StrategyTechnology

Utilities opt to use cloud-based analytics, despite lack of monetary incentives

It’s been over two and a half years since NARUC passed a resolution encouraging state public utility commissions to “consider whether cloud computing and on-premise solutions should receive similar regulatory accounting treatment, in that both would be eligible to earn a rate of return and would be paid for out of a utility’s capital budget.”

Regardless, investor-owned utilities (IOUs) are still wary adopters of cloud services. Cost recovery and guaranteed rate of return for capital expenditures make capital investments more attractive than operating expenses—for the most part, this has always been the case. A cloud-based subscription service is treated as an operating expense[1] in most cases. There is some movement, though. Recently, the Illinois Commerce Commission, made progress on proceedings to allow utilities to pre-pay for cloud services, amortize costs and derive earnings as a typical asset. Earnings on top of pay-as-you-go were also approved, although that option doesn’t have the same level of benefits as pre-paid (see Making Cloud Computing and Other Services Pay for Utilities and Customers.)

What this means for cloud analytics:

  • There are less than a handful of states that are addressing cloud services for IOUs.
  • Despite the lack of monetary incentives, utilities are adopting analytics in the cloud. A quick review of UAI membership shows at least 10 major IOUs adopting cloud-based solutions at scale to address areas such as asset management, water quality, unaccounted-for-energy, and customer engagement. This does not include utilities that store data on the cloud but use on-premise analytics. (See PG&E’s Agile Asset Analytics Teamwork).
  • The reasons: Access to greater computing capacity; quick set up, especially for Agile teams; lower cost; lower risk of obsolescence; and access to equipment data and models (as in manufacturing companies analytics platforms).
  • Security doesn’t seem to be an issue for cloud analytics either. Since cloud analytics are advisory—not control—systems they may pass NERC CIP protected information standards.
  • Analytics platforms are becoming more popular with utilities. Many platform vendors (Microsoft Azure, Cloudera, AWS, etc.) host data and may offer generic data science tools as well (Python, SAS, SPSS, Apache Spark, etc.). Other platforms layer on utility specific industry models to the mix (C3, Predix, ABB’s Ellipse APM).
  • Cloud-native analytics vendors (eSmart Systems, First Fuel) combine artificial intelligence (AI) and machine learning (ML) with industry domain expertise and models (for example, asset health and risk models, energy efficiency) in partnership with platform vendors. These solutions are making strides in advancing the adoption curve for AI and ML.
  • In the future, there might not be a lot of alternatives. Cloud applications are de-rigueur for traditional enterprise software providers serving the utility industry (SAS, Oracle).

Jill Feblowitz is President of Feblowitz Energy Consulting, where she helps companies in the energy ecosystem with innovation. Ms. Feblowitz has over 30 years in the business, starting with watts (as an electrician) and moving to MW (as a consultant and IT analyst), providing advice on business, regulation, and technology. She has a historical perspective as well as a keen sense of industry game-changers – renewables, distributed energy resources, storage, EVs, smart grid and information/control technologies (Big Data, analytics, edge computing, AI/machine learning, robotics, and more). During her long work history, she has learned how critical analytics are to industry performance.

[1] This treatment does not apply to municipals.  Munis are driven to lower their costs, thus cloud services are attractive.