July 2020 FERC guidance on AFUDC

Key highlights for utility and energy companies

As the US economy has shut down due to the COVID-19 pandemic, regulated utility and energy companies face potential short-term cash flow constraints. These result from a combination of decreased customer demand, delayed collections and bad debts due to moratoriums or service cut-offs. Because of this, regulated entities are looking to improve their liquidity and financing flexibility by taking steps such as issuing short-term debt.

All else being equal, the larger the short-term debt balance, the lower the amount of recorded Allowance for Funds used during Construction (AFUDC). Because of this correlation, the Edison Electric Institute, the American Gas Association and the Interstate Natural Gas Association of America requested the Federal Energy Regulatory Commission (FERC) to temporarily modify its AFUDC formula such that utilities will not be penalized for their short-term borrowings.

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Richard Call

US Energy, Utilities & Mining Partner, PwC US

Mark Panza

US Energy, Utilities & Mining Managing Director, PwC US

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