Utility agenda: Construction Work in Progress (CWIP)

Wed, 06/13/2012 - 14:41

Construction Work In Progress (CWIP) lets utilities charge ratepayers for the cost of financing new power plants during construction, before they are completed and providing electricity.

Under former law, utilities could not collect CWIP during power plant construction. They were only allowed to charge customers for the costs of plants that were “used and useful,” i.e. actually in service and producing electricity reasonably required to meet the needs of customers for reliable service.

Senate Bill 29, passed in 2002, allowed utilities to charge CWIP during the construction of coal-fired power plants.

Indiana’s first run-in with CWIP was in the late 1970s when PSI saw costs of their ill-fated Marble Hill nuclear plant skyrocket, and Wall Street investors shied away from the problem-plagued, high cost project. Desperately reaching for a way to afford the plant construction, they lobbied for CWIP at the General Assembly, but their efforts failed and their bills defeated in 1979, 1980 and 1982.

CWIP made its way back to the legislative agenda a decade later for the same reason: utilities wanted to build power plants that Wall Street was reluctant to finance.

Utilities know that in a competitive marketplace, businesses have to keep their costs under control. Passing on unnecessary or excessive costs to customers is bad business. In a regulated monopoly setting, utilities are already insulated from that kind of marketplace discipline. CWIP lets utilities avoid the process of using stockholder dollars and taking out loans to build power plants, and also lets them avoid the wait to collect their investments after plant construction. That’s how things worked before CWIP.

While utilities love CWIP, its effect on consumers is much less of a boon. CWIP converts consumers into involuntary investors, placing the burden of up front financing costs onto them. The costs end up on their bills sooner, before they ever receive electricity from the plant in question, and there is little recourse should the costs skyrocket or the project be abandoned.

CWIP allows utilities to use ratepayers as captive, up-front investors, giving them no incentive to keep costs low or pursue other means of fulfilling their mission other than expensive power plants. It’s a sweet deal for utilities and their stockholders, but a raw deal for energy consumers.

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