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Cost management in the Utility Industry

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Capital Cost and Planning Portfolios PSEG

I am a passionate Energy Professional, focused on the Cost and Financing side of Energy and Utility. I like to learn about and contribute to Bridging industries towards cleaner energy, Nuclear,...

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Over the last century, electricity and clean energy have been at the forefront of U.S. priorities in meeting the public's energy needs. In each state, many companies provide energy under regulations issued by local state and government commissions. In New Jersey, power companies operate through the PJM interconnections (Pennsylvania, Jersey, and Massachusetts) [1] and are regulated by the Federal Energy Regulatory Commission (FERC) [2].

Local Jersey companies are extending capital throughout PJM with plans to carry out reliability projects, in order to better supply customers with electricity. The capital expenditures of local companies are in turn incorporated into the application for an increase in the base rate per $/kW.h (kilowatt.hour) that is charged to customers with the best electricity [1]. In this article, we will understand in more detail the important role of the cost engineer in such an industry.

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Matt Chester's picture
Matt Chester on Apr 26, 2021

In other words, when the utility invests in projects, it most likely uses borrowed money, using loans and corporate bonds that will incur interest and fees. Typically, these financing costs can be written off as capital expenditures in addition to the CWIP. These fees and interests represent a common term in this industry, Allowed Funds used during Construction (AFUDC).

Does the positioning of a utility as a public good influence what can be accomplished here-- for example, are the loan rates they're given better because banks don't expect any sort of utility failure. Or their positioning as monopolies / quasi-government entities, etc.? 

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