Amazon Wants Energy Discount Before it Builds 12 More Ohio Data Centers

As it plays American cities and states against each other in the competition for becoming home to its second headquarters, Amazon is playing a similar game to lower the cost of operating data centers that support its cloud services.

In what has become customary among operators of the world’s largest cloud platforms, Amazon subsidiary Vadata is asking state officials in Ohio to give it a discount on energy for the next 12 data centers it may or may not build in the state. Not approving the discount may lead to Amazon Web Services building the data centers elsewhere, the company is telling the officials.

A serious battle is taking place among cloud giants currently for application workloads of traditional large enterprises. After years of testing and experimenting with public cloud services, more and more companies now appear to be finally making big commitments to this new way of deploying IT infrastructure.

Just this month, Amazon’s biggest cloud rival Microsoft announced a major cloud deal with Chevron; last month, Amazon scored a major cloud deal with GE; FICO and Hulu became AWS customers prior to that.

For years people in the industry have been talking about a mass migration of enterprise workloads to the cloud, and that migration is now starting to happen, Mark Russinovich, Microsoft Azure CTO, said from stage at the Structure conference in South San Francisco this week. “Actually, it looks like the enterprise tipping point is happening right now,” he said.

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To support this workload migration, cloud giants are building out more data center capacity than they’ve ever built in the past. As we reported earlier this month, AWS is undertaking a huge data center expansion in Northern Virginia. It also appears to be eyeing an expansion of similar scale in Ohio.

Amazon already has three data centers in Ohio. The facilities – one each in Dublin, Hilliard, and New Albany – came online about one year ago. The company is envisioning whole data center campuses at these sites, each capable of supporting five data centers.

But it doesn’t want to pay the full price of powering such a massive data center cluster, saying it is a unique energy user, both in terms of power load and economic development potential, and deserves special treatment by energy regulators.

Amazon and AEP Ohio, the local subsidiary of the electric utility giant American Electric Power, are asking the Public Utilities Commission of Ohio to approve a “unique economic development arrangement,” Charles Daitch, an Amazon energy initiatives manager who supports AWS, said in a testimony in front of the commission last week. The company needs a unique arrangement to align its cost structure “with its relatively unique load profile.”

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Daitch implied it would be in the state’s interests to approve the deal because the company could decide to build the data centers in a different state:

Amazon wants the size of its discount to increase with every new data center it brings online. The company’s reasoning is this approach will ensure it has an additional incentive to continue building in Ohio. Specific discount percentages being requested are blacked out from the public transcript of Daitch’s testimony.

It also wants its energy rate capped at an undisclosed level, meaning the state can only raise its rate up to a certain point.

But the cloud giant isn’t asking for a discount on energy rates only; it’s also asking for permission to shop for energy on its own, while using AEP’s transmission system to deliver it to its data centers – as opposed to buying energy from AEP at rates set by the state and the utility.

Amazon does expect this arrangement to lower energy costs for its cloud data center cluster in Ohio even more. The company will pay AEP for using its transmission, distribution, and other services associated with delivering energy to the three sites.