data center business plan-final
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Data Center Business PlanAugust 2012
Executive Summary Data Center Overview Though many industries have grown little if any since the economic recession of 2008, the information sector has experienced continuous growth. Through the consolidation of both equipment and facilities, data center operators have a strong economic incentive to maximize the use of their computing capacity, resulting in consistently high energy usage and a flatter, more predictable electricity demand profile. Accelerated consumer reliance on Internet services, steady market growth, and the dissemination of operational best practices are transforming data centers into large and reliable utility customers. When it comes to planning for future electricity generation requirements and growing a utility’s baseload, large data centers represent an almost ideal customer segment. Building on a strong 2011 national and international data center market, the immediate future expects to see significant server growth as evidenced by increased consumer and business demand. As power consumption in data centers continues to increase, the biggest market driver has become energy. Users are increasingly concerned with power reliability and redundancy, power capacity and energy costs; with all three driving location strategy. In the past, data centers represented a risky customer segment, requiring large infrastructural investments with uncertain returns, but those risks largely diminished. Utilities used to fear that their power distribution equipment would be stranded by underutilized data centers. Now, however, they fear that the constraint of power supplied to data centers might impede expansion over time. TEP/UNS has system capacity and can accommodate data center expansion now and in the future. Competitive Advantage The draw for data center developments is significant and no longer a secret to other utility companies or desirable markets. With technology permeating our lives and demand for server storage increasing daily, this is a competitive market with aggressive pitches. Tucson and TEP/UNS can achieve success based on the following competitive advantages:
• Competitive rates o Similar to APS and SRP. o Lower than other west coast markets, and other core data center markets.
Load 90% Company Type Title $ per kwhKW 4000 RMP TOU LGS 0.0578$ kWh 2592000 APS TOU E-35 0.0621$ Kilovar 1500 APS Standard E-34 0.0662$
TEP TOU LLP-90N 0.0664$ Peak 0.2 NPC TOU LGS-3 0.0665$ Shoulder 0.2 SRP TOU E-63 0.0697$ Off 0.6 TEP Standard LLP-14 0.0699$
1.00 UNSE Standard LPS 0.0815$ CPS TOU PG 0.0861$ PNM Standard IPS 0.0864$ LADWP Standard A2 0.1028$ ELPE TOU LPS 0.1130$
• Power capacity o Some markets cannot handle new load generated by data centers. o System can handle load now and in the future; limited upgrades needed.
• Power reliability o Reports verify power quality and reliability. o Redundant substations in service territory.
• Location o Safe, natural environment. o Proximity to Phoenix, Las Vegas and southern California.
• Access o Availability to land and existing lease space.
• Turn-key solution o Dedicated internal and external team for data center implementation. o Easy to conduct business with TEP/UNS.
Create ‘Empowerment Zones’ to limit company costs and expedite speed to market for data centers.
Financial Projections The table below identifies projected costs and potential revenue in securing data center facilities in our service territory. For every 1 MW of load, the break-even capital investment is about $1M. The potential new revenue streams illustrate that we can commit reasonable financial resources to promote Tucson as a viable choice while attracting significant long-term revenue.
Strategy Identify ‘Empowerment Zones,’ mutually beneficial sites for TEP/UNS and prospective data centers, to demonstrate a keen understanding of data center needs while limiting system upgrades and maximizing
Peak Load Demand
(kW)Annual
RevenueAnnual Margin
Annual Avg. ¢/kWh (all charges except
taxes)
Approximate Breakeven
Capital Investment* IRR NPV
Rate 85N 1MW $456,500 $204,000 6.99 1,113,000 10% 28,9452MW $908,500 $403,500 6.88 2,226,000 10% 34,727
Rate 90N 3MW $1,329,000 $657,000 6.97 3,604,000 10% 75,3434MW $1,662,000 $765,000 6.49 4,240,000 9% 47,7635MW $2,074,500 $954,000 6.43 5,300,000 9% 48,123
10MW $4,143,000 $1,901,500 6.32 10,600,000 9% 62,78820MW $8,280,500 $3,707,500 6.27 20,140,000 10% 606,487
Notes:1) Annual Revenue does not include DSM and REST.2) Annual Avg. ¢/kWh includes DSM, REST, & PPFAC.3) Estimates above are based on 90% LF, 5% Demand Spread Per Month,
5.5 Mil PPFAC, 1.249 Mill DSM, & Primary Metering.
* Capital investment breakeven analysis does not include rate recovery of capital investment.
Data Center Financial EstimatesMay 2012
revenue. By essentially conducting the site selection process, TEP/UNS can pitch optimal locations and competitive advantages to data centers, thus maximizing their speed-to-market. Tactics to support this strategy include developing a presence for Tucson and TEP/UNS across the data center industry through paid advertising, direct response campaigns, event sponsorship and speaking engagements at industry conferences. Recommendations The following recommendations are made to move forward with this project:
• Work hand-in-hand with Involta to demonstrate sincere relationship and commitment to expedite their operations to full capacity (3MW).
o Benchmark process to create case study for industry publication. o Create industry advocates through Involta executive leadership.
• Explore additional incentives through the Arizona Commerce Authority and TREO. o In working with TelAxis (site locator) and Involta they commented on data center
incentives do not compete with other cities and states. • Formalize internal and external data center team, then identify core working group.
o Host kick-off meeting in September or early October. • Monitor data center industry for trends, and keep pulse on nine core data center markets.
o Monitor Phoenix closely as energy demand exceeds energy capacity, and competition for tenant space.
o Continued interest from enterprise users in sourcing third-party COLO options. Attract excess to Involta.
• Identify relevant green energy programs and energy-efficient opportunities for data centers. o Position TEP/UNS as expert in this arena.
Proposed Resources and Costs Labor and Promotion
• Phase 1 - Use existing labor and non-labor resources to attract data centers. Continue to evaluate and learn more about the market.
• Phase 2 - If we are not successful with Phase 1 then (pending approvals), we will become more aggressive with the marketing.
o Initial campaign cost is approximately $73,700. o Dedicate up to $200,000 annually in promotion, sponsorship and industry events.
Annual fees represent 5% of potential base profit from an operational 4MW data center.
o Secure internal staff at .5 FTE to support program. Risk External Risk
• Lack of awareness for Tucson as a viable data center market. • Highly competitive market for data center growth.
o Phoenix and Las Vegas are very aggressive and sophisticated with this market. • Political realities of state, county and city not reaching consensus to support data center
acquisition to Tucson. • Limited/restricted incentives compared to other markets.
• Involta may feel slighted if TEP/UNS does not help drive business their way before it launches a campaign to attract competition to the market.
Internal Risk
• Commitment of labor and financial resources to drive acquisition of data centers. • Commitment of long-term strategy to secure data centers in Tucson; patience needed. • Ability to expedite existing system upgrades or other projects within ‘Empowerment Zones.’
Timeline Once approved, the Phase 1 initial acquisition materials would take 2 months to complete and then rollout to market in late Fall 2012 or early 2013. Team meetings would be scheduled in September with internal and external teams. Regular meetings would be scheduled with Involta, beginning in September, to strategize and provide assistance to ramp-up their operations.
Table of Contents Company Description ………………………………………………………………………………………………………………………… 6 Data Center Acquisition Team …………………………………………………………………………………………………………… 8 Data Center Overview ………………………………………………………………………………………………………………………. 10 Market Analysis ……………………………………………………………………………………………………………………………….. 19 TEP Analysis …………………………………………………………………………………………………………………………………….. 50 Data Center Energy Efficiency …………………………………………………………………………………………………………. 52 Positioning and Target Market …………………………………………………………………………………………………………. 58 Acquisition Plan ……………………………………………………………………………………………………………………………….. 61 Operations Plan .………………………………………………………………………………………………………………………………. 73 Financial Plan …………………………………………………………………………………………………………………………………… 76 Risk Analysis ………………………………………………………………………………………………………………………….………… 81 Recommendations ………………………………………………………………………………………………………………………….. 82 Appendix …………………………………………………………………………………………………………………………………………. 83
Company Description Company Overview TEP is the second-largest investor-owned utility in Arizona and the largest corporation headquartered in Southern Arizona. Tucson Electric Power provides the energy behind Tucson's economy. We deliver safe, reliable power to more than 400,000 customers in the Tucson metropolitan area. The company also is a local leader in community service, volunteerism and economic development efforts. TEP offers comprehensive energy services through reliable, traditional resources and cutting-edge "green power" projects. We also provide significant incentives to help customers invest in renewable energy projects. TEP is the principal subsidiary of UniSource Energy Corporation (UNS), the largest public company based in Tucson. UniSource Energy's stock is traded on the New York Stock Exchange under the ticker symbol UNS. TEP's sister company, UniSource Energy Services, provides natural gas and electric service to more than 235,000 customers in northern and southern Arizona. Today, UniSource Energy is home to a growing family of energy companies serving more than 1.5 million Arizona residents. As TEP enters its third century of operations, the company continues to find innovative ways to provide reliability, service and value to customers and the community. Mission and Goals TEP would like to become a preferred and trusted energy partner and advisor with our customers. We want to be a leader in all that we do including economic development and supporting community organizations & initiatives. We want to offer a clean, safe, affordable, and reliable product that exceeds customer expectations. TEP Commercial Segments and Revenues
Segment Customers Annual Usage in kWh Revenue per kWh Residential 366,217 10,580 9.8 c Commercial 35,877 54,754 11.1 c Industrial 635 3,378,750 7.5 c Mining 2 539,663,500 5.5 c Other 62 3,882,306 *9.3 c * Defined as All Retail Customers
Source: UniSource Energy Corporation, Fast Facts, 2011. TEP Energy Capacity and Peak Demand Total TEP Capacity (2): 2,262 MW Hours Per Year: 8,760 Hours Total System Capability: 19,815,120 MWh Remote Generation: 10,005,127 MWh
Local Tucson Generation: 906,496 MWh Total System Generation: 10,911,623 MWh System Capacity Factor: 55.07% Peak Demand – Net One Hour: 2.333 MW
Source: TEP 10K
Data Center Acquisition Team Internal Task Force Key Accounts
• Dave Couture – Manager, Key Accounts • Joey Cruz – Key Account Manager, Senior • Art Fregoso – Manager, Technical Services • Kelly Hanson – Director, Business Development
Pricing/Finance
• Dallas Dukes – Senior Director, Rates and Revenue Requirements • Craig Jones – Manager, Pricing • Nick Gilbert – Intern • Steve Sims – Manager, BP&A
Customer Programs and Services
• Larry Lucero – Senior Director, Customer Programs and Services • Art McDonald – Director, Marketing & Communications • John Brown – Manager, Marketing & Communications Strategic Services • Steven Hutson – Web, Technical Lead • Barbara Beyer – Administrative Support Specialist
Engineering
• Donovan Sandoval – Lead Distribution Planning Associate Engineer • Steve Metzger – Supervisor, Engineering • Jeremiah Rios – Distribution Planning Engineer III
IT
• Morgan Stoll – Manager, IT Operations • Tyler Kilian – Supervisor, Network & Telephony
Land
• Cheryl Eamick – Sr. Environmental and Land Use Planner • Steven Eddy – Environmental and Land Use Planner • Cory Pintor – Senior Right-of-Way Agent
Renewables and Energy Efficiency
• Ted Burhans – Program Manager, II • Mike Baruch – Program Manager, II • Chris Lindsey – Distribution Planning and Engineering • Tom Mills – Supervisor, T & D Control
Transmission and Distribution
• Roberto Guevara – T & D Supervisor II • Ana Bustamante – T & D Superintendent
• Eileen Dickerson – T & D Supervisor II • Mike Kaiser - Designer • Susan Gray – Director, Design and Construction Services
Executive Sponsor Dave Hutchens – President, UniSource Energy Corporation
External Partners and Roles
• Arizona Commerce Authority (ACA) o Incentives
• Tucson Regional Economic Opportunities (TREO) o Acquisition-Focused
Incentives Business Support
• Tucson Chamber of Commerce o Retention-Focused
Business Support • City of Tucson
o Incentives o Business Support
• Pima County o Incentives o Business Support
• Century Link o Fiber Routing and Network Access
• Commercial Real Estate – CBRE o Land and Building Identification o Access to Data Center Decision Makers in other Markets
• TelAxis o Involta Relationship o Access to Data Center Decision Makers in other Markets
Data Center Overview and Opportunity History During the boom of the microcomputer industry, and especially during the 1980s, computers started to be deployed everywhere, in many cases with little or no care about operating requirements. However, as information technology (IT) operations started to grow in complexity, companies grew aware of the need to control IT resources. With the advent of client-server computing, during the 1990s, microcomputers (now called "servers") started to find their places in the old computer rooms. The availability of inexpensive networking equipment, coupled with new standards for network structured cabling, made it possible to use a hierarchical design that put the servers in a specific room inside the company. The use of the term "data center," as applied to specially designed computer rooms, started to gain popular recognition about this time. The boom of data centers came during the dot-com bubble. Companies needed fast Internet connectivity and nonstop operation to deploy systems and establish a presence on the Internet. Installing such equipment was not viable for many smaller companies. Many companies started building very large facilities, called Internet data centers (IDCs), which provide businesses with a range of solutions for systems deployment and operation. New technologies and practices were designed to handle the scale and the operational requirements of such large-scale operations. These practices eventually migrated toward the private data centers, and were adopted largely because of their practical results. With an increase in the uptake of cloud computing, business and government organizations are scrutinizing data centers to a higher degree in areas such as security, availability, environmental impact and adherence to standards. Standard Documents from accredited professional groups, such as the Telecommunications Industry Association, specify the requirements for data center design. Well-known operational metrics for data center availability can be used to evaluate the business impact of a disruption. There is still a lot of development being done in operation practice, and also in environmentally-friendly data center design. Data centers are typically very expensive to build and maintain. Requirements IT operations are a crucial aspect of most organizational operations. One of the main concerns is business continuity; companies rely on their information systems to run their operations. If a system becomes unavailable, company operations may be impaired or stopped completely. It is necessary to provide a reliable infrastructure for IT operations, in order to minimize any chance of disruption. Information security is also a concern, and for this reason a data center has to offer a secure environment which minimizes the chances of a security breach. A data center must therefore keep high standards for assuring the integrity and functionality of its hosted computer environment. This is accomplished through redundancy of both fiber optic cables and power, which includes emergency backup power generation. Effective data center operation requires a balanced investment in both the facility and the housed equipment. The first step is to establish a baseline facility environment suitable for equipment
installation. Standardization and modularity can yield savings and efficiencies in the design and construction of telecommunications data centers. Standardization means integrated building and equipment engineering. Modularity has the benefits of scalability and easier growth, even when planning forecasts are less than optimal. For these reasons, telecommunications data centers should be planned in repetitive building blocks of equipment, and associated power and support (conditioning) equipment when practical. The use of dedicated centralized systems requires more accurate forecasts of future needs to prevent expensive over construction, or perhaps worse — under construction that fails to meet future needs. The "lights-out" data center, also known as a darkened or a dark data center, is a data center that, ideally, has all but eliminated the need for direct access by personnel, except under extraordinary circumstances. Because of the lack of need for staff to enter the data center, it can be operated without lighting. All of the devices are accessed and managed by remote systems, with automation programs used to perform unattended operations. In addition to the energy savings, reduction in staffing costs and the ability to locate the site further from population centers, implementing a lights-out data center reduces the threat of malicious attacks upon the infrastructure.
Sources: Kasacavage, Victor (2002). Complete book of remote access: connectivity and security. The Auerbach Best Practices Series. CRC Press. p. 227. Burkey, Roxanne E.; Breakfield, Charles V. (2000). Designing a total data solution: technology, implementation and deployment. Auerbach Best Practices. CRC Press. p. 24.
There is a trend to modernize data centers in order to take advantage of the performance and energy efficiency increases of newer IT equipment and capabilities, such as cloud computing. This process is also known as data center transformation.
Source: Mukhar, Nicholas. "HP Updates Data Center Transformation Solutions," August 17, 2011. Organizations are experiencing rapid IT growth but their data centers are aging. Industry research company International Data Corporation (IDC) puts the average age of a data center at nine-years-old. Gartner, another research company says data centers older than seven years are obsolete.
Sources: Mukhar, Nicholas. "HP Updates Data Center Transformation Solutions," August 17, 2011. Sperling, Ed. "Next-Generation Data Centers," Forbes, March 15. 2010.
In May 2011, data center research organization Uptime Institute, reported that 36 percent of the large companies it surveyed expect to exhaust IT capacity within the next 18 months.
Source: Niccolai, James. "Data Centers Turn to Outsourcing to Meet Capacity Needs," CIO.com, May 10, 2011.
Four Tier Classification The Telecommunications Industry Association is a trade association accredited by ANSI (American National Standards Institute). In 2005 it published ANSI/TIA-942, Telecommunications Infrastructure Standard for Data Centers, which defined four levels (called tiers) of data centers in a thorough, quantifiable manner. TIA-942 was amended in 2008 and again in 2010. The simplest is a Tier 1 data center, which is basically a server room, following basic guidelines for the installation of computer systems. Tucson currently has four Tier 2 data centers, while the Involta
opportunity represents a Tier 3 colocation data center. A closer look at current data center operations, rate plans and revenue in our service territory is described in the Table 1. Table 1: Data Center Snapshot in TEP Service Territory
The most stringent level is a Tier 4 data center, which is designed to host mission critical computer systems, with fully redundant subsystems and compartmentalized security zones controlled by biometric access controls methods. Another consideration is the placement of the data center in a subterranean context, for data security as well as environmental considerations such as cooling requirements. Table 2 defines basic requirements for each Tier. Table 2: Data Center Requirements
Tier Level
Data Center Requirements
1 Single non-redundant distribution path serving the IT equipment Non-redundant capacity components Basic site infrastructure guaranteeing 99.671% availability
2 Meets or exceeds all Tier 1 requirements Redundant site infrastructure capacity components guaranteeing 99.741% availability
3 Meets or exceeds all Tier 1 and Tier 2 requirements Multiple independent distribution paths serving the IT equipment All IT equipment must be dual-powered and fully compatible with the topology of a site's architecture Concurrently maintainable site infrastructure guaranteeing 99.982% availability
4 Meets or exceeds all Tier 1, Tier 2 and Tier 3 requirements
Data Center Rate Peak kW 2011 kWh 2011 Revenue Comments
Symantec Rate 90AF & Rate 13 6000 kW 45,201,859 $3,704,902 Largest Data Center in TEP service territory. Symantec has two services, thus the two
rates. The Peak kW is the combined peaks of both services. TEP's only Data Center that is a
Key Account. Symantec is a large maker of security software for computers, best known
for its Norton Brand.
LOGIN INC Rate 13 & Rate 10 325 kW 2,047,028 $166,017.65 Small Data Center providing online information and database-driven software
solutions to law enforcement agencies.
TW Telecom Rate 13 216 kW 1,393,920 $117,285.45 Small Data Center providing business class managed voice, internet and data network
services. Specializes in Ethernet and transport data networking, Internet access,
local and long distance, VoIP and security, to enterprise organizations.
Simply Bits Two Rate 10's N/A 173,497 $19,895.10 Very Small Data Center with two service points. Delivers internet access, voice, fax
and other broadband applications. Services residences, commercial, educational and government agencies throughout Tucson.
All cooling equipment is independently dual-powered, including chillers and heating, ventilating and air-conditioning (HVAC) systems Fault-tolerant site infrastructure with electrical power storage and distribution facilities guaranteeing 99.995% availability
Source: A ConnectKentucky article mentioning Stone Mountain Data Center Complex "Global Data Corp. to Use Old Mine for Ultra-Secure Data Storage Facility" (PDF). ConnectKentucky. 2007-11-01.
Data Center Energy Use Energy use is a central issue for data centers. Power draw for data centers ranges from a few kW for a rack of servers in a closet to several tens of MW for large facilities. Some facilities have power densities more than 100 times that of a typical office building. For higher power density facilities, electricity costs are a dominant operating expense and account for over 10% of the total cost of ownership (TCO) of a data center. By 2012 the cost of power for the data center is expected to exceed the cost of the original capital investment.
Sources: "Data Center Energy Consumption Trends". U.S. Department of Energy. 2010. J Koomey, C. Belady, M. Patterson, A. Santos, K.D. Lange. Assessing Trends over Time in Performance, Costs, and Energy Use for Servers Released on the web August 17th, 2009.
Diagram 1: Breakdown of Energy Delivered to a Typical Data Center (E Source)
While the main objective of power utilization within a data center is to operate IT equipment, the above figure shows that 47% of the total power entering a data center directly powers the server. Within each server, an even smaller fraction of energy is actually used to provide valuable computing services. The primary power consumption in a data center is used for cooling (source). Greenhouse Gas Emissions In 2007, the entire information and communication technologies or ICT sector was estimated to be responsible for roughly 2% of global carbon emissions with data centers accounting for 14% of the ICT
footprint. The US EPA estimates that servers and data centers are responsible for up to 1.5% of the total US electricity consumption, or roughly .5% of US GHG emissions, for 2007. Given a business as usual scenario greenhouse gas emissions from data centers is projected to more than double from 2007 levels by 2020. Site selection is one of the factors that affect the energy consumption and environmental effects of a data center. In areas where climate favors cooling and lots of renewable electricity is available the environmental effects will be more moderate. Thus, countries with favorable conditions, such as: Canada, Finland, Sweden and Switzerland are trying to attract cloud computing data centers. In an 18-month investigation by scholars at Rice University’s Baker Institute for Public Policy in Houston and the Institute for Sustainable and Applied Infodynamics in Singapore, data center-related emissions will more than triple by 2020.
Sources: "Smart 2020: Enabling the low carbon economy in the information age". The Climate Group for the Global e-Sustainability Initiative. 2011. "Report to Congress on Server and Data Center Energy Efficiency". U.S. Environmental Protection Agency ENERGY STAR Program. A calculation of data center electricity burden cited in the Report to Congress on Server and Data Center Energy Efficiency and electricity generation contributions to greenhouse gas emissions published by the EPA in the Greenhouse Gas Emissions Inventory Report. 2010. Canada Called Prime Real Estate for Massive Data Computers. 2011.
Energy Efficiency The most commonly used metric to determine the energy efficiency of a data center is power usage effectiveness, or PUE. This simple ratio is the total power entering the data center divided by the power used by the IT equipment [PUE = Total Facility Power/IT Equipment Power]. Power used by support equipment, often referred to as overhead load, mainly consists of cooling systems, power delivery, and other facility infrastructure like lighting. The average data center in the US has a PUE of 2.0, meaning that the facility uses one Watt of overhead power for every Watt delivered to IT equipment. State-of-the-art data center energy efficiency is estimated to be roughly 1.2. Some large data center operators like Microsoft and Yahoo! have published projections of PUE for facilities in development; Google publishes quarterly actual efficiency performance from data centers in operation. The U.S. Environmental Protection Agency has an Energy Star rating for standalone or large data centers. To qualify for the ecolabel, a data center must be within the top quartile of energy efficiency of all reported facilities.
Sources: "Report to Congress on Server and Data Center Energy Efficiency". U.S. Environmental Protection Agency ENERGY STAR Program. "Data Center Energy Forecast". Silicon Valley Leadership Group (see PDF). "Google Efficiency Update". Data Center Knowledge. 2008. Commentary on introduction of Energy Star for Data Centers "Introducing EPA ENERGY STAR® for Data Centers" (Web site). Jack Pouchet. 2010-09-27.
Green Data Centers Datacenters are using a lot of power which is consumed by two main usages: the power required to run the actual equipment (CPU's, memory, etc.) and then the power required to cool the equipment. The
first category is addressed by designing computers and storage systems that are more and more power-efficient. And to bring down the cooling costs datacenter designers try to use natural ways to cool the equipment. Many datacenters have to be located near people-concentrations to manage the equipment, but there are also many circumstances where the datacenter can be miles away from the users and don't need a lot of local management. Examples of this are the 'mass' datacenters like Google or Facebook: these DC's are built around many standardized servers and storage-arrays and the actual users of the systems are located all around the world. After the initial build of a datacenter there is not much staff required to keep it running: especially datacenters that provide mass-storage or computing power don't need to be near population centers. Datacenters in arctic locations where outside air provides all cooling are getting more popular as cooling and electricity are the two main variable cost components.
Source: Gizmag Fjord-cooled DC in Norway claims to be greenest. December, 2011. Due to the significance of energy efficiency and green issues/incentives, a separate section appears in this plan beginning on page 52. Data Center Projects and Opportunities Data centers have evolved quickly over time and now face a variety of fronts for expansion. According to a recent study, about one third of the nation’s data centers are more than 20 years old and half are more than 16 years old. These facilities were built before the advent of higher density rack systems, and high efficiency-cooling systems. In fact, many predate the internet itself. Many organizations have outgrown their data centers or their data centers are not designed with the reliability and energy efficiency that enterprises demand today; reliability and cost are drivers in this market (Bruce Lehrman, CEO, Involta, 3/28/12). The following information is a guide that illustrates types of projects occurring in the data center market today. Data center transformation takes a step-by-step approach through integrated projects carried out over time. This differs from a traditional method of data center upgrades that takes a serial and siloed approach. The typical projects within a data center transformation initiative include standardization/consolidation, virtualization, automation and security.
Source: Tang, Helen. "Three Signs it's time to transform your data center," August 3, 2010, Data Center Knowledge.
Standardization/consolidation: The purpose of this project is to reduce the number of data centers a large organization may have. This project also helps to reduce the number of hardware, software platforms, tools and processes within a data center. Organizations replace aging data center equipment with newer ones that provide increased capacity and performance. Computing, networking and management platforms are standardized so they are easier to manage.
Source: Miller, Rich. "Complexity: Growing Data Center Challenge," Data Center Knowledge, May 16, 2007.
Virtualize: There is a trend to use IT virtualization technologies to replace or consolidate multiple data center equipment, such as servers. Virtualization helps to lower capital and operational expenses, and reduce energy consumption. Data released by investment bank Lazard Capital Markets reports that 48 percent of enterprise operations will be virtualized by 2012. Gartner views virtualization as a catalyst for modernization.
Sources: Sims, David. "Carousel's Expert Walks Through Major Benefits of Virtualization," TMC Net, July 6, 2010. Delahunty, Stephen. "The New urgency for Server Virtualization," InformationWeek, August 15, 2011. Miller, Rich. "Gartner: Virtualization Disrupts Server Vendors," Data Center Knowledge, December 2, 2008.
Automating: Data center automation involves automating tasks such as provisioning, configuration, patching, release management and compliance. As enterprises suffer from few skilled IT workers, automating tasks make data centers run more efficiently.
Source: Miller, Rich. "Complexity: Growing Data Center Challenge," Data Center Knowledge, May 16, 2007.
Securing: In modern data centers, the security of data on virtual systems is integrated with existing security of physical infrastructures. The security of a modern data center must take into account physical security, network security, and data and user security.
Source: Ritter, Ted. Nemertes Research, "Securing the Data-Center Transformation Aligning Security and Data-Center Dynamics," in Miller, Rich 2007.
For example, by applying consistent governance and processes through data center consolidation projects —and continually closing the loop by evaluating results against the decision model and strategy—IBM has been able to fully leverage the opportunities presented by optimization (IBM, 2012). Diagram 2: IBM Data Center Decision Model
Data Center Needs and Wants Tucson represents an attractive market for data centers. According to Bruce Lerhman, CEO of Involta, data center selection criteria is based on the following attributes (March 28th Presentation and Project Snowbird):
• Competitive analysis o Reflects ability to achieve success in market
Location matters • Good sites
o Existing facility of 15,000 to 25,000 square feet, with ability to expand o Land available to build above if not already existing o Safe from natural disasters and from potential disasters by air, rail or highway
Not in flight path 1 mile from rail or highway
o Efficiency (LEED certified) is an advantage o Access to fiber (neutral carriers)
Identify network latency issues • Anchor tenants
o Ability to attract local data users while also hosting existing local client data Economies of scale benefits from multi-tenant usage
• Support from electric utility o Positive working relationships and communications o Access to dual 2500kva transformers (480v) o Power quality and reliability o Dual substation feeds
Loop-fed with fail over from primary is also acceptable o Define timing of supplying redundant/dual feeds (i.e. any extraordinary substation,
ROW, distribution work, etc.) o Power costs are key to business success
• Business community o Innovators o Entrepreneurial
• State and local support o Available sales tax credits o TIF financing to reduce property taxes
Closely aligned to Involta’s statements regarding market selection, DataCenter Dynamics identified the following criteria in their Data Center Development Index and Market Profiles Report (9/11):
• Sector Scope & Influence o Scope of influence of datacenter sector & vendors/suppliers o Net import/export profile
• Sector Activity
o Number of projects o Investment base
o Levels of technology Consideration
• Resource Base o People (experience, qualification, pay) o Energy vulnerability o Vendor & supplier base
• Facility Profile
o Size (facilities, space, racks) o Resource usage (power, people) o Technology Adoption
• Sector Context
o Size of economy o Business & population basis o Balance of economy o Levels of IT Dependence
Industry Colocation Data Center Facts (CBRE)
• 67% said they want more capacity now or in the next 24 months • 88% of all colocation data center users occupy 10,000 SF or less • Total annual spending on data centers will grow from $87 billion in 2010 to $126 billion in 2015 • 41% of colocation facilities are at 80% capacity or greater.
Overall, Tucson appears to be a realistic market based on the above selection criteria and market conditions. In addition, drivers for data center decision making include operating cost and power reliability; both of which are shouldered by the Utility. The above criteria are essential to formulating a data center acquisition strategy and articulating a competitive advantage to prospects. TEP/UNS can define ‘empowerment zones’ that identify available space served with reliable power, thus conducting initial site selection for a data center that demonstrates an understanding of their business needs. Note: A data center site selection guide from Rath Consulting is available for an in-depth look at all criteria mentioned above.
Market Analysis Potential Factors Influencing Industry Growth Datacenter Dynamics (http://www.datacenterdynamics.com/research/market-growth-2011-2012) conducted a recent study of data center operations that indicates:
• Sample size operates almost 100,000 facilities – projected increase of 7% into 2012. • Sample operates 7.7 million racks – projected increase of 15% into 2012. • Sample consumes 31 GW of energy – projected increase of 19% into 2012 (where 1GW is power
used by 750,000 to 1 million homes). • 2010-11 investment about $US30 BN – expected to rise to $US35 BN in next 12 months (i.e.
equivalent to nominal GDP of Kenya, Costa Rica, Lithuania). In addition, Datacenter Dynamics obtained primary research from individuals regarding the profile of their organization’s data center infrastructure, including the number of data centers they operated of over 20 racks and the total area of floorspace dedicated to ICT (information communication technology) activities. This provides a regional profile to each Market that tracks closely to the economic profile or activity of each market (DCD Industry Census 2011: Market Profiles.) Key findings from research include: Eastern Seaboard (56.4 rating): A major and global market whose data center profile is spread evenly across all industry sectors and based around the financial center of the New York area, the Government sector in Washington DC and the growth regions of New Jersey, North Carolina, Atlanta and Philadelphia. Growth here slowed during 2007 to 2009 and now the region indicates a sense of making up for lost time. Significant concerns related to costs remain and because of this there is a high level of anticipation for vendors to produce more energy efficient technologies. Industry sectors represented by sample: Telecommunications 11.8% Internet 20.4% ICT 17.1% Other 50.7% Facility type where primary data center is housed: Within an office building: 50.0% Standalone/purpose-built facility: 50.0% Anticipated growth for next 12 months: Number of data centers 7.6% Number of racks 13.2% Total power 13.9% West Coast (64.6 rating): California is the dominant market although the strongest growth is indicated in the Pacific North West. The market has a considerable facility profile, global reach and a high level of sophistication in facility operation. Operators are now beginning to invest post-recession in order to get
existing facilities up to the best current standards. Significant concerns about budgets and capital costs remain and the cost of energy is of high concern in California. The cloud and virtualization are the key areas of interest for these operators going forward. Industry sectors represented by sample: Internet 14.9% ICT 21.4% Other 63.7% Facility type where primary data center is housed: Within an office building: 36.8% Standalone/purpose-built facility: 63.2% Anticipated growth for next 12 months: Number of data centers 2.0% Number of racks 3.0% Total power 2.4% Central (41.4 rating): The regions of the United States between the Appalachians and the Rockies include major metropolitan markets, some of the US’s fastest growing regions and States which have actively cultivated inward data center investment. These account for the very high growth profile of the region and the high levels of technology adoption as the region looks to upgrade existing facilities. Industry sectors represented by sample: Telecommunications 13.1% Banking/Financial 17.6% ICT 21.3% Other 48.0% Facility type where primary data center is housed: Within an office building: 38.2% Standalone/purpose-built facility: 61.8% Anticipated growth for next 12 months: Number of data centers 5.4% Number of racks 9.3% Total power 12.9% Mexico (11.3 rating): Mexico occupies a strange place in the data center landscape with pronounced characteristics of both a developed and a developing market. The workforce profile is both experienced and educated. The facility profile is the largest in Latin America outside Brazil but growth is moderate in comparison to other regional markets and limited by concerns to energy availability and cost and the capability of many existing facilities to meet increased IT needs. The reason for Mexico’s unusual position can perhaps be seen by the limited profile of local market vendors suggesting a strong influence from the US market to the north (see appendix for table). Considerable growth projected in number of racks (+15.6%) and total power used (+18%).
Current U.S. Data Center Locations There are approximately 1,011 colocation data centers located in the continental United States. The map and link below show details on each data center. Current interactive map link available at: http://www.datacentermap.com/
Source: Map retrieved from http://www.datacentermap.com/ on April 17, 2012.
A closer look at colocation data centers identifies primary geographic markets across the US:
Table 3: Data Center Size Comparison (E Source)
While the vast majority of server facilities in the U.S. (Approximately 96%) are small, as shown above, they take up less than 500 square feet of floor space. Despite being the most prevalent, small data centers are more difficult to identify and typically operate less efficiently than larger, commercial-type facilities. Identifying smaller data centers is difficult but can be segmented by industrial codes described in Table 4. Note that because three SIC codes are used here, there will be variance when compared to the total numbers identified by DataCenterMap due to their classification. Table 4: US Data Center Database By Sic Codes (7374/481302/7375)
Physical State Abbreviation
State Total Number
Data Processing & Preparation [SIC 7374]
Online Service
Providers [SIC 481302]
Information Retrieval Systems
[SIC7375]
AK Alaska 4 2 2 0 AL Alabama 28 14 11 3 AR Arkansas 15 9 5 1 AZ Arizona 67 37 26 4 CA California 732 250 391 91 CO Colorado 123 57 42 24 CT Connecticut 44 25 14 5 DC District of Columbia 18 7 6 5 DE Delaware 15 7 7 1 FL Florida 220 92 96 32 GA Georgia 197 111 58 28 HI Hawaii 15 10 4 1 IA Iowa 35 14 18 3 ID Idaho 10 3 7 0 IL Illinois 147 80 52 15
IN Indiana 55 27 20 8 KS Kansas 22 10 9 3 KY Kentucky 33 17 13 3 LA Louisiana 28 13 12 3 MA Massachusetts 130 56 49 25 MD Maryland 107 50 40 17 ME Maine 8 4 3 1 MI Michigan 79 45 29 5 MN Minnesota 93 46 31 16 MO Missouri 57 27 22 8 MS Mississippi 11 6 5 0 MT Montana 8 6 1 1 NC North Carolina 68 26 31 11 ND North Dakota 9 7 2 0 NE Nebraska 21 13 6 2 NH New Hampshire 11 3 5 3 NJ New Jersey 110 62 41 7 NM New Mexico 15 5 10 0 NV Nevada 32 14 16 2 NY New York 330 127 150 53 OH Ohio 99 53 36 10 OK Oklahoma 25 13 8 4 OR Oregon 48 15 24 9 PA Pennsylvania 137 70 53 14 RI Rhode Island 10 5 4 1 SC South Carolina 34 21 10 3 SD South Dakota 5 3 2 0 TN Tennessee 47 24 16 7 TX Texas 266 127 102 37 UT Utah 48 21 24 3 VA Virginia 151 75 45 31 VT Vermont 6 5 1 0 WA Washington 120 38 59 23 WI Wisconsin 52 21 24 7 WV West Virginia 11 4 6 1 WY Wyoming 11 3 7 1 TOTAL 3967 1780 1655 532
Source: Accudata, May 2012.
Colocation Data Center Summary Breakdown in Western Region – 375 Total California – 146 data centers in 23 areas:
• Los Angeles 45 • San Francisco 22 • Santa Clara 15 • San Jose 14 • San Diego 11
Texas – 96 data centers in 11 areas:
• Dallas 44 • Houston 30 • Austin 11
Washington – 44 data centers in six areas:
• Seattle 30 • Spokane 5 • Walla Walla 3
Colorado – 24 data centers in two areas:
• Denver 22 • Colorado Springs 2
Arizona – 23 data centers in two areas:
• Phoenix 19 • Tucson 4
Utah – 15 data centers in 3 areas:
• Salt Lake City 9 • Orem 5
Oregon – 13 data centers in two areas:
• Portland 12 • Medford 1
Nevada – 9 data centers in one area:
• Las Vegas 9 Idaho – 6 data centers in two areas:
• Boise 5 • Coeur D Alene 1
The remaining western states have limited data centers, including New Mexico with 4, Wyoming with 3 and Montana 2.
It is important to recognize that there are currently five data centers in Mexico; three in Mexico City and one in Monterrey and one in Queretaro. A need may exist for redundancy and back-up for data centers located in Mexico; confirmed by comments from Data Center Dynamics media team. Industry Opportunities, Threats and Trends Opportunities
• Data center locations are dependent on costs, connectivity, reliability, client demands, convenience and available space (energy costs and connectivity are primary drivers).
o Possible Actions Action 1: Conduct in-depth analysis of regional energy costs, direct flights to
Tucson, available commercial space near airport, data needs of Tucson market and opportunities to serve hazardous markets with redundancy; overlay with data centers to define primary and secondary market; complete, see Land pictures.
Action 2: Develop ‘go-to market’ strategy and team to launch expansion and acquisition efforts; complete.
Action 3: Research connectivity infrastructure in Tucson market; in process. • Consistent data center growth is projected in 2012 and beyond (Data Center Dynamics, 9/11):
o 100,000 facilities with 7% growth expected in 2012 o 7.7 million racks in use with increase of 15% in 2012 o 31 GW of energy used with increase of 19% in 2012
Note – 1 GW of power can serve 750,000 to 1M homes o 2011-12 investment of about $30B and expected to increase to $35B in next 12 months.
• Arizona and Tucson are insulated from many natural disasters common in other data center markets and could be seen as an ideal redundant/back-up hosted location.
• Close proximity to data center hubs in region may provide opportunity for secure back-up facilities and data recovery centers:
o CA 144 data centers o TX 93 data centers o WA 41 data centers o CO 25 data centers o MX 5.
• Current data centers located in Tucson include tw telecom Tucson (has 2 centers in Phoenix and 1 in San Diego), Login Top-Tier Data Center and Simply Bits Vault.
o Possible Actions Action 4: Meet with each data center to explore all expansion opportunities. Action 5: Partner with Involta, Tier III Design Certified data center, to establish
top market credibility and sophistication; Tour IO in Phoenix and establish dialogue for future expansion in Tucson as well as IO being a source for modular deployment; Complete.
• Data centers seek input from Utility Company when expanding, and often need 2 lines of service, upgrades and even their own substation feed (Architect & IO interview, 2/11).
o Possible Action
Action 6: Due to level of interface, create in-house engineering team to address critical issues of data centers, such as main power supply, relays, auto-transfers, switches, etc.; complete.
• Data centers focus on mechanical equipment for efficiency and effectiveness. o Possible Action
Action 7: Provide technical/facilities expertise and rebate opportunities on cooling equipment if possible.
• Specifically, rebates on condenser units and high-efficiency cooling systems. Complete.
• CNBC ranks Arizona among the top five friendliest states for business and Number 1 for quality and availability of workforce.
• HB2787 could be re-introduced in January 2013 at the state Legislature and if passed, would provide additional incentives and benefits to data centers who located in Arizona. Collaborate with APS and SRP to move this forward; in progress.
• AZ is a renewable energy leader, according to Business Facilities: Consistently in the Top 3 among alternative energy leaders and Number 1 in solar energy manufacturing.
• The Solar Electric Power Association (SEPA) has recognized Tucson Electric Power as the 2012 Investor Owned Utility of the Year for the company's leadership and continued investment in solar energy.
• Tucson area boasts available and affordable housing, quality lifestyle and favorable tax structure for relocation or expansion.
• Metro Phoenix has become one of the top-10 markets for developers of data centers because of geographic and economic factors. Proximity to major West Coast markets, relatively low taxes, a low risk of natural disasters and cheap, reliable energy are just a few of the many benefits of operating a data center in Arizona.
• Skilled labor force is present with respected Schools of Engineering at UA and ASU. • Commercial occupancy space will likely follow a similar trend as 2011 and end with 11 percent
vacancy in industrial properties (AZ Daily Star, 1/25/12). o There was a flurry of activity in mid-2011, with high-tech companies and call centers
taking up big spaces. Then later, other companies packed up and moved out of large spaces.
o There are some big spaces available to companies looking to locate in Tucson, see: http://picor.com/southern-arizona-commercial-properties-search-listings
• Data centers currently consume about 1.3 percent of all electricity used globally and 2.0 percent in the U.S., significantly lower percentages than what analysts were forecasting just a few years ago.
• California hosts more server facilities than any other state and was the birthplace of many data center giants; increasingly, however, new facilities are being sited where energy and land are less expensive.
• Data center energy costs can be more than 100 times higher than for the typical office building. Power densities can be more than 40 times higher.
• To date, about 30 percent of servers in data centers have been virtualized, and this number could reach 50 percent by the end of 2012.
• Mexico data center rankings in Top 20 of the world according to DataCenterDynamics (9/11): o 7th in % growth in facility profile at 17% o 13th in value of investment in 2012 at $1.8B (USD) o 19th in % growth in investment at 11%
o Possible Action Action 8: Evaluate Mexico data center demand and redundancy needs for
aligned opportunities. • Mexico currently has 5 data centers and may require international
outreach. Threats
• Economic development group (TREO) TREO 11 staff positions and active board. Outdated strategic plan and website content. Strategic direction focused on the ‘Power of Five:’
• High-skilled/High-wage jobs • Educational excellence • Urban renaissance • Livable communities • Collaborative governance and stewardship.
o Note above represent attainment and goals rather than achievement or competitive advantage at this time.
o GPEC-Phoenix 26 staff and active board, committees and ambassadors. Forward thinking leadership and actionable, up-to-date strategic plan that is
recognized for: • Market the region both nationally and internationally • Provide a forum for pressing public-policy issues facing economic
development • Maintain committed leadership that facilitates and drives action • Effectively collaborate to help align economic development activities
and investments toward the same vision/goals • Stimulate the regional economy and position ourselves as fundamental
to a public-private investment strategy • Measure success and impact of programs and initiatives.
Active business development team and marketing support. o AZ Commerce Authority-Phoenix
25 staff focused on statewide growth, with accomplished board (including Paul Bonavia).
The Arizona Commerce Authority spearheads the state's efforts to attract new business and expand businesses already excelling in the state.
o San Diego Regional Economic Development Corporation 12 staff and accomplished board.
• Conveys innovation and success. EDC implements strategies that set the San Diego region apart from our
competitors as a thriving center of technology and entrepreneurship. Firmly believes economic development in a competitive global economy
requires a blend of aggressive business development and proactive policy initiatives.
Business development program focuses on corporate expansion through outreach to executives in high-wage, high-growth, technology-driven industries.
• Through targeted attraction campaigns and a network of partners, we promote regional assets to attract corporate investment from innovation industries.
Recognizes parallel universe in Baja, Mexico (see PDF). • Example: 51 companies in the cities of Tijuana, Tecate and Mexicali turn
out aerospace products. • See Action 8 above.
o Nevada’s Governor’s Office of Economic Development (GOED) 10 department directors with support staff. 6 commissioners and newly formed task force of 29 business leaders. Focused on a vibrant, innovative and sustainable economy. Strategic plan has five core objectives. Nevada is situated as a hub for 11 western states.
• Data center expansion can be driven solely by needs and demands of clients and/or conveniences.
• Corporate data centers and data center companies have in-house expertise for relocation, including C-level executives, facility managers, mechanical engineers, electrical engineers, IT architects and may contract specific vendors for structural architecture (new construction or retro-fits) and cabling firm (design/implementation team).
• Fragmented political leadership across city, county and state. o Local leadership, forward-thinking and growth poorly illustrated by Rio Nuevo project.
• Image issues of AZ political environment may negatively impact global or culturally diverse companies as well as higher-skilled workforce.
• Tucson economy and labor force leans heavy on government-focused work and service oriented positions which can be negatively impacted by fragile economic conditions.
o Incentives in Tucson and Arizona are not competitive with region. o Local and state economy is weak/fragile and historically has grown in steep cycles. o Current economic development is focused on aerospace and defense, bioscience, solar
and logistics. • Tucson ranked #1 on Top Ten list of sickest housing markets in the U.S. (8/11).
o http://www.msnbc.msn.com/id/44005383/ns/business-real_estate/t/americas-sickest-housing-markets/
• Tucson, Detroit, Los Angeles, San Diego and Sacramento were picked as five least small business friendly cities by CNN Money, May 2012.
• Opening up a small business in a tough economy is a risky gamble. But Arizona saw more startup activity than anywhere else nationwide, according to Kauffman Index of Entrepreneurial Activity. (Note, this is Arizona).
• Forbes negative assessment of Tucson’s business environment, June 2012.
• Tucson may not generally be viewed as a ‘hi-tech’ center focused on innovation. o Possible Action
Action 9: Create incubator for innovation and partner with respected leaders in knowledge and technology on a local, state, national and international level.
• K-12 educational system throughout AZ is rated among the lowest in the nation. • High unemployment, but lower than national average, as of December, 2011 (BLS.Gov):
o Tucson 7.9% o AZ 8.7% o US 8.5%
• Access to Tucson by air is not as convenient or diverse as Phoenix, Las Vegas, San Diego, and Los Angeles.
• IT growth can, to a point, be coordinated through upgrading of existing facilities or increased use of outsourcing.
Trends
• Recent growth activity has shown that a number of companies assemble networks of data centers in small and medium-sized cities.
o Typically multi-tenant facilities that rely upon demand from local companies needing IT infrastructure.
o Successful expansion drivers include need for storage, security, disaster recovery and application hosting (Datacenterknowledge.com, 3/08).
• Focusing on energy-efficient data centers can reduce costs for data center operations while supporting green initiatives (Pike Research 8/10).
o The IT industry is responsible for around 2% of the world’s carbon emissions and data centers are the fastest growing part of that footprint.
o While energy efficiency has not traditionally been a major emphasis for IT organizations, the industry is now highly focused on implementing solutions that will reduce energy expenses and carbon emissions associated with data center operations.
o The investment in greener data centers will experience rapid growth over the next five years, increasing from $7.5 billion in global revenue to $41.4 billion by 2015, representing 28% of the total data center market.
o Analysis indicates that power and cooling infrastructure solutions will be the largest portion of the green data center market opportunity, representing 46% of revenue over the next five years. Possible Action
• Action 10: Position TEP & Tucson as a leader in ‘green initiatives’ and an innovator to help reduce operating expenses of traditional and modular data centers.
o Research potential grants and government funding. • Additionally, Pike Research (3/30/11) forecasts that by 2015, global investment in energy
efficient data center technologies will represent 28% of the $150 billion data center infrastructure market.
o Taming Moore’s Law – IT managers are recognizing the energy and environmental costs of the continuing expansion of computing power, and are actively looking for ways to counteract them.
o Over the next five years, data centers will move toward a totally virtualized environment that can provide computer services from both public and private cloud models.
o The life cycles of power and cooling infrastructure will become more aligned with the IT assets it supports.
o The relationship between the data center and the business it serves is changing. If the data center is to be part of a broader sustainability program, then its true cost must be more visible to the business.
o Power usage effectiveness (PUE) ratings are a first step for new data center metrics, but PUE hides as much as it discloses and more work will be needed to define an acceptable measure for the productivity of the data center. Possible Action
• Action 12: Consider partnering with UA and/or ASU Engineering Schools, Tech Partner (IBM*, HP, etc.) and AFCOM (the leading association of data center management professionals w/4500+ professionals, see: http://www.afcom.com) to create whitepaper on data center metrics.
o Also consider hosting/sponsoring AFCOM conferences & events in Tucson.
o Also consider developing ‘Green Data Center’ best practices regarding how to maximize energy-efficiency.
o * See IBM whitepaper on ‘Networking Smarter Data Centers.’ o Shift from Modular Design to the Green Data Factory.
Modularization in data center design will be combined with more flexible approaches to provisioning, which reflects a broader shift to an industrialized view of the data center.
• Purpose built modular data centers may be future and replace traditional data center environments.
o IO builds modular 465 SQ/FT centers that are more robust and very energy efficient. Traditional data center model cools about 150-200 Watts per SQ/FT. Modular data center is cools about 1000 Watts per SQ/FT.
• HP, Google, Microsoft are moving this direction. • 2500 SQ/FT data center converted to a 465 SQ/FT module (Nick, IO Data
Centers, 2/12). Competitive Analysis Jones Lang LaSalle has a global data center solutions team that is actively working in major markets. The following variables illustrate 9 major colocation markets, including Chicago, Dallas/Ft. Worth, Los Angeles, New York/New Jersey, North Carolina, Pacific Northwest, Phoenix, Silicon Valley and Virginia. One-page overviews for each market are provided in the Appendix. Table 5, on the following page, summarizes 13 drivers for nine major markets – with Tucson also listed for comparison.
Table 5: Data Center Driver Analysis (Jones, Lang & LaSalle) CHI Dallas
LA NY-
NJ North
Carolina Pacific
NW Phoenix Silicon
Valley Virginia Tucson
(CBRE) AVG 2010 Power Costs
6 7 13 12 4.5 4.6 7 10 5.5 .066
Power Costs NC DOWN UP NC DOWN UP NC UP DOWN DOWN Capacity COLO
UP
DOWN
UP
UP
DOWN
UP
NC
UP
UP
UP
Capacity ENTERP
UP
UP
DOWN
NC
UP
UP
NC
UP
UP
UP
Absorption COLO
UP
UP
UP
UP
UP
UP
UP
UP
NC
NC
Absorption ENTERP
UP
UP
NC
NC
UP
UP
UP
UP
NC
NC
New Construction (SQ FT)
UP
UP
UP
UP
UP
UP
UP
UP
UP
UP
New Construction (Price/SQFT)
UP
UP
NC
NC
UP
NC
DOWN
NC
UP
UP
Wholesale COLO Cost kW/Month
175
175
187
185
165
160
160
185
179
N/A
Powered Shell Cost SQFT/Year
30
22.5
41.5
18
12
28
42.25
24.3
30
N/A
Rental Rates COLO
NC
NC
UP
NC
UP
NC
NC
NC
DOWN
NC
Rental Rates Power/Shell
UP
NC
UP
NC
NC
NC
NC
NC
DOWN
N/A
Incentives UP UP NC NC UP DOWN NC DOWN UP NC Market Development Trends Increased technological enhancements of blade servers, cloud offerings and virtual software solutions are driving users of data center space to rework their current data center strategies and portfolios. Both private and public sector consolidation efforts have been “top of mind” with most of the providers of these services (wholesale, retail, disaster recovery/business continuity, shared/managed/dedicated hosting, interconnection providers, etc.) in the first half of 2011. With the thawing of capital markets, there is an increasing amount of available capital for companies (providers and enterprises) to access to support white floor expansion. Through the first quarter of 2011, the data center market invokes a classic supply/demand imbalance. On the demand side, it is estimated that over half of the Fortune 1000 companies will increase IT spending in 2011. Based on research, overall IT spending will increase by at least 5%; a quarter increase from 2010. IT specific spending will come primarily from increases in data center infrastructure components, i.e. servers and software to support cloud and virtualization.
As power consumption in data centers continues to increase, the biggest market driver has become energy. Users are increasingly concerned with power redundancy, capacity and cost; with all three driving location strategy. Midwest
• Demand is driving increased absorption. There is approximately 35 MW of demand remaining in the Chicago area alone.
• Over 10 MW of users secured data center or colo space in 2010. • In other areas of the Midwest, approximately 15 MW of users have secured data center or colo
space (i.e. Ascent Data Center, Digital Capital, et al). • Wholesale supply is limited at about 45 MW. One or two large enterprise deals could
significantly impact this supply and create a supply / demand imbalance. • Two Fortune 100 companies made large investments in data centers utilizing 6+ MWs of power • Lightbound delivered an 8 MW data in Indianapolis in July. • Minneapolis (Eagan) joint venture development of a 100,000 SF data center with Five 9s Digital
LLC approved in April. Northeast
• The financial service industry continues to be the cornerstone of this regional market followed by the Hosting, Media, Pharmaceutical, Retail and Telecom.
• DuPont Fabros Technology opened its first New Jersey facility at the end 2010. Sentinal Data Centers opens its first New Jersey facility in 2011.
• In Boston, Paetec added the 42,000SF of colo space. • i/o just committed to 800,000 SF – a former NY Times printing facility. • Equnix started construction on a 320,000 SF expansion to add to its Secaucus portfolio (will be
able to accommodate 2,200 server racks). Southeast
• Southeast US continues to be a top location alternative for large Enterprise users with companies such as American Express, Apple and Facebook making announcements within the last 12 months.
• Many East Coast companies are transitioning and moving south to take advantage of cheap, accessible power paired with strong incentive packages.
West Coast • Due to the lower power costs and superior service levels of Silicon Valley Power, Santa Clara's
public utility, new demand has been directed specifically to the Santa Clara; a submarket of Silicon Valley.
• San Diego is experiencing significant growth and new demand has pushed for approximately 4 MW of new construction.
Northwest
• Demand increases as users look to take advantage of the temperate climate by utilizing outside air economization to increase efficiency and reduce costs.
• Multiple landlords are actively searching for development opportunities – specifically in the Puget Sound, Eastern Washington & Portland, OR area.
• Massive colocation growth in Seattle to satisfy the robust high-tech/biotech industry. Southwest
• Large telco’s (Windstream & CenturyLink) continue to acquire and finalize (Hosted Solutions, Qwest, SAVIS, etc.) target data center-centric acquisitions.
• Dallas / Ft Worth has experienced growth requirements from various industries with demand projected to grow at an average rate of 13% thru 2014, placing a burden on an already constrained market.
• Phoenix is experiencing significant demand and has taken approximately 25 MW of capacity from 2010 – 2011; lack sufficient MW for future growth at this pace.
Trending Points and Outlook
• Wide adoption of Cloud Service by SMB’s. • Worldwide Debt Crisis will negatively affect future data center development. • Multiple expansions in the top 6 US data center markets of new data center developments by
many of the larger providers. • Speculative data center developments will occur by real estate developers that are new to the
marketplace….look for winners and losers! • Private equity will continue to invest heavily into the marketplace. • Continued IPO interest in the sector. • Incentive packages for large data center projects are in question due to the health of current
State budgets. • Further growth in the tablet/smart phone market (and associated apps) will contribute to
greater data center consumption. • Increased importance on latency. • Deal velocity in Santa Clara will counter balance the growing inventory.
Southwest Power Cost Comparison TEP’s rates are competitive when compared to regional utilities, and between APS and SRP. Based on this rate comparison, TEP can compete in the state and region. Table 6A: Regional Rate Comparison (as of June 28, 2012)
Table 6B: Regional Rate Comparison (as of June 28, 2012)
Load 90% Company Type Title $ per kwhKW 4000 RMP TOU LGS 0.0578$ kWh 2592000 APS TOU E-35 0.0621$ Kilovar 1500 APS Standard E-34 0.0662$
TEP TOU LLP-90N 0.0664$ Peak 0.2 NPC TOU LGS-3 0.0665$ Shoulder 0.2 SRP TOU E-63 0.0697$ Off 0.6 TEP Standard LLP-14 0.0699$
1.00 UNSE Standard LPS 0.0815$ CPS TOU PG 0.0861$ PNM Standard IPS 0.0864$ LADWP Standard A2 0.1028$ ELPE TOU LPS 0.1130$
Table 7A: TEP Proposed Rates in Regional Comparison
Table 7B: TEP Proposed Rates in Regional Comparison
Energy costs are a major driver for data centers, so available incentives and energy-efficiency opportunities would be needed to offset energy costs when looking at Tucson. TEP’s rate is less than specific California data center markets which does make it attractive, and is competitive with rates positioned between APS and SRP. Overall, existing incentives make Tucson less attractive than Phoenix and other viable data center markets.
Load 90% Company Type Title $ per kwhKW 4000 RMP TOU LGS 0.0578$ kWh 2592000 APS TOU E-35 0.0621$ Kilovar 1500 TEP TOU LLP-I90N 0.0658$
APS Standard E-34 0.0662$ Peak 0.2 NPC TOU LGS-3 0.0665$ Shoulder 0.2 SRP TOU E-63 0.0697$ Off 0.6 TEP Standard LLP-I14 0.0741$
1.00 UNSE Standard LPS 0.0815$ CPS TOU PG 0.0861$ PNM Standard IPS 0.0864$ LADWP Standard A2 0.1028$ ELPE TOU LPS 0.1130$
$-
$0.0200
$0.0400
$0.0600
$0.0800
$0.1000
$0.1200
TEP Proposed Rates
Table 8A: APS E-34 Power Cost Analysis
Extra Large General ServiceLoad 90% Summer 6 months Winter 6 monthsKW 3000kWh 1944000
Peak 0.2 Customer Charge $168.12 Customer Charge $168.12Shoulder 0.2 Demand Charge (KW) $16.48 Demand Charge (KW) $16.48Off 0.6 Energy Charge (kWh) 0.0422 Energy Charge (kWh) 0.0422
1.00
Total Monthly $131,638.92 Total Monthly $131,638.926 Months $789,833.52 6 Months $789,833.5212 Month $1,579,667.04
Yearly PSA ($93,312.00)Yearly RES $5,127.96Yearly DSMAC $34,866.00Yearly EIS $3,732.48Yearly TCA $22,140.00Yearly SBA-1 ($5,832.00)Total Yearly Surcharges ($33,277.56)
Total Yearly $1,546,389.48Average Monthy $128,865.79Total KW 36,000 Total kWh 23,328,000 Price per KW $42.96Price per kWh $0.06629
Note: All surcharges except power factor adjustor included in rate
APS E-34 Large
Table 8B: APS E-35 TOU Power Cost Analysis
Extra Large General Service Time of UseLoad 90% All YearKW 3000kWh 1944000
Peak 0.3 Customer Charge $170.28Off 0.7 Peak Demand (KW) $14.34
1.00 Off Peak Demand (KW) 2.659Peak Energy 0.04694Off Peak Energy 0.0353
Peak Monthly $70,455.49Off Peak Monthly $50,255.44Total Monthly $120,710.93
Yearly PSA ($93,312.00)Yearly RES $5,127.96Yearly DSMAC $34,866.00Yearly EIS $3,732.48Yearly TCA $22,140.00Yearly SBA-1 ($5,832.00)Total Yearly Surcharges ($33,277.56)
Total Yearly $1,448,531.14Average Monthy $120,710.93Total KW 36,000 Total kWh 23,328,000 Price per KW $40.24Price per kWh $0.06209
Note: All surcharges except power factor adjustor included in rate
APS E-35
Table 9: SRP E-63 TOU Power Cost Analysis
Table 10A: TEP LLP-14 Power Cost Analysis
Standard Price Plan for Primary Large General ServiceLoad 90% Summer 4 months Summer Peak 2 months Winter 6 monthsKW 3000kWh 1944000
Peak 0.2 Customer Charge $460.58 Customer Charge $460.58 Customer Charge $460.58Shoulder 0.2 Facilities Charge (KW) $2.17 Facilities Charge (KW) $2.17 Facilities Charge (KW) $2.17Off 0.6 Peak Charge (kWh) 0.1182 Peak Charge (kWh) 0.1632 Peak Charge (kWh) 0.1019
1.00 Shoulder Charge (kWh) 0.089 Shoulder Charge (kWh) 0.0914 Shoulder Charge (kWh) 0.0759Off Charge (kWh) 0.0444 Off Charge (kWh) 0.0496 Off Charge (kWh) 0.0407
Total Monthly $139,318.10 Total Monthly $163,812.50 Total Monthly $123,571.704 Months $557,272.40 2 Months $327,625.00 6 Months $741,430.2012 Months $1,626,327.60
Total Yearly $1,626,327.60Average Monthy $135,527.30Total KW 36,000 Total kWh 23,328,000 Price per KW $45.18Price per kWh $0.06972
Note: No surcharges found for SRP
SRP E-63
Large Light and Power ServiceLoad 90% Summer 6 months Winter 6 monthsKW 3000kWh 1944000
Peak 0.2Shoulder 0.2 Customer Charge $500.00 Customer Charge $500.00Off 0.6 Demand Charge (KW) $19.02 Demand Charge (KW) $19.02
1.00 Energy Charge (kWh) 0.000433 Energy Charge (kWh) 0.000433Base Power Supply (kWh) 0.032577 Base Power Supply (kWh) 0.025077
Total Monthly $121,743.44 Total Monthly $107,163.446 Months $730,460.64 6 Months $642,980.64
Yearly PPFAC $179,532.29Yearly REST $66,000.00Yearly DSM $29,136.67Total Yearly Surcharges $274,668.96
Total Yearly $1,648,110.24Average Monthy $137,342.52Total KW 36,000 Total kWh 23,328,000 Price per KW $45.78Price per kWh $0.07065
Note: All surcharges except power factor adjustor included in rate
TEP LLP-14
Table 10B: TEP LLP-90N TOU Power Cost Analysis
Large Light and Power Service "PowerShift"Load 90% Summer 6 months Winter 6 MonthsKW 3000kWh 1944000
KW Peak/Off Customer Charge $500.00 Customer Charge $500.00Off 0 Summer Peak Demand (KW) $20.03 Winter Peak Demand (KW) $15.03Peak 1 Summer Off Demand (KW) $10.03 Winter Off Demand (KW) $7.53
1.00 Summer Delivery Peak 0.00111$ Winter Delivery Peak 0.00072$ Summer Delivery Shoulder 0.00111$ Winter Delivery Off 0.00052$
Summer kWh Peak/Off Summer Delivery Off 0.00072$ Winter Power Peak 0.02713$ Peak 0.2 Summer Power Peak 0.04179$ Winter Power Off 0.01954$ Shoulder 0.2 Summer Power Shoulder 0.04179$ Off 0.6 Summer Power Off 0.02687$
1.000Total Monthly $126,126.91 Total Monthly $89,133.27
Winter kWh Peak/Off 6 Months $756,761.43 6 Months $534,799.60Peak 0.3Off 0.7 Yearly PPFAC $179,532.29
1.00 Yearly REST $66,000.00Yearly DSM $29,136.67Total Yearly Surcharges $274,668.96
Total Yearly $1,566,230.00Average Monthy $130,519.17Total KW 36,000 Total kWh 23,328,000 Price per KW $43.51Price per kWh $0.06714
Note: All surcharges except power factor adjustor included in rates
TEP LLP-90N
Table 11: UNS Large Power Service Power Cost Analysis
Based on power costs and system upgrades, the best case scenario is to attract data centers in excess of 3MW annual usage. Additionally, it is feasible to consider an even match of TEP/UNS investment at up to $1 million to each MW of generation as both cost-effective and profitable; the proposed ‘Empowerment Zones’ will reduce internal costs and improve profitability and speed to market. Thus, capital expense can be limited and possibly positioned as an incentive to prospective data centers. Arizona Incentive Summary: Arizona Commerce Authority and TREO Arizona Commerce Authority A variety of incentives are available from the Arizona Commerce Authority, however data centers are looking for specific tax credits to offset initial development costs. The material below outlines incentives available to all businesses that choose Arizona. The Arizona Competitiveness Package, HB2001, encompasses some of the most powerful economic development legislation in the country, making Arizona one of the most attractive locations in the world for companies to operate. Give your company a competitive edge with a host of programs and incentives.
Load 90%KW 3000kWh 1944000 Total YearlyKilovar 1500Peak 0.2Shoulder 0.2Off 0.6
1.00 Customer Charge $372.00Demand Charge (KW) $21.73Energy Charge (kWh) 0.046509$
Total Monthly $155,975.5012 Months $1,871,705.95
Yearly PPFAC ($28,065.53)Yearly REST $66,000.00Yearly DSM $8,518.61Total Yearly Surcharges $46,453.08
Total Yearly $1,918,159.03Average Monthy $159,846.59Total KW 36,000 Total kWh 23,328,000 Price per KW $53.28Price per kWh $0.08223
UNS Electric - Large Power Service
Arizona Innovation Challenge - Arizona technology businesses are the state’s engine for economic transformation through wealth and job creation. The Arizona Innovation Challenge is an investment in the minds of talented entrepreneurs in Arizona and around the world. The ACA awards $3 million annually to the most promising technology ventures that participate in the Arizona Innovation Challenge (awards may range from $100,000 to $250,000). Companies in the following technology sectors may apply: advanced materials, advanced manufacturing, aerospace and defense, bio and life sciences, clean-tech and renewable energy, and information technology. Apply for the fall Arizona Innovation Challenge beginning August 15, 2012. Corporate Income Tax – Reduces the corporate income tax rate from 6.97% to below 4.9%, between FY2014 and FY2017. Arizona is ranked 5th in the nation. 100% Sales Factor – Increases the electable sales factor for multi-state corporations from 80% to 100% between 2014 and 2017. Arizona is one of 18 states to boast this factor. Angel Tax Credit/Capital Gains – Increases the eligibility criteria for the Angel Investment Tax Credit for a qualified small business from $2 million to $10 million in total assets, eliminates the capital gains tax on income derived from investments in qualified small businesses that have been certified by the ACA, and decreases long-term capital gains. R&D Tax Credit – Increases existing tax credit of 15%-24% for R&D investments in excess of expenditures over previous year by 10% if expenditures made in cooperation with an Arizona university; Arizona is one of only three states to do this. Quality Jobs Tax Credit – signed into law in 2011 as part of the Arizona Competitiveness Package, this program provides state corporate income tax credits of up to $9,000 for each qualifying new job ($3,000 per job, for three years) and is capped at 400 jobs per employer per year. The program has a total cap of 10,000 jobs per year. Credits can be carried forward for five years. The State has 15 counties, each with its own median wage. Employee’s wages must meet or exceed the county median wage where the company is located to be eligible for the Quality Jobs Tax Credit Program. Table 12: County Median Wage Comparisons
Table 13: AZ Tax Credit Programs
Arizona’s Job Training Program Administered by the Arizona Commerce Authority, this program has been ranked among the best in the nation in terms of training flexibility and ease of access to the funds. Depending on location and wage structure, the reimbursable grant program provides up to $8,000 per employee to companies creating permanent new jobs or training existing workers within the state. The program is streamlined, extremely flexible and is tailored to meet the specific needs of the company. The grant can be used to cover up to 75% of training costs for net new employees and up to 50% of the training costs for incumbents. Other general points: (1) the maximum allowable grant at any one time is $1,500,000 (2) the grant amount can never exceed the actual cost of training, and (3) the average income of all employees covered under the grant must meet or exceed the stated amount or the amount represented by the company at the time of grant application, (4) funding is subject to availability of funds at the time of approval. However once approved, funds are set aside in the name of the grantee to cover the dollar value of the grant commitment. Job Training Qualifying Wage Rates Businesses applying for a grant must pay at least 100% of this wage to qualify. The average of all employees included in the training program must meet or exceed the wage for the county in which the business is located at the end of training.
Table 14: Job Training Qualifying Wage Rates
Workforce Development Services Offering your business Growth Opportunities through customized solutions:
• Immediate access to job-ready talent pools • Talent screening and skills assessment • Transition and retention services • Employer incentive assistance.
Invest in the bottom line without touching your pocketbook; these and other no-charge services are made possible via funding from the Workforce Investment Act (WIA). This is delivered by the local workforce areas in 13 counties. They are called One Stops and are designated by the federal government to deliver workforce services at the local level. www.arizonaworkforceconnections.com.
Registered Apprenticeship This combines supervised, full-time, structured on-the-job learning with related classroom instruction and allows the employee to immediately be adding value to the company while acquiring the necessary skills in a systematic training program that results in a highly skilled workforce for you. Customized Training We partner with our education and training providers to create programs that build a quality workforce for businesses, industries, and community organizations now and for the future. There are also financial incentives that may help underwrite a portion of the training. Real-time industry intelligence Conduct needs assessments to gather real time industry intelligence for the workforce of today and the future. This allows us to define workforce gaps and required training and provide solutions to filling the needs of your business today and in the future. Outplacement Services Assistance to companies who are downsizing by helping the impacted employees with their transition into new employment. Our Rapid Response Team provides assessments, tools and training dollars to minimize the length and financial impact of the transition on the employee. Virtual Recruitment Connect business to talent through our virtual recruiting website. We can post your positions online to a variety of local and national websites for broadest exposure and greatest convenience to you. Customize our recruiting services to meet the business needs of today and tomorrow at no cost to the business is also available. For complete details on incentives offered, visit: http://www.azcommerce.com/incentives/aca/ Tucson Regional Economic Opportunities (TREO) Tucson Regional Economic Opportunities, Inc. (TREO) was formed in July 2005 to serve as the lead economic development agency for the greater Tucson area and its surrounding regional partners. TREO’s mission is to provide leadership, a unified business voice, and connectivity to accelerate economic prosperity throughout Southern Arizona. In 2011, Tucson was ranked the #2 Medium Metro on the list of “Best Performing Metros” by the research firm Headlight, LLC. The ranking was based on an analysis of employment trends to identify the US metro areas that experienced the highest job growth rates. TREO is committed to assisting in the continued growth of the region and understands the need for businesses to operate within a profitable, pro-business environment. TREO has a valuable promotional brochure (People. Place. Promise.) that may be a complimentary piece for external communications to target markets. Businesses locating to Arizona can take advantage of the following incentive programs offered through TREO, and/or in part through the Arizona Commerce Authority:
Empowerment Zone Those tax credit incentives are designed as a mixture of tax financing and workforce training incentives with a goal of revitalizing the inner city. Note – Expired December 31, 2011 but may be revitalized in future Legislation. Foreign Trade Zone Designed to stimulate international trade, create jobs and promote investment in the United States, companies conducting business within an activated zone or sub-zone may bring foreign and domestic product into the activated zone at lower costs. This may be attractive to data center operations in Mexico looking for a disaster recovery opportunity in the U.S. Government Property Lease Excise Tax (GPLET) A GPLET agreement option is available for negotiation with local governmental agencies. GPLET removes the business’s obligation to pay property taxes and instead negotiates an excise tax and a lease rate. Quality Job Tax Credit This program provides Arizona income tax credits for companies creating new jobs and investing in AZ. The credit is valued at up to $9,000 over a 3-year period for each new employee and offers a 4-year carry forward provision for any unused tax credits. Eligibility qualifications for Tucson are: minimum of 25 new qualified jobs and a minimum of $5 million capital investment. A qualified job is a net, new full time and permanent position that pays 100% of median county wage and with the company offering to pay 65% of health insurance costs of the employee. Arizona Job Training Program This is a job-specific reimbursable grant program that supports the design and delivery of customized training plans for employers creating new jobs or increasing the skill and wage levels of current employees. TREO staff directly assists businesses through the writing, application, and reporting aspects of these grants. Pima County One-Stop Career Center The Pima County One-Stop Career Center is nationally recognized for pioneering training initiatives and aggressive fund development that has resulted in a rich menu of services for local employers. In addition to approximately $5 million in formula Workforce Investment Act funds, the One-Stop administers $20 million in discretionary grants for Veterans, youth and other special populations, education funds and basic assistance programs. Primary Jobs Incentives The Primary Jobs Incentive Program retains and attracts companies in industries where Tucson enjoys a competitive advantage: Aerospace & Defense, Bioscience, Solar and Transportation & Logistics. Eligibility qualifications for Tucson are: Minimum of 25 new primary, non- retail jobs at required salary rate, $5 million investment in facilities and company funds, and payment of 75% of employee health costs. Electrical, plumbing, mechanical, grading permit and site review permit fees are waived. Up to 100% construction sales tax allocated to job training, off site, public infrastructure improvements and/or impact fee offsets.
Foreign Trade Zone Designed to stimulate international trade, create jobs and promote investment in the United States, companies conducting business within an activated zone or sub-zone may bring foreign and domestic product into the activated zone at lower costs. Reduction of Corporate Income Tax Rate (State) A business can benefit from a 30% reduction in Arizona’s corporate income tax rate. The corporate income tax rate from 6.97% is reduced to below 4.9% between 2014 and 2017. The reduction is to occur in equal increments over a four-year period. Increase In Personal Property Exemptions (State) A business can improve its bottom line by a 15% increase in personal property exemptions. The Personal Property Exemption increases the exemption on personal property from the current $67,000 in 2010 to $79,000 in year 2011. AZ Competes Fund (State) Arizona has taken a progressive position by offering attraction funds to companies. Utilization of the AZ Competes Fund will generate investment in business projects that stimulate and promote industries providing high-wage and stable jobs. To assure a return on investment to the state, performance safeguards are a requirement of these funds. Arizona R&D Tax Credit (State) Refundable income tax credits are available for investments in research and development activities conducted in Arizona. The tax credit starts at 22% of the qualified R&D expenses for amounts in excess of expenditures from the previous year. Recent legislation enhances the tax credit amount up to 34% if increased R&D expenditures are made in conjunction with an Arizona public university. Impact Fee Deferral (City of Tucson) Impact fees for roads, parks, and public facilities may be deferred until the certificate of occupancy is received in exchange for a negotiated contribution to the City’s Housing Trust Fund. TREO Shovel Ready and City of Tucson Fast Track Permitting Assistance Developed in response to the demand for accelerated timelines for both relocation and expansion construction needs, TREO created the “Shovel Ready” program in conjunction with local developers and government entities. Broker Community Integration and Research Assistance (TREO) TREO will work with the local broker community to assist with relocation efforts. Downtown Infill and Redevelopment Incentives (City of Tucson) These incentives allow businesses to build with more flexibility than in suburban areas. These incentives create pedestrian and transit-oriented streetscapes that benefit both businesses and residents. AZ Deal Closing Fund (State) Tap into Arizona's $25 million deal closing fund. It is to be utilized in highly competitive situations and only for projects with a substantial economic and fiscal impact to a State and community. Funds provided to projects must be performance-based and result in a net benefit to the State consistent with the statutory gift clause. An economic impact analysis by an independent third party will be conducted
on all projects to determine potential return on investment benefits to the State. All funds will be awarded with contractual provisions for performance and “claw-back” of funds for non-performing projects. Preliminary Project Review and Delta Team Process (TREO) TREO is available to conduct customized research and analysis to fit your needs. TREO has comprehensive demographics and statistics about Tucson and the Southern Arizona region including population trends and projections, employment growth rates, demographic snapshots, cost of living, workforce analysis, profiles and more. TREO's staff is available to assist businesses in determining program eligibility and to answer any questions regarding program specifics. The staff is also available to go out and meet with businesses, listen to their specific issues, and then provide a list of available resources that are available for further assistance. Soft Landing Program (TREO) TREO is committed to provide valuable information to you and your team during the stressful time of relocation. We understand the importance of a local contact with information about school systems, desirable areas to live and other Tucson specific aspects that are important to you and your employees. Environmental Site Assessment Grants (City of Tucson) The City of Tucson, Pima County and South Tucson have created districts wherein grant monies will be available for Phase I and II Environmental Site Assessments (ESA). Those properties located within the zones that have not conducted their Phase I and II ESA can apply for and receive grants to complete those studies which could cost in the range of $1800 to $3500 for Phase I and upwards of $20,000 for Phase II. (Note: An Asbestos Survey and Lead-Based Paint Survey can be conducted in conjunction with the Phase I ESA.) City of Tucson and Pima County Industrial Development Authority The Authority is empowered to issue its bonds to provide funds for the financing or refinancing of the costs of acquisitions, construction, improvement, rehabilitation or equipping of a project. Angel Tax Credit/ Capital Gains It increases the eligibility criteria for the angel Investment Tax Credit for a small business from $2 million to $10 million in total assets and eliminates the capital gains tax on income derived from investments in qualified small businesses that have been certified by the Arizona Commerce Authority. It should also be noted the State of Arizona does not levy the following taxes:
• No corporate franchise tax • No business inventory tax • No income tax on dividends from out-of-state subsidiaries • No sales tax on manufacturing equipment • Aggressive accelerated depreciation schedules • 100% of net operating loss may be carried forward for 5 years.
Potential Future Arizona Incentives Qualified data centers are eligible for the following tax incentives:
• Sales and use tax exemption for computer server equipment.
Construction sales tax exemption for:
• Construction of qualified data center • Installation of server equipment
Green and Energy-Efficient Data Center Incentives – Possible Model for Future Incentives In an effort to create new, high-paying jobs, many states are putting considerable effort and money into getting companies to locate their data centers within their borders. TEP, in conjunction with the AZ Commerce Authority and/or TREO, may want to identify a sponsor to create legislation similar to the items addresses below to make Tucson and Arizona more attractive to data centers. The battle is perhaps best typified by Washington's new tax incentives for companies that build data centers in rural parts of the state. As Tax-News.com reports:
Last year, the state rejected a proposed tax break, which prompted Microsoft to move its cloud computing platform Azure out of Washington State to another data center in the US. The news was distressing to the town of Quincy, where Yahoo, Microsoft and Intuit have built large server farms, drawn to Grant County's cheap and green hydropower.
Since then, Facebook and Amazon.com have both chosen to build data centers in Oregon instead of Washington. The new tax exemption, introduced by Gregoire, applies to:
• Sales of server equipment that will be installed in a data center; • Labor and service charges for installing servers, and to sales of power infrastructure equipment; • Sales of power infrastructure; and • Labor and services for construction of power infrastructure.
To be eligible for the break, data centers have to be at least 100,000 square feet, and construction must begin between March 31, 2010, and July 1, 2011. Data centers can be huge economic engines, of course, especially large-scale facilities like the ones that would fall under the new Washington incentives. Facebook, the owner of one of the data centers that moved to Oregon, has used the facility as a way to reach out to the local community, as well as tout its efforts to boost the economy in Prineville, Oregon, where the facility will be located. But Washington and Oregon aren't the only states to hop on this trend. In March the state of Wyoming, seeking to siphon tech money away from neighboring states, signed into law a provision giving sales tax and use tax exemptions to data centers for equipment purchases of more than $2 million if the center has also made a $5 million capital investment in the state -- something that local data center owner-operator Green House Data has used as a draw for new customers. These new incentives don't particularly incentivize energy efficiency or any other green elements for data centers -- although energy and hardware costs obviously provide plenty of incentive for data center
owners to be as efficient as possible. But as the Facebook vs. Greenpeace Kerfluffle pointed out, non-green data centers can be a bit of black eye, depending on who's doing the looking. For that reason, perhaps the most significant -- and greenest -- data center legislation is the one from New York, which is offering up to $5 million to upgrade existing data centers to be more energy efficient. As David Chernicoff reports on his blog:
This is a pretty technology-aware program; it doesn't just focus on physical plant type upgrades, but also includes eligibility for common datacenter tasks such as virtualization, application management, and core server upgrades, as long as there will be a demonstrated improvement in the energy efficiency of the datacenter.
Source: GreenBiz, 5/5/2010: http://www.greenbiz.com/news/2010/05/05/states-use-tax-incentives-lure-data-centers
National Incentives in Other Utility Markets A variety of economic development programs are available through Utilities across the U.S. to large commercial customers. Additionally, specific incentives are offered to data centers by Utilities. As part of our load factor rate development, which is described in this plan, we collected and analyzed current offerings by other Utilities so we could be competitive. The ‘Empowerment Zones’ that were created also minimize expenditures for TEP and prospective data centers, thus provide a competitive advantage. Please refer to the Appendix for a series of tables that present all incentives, which are labeled:
• Overview of National Economic Development Programs offered by Utilities (Page 95)
• Overview of National Data Center Incentives offered by Utilities (Page 97)
TEP Analysis Strengths Operations
• Manage O&M costs • Reliable T&D system • Low cost power provider • High quality infrastructure • Operations excellence
Customer
• Customer - oriented goals • Community leader • Community presence/reputation/brand • Green leadership/knowledge
Employees
• Committed employees • Safety is a high priority • Experienced personnel • Good technical expertise • Our employees work well together in a crisis • Community - oriented employees • Focus on employee development • Very adaptable culture • Embracing technology
Regulatory / Government
• Regulatory strategy/relations • Compliance leader
Organization Culture / Structure
• Compliance culture • Long - term planning perspective • Ability to react/nimble organization • Small management group • Small organization/Able to make quick decisions • Simple business model • Operations are in Arizona (one state)
Financial/Economy
• Location/climate/border proximity • Cash flow • We have access to capital, despite economy
Weaknesses Operations
• Process challenged • We underutilize automation • Minimal influence on low performing remotes
Customer
• Customer focus/knowledge/info/data • We don’t know our large customers well enough • Price/rate structure/subsidies • Many of our processes are not standardized/consistent • Limited products/services/price options
Employees
• Limited depth of talent/expertise • Task vs. system oriented • Employee succession planning • Business literacy in operations areas • Need more focus for analysis/analytical/data • We don’t have a true marketing/sales function • Our employees are resistant to change • Limited internal development opportunities due to low turnover and lean organization
Regulatory / Government
• Regulated IOU • Rate freeze spending cycles • Coal heavy/generation balance (%)
Organization Culture /Structure
• Lean organization • Risk adverse • Need better/consistent accountability • Silo’d communications/activities • Resistance to Change • Limited focus on creativity/innovation • Strategy communications/focus needs improving • We don’t have good check and review processes • Don’t communicate well outside of a crisis • Fewer, but significant silos remain in place
Financial / Economy
• Focus on short-term financial goals • Below average credit ratings • Small size, limited capital access/attention • Vulnerable to economic impact during rate freezes
DATA CENTER ENERGY EFFICIENCY
Background
Given the rapid growth of the data center industry and the significant energy consumption footprint of the sector, 3% of all U.S power consumption1 by 2011, and the opportunity to garner significant savings of up to 50% or greater2, it is not surprising to find highly visible energy efficiency initiatives through the Department of Energy, public and private utilities, and industry and industry stakeholder groups. In short, while technologies are ever changing and improving, the energy efficient data center movement is rapidly growing in maturity. Therefore the question is not if a utility should engage a perspective data center client in energy efficiency programming, rather how to prepare for and structure the engagement.
In order to develop an effective engagement strategy it is necessary to first survey the existing data center energy efficiency initiatives, programs and resources available in the market. The most recognizable and prevalent are:
Federal, Department of Energy (DOE): the DOE under its Energy Efficiency and Renewable Energy (EERE) banner offers robust training, case studies, and tools for use in identifying and modeling energy efficiency solutions for data center owners, operators and practitioners.
See: http://www1.eere.energy.gov/manufacturing/datacenters/
The DOE-EERE also serves as the hub of a coordinative effort dubbed the National Data Center Energy Efficiency Information Program which seeks to leverage best building and energy management practices from existing, related initiatives including: the Federal Energy Management Program (FEMP), Energy Star, AFCOM, American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE), Critical Facilities Roundtable, Information Technology Industry Council (ITIC), Silicon Valley Leadership Group, The Green Grid Association, The Uptime Institute and 7 x 24 Exchange.
Federal, DOE and Environmental Protection Agency (EPA), Energy Star: EPA’s Energy Star brand is currently in transition to the Department of Energy and still maintains a separate web-page focused on case studies, benchmarking tools and design specifications.
See: http://www.energystar.gov/index.cfm?c=prod_development.server_efficiency
Federal, Environmental Protection Agency (EPA) and Office of Federal Environmental Executive, Federal Electronic Challenge (FEC): a partnership program that encourages federal facilities and agencies to reduce impacts of electronics during use, purchase more efficient electronics and dispose of used electronics in an environmentally safe way.
See: http://www.federalelectronicschallenge.net/resources/datacenters.htm
1 Department of Energy Laboratories Leadership in Green IT, PowerPoint presentation, August 2011, U.S. Department of Energy
2 DOE Data Center Energy Efficiency Program, PowerPoint presentation , April 2009, Paul Scheihing, U.S. DOE-EERE
Federally Funded, Lawrence Berkeley National Laboratory (LBNL): LBNL hosts data center research, best practice guides and technical tools.
See: http://hightech.lbl.gov/datacenters.html
Non-profit, The Green Grid: a leading non-profit consortium for end-users, policy-makers, technology providers, facility architects, and utility companies focused on efficient strategies for data centers and the deployment of business information systems.
See: http://www.thegreengrid.org/
Working hand-in-hand with these initiatives and resources, public and private utilities across the country are actively engaging the industry with energy efficiency incentives that vary as widely as the applicable local regulatory directives (see Appendix X, Summary of Utility EE Programs for Data Centers). Notable regional incentive offering include:
Arizona Public Service (APS): through its Solutions for Businesses program incentives up to 50% of the cost of incremental energy efficiency measures for studies, commissioning, retro-commissioning and $0.11/kWh saved with caps. This program is similar to the TEP programs that currently lack funding through the 2011-2012 TEP Energy Efficiency Implementation Plan.
See: http://www.aps.com/files/_files/services/busSolutions/pdf/DataCenterFactSheet.pdf
Pacific Gas and Electric (PG&E): offers custom incentives as well as through High Tech and Business Computing programs including $200 per server removed through virtualization and up to $0.09/kWh capped at 50% of incremental cost on retro-commissioning.
See: http://www.pge.com/hightech/
Sacramento Municipal Utility District (SMUD): new construction design assistance, on-site consultation, retro-commissioning, virtualization and desktop incentives including up to $150,000 or 20% of cost for custom virtualization and up to $50,000 or 20% on retro-commissioning.
See: https://www.smud.org/en/business/save-energy/rebates-incentives-financing/data-centers/
San Diego Gas & Electric (Sempra): custom and prescriptive incentives, and low interest financing available through EE Business and High Tech Rebates programs of up to 100% of measure cost based on a variable per kWh incentive rate.
See: http://sdge.com/rebates-finder/business
Opportunities for Energy Efficiency
While many factors influence the disparity in the degree to which energy efficiency measures are implemented among existing data centers, the opportunities are relatively easy to classify. The opportunities to implement energy efficiency measures within a data center fall into two broad classes: data center equipment and utilization strategies, and data center facility improvements in both new construction and retrofitted applications.
Data Center Equipment and Optimization Strategies: • Uninterruptible Power Supply (UPS)- boosting the efficiency of the UPS systems and designing
the UPS system to utilize more smaller UPS units operating at higher load factors. o 80 PLUS performance specification requires multi-output power supplies in computers
and servers to be 80% or greater energy efficient at 20%, 50% and 100% of rated load with a true power factor of 0.9 or greater. This makes an 80 PLUS certified power supply substantially more efficient than typical power supplies.
• Power Distribution Units (PDUs)- specialty PDU’s with built-in step-down transformers reduce the energy lost to heat while converting voltage down to 120V AC.
• Optimization of physical server units by through strategies including: o Virtualization- a method of running multiple separate operating systems on a single
server increasing server utilization versus operating more servers with lower per server utilization.
o Blade-server technology- up to 14 blade-servers may share a single traditional server chassis collectively economizing through the shared use of a power supply, network cards and cooling system.
Data Center Facility Improvements: • Indoor air management strategies including:
o Hot-cold aisle separation and containment- the use of raised floors, curtain walls, and ceiling plenums to isolate and manage air cooling into server aisles versus heated air rising from the server racks.
o Supply & return optimization- optimizing the supply and return plenums related to hot-cold aisles. The plenum supply structure is commonly a raised floor but may also be an overhead system. When floor and/or ceiling plenums are used blockage and drag due to the location of structural elements and building cabling must be accounted for to avoid hot spots.
o Temperature set-point management- designing high return air set points to extend the use of free outside air cooling. This strategy does not require the external air temperature to be lower than the set point, just cooler than the return air being exhausted from the room.
• HVAC system improvements including: o DX A/C units- the use direct expansion package units employing variable speed
compressors, or units utilizing remote air or water-cooled condensers, often in conjunction with other options noted below.
o Specialized central air handler systems- designed to utilize large motors and fans and variable-speed drives to maximize efficiency at partial loads.
o Sizing systems for low pressure air delivery- utilized with overhead supply systems (versus floor plenum) involves the slight over-sizing of equipment in order to deliver maximum efficiency at slow (variable) operating speeds.
o High-efficiency chilled water systems- the use of high-efficiency variable frequency drive (VFD) equipped central chillers.
o Air-side and water-side economizers- the use of mild outside or nighttime air temperatures or water derived evaporative cooling to chill the water in a systems chilled water loop.
o Efficient pumps- multiple opportunities exist in new and existing systems to improve the efficient operation of chilled water pumps.
o Direct liquid cooling- the use of cooling coils to directly remove heat from server aisles as a more efficient mode of exhaust versus through air exchanges.
• Building power systems- includes thermal storage, see ONE data center’s Cryogel ice system in Phoenix3, and combined heat and power (CH&P) systems.
• Building shell improvements- include high efficiency lighting, occupancy sensors, and performance sealed air and thermal barriers.
Data center equipment and optimization strategies are typically driven by the data center owner-manager based on their particular business model and the needs of their clientele. Data center facility improvements are similarly driven and often considered more transparent to customers who may tour the facility or wish to review a detailed description of the facility. While the migration of corporate resources into a data center falls upon the information technology team to coordinate, the decisions to make such a commitment is typically made by the less technically oriented business management team. A survey of web-based news articles and white papers on data center energy efficiency suggests that much opportunity still exists to better synchronize the efforts and expenses of technology versus facility improvements. To assist in quantifying the facility side opportunities several key industry benchmarks4 should be understood: Power Usage Effectiveness (PUE): the ratio of the total power to run the data center facility to the total power drawn by all IT equipment:
PUE = Total Facility Power Standard = 2.0 Good = 1.4 Better = 1.1 IT Equipment Power
Data Center Infrastructure Efficiency (DCiE): the ratio of the total power drawn by all IT equipment to the total power to run the data center facility (inverse of PUE):
DCIE = 1 = IT Equipment Power Standard = 0.5 Good = 0.7 Better = 0.9 PUE Total Facility Power
Additional benchmarking formulas exist for Energy Reuse Effectiveness (ERE), HVAC System Effectiveness, Airflow Efficiency and Cooling System Efficiency.
3 http://www.datacenterknowledge.com/archives/2012/04/03/google-embraces-thermal-storage-in-taiwan/
4 Best Practices Guide for Energy-Efficient Data Center Design, Revised March 2011, U.S. Department of Energy
Recommended Energy Efficiency Strategy With high visibility through highly visible Department of Energy programs, industry success stories, and emerging technology specific utility programs, the energy efficient data center movement is rapidly growing in maturity. Therefore, despite the negative connotations of promoting load reducing measures, offering robust energy efficiency support to data centers entering the marketplace should be seen as a requirement, in addition to an excellent opportunity to promote a business friendly environment. Because each data center may have a unique blend of resources and objectives it is important to be well versed in the energy efficiency strategies noted above in order to engage each data center client at the level of their interest, and to be seen as knowledgeable and supportive by the client and any consulting members of their technology and design-build teams. It is further recommended that a strategy be adopted to delineate and obtain corporation commission approval of data center oriented energy efficiency incentives, and that interim pathways to incentives be identified via existing commercial and industrial program prior to being requested by the client. Recommended Actions Summary:
1. Identify and delineate a pathway for data centers to utilize commercial and industrial incentives through existing commercial and industrial program prior to being requested by the client.
2. Identify gaps and new opportunities to propose and secure Arizona Corporation Commission (ACC) approval for data center specific measures in 2013.
3. Identify a specific resource pathway for utility key accounts representatives to access and integrate energy efficiency offerings and knowledge into the broader location team efforts.
Bright Tucson Community Solar
TEP offers customers the opportunity to cover some or all of their electrical needs by purchasing “blocks” of energy produced by utility-scale solar electric “farms”. This energy is offered at a slight premium over standard energy rates, but there are many advantages that come by participating. Below are many of the advantages to participating.
• No up-front expenses or equipment maintenance costs
• Protection offered against future energy cost increases
• “Blocks” are sold in 150 kWh increments per month for $3.00
• Surcharge exemption for solar energy purchases on renewable energy, fuel and purchased power
• Community Solar acts as “virtual” net metering – allowing for unused, but purchased, blocks to be rolled over into subsequent months.
Bright Roofs
Customers who may have ideal roof space for the installation of solar photovoltaics, but not an ideal electrical load to offset, may elect to leasing their roof space to TEP. TEP will then install non-
penetrating solar PV panels on the customer’s roof and interconnect directly to the electrical grid. In exchange for the roof space, TEP will pay the customer an annual lease payment.
• No up-front expenses or maintenance costs
• No need to worry about solar intermittency and issues with interconnecting behind the customer’s meter
• Solar panels are installed using non-penetrating ballasted racking systems
• Long term income stream from otherwise unused roof space o 250 kW installations o ~30,000 square feet o $4,000 per year lease payment
• Can be used in marketing collateral for building occupants.
Positioning and Target Market
TEP/UNS Competitive Advantage
• Compelling Advantages o Competitive rates
Similar to APS and SRP Lower than other west coast markets.
o Power capacity Some markets cannot handle new load generated data centers.
o Power reliability Reports verify power quality and reliability Redundant substations.
o Turn-key solution Dedicated internal and external team for data center implementation Easy to conduct business with TEP/UNS
• Empowerment zones to expedite speed to market. o Location
Safe natural environment Proximity to Phoenix, Las Vegas, southern California and Mexico.
o Access Availability to land and existing lease space.
Data center business drivers include low-cost and reliable power, redundant feeds and capacity. TEP/UNS is positioned to provide exactly what is desired for data centers. Therefore, these advantages will be articulated with data center executives, site selection teams and commercial real estate brokers through targeted communications. Positioning The following statements can be leveraged in communications to create awareness to Tucson and TEP/UNS as a perfect fit for data center operations, while also reinforcing key drivers for data centers.
• Tucson o Competitive costs compared to Phoenix, and cooler for everything else. o Data center’s best kept secret for profitable growth. o Mission critical systems surrounded by innovation and natural beauty.
• Company (TEP/UNS)
o Working today for a bright tomorrow. Product: safe, affordable and reliable energy. Relationship: trusted energy partner/advisor. Image: leader in all that we do.
• Program acquisition
o Reliability and energy costs are a given, it’s the service and resources that exceed expectations. Empowerment zones.
o Matching your objectives with our resources to ensure success. o People and places that will expedite your speed to market.
Target Market
• Primary Market
o Tier II and III Colocation data centers with 4MW to 10MW annual usage. Primary colocation services Disaster recovery environment
• Firms active in Phoenix, Las Vegas and southern California o 273 locations total (includes companies with multiple locations).
o Corporate/private data center operations of large data users. Insurance Financial/Banking Healthcare Hospitality Education.
o Top 25 commercial real estate firms across U.S. Firms active in data center hubs, such as
• CBRE • JLL • Cushman Wakefield.
o Site selection firms/data center consulting firms/architectural firms. TelAxis.
• Secondary Market
o Colocation data centers with 10MW or more annual usage. Explore potential in Mexico (explore direct flights to Tucson).
o Fiber providers active in data center hubs with Tucson operations. Century Link Verizon TW Telecom.
• Market Niche
o Redundant provider with excess capacity. o Disaster recovery with proximity to Phoenix, Las Vegas and Southern California. o Speed to market with Empowerment Zones that benefit data centers and TEP
Facilitator with city, government leaders to expedite process. o Green expert.
Solar innovation. Renewable portfolio.
TEP Data Center Incentives Extensive research was collected regarding incentives in other markets – by both government agencies and Utility providers. Since TEP has an existing policy, which is provided below, we developed alternatives to position TEP competitively on a state and national level. Tables are provided in the Appendix, beginning on pages 95 and 97, which identify all available Utility incentives. This topic may warrant a further discussion to strengthen our current incentive package; Involta executives may be a valuable resource for this future conversation. By creating ‘Empowerment Zones’ for optimal data center site selection, we minimized any internal system development costs and limited any potential fees that would be required by data centers. Calculations were also made in the break-even analysis that demonstrate we can commit up to $1 million in expenses for each MW generated by a data center on an annual basis. TEP Line Extensions Policy: 1. TEP will provide Overhead Extensions to individual Applicants, per Section 7.C.1. All of the costs in Section 7, Line Extensions, are for Overhead line extensions unless specifically allowed by other sections at the expense of the customer. The line extension rule for Large General Service and Large Light and Power is Section 7.C.1.d and is specifically for overhead extensions as it is part of Section 7.C.1. 2. TEP will install only those facilities which it deems necessary to render service in accordance with its rate schedules and any costs incurred beyond that (over-sizing, undergrounding, or Excess Facilities,) will be paid by the customer, per Section 7.C.7.f, 7.C.3.i, and 7.A.2. Therefore, we can only waive the costs for the one line extension that would have normally been allocated to overhead construction. The second line falls under the Excess Facilities section. 3. Primary Service and Metering (PM) is specifically listed as a customer cost per Section 7.C.7.b. For LLP customers, PM is also specifically listed as a requirement in their tariff (see LLP-14 & LLP-90N). Large General Service (LGS)/Large Light & Power (LLP) customer can waive much of the cost of the first 14kV line extension With Involta the total cost of their line extension project was approximately $110,000. TEP was able to waive almost 50% of the project cost per our line extension policy. Involta was only responsible for $58,791.75.
Acquisition Plan TEP developed an internal model to determine areas available within UNS Energy Corporation service territories suitable to provide electric service to data centers in the greater Tucson area, Kingman, Lake Havasu and Nogales. The model assisted the Land, IT and Engineering teams in working together to identify locations most desirable to data centers. The preliminary research conducted included the following criteria:
• Land use and local zoning regulations best suited for data centers • Available properties both vacant and improved • Flight paths for various airports • Jurisdiction • System capacity/reliability (dual feeds) • Available fiber telecommunications
Using the model it was determined early on in the process, that Kingman, Lake Havasu and Nogales could support a data center, but not without substantial infrastructure improvements such as new substations and transmission lines. These areas currently have radial lines and would not provide the power reliability most data center providers seek in selecting a location. The TEP service territory became the focus of the search for Empowerment Zones (EZs). Empowerment Zones Identified Preliminary analysis of land use, and system capacity provided a snapshot of five locations suitable for data center use. The five EZ’s identified are shown in the map below:
Analysis and Ranking The EZs’ had already been identified as being the most qualified locations within the TEP electric system to locate a data center. Future marketing efforts for these areas would necessitate a more detailed analysis and ranking to determine the most qualified EZ to market to potential data center providers. Each was analyzed in more detail for the following criteria:
• Local zoning regulations best suited for data centers • Available properties both vacant and improved • Flight paths for various airports • Available fiber telecommunications • Areas capable of providing dual service feeds or alternatives • System capacity • System reliability
Other factors considered were planned or potential future improvements that would increase capacity providing further options in the EZs for data centers, and that would add capacity for other users in the near future. These improvements include the construction of the Kino substation and the Demoss Petrie rebuild. Kino substation is a planned improvement (in-service 2018) for new commercial business located at the UA Bio-Science Park. The Demoss Petrie rebuild is an unplanned improvement and would upgrade current infrastructure such as the existing 46kV switchyard, and re-conductor of getaways. While the improvements did not affect the ranking of the EZs, it did increase their scores overall and will provide more options for customers requiring additional capacity/reliability. Ranking each of the EZ’s using a weighted system of 1 through 5, with 1 being poor and 5 being outstanding was used to develop an overall EZ score. The higher the weighted score for each EZ, the more qualified the area was for data center placement. The attached ranking sheets provide a snapshot of the overall scores for the EZs. Sheets are also provided indicating increased EZ scores with both the Kino Substation and Demoss Petrie rebuild improvement plans. Land Use and Local Zoning Regulations A Geographical Information System (GIS) tool was developed to assist in locating commercial and industrial areas that would support a data center. Initially there were discussions with local municipalities to determine where the data center use best fit with local zoning regulations. Data Centers are considered “Communication” uses in local land use codes, which are generally allowed in all commercial and industrial zones for local jurisdictions within TEP’s service Territory. This includes Tucson, Marana, Oro Valley, Sahuarita and Pima County.
Available Properties A parcel analysis was conducted using Pima County’s parcel database, Arizona Department of Revenue land use classification system, TEP’s service territory boundary and GIS. Vacant commercial and industrial parcels, greater than 3 acres in size, outside of existing environmentally sensitive land designations were identified. Similarly improved industrial and commercial properties greater than 1 acre in size were identified. TEP partnered with CB Richard Ellis Commercial Real Estate brokers (CBRE) to identify available properties (both vacant and improved) in the areas initially identified by the previous land use and system capacity/reliability evaluations. CBRE provided current listings of properties suitable for data center use in each of the EZs. Other factors in ranking available properties included existing building space and type of construction. For instance we learned from our previous experience with Involta that concrete tilt up construction with at least 18-feet of ceiling height, with no or very little windows was more qualified than other construction types because this type of construction offers more energy efficiency and security opportunities. Our research of other desirable requirements indicated data centers should be located to provide easy access to freeways and airports. However, conversely it is not desirable for the location chosen to be in close of proximity to transportation infrastructure including airports, railroads and interstates which may pose disaster or accident risk to the data center site. Jurisdiction Municipal permits and regulatory approvals are considerations for data centers because the time frames for obtaining permits, cost of approval and the municipal entity’s willingness to participate are often factors in the success of a project. Each EZ was analyzed and ranked for the jurisdiction(s) and or municipal entities involved, and our past experiences with them issuing timely and cooperative approvals. System Capacity and Reliability Capacity A high level analysis of the current system capacity at both 14kV and 46kV voltages was conducted for existing circuits within or in proximity to each EZ’s. A preliminary review of TEP distribution system circuits and load capacity availability indicate the EZ’s could accommodate a data center with no or relatively minor system improvements. Data centers fewer than 3 megawatts would be served by the 14kV distribution system, so each area was evaluated to determine if this were the case and again the EZs were ranked 1 through 5, with 5 being the most qualified for a data center location. The 46kV system in the EZ’s was also evaluated and ranked for potential data center customers with power use ranging from under 1 megawatt up to 10 plus megawatts. Costs for line extensions were not considered in the ranking of the EZ’s because this is a high level of analysis over an area with a range of possibilities for line extensions and system improvements. Site specific costs will be evaluated when a site or range of sites have been selected by a potential customer.
Generally OH 46kV line extension costs are one-million per mile for and two-million per mile for an underground extension. Reliability Individual circuits were evaluated using the System Average Interruption Duration Index (SAIDI) and the System Average Interruption Frequency (SAIFI) indices. The SAIDI & SAIFI reliability calculations are generally based from the following models:
SAIFI = Σ Total Number of Customers Interrupted
Total Number of Customers Served
SAIDI = Σ Customer Interruption Durations
Total Number of Customers Served The analysis conducted reviewed the average number of momentary outages (under 5 minutes in duration) and the average number of sustained outages (over 5 minutes in duration). No planned outages or major event days (MEDS) were included in the SAIFI & SAIDI analysis because they are events that cannot be forecasted and would therefore skew the overall calculation for each EZ. In the SAIDI and SAIFI model an EZ score higher than .21 (the TEP system average) the less the reliability of the circuit. Each EZ scored within reasonable limits or lower than the TEP system average and overall were chosen for their reliability. Each EZ was given a ranking of 5 for system reliability. The table below indicates the average scores for each EZ. Table 15: Empowerment Zone Reliability
Empowerment Zone
Average # of Sustained Outages
Average Outage Duration (Min.)
Average # of Momentary Outages
Average SAIDI
Average SAIFI
Tucson International (2008 - 2011) 7 152 152 0.228705 0.003488 Butterfield (2008 - 2011) 7 67 67 0.032111 0.000396 UofA BioScience Park (2008 - 2011) 6 78 78 0.102295 0.001972 DeMoss Petrie (2008 - 2011) 12 88 88 0.212310 0.003712 UofA Science & Tech Park (2008 - 2011) 3 111 111 0.036912 0.000598
*DeMoss has a higher number of outages due to a higher number of feeders into the substation Fiber & Telecommunications Availability Available telecommunications (fiber) service to a potential location is one of the keys to successfully siting a data center. There are five major telecommunications providers in the TEP service territory. They are TW Telecom, Verizon, Century Link, Level 3, and Cox Communications. Each provider was contacted and given a physical address within each of the EZ’s for their use in evaluating existing telecommunications infrastructure. We also asked them to evaluate capacity that would support
multiple GigE connections, possibly even as high as 10 or 40GigE as well as circuit-switched OC48 or higher. We also indicated that fiber with dual entrance/diverse path was preferred. Three providers have facilities within ½ mile of each of the EZs. They are TW Telecom and Century Link. The five EZs all received a ranking of 5 given these criteria, as the three providers indicated their facilities capacity to provide service suitable for data centers within ½ mile. Ranking Results All of the EZs were chosen for their attractiveness to a data center customer. Each has the appropriate land use, proximity to transportation, available fiber, electric capacity/reliability requirements, available commercial and industrial building space and vacant property. The overall scores ranged between 275 and 415, with Tucson International achieving the highest overall score. The table below indicates the ranking of each EZ along with a summary of the analysis results with reasoning. Table 16: Empowerment Zone Rankings
Empowerment Zone Ranking Results of Analysis
1- Tucson International 1
Capacity/reliability on 46kV system, number of available vacant properties and it proximity to the Tucson International Airport. Of interest: Available building space the Lisa Frank and Texas Instruments buildings.
2- Butterfield 3
Capacity/reliability on 46kV system, none on 14kV system; available vacant property; new Kino 138kV Substation adds capacity/reliability
3- Tucson Business Park 2
Capacity/reliability on 46kV system; available property at UA Bioscience Park; Involta location; new Kino 138kV Substation adds capacity/reliability
4- DeMoss Petrie 4
Capacity/reliability on 46kV system; limited available property; rebuild potential at DMP for increased capacity/reliability
5- UA Science and Tech Park 5 Capacity/reliability on 14kV system, none on 46kV system; located in flight path; limited improved property
Empowerment Zone 1 – Tucson International
Empowerment Zone 2 – Butterfield
Empowerment Zone 3 – Tucson Business Park
Empowerment Zone 4 – DeMoss Petrie
Empowerment Zone 5 – UA Science and Tech Park
Promotion TEP should utilize a direct sales and marketing approach for primary communications with the primary and secondary market, supported with geo-targeted online banners at key data center online portals. The market is very specific by geography and level of decision makers, so a direct response approach is the most cost-effective way to create awareness and interaction. Phase 1 = Existing resources Phase 2 = Aggressive campaign defined below Tactics & Costs ($73,700* initial minimum; up to $200,000+ annually)
• Direct mail promotion for 500 with micro-site for prospect qualification ($2000) o 11x17 flat brochure with variable data and personalized URL and automated email reply o Cost includes design, printing, list, micro-site and postage for 500 prospects
• Tucson/TEP overview brochure for 500 DM ($1000) o 11x17 flat brochure (4-panel folded) o Cost includes design, printing and PDF with hyperlinks
• Involta Case Study/Whitepaper for 500 DM ($1000) o 11x17 flat brochure (4-panel folded) o Cost includes design, printing and PDF with hyperlinks
• Datacenter Dynamics Online & Print (http://www.datacenterdynamics.com/) o Option 1 – Cost is $26,500
Online Banner Campaign: • 3 Month online banner campaign
o Oct-Nov-Dec. • 100,000 banner impressions
o 50,000 impression for Leaderboard o 50,000 impression for Mid-Page Unit.
Ads would target specified IP addresses only, to ensure we reach your target market (US/Canada/etc.). Units will appear on the DatacenterDynamics homepage and run of site. Campaigns will be reported on a monthly basis with regards to impressions and click-thru rates.
eNewsletter Sponsorship:
• 3x fully branded eNewsletter campaign to be sent directly to the inboxes of our opted-in global eNewsletter subscribers.
• Exclusive Sponsorship that includes 3 banner units on the eNewsletter o § 2 – Leaderboard Units o § 1 – Mid Page Units.
Email Campaign: • Fully branded eMarketing campaign to be sent directly to the inboxes of specific
segments of our audience. • Emails can be linked to multiple marketing collaterals – product information,
white papers, video, web pages / landing pages, lead generation, etc.
o Recommended Option 2 – Cost is $37,200 plus fees for Event Sponsorship Online Banner Campaign:
• 3 Month online banner campaign o Oct-Nov-Dec.
• 100,000 banner impressions o 50,000 impression for Leaderboard o 50,000 impression for Mid-Page Unit.
Ads would target specified IP addresses only, to ensure we reach your target market (US/Canada/etc.). Units will appear on the DatacenterDynamics homepage and run of site. Campaigns will be reported on a monthly basis with regards to impressions and click-thru rates.
eNewsletter Sponsorship:
• 3x fully branded eNewsletter campaigns to be sent directly to the inboxes of our opted-in global eNewsletter subscribers.
• Exclusive Sponsorship that includes 3 banner units on the eNewsletter o § 2 – Leaderboard Units o § 1 – Mid Page Units.
FOCUS Magazine: • 4 page insert
o 4 page insert – FOCUS MAGAZINE o North America print run o 4 Color o 80# stock o Blown in and polybagged for distribution
Email Campaign:
• Fully branded eMarketing campaign to be sent directly to the inboxes of specific segments of our audience.
• Emails can be linked to multiple marketing collaterals – product information, white papers, video, web pages / landing pages, lead generation, etc.
Event Sponsorship – $25,000 initial; up to $100,000 annually: Sponsorship and speaking opportunities with Datacenter Dynamics at all/any of their upcoming events, which include Dallas, Phoenix, San Francisco and Mexico. These events are great forums for meeting face-to-face with data center decision makers in each/any of these key markets. DCD offers onsite content stream covering DBO, ITO and outsourcing decisions that provide opportunities for partnering companies to engage with these audience and present their products and offerings in 35 minute speaking sessions.
o Designed to generate sales and branding opportunities through a 6x10 exhibition booth and two staff passes to demonstrate and promote product and service offerings.
o 35 minute speaking opportunity during prime time slot. o Access to full event participant list.
• Data Center Map (http://www.datacentermap.com/) o Standalone Option - Geo-targeted banner ads via Gold Sponsor ($7500/Quarter)
50,000 impressions per month • Top of page/section
Banner 728x90 and 300x250 • Resources – .5 FTE from Energy Efficiency • Total Promotion costs for items recommended above
o $73,700 minimum Timeline
• Project Timeline
o September Draft copy and design direct mail brochure, case study template and overview
brochure Design online banners Create microsite (PURL) Launch direct mail piece to primary and secondary market Conduct external partner meeting
o October Launch Data Center Dynamic insert (Tucson/TEP) into November/December
issue of FOCUS Launch targeted emails to primary and secondary market Launch online banners at Data Center Dynamics and/or Data Center Map Create Involta case study
o November Run online banners at Data Center Dynamics and/or Data Center Map Launch follow-up targeted emails to primary and secondary market
o December Launch Data Center Dynamic insert (Involta Case Study) into January/February
issue of FOCUS Run online banners at Data Center Dynamics and/or Data Center Map
Sales Plan Key Account Services plans to address the acquisition of new Data Centers in the following manner:
• Utilize existing Key Account Service resources and personnel • Data Center Training
o Online Training – DC- Professional - 4th quarter 2012 • Data Center Conference Attendance
o Gartner Data Center Conference – November 2012 • Site Locator Relationship Development
o CBRE - Ongoing o Tel-Axis - Ongoing
• Industry Relationships - Ongoing o Century Link o Level 3 o COX o Time Warner o Southwest Gas o Trico
• Economic Development Conferences, workshops and relationship development o Governor’s Economic Development Conference – Sept 2012
• Economic Development contact meetings – Ongoing • City of Tucson
o Town of Marana o Town of Oro Valley o Town of Sahuarita o TREO o ACA o Local Chambers of Commerce o U of A Tech Park
Metrics
• Measure direct mail effectiveness with a personalized URL (PURL) that can both identify interest in Tucson market and pre-qualify prospects with a brief, online survey.
o Achieve 6% response rate for direct mail. Achieve 4% response rate for PURL.
• Measure online advertising through banners, newsletters and custom emails. o Achieve 2% online banner click-throughs.
• Assist Involta with reaching full capacity. o Host business exchange to draw business to Involta ($2500). o Conduct email campaign to select TEP customers.
• With Phase II, secure one new data center/colocation facility per 18 months. o Secure 8MW new load within five years (including Involta ramp-up).
Equivalent to $8 million in new revenue in five years.
Operations Plan Production – Involta case study We are using Involta as a case study to explain the level of operation expectations to work with future data center customers. Process of getting Data Center online
• Customer may initiate contact with TEP via the following channels:
• Design Build Department
• Customer Service Department
• Key Account Services
• Local Chambers of Commerce contacts
• TREO
• AZ Commerce Authority
The following narrative generally describes TEP’s recent experience with Involta. Involta is a nationally situated Data Center developer. They are interested in building a first-class Data Center in Tucson to support a significant tenant already in Tucson. Key Account Services made contact with Involta after receiving notice from Design Build. Involta requested a “Non-Disclosure Agreement” (NDA) early on in the process. Data requests were provided to TEP via email and conference calls from Involta. Key Account Services contacted appropriate internal company resources and collected requested information for customer. Subsequent meetings were conducted with customer to pass along requested information. Initially, part of Involta’s requirements was to have redundancy via an Automatic Throwover (ATO). Though it provides immediate power availability when failure of one feed occurs, this option can be costly to implement and maintain. An alternative suggestion was to have a manual throwover. This required onsite switching of feeds by TEP personnel. Customer would use emergency generation during switching time. Another alternative and the least costly was to have no ATO (either manual or auto). During failure of the single point of delivery, power would be restored via circuit switching availability in the area surrounding the Involta facility. This is the option that was selected. In an effort to better understand the Data Center customer TEP formed a “Data Center Task Force.” The task force is comprised of individuals from multiple TEP departments involved with the development of Data Center businesses in Tucson. Task force members participated in multiple educational forums with Data Center experts (inside TEP and external to TEP) in an effort to better understand what a Data Center is and how it operates. One such meeting identified early on several key elements important to locating a data center; cost of energy, communication bandwidth and availability of employee talent. In
addition the task force physically visited TEP’s own Data Centers at the Irvington Power Plant and the TEP downtown Headquarters. In addition a field visit was made to a significant Data Center in Phoenix. TEP conducted several high level meetings with Involta and its site locator and real estate broker TelAxis to establish a better understanding of the customer’s needs and requirements with regards to electric service pricing, electric infrastructure, data center operations and tenant requirements. TEP was informed by Involta that Tucson was one of the last metropolitan service areas (MSA) in the Country without a Tier 3 Data Center. Tiers range from 1 to 4 with 4 being the most secure and providing the greatest redundancy with respect to energy, communications and cooling. A request made by Involta of TEP was to host a “meet and greet” for Involta and potential Data Center Tenants in the Tucson marketplace. TEP invited and hosted on behalf of Involta at its HQ a “Meet and Greet” for approximately 80 to 90 Tucson businesses. The event resulted in several solid leads (TUSD, Ventana Medical and Pima County) Involta previously described their desired tenant consisting of mid to large size organizations (Hospitals, Universities and Technical Service Providers). A rate review was performed by TEP to determine rate qualifications and options based on opening load and load growth projections. Generally the customer initiates their own rate or pricing reviews, however, TEP determined as part of an economic development process it was beneficial to both the customer and TEP to provide this service. In addition, TEP’s Pricing Department has been tasked with investigating an Economic Development rate. This could take various forms with regards to pricing and/or amount of time that the new customer may take advantage of such a rate. For example, since current rate design revolves around demand charges to gain the most margin, an offering could contain low kWh charges as these are recoverable through TEP’s PPFAC. In order to incent the customer further, the PPFAC could be suspended for a period of time as determined by Pricing. At the same time the demand charge could remain at the same levels as other rates, thus protecting TEP’s margin. TEP’s Design Build and Land Management & Requirements Departments conducted an in depth search for properties within the Tucson area that matched Involta’s requested criteria. Land Management & Resources created several package options for Involta that included detailed maps and available property site marketing materials. The maps included information on TEP electric infrastructure and reliability statistics. Additional requests from Involta included requests for referrals for real estate attorneys and brokers in the Tucson area. Involta appears to be poised to make a decision on whether they will be purchasing a property in Tucson on or before May 16, 2012.
• Materials and facilities (dependent on Data Center load characteristic – >1MW, 3MW, 5MW, 10MW+ Improvements
• Involta selected an existing vacant commercial building (formerly an optical development business). TEP facilities in place are extensive and at present don’t require upgrades.
However, Involta requested/stated the following items prior to final site selection:
1) An existing facility of approx. 15,000 - 25,000 square feet, with additional expansion space 2) If not an existing facility, land to construct the above 3) Large power service(s) 4) Capability to upgrade service to dual 2500kva transformers (480v) 5) Dual substation feeds (or loop-fed with fail over from primary) 6) Electric service at 13,800kv 7) Near but not too close to highway, high traffic areas 8) Loading docks 9) Security Fence 10) No wood frame building, prefer concrete slab and concrete standup walls 11) 18’-20’ Ceiling height 12) Single tenant with opportunity for collocation 13) No signage 14) Timing of supplying redundant/dual feeds (any extraordinary substation, ROW, distribution work, etc.) 15) Flight path information/ avoidance 16) Economic incentive zones (Tax breaks or incentive, workforce development services) 17) Communication and Fiber availability and capacity
• TEP Personnel
• Client management – TEP / UNSE Key Account Services
• Facilities management – Design Build, TEP Land Management & Requirements
• Energy management – Demand-side Management & Renewable Energy Departments
• Other
• Permits – Design Build, TEP Land Management & Requirements
• Licenses - TEP Land Management & Requirements
• Regulatory issues - NA
• Insurance requirements - NA
Financial Plan Breakeven Analysis and Financial Projections Based on power costs and system upgrades, the best case scenario is to attract data centers in excess of 3MW annual usage; rate decrease over 4MW. Additionally, it is safe to consider an even match of TEP/UNS investment at $1 million to each MW of generation as both cost-effective and profitable. Table 17: Data Center Costs and Revenue Projections
It should be noted that the above projections reflect assumptions and that projections can be based on specific clients once all variables are defined to determine exact revenue and costs. It is recommended that we benchmark energy usage with Involta to get a realistic consumption pattern and timeline for reaching full capacity.
Peak Load Demand
(kW)Annual
RevenueAnnual Margin
Annual Avg. ¢/kWh (all charges except
taxes)
Approximate Breakeven
Capital Investment* IRR NPV
Rate 85N 1MW $456,500 $204,000 6.99 1,113,000 10% 28,9452MW $908,500 $403,500 6.88 2,226,000 10% 34,727
Rate 90N 3MW $1,329,000 $657,000 6.97 3,604,000 10% 75,3434MW $1,662,000 $765,000 6.49 4,240,000 9% 47,7635MW $2,074,500 $954,000 6.43 5,300,000 9% 48,123
10MW $4,143,000 $1,901,500 6.32 10,600,000 9% 62,78820MW $8,280,500 $3,707,500 6.27 20,140,000 10% 606,487
Notes:1) Annual Revenue does not include DSM and REST.2) Annual Avg. ¢/kWh includes DSM, REST, & PPFAC.3) Estimates above are based on 90% LF, 5% Demand Spread Per Month,
5.5 Mil PPFAC, 1.249 Mill DSM, & Primary Metering.
* Capital investment breakeven analysis does not include rate recovery of capital investment.
Data Center Financial EstimatesMay 2012
Table 18: 4MW Data Center Revenue Projections
New System Name: Tier: Duration of TCO Analysis:
Name of System being Replaced Main Business Driver: Cost Estimate Precision:
BP&A Approval Date: Project Phase:= locked, automatically calculated field = locked, fields not included in calculations or N/A
New System Information HARD SOFT Int Labor Other Overheads TotalInternal Rate of Return (IRR) 9% 9%
NPV @ 9% Discount Rate 47,763 47,763 Planning (To-Be Processes, Design) - - Target Start Date Execution (Development and Testing) - -
Target Date-in-Service Hardware Procurement - - Projected Life of System in Years (straight line depreciation) Software Procurement - -
Contingency (0%) - - - - Name of Sponsor
Project Currently in O&M Budget? Planning (Reqs, Planning, As-Is Processes) - - What Cost Center(s) will the O&M budget dollars impact? Execution (Training, Go Live, Transition) - -
Incremental impact to 1st year Capital budget(s)? Closing (Administration and Review) - - Incremental impact to 1st year O&M budget(s)? Short-Term Production Support - -
TEP UNSE UNSG Contingency (0%) - - - - Date asset cost will start to be recovered in customer rates? 10/1/2016 N/A N/A Capital Totals - - - -
Are any up front costs recoverable? O&M Totals - - - - es, how will up front costs be recovered (eg. tariff, 3rd party)?
Percentage of up front costs that will be recoverable - - - -
Are any ongoing costs recoverable? Int Labor Other Overheads Total es, how will ongoing costs be recovered (eg. tariff, 3rd party)? Yr of Cost
Percentage of ongoing costs that will be recoverable - - - -
Replaced System Information (Enter "N/A"'s below if there is no replaced system) - - Original Cost of Replaced System - -
Additional Capitalized Cost of Replaced SystemDate System was placed into service - -
Life of Current System in Years - - Date Current System is Fully Depreciated - -
- -
Overhead Information - -
- - - - Description O&M Capital - - - - Stores Clearing (Materials Purch/Contractor Serv) 1.0% 1.0%AFUDC 5.0% - - - -
Totals 1.0% 6.0%
*rates to be verified by BP&A Int Labor Other Overheads Total
Executive Summary Financial Information Yr of CostTotal Estimated Cost for Planning: $0 - -
Capital: $0 - - O&M : $0 - -
- - Total Estimated Cost for Execution: $0
Capital: $0 - - O&M : $0 - -
- - Total Estimated Cost for Closeout/Short-term Support: $0 - -
Capital: $0 - - - - O&M : $0 - - - -
Total Estimated Project Cost (excluding internal labor): $0 Budget Reductions Commitment Total - - - - -25% +75%
Total Estimated Project Cost (including internal labor): $0 $0 $0
= locked, automatically calculated field = to be populated by BP&A = locked, fields not included in calculations or N/A
Implementation Costs 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018Capital
Planning (To-Be Processes, Design) 4,000,000 Execution (Development and Testing)
Hardware Procurement - 212,000 212,000 212,000 212,000 212,000 212,000 Software Procurement
Contingency (0%) - - - - - - - - - - - - - - Overheads 240,000 - - - - - - - - - - - - -
O&MPlanning (Reqs, Planning, As-Is Processes) - - - - - - -
Execution (Training, Go Live, Transition) - - - - - - - Closing (Administration and Review) - - - - - - -
Short-Term Production Support - - - - - - - Contingency (0%) - - - - - - - - - - - - - -
Overheads - - - - - - - - - - - - - - Implementation Totals 4,240,000 - - - - - - - 212,000 212,000 212,000 212,000 212,000 212,000
Post-Implementation Costs 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018Capital
Hardware ReplacementLicensing growth
Storage growthOverheads - - - - - - - - - - - - - -
O&MAnnual Maintenance - - - - - - -
Long-Term Production Support - - - - - - - Additional FTE(s) - - - - - - -
Write-off book value of replaced assetOverheads - - - - - - - - - - - - - -
Post Implementation Totals - - - - - - - - - - - - - -
Income Statement Impact 2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018Capital
Annual Sales IncreaseLicensing growth
Storage growthOverheads - - - - - - -
O&MAnnual Sales Increase (1,662,000) (1,662,000) (1,662,000) (1,662,000) (1,662,000) (1,828,200) (1,828,200) (1,662,000) (1,662,000) (1,662,000) (1,662,000) (1,662,000) (1,828,200) (1,828,200)
Cost of Power Production 897,000 897,000 897,000 897,000 897,000 986,700 986,700 897,000 897,000 897,000 897,000 897,000 986,700 986,700 Reduction in FTE(s) - - - - - - -
Overheads - - - - - - - Budget Reductions Commitment Totals (765,000) (765,000) (765,000) (765,000) (765,000) (841,500) (841,500) (765,000) (765,000) (765,000) (765,000) (765,000) (841,500) (841,500)
Capital Totals 4,240,000 - - - - - - - 212,000 212,000 212,000 212,000 212,000 212,000 O&M Totals (765,000) (765,000) (765,000) (765,000) (765,000) (841,500) (841,500) 765,000 765,000 765,000 765,000 765,000 841,500 841,500
Total "Hard" Costs 3,475,000 (765,000) (765,000) (765,000) (765,000) (841,500) (841,500) 765,000 977,000 977,000 977,000 977,000 1,053,500 1,053,500
Soft Benefit Realization 2012 2013 2014 2015 2016 2017 2018 System Usage by CompanyWork Flow Efficiencies TEP Usage Share 100%
Integration Opportunties UNSG Usage Share 0%Disparate System Consolidation UNSE Usage Share 0%
Avoided Financial PenaltiesImproved Customer Satisfaction TEP 765,000 977,000 977,000 977,000 977,000 1,053,500 1,053,500
Incremental cost of maintaining current system UNSG - - - - - - - Cost of future implementation (run to failure) UNSE - - - - - - -
Total "Soft" Costs 3,475,000 (765,000) (765,000) (765,000) (765,000) (841,500) (841,500) 765,000 977,000 977,000 977,000 977,000 1,053,500 1,053,500
4 MW Data Center 4
Other -25% to +75%
Yes
Contingency: Discovery
Implementation CostsCapital
December-12
20.0
O&M Cost Ctr(s)
No Post-Implementation Costs
357YesNo
No
Implementation Totals
CapitalHardware Replacement
Licensing growth
Storage growthUnknown <etc..>
N/A O&M Cost Ctr(s)N/A Annual Maintenance
Rates* Capital Totals
0.0 Long-Term Production SupportN/A Additional FTE(s)
Licensing growthStorage growth
<etc..>
Write-off book value of replaced asset
<etc..>
O&M Totals
Post Implementation Totals
Budget Reductions CommitmentCapital
Hardware lifecycle/failure costs
O&M Cost Ctr(s)Annual Maintenance
Long-term Production Support
Cash Flow Impact Income Statement Impact
Income Statement "Hard" Costs by Company
Reduction in FTE(s)<etc..>
Capital TotalsO&M Totals
Project Budget Tactics & Costs Phase 1 – Existing resources. Phase 2 – Aggressive marketing campaign, ($73,700 minimum for initial launch/up to $200,000 annually).
• Direct mail promotion for 500 with micro-site for prospect qualification ($2000) o 11x17 flat brochure with variable data and personalized URL and automated email reply o Cost includes design, printing, list, micro-site and postage for 500 prospects
• Tucson/TEP overview brochure for 500 DM ($1000) o 11x17 flat brochure (4-panel folded) o Cost includes design, printing and PDF with hyperlinks
• Involta Case Study/Whitepaper for 500 DM ($1000) o 11x17 flat brochure (4-panel folded) o Cost includes design, printing and PDF with hyperlinks
• Datacenter Dynamics Online & Print (http://www.datacenterdynamics.com/) o Option 1 – Cost is $26,500
Online Banner Campaign: • 3 Month online banner campaign
o Oct-Nov-Dec. • 100,000 banner impressions
o 50,000 impression for Leaderboard o 50,000 impression for Mid-Page Unit.
Ads would target specified IP addresses only, to ensure we reach your target market (US/Canada/etc.). Units will appear on the DatacenterDynamics homepage and run of site. Campaigns will be reported on a monthly basis with regards to impressions and click-thru rates.
eNewsletter Sponsorship:
• 3x fully branded eNewsletter campaign to be sent directly to the inboxes of our opted-in global eNewsletter subscribers.
• Exclusive Sponsorship that includes 3 banner units on the eNewsletter o § 2 – Leaderboard Units o § 1 – Mid Page Units.
• Timing o TBD.
Email Campaign: • Fully branded eMarketing campaign to be sent directly to the inboxes of specific
segments of our audience. • Emails can be linked to multiple marketing collaterals – product information,
white papers, video, web pages / landing pages, lead generation, etc.
o Recommended Option 2 – Cost is $37,200 Online Banner Campaign:
• 3 Month online banner campaign o Oct-Nov-Dec.
• 100,000 banner impressions o 50,000 impression for Leaderboard o 50,000 impression for Mid-Page Unit.
Ads would target specified IP addresses only, to ensure we reach your target market (US/Canada/etc.). Units will appear on the DatacenterDynamics homepage and run of site. Campaigns will be reported on a monthly basis with regards to impressions and click-thru rates.
eNewsletter Sponsorship:
• 3x fully branded eNewsletter campaigns to be sent directly to the inboxes of our opted-in global eNewsletter subscribers.
• Exclusive Sponsorship that includes 3 banner units on the eNewsletter o § 2 – Leaderboard Units o § 1 – Mid Page Units.
FOCUS Magazine: • 4 page insert
o 4 page insert – FOCUS MAGAZINE o North America print run o 4 Color o 80# stock o Blown in and polybagged for distribution
Email Campaign:
• Fully branded eMarketing campaign to be sent directly to the inboxes of specific segments of our audience.
• Emails can be linked to multiple marketing collaterals – product information, white papers, video, web pages / landing pages, lead generation, etc.
Event Sponsorship – $25,000 initial; up to $100,000 annually: Sponsorship and speaking opportunities with Datacenter Dynamics at all/any of their upcoming events, which include Dallas, Phoenix, San Francisco and Mexico. These events are great forums for meeting face-to-face with data center decision makers in each/any of these key markets. DCD offers onsite content stream covering DBO, ITO and outsourcing decisions that provide opportunities for partnering companies to engage with these audience and present their products and offerings in 35 minute speaking sessions.
o Designed to generate sales and branding opportunities through a 6x10 exhibition booth and two staff passes to demonstrate and promote product and service offerings.
o 35 minute speaking opportunity during prime time slot. o Access to full event participant list.
• Data Center Map (http://www.datacentermap.com/) o Standalone Option - Geo-targeted banner ads via Gold Sponsor
($7500/Quarter) 50,000 impressions per month
• Top of page/section Banner 728x90 and 300x250
• Resources – .5 FTE from Energy Efficiency • Total Promotion costs for items recommended above
o $73,700 minimum Additional funds may be required for continuation of successful tactics above, event sponsorships, conference speaking engagements, and event hosting. It is recommended that up to $200,000 may be needed to support year 1 and year 2 campaigns. Financial Requirements – System Upgrades The ‘Empowerment Zones’ represent a cost-savings to TEP/UNS by identifying the optimal locations for data centers while minimizing any system upgrades. The breakeven analysis shows that it is reasonable to expect a 1:1 ratio of $1 million in upgrades and internal costs for every 1MW of new load. There are multiple variables to consider whit each prospect, so exact costs can be computed for each prospect to identify true costs.
Risk Analysis The following variables may impact parts or the overall success of the project, however these items can be addressed in promotional messages or with executive commitments. The greatest risk is providing competitive, or more favorable, incentives to data center companies who wish to relocate to Tucson. External and Internal Risks External Risks
• Lack of awareness for Tucson as a data center destination. • Highly competitive market for data center growth.
o Phoenix and Las Vegas are very aggressive and sophisticated with this market. • Political realities of state, county and city not reaching consensus to support data center
acquisition to Tucson. • Limited/restricted incentives compared to other markets. • Limited fiber carriers (3). • Limited total number of facilities currently available for lease or build that meet specifications
o Nine total available as of June 28th, 2012. • Data center could select location outside of established ‘Empowerment Zones.’
o TEP/UNS would have to encumber unplanned costs and negotiate with data centers. • Pitch and close process is lengthy and will not happen overnight; needs to be a long-term
strategy. • Involta may feel slighted if TEP/UNS does not help drive business their way before it launches a
campaign to attract competition to the market. • Competitive Reaction.
o Natural part of business process or direct competition. Caution: May want to collaborate with APS and SRP on Legislation regarding
State incentives. Internal Risks
• Commitment of labor and financial resources to drive acquisition of data centers. • Commitment of long-term strategy to secure data centers in Tucson; patience needed. • Ability to expedite existing system upgrades or other projects within ‘Empowerment Zones.’
Recommendations The Involta data center project has been a great learning experience for TEP/UNS. While it may take 12-18-or even 24 months to secure the next data center, we have momentum and confidence to move forward. Data center operations present a lucrative client to any Utility and community, especially the nine key markets previously discussed. Based on the external research and internal analysis, TEP/UNS can compete and be successful in this space. The strategy to create ‘Empowerment Zones’ will limit internal costs and upgrades while demonstrating a solid understanding of data center operations/needs to prospects. The potential new revenue streams of approximately $1 million per MW illustrate that we can commit reasonable financial resources to promote Tucson as a viable choice while attracting significant long-term revenue. The following recommendations are made to move forward with this project:
• Phase I – On-going commitment of using internal task force to build the support to drive data centers to the TEP service territory.
• Phase II - Commit necessary resources to aggressively support data center strategy. o Up to $200,000 annually in promotion, sponsorship and industry events for year 1 and
2. Represents 5% of potential base profit from an operational 4MW data center.
o Secure internal staff at .5 FTE to support program . • Work hand-in-hand with Involta to demonstrate sincere relationship and commitment to
expedite their operations to full capacity (3MW). o Benchmark process to create case study for industry publication. o Create industry advocates through Involta executive leadership.
• Explore additional incentives through the Arizona Commerce Authority and TREO. • Work to progress data center house bill. • Formalize internal and external data center team, then identify core working group.
o Host kick-off meeting in September or early October. • Monitor data center industry for trends, and keep pulse on nine core data center markets.
o Monitor Phoenix closely as energy demand exceeds energy capacity, and competition for tenant space.
o Continued interest from enterprise users in sourcing third-party COLO options. Attract excess to Involta.
• Identify relevant green energy programs and energy-efficient opportunities for data centers. o Position TEP/UNS as expert in this arena.
Appendix Data Center Dynamics Market Overview - Growth 2011-2012 …………………………………………………………. 84 Market Profiles – Jones Lang LaSalle …………………………………………………………………………………………………. 86 Chicago Dallas/Ft. Worth Los Angeles New York/New Jersey North Carolina Pacific Northwest Phoenix Silicon Valley Virginia Overview of National Economic Development Programs offered by Utilities …………………………………….. 95 3 Tables total Overview of National Data Center Incentives offered by Utilities ……………………………………………………… 97 4 Tables total Empowerment Zone Service Conditions …………………………………………………………………………………………… 99 3 Tables total Officer Presentation …………………………………………………………………………………………………………………………. 100
Data Center Dynamics Market Overview See: http://www.datacenterdynamics.com/research/market-growth-2011-2012
Market Profile – Jones Lang LaSalle: Chicago
Market Profile – Jones Lang LaSalle: Dallas/Ft. Worth
Market Profile – Jones Lang LaSalle: Los Angeles
Market Profile – Jones Lang LaSalle: New York/New Jersey
Market Profile – Jones Lang LaSalle: North Carolina
Market Profile – Jones Lang LaSalle: Pacific Northwest
Market Profile – Jones Lang LaSalle: Phoenix
Market Profile – Jones Lang LaSalle: Silicon Valley
Market Profile – Jones Lang LaSalle: Virginia
Overview of National Economic Development Programs offered by Utilities
Overview of National Economic Development Programs offered by Utilities, Continued
Overview of National Data Center Incentives offered by Utilities
Overview of National Data Center Incentives offered by Utilities, Continued
Empowerment Zones - Current Service Conditions
Empowerment Zones - Service Conditions with New Kino 138kV Substation
Empowerment Zones - Service Conditions with DMP Rebuild
Data Centers
Roberto GuevaraKelly HansonCraig JonesCraig JonesLarry Lucero
ExecutiveSummarySummary
Market Small, growing, competitive
TEP’s competitive advantage• Price and reliability / Quick move in• Excess capacity / LocationExcess capacity / Location• Green Data Centers / Local Task Force
Operationally Existing resources to build an economicf d ti t tt t d t tfoundation to attract data centers.
Risks Incentives / “under dog” / coordination ofbusiness communityy
Limited financial investment For every 1MW of loadthe break even capital investment is $1M.
Agendag
• Background
• Financials
• Market
P d t• Product
• Organization Innovation
• Strategy Attract additional customers througheconomic development.
All,
Thi d lik AZThis sounds like AZexcept we don’t have gambling. See first part of the article onpa o e a c e ohow NV is attracting data centers. We should be eating their lunch on data centerslunch on data centerssince we have lower rates than any utility in the SW ….
Hutch
Internal Task Force
Transmission and DistributionR b t G
EngineeringDonovan Sandoval Roberto Guevara
Chris LindseyMike KaiserAnna BustamanteEil Di k
Donovan SandovalJeremiah RiosChris LindseyITM St ll Eileen Dickerson
TomMillsCustomer Programs and ServicesLarry LuceroA M D ld
Morgan StollTyler KilianPricing/FinanceCraig JonesS Si Art McDonald
John BrownSteven HutsonBarbara BeyerD C
Steve SimsNick GilbertLandCheryl Eamick (Hall)
Dave CoutureArt FregosoJoey CruzKelly Hanson
Steven EddyRenewable and Energy EfficiencyTed BurhansMike Baruch
Involta
$15 million, Tier III, 40,000 square foot, co location
data center in Tucson
4.4MW = $2M in annual sales and
$900,000 in annual margin
Customer ExperienceLehrman (CEO of Involta) also praised the efforts of Tucson ElectricPower (TEP) for their project assistance. “Tucson Electric Power was avaluable strategic partner on the project, assisting with the siteselection technical requirements and introducing us to area business
Customer Experience
selection, technical requirements and introducing us to area businessleaders. The team at TEP understood our objectives and helped createa business opportunity that will benefit economic development for theentire community. Overall, we could not be more pleased with theattractive business agreement, rate structure and power infrastructurethat TEP offered to bring our new facility to Tucson,” said Lehrman.
Financials
Annual Avg. ApproximatePeak LoadDemand(kW)
AnnualRevenue
AnnualMargin
¢/kWh (allcharges except
taxes)
BreakevenCapital
Investment* IRR NPVRate 85N 1MW $456,500 $204,000 6.99 1,113,000 10% 28,945
2MW $908,500 $403,500 6.88 2,226,000 10% 34,727
Rate 90N 3MW $1,329,000 $657,000 6.97 3,604,000 10% 75,3434MW $1,662,000 $765,000 6.49 4,240,000 9% 47,763
$ $5MW $2,074,500 $954,000 6.43 5,300,000 9% 48,12310MW $4,143,000 $1,901,500 6.32 10,600,000 9% 62,78820MW $8,280,500 $3,707,500 6.27 20,140,000 10% 606,487
Notes:1.) Annual Revenue does not include DSM and REST.2.) Annual Avg. ¢/kWh includes DSM, REST & PPFAC.3.) Estimates above based on 90% LF, 5% Demand Spread Per Month, 5.5 Mil PPFAC, 1.249 Mill DSM & Primary Metering.
*Capital investment breakeven analysis does not include rate recovery of capital investment.
Data Centers areeverywhere, butthey’re most
concentrated in fourU.S. states and
Canadian provinces
Size Comparisonp
SServerconsolidationbrings more
computing intocomputing intothe cloud
Total annual spending on data centers will grow from$87 billion in 2010 to $126 billion in 2015
Industry Colocation Data Center Facts (CBRE)
UNS IT System Growth
2006 2011
40 TB enterprise storage 466 TB enterprise storage66% avg annual growth
174 servers 551 servers
0 virtual PCs
27% avg annual growth
204 virtual PCs0 virtual PCs 204 virtual PCs62% avg annual growth
Breakdown of Energyli d i lDelivered to a TypicalData Center
Data center related emissions will more than triple by 2020
Data CenterNeedsNeeds
Access to power today and in the future• Low cost energygy• High reliability• Access to fiber network• 12 18 month move in window
Proximity to risk• No natural disasters• Distance from flight paths/freeway/rail
Cooling and climate• Green Data Centers
Business Community• Innovators• Entrepreneurial
/• State/local support and incentives
Existing Rates
$0.1000
$0.1200
Company Type Title $ per kwh
Rocky Mountain Power TOU LGS 0.0578$
Arizona Public Service TOU E 35 0.0621$
Arizona Public Service Standard E 34 0.0662$
T El t i P TOU LLP 90N 0 0664$
$0 0200
$0.0400
$0.0600
$0.0800Tucson Electric Power TOU LLP 90N 0.0664$
Nevada Power Company TOU LGS 3 0.0665$
Salt River Project TOU E 63 0.0697$
Tucson Electric Power Standard LLP 14 0.0699$
UniSource Energy Services Standard LPS 0.0815$
$
$0.0200UniSource Energy Services Standard LPS 0.0815$
Colorado Public Services TOU PG 0.0861$
Public Service NewMexico Standard IPS 0.0864$
Los Angeles DWP Standard A2 0.1028$
El Paso Electric Company TOU LPS 0.1130$
Chicago Dallas NY NJ North Carolina Pacific NW Silicon Valley VirginiaPower Costs 6 7 12 4.5 4.6 10 5.5
Proposed Rates (Fall 2013)
Company Type Title $ per kwh
$0.0800
$0.1000
$0.1200
Company Type Title $ per kwh
Rocky Mountain Power TOU LGS 0.0578$
Arizona Public Service TOU E 35 0.0621$
Tucson Electric Power TOU LLP 90N 0.0658$
Arizona Public Service Standard E 34 0.0662$
$0.0200
$0.0400
$0.0600
$
Nevada Power Company TOU LGS 3 0.0665$
Salt River Project TOU E 63 0.0697$
Tucson Electric Power Standard LLP 14 0.0741$
UniSource Energy Services Standard LPS 0.0815$
$Colorado Public Service TOU PG 0.0861$
Public Service NewMexico Standard IPS 0.0864$
Los Angeles DWP Standard A2 0.1028$
El Paso Electric Company TOU LPS 0.1130$
Rate Incentive for LGS Customers:For the upcoming rate case, TEP has developed LGS rate structures that benefit high loadf t t h d t tfactor customers such as data centers.
EmpowermentZonesZones
Siting Criteria:
Local zoning regulations
Available properties (land and existing)
Away from flight paths (TIA and DM)
Available fiber telecommunications
Dual service feeds or alternatives
System capacitySystem capacity
System reliability
Locations
Area 4:Area 4:Area 4:Area 4:DeMossDeMoss PetriePetrie
Area 2: Area 2: TucsonTucson Area 3:Area 3:TucsonTucson
Business ParkBusiness ParkArea 3:Area 3:
ButterfieldButterfield
Area 1:Area 1:Tucson InternationalTucson International Area 5:Area 5:
UA UA Science and Tech ParkScience and Tech Park
Green Data Centers
New Construction• Design Assistance Provide design assistance to exceed building code standardsDesign Assistance Provide design assistance to exceed building code standards.• Building Performance Provide incentives based on installed energy efficient measures.
C&I Comprehensive (Large Business)• Incentives paid for lighting equipment and controls air conditioning and heat pump equipmentIncentives paid for lighting equipment and controls, air conditioning and heat pump equipment(“HVAC”), motors, air compressors, refrigeration equipment, and custom efficiency measures.
Bid for Efficiency (Dependent on ACC approval)• Bundling of measures to maximize savings (lighting HVAC refrigeration etc )Bundling of measures to maximize savings (lighting, HVAC, refrigeration, etc.)
Bright Tucson Community Solar• Purchase Blocks of energy produced by utility scale solar farms.
Bright Roofs• Leasing of roof space to TEP , TEP will pay the customer an annual lease payment.
Data Center Incentives
Oregon• Sales of server equipment that will be installed in a data centerSales of server equipment that will be installed in a data center• Labor and service charges for installing servers, and to sales ofpower infrastructure equipment• Sales of power infrastructure• Labor and services for construction of power infrastructureLabor and services for construction of power infrastructure
Wyoming• Sales tax and use tax exemptions to data centers for equipmentpurchases of more than $2 million if the center has also made apurchases of more than $2 million if the center has also made a$5 million capital investment in the state.
New York (Greenest Legislation)• Offering up to $5 million to upgrade existing data centers to be• Offering up to $5 million to upgrade existing data centers to bemore energy efficient.
• Physical plant type upgrades, virtualization, applicationmanagement, core server upgrades, demonstratedimprovement in the energy efficiency of the data centerimprovement in the energy efficiency of the data center.
Arizona IncentivesArizona Commerce Authority
• Quality Jobs Tax Credit – state corporate income tax credits up to $9,000/job.• Arizona Job Training Program – up to $8 000 per employee to companies creating• Arizona Job Training Program up to $8,000 per employee to companies creating
permanent new jobs or training existing workers within the state.• Registered Apprenticeship / Customized Training• Real time industry intelligence / Outplacement Services / Virtual Recruitment
HB2787Sales and use tax exemption for computer server equipment.Construction sales tax exemption for:
Construction of qualified data center / Installation of server equipmentConstruction of qualified data center / Installation of server equipmentConstruction of power infrastructure (e.g. substation)Reduction of real and personal property tax by 75% for 5 years.
TEP Line Extension :TEP Line Extension :Large General Service (LGS)/Large Light & Power (LLP) customer can waive muchof the cost of the first 14kV line extension
TEP Energy Efficiency Incentives:TEP Energy Efficiency Incentives:Existing commercial incentives available with current EE plan (if funded.)
TargetMarketMarket
Primary Market• 4 to 10 MW4 to 10 MW• Co location and enterprise
• Phoenix, Las Vegas, Texas, Southern California,Mexico
• Disaster Recover (Involta) and Primary (TEP)Disaster Recover (Involta) and Primary (TEP)
Messages• Low energy costs• High reliabilityHigh reliability• Speed to market
• Empowerment Zones• Local government, leaders support
• External data center task forceExternal data center task force• Green Data Center focus• System Capacity• Service Levels
Involta – December 2012Involta – December 2012
Strategy – Phase I
• Sales– Conferences events industry organizations site locatorsConferences, events, industry organizations, site locators
– Coordinating with Internal Task force to service any prospects
• MarketingWeb content / Involta video case study / Online advertising / Email electronic– Web content / Involta video case study / Online advertising / Email electronicbrochures and links
• Economic DevelopmentArizona Commerce Authority / TREO / Tucson Chamber of Commerce / City of– Arizona Commerce Authority / TREO / Tucson Chamber of Commerce / City ofTucson / Pima County / Phoenix organizations
• External Task Force– Commercial Real Estate / Fiber providers– Commercial Real Estate / Fiber providers
• Government Affairs– Revive HB2787 (partner with APS/SRP)
Existing resources