Congratulations, Texas! Forget your poor rankings compared to other states for education, health services and environmental quality.
You are now number one!
It’s official. Texas is the Bitcoin mining capital not only of the United States, but also of the entire world.
About half of all Bitcoin mining in the U.S. is Texas based, and that’s enough to propel Texas to the No. 1 world leader.
Are you a taxpayer in Texas? The Watchdog has your back.
For some reason, many Texans are not celebrating. Rather, they’re confused, wondering if this is a good thing, especially with its impact on our fragile ERCOT-run electricity grid.
They are fearful of grid strain and anxious about the lack of transparency in the new industry. They are baffled by the millions of dollars of profit some mining companies earn when they sell electricity back. Companies can also earn millions of dollars in energy credits by voluntarily shutting down in a crisis.
Here’s a sampling of The Watchdog’s mail:
“Watchdog, we have heard nothing about these enormous electricity consumers being asked and complying with closing their operations during this 2023 exceptionally hot summer. Many of us have been asked to conserve electricity.” — Sid Harris of Richardson.
“[Bitcoin miners earning millions by selling back unused power, often at a profit] is inexcusable while we Texans are faced with skyrocketing electric bills. How about using millions to shore up the system for all of us, rather than lining the pockets of energy hogs?” — Janice White of Southlake.
“[I’m worried about] all the mining companies pouring into Texas and draining the electrical power we have, as well as overloading our power grid. ERCOT just seems to be wheeling and dealing with these companies.” — Charles Coleman of Euless.
Recent headlines about companies making big profits “attracted undue attention,” says Lee Bratcher, president of the Texas Blockchain Council, the trade group for the new industry.
“Bitcoin miner pockets $7 million. Firm rewarded for cutting power during heat wave.” – The Dallas Morning News
Story behind headlines
Yes, ERCOT paid Riot Platforms $7.4 million for reserves for cutting power in August. This was done, I’m told by members of the industry, to support grid reliability during the summer heat wave. The company also sold about $24 million of pre-purchased unused energy back to its provider, TXU.
For power shutdowns in September, the company received $2.5 million. Plus, the company earned $11 million in energy credits for future bills.
The Colorado-based company makes public disclosures because it’s a publicly traded company. Riot’s biggest plant in Texas is in Rockdale. It’s building another data center in Corsicana.
Here is what’s fascinating about this. By voluntarily curtailing its power usage during the heat wave in September, Riot said it doubled the revenue it would have received from mining.
As Dallas Morning News staffer Irving Mejia-Hilario reported, “Riot mined 362 Bitcoin [in September], but the money it earned from its deals with ERCOT and TXU equates to approximately 511 Bitcoin, the company said.”
Bratcher says, “These market mechanisms are not unique to Bitcoin miners. Bitcoin miners do not receive any special treatment or subsidies from the state of Texas, ERCOT or anyone else.”
He says all industrial and commercial industries can sell back unused power. One difference is where it might take a manufacturing facility hours to shut down in an emergency, a Bitcoin miner can pull the plug in several minutes.
He says reliable, constant power usage by Bitcoin miners brings stability to the grid, especially during low-demand times of day.
Bitcoin mining accounts for about 2-3% of industrial power usage in the state. That’s why Bratcher says those headlines flabbergasted him.
For all industrial usage, ERCOT’s payouts were close to $1 billion for August, he said, with Bitcoin mining a very small part of that.
Mining, he said, brings to a community tax revenue, jobs and power consumption that electricity companies possibly couldn’t sell.
The China concern
U.S. and Texas growth in mining has China to thank. China banned Bitcoin operations, causing companies and investors to find new locales.
Texas, with its permissive regulatory environment, tax incentives and cheap power available to miners, launched a successful campaign to lure miners here.
The New York Times found that Chinese nationals are among the owners of U.S.-based companies. In Texas, two companies — Bitdeer and Poolin — are Chinese-owned, Bratcher confirmed.
I asked Bitdeer about this. A spokesman said, “We are not a Chinese company. Bitdeer is headquartered in Singapore and is a company with global operations. We are a Nasdaq-listed company and are subject to the same regulatory scrutiny as any other listed company.
“Any indication that we are influenced by or connected to the Chinese government is false and wrong.”
The Times reported an owner of the company left China to set up shop in Singapore.
Bratcher said his group has studied the Texas Infrastructure Protection Act which prohibits citizens of China, Iran, North Korea and Russia from any connection with critical infrastructure. He said he believes it doesn’t apply to miners because they don’t have access to critical infrastructure.
The law was signed by Gov. Greg Abbott in 2021.
I wrote to the governor’s office asking if he is concerned about Chinese ownership in relation to the law. The Watchdog didn’t hear back.
Lack of transparency
When Denton Municipal Electric signed a contract with Core Scientific to lease space at its plant for a small-scale mining operation, city officials expected millions of dollars for city coffers.
Core Scientific filed for bankruptcy. While it’s still operating in Denton, expected earnings have dropped.
I criticized the secrecy of the contract between city and company. Details of the plan were redacted.
I don’t know what the kWh rate Core Scientific pays DME for electricity. But during my research for this Watchdog report, I found that some mining companies have long-term contracts with their electricity providers to pay as low as 2 cents a kWh. Must be nice.
Scrutiny? What scrutiny?
Here’s proof how unregulated the industry is: It wasn’t until September that Bitcoin companies were even required to register with the state.
That’s a long time to get such a free ride from regulatory scrutiny. Oh, no. Wait. What scrutiny?
ERCOT has convened a task force to consider rule changes that could beef up requirements for all industrial and commercial customers, including Bitcoin miners.
Users would have to disclose information about their energy usage and power shutdowns. Bratcher says the rule change could make the shutdown process “more methodical.”
Reader Bob Gibson of Carrollton tells me, “As much as I am glad to see new methodology for grid reliability with these developments, I don’t see any way the consumer is going to be getting any break in their rates because of it.”
Energy analyst company Wood Mackenzie writes in a report that “by our calculations, Bitcoin mining already raises electricity costs for non-mining Texans by $1.8 billion per year or 4.7%. These figures are conservative.”
Still to be decided: Will consumers benefit?
If matters go as they have been in this long-running state electricity crisis, who will pay the biggest cost?
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