What construction work in progress really means for Wisconsin ratepayers

By Bill Marsan, ATC executive vice president and general counsel

CWIP is often misunderstood, but it plays a key role in financing transmission projects that support growth while managing long-term costs.

Oklahoma residents hundreds of miles away certainly have a special interest in Wisconsin utility ratemaking. We welcome the opportunity to better inform them and their patrons about the equities of utility finance and what Wisconsin is doing to make the AI revolution work for everyone.

ATC uses an accounting practice known as Construction Work in Progress (CWIP) in financing new transmission projects. University of Tulsa professors Walter and Olson claim this practice is equivalent to paying your neighbor's mortgage and waiting a decade to get paid back. They have the wrong construction analogy.

CWIP is more like how you pay for an addition on your house. The contractor often gets a third of the payment upon signing of the contract, a third when construction begins, and a third when the job is finished. Technically, you don't have a product when you make the first two payments, other than the contractor's legal obligation to finish the job. With CWIP, consumers do start to pay for transmission infrastructure before construction is complete, but they ultimately pay less in rates once the project is in service.

In utility finance, the alternative to CWIP is Allowance for Funds Used During Construction (AFUDC), where the utility carries the costs of debt and equity used for construction on its books until the project is in service, then recovers those costs in rates. With AFUDC, consumers pay less in the beginning and more in rates once the project is complete.

Each method has merit. Using CWIP helps ATC keep our interest rates for debt lower (directly benefiting consumers) and better spreads out costs for all consumers over the life of the project. 

The more pressing issue is how the rapid development of data centers impacts overall rates for consumers. ATC is working with the local distribution companies to ensure that the data centers pay all construction costs that can be reasonably allocated to them, while recognizing that the transmission build out to serve data centers is likely to provide better service and lower rates for all customers over time.

ATC is committed to providing outstanding service and value to Wisconsin consumers. There is no inherent conflict between the interests of Wisconsin consumers and the development of data centers in our state so long as utilities, data center operators and regulators work together to make the rules fit the moment.

ATC is a Wisconsin-based company that moves energy along the regional electric grid in parts of Wisconsin, Michigan, Minnesota and Illinois, serving more than 5 million electric consumers. We are experts at what we do: planning, maintaining, operating and protecting the grid. As the electric industry moves toward renewable generation sources, we are transforming our system to continue delivering energy reliably and safely. We proudly support STEM education programs that empower youth with the skills needed to succeed in tomorrow's energy workforce. For more information, visit www.atcllc.com