Bracing for Regulatory Examinations amidst Rising Price Concerns
In the rapidly evolving electric utility sector, the need for a strategic and proactive approach to audit readiness has become paramount. This approach, when executed effectively, offers numerous benefits, including demonstrating transparency, performance, and a commitment to affordability.
Jim McMahon, the chairman of the energy division at BorgWarner, and a vice president and practice leader of Charles River Associates' energy practice, underscores the importance of this strategic approach. He explains that it's about managing the audit process in a way that builds trust and positions the electric utility as proactive, transparent, and customer-focused.
The strategic approach requires a coherent, consistent narrative, substantiating every claim with accessible, reliable evidence, and demonstrating a forward-looking commitment to efficiency and continuous improvement. Building audit readiness into everyday operations is achieved through ongoing governance reviews, continuous documentation updates, periodic benchmarking, and regular scenario planning.
A structured approach, such as the Audit Readiness Test (ART), offers a roadmap for ensuring preparation and strengthening the organization's position before, during, and after the review. Each element of ART addresses a critical dimension of audit success, including governance and evidence management, scenario planning, and continuous improvement.
Running 'mini-audits' in advance can reveal gaps, inconsistencies, or slow response times, reducing the risk of surprises during the official audit. The Audit Readiness Test (ART) embeds a coordinated set of disciplines into electric utilities' operations, ensuring a resilient, well-supported regulatory position.
Regulatory audits in the electric utility sector are becoming more frequent, detailed, and focused on affordability. Regulators often compare electric utilities to peers to assess performance and cost-effectiveness, looking at benchmarks such as O&M per customer, system reliability indices (SAIDI/SAIFI), and customer affordability metrics.
Stress-testing the electric utility's narrative against various scenarios ensures the positioning remains credible under less favorable conditions. Approaching audits strategically allows electric utilities to turn them into opportunities to showcase competence, build regulator confidence, and strengthen the organization's reputation for delivering value to customers.
Clear governance structures are essential for audit success, with coordination between regulatory affairs, finance, operations, and resource planning teams. The goal of the strategic approach is to make the audit more than a pass/fail exercise, turning it into an opportunity to reinforce regulatory confidence and public trust in how they manage the grid and customer bills.
Rising customer bills are a central point of regulatory and public interest due to factors like fuel and purchased power volatility, transmission and distribution investment, and renewable integration costs. By embracing a strategic approach to audit readiness, electric utilities can demonstrate their commitment to navigating these challenges and delivering value to their customers.
