Construction work in progress (CWIP)

Construction work in progress, commonly called CWIP, is a balance sheet account in which all costs associated with the construction of new utility facilities are recorded until these facilities are placed in service. Because utilities are generally not allowed to begin recovery of the costs of capital projects until they are placed into service, they must have a mechanism to track both the direct cost of a construction project as well as the financing costs necessary to pay for the project until they can be recovered. 

Costs included in CWIP accounts include:

  • Direct costs, which are capital expenditures directly related and chargeable to the specific job; these include labor, materials, supplies, and contract services
  • Indirect costs, which are expenditures related to but not directly chargeable to a specific job including payroll taxes, retirement plans, transportation, and equipment costs
  • Overhead costs, which are other costs related but not directly chargeable to a project including administrative expenses, engineering, and the costs of funds used to finance the project during the construction period

When utilities are involved in construction of large projects, large balances in CWIP accounts can result in serious cash flow issues. To address this issue, some regulators allow utilities to include some or all of CWIP in rates prior to completing the project. Other regulators require project completion before CWIP can be recovered in rates.