20200625Final_Order_No_34707.pdf

ORDER NO. 34707 1

Office of the Secretary
Service Date
June 25, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF IDAHO POWER
COMPANY’S APPLICATION FOR AN
ACCOUNTING ORDER FOR COSTS
ASSOCIATED WITH CLOUD COMPUTING
ARRANGEMENTS
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CASE NO. IPC-E-20-11

ORDER NO. 34707

On March 9, 2020, Idaho Power Company (“Company”) applied to the Commission
for an order (1) approving the deferral of certain non-capitalized costs associated with cloud
computing arrangements to 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. The Company requested its
Application be processed via Modified Procedure.
On April 30, 2020, the Commission issued a Notice of Application and Notice of
Modified Procedure setting deadlines for public comments and the Company’s reply. Staff filed
comments supporting the Company’s Application. The Company filed reply comments clarifying
points made in Staff’s comments. No other comments were received.
Having reviewed the record, we now approve the Company’s Application as discussed
more fully below.
THE APPLICATION
The Company’s information technology system includes on-premise solutions and
cloud computing arrangements. On-premise solutions are onsite products or applications for which
the Company must buy a license or copy of the software. Cloud computing is the delivery of
information technology, including servers, storage, databases, networking, and software, over the
internet. Based on accounting guidelines, the Company classifies investments in on-premise
solutions as capital expenditures and cloud computing investments as operating expenditures, with
the exception that integration costs of cloud computing are capitalized.
The Company states the current accounting treatment provides a financial disincentive
for it to invest in certain cloud computing arrangements. The Company proposes to capitalize all
costs associated with cost-effective cloud computing arrangements because expenses for cloud
computing are “equivalent to that of a traditional on-premise [information technology] solution.”

ORDER NO. 34707 2

THE COMMENTS
1. Staff Comments
Staff recommended the Commission authorize the deferral of reasonable and prudent
costs associated with future cloud computing arrangements to a regulatory asset to be eligible for
future rate base treatment. Staff also recommended the Commission authorize the associated
annual amortization expense for potential recovery in future rate proceedings. Finally, Staff
recommended the Company begin amortizing any deferred cloud computing arrangements when
it is placed in service and it becomes used and useful.
Staff recommended that the amortization period for deferred cloud computing expenses
should be the life of the service contract or, if no contract period exists, then the Company should
amortize the expense over five years. Staff suggested the five-year amortization period be
consistent with the approved depreciation life of Federal Energy Regulatory Commission
(“FERC”) Account 303—Miscellaneous Intangible Plant. Staff recommended the book value of
any prudent cloud computing arrangement, net of accumulated amortization, should be eligible for
rate base treatment in the Company’s next general rate case.
2. Company Reply
In reply to Staff’s comments, the Company clarified that it already capitalizes
integration and implementation costs of cloud computing arrangements, but it must expense
licensing fees. Because the Company can already capitalize the integration and implementation
costs of cloud computing arrangements, it is only requesting authority to defer to a regulatory asset
account the costs it currently books as operating expenses.
The Company indicated it agreed with Staff’s proposal to begin amortization once the
cloud computing arrangements are placed in service, because that is the way on-premise solutions
are treated. The Company also noted it could alter the amortization period depending on whether
the contract was for a fixed length or an indeterminate length, as recommended by Staff. However,
the Company disagreed with Staff’s recommendation that contracts of an indeterminant length
should be amortized over five years (60-months). The Company stated the Commission approved
a 62-month amortization period for expenses booked to FERC Account 303. Case No. IPC-E-16-
23, Order No. 33770. The Company asked to use the approved amortization period for FERC
Account 303 instead of the five-year period recommended by Staff.
ORDER NO. 34707 3

Finally, the Company clarified it already evaluates purchases of all information
technology infrastructure (cloud computing arrangements and on-premise solutions) on a case-by-
case basis, despite there being an existing financial disincentive surrounding accounting treatment
of cloud computing arrangements.
COMMISSION DISCUSSION AND FINDINGS
The Commission has jurisdiction and authority over the Company and the issues raised
in this case pursuant to Title 61 of the Idaho Code and the Commission’s Rules of Procedure,
IDAPA 31.01.01.000, et seq. The Commission has thoroughly reviewed the record, including the
Company’s Application and the comments filed in this case. Based on our review, we find it fair,
just, and reasonable to allow the Company to book expenses associated with cloud computing
arrangements to a regulatory asset in FERC Account 303, as described below.
We find that a deferral account is the appropriate mechanism to capture cloud
computing arrangement expenses that are not already capitalized. We therefore find it fair, just,
and reasonable to allow the Company to book any non-capitalized cloud computing arrangement
expenses to a regulatory asset. We also find a bifurcated approach to amortization is appropriate
for this case. Cloud computing arrangements with a contract period shall be amortized over the
life of the contract. Cloud computing arrangements with no contract period shall be amortized over
a period of sixty-two-months, pursuant to the Commission-approved amortization period for
FERC Account 303. Amortization shall begin when the asset is placed in service and becomes
used and useful.
Further, we acknowledge that the unamortized regulatory asset amounts may be
considered for rate base treatment and the associated annual amortization expense is eligible for
potential recovery in a future rate proceeding.
ORDER
IT IS HEREBY ORDERED that the Company’s Application is approved.
IT IS FURTHER ORDERED that the Company may book non-capitalized expenses
associated with cloud computing arrangements to a regulatory asset in FERC Account 303.
Amortization begins when the asset is placed in service and becomes used and useful.
Arrangements for a time certain shall be amortized for the length of the contract. If no contract
length exists, the asset shall be amortized according to the amortization period authorized for
FERC Account 303 (62 months).
ORDER NO. 34707 4

IT IS FURTHER ORDERED that unamortized regulatory asset amounts may be
considered for rate base treatment and the associated annual amortization expense is eligible for
potential recovery in a future rate proceeding.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order regarding any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 25th
day of June 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary

I:\Legal\ELECTRIC\IPC-E-20-11\orders\IPCE2011_final_dh.docx