When Big Tech Goes Green, Taxpayers Help Foot the Bill

By | Published Feb 28, 2020 | Bloomberg Businessweek
When Big Tech Goes Green, Taxpayers Help Foot the Bill

In the otherwise flat Minnesotan expanse, the whitish-gray mound of coal ash looks mountainous, a permanent cemetery of contaminants next to the twin smokestacks of the Sherburne County Generating Station. This power plant doesn’t just run the town of Becker; it pretty much is the town. But within a decade it will close completely. One frigid morning, Greg Pruszinske, Becker’s administrator, is staring at the field across from the coal ash pile, where he’s placed his hopes for the future.

Overhead, bands of high-tension cables connect to towers near the plant. That infrastructure is one reason Google has pledged to put a $600 million data center here. It needs access to massive amounts of uninterrupted power. “The transmission won’t go away” when the coal plant closes, Pruszinske says. “Electrons can come this way, same as they can go the other way.”

For almost four decades, Sherco, as locals call the plant, has done two things in abundance: burn coal and pay taxes. It emits more greenhouse gases than anything else in Minnesota, but it also covers 75% of Becker’s tax base. Taxes from the plant subsidize a public 18-hole golf course, an uncommon amenity for a town of fewer than 5,000 people, and Sherco employs more than 300 locals to create cheap power for millions. Its transmission towers can deliver more than 2,200 megawatts of power—four times the output of a typical coal plant and enough to run 2.6 million homes, roughly half the state.

By 2016, local officials were worried about Becker’s long-term prospects. Sherco’s operator, Xcel Energy Inc., was planning to decommission the plant in phases over the next decade or so, and the town, about 50 miles northwest of downtown Minneapolis, seemed to have few options to replace it. So when the utility came to Becker’s leaders with word that Google wanted to put a data center near the aging smokestacks—one that would need as much juice as a city of 600,000—they and Xcel were eager to meet the tech company’s requirements. “We want to become the coal transition model for other communities across the nation,” Pruszinske says.

(From left) Becker’s City Administrator Greg Pruszinske and Mayor Tracy Bertram.PHOTOGRAPHER: ACKERMAN + GRUBER FOR BLOOMBERG BUSINESSWEEK

In exchange for a promise of 50 full-time jobs, Google will be exempt from two decades’ worth of local and county taxes, worth at least $14 million. While the data center will run on electricity generated by fossil fuels, Google will buy carbon offsets from wind power suppliers in South Dakota. And Xcel is giving it an initial 10-year discount on its electric bill, which in effect means the utility’s other customers will help subsidize that bill.

“Given our scale, we can often find a mutually beneficial structure that increases the amount of renewables in a region, while also meeting our energy goals as a company, and, given the decreasing cost of renewables, do this in a cost-effective manner for the utility serving the existing community,” says Google spokeswoman Jacinda Mein. “Not only does Google benefit, but so does the rest of the community in the utility company’s service area.”

While most companies will gladly use any leverage at their disposal to wring better deals from local officials, Google’s arrival in Becker is an object lesson in the unique clout big tech companies’ huge power needs give them over local utilities at a moment when few industries’ power needs are growing, says Anthony Logan, a researcher at Wood Mackenzie, an energy consulting firm. Every company pursuing a green energy plan “is getting a really good deal,” he says. And by locating near an existing power plant, even if it’s closing, Google benefits from the infrastructure without having to pay for it, he says.

The lack of transparency surrounding the negotiations can make it hard to figure out whether such deals make sense for the public. “We don’t know the amount of savings they are getting,” says Gabriel Chan, a professor at the University of Minnesota who studies energy policy. “The state can go too far and give Google too much, but no one knows what the numbers are actually,” he says. “It really does neuter a third party from being able to say if this is in the state’s interest.”

A week after state regulators approved Xcel’s rate deal with Google, Xcel announced that as part of a plan to stop all coal operations in the upper Midwest, it would begin a four-year phased decommissioning of the Sherco plant in 2026, years earlier than previously anticipated. That’s a win for the environment, but a blow to Becker. After the announcement, Pruszinske issued a statement asking for state aid. “The coal plant is closing earlier because of a little less political resistance because of the arrival of Google,” says Chan.

This isn’t the first time Google has located near a coal plant. In 2016 it opened a data center on the site of a former coal plant in rural Alabama, lured by more than $80 million in tax breaks and an undisclosed discount on its electricity. By 2017, Google was preparing for a massive infrastructure expansion. Over the next two years, it would spend about $22 billion opening new data centers across the U.S. Its energy needs, the biggest operating cost for data centers, were set to balloon.

Google also wanted to boost its reputation as the largest corporate buyer of renewable energy. It put itself on a renewable path a decade ago, when Larry Page, then Google’s chief executive officer, issued a memo calling for the company to become carbon neutral. (Google was way ahead of cloud computing leader Amazon.com Inc. on this front. Amazon says it expects to be carbon neutral by 2040. Google says it became a zero emitter in 2017.)

Technology companies were far and away the biggest customers for renewable energy credits last year, signing power purchase agreements for 6,400 megawatts of solar and wind—more than triple the No. 2 industry, communications, according to BloombergNEF, which studies renewable energy markets. Google accounted for about 2,700MW of clean energy commitments, with Facebook Inc. next at 1,100MW. Most of Google’s total came from what’s called a “reverse auction,” a timed, public bidding process in which it demanded that wind and solar developers compete to underprice one another.

Google, Facebook, and Microsoft have all reached their 100% renewable energy targets in the past few years. Their demand for electricity, however, has kept climbing at an average of 22% a year. With utilities eager to land large customers in an era of flat electricity demand, more deals like Becker’s are almost certainly in the offing.

Utilities and state regulators might find it hard to justify millions in undisclosed rate discounts for mostly automated data centers. It’s easier to make the case for factories that provide a lot of jobs. But Google paid Oxford Economics, a commercial research firm, to produce a report about the economic impact of Google’s data centers. Oxford concluded that six data centers opened from 2006 to 2008 had proved a boon for local communities: a total of $1.3 billion in economic activity and 11,000 new jobs in just a few years. Google had ultimate control over the information researchers used. A footnote disclosed that only 1,900 of the 11,000 people were directly employed by Google, and the report didn’t clarify how many of them were full-time workers in highly paid technical positions as opposed to, say, temporary security guards.

Becker’s old downtown area with the Sherco power plant in the background.PHOTOGRAPHER: ACKERMAN + GRUBER FOR BLOOMBERG BUSINESSWEEK

The report’s release in early 2018 coincided with Google’s active negotiations for land deals, tax breaks, and rate discounts in small towns across the U.S., including Becker. An obscure Google subsidiary called Jet Stream first showed up in filings with Minnesota regulators in June 2017, along with a Google shell company called Honey Crisp Power LLC, a nod to Minnesota’s popular apple. In December 2018, Xcel laid out the mysterious companies’ demands for rate discounts and access to renewable energy credits from a federally subsidized wind farm in South Dakota. In the heavily redacted 143-page filing, Google was not named and described only as a “large commercial and industrial customer.”

Google’s name became public at a Minnesota Public Utilities Commission hearing on May 14 last year. The commission approved Xcel’s discount for the company at the hearing, without a public comment period to debate the terms. As part of its rationale for granting the discount, the commission referred to data from the Google-funded Oxford Economics report. “We believe public dialogue is vital to the process of building new sites and offices, so we actively engage with community members and elected officials in the places we call home,” says Google spokeswoman Mein. “Of course, when we enter new communities we use common industry practices and work with municipalities to follow their required procedures.”

“A city of our size had made it to the global market,” says Becker Mayor Tracy Bertram. “For somebody of that magnitude to recognize us, that was a very proud moment for all of us.” Bruce Messelt, the administrator of Sherburne County, which will lose $6.2 million in taxes in the deal, says that he’d rather Google had moved to town without the incentives, “but we’ll take the better-than-nothing concept for the next 20 years, and then hopefully they’ll pay taxes.”

Inside a modest conference room in Becker’s town hall, Pruszinske stares at an aerial map. A black blotch representing Sherco’s coalfield stands out among farmland where fields of russet potatoes, green beans, and seed corn grow in rotation. For the foreseeable future, Google’s data center will do little to offset the 75% hole that’s going to be punched in the town budget when the coal plant shuts down. “It’s been challenging, and I’ve had some anxiety along with it,” Pruszinske says. Still, he’s sanguine about Becker’s future, pointing out the site of a new metal recycling plant, an expanding trucking company, and scattered warehouses. Other tech companies might even take over more of the farmland, he says, now that Google has noticed Becker. “When I look at this map,” he says, “all I see is possibility.”

A Facebook by Any Other Name

Google is hardly the only company to shield its identity as it negotiates with local governments and utilities. The practice is becoming standard among the technology industry’s biggest companies.

As it builds out its data center footprint, Facebook consistently conditions potential deals on the utmost secrecy. When it first came to Altoona, Iowa, in 2013, the company shrouded its identity under the code name “Project Sequelant.” Later it used an obscure subsidiary, Siculus Inc., when negotiating a deal with local politicians who had to sign highly restrictive nondisclosure agreements. By 2018, Facebook had built four massive data centers in Altoona, in exchange for $26 million in tax breaks. In 2019, Facebook came back for more, and most local citizens had no clue. When the agenda for a City Council meeting was released in early May, it included an item about a development agreement with Siculus, but no further information. Local officials denied media requests for the identity of the company, claiming it was protected by “attorney-client privilege.”

It wasn’t until the day of the City Council meeting—at the actual meeting—when politicians could finally say Siculus was Facebook, and it wanted $40 million more in tax breaks. Local citizens had only 12 minutes to read the details before it was approved. “We treat our preliminary discussions as confidential because it is a competitive process,” says Facebook spokeswoman Melanie Roe.

Read more: How Silicon Valley Avoids Paying Taxes Using a Small Biz Break

Reporting for this story was supported by the McGraw Center for Business Journalism at the City University of New York’s Newmark Graduate School of Journalism

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