In a surprise move, the Illinois Commerce Commission (ICC) halted a nearly three-year effort to help Illinois utilities pay for investments in cloud computing.
In a 3-2 decision, commissioners voted on July 15 to shelve a proposed rule that would change how the state's electric, gas, water, and other energy utilities record their Internet "cloud" based computing costs for regulatory accounting purposes.
Voting to drop the rule were Commissioners D. Ethan Kimbrel and Michael Carrigan, along with Chairman Carrie Zalewski. Voting against were Commissioners Maria Bocanegra and Sadzi Oliva.
Bocanegra called the move a "futile exercise in failed logic," which Oliva said "sets Illinois back as a state progressive in its approach to innovation."
Why should state regulators care whether utilities invest in cloud computing?
Because those investments could ultimately affect ratepayers.
Some background: In the past, business enterprises did all their data processing and storage on their own property. For an enterprise with far-flung infrastructure—such as a public utility—the operation, maintenance, and upgrading of data processing is an ongoing capital expense.
Cloud computing allows enterprises to contract out data processing and storage. Because a cloud vendor centralizes the computer operations of many enterprises, economies of scale let the vendor provide computer operations more cheaply than a dispersed enterprise could manage on its own.
Transitioning to vendor-provided cloud services, however, requires up-front investments—which, if managed properly, would result in lower long-term operating costs.
Public utilities say they're stymied from transitioning to cloud services because of current regulations. A utility can include its capital expenses in its rate base, which means it can be reimbursed via rates the state allows it to charge its customers.
The costs of software and services for cloud computing, though, are generally viewed as operating expenses—which, according to utility regulations, a utility can't recoup from its customers.
Utilities maintain, in what ICC documents call a "consensus among stakeholders," that cloud computing will enable them to cut costs and pass those savings on to customers—after those customers help them pay for the up-front investments. But currently, the utilities say, "the regulatory accounting rules" provide a "disincentive for utilities to invest in new technology."
In late 2017, the commission embarked on a project that would identify what, if any, new regulations could make "a level playing field between on-premises and cloud computing systems," and whether the ICC should "provide comparable accounting treatment." The commission formally created a "notice of inquiry" (NOI) in docket #17-0855.
Over the next three years, ICC staff recruited stakeholders, conducted workshops to draft a regulatory framework, solicited comments, held public hearings, tweaked the framework—then repeated as needed.
Among utility stakeholders were Commonwealth Edison, Peoples Gas, Nicor Gas, and Illinois-American Water Company. Ratepayers were represented by the likes of the Illinois Attorney General and the Citizens Utility Board (CUB).
Fast-forward to May of this year: The ICC's staff proposed a new rule upon which stakeholders tentatively agreed. The rule let utilities count 80 percent of cloud computing fees paid to outside providers as regulatory assets—that is, reimbursable by ratepayers. The ICC directed stakeholders to request exceptions to the rule by month's end.
CUB, for its part, had asked the ICC to ensure that utilities prove that their cloud investments were cost-effective and wouldn't unduly burden ratepayers.
The ICC's proposed cloud computing rule appeared on commission's July public meeting agenda. The action on which commissioners were to vote—"Order Authorizing Second Notice Period"—would, if passed, have sent the new rule to a body of the General Assembly called the Joint Committee on Administrative Rules for final greenlighting.
However, when the rule came up for a vote in the ICC's public meeting, Chairman Zalewski said that the commission would, instead, vote on completely removing the proposed rule from further consideration. She said that it "lacks necessary consumer protection mechanisms" and that "the 80/20 percent split of the costs of cloud computing proposed" is "arbitrary and not supported by the record."
Although the ICC gave the public no prior notice of the about-face, commissioners evidently had been given a heads-up. Commissioners Bocanegra and Oliva voiced their dissent before the vote.
"The closure of this NOI," Bocanegra said, "signals that we are essentially denying the technological process that our systems and society will depend on more and more heavily from 2020 and onward." She said that three years of effort had "dwindled down to nothing more than a circular and futile exercise in failed logic."
Oliva said that the "consensus and collaboration of stakeholders highlights the positive reception of this proposed rule, and the thoughtfulness that went into redrafting" it. "Without the regulatory certainty of the proposed rule," she said, "there is less incentive for utilities to invest in cloud based software."
Bocanegra and Oliva also issued a joint written dissent.
In a final order released a day after the vote, the ICC said that "the proposed rule language simply fails" to provide "additional benefits to the consumers." It went on to say that it's "better for the industry if we do not tinker with" accounting methods currently used by utilities.
When asked at what point before the meeting the ICC had made the previously undisclosed reversal, spokeswoman Vickie Crawford did not answer directly.
Jim Chilsen, spokesman for the Citizens Utility Board, said that his organization would not comment.
A version of this piece appeared originally in The Daily Line.
