UP 12.2 discusses key considerations in accounting for plant construction, including capitalization of interest and other costs. In addition to considering that guidance, a regulated utility may have unique considerations in developing capitalization policies because regulators often permit recovery of costs that would otherwise be charged to expense. Regulated utilities generally capitalize the costs of developing and constructing a plant based on their expectation of regulatory recovery.

Only those incurred costs that are probable of recovery through future rates should be capitalized as part of utility plant (construction work in progress). Examples of expenses that regulated utilities may be able to recover that would otherwise be charged to expense include amounts relating to feasibility and engineering studies, contract negotiations, license applications, and related legal costs, along with the costs of engineering, planning and construction, operations and maintenance, financing, power purchase agreements, and other similar preconstruction and development costs. Factors to consider in determining whether these amounts should be capitalized are similar to those used to evaluate regulatory assets in general (see UP 17.3).