EDITOR’S NOTE: This is the second of two articles extracted by a keynote speech delivered by Brien Sheahan at the recent Empowering Customers & Cities conference in Chicago. First up: Scratching the Surface of Change.
Automated self-driving cars and trucks are in the not so distant future. According to some estimates, there will be 10 million self-driving cars on U.S. roads by the next decade with about a two-fifths of all cars being electric in the next two decades.
According to Morgan Stanley, complete autonomous capability will be here by 2022, followed by massive market penetration by 2026. Non-autonomous cars will be retired before 2050. Heavy duty trucks are on a similar trajectory.
If it occurs, this truly revolutionary shift will usher in new and massive load that after more than a decade of flat and even declining demand will challenge utilities and policy makers.
What many stories also miss, however, is that for systems of autonomous cars and trucks to operate safely, especially in congested urban areas, they will require a robust broadband mesh network to supplement on-board LIDAR, a mapping technology. This ubiquitous network will be 5G or better, a wireless network as fast or faster than fiber.
Entities that are in the infrastructure business with facilities over and around roads, like street lights, poles, meters, and wires could be well positioned to take advantage of this convergence. And, by-the-way, as an added benefit, who wouldn’t want in-home broadband that is as ubiquitous and reliable as electricity?
Distributed energy resources will also require vast data collection and analytics software to manage and optimize these resources.
What all of these systems, new and imagined, will have in common is the generation of enormous amounts of data and the need for innovative software to extract value for shareholders and customers. They will also require a change in the way regulators think about intangible assets.
The Internet of Things, and the software and analytics that enable it, represent major advancements in the development of technology and industrial processes. They also provide opportunities for utilities to focus on their core competencies of building and maintaining infrastructure.
Unfortunately, the regulatory treatment of intangible software assets has not kept pace, and utilities face adverse financial consequences when they consider these cutting edge technologies.
Specifically, current accounting rules classify these assets as operating expenses for which utilities do not earn a rate of return. This distinct accounting treatment creates a perverse incentive for utilities to protect rate-base by pursuing costlier, less efficient, and riskier on-premises technology investments, potentially depriving ratepayers of the performance and economic benefits offered by cloud-based solutions—benefits being realized by their unregulated corporate peers in other industries.
While the Financial Accounting Standards Board has issued an Update for intangible software assets, the new rule does not provide a high enough level of certainty within the context of regulated utility accounting to incentivize investment.
Companies must become more innovative and collaborative to respond to the fast changing, highly competitive business environment.
Aligning regulatory approaches with 21st century technological, economic and social realities will require new thinking and innovations, at least as disruptive and profound as those embraced by the private sector.
Adapting to a new, fast-changing environment will require strategic policymaking that will support innovation and technological development.
Brien Sheahan is chairman of the Illinois Commerce Commission.