Cloud Atlas

Regulators Acknowledge Utilities’ Need for Data Storage

The WannaCry ransomware virus attack was first detected in Britain on Friday, May 12, but it didn’t take long for it to spread throughout much of the world, creating havoc, fear and panic. By Monday, as the new work week began, the virus had spread across the globe and into Asia.

The virus was first discovered just one day after U.S. President Donald Trump signed an executive order requiring federal government agencies to review U.S. cybersecurity capabilities. Among other things, the order puts responsibility for cybersecurity risk on the heads of federal agencies. It requires that a report covering cybersecurity concerns and vulnerabilities related to critical infrastructure be completed within six months. In addition, the executive order focuses on moving as much as possible to the cloud-a suggestion that has created some angst.

As owners and operators of some of the largest and most relied upon infrastructure on the planet, utilities already understand the need to focus on protecting critical infrastructure. In addition, most understand the importance of the cloud for data storage and analytics. In fact, many are already moving large amounts of data to third-party cloud services.

While there is debate about whether cloud services are secure enough and appropriate for utility data, many experts, including many utility executives and some public utility regulators, believe so.

In early 2016, Oracle surveyed executives from 100 electric, water and gas utilities and discovered that 45 percent of the utilities were already using cloud technologies and another 52 percent had plans to do so.

Understanding that costs for cloud services can be high and utilities need a mechanism to recover those costs-similar to the way they might recover the capital costs of building a data center-Oracle’s next utility cloud survey went to regulators.

FIGURE 1: Please share how much you agree with the following statement regarding cloud technologies and investments. Figure shows percent of respondents that agreed with statements
FIGURE 1: Please share how much you agree with the following statement regarding cloud technologies and investments. Figure shows percent of respondents that agreed with statements.

“Regulators don’t expect utilities to go out and build large data centers,” Marisa Uchin, senior director, global regulatory affairs at Oracle Utilities, said during Oracle’s Industry Connect event this spring.

Most utilities look to third party software as a service (SaaS) companies to provide the cloud services they need, Uchin said. But, depending on the services provided, the cost to move, analyze and store data in the cloud, can be high and utilities must be able to recover those costs.

“Regulators know innovation and transformation are coming to this industry and they don’t want to see business as usual. They want you (utilities) to bring them technology innovation, as well as financing ideas,” Uchin said.

Regulators focus on three primary themes, she said. They are: 1) Innovation; 2) How to pay for it; and 3) Security. She emphasized that utilities must show regulators that cloud services will allow them to improve their customers’ experiences. They must also quell any concerns regulators have about security risks.

Regulators’ responses to Oracle’s survey revealed that many do understand the importance of the cloud to utilities’ future success (Figure 1). Just under 40 percent, however, thought they should play a “significant” role in determining whether utilities use on-premise or cloud technologies (Figure 2), the survey showed.

FIGURE 2: What role should the regulator play in determining whether utilities use on-premises or cloud technologies?
FIGURE 2: What role should the regulator play in determining whether utilities use on-premises or cloud technologies?

Figure 3 shows some other key survey findings.

To gain a little more insight into the report’s key findings and why regulators’ perspectives matter to utilities, POWERGRID International conducted a one-on-one interview with Uchin.

POWERGRID International: Why is it important to utilities for regulators to understand cloud computing? How are they involved with utilities’ decisions about cloud computing?

Uchin: In a 2016 survey of utility executives, 97 percent stated they are currently or plan to use cloud computing solutions. Given this direction of utility IT investments, and the central role that regulators have in determining prudency of utility expenditures, it is important for regulators to understand the unique benefits and attributes of cloud solutions.

The cloud is about innovation, and it’s critical that utilities are able to use cloud-based technologies to continue to provide the latest, most convenient solutions for customers and to improve their operations. Regulators determine the degree to which utilities can use the cloud.

FIGURE 3:
FIGURE 3:

POWERGRID International: When/why is cloud computing considered a capital expense and not part of normal operating expense?

Uchin: The determination of what is considered a capital expense vs. an operating expense is a regulatory accounting issue that is approved by state utility regulators and based on FERC’s Uniform System of Accounts (USOA). Cloud computing provides business critical solutions to utilities like on premise computing solutions, the only difference is the delivery model. Because of this distinction, there are existing USOA accounts within which cloud computing can be considered a capital expense.

Regulators want their utilities to make investments that best serve the public interest. Instead of focusing just on archaic accounting rules, forward-thinking regulators are aligning utility incentives with the public interest.

POWERGRID International: How much say should regulators have? Should they be expected to only decide the mechanism for cost recovery, or should they have a say in the selection of the cloud services?

Uchin: State utility regulators, through their prudency review of utility expenditures, have a significant amount of oversight and influence. Historically, the most successful models in utility regulation have been where regulators create the right policy structure that guides utility investment rather than making operational decisions on behalf of the men and women running the utilities.

POWERGRID International: How quickly do you think regulators will realize their need to resolve and respond to cost recovery questions about SaaS and cloud computing?

Uchin: Regulators have already indicated that they see this as an important issue to address, as evidenced in November 2016 when the National Association of Regulatory Utility Commissioners (NARUC) Board of Directors adopted the resolution, “Encouraging State Utility Commissions to Consider Improving the Regulatory Treatment of Cloud Computing Arrangements.” Each state public utility commission will approach this in its own way, whether through a specific rulemaking, or as part of a much larger ordering document on utility reform (like in New York REV), and yet others may address it through the next general rate case they review.

POWERGRID International: Should utilities feel encouraged by the results of this report? Why or why not?

Uchin: Utilities should absolutely feel encouraged by the results of this report. It’s clear that regulators are increasingly aware of and thinking strategically about the impact of cloud computing on the utilities they oversee. Both this report and the NARUC resolution are strong indicators that regulators are interested in providing clear guidance in support of a level playing field for utility IT investments.

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