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Preparing for regulatory audits in an era of affordability scrutiny

Jim McMahon is a vice president and practice leader of Charles River Associates’ energy practice. Across the electric utility sector, regulatory audits are becoming more frequent, more detailed and more focused on the question of affordability. Rising customer bills, driven by fuel and purchased power volatility, transmission and distribution investment, and renewable integration costs, have […]

Jim McMahon is a vice president and practice leader of Charles River Associates’ energy practice.

Across the electric utility sector, regulatory audits are becoming more frequent, more detailed and more focused on the question of affordability. Rising customer bills, driven by fuel and purchased power volatility, transmission and distribution investment, and renewable integration costs, have made cost management a central point of regulatory and public interest. For electric utilities, this means audits are no longer just compliance exercises; they are reputational moments that can influence rate outcomes, regulatory relationships and public trust.

Electric utilities that approach audits reactively often find themselves stretched thin, scrambling to assemble data, align narratives and respond to follow-up requests under time pressure. In contrast, those that prepare strategically not only navigate the process more smoothly but also use it to reinforce their credibility as responsible stewards of customer resources.

A structured approach to audit readiness, such as the Audit Readiness Test, or ART, offers a roadmap for ensuring that preparation is not just about meeting requirements but about strengthening the organization’s position before, during and after the review.

Why the strategic approach matters

Audits are, at their core, about telling a story that is both evidence-based and credible. For electric utilities, the most effective audit narratives weave together data, policy and operational decisions, from resource planning and grid investments to rate case filings, into a cohesive account that demonstrates responsible stewardship of customer resources. This story must clearly connect operational and financial choices to measurable customer value, with particular emphasis on how these decisions support affordability.

An audit is not simply a technical compliance review; it is also a test of how well the organization can explain why it made certain choices, how those choices were implemented and what tangible benefits they delivered. Regulators and stakeholders are not just looking for correct numbers, they are looking for context, justification and alignment with public interest.

The strategic approach to audit readiness goes beyond avoiding negative findings. It is about managing the process in a way that builds trust and positions the electric utility as proactive, transparent and customer-focused. This requires discipline in both preparation and execution, with three key objectives:

  1. Present a coherent, consistent narrative. Every department must be aligned on the same storyline, avoiding conflicting explanations and ensuring all messaging supports the broader case.
  2. Substantiate every claim with accessible, reliable evidence. Assertions about cost efficiency, performance improvements, or customer benefits must be backed by documented proof that is organized, readily available and directly relevant to audit inquiries.
  3. Demonstrate a forward-looking commitment to efficiency and continuous improvement. Auditors and regulators want to see not only how past actions have been justified, but also how the organization is planning to enhance performance in the future.

When these elements come together, the audit becomes more than a pass/fail exercise. It becomes an opportunity to showcase competence, build regulator confidence and strengthen the organization’s reputation for delivering value to customers.

Core elements of the audit readiness test

Effective audit preparation is not a single action but a coordinated set of disciplines that together create a resilient, well-supported regulatory position. The Audit Readiness Test organizes these disciplines into a structured framework that electric utilities can embed into their operations. Each element of ART addresses a critical dimension of audit success, from governance and evidence management to scenario planning and continuous improvement. When applied together, these components ensure that the organization is not only compliant but also positioned to present a compelling, well-substantiated case to regulators.

Governance and Accountability Review: Clear governance structures are essential for audit success. For electric utilities, this means coordination between regulatory affairs, finance, operations and resource planning teams. When roles and responsibilities are unclear or spread across departments without coordination, it increases the likelihood of inconsistent responses, delayed submissions and conflicting interpretations of the same data. A governance review ensures that there is a single point of accountability for each part of the audit process and that communication with regulators is unified and authoritative.

Evidence Base and Documentation Audit: Auditors expect complete, accurate, and readily accessible documentation. This includes policies, procedures, cost allocations, prudence reviews, rate case filings and operational records that support the electric utility’s decisions. There must be a clear link between spending and customer benefit, for example, showing how grid modernization or storm hardening investments translate into improved reliability and affordability. Weak or incomplete documentation invites deeper scrutiny and undermines credibility.

Benchmarking and Peer Positioning: 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. Without a clear understanding of where the electric utility stands relative to similar companies, it is difficult to contextualize costs, staffing and operational results.

Simulation of Auditor Requests: Running “mini-audits” in advance can reveal where gaps, inconsistencies, or slow response times are likely to occur, reducing the risk of surprises during the official audit. For electric utilities, this may include mock prudence reviews of recent capital projects or stress-testing data used in a recent rate case.

Affordability-Focused Scenario Planning: Stress-testing the electric utility’s narrative against various scenarios, such as fuel price spikes, delayed transmission approvals, or accelerated distributed generation adoption, ensures the positioning remains credible under less favorable conditions.

Continuous Improvement Roadmap: Translating lessons learned into a prioritized roadmap demonstrates a genuine commitment to operational excellence and cost efficiency. For electric utilities, this may include initiatives such as O&M efficiency programs, cost deferrals, or new affordability-focused customer programs.

Building audit readiness into everyday operations

Audit readiness should not be treated as a one-time effort that begins when a notice arrives. The most successful electric utilities embed these practices into their normal operations so that, when an audit is announced, they are already in a position to respond quickly, consistently and persuasively. This requires ongoing governance reviews, continuous documentation updates, periodic benchmarking and regular scenario planning.

By approaching audits strategically, electric utilities can transform what is often viewed as an administrative burden into an opportunity to demonstrate transparency, performance and commitment to affordability, reinforcing regulatory confidence and public trust in how they manage the grid and customer bills.

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Preparing for regulatory audits in an era of affordability scrutiny

Jim McMahon is a vice president and practice leader of Charles River Associates’ energy practice. Across the electric utility sector, regulatory audits are becoming more frequent, more detailed and more focused on the question of affordability. Rising customer bills, driven by fuel and purchased power volatility, transmission and distribution investment, and renewable integration costs, have made cost management a central point of regulatory and public interest. For electric utilities, this means audits are no longer just compliance exercises; they are reputational moments that can influence rate outcomes, regulatory relationships and public trust. Electric utilities that approach audits reactively often find themselves stretched thin, scrambling to assemble data, align narratives and respond to follow-up requests under time pressure. In contrast, those that prepare strategically not only navigate the process more smoothly but also use it to reinforce their credibility as responsible stewards of customer resources. A structured approach to audit readiness, such as the Audit Readiness Test, or ART, offers a roadmap for ensuring that preparation is not just about meeting requirements but about strengthening the organization’s position before, during and after the review. Why the strategic approach matters Audits are, at their core, about telling a story that is both evidence-based and credible. For electric utilities, the most effective audit narratives weave together data, policy and operational decisions, from resource planning and grid investments to rate case filings, into a cohesive account that demonstrates responsible stewardship of customer resources. This story must clearly connect operational and financial choices to measurable customer value, with particular emphasis on how these decisions support affordability. An audit is not simply a technical compliance review; it is also a test of how well the organization can explain why it made certain choices, how those choices were implemented and what tangible benefits they delivered. Regulators and

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