Amazon Isn’t Paying Its Electric Bills. You Might Be.
Amazon Isn’t Paying Its Electric Bills. You Might Be
By Mya Frazier 20 August 2018, 2:00 AM 20 August 2018,
9:09 AM
(Bloomberg Businessweek) -- For a little while earlier
this year, it seemed as though 87-year-old Rosie Thomas and her neighbors in
the small town of Gainesville, Va., had beaten Amazon. Virginia’s largest
utility, Dominion Energy Inc., had planned to run an aboveground power line
straight through a Civil War battlefield—and Thomas’s property—to reach a
nearby data center run by an Amazon.com Inc. subsidiary. After three years of
petitions and protests in front of the gated data center, skirmishes punctuated
by barking dogs and shooing police, Dominion agreed to bury that part of the
line along a nearby highway, at an estimated cost of $172 million.
Within a month, however, the utility and state
legislators had passed on the cost to Thomas and her fellow Virginians. The
state’s House of Delegates approved Dominion’s proposal to raise the money
needed for the Amazon line with an as-yet-unannounced monthly fee. “Lord, have
mercy,” Thomas said when a neighbor gave her the news this spring in the gravel
driveway of her one-story clapboard home, where she was watching the metal disk
spin inside the electricity meter on the side of the house. She was already
struggling to pay her monthly $170. Leaning forgotten against Thomas’s mailbox
was an old protest sign that read “UNPLUG Amazon Extension Cord.” It no longer
felt like a trophy.
This sort of thing is becoming a pattern. Amazon Web
Services, the company’s cloud computing business, is its fastest-growing and
most profitable division, but it comes with a lot of upfront infrastructure
costs and ongoing expenses, the biggest of which is electricity. Over the past
two years, Amazon has almost doubled the size of its physical footprint
worldwide, to 254 million square feet, including dozens of new data centers
with vast fields of servers running 24/7. In at least two states, it’s also
negotiated with utilities and politicians to stick other people with the bills,
piling untold millions of dollars on top of the estimated $1.2 billion in state
and municipal tax incentives the company has received over the past decade.
Other companies, including Google and Tesla Inc., have
taken advantage of the power industry’s hunger for growth and the relative
secrecy that followed its 1990s deregulation in dozens of states. But Amazon
stands out for its success in offloading its power costs and also because it
dominates America’s cloud business, which has gone from nonexistent to using 2
percent of U.S. electricity in about a decade. “Amazon had a huge advantage,
because there weren’t a lot of other sectors growing in the electricity
market,” says Neal Elliott, senior director of research at the American Council
for an Energy-Efficient Economy (ACEEE), a green lobbying group. The company
has also ratcheted up the secrecy around who’s paying for electricity, says
environmental advocate Greenpeace, which calls Amazon the single biggest
obstacle to industry transparency. Amazon declined to comment for this story.
Unlike tax incentives, which must eventually be disclosed
to the public, the costs of electricity deals usually remain hidden, because
they’re technically struck between companies. They do, however, require
approval by state regulators. Although data centers typically yield few new
jobs, politicians desperate to make up for fading manufacturing businesses have
worked closely with utility companies to land Amazon data centers, using the
company’s name as a shorthand for economic resurgence.
In Virginia, where Amazon’s Vadata Inc. is believed to
operate at least 29 data centers and be planning 11 more, the company’s 78-page
application for a special rate agreement has two versions—a heavily redacted
public one and another under seal with state regulators.
Amazon has also negotiated an unknown rate discount with
American Electric Power in Ohio, where it received $77 million in tax
incentives for three data centers in 2016. Late last year, Amazon dangled 12
more in exchange for reduced electricity rates, and AEP exempted it from
surcharges other Ohioans must pay. “That’s de facto cost-shifting,” says Ned
Hill, an economist who teaches economic development policy at Ohio State
University. “Other businesses and households in Ohio are now bearing all the
costs of those riders.” The other businesses include Facebook Inc., which
opened a $759 million data center in Ohio last year. “As a general practice, we
do not negotiate exclusive rates,” Facebook spokeswoman Melanie Roe says.
Besides Amazon and AEP, the only parties that know the
value of the Ohio rate deal are the state’s five-person public utility
commission and JobsOhio, its privatized, publicly funded economic development
agency. Amazon has said the value of the discount is a trade secret, and one
clause in an otherwise heavily redacted copy of the approved deal stipulates
that it will not face public review for at least five years. The five-year
status report can also be redacted at Amazon’s request. “If these discounts are
generating the kind of economic bounty officials claim, why aren’t they willing
to show us what the discounts are?” asks Zach Schiller, research director at
Policy Matters Ohio, a left-leaning think tank that opposes corporate tax
incentives.
Power companies, like politicians, actively pursue
Amazon. In that way, the company fits into a long U.S. tradition of shifting
costs from businesses to poor residents, who already pay about three times more
of their income on utility bills than do wealthy households, according to a
2016 ACEEE study. The difference these days is that data-center operators,
unlike manufacturing plants, can’t claim to be engines of job growth, says the
ACEEE’s Elliott. “When you attracted the steel mill years ago, you got 2,000
employees,” he says. “When you attract a data center, you get maybe 50.”
Hill, the Ohio State economist, says more transparency is
needed, and that likely necessitates changes to the requirements in states’
regulatory filings. “Price cuts are treated as trade secrets by the utilities.
Baloney,” he says. “All should be made public and made in advance of any
action,” with key documents posted online. The language used in filings should
be as clear and nontechnical as possible, he adds, not filled with strikeouts
of older language or references to archaic sections of legal code.
In Virginia, Thomas can’t afford to wait for the reform
of a regulatory body that dates to 1903 and was created to police the
railroads. In her neighborhood, founded by freed slaves after the Civil War,
residents are mostly elderly, live on fixed incomes, and have already struggled
to absorb a 30 percent rise in their energy bills over the past decade. Thomas
is worried that a discount for the world’s richest man may cost her the house
she’s lived in for half a century. “Amazon’s got all the money they ever
needed,” she says, shaking her head. “They don’t need any more.”
©2018 Bloomberg L.P.
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