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


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.

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About the Author

Rich Miller is the founder and editor at large of Data Center Knowledge, and has been reporting on the data center sector since 2000. He has tracked the growing impact of high-density computing on the power and cooling of data centers, and the resulting push for improved energy efficiency in these facilities.

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  1. Daniel Golding

    The idea that the NYT piece is objective journalism is amusing. The question is, why is Glanz writing repeated hit pieces on this industry, and why are people still talking to him? You will not convince Glanz that we are doing a good thing for the Internet and the Planet, so stop trying, fellow data center professionals. He's a hatchet man.

  2. Curt Gibson

    Total non-sense

  3. the NYT piece is completely out of touch with what any data center provider is providing in regards to power pricing and shows how simply out of touch traditional media is on any topic really. If they can't figure out the following in their "investigation" then they really should stop authoring stories on this. Power company supplies me: 1) a meter to show what I used 2) no backup in the event of power loss, and no monitoring on if I have lost power. Though will restore power after its been reported being out, eventually with no guarantee on infrastructure uptime, or SLA to cover losses from power outages. Data centers supply me: 1) the internal power build out (120/240/480/DC power circuits) 2) UPS + Generator backed up supply of power 3) Cooling for the heat generated by power in = heat out 4) 24/7 monitoring of all of this 5) SLA with monetary penalties for failure of the above mentioned power/cooling/monitoring systems. This is a far cry from a data center buys power from power company and sells back to me at a huge profit, there is massive amount of investment, and on going maintenance and man power to monitor this power and cooling infrastructure that goes hand in hand. You might as well say that the only thing your ISP at home/office is doing is buying bandwidth in bulk, super cheaply from upstream providers, and charging you a massive price markup for it, regardless of you using it or not. We will not talk about the infrastructure or support going into getting your home/office that internet connection or maintaining it.

  4. Richard Werner

    The real question is who in our industry is speaking with this reporter and what is their agenda. The reporter's alleged facts need to be debated openly and publicly to bring full transparency. The issue will go away on its own.

  5. Brion Sargent

    Regular folks do not understand the concept or function of a data center, just ask a neighbor about the cloud. You'd be amazed at the curiosity the general public are beginning to have about these issues and we (operators, designers and engineers) need to begn to educate them in an accessible way.

  6. There is a mix of facts (truth and half truth) in number of stories like that. At the bottom of this issue is the fact that Data Centers are now consuming about 2% of the global electricity supply worldwide (!) and this has been (slowly) noticed. There is clearly a lot of room for improvement so all of us, operators, equipment and system vendors, and utilities can benefit from the more optimized solution. In fact if you look at utilities (at least those US-based deregulated ones) they buy power from the power generators via ISO (Independent System Operators) and resell it to their end customers (you, me, shopping malls, industrial customers...). Their mechanism of calculating cost of power and price of reselling it is very well defined. Something to learn from. Additionally, Many, if not most utilities have SLAs (special contracts) with large industrial users, among them data centers who purchase power in bulk. These agreements generally provide lower $/MWh however often these will be dynamic prices (varying hourly, daily, monthly, etc.); they also require some additional provisions and requirements, for example higher power factor (pf) or provision to be interrupt-able for a certain maximum period of time or .... These contracts are generally give-and-take. You get lower cost power but you have some restrictions or requirements, beyond what a residential customer would normally see. I summarize there is a lot of opportunities here for all. Data Centers can benefit from the lower cost of power by running their internal power plant (their microgrid with gensets, UPS, flywheels, ....) in a smarter way; this way their customers can benefit because their cost of using the data center could go down. Moreover, data centers can look at their generation and storage assets (gensets, batteries, flywheels..) and start thinking of utilizing them for islanding when electricity prices are high or even selling some of its power to support the utility grid (and of course being paid for it). Utilities can benefit because they can implement a DR (demand response) from the data centers when their system is in distress and even get support from data center owners when their system needs help. Add to it renewable resources like PV or different generation like fuel-cells and you have a new world of opportunities to get better.