Dive Brief:

• The Illinois Commerce Commission is closer to finalizing new rules that will allow utilities to earn a return on investments in cloud-based computing solutions. The new accounting approach could be in place by Oct. 31, 2020, if regulators meet the required schedule.
• Following changes discussed during an April 1 stakeholder workshop on the issue, the proposed rules would allow utilities to treat 80% of cloud hosting capacity and software subscription fees as regulatory assets, with the remaining 20% of those costs treated as operating expenses.
• Commonwealth Edison, the largest electric utility in Illinois, supports the new rules — as do other power providers in the state. Compared with computing systems developed in-house, cloud-based computing can be "more cost-effective for the utility and its customers in the long run," ComEd spokesperson David O’Dowd told Utility Dive in an email.

Dive Insight:

A smarter grid requires more computing power to manage, and utilities say they want to focus on delivering electricity rather than building server rooms. The new rules would remove a disincentive for utilities to outsource their computing needs. 

"Cloud based solutions, by definition, allow for greater flexibility in that they allow utilities to scale up and back data storage needs in a manner that on-premise solutions may not," O’Dowd​ told Utility Dive.

The new ICC rules would allow utilities to seek the most appropriate computing solutions without having to forego a rate of return when those investments are made in off-site systems. The ICC's rulemaking says it aims to “level the playing field” between on-premises and cloud-based computing solutions.

A previous version of the rules approved the accounting changes but required a cost breakdown from cloud providers and meant utilities would need to compare cloud computing functions to determine whether money spent was for an operating expense or a capital investment. Allowing utilities to claim 80% of cloud expenses as capital investments simplifies that process without placing onerous burdens on providers.

"The proposed revisions add clarity, will streamline administration of the proposed rule, and will further promote additional benefits to customers, harnessing the flexibility, efficiency, and scalability of cloud-based solutions," O’Dowd​ said.

The new proposed rules were published May 8 on the ICC web site. Following two rounds of comments, due May 19 and 26, the ICC can approve the new accounting treatment and send the rules to the Illinois Joint Committee on Administrative Rules for consideration. If the rules are approved, the ICC will then need to issue an order by the end of October to implement it.

There is little opposition to the new accounting approach, say experts. And the rules will likely be adopted.

The Illinois Attorney General's (AG) office previously called the proposed rules "qualitatively different and unnecessary" and argued it "would create an undue burden on third-party vendors of cloud-based solutions that would, in turn, diminish the competitiveness of any utility’s bidding process for third-party cloud-based solutions contracts."

However, those objections were filed before the latest revision to the rules, and the Illinois AG has not commented since and did not respond to Utility Dive questions.

Other states, including Alabama and New York, have taken steps to allow cloud computing expenses to be capitalized, but experts say Illinois' effort is by far the most detailed. The commission opened the rulemaking in December 2017.

ComEd says it has no immediate plans based on the proposed new rules.

"ComEd will continue to evaluate both on-premise and cloud-based solutions to ensure that the product chosen is best suited for the needs of the utility and its customers for the specific situation," O’Dowd​ said.