash flow to the utility to fund a major project, thereby adversely affecting the company's financial condition; it ultimately and substantially increases the cost to customers due to the accumulation of carrying charges on invested capital which are ultimately rate based when the project becomes used and useful; and it can result in rate shock. CWIP mitigates these negative impacts.

This PDF is a 50-state survey regarding the practice of individual commissions on CWIP.

State Utility Regulation

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