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How GenAI could simplify rate case filings amid energy transition movement

EY Americas
EY Americas

Multidisciplinary professional services organization

7 minute read 15 Nov 2024
Related topics
AI
Power and utilities
Oil and gas
Digital
Energy and resources

Companies struggle with complex utility rate case filings, balancing finances with regulatory compliance and customer equity.

In brief:

  • By reducing complexity and aiding strategic decisions, generative AI (GenAI) is revolutionizing the utility industry.
  • Utilities can optimize performance with GenAI, enhancing proposal development, compliance and discovery processes during this time of energy transition.
  • Incorporating historic regulatory data across utilities could boost the likelihood of approval for new rate case filings.

This article is authored by Huzaifah Basrai, Executive director consulting, technology consulting, CNS-TC-AI Enabled Automation, Ernst & Young, LLP.

The utility 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.

Leveraging generative AI (GenAI) technology to find efficiencies throughout a complex process is not exempt in the utilities sector. Not only does it pave the way for simplifying the intricate process of a rate case filing, but it also revolutionizes the entire approach. By swiftly analyzing historical data and industry trends, GenAI empowers utilities to craft filings that are not just more informed, but also more likely to be compliant. This innovation marks a significant transformation in navigating the regulatory landscape of the utilities industry.

A team at Ernst & Young LLP (EY US) is the first to create and market a comprehensive tech-led approach to tap into these new capabilities and empower utility companies to manage rate regulation challenges more efficiently.

These new innovations throughout the rate case filing process leveraging GenAI signal a significant shift in how utilities navigate regulatory compliance and stakeholder expectations during the energy transition. It represents a gateway to not just operational efficiency, but also to unlocking new dimensions of value that extend beyond the traditional confines of the filing process.

How EY can help

The rate case filing rationale

Utility rate case filings enable companies 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.

 

Rate case decisions directly affect consumer finances and community prosperity, necessitating a process that balances utility needs with public access to affordable services. The complexity of rate cases requires utilities to strategically address regulatory standards, stakeholder concerns, and economic factors with transparency and persuasive communication. This involves financial expertise and a thorough grasp of regulatory interactions.

 

Furthermore, rate cases are instrumental in providing utilities with the means to finance vital improvements to aging infrastructure, including the electric grid, as well as water and gas systems maintenance. Through these filings, utilities can secure the necessary investments to modernize their services and bolster system resilience, enabling reliable delivery to consumers.

 

The utility rate case preparation is a detailed process involving an internal review of operational costs and future needs, leading to a cost-of-service study that justifies proposed rate changes. This study undergoes rigorous scrutiny, including public hearings and interventions, where utilities must defend their proposals to achieve fair rates for themselves and consumers. The result affects the utility’s revenue and ability to fulfill service commitments and infrastructure investments.

GenAI approach to utility rate case filing preparations

The development of the prototype rate case analyzer tool was born out of a recognition of the intricate and resource-intensive nature of the utility rate case process. A simple conversation between EY US consultants and a client CIO sparked the idea that technology could be harnessed to address some of the most pressing challenges faced by utilities during rate case preparations.

GenAI’s practical applications in this context are manifold. 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, but also enhances the consistency and quality of the responses provided to regulators.

Another practical application of GenAI in the utility rate case process 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.

The EY team sought to develop a tool that would meet the utility industry’s demand for tech, simplifying regulatory compliance amid the shift to clean energy and the need for resilient infrastructure. GenAI has emerged as a key asset in this effort, providing agility and smarter navigation through regulatory challenges.

In essence, the circumstances leading to the development of technology that can streamline the rate case filing process underscore a pivotal moment in the utility industry’s energy transition efforts. 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.

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Strategic advantages to rate case filing

The integration of GenAI into key parts of the utility rate case process offers the potential for strategic benefits that extend beyond mere efficiency gains. For utilities, the use of AI in key segments of the rate case lifecycle could be a game changer in an industry where such technological applications are scarce. By leveraging AI, 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.

In the realm of rate proposal development, AI can analyze vast data sets to identify trends and patterns that inform strategic decision-making. This includes evaluating past rate case outcomes to anticipate potential regulatory responses, thus enabling utilities to proactively address concerns and strengthen their proposals. By doing so, utilities can present a more compelling case to regulators, increasing the likelihood of a favorable outcome.

When it comes to regulatory compliance, AI’s ability to process and interpret complex regulatory documents can help utilities maintain a real-time understanding of changing regulations. This makes sure that utility rate case filings are not only compliant with current standards, but also aligned with emerging regulatory trends. The technology can serve as a vigilant watchdog, alerting utilities to compliance risks before they escalate into costly legal challenges or reputational damage.

The discovery process, often a battleground of information requests and interrogatories, can also benefit from GenAI’s capabilities. By quickly retrieving and repurposing relevant historical responses, technology can reduce the burden on legal and regulatory teams, allowing them to focus on the nuances of current cases. This not only speeds up the response time, but also promotes consistency and accuracy in the information provided to regulators and interveners.

Industry implications

Examining GenAI through a broader lens, the technology can complement existing risk management tools by providing an additional layer of analysis and insight. In the context of regulatory documentation and compliance, GenAI can sift through large volumes of documents to identify areas of potential risk, such as noncompliance with new regulations or inconsistencies in reporting. By integrating GenAI with risk management frameworks, utilities can enhance their overall risk posture, making informed decisions that protect against regulatory penalties and safeguard their reputation.

For customers, the strategic benefits of GenAI in the utility rate case process may be less direct, but are no less significant. A more efficient and effective utility rate case process can lead to more judicious rate adjustments, making sure that customers are not overburdened by costs that could have been mitigated through better utility management. Furthermore, the savings realized from a streamlined rate case process can be reinvested into infrastructure improvements, leading to more reliable and sustainable utility services.

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 ensuring customer rates remain equitable and affordable.

With the latest research indicating that GenAI models will soon be processing data at a rate surpassing human capacity for data generation, it’s clear that these models are poised for significant improvement and accelerated advancement.

In an industry where regulatory compliance is both a mandate and a measure of operational excellence, the strategic application of GenAI in utility rate case filings is not just an innovation — it’s a necessity. As utilities navigate an increasingly complex regulatory environment, GenAI stands as a transformative tool that can turn the tide in their favor, delivering strategic advantages that resonate throughout the entire value chain.

Kristopher Carmona Lomeli, Senior Manager, consulting, technology consulting, CNS-TC-AI Enabled Automation, Ernst & Young, LLP contributed to this article too.

A shorter version of this article was originally published by Utility Dive on October 22, 2024.

Summary

Amid a technological shift, utility industry leaders are presented with an opportunity to immediately leverage generative AI’s practical applications. The existence of this technology offers a glimpse into a future where utility rate case filings are not only more efficient, but also bring a better work-life balance for utility teams. Engaging with these innovations now can set the stage for enhanced operations and a more empowered workforce at the next rate case filing.

About this article

EY Americas
EY Americas
Multidisciplinary professional services organization
Related topics
AI
Power and utilities
Oil and gas
Digital
Energy and resources

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