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.