Episode 3 – Capital Allocation: Building to Serve a High-Growth Energy System

Marc: 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.
Marc: Today’s episode is titled “Capital Allocation: Building to Serve a High-Growth Energy System.”
Utilities are entering a new capital cycle. Across the industry, we’re seeing more than a trillion dollars of planned investment, driven by load growth, resilience needs, aging infrastructure, and the energy transition.
But this isn’t just about investing more. Utilities are being asked to deploy capital more deliberately and more effectively than ever before.
That creates a dual challenge:
• Are we investing in the right things?
• And can we actually deliver them?
Getting one right without the other doesn’t create value, and increasingly, both are under scrutiny.
To explore that, I’m joined by Gerardo Morales and Tony Gonzalez, partners at ScottMadden who work closely with utilities on capital allocation and execution.
Marc: We’re hearing a lot about the scale of investment across the industry. How would you describe the capital cycle utilities are entering right now?
Gerardo:
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I think it’s fair to say we’re entering one of the most significant investment cycles the utility industry has seen in decades.
As part of some research we recently completed, we analyzed the capital plans of the largest electric utilities in the country. Just looking at publicly announced plans, we found more than $1.2 trillion in planned capital investments over the next several years. What’s interesting is that this number already exceeds many of the industry-wide estimates that are commonly referenced, which suggests the total investment across the industry could ultimately be even larger.
But what makes this cycle unique isn’t just the amount of money being invested. It’s the number of major forces that are converging at the same time.
Utilities are responding to rapid load growth, particularly from data centers and new industrial customers. At the same time, they’re modernizing aging infrastructure, strengthening grid resilience against more frequent extreme weather events, integrating new generation resources, supporting electrification, and continuing to meet evolving regulatory expectations. Those are all massive investment drivers on their own. Now they’re happening simultaneously.
And I think that’s an important distinction because sometimes the conversation becomes, ‘This is all about data centers.’ Data centers are certainly an important driver, but they’re only one piece of a much broader story. Capital plans today reflect the combined effect of reliability, resilience, affordability, customer growth, regulatory policy, and the energy transition all happening together.
To me, that’s what makes this period so different. Utilities aren’t simply building more infrastructure. They’re being asked to transform the grid while continuing to deliver safe, reliable, and affordable service. That’s a much more complex challenge than we’ve seen in previous investment cycles.
Marc: What makes this cycle different from previous periods of investment?
Tony:
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I think there are a couple of things that make this cycle fundamentally different.
First, it’s the fact that all of these investment drivers are happening at the same time. Historically, utilities would go through periods where they were focused on environmental compliance, or generation expansion, or transmission upgrades. Today, they’re managing all of those priorities concurrently, while also responding to rapid load growth, digital modernization, and increasing expectations around resilience. That creates a level of complexity we really haven’t seen before.
The second difference, and I think this is the more important one, is that utilities are no longer just capital constrained. They’re execution constrained.
Having the funding approved is only part of the equation. You still have to engineer the projects, procure the equipment, secure permits, coordinate outages, line up contractors, and execute the work safely. Every one of those activities is competing for the same limited resources.
We’re seeing this play out across the industry. Lead times for critical equipment have increased significantly. Skilled labor remains in short supply. Contractors are booked years in advance in some markets. Even internally, utilities are asking the same engineering, project management, and operations teams to support a much larger volume of work than they were originally designed to handle.

So I think the conversation is shifting. A few years ago, the question was, ‘How do we finance this level of investment?’ Today it’s increasingly becoming, ‘How do we actually deliver it?’ Those are two very different challenges, and I think the second one is where utilities are spending much more of their attention today.
Marc: So utilities are being asked to invest more, but also to be more disciplined in how they do it.
Let’s start with the first part of that challenge, are we investing in the right things. How well do utilities today prioritize capital investment?
Gerardo:
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I actually think utilities have always done a pretty good job of prioritizing capital investments. This isn’t a new discipline. Utilities have decades of experience evaluating projects based on safety, reliability, regulatory compliance, customer growth, and financial considerations. The challenge isn’t that utilities aren’t prioritizing. It’s that the environment they’re operating in has become much more complex.
What we’ve seen across the industry is that the number of competing priorities has grown significantly. A utility may have projects to improve reliability, harden the grid against extreme weather, accommodate new load from data centers, replace aging infrastructure, support clean energy goals, and meet regulatory commitments. Every one of those initiatives has a legitimate business case, and every one has stakeholders advocating for it.
That’s where prioritization becomes difficult. The question is no longer, ‘Is this a good project?’ The question becomes, ‘Is this the best use of limited capital compared to everything else we could be doing?’
One thing we’ve also observed is that many organizations still make these decisions primarily within individual business units. Generation prioritizes generation projects. Transmission prioritizes transmission projects. Distribution does the same. There’s nothing inherently wrong with that, but as capital programs continue to grow, utilities are increasingly asking whether they should be looking across the entire portfolio to optimize investments at the enterprise level.
That’s really where we see the industry heading. The conversation is shifting from project selection to portfolio optimization. It’s less about picking good projects and more about making the right tradeoffs across the entire organization.
Marc: One of the tensions here is that utilities earn returns on invested capital, but at the same time there’s increasing scrutiny on affordability and customer value. How is that changing the way utilities need to think about capital allocation?
Gerardo:
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I think that’s a great question because it really gets to the heart of how the industry is evolving.
Utilities have always operated within a regulatory framework that is designed to encourage long-term investment in infrastructure. That model has served the industry and customers well for decades by providing the capital needed to build and maintain reliable electric systems.
What’s changing isn’t the regulatory model itself. What’s changing is the environment around it.
Customers are facing higher energy bills. Regulators are reviewing some of the largest capital plans they’ve ever seen. At the same time, utilities are being asked to modernize the grid while maintaining reliability, supporting economic growth, and keeping service affordable. Naturally, everyone wants greater confidence that these investments are creating the greatest possible value for customers.
You can also see this playing out in the way utilities and regulators are approaching large load growth, particularly from data centers. One of the biggest questions being debated right now is, “Who should pay for the infrastructure needed to serve that growth?” Across the country, we’re seeing utilities propose new large load tariffs and other mechanisms that shift more of the financial risk to developers rather than existing customers. That really illustrates the level of scrutiny these investment decisions are receiving. It’s no longer enough to simply identify the infrastructure that’s needed. Utilities increasingly have to demonstrate who benefits from the investment, who should bear the cost, and why the approach is fair to all customers.
As a result, we’re seeing much greater emphasis on transparency in how investment decisions are made. Utilities are being asked to clearly articulate why a project is needed, what alternatives were considered, what value it delivers, and why it’s the best use of limited capital. It’s no longer just about demonstrating that a project is worthwhile. Increasingly, it’s about demonstrating that it’s the best option among competing alternatives.
Ultimately, every capital decision comes back to the same fundamental question: Who pays for it, and what value do customers receive in return? I think that’s why we’re seeing utilities place much greater emphasis on disciplined capital allocation, transparent decision-making, and clearly documenting the tradeoffs behind those decisions.
What does good prioritization actually look like in practice?

Tony:
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I think it starts with recognizing that prioritization isn’t really about ranking projects. It’s about making tradeoffs.
Every utility has more good projects than it has capital, people, or time to execute. So the objective isn’t to identify every worthwhile investment. It’s to determine which combination of investments delivers the greatest overall value to customers within the organization’s constraints.
The utilities that do this well tend to think in terms of portfolios instead of individual projects. Rather than asking, ‘Is this a good project?’ they ask, ‘How does this project compare to everything else we’re trying to accomplish?’ That changes the conversation.
They’re looking at multiple dimensions simultaneously. Of course, safety and regulatory compliance always come first. But once those mandatory investments are addressed, they’re balancing things like reliability improvements, customer growth, resilience, affordability, risk reduction, and execution feasibility. It’s not a single-variable decision. It’s about understanding the tradeoffs across the entire portfolio.
The other thing we see is that leading utilities are becoming much more disciplined about using consistent evaluation criteria. That doesn’t mean every decision is made by a formula. There’s always room for leadership judgment. But having a transparent and repeatable process builds confidence with executives, regulators, and even employees because everyone understands how decisions are being made.
At the end of the day, good prioritization isn’t about finding the perfect project. It’s about consistently making the best decisions with the information and resources you have available.
Marc: As you have said to me in conversation, it’s no longer enough to justify a project. You have to show it’s the best option. Are utilities fully considering alternatives, like non-wires solutions or grid-enhancing technologies, or do traditional approaches still dominate?
Gerardo:
I think utilities are making meaningful progress, but I also think there’s still a lot of opportunity.
Historically, planning processes have been built around traditional infrastructure investments. If you identified a constraint on the system, the solution was often a new transmission line, a new substation, or another conventional capital project. Those solutions are well understood, they’ve been used for decades, and utilities have well-established processes to evaluate them.

What’s changing is that regulators and stakeholders are increasingly asking utilities to demonstrate that they’ve evaluated other viable alternatives before making those investments. It’s no longer enough to simply identify the need. There’s growing expectation that utilities will also demonstrate they’ve considered other options that could deliver comparable benefits at a lower cost or with a faster implementation timeline.
We’re seeing that firsthand. For example, in Georgia, as part of the Integrated Resource Plan process, the Public Service Commission directed Georgia Power to formally evaluate Grid-Enhancing Technologies, or GETs, across major transmission projects. The interesting part isn’t just the technology itself. It’s that the utility now needs a structured, transparent, and repeatable process for determining when GETs should be considered, how they should be evaluated against traditional solutions, and why one option is ultimately selected over another.
And I think that’s really the broader trend we’re seeing across the industry. Whether it’s GETs, non-wires alternatives, advanced conductors, storage, or demand response, the expectation is becoming less about promoting a specific technology and more about having a disciplined evaluation framework.
At the end of the day, it’s not about proving that innovative technologies are always the answer. Sometimes the traditional solution will still be the best option. The important thing is having a transparent process that evaluates the alternatives consistently, documents the tradeoffs, and gives regulators and stakeholders confidence that the selected investment truly delivers the greatest value..
Marc: Even if you get the planning and prioritization right, there’s another challenge that’s becoming increasingly important.
Let’s talk about execution. What are the biggest constraints utilities are facing when it comes to delivering these capital programs?
Tony:
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I think the biggest constraint today is organizational capacity.
A few years ago, most conversations centered around access to capital. Today, many utilities have the capital. The bigger question is whether the organization has the capacity to deploy it effectively.
When we talk about organizational capacity, we’re talking about much more than just having enough people. It’s engineering resources. It’s project managers. It’s supply chain. It’s contractor availability. It’s permitting. It’s outage coordination. It’s the ability of the entire organization to absorb and successfully deliver a much larger volume of work.
We’re seeing utilities ask the same engineering organizations, construction managers, and field crews to deliver capital programs that are significantly larger than what they were designed to support. At the same time, they’re competing with other utilities, developers, and industrial customers for many of those same resources.
Supply chain continues to be another major challenge. Lead times for critical equipment remain much longer than they were just a few years ago, and in some cases, utilities are having to make procurement decisions years before construction even begins.
That’s forcing organizations to think differently about execution. Planning, engineering, procurement, and construction can no longer operate independently. Those functions have to be much more integrated because a delay in one area quickly becomes a delay for the entire capital program.
Ultimately, I think that’s why we’ve been saying this industry is becoming execution constrained. It’s not because utilities don’t know what they need to build. It’s because successfully delivering those investments has become just as challenging as deciding which investments to make..
Marc: So, the industry isn’t just capital constrained. It is execution constrained. How often are you seeing well-justified capital plans run into execution challenges?
Gerardo:
I’d say it happens more often than people might expect, and interestingly, it’s not usually because the capital plan itself was flawed.
What we see is that many of these organizations have developed strong planning processes. They know how to identify needs, justify investments, and build long-term capital plans. The challenges tend to emerge as those plans move through the organization.
As we’ve worked with utilities, one recurring theme is that every function is trying to do the right thing, but they’re often optimizing their own piece of the capital lifecycle. Planning is focused on identifying the right projects. Engineering is focused on design. Supply chain is managing procurement. Construction is trying to execute safely and efficiently. Finance is monitoring budgets. Operations is preparing to take ownership of the assets.
Individually, those functions may perform very well. The challenge is that capital projects don’t succeed or fail within a single function. They succeed or fail at the points where those functions have to work together.
That’s why we often see issues around handoffs, changing priorities, inconsistent data, or decisions being made without full visibility into downstream impacts. Those aren’t technical problems. They’re organizational challenges that become much more visible as capital programs grow in size and complexity.

I think that’s why we’re seeing more utilities place greater emphasis on execution readiness much earlier in the planning process. They’re asking questions like, Do we actually have the organizational capacity to deliver this project? Are the right functions aligned? Can we realistically execute this within the planned schedule?
To me, that’s the evolution we’re seeing. Capital planning and capital execution can no longer be treated as separate activities. The organizations that are doing this well are thinking about execution while they’re still making investment decisions, not after those decisions have already been made..
Marc: That disconnect between planning and execution shows up in a number of ways inside utilities.
What are the most common issues you’re seeing inside utilities as they try to manage growing capital programs?
Tony:
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I’d say one of the biggest themes is fragmentation.
Most utilities have good people, good processes, and good tools within their individual organizations. Planning has its systems. Engineering has its systems. Supply chain has its systems. Finance has its systems. The challenge isn’t usually that those functions aren’t performing. It’s that they don’t always operate as one integrated capital delivery organization.
As capital programs grow, those disconnects become much more visible.
For example, it’s not uncommon to see different groups maintaining different versions of project information. Leadership meetings become focused on reconciling data instead of making decisions. Teams spend a tremendous amount of time manually building reports because information isn’t flowing consistently across the organization.
We’ve also seen situations where one group changes a project schedule or scope, but that information doesn’t immediately cascade to procurement, construction, finance, or operations. Everyone is doing the best they can with the information they have, but they’re not always working from the same picture.
The other thing we see is that organizations become increasingly reactive. Instead of proactively managing the portfolio, they’re spending their time responding to the latest issue, updating schedules, escalating risks, or explaining why projects have shifted.
As capital programs continue to grow, that approach simply becomes harder to sustain.

I think that’s why we’re seeing many utilities focus less on adding more tools and more on improving integration, governance, and portfolio visibility. The goal isn’t just better reporting. It’s giving leaders a single, trusted view of the capital program so they can make better decisions before issues become problems.
Marc: Where do things tend to break down most often?
Tony:
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I think the natural tendency is to point to a specific function like engineering, procurement, or construction. In reality, that’s rarely where the problem starts.
What we’ve found is that projects usually break down at the decision points between functions.
For example, planning may identify the right project, but engineering has different assumptions about scope. Procurement may have different information on equipment availability. Construction may identify field constraints that weren’t known during planning. Operations may have outage requirements that weren’t fully understood earlier in the process.
None of those decisions are necessarily wrong. The problem is they aren’t always made with the same information or at the right time.
As capital programs become larger and more complex, those small disconnects start to compound. A schedule slips by a few weeks. Procurement has to adjust. Construction loses a planned outage window. Costs increase. Before long, leadership is managing downstream consequences rather than the original issue.
That’s why we’ve become such strong believers in integrated governance across the capital lifecycle. It’s not about creating more meetings or adding bureaucracy. It’s about bringing the right people together at the right decision points so issues are identified and resolved before they ripple through the rest of the organization.
To me, that’s where the biggest opportunity is. Most organizations don’t have an engineering problem or a procurement problem. They have an integration problem..
Marc: That really points to a broader issue around how capital is managed across its full lifecycle.
How should utilities be thinking about capital, not just as a planning exercise, but as a full lifecycle from planning through execution?
Gerardo:
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I think everything we’ve talked about really points to one conclusion. Utilities need to stop thinking about capital as a series of individual projects and start thinking about it as an integrated delivery system.
Instead of asking, ‘Did we develop a good capital plan?’ organizations should be asking, ‘Do we have a system that can consistently turn that plan into successful outcomes?’
To me, that’s the real shift we’re seeing across the industry. Success isn’t determined solely by selecting the right projects. It’s about connecting planning, engineering, procurement, construction, operations, and governance so the entire organization is working toward the same outcome.
Ultimately, utilities aren’t judged by the quality of the plan they file. They’re judged by whether they execute that plan successfully and deliver the outcomes they committed to.
Marc: Where do you see the biggest disconnects between those phases today? Do planning decisions always reflect execution reality, or are most utilities optimizing pieces of the system, but not the system as a whole?
Tony:
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I think the conversation is evolving beyond whether utilities perform each function well. Increasingly, the question is whether the overall capital delivery organization is built to scale.
Think about what utilities are facing. Many are planning to invest two or even three times what they deployed a decade ago. That naturally raises a different set of questions.
Is the capital planning process repeatable, or does it rely on manual work every budget cycle? Do leaders have timely, reliable data to make portfolio decisions? Are engineering, procurement, finance, and construction working from the same information? Are workflows digitized and standardized, or are people still relying on spreadsheets, emails, and offline coordination to keep projects moving?
Those questions matter because as capital programs grow, manual processes don’t just become less efficient. They become a source of risk.
We’re starting to see utilities recognize that. They’re stepping back and asking whether their operating model is actually designed to support the level of investment they’re planning over the next five or ten years. In other words, is our capital delivery system scalable?
To me, that’s where the conversation is headed. It’s not just about improving individual functions. It’s about building an organization with standardized processes, connected data, and the governance needed to consistently execute larger and more complex capital programs year after year..
Marc: So utilities need to manage capital differently, but what does that actually look like in practice?
Marc: What differentiates utilities that are doing this well from those that are struggling?
Gerardo:
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When we look across the utilities that are making the most progress, I think they tend to have three things in common.
First, they think at the enterprise level. They’re not optimizing generation, transmission, distribution, or individual departments independently. They’re making capital decisions based on what’s best for the organization and ultimately what’s best for customers.
Second, they’re investing in better information. They recognize that you can’t effectively manage a multi-billion-dollar capital portfolio if every group is working from different data. They’re connecting systems, improving data quality, and giving leadership better visibility into portfolio performance so decisions can be made faster and with greater confidence.
And third, they’re building for scale. They’re asking whether their capital delivery processes are standardized, repeatable, and digitally enabled. They recognize that the investment levels we’re seeing today can’t be managed through spreadsheets, manual reporting, and heroic efforts by individual employees. The operating model itself has to evolve.
I think that’s the biggest shift we’re seeing. The conversation is becoming less about managing the next capital plan and more about building an organization that can consistently deliver increasingly larger and more complex capital programs over the long term..
Marc: What role does organizational alignment play in making this work?
Tony:
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I think leadership plays a much bigger role than people sometimes realize.
As we’ve discussed, delivering today’s capital programs requires planning, engineering, supply chain, construction, finance, and operations to move in the same direction. That level of alignment doesn’t happen on its own. It has to be driven from the top.
The leadership teams that are doing this well create a shared vision of success across the organization. They establish common priorities, define clear decision rights, and make sure every function understands not only its own objectives, but also how its decisions affect the rest of the capital delivery process.
Another thing we see is that leadership is asking different questions than they were five or ten years ago. They’re no longer just asking, ‘Did we deliver this project on time and on budget?’ They’re asking, ‘Is our organization actually prepared to sustain this level of capital investment year after year?’
That’s a subtle but important shift because it moves the conversation from project execution to organizational capability.
To me, that’s what organizational alignment is really about. It’s creating a culture where everyone is working toward the same long-term outcomes, making decisions with the enterprise in mind, and continuously building an organization that’s ready for what’s coming next.
Marc: For utilities that are earlier in this journey, where should they start? Do they pilot certain capabilities before scaling them? What are some practical steps?
Gerardo:
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I would resist the temptation to try to transform everything at once.
The first step is simply understanding where you are today. Take an honest look at your capital delivery organization. Where are the bottlenecks? Where are decisions taking too long? Where are teams relying on manual workarounds? Where are projects consistently running into challenges? Before you start investing in new tools or redesigning processes, you need a clear understanding of what’s limiting your ability to scale.
The second step is to focus on a few high-impact improvements rather than trying to redesign the entire organization. Maybe it’s improving portfolio visibility for leadership. Maybe it’s standardizing the project development process. Maybe it’s digitizing a manual workflow that’s slowing everyone down. Pick initiatives that solve real business problems and build momentum.
Finally, treat this as a continuous journey. As we’ve discussed, this isn’t about implementing a new system or creating a new governance committee. It’s about building an organizational capability. The utilities that are making the most progress are continuously refining their processes, strengthening governance, improving data quality, and leveraging technology where it creates the most value.
The important thing is to start. You don’t have to build the perfect capital delivery organization overnight. But you do need a clear roadmap and a commitment to getting a little better every year..
Transition
Marc: Let’s make this more concrete.
Question 16: Organizational Readiness vs. Funding
Marc: Can you share an example of a utility that needed to significantly scale its capital program, and what ultimately determined whether they were successful? It strikes me that there is funding (i.e., do we have access to the capital we need) and then there is organizational readiness, and they are not the same.
Tony:
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One of the biggest lessons we’ve learned is that access to capital and the ability to deploy capital are two very different things.
We’ve worked with utilities that had regulatory support, access to financing, and well-developed capital plans. On paper, everything looked like it was in place. But when capital spending began to accelerate, the organization struggled to keep pace.
The reason wasn’t a lack of funding. It was that many of the underlying capabilities had been built for a much smaller capital program. Governance models, staffing approaches, reporting processes, digital tools, and decision-making frameworks all worked well when the organization was delivering a billion dollars of capital. They didn’t necessarily work as well when that number doubled over a relatively short period of time.
I think that’s an important distinction for utility leaders. Securing approval for a larger capital plan is a major milestone, but it’s not the finish line. You also have to ask whether your organization is prepared to execute at that scale.
In many ways, that’s become the defining question for the industry. The challenge isn’t simply finding the capital. It’s building an organization that can consistently deploy that capital safely, efficiently, and in a way that delivers the outcomes you’ve committed to..
Closing Section (2–3 min)
Question 17: Who Wins This Cycle
Marc: Looking ahead, what do you think will differentiate the leading utilities as this capital cycle continues?
Gerardo:
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I actually think the conversation is going to shift from how much utilities are investing to how effectively they’re investing.
For the past several years, we’ve all been focused on the size of capital plans because the numbers have been unprecedented. But eventually, those investment levels become the new normal.

The next question regulators, boards, investors, and customers are going to ask is, ‘What did we get for all of that investment?’
Did reliability improve?
Did interconnection timelines improve?
Did customer affordability improve?
Did we build the grid faster and more efficiently?
I think that’s where the industry is headed. Success won’t be measured by the size of a capital plan. It’ll be measured by the value those investments ultimately deliver.
The utilities that separate themselves won’t necessarily be the ones spending the most. They’ll be the ones that can consistently demonstrate the outcomes their investments created.
Question 18: From Capital Planning to Capital Discipline
Marc: If you were advising utility executives today, what’s the one thing they should do differently when it comes to capital allocation?
Tony:
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If I could leave utility executives with one thought, it would be this:
Spend as much time asking whether your organization is ready to deliver the capital plan as you do deciding what’s in the capital plan.
Most leadership teams spend months debating which projects should be funded. Those are important conversations. But I think an equally important question is, ‘Can our organization actually execute this plan the way we’ve committed to?’
That means looking beyond the projects themselves. Do we have the right governance? Do we have the right talent? Are our processes repeatable? Do our leaders have the visibility they need to make timely decisions? Are we building an organization that’s ready not just for next year’s capital plan, but for the next decade of investment?
I think the utilities that ask those questions early will be much better positioned to deliver on the commitments they make to regulators, boards, and customers.
At the end of the day, a capital plan isn’t just a list of projects. It’s a commitment. The organizations that consistently keep those commitments are the ones that will earn the trust of their customers, regulators, and stakeholders over the long term..
Marc: Gerardo, Tony, thanks for joining me today. I appreciate you sharing your perspective on how utilities can better align capital planning and execution.
Outro
Marc: Thanks for listening to this episode of The ScottMadden Energy Exchange.
If you’d like to continue the conversation, you can find individual contact information in the show notes, or reach us at info@scottmadden.com.