PUD Industrial Policy protects low rates for residents and businesses, Does NOT hurt economic growth

Beijing’s Bitmain and Allrise Capital’s bitcoin-mining joint venture LLC, Cascade Digital Mining, recently began negotiating with our PUD for a new electrical service agreement to replace their current contract, which expires this September. One of the points of contention that Bitmain/Allrise will likely seek to publicize is our PUD’s current policy governing how it provides service to industrial customers.
 
The key points of this report are:

1. Our PUD’s current policy for industrial customers protects the residents and businesses of Pend Oreille County from paying higher electricity rates to subsidize energy-intensive, high-risk, short-horizon corporations that are unable or unwilling to make long-term investments in the county.
2. Our PUD’s current policy for industrial customers does NOT penalize large, financially healthy corporations that are able and willing to make long-term commitments in Pend Oreille County.
3. Our PUD’s current policy for industrial customers does NOT limit economic growth.

 
Our PUD’s current policy for industrial customers effectively creates two tiers of service for industrial customers. The first tier is industrial customers requiring less than 2 megawatts of electricity. Our PUD has sufficient electricity from its share of Seattle Power and Light’s Boundary Dam and its block of power from the Bonneville Power Administration to serve these customers with low-cost, clean energy from its own resources. Except for Beijing Bitmain’s/Allrise Capital’s Bitcoin mining facility at the former PNC Papermill in Usk, all other industrial customers in the county fall into this category.
 
For a more detailed explanation of how our PUD gets its electricity, read: Box Canyon - PROTECT PEND OREILLE
 
The second tier is for industrial customers requiring more than 2 megawatts of electricity. The 100-megawatt Bitmain/Allrise bitcoin facility is the only customer in this category. This facility requires more than three times the amount of electricity as the rest of our PUD’s 9,600 industrial, commercial, and residential customers combined. This amount of electricity far exceeds our PUD’s resources, so to meet the needs of Beijing’s voracious Bitcoin Mine, our PUD must purchase large amounts of electricity on the Mid-Columbia Hub market. Over the last year the price of this “market” electricity has been significantly higher than the cost of our PUD’s own electricity.
 
Our PUD’s current policy for industrial customers requires Bitmain/Allrise to be solely responsible for paying for the additional cost of this market power. If this policy did not exist or is changed, the responsibility for paying the additional costs for Beijing’s Bitcoin Mining would be shifted onto the PUD’s other customers. Because the amount of electricity required is so large, this cost-sharing would result in substantially higher power bills for the county’s residents and businesses. Fortunately, as a citizen-owned public corporation, our PUD has consistently recognized its primary responsibility is the interest and well-being of its resident owners.
 
Local executives from Bitmain/Allrise and their surrogates have argued that our PUD’s two-tiered policy limits economic growth in the county. This claim is false. There are many reasons why, but there are two most relevant to this report.
 
First, the primary reason why Bitmain/Allrise have to pay higher rates is that they do not want and cannot afford a long-term financial commitment to our PUD and to our county. To understand why Bitmain/Allrise do not want a long-term contract for the Bitcoin mining business, read our report on the economics of Bitcoin mining in Pend Oreille County here: POC Cryptonomics - PROTECT PEND OREILLE
 
After Bitmain/Allrise failed a due-diligence review of their finances conducted by the prospective power provider, Brookfield Renewable Inc., last fall, they were offered a longer-term power contract at lower power rates by our PUD. They turned it down. Instead, Bitmain/Allrise asked for a short-term contract under which they would purchase power monthly. This contract, which they requested instead of a longer-term, fixed contract, exposed them to higher market prices. Even this short-term contract was a financial challenge for them to meet. In an email from Mr. Wood to Mr. Willenbrock dated June 27, 2022, Mr. Wood complained that “securing $18 million in Performance Assurance is a significant financial undertaking….”
 
Last October, our PUD again asked Allrise’s CEO if they could afford a long-term contract. General Manager Collin Willenbrock wrote to Merkle Standard CEO Steve Wood, “[On] September 26 2022, I met with you and Mr. Trubchik [Allrise Capital’s CEO] at the District offices to discuss your plea to deviate from the requirements of the ESA just two weeks after execution because apparently your models were inaccurate. During that meeting… I specifically asked if Allrise would even have the ability to collateralize a deal of that magnitude and Mr. Trubchik indicated that he didn’t believe so.”
 
The key point here is that an established, financial healthy corporation with a longer-term business plan would be able to secure a long-term power contract for large quantities of CETA-compliant with our PUD at rates comparable to our PUD’s rate for smaller industrial customers. Bitmain/Allrise is not interested in this type of contract because their business plan is short-term, and they do not have the financials or credit worthiness to get such a contract.
 
So, our PUD’s two-tier policy for industrial customers does not prevent lower-risk, financially healthy industrial customers interested in a long-term commitment from accessing clean electricity at competitive prices. That is precisely the type of businesses we want to move into Pend Oreille County.
 
Second, contrary to the claims of Beijing’s Bitmain local representatives and surrogates, our PUD’s policy actually promotes economic growth. By keeping rates for its customers low, the policy incentivizes small- and mid-sized businesses seeking low-cost, clean power to come to Pend Oreille County (something that would change if the residents of the county had to subsidize industrial bitcoin mining).
 
It is also important to remember that an industrial customer can do a lot with 2 megawatts of power. Data from the US Energy Information Administration and the Census Bureau shows that these other industrial customers use less than 8 percent of the electricity but provide more than 20 times more jobs. You can create a lot of jobs with 2 megawatts of electricity. And our PUD can fully support at least 2 percent annual growth through the next two decades. This is many times higher than our historical annual growth rate. Our PUD has the electricity to resource many more Vaagen Lumber-sized enterprises. (NOTE: the limits on our county’s transmission lines and substations maxed out by the many crypto mining companies operating in the county is a more significant limitation on growth than limits on our PUD’s electricity resources).