Ohio OKs Special Rate for Tech Company

In adopting an agreement negotiated by an electric utility and an affiliate of Amazon.com, Inc., the Ohio Public Utilities Commission has approved an exclusive electric service pricing arrangement under which the Amazon company, Vadata, Inc., will be the beneficiary of a series of discounts and exemptions from the rates otherwise applicable under Ohio Power Company’s existing tariffed schedules.  The utility characterized its agreement with Vadata as an economic development initiative. Ohio Power maintained that the rate concessions were necessary in order to ameliorate concerns expressed by Vadata regarding its future business development plans. The Amazon affiliate had informed the utility that it would be forced to consider relocating to other jurisdictions with lower electric rates if Ohio Power did not provide a discount.

In signing off on the arrangement, the commission found that the agreement had been properly tailored to assure that the discounts will act as a continuing incentive for Vadata to increase its investment in new and existing data centers in Ohio. As a result, the commission said, there was no need to require the utility to implement floors or ceilings on associated cost recovery. It added that neither were any other such protections warranted at the present time.

Vadata is an affiliate of Amazon Web Services (AWS), which in turn is a wholly owned subsidiary and operating segment of Amazon.com. As currently structured, AWS provides state-of-the-art cloud computing infrastructure and services, which relate to the on-demand delivery of information technology resources and applications via the Internet with pay-as-you-go-pricing.

For its part, Vadata has committed to investing hundreds of millions of dollars over the next several years in acquiring and developing three properties in Ohio as campuses for cloud computing data centers. The commission reported that in order to attract and maintain Vadata’s investments in Ohio and further advance the company’s expansion strategies, state and local governments had provided it with a variety of inducements and incentives, including, but not limited to, the following:

1. variable local withholding tax rebates;
2. a sales tax exemption on goods and materials used in the data centers pursuant to a statutory program available to qualified applicants;
3. tax credits available by statute through the Ohio Job Creation Program; and
4. local real property tax abatements through the Ohio Community Reinvestment Area Program.

According to the commission, AWS also has made a long-term commitment to achieve 100% renewable energy usage for its global infrastructure footprint, something which already has had a positive economic effect in Ohio. Indeed, the commission said, consistent with the company’s announced goal of achieving 50% renewable energy consumption by the end of 2017, Vadata and Ohio Power had pointed to another Amazon affiliate that has contracted to construct and operate Amazon Wind Farm U.S. Central, a 100-megawatt wind farm in Paulding County, Ohio.

The commission related that the new wind facility alone will pump around $900,000 into the local economy each year going forward through tax revenues. In addition, local property owners will benefit from ongoing lease payments. Shortterm benefits in the form of construction jobs for more than 800 people will materialize as well, the commission said.

In looking at the special discounted rate schedules for Vadata, the commission voiced confidence that the proposed agreement strikes an appropriate balance between (a) ensuring that Vadata pays a reasonable share of its electricity charges on the one hand and (b) providing a cost incentive that encourages development of additional Ohio data centers on the other hand. The commission averred that the arrangement will help assure that the Ohio region remains competitive with other areas hosting Vadata/ AWS cloud computing centers.

Nevertheless, aware that certain consumer advocacy groups still harbored reservations about the discount plan, and in an effort to ensure that all requirements for the economic development arrangement continue to be met throughout the 10-year term of the Vadata agreement, the commission directed Vadata to file a comprehensive status report following the first five years of the arrangement. Elaborating on that 10-year timeline, the commission noted that Vadata, at its discretion, can opt to receive energy and capacity from a competitive retail electric service provider at any time during that period, but must pay all costs of receiving wire services to the campuses.

Moreover, the commission commented that, depending on its usage, Vadata may be eligible for an increasing discount. At the same time, though, the commission emphasized that while the discount will be applied to its monthly consumption, the company is still obligated to pay something for the transmission and distribution services it receives — it cannot pay zero.

Besides the discounts, the utility’s agreement with Vadata also covers certain exemptions. For example, the commission stated that the customer will be exempt from charges under the utility’s Retail Stability Rider for deferred capacity costs that remained before the customer’s first Ohio data center became operational in October 2016. Another rider, pertaining to energy supply, would be capped at a mutually agreeable amount in accordance with the company’s expected load and independent support for sustainable and renewable energy generation.

Importantly, however, the commission drew attention to the fact that Vadata must continue to pay all transmission and distribution riders that are not billed on a per kilowatthour (kWh) basis, including that portion of the Basic Transmission Cost Rider that is assessed on a per kW basis. Re Vadata, Inc. and Ohio Power Co., Case No. 17-1827-ELAEC, Jan. 10, 2018 (Ohio P.U.C.).