Allowance for Funds Used During Construction
“How can utilities be compensated for costs incurred while building new facilities?”
Utilities spend money to create new facilities all the time. However, these processes can be very expensive and will not produce a return until the asset is completed. So what can we do to ensure that utilities earn enough return to keep operations going? Well, what if we were to compensate a utility for the amount of loans and equity they use to create the project and multiply it by the amount spent during construction monthly? Well, this concept is called Allowance for Funds Used During Construction and is applied to utilities to make sure that they are able to complete projects on time.