Washington Public Utility Raises Rates on Cryptominers

Under a new proposal from the Douglas County Public Utility District, cryptocurrency mining operations would see an immediate 20 percent rate hike. The money will go toward a $500 million dam repair project.

by Reilly Kneedler, The Wenatchee World / December 20, 2019
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(TNS) — Douglas County PUD plans to significantly raise power rates for cryptocurrency miners and data centers, in part to help pay for a $500 million repair project at Wells Dam.

Under the proposal, cryptocurrency miners would see an immediate 20% power rate hike, followed by 10% hikes every six months for the next five years. The county’s two large data centers, the Sabey Corporation and Actapio, would see an immediate 10% rate hike, followed by 5% jumps on the same schedule.

The repair project is needed to reinforce an embankment at the dam that could be “compromised” under certain seismic activity, PUD General Manager Gary Ivory said Thursday.

The increased rates will also help the PUD get a hold of "extraordinary" county load growth in the two industries and meet a new state requirement to provide 100% clean energy, Ivory said.

“We have a limited resource and that limited resource we have is getting used up too fast for our utility to handle,” he said.

But some civic leaders and members of the business community are concerned the rate hikes will slow economic growth and force the companies to seek power elsewhere. They’ve also raised concerns about the PUD’s process for collecting public input on the proposal.

It culminated this week with a meeting of 50 stakeholders — including business owners, county commissioners and a state representative — to discuss concerns around the proposal. The meeting was arranged by the Chelan-Douglas Regional Port Authority.

“We want to come together and see if there’s a way to provide more modest rate increases that provide some of the revenue that the PUD feels they need, but at the same time keeping the data/crypto customers in business,” port CEO Jim Kuntz said Thursday. “As of now, what we really want is a dialogue.”

The timeline

The PUD took its first step in examining cryptocurrency miners and data centers in May when it introduced a moratorium on new power contracts for the two industries. That moratorium is still in place, Ivory said.

Then, over the summer, the utility began crafting its preliminary 2020 budget and proposed a flat, one-time 3% rate increase for its highest-tier users. That would have applied to customers in all industries who use more than 50,000 kilowatt-hours of power annually.

The PUD collected feedback from residents on the moratorium process and found that most residential customers supported the utility’s choice to evaluate policies around the two industries, Ivory said.

“We think that we collected enough information from our customers to know that they don’t want to see the data centers and the crypto folks take all the energy,” he said. “We got over 500 comments back over that public comment period. We took a lot of time to compile all that information and we listened to our customers very carefully.”

PUD commissioners on Nov. 25 set a public hearing on the rate increase proposal for Dec. 9, according to meeting reports.

But the new rate breakdown with significantly higher costs for cryptocurrency and data centers wasn’t posted publicly until Friday, Dec. 6, three days before the hearing.

Several business owners, as well as the port, feel that timeline is rushed and hasn’t given customers a chance to provide feedback, Kuntz said.

“One of our biggest concerns is process. They had a moratorium start on May 13, but they were working internally about ‘What are our rates going to be? How are we going to do this? What are our costs?’” he said. “... Then the rates weren’t published until Friday the 6th and they have a hearing on it on the 9th. We were concerned the public process hasn’t gone the way that it should be.”

Around half a dozen people attended that rate hearing on Dec. 9, Ivory said, and no action was taken by the commission.

Commissioners will revisit the issue during their regular meeting this Monday, but don’t expect to act on the proposal yet, Ivory said.

“We don’t have a timeline for when we’ll anticipate action,” he said. “We’re still hearing from the public.”

The power usage

Cryptocurrency/blockchain operations account for 21% of the total customer usage in Douglas County and the two data centers use 15%, according to the PUD. Residential customers account for 37% of the county’s total load.

Buoyed by new construction, the PUD's total county load has increased almost 20% since the start of 2019, Ivory said.

“Looking forward 10 years, it’s very feasible that if we continue to let data centers and crypto folks grow that we would be facing shortages in most of the months and we would be purchasing power,” Ivory said.

That’s where the Clean Energy Transformation Act comes in. CETA, passed by the state legislature last spring, requires state utilities to provide 100% clean energy by 2030.

Right now, Douglas County PUD already meets that goal. But if usage continues to increase and the county needs to purchase power on the wholesale market, it’ll need to be renewable, Ivory said.

And after 2028, the PUD may not be able to collect as much power from Wells Dam, its only hydropower source.

Okanogan County PUD now collects 10% of the energy generated by the dam, Ivory said. But, mandated by a lawsuit settlement agreement, it has the option to take 30% of the energy at the end of 2028, he said.

Under normal county growth rates, the PUD would still have enough power to serve all customers in that scenario, Ivory said. But if cryptocurrency miners and data centers continue to see exponential growth, the utility may need to seek wholesale power.

“If we have normal growth, we’re still positive, even with Okanogan taking more,” Ivory said. “But if we continue to serve crypto and data center loads, we’re going to be short with 50 more megawatts. Normal county growth, we’ll be able to handle it.”

The Wells Dam project

Wells Dam is flanked by a pair of earthen embankments that connect the dam to the shore. Several sinkholes have formed in the east embankment over the past few decades, Ivory said.

“Back in the 90s we had a truck driving along it and it fell into a pretty large hole,” he said. “At that time we undertook a very large project to hollow out the core and poured concrete in to try and stop the flow of material that was going through that embankment. It was not a structural fix though. I wouldn’t call it a temporary fix but it was the best we could do at the time.”

For years the utility has been working with consultants and the Federal Energy Regulatory Commission to analyze the damage and determine next steps, Ivory said. “Very recently” FERC told the PUD it needed to prioritize a project to fix it.

“It could be as soon as three to four years, but more than likely it’ll take more than five years to get the engineering fix, to get all the pieces in place, to go out to bid,” Ivory said. “We’ll also have to get some money from the bond market.”

Even if the PUD is able to finance most of the project, the debt service payments will be millions of dollars per year, Ivory said. The Wells Dam capital budget next year is $40 million.

“To pay that debt service we’re going to have to have more money than we have today,” he said.

In the last 12 months, the PUD has collected $31.2 million from outside sales contracts and $33.8 million in revenue from all customers in the county, according to utility records.

The data centers contributed about $5 million of that and the cryptocurrency miners contributed around $7.2 million, according to PUD spokeswoman Meaghan Vibbert.

If passed, the new rates for cryptocurrency miners and data centers would generate an additional $2.5 million next year, Vibbert said.

That number will increase over the next few years as the rates compound, but the PUD hasn't done the calculations to determine how much revenue they'll receive after the five-year cycle, Vibbert said.

©2019 The Wenatchee World (Wenatchee, Wash.) Distributed by Tribune Content Agency, LLC.

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