trending Market Intelligence /marketintelligence/en/news-insights/trending/YQZisaQAm-5rutBpaX04SQ2 content esgSubNav
In This List

Illinois to consider allowing utilities cost recovery for cloud-based solutions

Blog

Europe: 5 key OTT trends to watch in 2022

Podcast

Next in Tech | Episode 50: InfoSec spending up, again…

Blog

Broadcast deal market recap 2021

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud


Illinois to consider allowing utilities cost recovery for cloud-based solutions

In a new proceeding before the Illinois Commerce Commission, utilities might be able to earn a return for investing in cloud-based services in addition to on-site hardware and software.

On Dec. 6, the ICC issued an order to open a proceeding to consider the accounting treatment of all forms of cloud-based computing solutions, which allow for computing, data storage and information sharing over the internet. Cloud-based services include software as a service, platform as a service and infrastructure as a service.

"Specifically, the commission recommends that the staff initiate a rulemaking to level the playing field between on-premise and cloud-based computing systems by clarifying the regulatory accounting rules to provide comparable accounting treatment of on-premise and cloud-based computing systems," the commission said in the order, which directs an administrative law judge to prepare a "first notice order" for consideration within 180 days.

The proceeding comes after the ICC held a technical conference in September 2015 and issued a notice of information in 2016 that showed sufficient support for revising the accounting treatment of cloud-based solutions, according to an April 7 notice of information report summarizing the commission's findings.

Under current accounting principles, utilities can earn a return for capital investments such as on-premise computers and software but not for cloud-based products. Furthermore, costs of a capital project are typically recovered over the estimated useful life of the project whereas cloud-based solutions are typically accounted for in customer rates in the year they are used, according to comments from Ameren Corp. subsidiary Ameren Illinois Co. that were summarized in the April report.

Advanced Energy Economy, a clean energy-focused advocacy group whose membership includes cloud-based service providers, applauded the opening of the proceeding in a Dec. 12 statement. "This is a huge step forward in making sure market rules allow for investment in the latest technology and to spur innovation in the ways utilities offer secure, clean, affordable energy," said Lisa Frantzis, senior vice president of 21st Century Electricity System, an initiative of Advanced Energy Economy.

In a Dec. 6 letter to the commission, Advanced Energy Economy and about a dozen cloud-based service providers said the ICC's proceeding is the first in the continental U.S. to consider whether cloud-based solutions and on-premise solutions should receive equal accounting treatment. The letter was signed by providers including Amazon Web Services Inc., Oracle Corp., Nest Labs Inc., Salesforce.com Inc. and a subsidiary of Siemens AG.

In the April report, cloud-based software providers such as C3 Inc., doing business as C3 IoT, claimed that cloud solutions avoid upfront and maintenance costs that would be incurred from hosting a hardware or software system on-site.

Energy and water utilities vary on whether they find cloud-based solutions cheaper. An official with Commonwealth Edison Co., which distributes electricity to customers in northern Illinois, said in April 29, 2016, comments, "Generally companies choose cloud based solutions primarily based on operational factors such as agility, innovation and managed services. Cost is often a secondary consideration as cloud solutions are not always less expensive than on-premise solutions." The Exelon Corp. subsidiary uses cloud-based solutions for a variety of purposes, such as obtaining data from its smart meters and mapping outages, according to the comments. It also uses cloud-based solutions to help customers manage their energy use.

Both utilities and providers of cloud-based solutions cautioned that shifting to cloud computing will not eliminate security risks. (Illinois Commerce Commission Case 17-0855)