Show Me the Money: Managing the Modern Utility Rate Case

**Marc Miller** (0:12)
Welcome to the ScottMadden Energy Exchange, conversations with leaders shaping the future of the energy industry. I'm your host, Marc Miller, partner and energy practice leader at ScottMadden. In this podcast, we explore the most important issues facing utilities and energy companies, from infrastructure and regulation to operations and strategy. We focus not just on what's changing, but on what it takes to execute in a complex and evolving environment.
Today's episode is titled Show Me The Money, Managing the Modern Utility Rate Case. For regulated utilities, the rate case is the moment when strategy, capital investment, and regulatory expectations all come together.
It's the process through which utilities justify their investments, establish their authorized revenue, and ultimately secure the resources needed to build and maintain critical infrastructure. In many ways, the rate case is where utility strategy meets regulatory scrutiny. It's the moment when the company must clearly explain not just what it plans to spend, but why those investments matter for customers in the future of the grid. Or to borrow a phrase from a well-known movie, it's where utilities have to show me the money. Well, not me, but you get the idea. And that challenge is becoming more complex. Utilities are entering a period of unprecedented infrastructure investment, while regulators and stakeholders are increasingly focused on affordability and clear customer value. To talk about how utilities can successfully navigate this environment, I'm joined today by Josh Kmiec, a partner and rate application expert at ScottMadden, who works closely with utilities on regulatory strategy and rate case preparation.
Josh, let's start with the big picture. When people think about a rate case, they often think of it as a regulatory compliance exercise. But in reality, it's much more than that. At its core, what role does the rate case play in the business of a regulated utility?

**Josh Kmiec** (2:23)
Yeah, absolutely. I think stepping back at its core, the regulated utility is looking to do two things. It's providing safe and reliable service, electricity, gas, water. And as a business, it needs to make money. And as a regulated monopoly, the rate case is how that utility makes money.
The utility is not doing kind of marketing, sales, pricing, and any of those traditional business sense. And instead, it's that rate case that determines its revenue and its profit. You know, put another way, the rate case is the primary mechanism through which a regulated utility is turning its strategy into executable funding. You know, the rate case is how that company earns revenue. It's justifying its infrastructure plan and other investments. And it's also explaining to regulators and other stakeholders why those investments are necessary. So next to first, of course, delivering safer, reliable energy, I think the rate case is really a core competency within the utility.
So when we think about the rate case, it's the way that that utility determines its authorized revenue, the profit margin on that revenue, and really justifies its infrastructure plan and all other investments. It's also an explanation to the regulator and stakeholders why those investments are necessary. So next to, again, delivering that safe and reliable energy, it's really a core competency of the utility to be able to deliver that rate case and make money.
Further, internally, it forces alignment across the organization. So we think about the finance organization, engineering, operations, and regulatory affairs all have to come together for that rate case proposal. And externally, it's the point where the utility is demonstrating that its capital plan, its O&M budget is disciplined, it's credible, and really tied to customer outcomes. So when some people, some utilities, will consider and talk about a rate case as a filing, but it's really much more than that. It's that point where the business plan really meets regulatory and public scrutiny. And in this current environment where we're seeing significant increases in capital plans, much greater affordability pressure, the role of the rate case is becoming increasingly important.

**Marc Miller** (4:54)
Josh, I've heard you say that the rate case is really the defining business event for a regulated utility. Can you add a little more color on that bold statement?

**Josh Kmiec** (5:06)
Sure. So as we talked about, it defines revenue and profit. Beyond that, it influences the cost of the utility's debt. It shapes its credibility, both with regulators, with customers, with stakeholders for years to come following the case.
And it's also where the company signals its priorities, again, to those stakeholders and others. Increasingly, that's not just a public service commission and its staff, but customers, customer advocates, investors, politicians, more and more legislators, certainly, and as well as internally to the company itself. So in essence, it's also a very complex communications tool on top of everything else. A strong filing tells this coherent story of where the utility is going and why customers benefit.