Last week, Missouri governor Mike Kehoe signed into law a bill that packaged together dozens of reforms to utility regulations. Among them was a provision called “construction work in progress,” or CWIP, which allows power companies to bill their customers for the costs of building power plants during their construction phase, rather than after they are completed and generating electricity. The law repeals an earlier ban on CWIP passed via a ballot referendum that Missouri voters, concerned about the then-mounting costs of nuclear plants, initiated in 1976.

In states with traditional, vertically integrated energy markets, the utility companies that distribute electricity to homes and businesses also build the power plants that supply them. Their profit models are based on collecting a return on their capital investments at a fixed rate set by state commissions, paid for through customers’ electricity bills. 

Where CWIP comes in is in answering the question of when this money should be collected: during construction, or only after the project is “used and useful.”

Missouri’s new law appears to be part of a wave of similar policies passed or introduced in several state legislatures. Last month, the neighboring state of Arkansas passed a law that included a CWIP policy. Last year, Mississippi’s legislature passed a law that included CWIP-like provisions (though it didn’t use that name for the policy). Another law passed last year in Kansas allowed CWIP cost recovery for gas plants. And a bill currently moving through the North Carolina legislature expands the use of CWIP for new nuclear and natural gas plants.

The Missouri bill’s sponsors, Senator Mike Cierpiot and Representative Josh Hurlbert, justified the CWIP provisions in interviews with The Beacon, a Kansas City nonprofit outlet, on the basis that it didn’t apply to nuclear plants, but only to gas generation — and therefore would be less risky. Hurlbert said CWIP “is not going to be used on anything nuclear like we’ve seen with some projects in Georgia and South Carolina,” even though the language of the bill leaves room for the possibility of a nuclear plant being financed by CWIP under certain conditions.

Cierpiot told The Beacon that a clawback provision in the bill, under which cancellation of a plant forces the companies to pay back customers with interest, disincentivized CWIP’s use for nuclear energy. “That’s fine for gas turbines, because gas turbines don’t get canceled,” he said. “But for a nuclear plant, if they spend four or five billion dollars on a nuclear plant and then they cancel it, all that money is coming back to the consumers. I think that means no company is going to take that risk with the clawbacks we have.”

The argument is sometimes made in favor of CWIP that, if all goes well, charging ratepayers for the cost of building a power plant during its construction saves them money in the long run, because it avoids a scenario in which customers have to pay loan interest if the rate increases are deferred until project completion. Opponents of CWIP policies counter that even if the financing structure reduces costs in the scenario when all goes well, it simultaneously gives power companies enough guaranteed capital to make riskier choices about planning and spending. Under CWIP agreements, customers not only pay for the costs of construction, but also insure utility companies against the risk of delays or cancellations.

CWIP laws first emerged in the 1970s, during a period in which utility companies made the case to legislatures that they needed an alternative model of financing in order to contend with then-rising costs of power-plant construction and predicted growth in power demand, said Ari Peskoe, an expert in electricity law at Harvard Law School. “And then it turned out that the demand just didn’t materialize, for a number of reasons. Electricity demand was increasing like 8 to 10 percent a year, and then it went down to like 3 percent a year.”

This put states where nuclear projects broke ground and then were abandoned in the position of having to answer the difficult question of whether to charge ratepayers for the incomplete work. Those states where CWIP laws had been passed, however, were in a different position: “If you already had CWIP, if you had already been collecting a significant amount of these costs, it changes the calculus, because now ratepayers aren’t going to get that money back. They’ve already paid the billion dollars,” Peskoe said.

A subsequent wave of CWIP policies occurred in the early 2000s. A 2017 investigation by The Post and Courier found that CWIP and similar policies passed in 11 states “ignited a bonfire of risky spending” and financed three of the last decade’s most spectacular energy boondoggles: the Kemper Project, a failed $7.5 billion “clean coal” facility in Mississippi; the V.C. Summer expansion project, a failed $9 billion nuclear plant in South Carolina; and Units 3 and 4 at Plant Vogtle — a pair of nuclear reactors in Georgia which did actually get built, but seven years past their deadline and $17 billion over their original budget.

When a CWIP-financed project goes south, ratepayers have little practical guarantee that they can get their money back, said Daniel Tait, a researcher at the Energy and Policy Institute. “In the case of Mississippi, with Kemper, they did end up taking that money back and charging shareholders, only after lawsuits basically documenting fraud. V.C. Summer did not; even though people went to jail for fraud, customers are still paying for that to this day in South Carolina,” Tait said.

Amid the current crop of CWIP bills, all in Republican-dominated legislatures, one state provides something of a cautionary tale: A bill in the Ohio legislature aims to reverse a prior CWIP policy. The bill comes in the wake of a massive utility bribery scandal that landed the former speaker of the Ohio House of Representatives in prison.

Audits of the bribes paid to politicians in that scandal found that the power company FirstEnergy “capitalized a portion of this money as construction work in progress, even though it had nothing to do with building things,” said Dave Anderson, a researcher at the Energy and Policy Institute. “And it’s kind of still sitting on their books, waiting to be potentially collected from rate payers.”

Some of the recent CWIP bills are more protective of ratepayers than others, and they apply to different generation methods. But despite their differences, all of the bills come at a time when America’s electricity demand is projected to grow dramatically over the next few years because of the expansion of AI. Many states are competing to lure data centers with tax breaks (and with policies like CWIP), while others have so many data centers already planning to break ground that they are desperately augmenting their states’ power grids to accommodate the demand that utilities say is coming.

Crucially, though, there is significant uncertainty around the amount of load growth that will actually materialize from AI. Power companies have limited insight into how much more electricity generation they will actually need to build for, and if they overshoot or undershoot, someone will be stuck with the bill. Who pays for the risk of such a costly error is a consequential question.

“If you have a bunch of prospective load growth, there’s risk on two fronts: One, that it shows up and you’re using mechanisms like CWIP that essentially use captive ratepayers as the piggy bank for the benefit of others that are not paying their fair share,” said Tait, citing the example of a Meta data center in Louisiana whose costs advocates have raised concerns are being passed on to Entergy ratepayers. “The second is, what happens if the load doesn’t show up, the customers have already paid for it, and there’s no way out?”

CWIP policies could also lock in plans that some environmental advocates say might not be the best way to meet growth in electricity demand. “From an environmental standpoint, we want to have flexibility,” said Joshua Basseches, a professor at Tulane University who studies state-level energy and climate policy. “We don’t want just gas plants; we want to have microgrids and demand response and batteries and all this other stuff. But once you pass CWIP and then you start collecting for a plant that isn’t yet operative, it sort of forecloses other possibilities to meet that load in other ways.”

Those other possibilities would also be less profitable for power companies than the mere construction of capital-intensive power plants of the sort that are incentivized by CWIP policies. And to many observers, these industry-friendly bills are no surprise in light of those companies’ vast political and lobbying power in their respective states. Missouri’s governor has received some $400,000 in campaign donations from utility companies, according to an Energy and Policy Institute analysis. And the legislator who sponsored North Carolina’s CWIP bill, which passed the state senate shortly before his retirement, is a former executive at Duke Energy.