(a) The cost of construction property includible in the water plant accounts shall include, where applicable, the direct and overhead costs as listed and defined hereunder:

1. (1) Contract work includes amounts paid for work performed under contract by other companies, firms, or individuals, costs incident to the award of such contracts, and the inspection of such work.
2. (2) Labor includes the pay and expenses of employees of the utility engaged on construction work, and related workmen's compensation insurance, payroll taxes and similar items of expense. It does not include the pay and expenses of employees which are distributed to construction through clearing accounts nor the pay and expenses included in other items hereunder.

3. (3) Materials and supplies includes the purchase price at the point of free delivery plus customs duties, excise taxes, the cost of inspection, loading and transportation, the related stores expenses, and the cost of fabricated materials from the utility's shop. In determining the cost of materials and supplies used for construction, proper allowance shall be made for unused materials and suppies, for materials recovered from temporary structures used in performing the work involved and for discounts allowed and realized in the purchase of materials and supplies.

   Note:

   The cost of individual items of equipment of small value (for example, $200 or less) or of short life, including small portable tools and implements, shall not be charged to water plant accounts unless the correctness of the accounting therefor is verified by current inventories. The cost shall be charged to the appropriate operating expense or clearing accounts, according to the use of such items, or, if such items are consumed directly in construction work, the cost shall be included as part of the cost of the construction.

4. (4) Transportation includes the cost of transporting employees, materials and supplies, tools, purchased equipment, and other work equipment (when not under own power) to and from points of construction. It includes amounts paid to others as well as the cost of operating the utility's own transportation equipment. (See paragraph [5] of this subdivision.)
5. (5) Special machine service includes the cost of labor (optional), materials and supplies, depreciation, and other expenses incurred in the maintenance, operation and use of special machines, such as steam shovels, pile drivers, derricks, ditchers, scrapers, material unloaders, and other labor-saving machines; also expenditures for rental, maintenance and operation of machines of others. It does not include the cost of small tools and other individual items of small value or short life which are included in the cost of materials and supplies. (See paragraph [3] of this subdivision.) When a particular construction job requires the use for an extended period of time of special machines, transportation or other equipment, the net book cost thereof, less the appraised or salvage value at time of release from the job, shall be included in the cost of construction.
6. (6) Shop service includes the proportion of the expense of the utility's shop department assignable to construction work, except that the cost of fabricated materials from the utility's shop shall be included in “materials and supplies”.
7. (7) Protection includes the cost of protecting the utility's property from fire or other casualties and the cost of preventing damages to others, or to the property of others, including payments for discovery or extinguishment of fires, cost of apprehending and prosecuting incendiaries, witness fees in relation thereto, amounts paid to municipalities and others for fire protection, and other analogous items of expenditures in connection with construction work.
8. (8) Injuries and damages includes expenditures or losses in connection with the construction work on account of injuries to persons and damages to the property of others; also the cost of investigation of and defense against actions for such injuries and damages. Insurance recovered or recoverable on account of compensation paid for injuries to persons incident to construction shall be credited to the account or accounts to which such compensation is charged. Insurance recovered or recoverable on account of property damages incident to construction shall be credited to the account or accounts charged with the cost of the damages.
9. (9) Privileges and permits includes payments for and expenses incurred in securing temporary privileges; permits or rights in connection with construction work, such as for the use of private or public property, streets or highways, but it does not include rents, or amounts chargeable as franchises and consents, for which see account 302, Franchises and Consents.
10. (10) Rents includes amounts paid for the use of construction quarters and office space occupied by construction forces, and amounts properly includible in construction costs for such facilities jointly used.
11. (11) Engineering and supervision includes the portion of the pay and expenses of engineers, surveyors, draftsmen, inspectors, superintendents and their assistants applicable to construction work.
12. (12) General administration capitalized includes the portion of the pay and expenses of the general officers and administrative and general expenses applicable to construction work.
13. (13) Engineering services includes amounts paid to other companies, firms or individuals engaged by the utility to plan, design, prepare estimates, supervise, inspect, or give general advice and assistance in connection with construction work.
14. (14) Insurance includes premiums paid or amounts provided or reserved as self-insurance for the protection against loss and damages in connection with construction, by fire or other casualty, injury to or death of persons other than employees, damages to property of others, defalcation of employees and agents, and the nonperformance of contractual obligations of others. It does not include workers' compensation or similar insurance on employees included as “labor” in paragraph (2) of this subdivision.
15. (15) Law expenditures includes the general law expenditures incurred in connection with construction and the court and legal costs directly related thereto, other than law expenses included in protection, paragraph (7) of this subdivision, and in injuries and damages, paragraph (8) of this subdivision.
16. (16) Taxes includes taxes on physical property (including land) during the period of construction and other taxes properly includible in construction costs before the facilities become available for service. The period for which taxes may be capitalized shall be limited to the period of construction. (See provisions set forth in paragraph [17] of this subdivision, Allowance for funds used during construction, which may be applicable, as appropriate, to this paragraph.)

17. (17) Allowance for funds used during construction.

    1. (i) Allowance for funds used during construction includes the net cost of borrowed funds used for construction purposes and a reasonable rate upon the utility's own funds when so used. No allowance-for-funds-used-during-construction charges shall be included in these accounts upon expenditures for construction projects which have been abandoned. Allowance for funds used during construction shall be charged to the individual job upon which the funds are expended and shall be credited to account 419.1, Allowance for Funds Used During Construction.

    2. (ii) The period for which an allowance for funds used may be capitalized shall be limited to the period of construction. The period of construction shall extend from the date of commencement of construction to the time when property is ready for service, and shall also include any reasonable and necessary period during which the property is held for future service. No allowance for funds used should be accrued during periods of interrupted construction, unless the company can justify the interruption as being reasonable under the circumstances.

       Note applicable to paragraphs (16) and (17 of this subdivision): When a part only of a plant or project is placed in operation or is completed and ready for service, but the construction work as a whole is incomplete, that part of the cost of property placed in operation, or ready for service, shall be treated as “Water Plant in Service”, and allowance for funds used and taxes thereon as charges to construction shall cease. Allowance for funds used and taxes on that part of the cost of the plant which is incomplete may be continued as charges to construction until such time as it is placed in operation or is ready for service, except as limited by provisions of paragraphs (16) and (17) of this subdivision.

18. (18) Earnings and expenses during construction includes:

    1. (i) all revenues derived during the construction period from property which is included in the cost of a project under construction; and

    2. (ii) all expenses which are attributable to the revenues received.

       1. (a) The earnings shall include revenues received or earned for water produced by plants during the construction period and sold or used by the utility. When such water is sold to an independent purchaser before intermingling with water from other plants, the credit shall consist of the selling price of the water. When the water from a plant under construction is delivered to the utility's water system for distribution and sale, or is delivered to an associated company, or is delivered to and used by the utility for purposes other than distribution and sale (for manufacturing or industrial use, for example), the credit shall be the fair value of the water so delivered. The revenues shall also include rentals for lands, buildings, etc., and miscellaneous receipts not properly includible in other accounts.
       2. (b) The expenses shall consist of the cost of operating the water plant, and other costs incident to the production and delivery of the water for which construction is credited under clause (a) of this subparagraph, including the cost of repairs and other expenses (but not taxes) of operating and maintaining lands, buildings and other property, and other miscellaneous and like expenses not properly includible in other accounts.