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According to report Microsoft wasted millions of watts of power to avoid a fine for misreporting its needs

The New York Times is offering up a fascinating story on the small town of Quincy, Washington and its residents' frustrations with Microsoft Corp. (MSFT).

I. Small Town, Big Hopes

Increasingly large tech companies like Microsoft and Apple, Inc. (AAPL) are looking to position data centers in small rural towns that offer convenient access to local tax breaks and plentiful power.  For Microsoft, in 2007 that meant locating to Quincy, a small farm town of 6,900 along State Route 28.

For the town of Quincy, this seemed like a sure-win proposition.  So they rolled out the red carpet with the local utility -- Grant County Public Utility District -- offering hydroelectric power from dams on the Columbia River at a rate of 2.5-3.8 cents/kilowatt-hour, well below the national average of 6-7 cents/kilowatt-hour.  The rate was good for 7 years.  Microsoft also got large (the article does not specify precise numbers) tax breaks.

And in some ways things have paid off.  Microsoft's new data center -- which joins Dell, Inc. (DELL) and Yahoo! Inc. (YHOO) data centers in the county -- has brought in $3.6M USD in taxes for 2012, even with the breaks.  While landowners didn't get the windfall profits for the 75-acres of bean farms Microsoft bought to build its new data center on, they do now have repaved roads and a new library, thanks to the extra tax revenue.

Tim Culbertson, who was the general manager of the local utility back in 2007 recalls early optimism, commenting, "You’re talking about one of the largest corporations.  You’re talking Microsoft and Bill Gates. Wow!"

II. Microsoft: a Demanding House-Guest

But tensions have risen in the town over Microsoft's tough power demands.  

Culbertson claims that instead he was met with a frustrating "level of arrogance" from the tech giant.  He comments, "Microsoft had lot of expectations.  Early on, I don’t think it was as cooperative as it could have been."

For Microsoft stakes were high -- its Bing service has been heavily served out of the Quincy data center.  Hence it was crucial to produce enough power and consistency to meet the demand for steady cloud service.

Microsoft Bing
The new data center powers Bing, Microsoft's search engine.

Frustrated by the town's slow construction of a 48 million watt substation for it -- equivalent to the electricity necessary to power 29,000 average U.S. homes -- Microsoft demanded $700,000 USD in reimbursements.

And there were also clashes over Microsoft's diesel power backup generators.  In its rush to push the project through, the Washington State Department of Ecology approved permits for 24 on-site generators, each capable of generating two million to three million watts.

In backup power mode this was no real problem, but in 2010 the generators reportedly spewed a large level of particulate pollution (smog) when Microsoft ran them nearly continuous.  Microsoft claimed the utility asked it to do so during a substation upgrade, but the utility claims Microsoft is lying, saying that Microsoft requested to be temporarily taken off the grid.

Microsoft, which has run afoul of Californian regulators for its diesel generators, this year received permission to expand its total number of generators to 37.  A group called Microsoft-Yes; Toxic Air Pollution-No is challenging the new permits in an appeal to the state Pollution Control Hearings Board.  Led by a retired school-teacher and environmental access, the group hopes to block Microsoft's expansion plans.

Yahoo ran its backup generators for only 65 hours in 2010, while Microsoft ran its generators for 3,615 hours.

III. Wasting Power

A final bone of contention is Microsoft's wasteful defiance of a utility fine.  Utilities regularly request forecasts from their biggest customers to match production with demand.  If those forecasts don't match up, they charge there super-users fines.

Microsoft and Yahoo both surprisingly overestimated their power use.  When they were order to each pay tens of thousands in fines Yahoo paid its $94,608 USD penalty without question.  But Microsoft stood its ground, refusing to pay the $210,000 USD fine requested by the utility.

It vowed to simply waste power to meet the quota, saying it had to do so because of the utility's punitive policies.  It commented in a letter, "By staff estimate.  Microsoft could incur approximately $70,000 in power costs to avoid the $210,000 penalty, resulting in real savings of $140,000. Microsoft must make the decision on continuing to burn $70,000 worth of power in the next three days."

Microsoft wasting power
Microsoft vowed to waste power as a way to avoid a fine for overestimating its power needs.
[Image Source: Treehugger]

After Microsoft made good on its threat to begin wasting millions of watts, the utility backed down.  It begrudgingly slashed the fine to $60,000 USD in a bid to convince Microsoft to stop what it admitted was a "commercially unproductive" and "unnecessarily wasteful" use of power.

Microsoft calls the conflict "a one-time event that was quickly resolved".  But some in Quincy are growing frustrated with their new unruly neighbor.  Randall Allred, a utility commissioner and local farmer, comments, "For a company of that size and that nature, and with all the ‘green’ things they advertised to me, that was an insult."

One can expect more clashes between Microsoft and the locals as the construction of the new diesel generators heats up.

Source: NYT

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And We Wonder...
By Reclaimer77 on 9/24/2012 4:02:26 PM , Rating: 0
Why we have such high unemployment and businesses are leaving the country faster than ever?

The absurdity of this situation perfectly illustrates our problem. You have to meet quotas for power consumption or else face a fine? On top of the thousands of other regulations, taxes, and potential fines a business has to put up with these days; Microsoft is asked to magically predict the future like some sort of genie, or else is hammered with an absurd fine?

America should be the epitome of cheap and abundant energy production in the entire world. We should be at 100% nuclear production, and damn what anyone else says. The "green" movement can go to Europe where bad ideas like theirs belong.

RE: And We Wonder...
By burchoff on 9/24/2012 4:20:27 PM , Rating: 2
Please see fic2's comment which I have included below for your reading pleasure.

"You would think if they didn't run their generators for 3600 hours they would have met their power estimates.

The reason for the penalties for over estimating power is the utility has to invest money to be sure they can meet the estimate. I am sure it was a pretty large over estimate. Example is if I make widgets and my biggest customer says he is going to order 100,000 widgets. I buy raw materials and hire staff to make 100,000 widgets based on their estimate. If they only buy 50,000 widgets they have totally f*cked me over.

I would also think the utility would structure their fines and base cost of electricity so that MS couldn't pull such a dick move."

RE: And We Wonder...
By Motoman on 9/24/2012 4:48:55 PM , Rating: 2
at a rate of 2.5-3.8 cents/kilowatt-hour, well below the national average of 6-7 cents/kilowatt-hour. The rate was good for 7 years.

Yes, and additionally it sounds like MS signed a 7-year contract to get incredibly reduced pricing on power, probably based on a commitment to buy X number of kwhs.

So when they didn't live up to their kwh commitment, the utility came after them with a fine.

And having said that, yes, it makes perfect economic sense for MS to then just waste $71k in power instead of paying multiples of that number in fines. In fact, if they'd paid the fine instead, it could have been fodder for the shareholders to complain that MS wasn't conducting itself in the best interests of it's shareholders (which in this case would be wasting money).

RE: And We Wonder...
By starcrusade on 9/25/2012 2:26:09 AM , Rating: 2
Nope, that's actually standard rate around here (I pay $0.027/Kilowatt hour), they have the cheapest power in the country, I'm living two counties over, we have the second cheapest and the county between us has the third. Perks of Hydro-power.

RE: And We Wonder...
By NellyFromMA on 9/25/2012 1:46:36 PM , Rating: 2
This is an example of poorly planned economics (on the power company's side).

It simply wasn't thought out beyond the surface of the proposal. It's counter0intuitive and that makes the only green offender the power company for forcing its customer to adhere to an idiotic energy wasting plan.

RE: And We Wonder...
By Azethoth on 9/24/12, Rating: 0
RE: And We Wonder...
By Keeir on 9/24/2012 5:18:15 PM , Rating: 2
Nuclear does not make sense long term, the world has finite uranium supplies. It is good for 400 years or so depending.


So Nuclear is a bad option because it will only last ~3.5 times as long as the entire history of the power industry?

Come-on get real.

100% Nuclear today would mean 1/10 to 1/100 the air pollution and C02 emissions without a significant increase in electricity costs or change in standard of living.

In 400 years, maybe we will come up with a great idea that hasn't been thought off in the past 100.

RE: And We Wonder...
By Master Kenobi on 9/24/2012 5:47:06 PM , Rating: 2
I will also point out that Thorium reactors work just as well as Uranium and it is found in far more abundance. You can get off the "Uranium can't last forever, so nuclear is a dead end" bandwagon now. I've been hearing that bullshit for over 20 years and I know it has been going on even longer.

Want to know what is completely sad? France has 80% of its power generated by Nuclear. FRANCE? Are you fucking kidding me America?

RE: And We Wonder...
By ritualm on 9/24/2012 7:26:52 PM , Rating: 2
NASA keeps getting hit with funding cuts because most of its R&D goes into things that don't have a military use. Unfortunately, the same twisted logic applies to thorium nuclear power - you can't make nukes with the material.

I too would love to see this country get its power needs from thorium. The sad part is it's more likely I won't see it happen when I die.

RE: And We Wonder...
By Ringold on 9/25/2012 3:01:32 AM , Rating: 1
Unfortunately for us as a country, China is investing big bucks in R&D on the thorium fuel chain and, to my knowledge, has some thorium reactors already to build experience for the future.

One of the many, many ways the "communist" country is leaping ahead of us.. sad.

RE: And We Wonder...
By senecarr on 9/25/2012 10:36:00 AM , Rating: 2
What both you and Reclaimer have never bothered to do is actually calculate all the limit factors to nuclear production. Namely, there isn't a enough steel, nor enough concrete produced annually to convert us to Nuclear in any relatively short time span.
That withstanding, I'd love for the US to move to having a lot more design safe reactors (like liquid sodium reactors that are physically fail safe from going critical). Unfortunately, because waste (companies don't have to pay a storage fee covering the materials true life span) and insurance (no nuclear company actually carries the level of insurance to replace a full nuclear incident) are both subsidized, I don't see this happening without changing these incentives.

RE: And We Wonder...
By Reclaimer77 on 9/24/2012 5:52:09 PM , Rating: 1
Solar is the only long term solution

Thanks for letting us all KNOW you're an idiot in advance.

RE: And We Wonder...
By Calin on 9/26/2012 4:08:42 AM , Rating: 2
Coal is stored solar energy. Just like oil, wind, wave, hydro, and some other I don't remember right now.
Only non-solar energy you could get right now would be from fission (heavy elements on Earth weren't produced by our Sun) and Terran magnetic field generators (satellite with a long "tail"/antenna/ that crosses Earth's magnetic field to generate electricity.
So yes, solar (and stellar) is the only long term solution.

RE: And We Wonder...
By Manch on 9/27/2012 10:05:18 AM , Rating: 2
That guy wasn't talking about "stored solar" and you know it. Stop splitting hairs to try and make his point true when it's not.

RE: And We Wonder...
By Mint on 9/24/2012 11:02:09 PM , Rating: 2
Ironically, everyone with a brain in the green community (no, that's not necessarily an oxymoron) is very pro nuclear, e.g. Patrick Moore (cofounder of Greenpeace, who left largely for that reason).

It wouldn't surprise me in the least if the anti-nuclear movement in the US was largely driven by the coal industry. Greenpeace was too stupid to figure out that every canceled nuclear plant resulted in a coal plant taking its place, but coal producers weren't.

Anyway, you can't say MS was given some huge burden. If they wanted free market power, they could pay 7c/kWh. They wanted much cheaper power, and to get that, they basically promised to have magic genie powers in predicting their own demand.

RE: And We Wonder...
By Calin on 9/26/2012 4:12:47 AM , Rating: 2
If they wanted free market power, they would pay whatever the local power company would ask them, or they would build a looong power line to another non-local power company.
When you're using energy by the megawatt you are limited by what the local power company can supply (your own 40 amps power circuit - for a maximum of 5 kW - is just a drop in a bucket, but a multi-megawatt user - especially one with shifting power levels - could be a headache.

RE: And We Wonder...
By martin5000 on 9/25/2012 4:34:41 AM , Rating: 2
The "green" movement can go to Europe where bad ideas like theirs belong.

Europe has more nuclear capacity than the USA, and the stupid fine for underestimating power usage is in the USA.

Why the Euro hate when the relevant facts disagree?

RE: And We Wonder...
By Calin on 9/26/2012 4:16:01 AM , Rating: 2
I'm sure Europe has similar fines for breaking the power levels agreed beforehand - if not for the possible monetary damage that one such miscreant could generate, then for the possible monetary damage many such miscreats will surely generate when acting simultaneously.

RE: And We Wonder...
By dark matter on 9/25/2012 12:49:32 PM , Rating: 2
You really are a twat.

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