Crypto Currency Mining
Usk and Wenatchee
This is a special edition of our monthly programming. Instead of a Zoom presentation with back-and-forth conversation, this is a self-study interlude.
Robert Schutte, ARC Vice-chair, has alerted me to a crypto mining proposal in Usk in Pend O’Reille County that raises questions of environment, energy, and economic development in a rural community. And, of course, politics. Chelan PUD centered in Wenatchee has been wrestling with similar issues for several years.
While I was assembling materials for an eventual study session, ARC friend Jerry LcClaire, who writes a blog on regional politics, did the hard work of detailing the Usk story. I concluded that we had little to add to his careful analysis.
So, I welcome you to a self-study session. I reprint two of Jerry’s articles below and link several items to the Chelan PUD. It is a hard slog but it is a high-stakes story and worth the effort. Feel free to respond to this email with your thoughts and questions, and please indicate if I may share your notes.
The Usk Money Mine--Part I There's something very wrong with this picture Jerry LeClaire May 18
Why are we letting this happen?
Last Sunday, May 15, at the top of the Northwest Section an article appeared that seemed easy to gloss over: “Examiner mulls approval of Usk crypto-mine operation”. Some obscure business entities are seeking a “conditional-use permit” from the government of Pend Oreille County, Washington, to operate what would be the largest crypto-currency mining operation in the United States at the now shuttered former Ponderay Newsprint Mill in Usk. Gleaning from the Spokesman article, the “conditional-use permit” would allow for the placement of 30,000 computer servers, cooling towers, and the use of water from the Pend Oreille River for the cooling.
Some key points from the article (the bold is mine):
Susan Hobbs attended the Zoom hearing on Wednesday [May 11].
Hobbs, a former member of the Pend Oreille Planning Commission, asked the county to proceed with caution on Merkle Standard’s [the proposed mine’s operator] plans to obtain 600 megawatts of electricity a year, which would equate to two former Kaiser Aluminum Mead smelters operating at full capacity.“This is the largest thing that has ever come down the pike for Pend Oreille County,” Hobbs said. “If there were ever a time for being certain, that no stones are left unturned, this would be it. I hope we do that before rushing in.”
But Hume, the attorney for Merkle Standard, said the county only needs to follow state and federal law, especially for an area that has had “certain impacts priced into that neighborhood … for a long, long, long time.
“This is a very clean, high-tech use,” he said. “All we are doing is putting computers in boxes, putting them in the parking lot and letting them run.”
“Clean, high-tech”. What is so attractive that brings companies from God-knows-where to put boxes of computers in the parking lot of a shuttered paper mill in Usk, plug them into the grid, and let them run? The electronic money produced is, by its nature, highly transferrable. Apart from some property taxes, none of the crypto-currency the new plant will produce will benefit the citizens of Pend Oreille County (unless some individuals are getting perks in exchange for making things happen).
Why eastern Washington?
From a Jan. 21, 2022, Spokesman article (the bold is mine):
At a hearing on the energy usage of blockchain technologies like Bitcoin, Steve Wright, who led the Wenatchee-based PUD until last April, told members of a House Energy and Commerce subcommittee what happened when Bitcoin miners started setting up their energy-intensive operations in Central Washington around 2014.
“These were small operations in shipping containers, vacant small businesses and residences” at first, Wright said, but soon the operations grew far bigger and caused concerns in the community over safety risks, how few local jobs the industry created relative to its energy use and a lack of tax revenue despite driving up energy costs for local residents.
Mining Bitcoin and other cryptocurrencies involves rooms full of computers working together solving complicated math problems to unearth a new coin. As more of the digital currency has been mined, the computing power required to acquire another coin has increased, leading to massive electricity usage even as the individual machines used have grown more efficient.
Running shipping containers full of high speed computers “mining” imaginary electronic money (crypto-currency) requires two things: large amounts of stable, day-and-night electrical power and a means of cooling the computers so they don’t malfunction or catch fire from the heat they generate. Eastern Washington has some of the cheapest electrical power in the country—and (at least for now) it has water for cooling. We have relatively cheap power because we have hydro. The aluminum industry landed in Spokane more than half a century ago precisely for that reason—but the aluminum industry produced jobs, a tangible, taxable product and spinoff industries (like aluminum casting). Crypto produces none of that.
Moreover, hydropower is a limited resource. We’re not making more of it. We already have little enough hydropower that we rely to some degree on burning coal and natural gas, i.e. greenhouse gas producing fossil fuels, for our energy needs. And wait a minute: Aren’t local Republicans already whining that the cost of heating and cooking will go up if we restrict natural gas hookups in new construction? Why aren’t Pend Oreille County Republicans (yes, they are all Republicans) worried that selling huge amounts of electricity to Merkle at a fixed price will mean a price increase in electricity for the average homeowner? Surely their vaunted “free market” will make a price increase for the average citizen inevitable. Where’s their media campaign protesting rising costs for the average Joe? Where is the astroturf-based “citizens’” initiative to outlaw this electricity sale (similar to Spokane’s Prop 1 in 2021)?
We can’t invent more hydropower. Hydropower covers the base load not just for the imaginary money producers who require it to keep their computers running day and night. Hydropower also satisfies the base load requirements to heat our homes and run our factories at night. If we guarantee the imaginary money producers hydropower to satisfy their steady-supply requirements, we are inevitably going to burn more natural gas (or coal or oil) to satisfy real needs, like staying warm in winter.
We claim in this State of Washington to be working to reduce the burning of fossil fuels in order to combat climate change. Governor Inslee campaigned for President in 2020 on his climate change credentials. We claim to be trying to convert to electricity-powered transportation. In this milieu Republican naysayers and climate deniers, captives of the fossil fuel industry, are fond of dissing solar and wind power as unreliable—and, therefore, conversion of transportation to electricity impractical—but here are the Republican county commissioners of Pend Oreille County setting up to sell our region’s clean hydropower at a discount to the makers of imaginary money. This fixed price sale will make electricity-based transportation both more expensive and less climate friendly. What is wrong with this picture?
In a sense all money is imaginary. Money works only because some group of humans decide that some form of the stuff—dollars, rubles, gold, silver, or bitcoin—has value. These humans agree that whatever their money is can be traded for things of value, like food, housing, transportation, and services. Dollars, on account of their relative stability, have been the favored global currency for the last half century. Dollars are to some degree under the control of the U.S. federal governance structures, for example, the Federal Reserve’s efforts to combat inflation by adjusting interest rates, just like rubles are to some degree under the control of the Russian monetary system. Dollars (and other state currencies), generally speaking, can be tracked and taxed, and the taxes can be used to provide roads, schools, ports, and law enforcement.
Crypto-currencies, e.g. Bitcoin, have value only so long as a group of humans believe in that value. The charm of crypto-currencies is that the blockchain technology on which such currencies are based guarantees, through dispersed computer computations and dispersed computer record-keeping, that a unique Bitcoin is real, not counterfeit. Moreover, the supply of Bitcoin is limited by the cost of the computational power necessary to mine it. Sadly, that “computational power” depends on burning energy from a cheap source in a compliant community—like Pend Oreille County. The price of power to produce a crypto-currency will be driven up (along with cost of all the power we use for other tasks) by the “free” market. Once the cost to produce it exceeds the value of the “coin” produced, this wasteful energy use will no longer turn a profit and the mine will be abandoned, having robbed the locals and having left with the profits. (Click here for a primer on cryptocurrency by Paul Krugman.)
The value of the crypto-currency mined in Usk will not accrue to the citizens of Pend Oreille County, Washington. That crypto-value will belong to the opaquely owned companies developing the Usk mine and to whomever owns those companies, be they wealthy U.S. investors, Russians, Chinese, or other global citizens. The “coins”, unlike gold or silver and other hard currencies, will exist only virtually as an electronic record on a network of computers dispersed worldwide.
Where is the far right wing of the Republican Party, the folks who lap up conspiracy theories and condemn “globalists”, The New World Order, George Soros, and the Rothschilds? A globally dispersed network of arguably untraceable currency based on our inexpensive power and water, a currency that is electronically transferred to parts unknown ought to be grand fodder for them. What do we hear for those Republicans? Crickets.
This is nuts, just plain wrong. This is a “free market” distortion we should not allow. This is local government at work in the form of County Commissioners, Public Utility Districts, hearing examiners, and, supposedly, according to Merkle Standard’s lawyer, “the county only needs to follow state and federal law”, which is his way of saying, “We’ve got this. Nothing to see here. Don’t overthink this.” When a lawyer paid for by a far away company makes that argument, citizens’ antennae should vibrate with alarm.
Call, email, and write Governor Inslee and your legislators. Write to U.S. Representative Cathy McMorris Rodgers—but don’t expect much from her. McMorris Rodgers only knows to shout “clean hydropower!” every time either climate change or helping the salmon is mentioned (by removing the low-producing Snake River dams). Now the “clean hydropower” will be sold to make electronic money that will leave Washington the moment it is generated, leaving little to no benefit. If we’re forced into keeping McMorris Rodgers’ precious dams—and sacrificing the fish, let’s at least use the power for something useful—like charging batteries for transportation based on clean electricity.
Keep to the high ground,
P.S. The six hundred megawatts of clean hydropower Merkle Standard proposes to buy at a discount from the grid (thru a contract with the “Public Utility District”) is a huge amount of power. If run all year at that level a sale of six hundred megawatts of power would be 3.6% of all the electrical energy currently generated in a year in the State of Washington. Put another way, at the 4 miles per kilowatt hour mileage of my Tesla Model 3, that much electrical energy would take me the distance to Mars and back not once but 247 times! Or it would power 168,200 Tesla Model 3s to each travel 100,000 miles. Do we see why this fire sale of our clean power to enrich crypto mining investors is insane?
P.P.S. Approval of the conditional use permit may be a done deal. Presumably, the next step will be the crypto folks negotiating the power discount from which they expect to benefit with the Pend Oreille County Public Utility District Commissioners.
The Usk Money Mine--Part II Civics, County Government, PUDs, and BPA Jerry LeClaire May 200
In the northeast corner of Washington State at the site of the former Ponderay Newsprint Mill south of Usk, along the Ponderay River in Pend Oreille County, a thinly-disguised Chinese company is already burning electrical energy (6 megawatts) from the Box Canyon Dam, power that would otherwise feed the U.S. power grid. (This is the same national grid that distributes the electricity that runs our appliances and heats and cools our homes [except for Texans].) “Merkle Standard,” with major investment and alliance with the Beijing-based company Bitmain, is conducting their business—and burning this electricity—at the old Mill site now zoned “Residential 5”—even as they seek rezoning that would make their operation legal. Merkle and its bevy of lawyers is apparently confident that they have done their homework and have the right people on their side. Apparently, this is the way business is done when the public isn’t paying much attention.
This is business, after all, and some say business is progress, that progress is always good, and that any business that wants to invest in rural Pend Oreille County ought to be welcomed. Some might assume that any business activity is bound to be better for the people of the county than an abandoned newsprint mill. Re-zoning ought to be a slam-dunk, the corporate lawyers will argue—and some local business-minded folk will agree.
But there is not unanimity even among business-minded local Republicans. In January, as this re-zoning effort unfolded, one of the three Pend Oreille County Commissioners, Robert Rosencrantz, sounded a note of caution, not on the environmental or climate change basis that I might choose, but based on the business risk-benefit ratio for the people of the county. His due diligence, detailed analysis, and cautionary data is available as a pdf, the Rosencrantz Document. He counseled caution from basic research he had done on the company(ies) proposing the project, the effects of other crypto-mining operations on local communities, and hints of corrupt influence peddling. For his level-headed analysis and urge toward caution he was ridiculed as a “Republican in Name Only” (RINO) by local Republicans intent on appeasing this supposedly wonderful new business interest in Pend Oreille County.
But let’s back up a bit. The bankrupt Ponderay Newsprint mill was purchased at auction in April, 2021, by Allrise Capital (corporate parent of Merkle) for $18.1 million. At the time, Thomas Clouse reported in the Spokesman:
“They are planning to repurpose select portions of the mill for old, corrugated-cardboard-paper production,” said Chris Bell, managing broker for NAI Black, which helped market the mill. California-based Allrise Capital plans on “retooling the plant, making a significant investment to re-fire it and bring back the jobs.”
Allrise outbid the Kalispell Tribe, which also expressed what I expect were, for the Tribe, sincere plans to retool and reopen the plant and provide jobs.
Allrise, it seems, never had any such intention. Bear with me. Here’s where we dive into the governmental weeds. Half a year later, in the fall of 2021, Allrise was evidently working behind the scenes, laying the groundwork for its crypto mine. The Pend Oreille County Community Development Department, under the leadership of Greg Snow, attempted to create a new Comprehensive Development Plan for the County that would have green-lighted the crypto mining facility by, incident to changes in the broader plan, re-zoning the Mill property as “Industrial” instead of “Residential 5.”
That Allrise gambit didn’t work only because a local group, “Responsible Growth – Northeast Washington”, successfully challenged the proposed new Comprehensive Development Plan with the Pend Oreille County Hearing Examiner on the basis of the Washington State Environmental Protection Act (SEPA).
Blocked by the hearing examiner’s ruling, Allrise/Bitmain (or one of the other nested shell companies) was forced down a different avenue: request a “Conditional Use Permit” (or CUP, in this case CUP-2021-012), a zoning exception that would allow the use of the Mill property for crypto mining, a use that clearly otherwise would not conform with “Resident 5” zoning.
That put it back in Greg Snow’s domain in the Pend Oreille County Community Development Department. In March of this year (2022) Mr. Snow issued a Determination of Non Significance on the SEPA Checklist submitted by Ponderay Real Estate LLC (one of the Allrise shells and the named owner of the Mill property) certifying that Mr. Snow believed that the project would have no significant environmental impact and that no review by State or Federal regulatory agencies was required.
But wait! In April, Mr. Ed Styskel, a wildlife biologist in Newport, WA, filed an appeal to the SEPA Checklist arguing that Mr. Snow and the Community Development Department had failed to do due diligence in issuing a Determination of Non Significance.
That is the whole sequence that leads us to the article in the Spokesman last week concerning the Zoom hearing held on the Conditional Use Permit and Mr. Styskel’s appeal. That was the article that stimulated me to write last Wednesday’s post, The Usk Money Mine—Part I.
At that hearing, biologist Mr. Styskel, without legal council, was up against two law firms hired by the well-heeled Allrise nest of companies that were arguing for granting the crypto mine’s conditional use permit. It might be worth noting that the hearing examiner in this case (the earlier one in Pend Oreille County having retired), Christopher Anderson, “is an attorney appointed by the Board of County Commissioners” of Spokane County.
Mr. Anderson’s ruling will come out in the next couple of weeks. Regardless of evidence at that hearing that Allrise’s CUP application and SEPA checklist were inaccurate, a ruling in favor of the Allrise nest of companies seems likely.
This is the sort of thing that happens constantly within county governments, most of it out of the public eye and very hard to follow.
Assuming approval of the “Conditional Use”, where does this go from here? The Allrise nest of companies still need to negotiate a sufficiently favorable contract with the Pend Oreille Public Utility District for transmission lines and electricity to burn that is cheap enough to offer them a tidy profit in imaginary money that will likely be electronically transmitted to China (where crypto-mining is banned, but still done).
Here’s where things get interesting again. Public Utility Districts in the State of Washington date back to a people’s initiative passed in 1930. From the website of the Washington Public Utility Districts Association (the bold is mine):
In 1929, the Washington State Grange, a populist agricultural organization, collected more than 60,000 signatures – twice the number necessary – to send Initiative No. 1 to the Legislature, allowing rural communities to form their own publicly owned utilities.
When the Legislature failed to act, the measure went to a statewide election, where it passed in 1930 with 54 percent of the vote. The new PUD law went into effect in 1931.
Apparently, there was a huge fight at the time with private power interests like Washington Water Power who wanted to retain control. PUDs were a populist victory.
Now look at the legal mandate, the purpose, of PUDs according to the Revised Code of Washington (RCW) (the bold is mine):
“The purpose of this act is to authorize the establishment of public utility districts to conserve the water and power resources of the State of Washington for the benefit of the people thereof, and to supply public utility service, including water and electricity for all uses.”
Is burning a huge amount of local Washington State produced energy to manufacture cryptocurrency that will leave no value here “for the benefit of the people” of Washington State? It would seem that the three Pend Oreille County PUD Commissioners, in order to satisfy that statement of purpose, would be required to assess in detail the benefit of a crypto mine to the people of Pend Oreille County and the State of Washington. Are the PUD commissioners equipped to reliably make this assessment? Remember that Allrise did a “bait and switch” routine at the very outset. Where are the two hundred or so jobs at the Mill property that Allrise was going to provide once Mill was retooled and restarted? The crypto mine might at most hire a handful of people. The crypto mine will pay some paltry amount of property tax some of which will accrue locally. Does WA State government have to rely on the shaky representations of the Allrise nest of companies for the purpose leveling “Business and Occupation Tax” on mined cryptocurrency?
The effects of burning vast amounts of our clean electrical energy will have rippling effects well beyond Pend Oreille County. The Box Canyon Dam, the only dam in Pend Oreille County actually owned by the Pend Oreille PUD, doesn’t produce sufficient power (only 90 megawatts) to satisfy Allrise’s stated intention to eventually draw 600 megawatts. The Pend Oreille PUD will need to buy power from the Bonneville Power Administration, a federal agency established in 1937 under the U.S. Department of Energy. Note that 600 megawatts is a significant piece of the 12,000 megawatts total of “firm hydropower” produced by all the federal and non-federal dams in the Northwest. It’s not as though that 600 megawatts is just waiting to be used. That 12,000 megawatts is already in use. Add that 600 megawatt load to the system and its going to translate into burning coal or gas, eventually increasing the cost of electrical energy to the rate payers (i.e. us) and (by the way) contributing to global warming.
Allowing this profligate use of our energy for the production of imaginary money is immoral. It is not “conserving” (as in the PUD mission statement), it is wasting—for little, if any, benefit to Pend Oreille County, Washington State, the United States, or the world. It is high time this mine is seen for what it is—a travesty—and this “business” put to rest. Let the crypto-miners pursue building their own solar/wind farm somewhere for their energy needs (and then search for a means of cooling their computer heat generators).
Keep to the high ground,
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