Study of the Treatment of Construction Work in Progress and Tax-Timing Differences for Rate-Making Purposes in the Electric Utility Industry

摘要

A study was prepared encompassing a background analysis of the effects of the inclusion of Construction Work in Progress in the rate base and normalization of all income tax costs of the electric utility industry. These effects are in relation to consumers of electricity, the investor owned electric utilities, bondholders, stockholders, and the public as a whole. Section I is a review of the construction requirements of the industry during recent years and as projected by the industry for the next 10 years and Section II is an analysis of the problems facing the industry in financing these requirements. An analysis of the rate making concept of including CWIP in the rate is given in Section III while an analysis of the rate making concept of full normalization of income taxes is given in Section IV. Section V presents a bibliography of books, articles, speeches and presentations, regulatory commission orders, public testimony, and other sources of information which were reviewed. The final section contains the report and independent conclusions of Duff and Phelps, Inc., utility financial analysts, who were retained to review these matters from the viewpoint of investors in electric utility securities. They conclude that large construction investments increase the cost of capital but such cost could be avoided to the extend of 30 to 70 basis points if CWIP were included in rate base in constrast to excluding it from the rate base and capitalizing AFUDC. (ERA citation 04:050222)