Power is expensive as well (it's usually the big expense), but there are a couple of reasons you might opt for more expensive areas for datacenters, particularly if you're selling hosting.
1) Many companies want facilities that are physically accessible to them, it's very difficult to sell to these companies if they'll have to travel 900 miles to do any work and don't trust the provider to do the work for them, or simply don't want to pay for it. Given the target market for hosting, Fremont's a pretty good option.
2) Depending on the service, a datacenter is only as useful as the transit providers you can access. We do all our hosting at a Chicago facility where we can get a cross connect to any bandwidth provider you can think of. Our services are also targeted at end users, so we're better off being centrally located and using providers with extensive peering agreements (less latency, woo!). If we had serious computation requirements rather than delivery requirements, one of those spiff Icelandic datacenters might be a good choice. I'm unsure of what Google and others stick in their rural datacenters, but I doubt it's anything that slows down your experience.