Construction Work in Progress Policy Act of 1985

Construction Work in Progress Policy Act of 1985 - Amends the Federal Power Act to provide that nothing in such Act shall be construed to affect the Federal Energy Regulatory Commission's authority to approve the inclusion of the costs of construction work in progress (defined as construction of a facility used to generate electric energy) in the rate base of a public utility with respect to: (1) any pollution control facility; and (2) the conversion of oil or natural gas-fired facilities to the use of other fuels.

Permits a public utility whose internal generation of funds during a test period established by the Commission is 30 percent or less of planned construction expenditures during such period to apply for the inclusion of the cost of construction work in progress in the public utility's rate base. Sets forth the items required in such an application.

Requires the Commission to hold an evidentiary hearing upon receipt of an application from a public utility. Requires the Commission to approve the inclusion of the costs of construction work in progress in the utility's rate base if: (1) the facility being constructed is reasonably necessary to meet energy demands; and (2) the utility's financial condition would prevent the financing of such facility except at a cost significantly higher than the average cost of financing within the electric utility industry. Sets forth limitations on the amount of the costs of construction work in progress which may be included in a public utility's rate base.

Requires public utilities to discontinue the capitalization of allowance for funds used during construction for those construction work in progress costs which are included in the rate base.

Requires that revenues derived from construction work in progress be deferred from inclusion in utility rates for a certain period of time when the facility becomes used for public service.