When Regulators Ask Why: Why Utilities Struggle with Regulatory Investment Justification

Executive summary

Regulatory scrutiny doesn’t test whether a capital plan is well designed.

It tests whether regulatory investment justification can be clearly evidenced—and whether the value delivered by each investment can be demonstrated.

When regulators ask “why,” they are not looking for explanations alone. They are assessing whether each investment is consistent, traceable, supported by evidence, and aligned to cost, performance, and customer outcomes.

Most utilities struggle to answer—not because the decisions are wrong, but because the evidence behind them is fragmented, manual, and difficult to retrieve under pressure.

The result is predictable: slower response times, increased scrutiny, and unnecessary risk to funding outcomes.

Leading organizations are moving beyond reactive response-building and adopting a more structured approach to regulatory investment justification—one where answers already exist, connected directly to investment decisions, supporting evidence, and the original record.

What regulators are really asking when they ask “why”

A regulator, auditor, or oversight body asks:

“Can you explain this investment?”

On the surface, it is a reasonable request.

But in a regulatory context, that question carries much greater significance.

Because it is not simply about explanation.

It is about whether the decision can be clearly evidenced—and whether its value can be demonstrated.

Effective regulatory investment justification requires more than a narrative. It requires a clear connection between the investment, the assumptions behind it, the expected outcomes, and the evidence supporting it.

The moment the burden shifts

When a capital plan is submitted, the dynamic changes.

Inside the organization, the focus is on:

• Building the best plan
• Balancing cost, risk, and performance
• Aligning investments to strategic objectives

But once that plan enters a regulatory review process, the focus shifts to:

• Clearly evidencing decisions
• Supporting them with traceable data
• Demonstrating expected outcomes
• Aligning decisions to regulatory expectations

Some jurisdictions rely on formal discovery and direct challenges.

Others use audits, reviews, or performance-based assessments.

Different process. Same expectation: the utility must prove that its investment decisions are prudent, defensible, and supported by evidence.

The question behind the question

When regulators ask “why,” they are not looking for a high-level narrative.

They are testing:

• Whether the decision is consistent across the plan
• Whether it aligns with stated assumptions
• Whether it reflects a systematic methodology
• Whether alternatives were considered
• Whether it demonstrates efficiency and customer value

In other words:

Can this investment be justified through evidence, and does that justification withstand regulatory scrutiny?

This is the core challenge of regulatory investment justification.

Why regulatory investment justification is difficult for utilities

The challenge is rarely a lack of information.

The challenge is that information is often scattered across systems, teams, and documents.

Questions rarely arrive one at a time.

They often come in clusters:

• Multiple inquiries across multiple projects
• Requests from different stakeholders
• Tight response deadlines

Each request requires:

• A clear answer
• Supporting evidence
• Traceability back to the original record

And often, those responses must be delivered in days—not weeks.

The reality behind the scenes

At this point, many teams shift into reactive mode.

Work begins across multiple groups:

• Regulatory affairs
• Engineering
• Capital planning
• Finance
• Compliance and legal

Each contributes pieces of the answer.

The process often involves:

• Pulling data from different systems
• Reconstructing the original business case
• Aligning data and narrative
• Reviewing responses for consistency

All while operating under significant time pressure.

The hidden challenge: rebuilding the chain of evidence

Building a regulatory response often takes far longer than expected.

Not because the information does not exist.

But because it is not organized in a way that makes it usable or reusable.

Common challenges include:

• Original assumptions are difficult to trace
• Supporting data is fragmented
• Justifications must be rebuilt manually
• Responses are recreated from scratch

What should be a straightforward exercise becomes a coordination effort across teams and systems.

This is where regulatory investment justification often breaks down.

Why fragmented data increases regulatory scrutiny

Under pressure, small issues emerge:

• Slight differences between data sources
• Inconsistent explanations across responses
• Gaps in supporting evidence
• Conflicting assumptions

Individually, these issues may appear minor.

But in a regulatory setting, they introduce doubt.

And once doubt is introduced, scrutiny often deepens.

One question leads to another.

One inconsistency expands the scope of review.

One challenged project can trigger broader examination of the entire portfolio.

The harder it is to answer a question clearly, the more questions tend to follow.

The chain of evidence problem

At the core is a simple issue:

Many organizations lack a structured chain of evidence connecting investment decisions to assumptions, justification, and expected outcomes.

Instead, that chain must be rebuilt every time from:

• Planning models
• Spreadsheets
• Presentations
• Emails
• Institutional knowledge

This introduces:

• Delays
• Inconsistency
• Regulatory risk

Because reconstructed answers are rarely as strong as answers that are already structured, traceable, and grounded in the original record.

Why creating new answers is risky

There is a fundamental constraint in regulatory review processes:

Responses must be grounded in the original record—the data, assumptions, and rationale that existed when the filing was submitted.

If teams are forced to:

• Recalculate
• Reinterpret
• Recreate logic
• Generate new analysis

They risk stepping outside that record.

That can weaken credibility and expose the organization to additional scrutiny.

Strong regulatory investment justification depends on maintaining clear links to the original evidence rather than recreating it after the fact.

Bridging the gap between capital planning and regulatory response

This is where many utilities struggle.

Capital planning and regulatory response are often treated as separate activities.

• Planning teams focus on optimization
• Regulatory teams focus on communication
• Compliance and legal teams focus on process

The connection between them—the evidence layer—is often missing.

As a result, when questions arise, teams must bridge that gap manually.

The challenge is not a lack of expertise.

The challenge is that supporting evidence is not structured for retrieval, reuse, and regulatory defense.

How leading utilities improve regulatory investment justification

Leading utilities are rethinking this model.

Instead of rebuilding answers under pressure, they are creating a structured approach where investment decisions, supporting evidence, and regulatory context are connected from the outset.

In this model:

• Every investment is linked to its assumptions
• Every trade-off is documented
• Every justification is anchored to the original record
• Outcomes are clearly defined
• Supporting evidence is traceable

Some organizations are also placing greater emphasis on understanding how regulatory developments, policy changes, commission decisions, and emerging precedents may affect investment plans and future recovery assumptions.

The goal is not simply to monitor regulatory activity.

It is to understand how regulatory signals could influence investment decisions, planning assumptions, and future regulatory outcomes.

When questions arise:

• The answer already exists
• The evidence is already connected
• The response is consistent and traceable

From reaction to readiness

This changes the dynamic.

Instead of:

• Scrambling to assemble responses

Teams move toward:

• Being ready to respond

Instead of:

• Managing risk during an inquiry

They:

• Reduce risk before it occurs

Instead of:

• Spending days building answers

They:

• Deliver responses faster and with greater confidence

This is the difference between reactive response management and proactive regulatory investment justification.

Preparing for a more outcome-driven regulatory environment

Regulatory environments are becoming increasingly complex and increasingly focused on outcomes.

Expectations are rising.

Timelines are tightening.

Cost efficiency and performance outcomes are under greater scrutiny.

At the same time:

• Capital plans are growing
• Investment trade-offs are becoming more complex
• External conditions are changing faster

Across jurisdictions, expectations may be expressed as:

• Affordability
• Customer outcomes
• Total expenditure (TOTEX)
• Reliability targets
• Performance commitments

But the requirement remains consistent:

Investment decisions must be clearly evidenced and aligned to measurable outcomes.

The real question

When regulators ask “why,” the issue is not whether you have an answer.

It is whether that answer is:

• Consistent
• Traceable
• Grounded in the original record
• Supported by evidence
• Clearly linked to customer and business outcomes

Because in the end:

It is not the explanation that matters.

It is the evidence behind it.

And that is what effective regulatory investment justification delivers.

What comes next

The next evolution in utility planning is connecting two areas that have traditionally operated separately:

• Regulatory signals
• Investment decisions

When the regulatory environment changes, organizations need more than awareness.

They need to understand what those changes mean for investments, assumptions, risk exposure, and future outcomes.

Organizations that can connect regulatory context directly to investment planning will be better positioned to respond, adapt, and defend their decisions.

Executive takeaway

The challenge is not answering regulatory questions.

It is answering them consistently, quickly, and with confidence.

Utilities that build a structured, traceable foundation linking decisions, evidence, and regulatory context can:

• Respond faster
• Reduce scrutiny risk
• Improve confidence in funding outcomes
• Strengthen regulatory investment justification
• Adapt more effectively to changing expectations

Those that do not will continue to rely on manual reconstruction under pressure.

For a deeper look at how leading utilities are building a structured, evidence-based approach to regulatory planning and response, read the Regulatory Intelligence whitepaper.

Frequently asked questions

What is regulatory investment justification?

Regulatory investment justification is the process of demonstrating that a capital investment is supported by evidence, aligned with regulatory expectations, and capable of delivering measurable outcomes.

Why do utilities struggle with regulatory investment justification?

Utilities often store supporting evidence across multiple systems and teams, making it difficult to connect investment decisions, assumptions, and outcomes during regulatory review.

What do regulators look for when reviewing capital investments?

Regulators typically assess consistency, traceability, efficiency, customer outcomes, and alignment with planning assumptions and regulatory requirements.

Why does responding to regulatory inquiries take so long?

Many organizations must manually reconstruct the chain of evidence across multiple systems rather than retrieving it from a structured and traceable source.

Why is consistency so important in regulatory review?

Inconsistencies can introduce doubt and trigger additional scrutiny, follow-up questions, or broader examination of investment decisions.

How can utilities improve regulatory response readiness?

Utilities can improve readiness by maintaining a structured chain of evidence that links investments, assumptions, trade-offs, outcomes, and supporting documentation.

What changes when organizations get this right?

Organizations move from reactive response-building to proactive regulatory investment justification, enabling faster responses, greater confidence, and reduced regulatory risk.