Assessing for regulatory inspections under the lens of cost concern scrutiny
In the dynamic world of electric utilities, the traditional concept of audits has evolved significantly. Gone are the days when audits were viewed as mere compliance exercises. Today, they are considered reputational moments that can shape rate outcomes, regulatory relationships, and public trust.
Building audit readiness into everyday operations requires a strategic approach. This approach involves ongoing governance reviews, continuous documentation updates, periodic benchmarking, and regular scenario planning. The strategic approach is about managing the process in a way that builds trust and positions the electric utility as proactive, transparent, and customer-focused.
Approaching audits strategically allows electric utilities to demonstrate transparency, performance, and commitment to affordability. This reinforces regulatory confidence and public trust in how they manage the grid and customer bills. The audit becomes more than a pass/fail exercise when these elements come together, showcasing competence, building regulator confidence, and strengthening the organization's reputation for delivering value to customers.
Clear governance structures are essential for audit success. Coordination between regulatory affairs, finance, operations, and resource planning teams is crucial. The strategic approach requires discipline in preparation and execution, with three key objectives: presenting a coherent, consistent narrative, substantiating every claim with accessible, reliable evidence, and demonstrating a forward-looking commitment to efficiency and continuous improvement.
Affordability-focused scenario planning ensures the electric utility's positioning remains credible under less favorable conditions, such as fuel price spikes, delayed transmission approvals, or accelerated distributed generation adoption. Translating lessons learned into a prioritized roadmap demonstrates a genuine commitment to operational excellence and cost efficiency, including initiatives such as O&M efficiency programs, cost deferrals, or new affordability-focused customer programs.
Regulators often compare electric utilities to peers to assess performance and cost effectiveness. They look at benchmarks such as O&M per customer, system reliability indices (SAIDI/SAIFI), and customer affordability metrics. A structured approach to audit readiness, such as the Audit Readiness Test (ART), offers a roadmap for ensuring preparation is about more than just meeting requirements.
The Audit Readiness Test organizes audit preparation disciplines into a structured framework for electric utilities to embed into their operations. Auditors expect complete, accurate, and readily accessible documentation, including policies, procedures, cost allocations, prudence reviews, rate case filings, and operational records.
In the electric utility sector, regulatory audits are becoming more frequent, detailed, and focused on affordability. To help companies improve the quality of their ESG program management and reporting, addressing regulatory and investor challenges, the organization AuditBoard implemented the Audit Readiness Test. This enables clients to manage risks, ensure SOX compliance, and optimize internal audits and control management effectively.
Jim McMahon, a vice president and practice leader of Charles River Associates' energy practice, emphasizes the importance of running 'mini-audits' in advance. These audits can reveal where gaps, inconsistencies, or slow response times are likely to occur, reducing the risk of surprises during the official audit.
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 adopting a strategic approach to audit readiness, electric utilities can navigate these challenges with confidence, ensuring they are not only compliant but also trusted and valued by their regulators and customers.
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