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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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RE: Laughable
By fic2 on 9/24/2012 4:12:38 PM , Rating: 3
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: Laughable
By GotThumbs on 9/24/2012 4:56:33 PM , Rating: 5
With the cost of diesel fuel...I would think MS would have preferred to pay the utility company.

We need more facts on this story. Was the MS contacted for copies of emails/letters requesting the suspension due to substation work?

Seems very unusual to consume all the fuel that was required to run generators for that long.

RE: Laughable
By DanNeely on 9/24/2012 6:50:17 PM , Rating: 3
The 3600 number reeks of lying with statistics. That's 150 days, a completely implausible number if it's how long each generator was running. If it's the aggregate runtime for the 24/37 generators then you get about 4-6 days; which is inline with the several day run they and the power company are disputing.

RE: Laughable
By rvertrees on 9/24/2012 8:57:56 PM , Rating: 3
I think your logic does not work in this situation.

So Microsoft enters into a 7 year agreement with the Power Utility for X number of Watts/Year. Microsoft does not meet that power level. The power utility should just charge Microsoft for the X number of Watts. The power company get the money it was counting on and gets to save the materials it would have burnt to sustain the difference. At most I could see charging 10% of the difference, so $7,000 on a $70,000 variance for a total of $77,000. When the fine triples the variance your just asking for the company to burn that electricity in a short time.

RE: Laughable
By starcrusade on 9/25/2012 2:14:31 AM , Rating: 2
The whole reason Microsoft built in Quincy is that they don't "burn" anything. We (yes I live about 25 miles from Quincy) are exclusively hydro-electric. The problem is that they have to carefully balance the amount of water they flood through vs what they hold back. Not a huges problem except they can't hold all the water behind their dam so they coordinate with dams further up. Unfortunately this ends up going into an International treaty because some of the dams are in Canada. They have to provide free power to Canada based on how much water is used. I don't know the specifics of the treaty but you can see that they are now getting socked from both ends on this one, they have to essentially pay the Canadian utilities for power Microsoft isn't going to use.

RE: Laughable
By Captain Awesome on 9/25/2012 9:57:48 AM , Rating: 2
That's funny, but it sort of evens out... Over in Ontario on the other side of Canada we make too much power because of all the windmills and hydro dams, and lost manufacturing companies. So maybe once a month the electricity rate goes negative, and we pay neighboring power companies in New York, Michigan, and Quebec to take our power.

Which is pretty stupid... :)

RE: Laughable
By arazok on 9/25/2012 1:28:39 PM , Rating: 2
What’s really stupid is that despite falling energy demand and over capacity, we plan to bring on even more wind and solar capacity in the next several years. We’ll end up selling even more energy at negative prices – double soaking the taxpayer.

RE: Laughable
By Calin on 9/26/2012 4:00:25 AM , Rating: 2
When the power generated at the stations increase, the voltage at the sockets (assuming the load is kept the same) increases.
In order to have stable voltage at the socket in almost any conditions, the electricity generating system must adapt to shifting conditions - like when all of the city lights in a city like New York are lighted in the same second, there's a power surge of megawatts. To take over this kind of load, one uses "fast-spooling" generating plants (expensive gas turbines, ready steam in steam turbines). When everyone takes a shower in the morning, all the electric boilers starts (within an hour, let's say). To take over this kind of load (slow changes - gradual ramp up), coal-fired power plants are good enough (or nuclear, or hydro).
However, ready steam is usable for very short amounts of time, and gas turbines are expensive. Also, when the wind picks up quickly at a wind farm, the generating capacity increases quickly, so in order to keep the socket voltage low enough, one has to either spool down generating capacity or quickly add load (as in pumping water, heating things, ...).

As such, if your system is going with 90% hydro (slow ramp up) and the wind picks up, you have extra power which will increase socket voltage. You can't ramp down coal fired plants quickly (as the fuel already in the furnace will burn and burn, and you can't slow it down safely, and you can't vent too much steam, and ...) so in order to keep the voltage under control you are willing to give the energy for free to someone that can take it. The other possibilities: let the voltage soar and pay damages, or run with only 75% hydro and 15% gas turbines (10x as expensive as hydro, but you have decent spool down capacity), find extra "on demand" load (either industry that uses "ready steam" and is willing to take electricity for electric boilers at a moment's notice (this really is at a couple of seconds' notice ), or build local loads (water gravity storage, heat storage, ...).
So, it could be really useful to have someone to take over your overproduction at a moment's notice and help you keep your socket voltage at a sane level

RE: Laughable
By Calin on 9/26/2012 3:40:11 AM , Rating: 2
Also, to produce electricity at the best efficiency (MWh per ton of water), the dam must be kept full. On the other side, if you want your dam to protect against flash floodings, you must keep it empty (but that eats into the water's head, the difference between the water level in the lake and the water level of the generator).

RE: Laughable
By ilt24 on 9/25/2012 10:05:37 AM , Rating: 1
The reason for the penalties for over estimating power is the utility has to invest money to be sure they can meet the estimate

Yes, but what is the reason for the penalty being 3x the cost off just buying the energy?

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.

Which is why contracts often have a take or pay clause.

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.

I would think the utility would structure their fines and base cost of electricity so MS would not have to waste energy to avoid a 3x charge.

RE: Laughable
By JediJeb on 9/25/2012 1:38:19 PM , Rating: 2
I would think the utility would structure their fines and base cost of electricity so MS would not have to waste energy to avoid a 3x charge.

MS said they needed to burn and extra $70,000 in electricity in a few days to make up their shortage of their estimates in a short period of time. Even at the upper end of their negotiated rate at $0.03/kwh that makes their over estimate in usage at 2,333,333 kwh's. That is 2,333,333,333 watt hours of electricity, or 2.33Gwh's. If a power plant is planning ahead to generate 2.33Gwh or electricity the it ends up not generating that is a substantial amount of extra costs to cover. And as someone else mentioned, with hydro that much electricity generation power would be a big scheduling problem with dams upstream and downstream of the power plant.

If you don't sock it to a company as big as MS when they fail to accurately give you the needed information for that much planning, they will continually do it and in the end the power company will be struggling to balance their production with the demand, and if they can not make up the lost money through fines, they will have to pass it along to regular customers since they have a contract with MS for several years to come. Same thing is happening here in KY with an aluminum plant that is more or less holding a local power plant hostage over rates because if claims it they don't give them cheap rates and raise the rates to everyone else they will move their plant and then everyone else will end up paying even more for their power in the end and suffer a loss of jobs locally. It is a Catch 22 situation for the locals, pay more for electricity or pay more for electricity and have higher unemployment.

RE: Laughable
By NellyFromMA on 9/25/2012 1:47:57 PM , Rating: 2
Sounds like they should have thought it through a bit more. Can't blame the customer because the provider is a failure at coming up with plans that actualyl make sense for its business model.

"People Don't Respect Confidentiality in This Industry" -- Sony Computer Entertainment of America President and CEO Jack Tretton

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