Bargain electric rates are attracting digital currency entrepreneurs, but three public utilities districts are reassessing how they deal with the surging demand, and whether they should even try to keep up. Residential customers, meanwhile, worry that their rates will go up.
Public hearings for rural electric utilities are rarely sellout events. But the crowd that showed up in Wenatchee two weeks ago for a hearing about Bitcoin mining in Chelan County was so large that utility staff had to open a second room with a video feed for the overflow.
The turnout wasn’t surprising. Chelan County, along with neighboring Douglas and Grant counties, has been at the center of the U.S. Bitcoin boom since 2012, when the region’s ultracheap hydropower began attracting cryptocurrency “miners.”
These entrepreneurs earn Bitcoin by solving increasingly complicated mathematical problems established by the shadowy creators of the digital currency. The process, which the industry calls mining, involves trillions of computer calculations and sucks up huge amounts of power.
As a result, an area famous for apples, wheat and conservative politics has been transformed into a kind of cyber-boomtown, with Bitcoin mining operations that range from large-scale, state-of-the-art warehouses to repurposed cargo containers to backyard sheds. By the end of this year, according to some estimates, the Mid-Columbia Basin could account for as much as 30 percent of the global output of new Bitcoin and large shares of other digital currencies, such as Litecoin and Ethereum.
But as in any boomtown, success has come at a cost. As the cryptocurrency industry morphs into larger, more energy-intensive operations, the Basin’s three public utilities districts (PUDs) are reassessing how they deal with it, and whether they can — or should even try to — keep up.
The sector’s recent growth spurt poses “a very different kind of problem than anything we have addressed before,” Steve Wright, Chelan County PUD general manager, told the crowd at the May 14 hearing. Determining whether the PUD can handle the growth, Wright said, has “required a whole new way of thinking.”
Overwhelming “gold rush”
In a normal year, demand for electric power in Chelan County grows by perhaps 4 megawatts — enough for around 2,250 homes — as new residents arrive and as businesses start or expand. But since January 2017, as Bitcoin enthusiasts bid up the price of the currency, eager miners have requested a staggering 210 megawatts for mines they want to build in Chelan County. That’s nearly as much as the county and its 73,000 residents were already using. And because it is a public utility, the PUD staff is obligated to consider every request.
The scale of some new requests is mind-boggling. Until recently, the largest mines in Chelan County used five megawatts or less. In the past six months, by contrast, miners have requested loads of 50 megawatts and, in several cases, 100 megawatts. By comparison, a fruit warehouse uses around 2.5 megawatts.
But it’s not simply the scale of requests that is perplexing utility staff. Many would-be miners have no understanding of how large power purchases work. In one case this winter, miners from China landed their private jet at the local airport, drove a rental car to the visitor center at the Rocky Reach Dam, just north of Wenatchee, and, according to Chelan County PUD officials, politely asked to see the “dam master because we want to buy some electricity.”
Bitcoin fever has created other, smaller-scale problems for the utility. Three times a week, on average, utility crews in Chelan County discover unpermitted home miners running computer servers far too large for the electrical grids of residential neighborhoods. In one instance last year, the transformer outside a bootleg miner’s home overheated and touched off a grass fire, Chelan County PUD officials say.
In other cases, utility crews responding to unusual spikes in power usage have found racks of remotely controlled servers whirring away in empty apartments. Worse, when the utility began shutting off power to these so-called “rogue operators” earlier this year, some of them became so belligerent that the utility is installing security cameras and bulletproof glass at its downtown Wenatchee headquarters.
By February, the Bitcoin “gold rush,” as Wright calls it, had become so overwhelming that Chelan County PUD declared a three-month moratorium on new mines to determine whether the county can absorb even a fraction of that demand. But answering that question was more complex than the utility anticipated — and at the recent hearing, the commission voted to extend the freeze another three months.
At the root of the dilemma is a mismatch in business models. Public utilities are typically managed with the expectation of incremental growth, decades-long investments and a community-oriented bottom line — what Wright defines as delivering “the best value, for the most people, for the longest period of time.”
Bitcoin mining, by contrast, is characterized by soaring demand, massive price volatility, and an investment time frame measured in years or even months.
What Chelan County PUD must now decide is whether these two models are compatible. Wright was a public utility veteran who ran the Bonneville Power Administration before coming to Chelan County. He told the hearing that, to a utility manager, the massive surge in new mining demand “looks like lemons.” The utility’s task is to see whether there’s “a way to turn it into lemonade for us” by figuring out what the miners should pay.
For would-be miners and investors eager to connect their servers, each week of moratorium represents lost opportunity. But the utility also faces pressure from the community, which remains deeply divided over the presence of cryptocurrency miners.
At May’s hearing, perhaps half of the audience members who spoke were deeply skeptical about Bitcoin mining and concerned that the county not encourage further growth. One resident called mining “cyber-gambling.” Another likened miners to “locusts” who were simply looking for “the next field to do their damage.”
Yet others spoke of cryptocurrency mining as the best thing that has come to the Basin in years, not only as a path to personal wealth (many commenters were miners or prospective miners) but also as way to energize a region that has suffered major economic setbacks.
Hanging over May’s hearing was the fate of the Basin’s last big electrical customer: the Alcoa aluminum smelter, which employed more than 400 workers before it was idled several years ago thanks to competition from cheaper Chinese imports. Cryptocurrency mining won’t replace all those jobs — the process is heavily automated. But backers insist that a local mining sector, if allowed to grow, will attract other ancillary services, such as software development, and ultimately provide the Basin with some of the tech-fueled prosperity that Seattle has enjoyed.
“Yes, we’re the apple capital,” Markham Heard, a safety and environmental consultant who works with the data industry, told commissioners. “But what’s our next step?”
A regional trend
Chelan County isn’t the only place where that question is being asked. Across the Columbia River in Douglas County, the cyber-mining sector has expanded so rapidly that the PUD’s existing distribution system is tapped out. For example, a nearly new 84-megawatt substation with enough capacity to handle 30 to 50 years of normal population growth has already been fully subscribed.
In neighboring Grant County, meanwhile, which has more surplus power available, miners have requested about 1,700 megawatts, or roughly three times what the county’s residents, commercial users and farmers consume.
All told, the three PUDs in the mid-Columbia Basin are considering miners’ requests for well over 2,000 megawatts of power — equal to roughly two-thirds of the total hydropower generated by the Basin’s five hydroelectric dams. And while every request won’t become a contract, the rapid demand is forcing officials at all three public utilities to rethink how they sell power.
The biggest issue, of course, is power rates. Currently, residents in Chelan County pay around 3 cents per kilowatt-hour, or about a third what Seattleites pay and around one fifth of the national average. Rates in Douglas and Grants are in that same ballpark.
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Those bargain rates are possible largely because the Basin’s five dams generate around six times what the region can use locally. Much of the surplus is exported, at premium prices, to outside buyers such as Puget Sound Energy, and those outside sales subsidize local rates.
But if the utilities are selling more of their power to local Bitcoin miners, they’re exporting less power at those premium prices, which makes it harder to keep local rates low. Further, because much of the surplus is currently committed in long-term contracts, supplying miners with all the megawatts they want might require the utilities do something virtually unprecedented: buy power on the open market, at prices far above what locals have come to expect.
Add to this the many millions of dollars the utilities would need to invest in new substations, transmission lines, and other infrastructure, and suddenly, it becomes conceivable that this new industry might signal the end to decades of cheap power.
Jim Renna, a local contractor and businessman, told the commission that the big fear among locals is the utility will soon be “subsidizing [miners] by us having higher rates.”
These aren’t new concerns. The three PUDs have been experimenting with policies that force miners to shoulder these extra costs and risks, while insulating ratepayers and the utilities themselves. Chelan County, for example, created a special rate for miners and other so-called “high density loads,” or HDLs, back in 2015, that was effectively twice the residential rate.
Douglas County, meanwhile, began requiring miners to pay up front for any new infrastructure. Grant County PUD is establishing special rates applied to companies “whose primary revenue stream is evolving and unproven” and whose product is “vulnerable to extreme value fluctuations.”
The utilities are attempting to strike a delicate balance. By creating policies that reflect the full costs and risks of cryptocurrency mining, the utilities believe they can protect regular ratepayers while weeding out prospective miners who are unable or unwilling to make a long-term commitment to the Basin — and whose power requests are swamping utilities’ normal operations.
As Wright put it, by the end of the moratorium, the utility expects to be able to tell miners exactly what it will cost to mine in Chelan County. If miners can accept those terms, Wright says, the PUD will move forward with investments needed to handle crypto-mining’s much larger next phase. But, says Wright, “if it’s not of interest, then we can stop and go back to doing our day jobs.”
How the three utilities decide to treat this new industry will have impacts that go well beyond the Mid-Columbia Basin. Prospective miners elsewhere will be tracking the decisions intently to see whether the Basin is still worth coming to, or whether they should go instead to other cheap-power places, such as Iceland or Quebec.
And, in all likelihood, utility officials in those cheap power regions will be paying attention, too. Even now, Wright says, County PUD’s staff receive calls from their counterparts in communities where mining is just getting started and where there is little certainty about how to manage the boom. “So we are getting a chance here to break new ground,” says Wright.
That’s one way to put it. Or as Cashmere resident Jeanne Poirier aptly observed at May’s hearing, “the world is probably watching this situation in our little tiny county.”