Mark Bramfitt - Utilities & IT

Utilities: How To Quote Rates for Utility-Scale Data Centers

In my work with utilities who are trying to attract utility-scale data center development to their service area, I make it clear that power price is the ultimate differentiator, with availability/time to serve and options for clean power secondary criteria.

The economic development representatives I've met with seem to grasp the concept pretty well, but when you test them for their power price "story", the tale is usually pretty hazy!

Let's start with the answer to this question: "What is your power price for a multi-MW data center?".

Most utilities I've worked with answer that question with "X.X cents per kWh", but in fact they are quoting an average industrial cost that ignores several key features of loads of this type.

Where does the utility rep get their price per kWh quote? Likely from the Rates Department (or equivalent), where an analyst takes all of the revenue from a given class of customers and divides it by the total kWh usage of the class.

So, for multi-MW loads, you quote the "average industrial rate" - the total revenue collected from all industrial customers (generally classified as those with peak loads of 1 MW or greater) divided by the energy use by those customers.

There are however pretty wide disparities in the rates charged to those customers, with load factor/shape and service level chief among them.

Customers with "peaky" load profiles, low load factors, and who take service at secondary or primary voltages pay lots more than customers with flat load profiles/high load factors who take service at transmission voltage.

Here's what I would do to derive a more accurate power cost quote for utility-scale data centers: I'd take a 1 MW load, assume a unity load factor, and populate a spreadsheet with 1 MW of demand and 1 MWhr of usage across 8760 hours per year.

Then I'd take my rate schedule, and I'd plot these charges in the spreadsheet:

• Customer Charge (Monthly)
• Meter Charge (Monthly)
• Power Factor Adjustment (Applied Monthly)
• Peak Demand Charge (Monthly)
• Maximum Demand Charge (Monthly, set by highest demand in previous 12 months)
• Summer On-Peak Energy Charge
• Summer Partial-Peak Energy Charge
• Summer Off-Peak Energy Charge
• Winter Partial Peak Energy Charge
• Winter Off-Peak Energy Charge
• (Set all demand and energy charges based on service voltage of secondary/primary/transmission)

If your rate structure mirrors all or many of these features, I bet the average rate you derive from this analysis is lower than your "average industrial class rate".

Now, to complicate matters for some utilities, they now have peak-period pricing reflecting actual market rates, moving down the road to real-time pricing. At the other extreme, you might find some utilities that have very simple industrial rates, though a straight per-kWh rate or even declining block rates are relics of the past for most of us.

I'll cover another aspect of the power price "story" that utilities need to be able to tell when courting utility-scale data center developers, but quoting your rates accurately for the type of load you are attracting is key.

You need the opening of your story to be: "For your multi-megawatt load, assuming you take transmission voltage service and have a unity load factor, your average rate will be X.X cents per kWh (quite a bit lower than the average rate for our customers in the industrial class)."

 

Part II: eBay's Natural Gas-Fired Data Center in Utah

There was one more aspect to the power scheme of eBay's new data center in Utah that intrigued me: an agreement to buy power from an independent producer "over the fence" rather than through a utility wheeling agreement.

There is evidently a gas pipeline compressor station proximate to the data center, and a recovered-energy generation plant will be built there in the next eighteen months by Ormat Technologies. The plant will have a projected output of 5 MW, or a little more than a quarter of the eventual projected load of the data center.

I initially thought the arrangement strange: why wouldn't the power simply be used at the compressor station? It turns out that most compressor stations are driven by gas turbines, which put out high grade exhaust heat which is perfect for recapture, but the compressor station electric load is minimal. Usually the power generated would be sold back to the utility, though that entails building connection facilities which may be expensive depending on the plant location.

eBay has entered into a 20-year power purchase deal with Ormat, and is avoiding the grid connection only because Utah regulators allowed it. 

Now I know to the outside world these "over the fence" arrangements should be allowable, as should a wide-open power purchase market, with utilities responsible only for building, operating, and maintaining the grid. But I've pointed out before that deregulation has risks, and those have to be prudently considered by regulators and advocates.

My takeaway for utility-scale data center operators is: don't expect to collocate your facilities with power plants to avoid the costs of being connected to the grid without a regulatory battle, and indeed consider the benefits of grid connection before seeking that pathway. The industry has every right to pursue regulatory changes to meet its needs, but careful consideration is in order.

EUCI Presentation III: Environmental Considerations for DC Siting

This is the third of four(!) presentations I delivered at an EUCI data center forum in December in San Francisco, and I've just committed to attend their second conference on this subject in Philadelphia in June (details posted when available).

With a mixed audience of data center developers, utilities, and consultants, it was an interesting place to deliver some forthright commentary on the environmental consequences of siting large data center developments:  Download EUCI Presentation 3

On one hand, utilities like attracting these loads, but don't necessarily like to reveal the carbon content of their power. On the other side, where a utility-scale data center is located is the single most important criteria for the environmental impact of the facility, and seeking cheap rates usually means sourcing dirtier power.

On the carbon content point, I noted in the presentation that utilities are pretty lax in reporting the sources for their power. In California, there was a pretty good mandatory framework imposed by the state that has unfortunately been watered down somewhat (utilities can put all of their purchased power in an "other" category, making an often large chunk of their portfolio invisible to consumers).

The other key issue is that the carbon content varies utility-by-utility, even in the same geographical region. I charted California utilities in a white paper (link to your left) and found that municipal providers in California are often providing much dirtier power supplies than the investor-owned utilities.

The cheaper-is-dirtier paradigm doesn't hold in all cases. I cite the Pacific Northwest where some data center operators have been able to get utility power almost wholly reliant on large hydroelectric plants at very low rates, and the surprising amounts of nuclear and more recently even renewables in parts of the country like Virginia where coal has always been king.

My message to data center operators considering locations for new developments is to be sure they know what they are getting from the local utility, and to consider the risks of price increases going forward. States are imposing renewable energy requirments that will lead to greater rate impacts in areas of the country with low use of renewables, compared to other states that are meeting established targets.

For both audiences, I pointed out that regulators and NGOs like Greenpeace and the Natural Resources Defense Council are watching, as well as the mainstream press, a la the series of articles published recently by the New York Times.

 

Turnabout On Taxing Data Centers? Watch Out For UUTs

Wired Magazinne reports of an anomoly in the utility scale data center development world - the state of Utah has actually enabled a public entity to levy a utility users tax on the new National Security Agency facility being constructed on a former military base.

I've watched with no small sense of dismay as municipalities, states, and perhaps even utilities trip overthemselves to attract data center development - offering tax breaks and exemptions and "economic development" utility tariffs.

And just to be clear, I think there may be room for these incentives for new development that has a positive impact on a community, which usually means it brings in solid employment. What seems to be missing in the calculation is that data centers simply don't bring in much employment (at least after construction and installation of IT equipment), so the government isn't getting much for their investment.

(According to an excellent overview in another Wired piece, the 65 MW NSA site will include an extensive campus, so is likely to employ a significant workforce, especially in light of its fairly remote location.)

In Utah, the state legislature at least recognized that the NSA project wasn't going to pay a fair share for the installation of utility facilities to serve the new data center incurred by a base reuse authority, so has passed a bill allowing for a six percent surcharge on the utility bills the NSA will pay to Pacificorp-owned Rocky Mountain Power.

Taxes of this type - we call them Utility Users Taxes in California, put the utility in an awkward place, collecting an unpopular tax on energy bills (and these often extend to phone and even cable service) and making their bills all the more unpalatable to customers.

My counsel to data center developers is to be aware of the possibility of a UUT being imposed. While a local municipality may seem eager to court you and even offers incentives, local citizens can always call for an initiative to impose a UUT to fund municipal services. You might want to sponsor a few softball teams rather than hiding behind your security fence.

For utilities, well, you're used to being caught in the middle, but I would be sure to explain to developers that you can't predict or be responsible for taxation of the power you deliver.

EUCI Presentation: Utility Rate Fundamentals For Data Centers

Late last year I participated in an EUCI forum on data centers in San Francisco, and thought I'd do a brief post on each of the four presentations I delivered over the day-and-a-half session. Check out EUCI - they offer a robust series of programs and sessions for the energy industry.

We kicked off the event with an hour-and-a-half overview of emerging trends in the market from KC Mares, President of Megawatt Consulting. I haven't managed to find a copy of the slide deck - it would be well-worth getting a hold of it if you can.

My first section was billed as a primer on utility rates as they apply to data centers, and I jumped back and forth between the viewpoint of data center operators and the utilities that serve them, as both groups were pretty evenly represented in the audience.

The upshot is that all of the price signals that utilities try to send to customers don't make it through to decision makers at data centers, and that most of those signals are moot in any event as data centers have essentially unitary load factors.

Despite this, for operators of utility-scale data centers, and for sophisticated utilities, there are opportunities around the margins, for demand response, renewable supply options, and attracting data center development.

Here's a copy of the presentation deck:

Download EUCI Pres 1 Utility Rates

Happy to field questions or comments!

Utility Facility Charges: A Primer

A question came in today from a consultant pursuing energy efficiency opportunities in IT - thought it a good policy to answer here in the blog so that others can access the information. Edited question:

"Assuming a data center is over built with regard to its electricity capacity, does the customer have to secure a fixed amount of power from the utility upfront and pay up for it even if it isn't used?  Or does the utility company charge you based upon a variable rate on the energy you have used?"

If you ask a utility to install a given amount of electric capacity, to what extent are you "on the hook" for it if you don't end up using it all? The answer is "to a large degree"!

Utilities make capital investments in the form of distribution (and sometimes transmission) capacity based on customer load projections. If those loads don't materialize, there are tariffs in place that allow the utility to bill for their costs of ownership of the facilities. This arrangement is typical for any commercial load of appreciable size, and takes effect if energy use is below a preset level.

Uptime Symposium Presentation

I enjoyed attending the Uptime Symposium last week in New York City, and will post some thoughts and reactions throughout this week.

In the meantime, I had lots of requests for copies of my presentation deck "The Carbon Content of Power: A Primer for Data Center Managers":

Download Uptime 5 17 10

While the content did draw some good discussion, and I did get positive feedback, I must apologize for delivery that was not up to my standards. 

In any event, the key messages are that the information sources for carbon content of utility-delivered power are very rudimentary - you should be sure to drill down to the level of your specific utility provider to get a good conversion factor.

Further, because data centers have essentially a unity load factor, managers are likely to overstate the carbon footprint of their facilities because the carbon content of electricity can be heavily time dependent.

If you are a consulting client of mine and would like to learn more, contact me for a copy of my latest white paper on this subject.

SMUD Data Center Course Recap & Self-Gen Discussion

The Sacramento Municipal Utility District held it's third annual Data Center energy efficiency course and vendor event yesterday at their energy center/headquarters, with my colleagues Mark Hydeman of Taylor Engineering and Ray Pfeifer of Synapsense sharing course presentation duties with me.

Mark and I significantly improved our respective slide decks, which I think contributed to a much smoother overall session compared to the one we delivered at Pacific Gas and Electric's Energy Center just two weeks ago.

As always, we pored over the course evaluations at the end of the day to see what improvements we could make. Although the scores were uniformly high, we were disappointed in the relative dearth of written comments.

One set did set me back a little. A participant indicated that he thought we had given short shrift, and even outright dismissed, the applicability of on-site generation to serve data centers.

District Utility Services - Great Idea for Data Centers?

If you're interested in the alternative energy space, I recommend hitting the earth2tech site from time to time for news on everything from clean power to the smart grid. It's particularly good for news on start ups and M&A activities.

In a report today, Justin Moresco talks about Veola Energy North America's purchase of a district cooling system in Baltimore.

Two things struck me about the story. 

First, this is only the second district cooling plant that I have heard of in the US - the other is in downtown Austin, TX. I've been wondering why there aren't more district heating and cooling plants, and why utilities aren't all over this as a business opportunity (both the Baltimore and Austin systems are run by local utilities).

It seems to me that utilities have only limited opportunities for growth, and many of those opportunities are hampered by regulatory constraints.  Getting into appliance sales, leasing, and servicing, for example, is generally out of bounds for this reason. But building utility infrastructure, delivering steam, hot water, or chilled water, looks a lot like traditional utility business that a regulator could understand and allow.