Technology Platforms Essential to Prove Need in Utility Rate Cases

Electric utilities make capital investments in their systems to ensure the delivery of reliable electricity to ratepayers. Utilities then earn their financial returns as a fixed percentage of their capital investment in their systems over the life of the asset. These financial returns are weaved into the rates that customers pay to the utilities as part of their monthly electric bills.

The challenge

Rate increase requests are submitted by utilities to the governing Public Utility Commission (PUC) for the capital investments made in their systems. In such cases, utilities are required to present robust justification for a rate increase and it must be based on a demonstration of why the current rates are no longer sufficient to cover the costs of building and maintaining the electric utility system. There is one common problem that utilities often encounter in this process — a lack of proper documentation and project cost variance to support their rate increase request cases.

Today's electric utilities' projects are more complex and require working with remote teams, contractors, and suppliers located around the world. These remote teams often make key decisions that impact rate cases for customers. These decisions made at the time of planning, engineering, construction, vegetation management, regular operations, and disaster response impact rate cases several years after the project has been placed in service. Consequently, utilities often scramble for the required documentation for rate case support several years after a project has been designed, constructed, and is placed in service. This makes it especially important to track real-time project information, coordinate between the various teams, and document key decisions during the life of the project.

In many cases, key utility employees who are deeply familiar with the reasons for strategic decisions or major change orders are either in different jobs within the company, or worse yet, may have retired or no longer be employed with the utility. This creates a difficult situation that is financially arduous for the utility.

Robust digital documentation and automation is key to success

Industry Capital Expenditures size was projected to be valued at US$139.8 billion in 2020. According to a report published by FTI Consulting, Inc., through its work for the National Rural Electric Cooperative Association (NRECA) and National Cooperative Services Corp. (NCSC), electric cooperatives (co-ops) contributed US$88.4 billion to the U.S. GDP in 2017. The general industry consensus is that these numbers are expected to grow at a compound annual growth rate (CAGR) of at least 15% every year. Additional infrastructure investments of several billion dollars a year are expected to be pumped into the industry as utilities face many grid modernizations challenges.

Some of the most pressing considerations surrounding electricity-providing utilities include a shift to electric vehicles (EVs), upgrading transmission and distribution (T&D) lines, replacing antiquated substations, grid hardening to protect from natural disasters, and constructing greenfield T&D projects to meet the changing mix of power generation portfolio and the ever-increasing growth in their service areas.

Power of technology platforms

PMO and construction oversight

Out of the gate, PMO and construction oversight programs provide a detailed system of record for projects, essential as a utility considers and applies for a rate increase. These records typically include extended documentation of change management with variance explanation, project characterization, issues and related actions, key decisions and/or changes, and an issue log describing the root cause for issues, their impact, and resulting project changes and financial impact, in-service dates, and any changes to those dates with reasons.

The PMO also provides a breakdown of planned and actual major spending categories and documents relevant information for which sometimes nobody seems to have answers at the time of rate cases. Additionally, these reports are a place where the utility can collect and visualize data and show trends between projects, with records of key decisions, financial notes, and budget variance explanations, which are critical during rate cases.

Technology platforms that digitize documents, provide automation technology for real-time project updates, and AI for business intelligence can help in every facet of collecting, storing, and retrieving information. Technology platforms become a reliable system of record, a single centralized source of information where all relevant data is fed and retrieved directly or indirectly though real-time/non-real-time interfaces.

Additionally, mobile and mapping-based solutions allow for field resources to digitally document information on the status of work in a project in real time instead of relying on memory to jot things down and handover to back office. This is where information inaccuracies because of incorrect translation can creep up. With data science technology-driven solutions at the disposal of the PMO, risks can be identified and rectified without loss of time or escalation of risk to project. The AI-driven smart dashboards built on top of this data allow stakeholders to get an accurate pulse of the project to take appropriate course correction measures.

Vegetation management (VM)

VM is often one of the largest annual expenditures a utility makes related to system maintenance. VM in and of itself can significantly impact maintenance costs at a utility. A comprehensive VM software system that tracks what, when, and where work has been done allows the utility to show whether current program spending is adequate for proper safety and reliability.

Vegetation growth and the cost of managing it varies based on periods of drought or higher than normal rainfall. Detailed digital documentation of actual vegetation conditions as collected and analyzed in an AI-driven software system can show how previous spending may no longer be adequate to manage current or future growth conditions because of periods of drought or higher than normal rainfall, thus supporting a rate case.

Here too, like the PMO and construction oversight, the mobile field data collection becomes critical for the field force to pinpoint the problem areas on map-based solutions instead of relying on outdated paper-based maps and/or manual hand-written location markers. The crew can add notes and status of their work with offline capable solutions that can be synced with the system of record when they come online.

Disaster response

Another crucial consideration for a utility is disaster response and damage assessment. Depending on the type of infrastructure affected, a detailed appraisal of damage caused by natural disasters may be performed and can include in-depth foundation, hardware, equipment, and structure damage evaluations. Damage assessments include material lists, identify special equipment needs, and determine site accessibility concerns.

What follows are restoration assessments that detail the material cost estimates required to bring the asset back in service such as mats for site access, construction entrances, pipeline crossings, culverts, and gates. Vegetation concerns and restoration-level inspections are also considered and undertaken during the construction phase.

Technology platforms that address the process of collecting and interpreting data using AI to optimize storm outage investigations, damage evaluation, as well as repair and restoration efforts are tremendously useful to digitize documents and provide automation technology for real-time project updates. Satellite images from before and after a storm or a drone video collected from a storm-affected area can be fed into an AI algorithm to gather information about and evaluate problem areas as part of the storm assessment. A GIS or map-based mobile technology solution for storm restoration work becomes extremely important for informed decision-making where time is of the essence when people are suffering from outages.

Additionally, the detailed digital documentation these platforms enable during the process of collecting damage evaluation data simplify the process of documenting damages for utilities that may be eligible for Federal Emergency Management Agency (FEMA) reimbursement. Other capital investments that are made to improve the utility system as part of the disaster restoration may be eligible for rate increase case as part of capital investment rate recovery.

Automation, digitization of documents, and AI bring results

Technology platforms for PMO, construction oversight, disaster response, and VM programs are all essential elements for utilities to consider and plan at the outset of any project. Technology platforms that digitize documents, provide automation technology for real-time project updates, and AI for business intelligence can provide utilities with the required documentation for rate case support several years after a project has been designed, constructed, and placed in service. An investment in a powerful technology platform that helps with PMO, construction oversight, disaster response, and VM is a small price to pay for utilities with financial returns a fixed percentage of their capital investment in their system over the life of the asset.

A powerful technology platform goes a long way in capturing, storing, archiving, and retrieving data as needed for justification of rate cases. Digitally capturing data is the first important step. A good tool can digitally capture all relevant information, increase the accuracy of information documents, and reduce or eliminate inaccuracies, automate data processing using AI and report generation, and reduce or remove redundancies and duplicates.

A powerful technology platform can archive data properly for easy recovery long after a project is completed. The data, providing context about the resources, stakeholders involved, key decisions made, change management with variance explanations documented, risks identified, and how they were mitigated when captured properly, archived, and retrieved with no data loss will assist with providing justification for rate cases. Therein lies the power of a technology platform that helps digitize documents, provide automation technology for real-time project updates, and uses AI for business intelligence.