It is no secret that Utilities lag behind other sectors when it comes to the adoption of cloud computing. But why is this and what is keeping utilities from making the leap to the cloud?
The financial merits and technical benefits of cloud computing and corresponding software-as-a-service (SaaS) delivery models have been clearly demonstrated across all major industries such as banking, healthcare and a variety of federal and state government agencies.
It is my belief that the lack of cloud adoption by utilities is primarily due of two major issues: perceived security risks and financial accounting.
Security will always be at the top of a utility’s priority list. Over the last decade many potential purchases of cloud based utility solutions have been derailed with a Director of IT expressing dismay about where an application with sensitive data is hosted. I get it – security is of the utmost importance for utilities. But does this reluctance to trust the cloud really make sense anymore? Most of us rely on cloud solutions every day to handle our most confidential and sensitive information whether it be banking information, health records or family pictures. So why not utilities? Fortunately, the climate is changing. Courageous and forward thinking utility managers are now starting to acknowledge that Cloud providers are much better positioned to meet the industry’s exacting security requirements. A recent IDC study reported that over 75% of utilities now believe that cloud providers can provide better security than their own IT staff. It makes perfect sense when you think about it. The entire business of cloud providers is dependent on providing a secure environment for their customers and their sensitive information.
Financial Accounting – Op-Ex Vs. Cap-Ex
Unfortunately, there is a fundamental disincentive for utilities when it comes to cloud computing. Current Utility regulation does not allow utilities to rate-base operational expenses such as cloud computing costs. As a result, Capital Expenditures on IT infrastructure are viewed as a “good” because they provide for a regulated rate of return. Correspondingly, Operational Expenditures on cloud services are viewed as “bad”. It goes without saying that this approach is short-sighted. Fortunately, it appears that changes are on the way.
A few months ago, the National Association of Regulatory Utility Commissioners (NARUC) adopted a resolution encouraging state regulators to consider allowing cloud computing costs to be paid out of a utility’s capital budget. Now this is a step in the right direction.
It is clear to me that the savings and operational efficiencies resulting from replacing archaic and costly legacy systems with cloud solutions is better for rate payers than any profits derived from a Cap-Ex based replacement.
Fortunately, utilities are realizing that they can no longer afford to ignore the cloud. A recent study by IDC Energy Insights survey reveals that 74% of utilities indicated that public cloud is their dominant, long-term platform strategy to meet IT needs. This is encouraging as there are numerous tangible benefits for utilities to increase their investment in cloud solutions:
- Agility to adapt quickly to rapidly changing business requirements
- Scalability for increasing amounts of data and customer demands
- Improved reliability & performance with a predictable cost of ownership
- Continuous updates and disaster recovery strategies
Ultimately, the most important benefit will be allowing utilities to focus on their core business which is providing outstanding, affordable and reliable services to their customers.