PHOENIX – A cryptocurrency mining boom in parts of Washington State offers both risk and reward potential for public power utilities there, as they navigate the sudden explosion in demand driven by the global appetite for electronic money.

Central Washington has become a destination for a modern day gold rush by cryptocurrency miners, who require huge amounts of electricity to run the computer equipment needed to generate new units of electronic currency, such as bitcoin. Washington has some of the cheapest retail power rates in the entire country, as low as fewer than three cents per kilowatt hour, a powerful draw for the power-hungry coin miners.

Clifford Kim of Moody's
Clifford Kim, a senior analyst at Moody's, said utilities dealing with heavy demand from cryptocurrency miners need to carefully manage their risks to avoid being left "holding the bag."

That enormous increase in demand presents a fine line for power utilities to walk, with stronger retail sales of electricity also potentially requiring expensive infrastructure investments to support a volatile industry.

Cryptocurrency "mining" requires computers to compile transactions into blocks of data on a block chain, and solving puzzles for the right to add blocks to the chain. Solving the puzzle, which can only be done using suitable equipment, allows a miner to claim newly released currency.

Only high-powered and efficient modern hardware allows mining to be done profitably, but the rewards are huge. Bitcoin, the most widely-used cryptocurrency, was worth only about $1 per unit seven years ago but has now soared to be worth over $9,000 as of Feb. 14.

Washington’s extraordinarily cheap energy is the result of the fact that nearly 75% of the state’s electricity is generated via hydroelectric generators, according to the Washington State Department of Commerce, and the combination of Bitcoin’s run-up in value and the ability to run the necessary equipment cheaply is creating a scramble for the electricity Washington’s dams create.

Wenatchee -headquartered Chelan County Public Utility District, for example, said in a notice to customers that it has received many requests for huge amounts of power in recent months, including from four different cryptocurrency mining operations requesting 100 megawatts each.

The average county resident uses about 1,500 kilowatts, the PUD said, and a megawatt is 1,000 kilowatts. Chelan County PUD, which has a debt portfolio of around $590 million according to its most recent audited financials, said in that notice that it has concerns about safety – a fire last summer was traced to a bitcoin-mining power overload - and wants to stay engaged with residents about how it handles these enormous power demands going forward.

The PUD said new policies are needed to take into account appropriate rates and fees to protect existing customer-owners from financial risk.

“County residents took big risks to build what has turned out to be a very low cost system,” Chelan PUD general manager Steve Wright said in the notice. “The people of Chelan County will have a big say in how we move forward.”

“Cryptocurrency loads come with both potential risks and benefits to certain public power utilities in the Pacific Northwest,” said Matthew Reilly, a director at Fitch Ratings. ”Increased retail loads could be a plus so long as they adequately address operational and financial risks that come with increased loads. Among the risks are overloading the existing infrastructure, the increased capital needed to safely and reliably serve existing and new demand, and exposure to large consumers with a limited track record.”

Clifford Kim, a vice president and senior analyst at Moody’s Investors Service, said Washington utilities subsidize their retail customers by selling excess power on the wholesale market. But the cryptocurrency mining boom could be flipping that state of affairs on its head by markedly increasing the retail power demand.

“If that demand actually translates, it could double some of their retail load,” Kim said. “It’s very substantial.”

At the Chelan PUD, for example, only 18% of the district's ample capacity is used to meet retail needs in the county of 75,000 with the vast majority of the remainder sold to out-of-county third parties through long- or medium-term contracts, according to Fitch Ratings in its September report on the district's AA-plus rating.

The district says its consolidated system revenue bonds are rated Aa3 by Moody's and AA by S&P Global Ratings.

Existing infrastructure is unlikely to be able to handle a rapid ramp-up in demand from cryptocurrency miners, and both Reilly and Kim noted that such infrastructure investments (such as new substations) are expensive long-term investments that may end up long outliving the mining boom and become superfluous.

“We don’t see cryptocurrency miners being a long-term stable customer,” Kim said, noting that they can easily pick up their operation and move elsewhere as they are nothing more than a collection of computer equipment.

“It’s fairly new,” Kim said. “The pricing is quite volatile. At some point, if the currency value drops, it wouldn’t make sense for them to go through the mining process.

“The utility could be potentially left holding the bag,” he added.

Reilly expressed similar sentiments.

“Utilities may also be saddled with stranded assets if they build out systems for load growth only to see power usage related to cryptocurrencies substantially decline along with currency value,” he said.

But a careful approach that transfers risk away from the utility could result in some upside, the analysts said.

"Utilities may benefit more from carefully managed load growth than selling on the wholesale market given currently low market prices,” Reilly said.

Kim said the cryptocurrency boom “could very well be” a positive for utilities such as Chelan PUD, provided they manage their risks.

“If that risk can be managed, it could be a potential source of upside in the longer term,” he said.

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