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Facebook bets on coal for new Oregon data center

With the Pacific Northwest's cheap hydropower getting tapped out, Facebook chose a coal-based utility to power its new data center.

On Jan. 21, when Jonathan Heiliger, vice president of technical operations at Facebook announced the company would build its first data center, it wasn't a surprise that the Web giant located its facility in Oregon. What is surprising is that it will not avail itself of the region's famous hydroelectric power.

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Recently, high-profile server farms have sprouted up all over the Pacific Northwest: Google built one in The Dalles, Ore., and Microsoft's is in Quincy, Wash. In 2007, Sabey Corp. built a data center in East Wenatchee, Wash., and cited dirt-cheap electricity prices -- at 1.85 cents per kilowatt-hour (kWh) -- as the primary reason.

Along Interstate 84 bordering Oregon and Washington, the Columbia River corridor is also home to the Bonneville Power Administration (BPA), the federal agency that operates the dams on the Columbia River and sells the power at cost to utilities.

That cheap hydropower was attractive to huge data center users. But if they didn't get in during the rush a couple years ago, they're too late.

Tiered energy rates bring higher prices for new customers
By 2012, BPA will charge tiered rates for power. Customers that signed 20-year contracts in 2008 will pay tier-one (i.e., inexpensive) pricing for their current electricity demand. These customers use most of the power produced by the dams.

By 2012, Oregon's Bonneville Power Administration will charge tiered rates for power.

To meet new customer demand or increased demand from existing customers, BPA also purchases power from other sources. In 2012 this electricity will be classified as tier two, and it will be charged at a much higher rate than the BPA's current hydropower.

Which brings us back to Facebook: The company's new data center is being built in Prineville, Ore., a small town on Oregon's high desert. Pacific Power, a utility owned by PacifiCorp, will provide the electricity. While Pacific Power gets some hydropower from BPA, its primary power-generation fuel is coal, according to Jason Carr, the manager of the Prineville office of economic development for Central Oregon.

With the price of hydropower increasing in the Northwest, Facebook opted to bet on the incremental price increases associated with coal rather than face tier-two pricing from BPA.

Brian Oley, a data center site selection expert at the real estate services firm Jones Lang LaSalle, said it's no secret that the Northwest's hydropower is getting tapped out. Oley expects that when tier-two pricing kicks in, prices will increase from two cents per kWh to six or seven cents.

Choosing central Oregon for Facebook's data center
According to Carr, dry cool night air was one of the primary reasons for choosing the location.

"Facebook is using an outside-air intake system to cool its servers, so the climate was a big deal for them," Carr said. "Central Oregon has a fairly moderate climate -- cool nights most of the year -- and that allows Facebook a large window to use [air-side economizers]. Tax incentives played a role, but without the weather they wouldn't have considered Prineville."

Still, Facebook has gotten massive tax breaks through an Oregon Enterprise Zone program. The local Bend Bulletin estimated that Facebook would have to pay $2.8 million annually in city and county taxes on the property, versus the $110,000 annual fee it worked out with the county.

On Think Out Loud," a recent Oregon Public Broadcasting program on Facebook's data center, "some Oregonians were skeptical about the huge corporate tax giveaway for only 35 jobs.

But Crook County, Ore., faces 17% unemployment, and county schools are so cash-strapped that they're considering a four-day school week. Any economic development will be good for the community.

"Prineville has a hard time attracting new business, and these incentives give us an upper hand," Carr said. "The impact of 35 jobs might be small in Portland, but here it's a huge boost."

Matt Stansberry is the Executive Editor of Let us know what you think about this story; email Matt Stansberry.

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