Crunching Numbers on the Facebook Deal

Visualization of Facebook’s Henrico data center. Says CEO Mark Zuckerberg on Facebook: “We’re building out 11th data center in Henrico, Virginia. Like all our new data centers, it will be powered by 100% clean and renewable energy and will create thousands of jobs over the next few years. Our community is growing quickly and we’ll need this infrastructure to serve people all around the world.”

Facebook’s $1 billion announcement is a big deal for Henrico County and for Virginia. The social media giant will invest $750 million to build a data center complex in Henrico’s White Oak Technology Park, and Dominion Virginia Energy Virginia will spend roughly $250 million to supply the facility with “100 percent renewable energy.” It is not yet known precisely where the solar facilities will be located, but they will be in Virginia.

This is one of the biggest economic development deals in the state this year — a massive one by RoVa (Rest of Virginia) standards. As with all mega-projects, the big question is this: Did we give away the store? At first blush, it appears that state tax payer and rate payers will do fine. The impact on Henrico County citizens is murkier.

Drawing upon a U.S. Chamber of Commerce data center study, the McAuliffe administration estimates that construction of the 970,000-square-foot data center will employ up to 1,688 local workers, provide up to $77.7 million in wages for those workers, and produce $234.5 million output along the local economy’s supply chain during construction. Once in operation, the data center will inject $32.5 million annually into the economy.

You can read the congratulatory comments from various politicians and poobahs in the press release from the Governor’s Office. Remarkably, state and local officials managed to close the deal without any direct subsidies or tax breaks from the commonwealth, which is almost unprecedented in a project of this magnitude. Moreover, Facebook and Dominion Virginia Energy have crafted a special tariff to cover the cost of solar power which appears to protect rate payers. However, Henrico County made two major concessions, the justification for which are impossible to evaluate based on information made public so far.

The Facebook plant will consume an estimated 130 megawatts of electric power at full build-out, the equivalent of about 32,500 homes, and will require close to 3.5 million gallons per day for its cooling systems.

Henrico, which competed with Loudoun County and Prince William County, for the deal, had invested $40 million in infrastructure improvements at the White Oak Technology Park. The park offers high-seed fiber-optic cable from multiple providers, it can accommodate a high-capacity electric customer, and it can deliver up to 10 million gallons a day of water.

To sweeten the pot, Henrico County enacted a major tax break and gave Facebook an $850,000 sewer-connection credit on a fee that otherwise would have cost the company more than $2 million.

In April, the Board of Supervisors approved a cut in the business property tax rate on computer and related equipment for data centers from $3.50 per $100 of assessed value to $0.40 — an 88.6% reduction. It’s not clear how much that tax break is worth. The county has released no detailed numbers. But if one assumes that half of Facebook’s capital investment consists of computers and related equipment, about $500 million, then tax revenues would drop from $17.5 million to $2 million per year, making the tax break worth about $15 million a year. And that doesn’t include the loss in revenue from the roughly 20 other data centers located in the county that would benefit from the tax cut.

Whether the reduced tax rate is reasonable or not also depends on how the county financed those $40 million in improvements. Will the revenue stream from Facebook taxes cover the cost of paying down bonds or other financing mechanisms used to pay for the improvements? That data was not available from press reports or press releases.

Another big question mark involves how the special electricity tariff will be structured. To meet Facebook’s commitment to consume clean, renewable energy, Dominion plans to build solar facilities with a total capacity of 300 megawatts.

The proposed RF (Renewable Facility) tariff, which must be approved by the State Corporation Commission, will be structured so that only Facebook will pay the cost of solar generation, said Robert M. Blue, president and CEO of Dominion’s power delivery group. At present, solar is more expensive than other power sources. The rate structure, said Blue, “is designed to be neutral to our other customers.”

In summary, a quickie analysis suggests that the Facebook project is probably a good deal for Virginians — neither state taxpayers nor Dominion rate payers will be subsidizing the project. It’s less clear whether the project is a good deal for Henrico residents. It may be, but it may not be. The data needed to draw a conclusion has not been made public.

Update: The $40 million investment in the White Oak Technology Park dates back years to when the country geared up to serve the Infineon semiconductor plant (now closed). That investment was paid off within six or seven years, and the financing of the infrastructure was not an issue in the Facebook deal. I’ll have more to say in the next post.

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6 responses to “Crunching Numbers on the Facebook Deal

  1. Okay, this question is half serious and half impertinent. I get that Dominion is going to build new solar fields sufficient to power this server farm, and this server farm and perhaps some others with a similar hunger for enviro street cred will pay a special (higher) tariff to finance that. I also know that the utility is not supposed to ask other ratepayers to backstop any of the risk (for example if the plant unexpectedly closes.)

    But 100 percent solar in VA 24-7-365? Not happening. Even with batteries. Do they just smile at their customers and investors and say, well, we tried to be 100% green and pure, but sometimes it rains for days and days and we had to buy some dirty power? Are they going to build 50 percent more than their peak demand to compensate for the time their “dedicated” solar supply is dark? The whole thing is a show anyway since you can’t trace which electrons roll into their meters. And if that pumped storage facility out in SW VA is for this, then I wonder again if ratepayers are going to pay for that.

    I think the lower tax rate on the equipment is marvelous, just marvelous.

  2. This is the original, now defunct Motorola plant. I’m no fan of disparate tax treatment by industry… talk about the govt picking winners and losers!

    There’s also a huge discrepancy in the job count – RTD says it’s quoting Herico at 240 at build out.

    re: the 100% renewable… you gotta go read Facebooks view of this:

    ” Designing and implementing renewable energy tariffs”

    https://www.facebook.com/notes/green-on-facebook/designing-and-implementing-renewable-energy-tariffs/1645979022084014/

    They SAY that they’re expecting DOminion to make this same arrangement available to other businesses….

    and Steve.. the “theory” is that if you buy enough solar to provide 100% to your facility – on a 24/7 basis… that basically they’ve bought more solar than they need just during the day… and the excess “covers” the nighttime because during the day – the extra solar is reducing the need to burn fossil fuels.

    That’s the “theory”. TMT would, no doubt, consider the folks at FACEBOOK to be those dratted “environmentalists” who don’t care about cost or reliability, eh?

    Facebook.. an no doubt, Amazon and Google think solar is a chicken/egg problem.. and they’re doing the chicken part.

    • Hmm. The wording of that Facebook statement is fairly subtle, but one interpretation is the power is 100 percent renewable but they are fine if it covers 50 percent of their total demand…Hey, if they pay the full freight, fine. I much prefer this approach to mandatory renewable that requires all ratepayers to pay the higher costs. I look forward to the details on the tariff. Perhaps they do not care so much about cost, but they certainly care just as deeply about reliability and I’m sure they expect a steady supply at all times in all conditions.

  3. “But if one assumes that half of Facebook’s capital investment consists of computers and related equipment, about $500 million, then tax revenues would drop from $17.5 million to $2 million per year, making the tax break worth about $15 million a year. ”

    This is a pointless argument, because without the tax rate slashed, Facebook wasn’t coming here anyway and it’s questionable whether any similar user was, either. So it’s not a “loss” of anything – it’s a gain of $2 million a year.

    Now, your follow-up point about the loss of tax revenue from the other 20 data centers does have merit, but it would appear that Henrico weighed the benefits of those losses and determined that the value of having Facebook here – both from a feather-in-the-cap standpoint as an attraction to other similar companies and from a bottom-line and stability standpoint far outweighed whatever losses in revenue might be incurred from those other data centers.

  4. In economic terms, his is more comparable in terms of jobs and economic impact to a Dominion Gas Power Plant (240 jobs) rather than the Google 2nd HQ. of 50,000 jobs.

    240 jobs is not chump change… but it ain’t a game changer, either and the site chosen , was essentially “shovel ready” with all necessary infrastructure in place. A Walmart distribution center probably has 200+ jobs..

    Perhap the most significant part is Dominion’s ‘partnership” on the solar side which in the end sounds similar to what Dominion ultimately agreed to with Amazon after initially rejecting it and Amazon went to another COOP utility.

    This is not the same as Facebook building a huge solar array on-site to power its facility with backup grid power from Dominion. Instead, it appears that FB will get conventional grid power and then build solar somewhere else to feed into the Dominion Grid which apparently is not a standard arrangement available to any old company… but not being able to do that would have been a deal-breaker to Facebook and they would have gone elsewhere and Dominion would have become the goat.

    In other words.. take the solar out of this – and it’s just another company with 240 jobs looking for favorable tax/incentives treatment from a county that already had existing infrastructure..

  5. Pingback: Dominion Creates Clean-Energy Tariff for Facebook Data Center in Virginia | Perry Chavers

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