Electricity utilities fear tech drought at server farms

By ERIK AHLBERG The Associated Press 2/1/01 12:40 AM

Dow Jones News Service

CHICAGO (Dow Jones News) -- Need another sign that the dot-com economy is cooling? Check with your local power company.

Electricity utilities across the country have started demanding steep deposits from real-estate developers before the construction of energy-hungry technology supercenters, or computer server farms.

The farms, which are often home to Web-hosting firms, can use 10 times more electricity than traditional office buildings to power their floors of whirring servers and glowing monitor screens.

But as the Nasdaq Stock Market sinks and technology companies hit tougher times, utilities fear losing money due to the high cost of installing the extra equipment, such as lines and transformers, for which demand may not materialize.

"It's a hedge against a speculative investment," said Arlene Juracek, a regulatory and strategic services vice president at Commonwealth Edison Co., a unit of Chicago's Exelon Corp. "We want to keep any failures from becoming the white elephant on our rate payers' backs."

After nearly a century languishing in a profit-insensitive regulated environment, electricity utilities are suddenly demonstrating blue-ribbon business practices. With an eye on the power crisis in California, local power and light companies have suddenly become much more aggressive in managing the bottom line, avoiding excessive risk and acting in the best interest of shareholders.

The server farm deposits range from about $500,000 to more than $10 million per project, depending on the amount of engineering work, equipment and installation needed.

The down payments weed out shaky projects and tend to make developers more realistic when they're budgeting how much power they expect their buildings to use, Juracek said. ComEd put its program into action last year, and is in talks with several developers about new projects.

The utility's contract pays developers' deposits back in portions over a five-year period depending on how a site's electricity usage progresses toward the original load estimate, according to a filing this week with the Illinois Commerce Commission, the state's utility regulatory board. If a firm doesn't meet its original expectations, ComEd takes its cut. The developer can also lose out if its renters move out of the building too soon.

Managing these matters can bring stress to developers already working under tight budgets, said Geoff Arend, director of customer services with Insignia/ESG Inc., a developer based in New York. "A big deposit can potentially kill a project," he said.

Insignia is currently working on a 210,000-square-foot server farm in Chicago, where a multi-million dollar deposit has been negotiated, Arend said.

The site is expected to use about 150 watts of electricity per square foot. By comparison, a typical office building uses between five to 10 watts per square foot. At full capacity, the building will need about 30 megawatts -- that's enough electricity to supply about 12,000 homes.

"These projects are usually pretty massive," said Steve Rosenstock of the Edison Electric Institute, a Washington D.C. industry association. Utilities aren't using the deposits to determine which companies succeed and which don't -- they simply want their money back, he said.

"Utilities are not opposed to dot-coms; they're looking at it from a financial and infrastructure standpoint," Rosenstock said. "The question is the dot-bombs out there, and whether they'll be using the power in five to 10 years."

EEI has planned a special server-farm conference for its constituents next month, bringing together developers, utilities and zoning officials. Already, more than 110 people have registered.

In Boston, utility NStar Energy Services Co. started its deposit system last summer, and has completed one contract so far, said Brian Balcom, director of account management.

A total of 19 server-farm projects are planned for the Boston area which, if completed, would increase the utility's load in upcoming years by more than 10 percent compared to a more typical 2 percent, he said. But unlike California, the Northeast has some supply to offer, meaning that more load from server farms could mean more profits, Balcom said, and the deposits make that growth much more stable.

http://www.nj.com/newsflash/index.ssf?/cgi-free/getstory_ssf.cgi?f0006_BC_DJN--Electricity-Serv&&news&newsflash-financial

-- Martin Thompson (mthom1927@aol.com), February 01, 2001