A disallowance, also called a regulatory disallowance or cost disallowance, is an investor-owned utility expenditure that regulators do not allow to be included in rates. Disallowances may apply to expenses or capital expenditures. The result is that the expenditure must be paid by shareholders and is not recoverable in a future rate cycle. Disallowances can occur due to after-the-fact prudency reviews by regulators, or it may occur due to cost overruns on projects that are approved up to a cost cap. The risk of regulatory disallowances is, in some cases, one of the bigger risks for a large investor-owned utility. Utilities typically attempt to work closely with their regulator to understand what types of expenditures may be at risk of disallowance and, if possible, to obtain pre-approval for major expenditures. Utilities also focus on documenting reasons for spending money so that they can be justified. Even so, investor-owned utilities are at risk of having costs disallowed after the money has been spent if a review by regulators determines that the expenditure was imprudent.