Cost Considerations for Hybrid Cloud, Subscription-Based Solutions

As a services-based, hybrid-cloud solution, Schneider Electric offers subscriptions for the licensing of all of ArcFM XI series applications. Subscriptions give flexibility for utilities to pay for only what you need. Licenses are offered to people, not machines, which enables customers to flex up and down with their number of users, depending on the context of their unique environments. This includes app usage itself, as well as the hosted services. Our subscription model follows the way Esri licenses their platform This model also allows you to maximize flexibility in your commitments. Ongoing support, maintenance, and product upgrades are all included in the subscription model. Tools to monitor usage are also provided through our solution to support customer business decisions.

Cloud computing is a long-term investment, and should be given the same recognition and capital treatment as on-premises infrastructure investments. While Schneider Electric no longer offers perpetual licensing for ArcFM products, we do offer options for organizations in a subscription-based model. Organizations can consider several options to potentially take advantage of CapEx funding with cloud-based investments. This includes a decision on an appropriate term length, and then paying upfront, or upfront plus yearly maintenance. A yearly subscription payment is also possible and allows for the greatest flexibility determined by fluctuating demand for use of the applications.

The following are recommendations from the National Association of Regulatory Utility Commissions for utility companies to consider:

• First, prepay for cloud solutions and amortize the prepayment in the same manner as an upfront investment in an on-premises system or other plant in-service. While this method provides similar financial outcomes to an on-premises system, it limits the flexibility of cloud solutions and introduces risk associated with needing to predict needs years in advance.

• Second, pay for costs periodically over time commensurate with cloud usage and amortize each payment from the point the cost is incurred to the end data of the cloud service. This avoids the need to predict cloud needs far in the future, which preserves the flexibility of cloud computing This method also reduces return relative to the prepayment method or an on-premises system of the same cost due to the shortened amortization period for payments made closer to the end date of the service.

• Third, combine the two approaches above to balance the strengths and weaknesses of each. A utility could use a prepayment for a minimum expected usage level and then pay for additional usage as needed with periodic payments. This approach may provide the necessary flexibility while maintaining financial impact closer to what would be experienced with an on-premises system.

• Fourth, provide a modest adder to the recovery of cloud computing expenses and retain common operating expense treatment for cloud solutions. This adder would attempt to replace the opportunity cost associated with choosing cloud over an on-premises system. This option retains full flexibility.

Each utility works closely with their financial officers and regulatory bodies to create the best solution. Schneider Electric is committed to working with our customers to create the best opportunities within a Software as a Service (SaaS) model.