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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