Last week, Amazon posted one of its cloud division’s best-ever quarters. The tech giant told investors that AWS’s operating margin jumped 6.5 percentage points from a year earlier.
The straightforward read is that cloud demand is outrunning cost. About 1.3 of those 6.5 points, though, came from a single accounting line: a gain on energy contracts for electricity Amazon may never actually use. Amazon’s own guidance for next quarter assumes that number goes back to zero.
The $551-million gain didn’t come from Amazon buying and selling power. It’s what shows up on the books when a company holds something like an option on roughly 270 million megawatt-hours of electricity, weighted toward delivery nine or more years out. This quarter, the expected future price of that power moved enough in Amazon’s favor to be really worth something on paper.
It works like this: Amazon signs long-term power contracts, some running 20 years, to secure electricity for data centers it hasn’t finished building. Normally, buying power a company intends to use doesn’t normally require restating its value every quarter. But Amazon’s 10-Q says the company “may make or receive net cash payments, rather than take delivery of electricity, when our consumption is less than committed quantities due to operational variability.” Because that possibility exists, the contracts get treated more like a running bet on future power prices than an ordinary purchase. Their value gets recalculated every quarter, whether that bet is currently paying off or not.
