NY Times: Data Centers Acting as 'Wildcat Power Utilities'

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The New York Times has resumed its critique of the data center business, suggesting that the industry has become a "wildcat power utility" by reselling power to customers at a profit. The Times report examines the use of a common business structure - the real estate investment trust, or REIT - by data center operators, "allowing them to eliminate most corporate taxes."

The latest piece by Times staff writer James Glanz, titled "Real Estate or Utility? Surging Data Center Industry Blurs Boundaries," follows a pair of sharply critical stories that ran in September 2012. The latest story, which appears online but doesn't appear to have been published yet in the New York Times print editions, Glanz examines the power provisioning in data centers.

"Electrical capacity is often the central element of lease agreements, and space is secondary," Glanz writes. "A result, an examination shows, is that the industry has evolved from a purveyor of space to an energy broker — making tremendous profits by reselling access to electrical power, and in some cases raising questions of whether the industry has become a kind of wildcat power utility. Even though a single data center can deliver enough electricity to power a medium-size town, regulators have granted the industry some of the financial benefits accorded the real estate business and imposed none of the restrictions placed on the profits of power companies."

Pricing Policies at Issue

The Times bases its assessment of data centers as electric utilities on the use of flat-rate pricing, in which a customer pays for access to power capacity, whether it uses all of that capacity or not. The practice is one of several approaches to pricing by colocation and data center providers.

"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," the Times writes. "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."

As in its earlier stories, the Times presents a selective version of facts. The Times story mentions the fact that one of a data center's primary tasks is providing cooling for the thousands of servers they house, as well as the ability to connect customers with a wide array of network services. Chris Crosby, the CEO of Compass Datacenters, notes in the Times article that data centers also provide emergency backup power to keep customers online. All of these are core components of the data center business and its value proposition, and go beyond the traditional roles of a power utility.

As was the case with the previous installments of the Times' "Cloud Factories" series, the latest article is likely to prompt discussion within the industry about regulation and business structure, as well as the accuracy and fairness of the coverage in the Times. What's your take? Share in the comments.