Allowance for Funds Used During Construction (AFUDC)

A component of construction costs representing the net cost of borrowed funds and a reasonable rate on other funds used during the period of construction. AFUDC is capitalized until the project is placed in operation by concurrent credits to the income statement and charges to utility plant, based generally on the amount expended to date on the particular project. Effective Jan. 1, 1977, FERC amended the Uniform System of Accounts establishing formulas for maximum allowable AFUDC rates.