Cause for Concern? Data Center Owners Double as Energy Brokers

. . . One key to the profit reaped by some data centers is how they sell access to power. Troy Tazbaz, a data center design engineer at Oracle who previously worked at Equinix and elsewhere in the industry, said that behind the flat monthly rate for a socket was a lucrative calculation. Tenants contract for access to more electricity than they actually wind up needing. But many data centers charge tenants as if they were using all of that capacity — in other words, full price for power that is available but not consumed.

Since tenants on average tend to contract for around twice the power they need, Mr. Tazbaz said, those data centers can effectively charge double what they are paying for that power. Generally, the sale or resale of power is subject to a welter of regulations and price controls. For regulated utilities, the average “return on equity” — a rough parallel to profit margins — was 9.25 percent to 9.7 percent for 2010 through 2012, said Lillian Federico, president of Regulatory Research Associates, a division of SNL Energy.

Regulators Unaware

But the capacity pricing by data centers, which emerged in interviews with engineers and others in the industry as well as an examination of corporate documents, appears not to have registered with utility regulators.

RELATED: NY Times: Data Centers Acting as ‘Wildcat Power Utilities’

Interviews with regulators in several states revealed widespread lack of understanding about the amount of electricity used by data centers or how they profit by selling access to power.

Bernie Neenan, a former utility official now at the Electric Power Research Institute, said that an industry operating outside the reach of utility regulators and making profits by reselling access to electricity would be a troubling precedent. Utility regulations “are trying to avoid a landslide” of other businesses doing the same.

Some data center companies, including Digital Realty Trust and DuPont Fabros Technology, charge tenants for the actual amount of electricity consumed and then add a fee calculated on capacity or square footage. Those deals, often for larger tenants, usually wind up with lower effective prices per square foot.

Regardless of the pricing model, Chris Crosby, chief executive of the Dallas-based Compass Datacenters, said that since data centers also provided protection from surges and power failures with backup generators, they could not be viewed as utilities. That backup equipment “is why people pay for our business,” Mr. Crosby said.

———– Read the full article online at the New York Times.

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About Five 9s Digital, LLC

Five 9s Digital is a data center real estate company offering data center development, investment sales, real estate advisory, and colocation and wholesale data center selection and procurement services. Five 9s Digital has been involved in the development and ownership of multiple mission critical facilities from single user build-to-suit facilities to multi-tenant data centers. Five 9s Digital brings a wealth of experience, background and expertise in providing solutions to the data center arena. Due to the specific and yet evolving requirements of mission critical end users in today’s world, Five 9s Digital is able to offer real solutions, real facilities, and real choices due its extensive and up-to-date knowledge base. Five 9s Digital is a Best Data Sites Certification Alliance™ member.
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