New Report: The Hidden Tax on Your Power Bill 

How regulators let utilities bill customers for unfinished projects

NEW YORK, NY – As data centers and AI demand more electricity, Americans are picking up the tab. How? A regulatory mechanism known as Construction Work in Progress (CWIP) allows utilities, with approval from state commissions or the Federal Energy Regulatory Commission (FERC), to charge customers for major projects while they are still under construction. Consequently, Americans are increasingly paying for power plants and transmission lines before they ever deliver electricity.  

In a new issue brief, professors Eric Olson of University of Tulsa, Jack Dorminey of West Virginia University, and Jason Walter of University of Tulsa explain how CWIP works and why it can drive up household energy bills. When CWIP is included in the “rate base” — the set of assets on which utilities earn guaranteed returns — customers effectively become involuntary financiers, covering construction costs years before receiving any service. The brief reviews a century of evidence showing that early cost recovery encourages overspending and delays. 

Fortunately, it doesn’t have to be this way. The authors contrast CWIP with the traditional Allowance for Funds Used During Construction (AFUDC) approach, under which utilities bear construction risk and begin recovering costs only once projects are operational. Projects like the Mountain Valley Pipeline and Florida Power & Light’s Port Everglades plant are proof major infrastructure can be built without shifting risk to ratepayers.   

To replicate this success, the authors recommend: 

• Tightening or phasing out CWIP by tying returns to on-time, on-budget performance; 

• Adopting automatic refund (“clawback”) provisions for canceled or over-budget projects; 

• Capping CWIP eligibility; 

• Enabling off-grid options for large electricity users; 

• Restoring AFUDC as the default model.   

Click here to read the full issue brief.