Should Douglas County PUD be Deciding our Economic Future?

Aaron Viebrock assured everyone at the public meetings on April 6^th that the commissioners had not “made up their minds” regarding the proposed new rates for high load users. But listening to the discussion of the commissioners after the public comment period was closed, it sure didn’t sound that way. Apparently, the request by virtually every public official in Douglas County asking the PUD to set rates that would be competitive with the surrounding PUD districts where potential high load users could choose to locate had no effect whatsoever. Some people might call that tone deaf.

At the meeting, a representative of Sabey stated that they were paying about 3.5 cents per kW in Grant County for power. Douglas County PUD commissioners adopted a rate of 4.5 cents per kW on April 12.

Let’s take a look at the difference that (4.5 – 3.5 =) 1.0¢ per kW makes to a high load user. For server farms, electricity accounts for up to 70% of their total operating costs. For the purpose of my comparisons, I’ll use 60% instead of 70%. So, let’s compare two server farms that both use an average of 10 MW of electricity and where server farm A is paying 3.5¢\kW and server farm B is paying 4.5¢\kW. We’ll also assume that all other costs of the two farms are the same. For what it’s worth, I’ve been a computer programmer for nearly 40 years writing complete accounting systems for larger businesses. But please, double check my math.

30 day Monthly Electric Bill:      Farm A        Farm B       Difference (B – A)      Difference as %

10,000kW x 24hrs x 30days x rate       $ 252,000    $ 324,000     $ 72,000                      28.57%

Annual Electric Costs (365 days)        $3,066,000 $3,942,000  $ 876,000                 28.57%

Total Annual Business Costs                $5,110,000 $5,986,000  $ 876,000                 28.57%

Just for fun let’s consider the additional cost that 1.0¢ per kW would make to Microsoft if they were actually using the 180 MW we were told they want at full build out.

                    180,000kW x 24hrs x 30days x .01 = $1,296,000 per month additional cost.

                    180,000kW x 24hrs x 365days x .01 = $15,768,000 per year additional cost.

That’s nearly 16 million dollars a year difference! Does anyone think a $16,000,000\year and 28% savings doesn’t matter to Microsoft? Or to any other business for that matter?

Unlike the PUD, businesses don’t have a monopoly where they can just arbitrarily charge their customers whatever they feel like. They have other businesses that they have to compete with. According to a report on globenewswire.com there were about 2,600 data centers in the US as of December 2020. The four largest providers in the US are Amazon, Microsoft, Google and IBM. That’s serious competition.

I heard multiple comments that Microsoft “can afford to pay those rates”. Unfortunately, the commenter’s apparently don’t understand how private business works. It doesn’t matter how much Microsoft “can afford to pay”, like any other private business those costs are actually paid by the Microsoft’s customers and, in the real world, customers generally don’t chose to pay 28% more for the same product. While there may be minor differences, for all practical purposes the major data centers are all providing essentially the same product. We can use gasoline or electricity as good analogies. It doesn’t really matter what service station\PUD you buy gas\electricity from, you’re getting the same product.

So, Farm B’s cost of doing business is 28.57% higher than Farm A. That means Farm B has to charge its customers 28% more to make the same profit margin as Farm A. Of course, according to the commenter’s, Microsoft could just take a 28% reduction in their profit margin “cuz they can afford it”. Most businesses don’t make a 28% net profit. In other words a 28% reduction in net profit for most businesses would bankrupt them. But even if a business could take a 28% reduction in net profit without going bankrupt, they certainly won’t be able to compete very long with a competitor making 28% higher profit margins selling the same product at the same price.

Let’s consider our gas analogy again and substitute Service Stations for Server Farms. Let’s also assume Station A’s gas is $3.00\gallon. Using the same 28.57% price difference, Station B’s gas would be $3.86\gallon. As an individual, where are you going to fill up your car? Where is a farmer going to buy gas for his farm equipment? I can guarantee that most people aren’t going to pay $3.86\gal for gas if they can buy it for $3.00\gal. For a 20 gallon fill up that’s a difference of $17.20. Or putting it another way, nearly 6 FREE gallons of gas at Station A. Now let’s consider a business like UPS which is using hundreds, thousands or millions of gallons of gas a day. Where do you think they’re going to buy gas?

If Microsoft could save nearly $16 million per year at full build out (180 MW) between Douglas County and somewhere else nearby, why would they build here? If any high load business can save 28% on costs by locating somewhere other than Douglas County, why would any of them locate here?

In Grant County the assessment rates for property taxes have dropped significantly since the server farms began locating there. I realize that due to the rapid rise in property values we’ve seen everywhere over the last few years, not everyone in Grant County may have seen a decrease in their property taxes. but, if it weren’t for the server farms, they all would have seen a much larger increase in their property taxes.

Using an investment of just $1 Billion by Microsoft over the next few years (which is a little more than ½ of what they’ve already invested in Grant County), the Regional Port District and Douglas County estimated that the average home owner would see a reduction of $300 to $700 per year in their property taxes. While that’s a pretty nice benefit to everyone in Douglas County, it’s only one of the many benefits we would receive.

Microsoft has committed several million dollars worth of expansions and upgrades to local infrastructure if they go ahead with their building plans in Douglas County. For example, they’ve committed to a $16 to $18 million upgrade of the East Wenatchee Water District’s system that would benefit not just Microsoft but a lot of residential water users as well. And again, that’s just one of the improvements\upgrades they’ve committed to… if they build here.

I appreciate and agree with the PUD’s conservative approach to fiscal matters, especially when considering debt. I am a big supporter of the new Hydrogen production facility the PUD is building. I also appreciate the PUD’s objective of keeping rates low for residential users. But I completely disagree with the idea that having the lowest residential rates should be the primary goal of the PUD.

The PUD was given a monopoly for the purpose of providing electricity to everyone in the county that needs it. They were never intended to use that monopoly to eliminate economic choices that don’t happen to suit their personal interests and preferences. Just like every other elected official, PUD commissioners are elected to represent the people that elected them, not the agency to which they were elected… to do what is in the best interest of the people, not simply what is in the best interest of the agency.

As the Wenatchee valley transitions away from the predominantly agricultural based economy it has historically had, the people need businesses that will provide high paying skilled jobs. Not just the minimum wage jobs that the service and tourism industries provide. We also don’t need to become the retirement community for wealthy Seattlites and retired PUD workers. High tech businesses like Microsoft and others present the opportunity for our young people to learn technical skills that result in good paying jobs and create an economic environment where everyone benefits.

I find it more than a little odd that the PUD doesn’t seem to care at all what benefits datacenters may provide to the residents, businesses and local agencies of Douglas County. Nor do they seem to care at all what the rest of the local agencies all agree on. Perhaps the PUD knows something that they aren’t willing to share regarding the location choices of high load businesses in the region. I sincerely hope that’s the case and Microsoft does go ahead and build here. But if the PUD deprives the people of Douglas County and the greater Wenatchee area of the benefits that high load businesses can provide… I think they should be held to account. I don’t believe the PUD should be determining the economic future of Douglas County.