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Letters to the Editor

Fortnightly Magazine - December 2011

those data were.

It would help if American nuclear power plants became major tourist attractions as plants have in France, where there is far less fear and less political opposition to nuclear power. Sadly, based on more than 50 years of experience in the U.S., it appears that nuclear power will continue carrying the weight of this distinctive psychology as one of the costs—perhaps the largest cost—of doing business.

— Robert DuPont, Clinical Professor of Psychiatry Georgetown University School of Medicine

 

Lower Costs Through CWIP

In “Updating the Utility Compact ,” (September 2011, p.50) David K. Owens discusses CWIP [construction work in progress] in rate base, noting its enhancement of cash flow and its decreases to the cost of capital and to rate shock. Not mentioned is that collecting costs for financing new assets as the assets are being constructed—by including CWIP in rate base—benefits ratepayers by charging them less.

This situation is a consequence of CWIP being in rate base during a construction period that is typically much shorter than is the asset’s operating lifetime. Each dollar of financing cost is collected from ratepayers, whether CWIP is in rate base or not. However, when CWIP isn’t included in rate case, the financing cost is added to the investment and ratepayers pay for return and related income taxes over the operating lifetime until the financing cost has been recovered. The typically long lifetime of utility assets causes the payment for return and related income taxes to be substantially larger than the financing cost.

Therefore, not allowing CWIP in rate base can be thought of as forcing ratepayers to bear the financing cost multiple times. 

— John Ferguson, CDP Richardson, Texas

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