Kevin Stark reports that states could encourage investment in smart-grid apps and software by changing rules that reward spending on capital instead of services. Here are excerpts:

Smart meters produce an endless stream of data for utilities, but outdated regulations discourage them from investing in apps and software that could make use of the information.

A recent report from the Advanced Energy Economy Institute (AEE) urges states to consider reforms that would give utilities more financial incentive to embrace cloud computing and other technology. Illinois is among a handful of states already considering such changes.

The problem stems from the way most utilities make money: Companies are generally rewarded for making capital investments — think power plants or computer hardware — but not for operational costs such as salaries or software services.

As smart meters become increasingly common, the potential for cloud computing to produce tangible benefits for customers and the electric grid is growing, too. That’s why some want to see a way for utilities to incorporate those investments into a rate base.

“The financial incentives — and what they motivate utilities to do — are not always in the best interest of customers,” said Danny Waggoner, an author of the AEE report, Utility Earnings in a Service-Oriented World, which outlines ways that cloud computing and distributed energy could replace capital investment as a major source of revenue for utilities.

The report describes five potential regulatory models designed to help utilities invest in services rather than capital “at equal or lower cost to customers, while in many cases providing equivalent or greater earnings to the utility.”

See complete Midwest Energy News story here.