20200309Application.pdf

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March 9,2020
VIA HAND DELIVERY
Diane Hanian, Secretary
ldaho Public Utilities Commission
11331 W. Chinden Boulevard
Building 8, Suite 201-A
Boise, ldaho 83714
Case No. IPC-E-20-11
Accounting Order for Costs Associated with Cloud Computing Arrangements
ldaho Power Company's Application
Dear Ms. Hanian
Enclosed for filing in the above matter please find an original and seven (7)
copies of ldaho Power Company's Application.
Also enclosed for filing are an original and eight (8) copies of the Direct
Testimony of Matthew T. Larkin. One copy of the aforementioned testimony has been
designated as the "Reporter's Copy." ln addition, a disk containing a Word version of
Mr. Larkin's testimony is enclosed for the Reporter.
lf you have any questions about the enclosed documents, please do not hesitate
to contact me.
Very truly yours,
LISA D. NORDSTROM
Lead Counsel
I [e-mail]
LDN/KKI
Enclosures
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Lisa D. Nordstrom
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
lnordstrom@ idahopower. com
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Attorney for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER FOR COSTS
ASSOCIATED WITH CLOUD
COMPUTING ARRANGEMENTS.
CASE NO. IPC-E-20-11
APPLICATION
ldaho Power Company ("ldaho Power" or "Company"), in accordance with ldaho
Code S 61-524 and RP 052, hereby respectfully makes application to the ldaho Public
Utilities Commission ("Commission") for an order (1) approving the deferral of costs
associated with cloud computing arrangements to a regulatory asset, and (2)
acknowledging that the unamortized regulatory asset amounts are eligible for rate base
treatment and the associated annual amortization expense is eligible for potential
recovery in a future rate proceeding.
!n support of this Application, ldaho Power asserts as follows:
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APPLICATION - 1
I. CLOUD COMPUTING
1. For purposes of lnformation Technology ("!T"), on-premise solutions are
those !T products or applications that are kept within ldaho Power's own premises and
require the Company to purchase a license or copy of the software to use it. An on-
premise solution is managed and maintained by the Company requiring in-house server
hardware, software licenses, integration capabilities, and personnel on hand to support
and manage the application should issues arise.
2. Cloud computing, on the other hand, is the delivery of lT products, including
servers, storage, databases, networking, and software, over the internet or "cloud." The
basic notion behind cloud computing is that the location of the hardware or operating
system on which a product is running is irrelevant to a user, allowing products to be
updated easily and often with minimal business disruptions. Due to changes in
technology over the last several decades, cloud computing solutions have evolved
leading to the current environment that primarily favors cloud-based solutions over
previous on-premise solutions. Currently, the most common cloud computing services
include storage, networking, processing power, and standard office software applications.
ln addition, more advanced business analytics features such as Machine Learning and
Artificial lntelligence are primarily delivered via cloud computing models.
3. Cloud computing services can provide a utility with access to vendors who
operate specialized technology, while providing a way to address technological
obsolescence as the contracts with these companies allowfor renewals that use the latest
technologies. These cloud computing services have gained prominence, offering faster
and more flexible resources in a secure manner, adding to the umbrella of lT solutions
APPLTCATION - 2
available. ldaho Power has entered into a number of arrangements for cloud computing
services covering a broad aray of applications necessary to provide essential services
to customers because the on-premise solution either became obsolete or was cost
prohibitive.
II. CURRENT ACCOUNTING TREATMENT OF COSTS ASSOCIATED
WITH CLOUD COMPUTING ARRANGEMENTS
4. Fee structures for cloud computing arrangements can vary but generally
reflect ongoing monthly, quarterly, or annual payments, or similar to a traditional on-
premise IT solution, an upfront payment can be made in return for a reduced monthly fee,
or no ongoing fee at all, over the course of the contract period. The costs of cloud
computing arrangements however are not accounted for the same way as costs
associated with the purchase of traditional on-premise lT solutions. Based on current
accounting guidelines, the Company currently classifies investments in traditional on-
premise lT solutions, including the integration costs, as a capitalexpenditure, while cloud-
based products and services are classified as an operating expenditure, with the
exception of the integration costs which are capitalized.
5. Absent the ability to capitalize cloud computing arrangement costs, an
earnings opportunity is displaced as the Company is not eligible to earn a return on a cost
that would otherwise be authorized for inclusion in rate base if purchased through a non-
cloud-based software solution. Recognizing the disincentive that exists, in November
2016, the National Association of Regulatory Commissioners ("NARUC") adopted a
Resolution Encouraging Sfafe Utility Commissions fo Consider lmproving the Regulatory
Treatment of Cloud Computing Anangemenfs ("Resolution"). !n the Resolution, NARUC
encouraged state utility commissions to consider improving the regulatory treatment of
APPLICATION - 3
cloud computing arrangements, resolving that utilities best serve customers by making
software procurement decisions regardless of the delivery method or payment model and
encouraged state regulators to consider whether cloud computing costs should receive
similar regulatory accounting treatment as traditional on-premise solutions.
PROPOSED ACCOUNTING TMENT OF COSTS ASSOCIATED
WITH CLOUD COMPUTING ARRANGEMENTS
6. Under the current regulatory accounting treatment there is an inherent
financial disincentive for ldaho Power to pursue certain cloud computing arrangements
that would otherwise be beneficial to customers over time. Idaho Power is proposing to
capitalize allcosts associated with cost-effective cloud computing arrangements because
the services provide the Company with an investment equivalent to that of a traditional
on-premise lT solution, thereby removing a financial disincentive to pursuing cost-
effective lT solutions that exists today. The Company evaluates the purchase of lT
infrastructure on a case-by-case basis. ln order to get the most value from the service or
investment, it is important that ldaho Power have no regulatory or accounting reason to
favor one solution when an alternative would serve the Company and its customers
better.
7. To do so, the Company is requesting the Commission equalize the
treatment of expenditures associated with traditional on-premise lT solutions and cloud
computing arrangements. Specifically, ldaho Power requests (1) approval of the deferral
of costs associated with cloud computing arrangements to a regulatory asset, and (2) that
the unamortized regulatory asset amounts are eligible for rate base treatment and the
associated amortization expense is eligible for recovery in the next general rate
proceeding. Because the Company's request in this case is for an accounting order
APPLICATION - 4
associated with costs of future cost-effective cloud computing arrangements, the proposal
will not alter the Commission's ability to determine the prudence of the costs associated
with cloud computing arrangements in the Company's next general rate proceeding.
IV. MODIFIED PROCEDURE
8. ldaho Power believes that a hearing is not necessary to consider the issues
presented herein, and respectfully requests that this Application be processed under
Modified Procedure; i.e., by written submissions rather than by hearing. RP 201, ef seg.
lf, however, the Commission determines that a technical hearing is required, the
Company stands ready to present its testimony and support the Application in such
hearing.
V. COMMUNICATIONS AND SERVICE OF PLEADINGS
9. Communications and service of pleadings with reference to this
proceeding should be served on the following:
Lisa D. Nordstrom
ldaho Power Company
1221\Nest ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Matt Larkin
!daho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
lnordstrom@ idahooower.com mlarkin@ idahooower.com
dockets@ idahopower. com
VI. REQUEST FOR RELIEF
10. Cloud computing services have gained popularity, as they offer faster and
more flexible resources in a secure manner, adding to the umbrella of lT solutions
available. Under the current regulatory accounting treatment there is an inherent financial
disincentive for the Company to pursue certain cloud computing arrangements that would
othenalse be beneficial to customers over time. Therefore, ldaho Power respectfully
APPLICATION - 5
requests that the Commission issue an order (1) approving the deferral of costs
associated with cloud computing arrangements to a regulatory asset, and (2)
acknowledging that the unamortized regulatory asset amounts are eligible for rate base
treatment and the associated annual amortization expense is eligible for potentia!
recovery in a future rate proceeding.
DATED at Boise, ldaho, this gthday of March 2020.
LISA D. NORDST
Attorney for ldaho Power Company
APPLICATION - 6