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Utility Dive: Illinois Regulators Reject Proposal to Allow Utilities Cost Recovery for Cloud-Based Computing

Posted by John Funk on Jul 24, 2020

Utility Dive covered Illinois Commerce Commission's rejection of changing regulatory accounting rules to allow partial recovery cloud-based computing costs through customer rates, quoting AEE's Danny Waggoner. Read excerpts below and the entire UD piece here. 

The Illinois Commerce Commission (ICC) has rejected a change in regulatory accounting rules proposed by its staff and the state’s utilities, which would have allowed the partial recovery of contracting costs for cloud-based data processing through higher customer rates. The proposal would have allowed utilities to treat at least part of the cost of cloud-based computing services as infrastructure investments just as if they had purchased computer hardware and software and hired staff...

Current rules treat cloud expenses as operating expenses which cannot be included in a utility rate base. The rationale for the proposal, which the ICC began to study in 2017, was that electric utilities struggling to build smart grids would be incentivized to use more efficient and less costly cloud-based services rather build them in-house if accounting rules would allow them to treat the cloud services as capital investments rather than operating expenses. Coming changes in the electric power grid, as renewable energy production continues to increase, will require increasingly sophisticated controls.

Utilities will need the ability to predict and react to power supply as well as to new sources of demand. They will need the ability to instantly analyze enormous amounts of data, and that will require ever-increasing data processing power. Paying for cloud computing services is an issue regulators and utilities have been considering in many states. Renewable energy advocates more than a year ago recognized that Illinois regulators were in a cutting-edge debate and urged the ICC and Illinois lawmakers to make the change in the accounting treatment of cloud computing expenses...

As negotiated since then by the ICC staff, utility representatives, and renewable and clean energy advocates, the proposed accounting rule changes would have allowed utilities to treat 80% of cloud service expenses as if they were a capital investment while absorbing the remaining 20% as a normal operating expense. In a split 3-to-2 vote reflecting at least in part the concerns of lawmakers about the impact on customer bills if utilities were able to more easily pass on the cost of cloud-based data services, the ICC decided to end further discussion and leave current accounting rules in place...

“We were surprised and disappointed that the ICC voted down the cloud-computing accounting rule proposal, given the unanimous vote to move forward with the proceeding last fall, the consensus reached by utilities, ICC staff and advanced energy companies on a simplified rule, and the absence of any objection in the recent record," said Danny Waggoner, director at Advanced Energy Economy, in a prepared statement.

Dissenting commission members were bitter about the development and said so before three members of the five-member commission voted to end the proposed rule changes...

Read the entire UD piece here. 

Topics: AEE In The News