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2Q 2023

Enabling Utilities to Invest in Cloud-Based Solutions

The perception that electric utilities have failed to keep pace with the level of innovation seen in other major industries is largely correct. As most other mission-critical sectors migrate to cloud-first software strategies, the question becomes, “why not electric utilities?” The answer is multi-faceted.

Beyond inherent cultural skepticism, issues pertaining to accounting and regulatory parity have inhibited the adoption of cloud computing and software as a service (SaaS). While a few state commissions have eased their capitalization restrictions to help level the playing field between on-premise and cloud-based solutions, without a standard approach or industry-wide consensus, eliciting widespread change remains a challenge. Utilities are, however, using several creative workarounds to sidestep these traditional capitalization requirements.

This study takes a look at the evolution of cloud-based regulatory policy and outlines ways electric utilities can capitalize their cloud and SaaS investments today.

Pages 19
Tables | Charts | Figures 5
  • How are cloud and SaaS transforming the energy software space?
  • Why and how have regulatory and accounting rule frameworks hindered cloud and SaaS adoption to date?
  • What approaches can be leveraged to circumvent regulatory barriers and capitalize cloud and SaaS investments?
  • How can utilities engage with regulatory commissions to explore capitalization mechanisms in lieu of waiting for widespread standardization or industry consensus?
  • How can regulators facilitate industry innovation?
  • Utilities and grid operators
  • Utility software vendors and service providers
  • Regulatory bodies
  • Government agencies
  • Research community
  • Investor community

Spark

Context

Recommendations

Cloud and Software as a Service Are Quickly Becoming the Norm

Energy Providers Are Awakening to Cloud Computing’s Multi-Pronged Value Streams

Energy Industry Still Trails Other Major Verticals in Cloud and SaaS Adoption

Outdated Regulations and Lack of Accounting Parity Plague the Industry and Stifle Innovation

North American Utilities Cite Regulatory Barriers as the Primary Obstacle

The Pace of Regulatory Modernization Remains Slow and Insufficient

Energy Software Providers Are Not Waiting for Regulators to Catch Up

Utilities May Still Capitalize Their Cloud and SaaS Investments Today

Prepaid Contracts Have Been Well Received by Regulators

Periodic Payments Preserve Flexibility at the Expense of Earnings Potential

Hybrid Approach Minimizes the Flexibility and Earnings Tradeoffs of Available Alternatives

Make-Whole Adders Can Help Bridge the Opportunity Cost of Cloud Investments

Performance-Based Ratemaking Enables Future Pathways

Growing Number of State PUCs Have Eased Their Capitalization Requirements

New York Public Service Commission Recognized Cloud Capitalization Issues Early On

Illinois’ Landmark Regulatory Proceeding Could Have Changed the Game

Alabama Power’s Direct Approach Offers a Template for Others

Indiana Commission Allows for Prepaid Cloud Capitalization

Pennsylvania Adds to the Growing Case Study Library

Green Mountain Power Looks to Build on Early Precedents

California IOUs Are Clamoring for Regulatory Parity

Energy Providers Run the Risk of Falling Behind

  • SaaS/Recurring Spending by Region, World Markets: 2022-2030
  • Cloud Computing’s Key Benefits
  • Regulatory Accounting Timeline/Evolution
  • Key OT Vendors: Cloud/SaaS Development and Sales Strategies
  • Cloud Adoption Trends
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Industry Insight Dec 05, 2017
Utility Cloud Use Soars in 2017