How utilities can navigate regulatory compliance challenges

The energy sector is undergoing a remarkable transformation, driven by decarbonization and the rise of data center loads. This shift is projected to increase U.S. electricity consumption by 1.5 percent annually from 2024 to 2026, requiring a tripling or quadrupling in electric generation, transmission, and distribution infrastructure to meet future demands.

Ultimately, these rising costs may be passed on to customers through higher electricity bills—which may disproportionately impact environmental justice communities (EJCs)—and other vulnerable customer groups already burdened by electricity costs.

Regulated electric utilities must ensure that this vast scale of investments not only prioritizes their core obligations of safety, reliability, and affordability but also addresses emerging equity considerations.

How regulatory requirements have evolved over time

These challenges are reflected in evolving requirements for regulatory filings, the primary mechanisms through which regulated utilities secure funding and approval for their investments. Utilities submit regulatory filings with state regulators to determine the rates charged to customers for electricity, natural gas, or water distribution services. These filings have grown in complexity and scope, extending beyond traditional rate-making principles to focus on evolving environmental concerns as well as affordability and equity.

State environmental objectives have long been a consideration in regulatory filings, with focus recently shifting toward addressing carbon dioxide emissions and other greenhouse gases. To date, 24 states have passed 100% clean energy targets, including Oregon, Massachusetts, Illinois, and North Carolina. As states enact these net-zero mandates, utilities are being required to submit regulatory filings illustrating how they intend to meet the state’s decarbonization goals. For example, Oregon’s House Bill 2021 and Massachusetts’ 2022 Climate Law require utilities to submit plans—Clean Energy Plan (CEP) in Oregon and Electric Sector Modernization Plans (ESMP) in Massachusetts—detailing the necessary grid investments to meet statewide climate targets. These plans must illustrate how utilities intend to meet forecasted energy demand in the most cost-effective way possible while also considering emerging equity, affordability, and stakeholder considerations.

These considerations are becoming essential for utilities to secure funding. State regulators are increasingly requiring utilities to incorporate these considerations into regulatory filings; failure to do so may result in the rejection of their plans.

Some states have formalized these requirements as performance-based regulation frameworks that tie utility compensation with key metrics, such as equity and affordability. The federal government has also made equity considerations a requirement for utilities seeking federal funding through programs such as the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA).

Five emerging considerations for future filings

To stay ahead of these emerging regulatory requirements, utilities should begin to incorporate these considerations into their planning process. Drawing upon our extensive consulting experience and industry insight, we have identified five key areas that are increasingly prominent in utility regulatory filings:

1. Forecasts indicate significant investment needs: Utilities should proactively illustrate their plans to meet evolving grid demands driven by electrification and DER adoption. This involves developing robust assumptions that align with state policy goals and account for varying levels of demand. This allows utilities to demonstrate their readiness for significant capacity growth and ensure they develop a comprehensive plan to meet these needs.
   
   
2. Manage affordability in the context of energy transition investments: With the significant scale of these decarbonization goals, utilities must prioritize affordability considerations in their regulatory filings. While support for cost-effectiveness has traditionally been a crucial component of regulatory filings, utilities now need to adopt a more holistic approach that more carefully considers customer wallet implications across rate classes as well as societal benefits such as job creation, local economic growth, and reductions in greenhouse gas emissions.
   
   Utilities should look at innovative rate designs that can manage the incorporate of critical energy transition into rates. By integrating the social cost of carbon and macroeconomic impact tools into their net benefits analyses, utilities can provide a more comprehensive justification for their investment plans that supports both affordability and broader societal goals.
   
   It's also crucial for utilities to show that their proposed investments provide greater net benefits compared to alternatives. Regulators increasingly expect utilities to explore non-wire or non-pipe alternatives to capital-intensive projects and to seek alternative funding sources—such as Federal IIJA or IRA grants—to mitigate ratepayer impacts.
   
   
3. Account for equity considerations: There's an increasing awareness that certain communities—often marginalized due to race, income, or socioeconomic status—suffer more from environmental hazards and have less access to the benefits of energy developments. Increasingly, equity considerations are being incorporated into regulatory and statutory requirements. The Justice40 initiative requires utilities receiving federal funding from programs such as the IIJA to demonstrate that at least 40% of the burdens and benefits of these programs are distributed to disadvantaged communities. Several states have passed legislation that require utilities to report on equity metrics, and in some cases demonstrate that a certain percentage of the benefits of its investments are distributed to EJCs.
   
   
4. Stakeholder engagement planning and execution: Effective stakeholder engagement is a hallmark of these filings, ensuring that diverse constituent voices are heard and integrated into the planning and execution of investment plans. This approach is key to achieving fair treatment and more equitable distribution of both the benefits and burdens of energy infrastructure development as well as incorporating the perspectives of the broad stakeholder community as relevant.
   
   Utilities must develop a comprehensive framework for stakeholder engagement throughout the investment planning and execution process. During the planning process, utilities may organize sessions for stakeholders to learn about the proposed investments and provide feedback during the planning process. To fully understand and integrate stakeholder feedback, utilities should leverage change management approaches, including stakeholder segmentation, change impact analysis, and change planning by stakeholder group. These types of approaches will allow the utility to understand the diverse characteristics of the communities they serve and develop customized strategies to ensure their needs are addressed. Utilities should also consider creating working committees to maintain ongoing dialogue during project execution. In the Massachusetts ESMP, utilities proposed forming the Community Engagement Stakeholder Advisory Group (CESAG) to oversee stakeholder engagement, ensuring continuous and meaningful participation throughout the lifecycle of the proposed investments.
   
   Accessibility is also a critical component of stakeholder engagement sessions. Utilities should take measures such as providing transcripts, recordings, and other resources for those unable to attend in person; collaborate with community leaders to understand best-fit avenues for communication; and provide print materials or translation services in multiple languages, all to ensure stakeholder engagements are inclusive and open to all members of the public.
   
   
5. Broad coordination measures to meet state goals: To meet state climate goals and targets, utilities should coordinate efforts to ensure that definitions, processes, and methodologies are aligned with affordability considerations and other regulatory objectives. For example, since the inception of New York’s Reforming the Energy Vision (REV) initiative in 2014, the state’s investor-owned utilities—including Consolidated Edison, National Grid, and others—collaborated through the Joint Utilities of New York to advance state policy goals and respond to Public Service Commission proceedings.
   
   In addition, within a single utility, there is a need to coordinate between the utility’s electric and gas services. It’s becoming increasingly essential that planning for these services are integrated—this can help coordinate planning when there is a substantial reduction in gas utility customers transitioning to all-electric solutions. Such coordination must also consider the cost recovery of stranded gas assets, a critical financial factor as utilities pivot toward decarbonization. Ultimately, effective joint utility coordination not only facilitates synergy in approach but also enhances the collective ability to effectively address state goals and targets, fostering a more sustainable energy future.
   

Conclusion

Climate change policies have introduced new requirements for regulatory filings. To prepare for the anticipated increase in electrification, DERs, and data center load, utilities must make significant infrastructure investments to boost load capacity and enhance grid visibility and control. These substantial investments require careful consideration of affordability and equity to ensure that costs and benefits are fairly distributed among customers.

Prioritizing stakeholder engagement and joint coordination between utilities and regulatory bodies is essential to developing cohesive strategies that address both environmental and societal impacts. By adopting these innovative and inclusive practices, utilities can secure the necessary funding and approval for their investments, playing a pivotal role in shaping a sustainable, equitable, and resilient energy future.

States with decarbonization targets are setting precedents for how utilities must adapt their strategies. As more states follow suit, utilities will need to submit comprehensive plans that demonstrate how they will meet environmental objectives while considering societal impacts and ensuring implementation is collaborative, fair, and just. Utilities must navigate this complex environment with innovative and inclusive approaches, ensuring all communities benefit from advancements in clean energy technology and infrastructure.