Huzaifah Basrai is a managing director in the Technology Consulting practice at Ernst & Young LLP, where he focuses on business transformations and implementation of digital technologies at organizations in the power and utilities sector.
The rate case filing process is a complex challenge for utility companies, balancing the need for financial viability with consumer protections. This critical regulatory task demands detailed analysis and strategic planning, often stretching over a year due to rigorous documentation and compliance requirements.
But complexity isn't the only thing on the rise. In 2023, U.S. investor-owned utilities submitted requests for rate increases that amounted to a record-breaking $18.13 billion. It marked the third consecutive year that saw an increase in utility rate requests. Given it can take 12 to 18 months for a rate case filing to be resolved, the act of effectively managing the process is becoming quite a challenge.
Disruptive technology, such as generative AI (GenAI), is emerging as a potential solution, simplifying rate filings and driving value in the evolving energy transition landscape.
The rate case filing rationale
Rate case filings enable utilities to propose and justify changes to consumer rates for essential services, such as electricity, water and gas. These filings detail the financial rationale for rate adjustments and their anticipated effects on both operations and customer bills.
The sector depends on the rate case process to finance vital upgrades to key infrastructure, such as the energy grid, and to maintain water and gas systems, supporting modernization and contributing to long-term reliability.
The preparation involves analyzing operational costs and future needs, leading to a cost-of-service study that justifies proposed rate changes. This study faces rigorous regulatory scrutiny and public review when utilities must defend their proposals to balance fair revenue needs with consumer interests and infrastructure commitments.
The outcome of rate cases directly affects consumer finances and community prosperity, necessitating a process that balances utility needs with public access to affordable services. Utilities must navigate regulatory standards, stakeholder concerns and economic factors with transparency and persuasive communication.
Bridging the gap between traditional methods and the future of utility management, GenAI is an intriguing catalyst for change. Already in pilot applications, GenAI is emerging as a game changer in streamlining the rate case filing process.
GenAI's practical applications
The technology has the potential to sift through vast amounts of historical rate case data, extracting relevant precedents and insights that can inform current filings. This capability is particularly valuable given that each rate case is not an isolated event, but part of a continuum, with each filing building upon the knowledge and outcomes of those that came before. By leveraging GenAI, utilities can draw upon a wealth of information to construct more robust and evidence-backed rate proposals.
Furthermore, technology can significantly streamline the discovery process. Regulatory inquiries often involve responding to a barrage of questions, many of which may be similar to those asked in past cases. GenAI can assist in quickly identifying and adapting previous responses, thereby reducing the time and effort required to draft new ones. This not only accelerates the preparation phase and frees up legal teams to concentrate on present case intricacies, but it also enhances the consistency and quality of the responses provided to regulators.
Another practical application is the ability to predict regulatory outcomes based on historical data trends. By analyzing past decisions and identifying patterns, it can offer utilities strategic insights into the factors that influence approval rates. This foresight allows utilities to fine-tune their filings in a way that aligns with regulatory expectations, potentially increasing the likelihood of a favorable decision.
In essence, the convergence of regulatory demands, technological advancements and strategic foresight has set the stage for a transformation in how utilities approach one of their most critical and challenging processes.
Other strategic advantages
The integration of GenAI into key parts of the rate case process offers the potential for strategic benefits that extend beyond mere efficiency gains. Utilities could enhance their rate proposal development, facilitate regulatory compliance and streamline the discovery process — three areas that are particularly resource-intensive and critical for successful rate case outcomes.
GenAI can serve as a vigilant watchdog, alerting utilities to compliance risks before they escalate into costly legal issues or reputational damage. For example, by processing and interpreting complex regulatory documents, technology equips utilities with an up-to-date understanding of compliance, aligning rate filings with both current and forthcoming regulations. This can help enhance a utility company’s overall risk posture, allowing informed decisions that protect against regulatory penalties and safeguard their reputation.
Furthermore, streamlined rate case processes potentially lead to fairer adjustments and prevent customers from shouldering unnecessary costs. The resulting efficiencies may allow for reinvestment in infrastructure, improving service reliability and advancing sustainability for consumers.
However, with all its benefits and potential, utility companies can’t drive this innovation without the necessary building blocks and data foundations required for responsible AI use and success. Its use in the rate case process brings new threats and considerations and must be carefully managed to allow financial stability at the utility while providing customer rates remain equitable and affordable.
The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
