Allrise/Bitmain Lobbyist's Letter to the Legislature Earns Many, Many "Pinocchio's"
The following letter was submitted on behalf of Allrise Capital and Bitmain by their lobbyist Tim Zenk to State Representative Beth Doglio who represents Washington’s 22nd Legislative District (Olympia) and who is a sponsor of HB1416 (an expansion of the Clean Energy Transformation Act). Allrise Capital and Bitmain are seeking to exempt their 100MW crypto mining operation in Pend Oreille County from requirement in HB1416 that would require them to purchase clean, renewable energy.
Mr. Zenk is a lobbyist and consultant based in Seattle, but he is no stranger to Pend Oreille County. He has a close relationship with POC Commissioner John Gentle and his spouse, Kim. In 2021, Zenk advised Kim Gentle, Russ Pelleburg, and Monty Stahl on a scheme to take control of the PUD’s Pine Street Substation in Newport and use it to provide power to large crypto mining facility to be located on Stahl’s property outside of Newport. The scheme would have resulted in substantial financial damages to the PUD’s citizen-owners and to the City of Newport.
The letter contains several “Pinocchio” comments. These comments are highlighted in red. We have added explanations of these “Pinocchio’s” following each paragraph in italics.
Rep Doglio,
Thank you very much for your time on Friday I really appreciate it.
Attached is an amendment concept we came up with to address the unique situation Pend Oreille County finds itself. The county is now hamstrung without any industrial CETA compliant power because the POPUD under long term agreement sold all of the Box Canyon Dam to Shell ltd and Clark County PUD. The dam is 35 miles away from the mill. Even worse, the POPUD made the long-term sale of power to Clark PUD while knowing the paper mill had requested it would need local generation resources in order to consider a restart of the mill.
Three Pinocchios in this first paragraph:
1) The PUD has plenty of CETA compliant power for current and future industrial customers. The PUD produces enough CETA-compliant power to power another ten or so Vaagen Lumber-sized customers. The reason the PUD cannot supply Allrise/Bitmain with CETA-Compliant power is that Allrise/Bitmain currently uses 14 times the amount of the electricity as the rest of the PUD’s industrial customers combined and more than three times more than the rest of the PUD’s 9,500 industrial, commercial, and residential customers combined. Furthermore even if the PUD committed its total available native hydro-generation to Allrise/Bitmain, they would only be able to fill less than one-third of the electricity Allrise/Bitmain requires.
2) Allrise/Bitmain NEVER seriously requested to enter into a contract with the PUD for output of the Box Canyon Dam. PUD documents obtained through public records request show that only a week before the PUD Commissioners approved the future contract with Clark County PUD the PUD asked Allrise Capital’s CEO/CFO/Secretary, Mikhail Trubchik, if the Allrise/Bitmain could afford to contract with the PUD for the output of Box Canyon Dam. Mr. Trubchik positively affirmed that they could not afford a contract for Box Canyon Dam power. In a letter to Steven Wood, the PUD’s GM stated: “[On] September 26 2022, I met with you and Mr. Trubchik 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.”
3) Access to local generation resources is not the limiting factor preventing restart of the paper mill. Aside from its unprofitability, lack of business case, and the lack of enough money for the $100+ million needed to restart the mill, the existing power infrastructure supporting the former PNC mill site is insufficient to support both a 100MW Bitcoin Mining facility and an 85 MW paper mill. Upgrading the infrastructure would require millions and take years. Furthermore, as mentioned above, local generation could support no more than 30 percent of the power required.
Ponderay Newsprint History:
Since 2005 Ponderay Newsprint paid historically higher than average power rates to subsidize the residential rates and to pay for the Box Canyon Dam. In 2020, Ponderay Newsprint goes bankrupt due to a variety of factors, including foreign competition.
1) Box Canyon power was price competitive when PNC entered into a long-term contract for Box Canyon power. When market conditions changed, PNC breached its contract with the PUD not only in 2020 but a few years earlier as well, resulting in the PUD successfully litigating PNC.
2) PNC payments did not directly subsidize residential ratepayers.
Allrise Capital Purchases Mill Out of Bankruptcy:
Allrise Capital responded to a bankruptcy auction to purchase the mill and renamed the paper mill to Ponderay Industries, LLC. Allrise also formed a new company to manage the data center located on the campus of the paper mill. Allrise’s number one priority is to restart the paper mill and bring back the 150 jobs to Usk Washington, if it can sustain itself for the long-term. This mill has received a term sheet for newsprint from a large player in the media industry to turn newsprint the minute they can restart. They have preserved the mill by hiring back the mill team of 20 to maintain the machine so that it can be preserved and returned to operations. They are planning investments to make sustainable packaging products of higher value when the Newsprint markets aren’t as strong. The company has invested about $4 million to maintain the paper machine since the purchase.
1) The first point here isn’t really a Pinocchio, but it is worth pointing out that the primary reason why the paper mill couldn’t be restarted (even if there was a business case and enough money) is that Allrise/Bitmain set up a 100 MW crypto mining facility on the site.
2) Ponderay Industries LLC actually has no employees. (ZERO). In a recent grant application to the state Department of Commerce, Ponderay Industries acknowledged that they had no employees. They did point out that Merkle Standard LLC, the shell company serving as the public face of Allrise/Bitmain Bitcoin mining operation, has a total of 6 employees. These six are: Steven Wood (former CFO of PNC), Monty Stahl, Todd Behrend (former PNC employee), Russ Pelleburg (former Newport City Manager), Laura Verity (former PNC employee), and Ty (sorry Ty, I don’t know your last name).
So where do the other 14 employees come from? Two groups. First, Bitmain directly employees several full-time employees to operate the Bitcoin mining machines (which are owned by Bitmain). Second, Bitmain hired a group of part-time employees to help install the Bitcoin mining machines in Usk and at another facility in Spartanburg, SC. These part-timers apparently have not been employed since last September, but they have consistently remained on the reported employee count since last summer, although not on the actual payroll.
3) $4 Million is also the exact amount Allrise/Bitmain claimed they spent on upgrading the facility for Bitcoin mining.
During the licensing of the dam, the PUD argued to FERC and the community that the Box Canyon project was necessary to serve industrial expansion in the county. Industrial consumers and other rate payers have paid historically higher rates than BPA and the regional wholesale market to use Box Canyon power. Market fundamentals have now changed, and while Box power is still higher than BPA, it is significantly lower than market prices (that have escalated significantly due to CETA requirements).
This appears to be the crux of the matter. The problem is not that power from Box Canyon Dam is needed to restart the paper mill, it’s that Allrise/Bitmain want cheaper power for their Bitcoin mining operations. Interestingly, the PUD’s allocation of inexpensive power from the BPA and the Box Canyon Dam together would almost exactly cover the amount of electricity required for Bitcoin Mining – but not even close to the amount required for Bitcoin mining AND a paper mill.
When the papermill went bankrupt in 2020, it left the PUD in an energy and capacity long position, as they were the largest wholesale buyer and largest private employer in the county. In response, the POPUD sold Box Canyon output to Shell Energy LTD for a 5-year term ending 12/31/25. And this past October, POPUD sold the Box power to Clark County PUD under a long-term agreement through 2041 when the Shell deal expires.
The paper mill’s bankruptcy may have left the PUD long on energy production, but it also left the citizen-owners of the PUD with $32 million in damages. The PUD was able to recoup about $10 million from the PNC, but much of the remainder had to be made up by double-digit percentage rate increase for the PUD’s customers. The PUD’s deal with Clark County will ensure that loss to its citizen-owners doesn’t happen again.
Market power is a combination of renewable and non-CETA-compliant power. Due to Washington State’s CETA, the PUD will have to acquire CETA compliant energy if it sells market power to industrial loads. This extra cost would have been mitigated if PUD had not sold CETA-compliant power away to Shell and Clark County.
1) As mentioned above, the federally mandated assignment of 44 MW of hydro power to the PUD from the Boundary Dam operated by Seattle Power and Light is sufficient to support not only all of its existing industrial customers (aside from Allrise/Bitmain) but can support the addition of many more additional industrial customers of the same size as the PUD’s second largest industrial customer.
2) The PUD’s existing contract with Cascade Digital Mining (the LLC controlled by Bitmain and Allrise Capital that is the PUD’s customer) specifies that CDM, not the PUD, will be responsible for any additional costs associated with purchasing CETA-compliant power.
According to RCW 19.280.065 the PUD is required to demonstrate adequate capacity resources to serve its load, both industrial and retail. With the sale of CETA-compliant Box power, the PUD has not retained enough of the resource for its industrial customers and has publicly stated they intend to force industrial loads to purchase from the regional market. As a result of poor management at the PUD, CETA-compliant power is not available to large industrial loads that will provide economic development to the county. This requires Ponderay Industries purchase Market power which is a combination of renewable and non-CETA-compliant power. Due to Washington State’s CETA, the PUD will have to acquire compliant energy if it sells market power to industrial loads. This extra cost would have been mitigated if PUD had not sold CETA-compliant power away to Shell and Clark County to serve its industrial native load.
1) Again, the PUD has sufficient resources to support most types of current and future industrial customers. The PUD total power generation resources could not support Allrise/Btimain’s requirements. The PUD is able to obtain sufficient electricity outside of the district to meet even Allrise/Bitcoin’s needs.
2) Allegations of “poor management” against the PUD are unfounded, especially given the fact they have had to overcome $32 million in damages to the PUD caused by the PNC bankruptcy. It is significant that Merkle Standard is headed by the former CFO of PNC who guided the PNC through twice breaching its contract with the PUD while paying himself a half million-dollar bonus.
We only wish to utilize CETA compliant power resources which is why we were really caught off guard by the legislation because we have been shut out of all options for that power. The PUD has taken specific action to ensure Ponderay Industries does not have access to the Box Canyon resource, in violation of RCW 54.16.040 which requires PUD’s to use native loads to support local needs first.
1) Allrise/Bitmain have the opportunity to purchase CETA-compliant power each month. However, they have so far declined to do so, demonstrating they wish to utilize cheap power, not CETA-compliant power.
2) To claim that the PUD is violation of RCW 54.16.040 requires a very, very creative interpretation of what the RCW actually states. The RCW DOES NOT require the PUD to use native loads to support local needs first.
Rep Dolio, would you also like me to share this with department of Commerce? Please advise.
Tim Zenk
206-226-2417
Mr. Zenk is a lobbyist and consultant based in Seattle, but he is no stranger to Pend Oreille County. He has a close relationship with POC Commissioner John Gentle and his spouse, Kim. In 2021, Zenk advised Kim Gentle, Russ Pelleburg, and Monty Stahl on a scheme to take control of the PUD’s Pine Street Substation in Newport and use it to provide power to large crypto mining facility to be located on Stahl’s property outside of Newport. The scheme would have resulted in substantial financial damages to the PUD’s citizen-owners and to the City of Newport.
The letter contains several “Pinocchio” comments. These comments are highlighted in red. We have added explanations of these “Pinocchio’s” following each paragraph in italics.
Rep Doglio,
Thank you very much for your time on Friday I really appreciate it.
Attached is an amendment concept we came up with to address the unique situation Pend Oreille County finds itself. The county is now hamstrung without any industrial CETA compliant power because the POPUD under long term agreement sold all of the Box Canyon Dam to Shell ltd and Clark County PUD. The dam is 35 miles away from the mill. Even worse, the POPUD made the long-term sale of power to Clark PUD while knowing the paper mill had requested it would need local generation resources in order to consider a restart of the mill.
Three Pinocchios in this first paragraph:
1) The PUD has plenty of CETA compliant power for current and future industrial customers. The PUD produces enough CETA-compliant power to power another ten or so Vaagen Lumber-sized customers. The reason the PUD cannot supply Allrise/Bitmain with CETA-Compliant power is that Allrise/Bitmain currently uses 14 times the amount of the electricity as the rest of the PUD’s industrial customers combined and more than three times more than the rest of the PUD’s 9,500 industrial, commercial, and residential customers combined. Furthermore even if the PUD committed its total available native hydro-generation to Allrise/Bitmain, they would only be able to fill less than one-third of the electricity Allrise/Bitmain requires.
2) Allrise/Bitmain NEVER seriously requested to enter into a contract with the PUD for output of the Box Canyon Dam. PUD documents obtained through public records request show that only a week before the PUD Commissioners approved the future contract with Clark County PUD the PUD asked Allrise Capital’s CEO/CFO/Secretary, Mikhail Trubchik, if the Allrise/Bitmain could afford to contract with the PUD for the output of Box Canyon Dam. Mr. Trubchik positively affirmed that they could not afford a contract for Box Canyon Dam power. In a letter to Steven Wood, the PUD’s GM stated: “[On] September 26 2022, I met with you and Mr. Trubchik 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.”
3) Access to local generation resources is not the limiting factor preventing restart of the paper mill. Aside from its unprofitability, lack of business case, and the lack of enough money for the $100+ million needed to restart the mill, the existing power infrastructure supporting the former PNC mill site is insufficient to support both a 100MW Bitcoin Mining facility and an 85 MW paper mill. Upgrading the infrastructure would require millions and take years. Furthermore, as mentioned above, local generation could support no more than 30 percent of the power required.
Ponderay Newsprint History:
Since 2005 Ponderay Newsprint paid historically higher than average power rates to subsidize the residential rates and to pay for the Box Canyon Dam. In 2020, Ponderay Newsprint goes bankrupt due to a variety of factors, including foreign competition.
1) Box Canyon power was price competitive when PNC entered into a long-term contract for Box Canyon power. When market conditions changed, PNC breached its contract with the PUD not only in 2020 but a few years earlier as well, resulting in the PUD successfully litigating PNC.
2) PNC payments did not directly subsidize residential ratepayers.
Allrise Capital Purchases Mill Out of Bankruptcy:
Allrise Capital responded to a bankruptcy auction to purchase the mill and renamed the paper mill to Ponderay Industries, LLC. Allrise also formed a new company to manage the data center located on the campus of the paper mill. Allrise’s number one priority is to restart the paper mill and bring back the 150 jobs to Usk Washington, if it can sustain itself for the long-term. This mill has received a term sheet for newsprint from a large player in the media industry to turn newsprint the minute they can restart. They have preserved the mill by hiring back the mill team of 20 to maintain the machine so that it can be preserved and returned to operations. They are planning investments to make sustainable packaging products of higher value when the Newsprint markets aren’t as strong. The company has invested about $4 million to maintain the paper machine since the purchase.
1) The first point here isn’t really a Pinocchio, but it is worth pointing out that the primary reason why the paper mill couldn’t be restarted (even if there was a business case and enough money) is that Allrise/Bitmain set up a 100 MW crypto mining facility on the site.
2) Ponderay Industries LLC actually has no employees. (ZERO). In a recent grant application to the state Department of Commerce, Ponderay Industries acknowledged that they had no employees. They did point out that Merkle Standard LLC, the shell company serving as the public face of Allrise/Bitmain Bitcoin mining operation, has a total of 6 employees. These six are: Steven Wood (former CFO of PNC), Monty Stahl, Todd Behrend (former PNC employee), Russ Pelleburg (former Newport City Manager), Laura Verity (former PNC employee), and Ty (sorry Ty, I don’t know your last name).
So where do the other 14 employees come from? Two groups. First, Bitmain directly employees several full-time employees to operate the Bitcoin mining machines (which are owned by Bitmain). Second, Bitmain hired a group of part-time employees to help install the Bitcoin mining machines in Usk and at another facility in Spartanburg, SC. These part-timers apparently have not been employed since last September, but they have consistently remained on the reported employee count since last summer, although not on the actual payroll.
3) $4 Million is also the exact amount Allrise/Bitmain claimed they spent on upgrading the facility for Bitcoin mining.
During the licensing of the dam, the PUD argued to FERC and the community that the Box Canyon project was necessary to serve industrial expansion in the county. Industrial consumers and other rate payers have paid historically higher rates than BPA and the regional wholesale market to use Box Canyon power. Market fundamentals have now changed, and while Box power is still higher than BPA, it is significantly lower than market prices (that have escalated significantly due to CETA requirements).
This appears to be the crux of the matter. The problem is not that power from Box Canyon Dam is needed to restart the paper mill, it’s that Allrise/Bitmain want cheaper power for their Bitcoin mining operations. Interestingly, the PUD’s allocation of inexpensive power from the BPA and the Box Canyon Dam together would almost exactly cover the amount of electricity required for Bitcoin Mining – but not even close to the amount required for Bitcoin mining AND a paper mill.
When the papermill went bankrupt in 2020, it left the PUD in an energy and capacity long position, as they were the largest wholesale buyer and largest private employer in the county. In response, the POPUD sold Box Canyon output to Shell Energy LTD for a 5-year term ending 12/31/25. And this past October, POPUD sold the Box power to Clark County PUD under a long-term agreement through 2041 when the Shell deal expires.
The paper mill’s bankruptcy may have left the PUD long on energy production, but it also left the citizen-owners of the PUD with $32 million in damages. The PUD was able to recoup about $10 million from the PNC, but much of the remainder had to be made up by double-digit percentage rate increase for the PUD’s customers. The PUD’s deal with Clark County will ensure that loss to its citizen-owners doesn’t happen again.
Market power is a combination of renewable and non-CETA-compliant power. Due to Washington State’s CETA, the PUD will have to acquire CETA compliant energy if it sells market power to industrial loads. This extra cost would have been mitigated if PUD had not sold CETA-compliant power away to Shell and Clark County.
1) As mentioned above, the federally mandated assignment of 44 MW of hydro power to the PUD from the Boundary Dam operated by Seattle Power and Light is sufficient to support not only all of its existing industrial customers (aside from Allrise/Bitmain) but can support the addition of many more additional industrial customers of the same size as the PUD’s second largest industrial customer.
2) The PUD’s existing contract with Cascade Digital Mining (the LLC controlled by Bitmain and Allrise Capital that is the PUD’s customer) specifies that CDM, not the PUD, will be responsible for any additional costs associated with purchasing CETA-compliant power.
According to RCW 19.280.065 the PUD is required to demonstrate adequate capacity resources to serve its load, both industrial and retail. With the sale of CETA-compliant Box power, the PUD has not retained enough of the resource for its industrial customers and has publicly stated they intend to force industrial loads to purchase from the regional market. As a result of poor management at the PUD, CETA-compliant power is not available to large industrial loads that will provide economic development to the county. This requires Ponderay Industries purchase Market power which is a combination of renewable and non-CETA-compliant power. Due to Washington State’s CETA, the PUD will have to acquire compliant energy if it sells market power to industrial loads. This extra cost would have been mitigated if PUD had not sold CETA-compliant power away to Shell and Clark County to serve its industrial native load.
1) Again, the PUD has sufficient resources to support most types of current and future industrial customers. The PUD total power generation resources could not support Allrise/Btimain’s requirements. The PUD is able to obtain sufficient electricity outside of the district to meet even Allrise/Bitcoin’s needs.
2) Allegations of “poor management” against the PUD are unfounded, especially given the fact they have had to overcome $32 million in damages to the PUD caused by the PNC bankruptcy. It is significant that Merkle Standard is headed by the former CFO of PNC who guided the PNC through twice breaching its contract with the PUD while paying himself a half million-dollar bonus.
We only wish to utilize CETA compliant power resources which is why we were really caught off guard by the legislation because we have been shut out of all options for that power. The PUD has taken specific action to ensure Ponderay Industries does not have access to the Box Canyon resource, in violation of RCW 54.16.040 which requires PUD’s to use native loads to support local needs first.
1) Allrise/Bitmain have the opportunity to purchase CETA-compliant power each month. However, they have so far declined to do so, demonstrating they wish to utilize cheap power, not CETA-compliant power.
2) To claim that the PUD is violation of RCW 54.16.040 requires a very, very creative interpretation of what the RCW actually states. The RCW DOES NOT require the PUD to use native loads to support local needs first.
- The RCW states that PUDs has “with full and exclusive authority to sell and regulate and control the use, distribution, rates, service, charges, and price thereof….”
- To claim otherwise requires an extremely creative interpretation of the phrase “Provided Further, that it shall first make adequate provision for the needs of the district, both actual and perspective.”
- The PUD can acquire power for its customers “within or without its limits.”
- The ongoing operation of Cascade Digital Mining demonstrates that the PUD has made adequate provision for the needs of Cascade Digital Mining.
- The total generational capacity of the PUD would is insufficient to meet CDM’s current needs, let alone their proposed future needs of 170MW and 600 MW.
- Allrie/Bitmain/CDM entered into business in the county with full awareness that PUD could not provide sufficient electricity to meet their requirements and demonstrated their intent during 9 months of negotiations with Brookfield Renewables to utilize electricity generated outside of the district.
Rep Dolio, would you also like me to share this with department of Commerce? Please advise.
Tim Zenk
206-226-2417