As energy demands rise, utilities must balance investments, affordability, and equity
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.
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).
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:
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.
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.