Utilities, regulators unearthing common ground on cloud investments

We talk to utilities a lot. It’s our job—and it’s our pleasure, too. We want to make sure we’re a good partner for now and for the future.

These days, we talk to utilities a lot about the cloud.

Ninety-seven percent of utility executives in a broad recent study told us that their utility is using cloud-based software right now or will be very soon.  (And they also revealed that regulatory treatment of the cloud is slowing their adoption of cutting-edge technology, with one executive using the word “impeding” when framing the discussion.)

At the same time that regulators are seen as a bit slow on the cloud pick-up, they also tell us they want utilities and utility customers to see the benefits of the cloud.  In fact, one regulator recently said that favorable regulatory treatment “helps to align the interest of regulated utilities with the expectations of 21st century consumers.”[1]

While these two statements may seem, on the surface, like a bit of a disconnect over the cloud, underneath it’s all good news.  It means everyone agrees on one thing: that utilities should move to the cloud. It even has a secondary bit of great subtext: that the cloud should get favorable regulatory treatment.

Now, how do we get there (and, really, what does “favorable regulatory treatment” mean?)

Defining “favorable regulatory treatment” all comes back to how utilities make money and what utility customers pay for what utilities produce.

Let’s start with how utilities make money. It’s simple (on the basics level). They charge prices to make and/or move power (or gas or water)—prices that are approved by a regulator. The regulator determines the reasonable price for that utility to charge by examining how much it costs the utility to provide the service.  If it costs more to make sure the lights come on when someone flips the switch, then the power will cost more.

Now, there are two big types of expenses that go into a utility’s costs: investments in assets (like pipes, if we use gas or water as an example) and ongoing operating costs (like the fuel that goes into some generation plants, if we use power as an example).  Because utilities put money at risk when they make a big investment, regulators allow them to earn a profit on those investments to compensate them for the risk.  For operating costs, though, the utility isn’t putting money at risk, so the regulator doesn’t give them a profit on those particular costs.

Think about the incentive that this sends.  Utilities earn a profit by investing in assets, but not by spending money on operating costs. 

This is where we circle back to the cloud. 

When utilities buy traditional on-premise software and house it on a server that the utility owns, that’s an asset.  But when utilities sign a contract to have a vendor deliver that exact same software as a service and deliver it via the cloud, most people think of that as an operating cost.  Obviously, then, this means that utilities have a real financial incentive to buy on-premise software.

Today, forward-thinking regulators are trying to level the playing field between cloud-based on on-premise software—and forward-thinking utilities are also finding ways to move make that a reality sooner, too. In fact, this discussion is labeled one of the hottest when it comes to regulatory policy this year.

So, it’s quite possible that those ninety-seven percent of utilities surveyed that we talked to earlier in this piece may see cloud investments even sooner than expected (and we’ll hear no more talk of “impeding” and regulators in the same sentence).

Oracle is hosting a panel conversation among industry leaders representing the utility and regulator viewpoints at the upcoming Managing Disruption 2018, a TMG Utility Forum in Las Vegas Oct. 2-3.  Please join us in Las Vegas in October to learn more about the path forward for favorable regulatory treatment for the cloud.

 

Read more cloud content:

Pursuing the perfect cloud path
How the cloud is already changing your utility business for the better
SaaS is your next innovation enabler
Looking for tomorrow in today

 

[1] Chairman Gladys Brown, Pennsylvania PUC, statement in Docket R-2016-2580030

 

We sat down and turned our favorite new tech dream, The Cloud, into your next comic book superhero obsession. (The Avengers ain’t got nothing on us.) Read the first issue here

Read more: blogs.oracle.com

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