The U.S. District Court for the Eastern District of Washington in late March denied a motion filed by a group of cryptocurrency miners asking the court to enjoin Grant County PUD No. 2 from implementing an electricity rate class for cryptocurrency miners designed to protect the interests of existing PUD customers.
This rate class would apply to any business that meets the “evolving industry” risk profile, not just cryptocurrency miners. Currently, cryptocurrency is the only business that meets the criteria, but the rate class is not exclusive to them.
The rate, known as Rate Schedule 17, protects Grant PUD and its core customers from unintended cost shifts from new, nascent, power-intense industry that has a higher-risk profile. Currently, only the county’s cryptocurrency mining firms are scheduled to take service under Rate Schedule 17.
Commissioners for Washington state’s Grant County PUD unanimously agreed on May 8, 2018 to move forward with the creation of a new customer rate class for higher-risk “evolving industry customers” that would protect the interests of the utility’s existing customers.
By adopting this policy, the board also affirmed its position that core customer groups – residential, irrigation and commercial customers – would continue to be first in line for access to the benefits of low-cost energy generated at Grant PUD’s hydro facilities.
The policy also creates a priority status for traditional commercial and industrial customers who are waiting for power service. The new “Evolving Industry” rate class, referred to as Rate Schedule 17, provides more certainty of costs and waiting periods to the large number of cryptocurrency firms interested in service, Grant PUD said last year.
In August 2018, Grant PUD Commissioners unanimously approved the new rate class.
Cryptocurrency miners sought preliminary injunction
After Rate Schedule 17 was implemented and cryptocurrency mining was classified as an evolving industry, a group of technology firms primarily engaged in the business of cryptocurrency mining filed a lawsuit against the PUD.
The miners asked the U.S. District Court for the Eastern District of Washington to enjoin Grant County PUD No. 2 from implementing the evolving industries electricity rate class.
In its decision, the court noted that throughout the development and implementation of the evolving industry class and Rate Schedule 17, the cryptocurrency miners voiced objections. They submitted written comments to the District, arguing that the classification was unnecessary and that cryptocurrency miners should not be placed within that classification.
The cryptocurrency miners argued that the PUD and Commissioners violated the dormant Commerce Clause, the Due Process Clauses of the United States and Washington State Constitutions, the Federal Power Act, Washington’s utility laws, the District’s own internal policies, and the Washington State Constitution’s Privileges and Immunities Clause.
The cryptocurrency miners also said that they would suffer irreparable harm because Rate Schedule 17 will raise their power costs sufficiently to cause them to go bankrupt and that a preliminary injunction would further the public interest.
The miners argued that they are likely to succeed with three different claims against the District.
First, they argue that Rate Schedule 17 violates both Washington State and federal law because it discriminates against cryptocurrency miners.
Second, they argue that the process by which the District implemented the rate schedule and determined that cryptocurrency mining was an “Evolving Industry” violated the miners’ due process rights.
Third, cryptocurrency miners argued that Rate Schedule 17 violates the Privileges and Immunities Clause of the Washington State Constitution.
Court addresses arguments
Among the arguments made by the cryptocurrency miners on why they are likely to succeed on the merits of their Washington utility law claim is that Rate Schedule 17 is discriminatory because it treats cryptocurrency miners differently from customers with similar service requirements and risk factors, such as large data centers, polysilicon manufacturers, or agricultural businesses.
The District argued that the miners fail to recognize the unique features of the cryptocurrency industry that differentiates miners from other customers.
The court said that the cryptocurrency miners fail to recognize one of the main aspects of the District’s justification for classifying cryptocurrency mining as an evolving industry: the sudden influx of interest from cryptocurrency mining companies in the District’s area of service.
“According to the District, since the summer of 2017, they have received 125 requests for service totaling 2,000 MW of new load, 75% of the new load being from cryptocurrency mining operations. Further, the District states that they received actual applications from cryptocurrency miners requesting 313 MWs of power since the summer of 2017,” the court said in its ruling.
It said that the District identified the unique traits of the cryptocurrency mining industry that distinguishes the industry from others, including that its operations require few natural resources and employees, making their operations easy to transfer from one location to another.
The arguments made by the cryptocurrency miners “can be summarized as picking and choosing traits from different industries and combining them together, resulting in the District’s discrimination against them,” the court said.
But the court found that combining the traits from several different industries together “does not show, at this point in the litigation, a likelihood that the District intentionally discriminated” against the miners or that their decision to classify cryptocurrency mining as an evolving industry was made in the absence of evidence.
The miners ignore “the main reason motivating the District’s classification decision: the sudden influx of interest from cryptocurrency miners in the District’s power services,” the court added.
Federal Power Act
Meanwhile, the miners also asserted that that the District violated the Federal Power Act on the grounds that Rate Schedule 17 is unreasonable and discriminatory.
But, again, the court didn’t agree with the legal argument presented by the miners.
Among other things, the court pointed out that the Federal Energy Regulatory Commission previously concluded that Sections 19 and 20 of the FPA do not apply to the District because Washington expressly granted Grant County self-regulatory authority over electricity ratemaking. The nondiscrimination provision of the Federal Power Act is a part of Section 20, so it does not apply to the District, the court said in its ruling.
It said that the cryptocurrency miners are not likely to succeed on the merits of their FPA claim.
The court also addressed the dispute between the cryptocurrency miners and the District over whether the miners are likely to succeed on the merits of its due process claims under both the United States and Washington State Constitutions.
To succeed on a federal procedural due process claim, a party must prove two elements. First, a person must show that he or she was deprived of a protected liberty or property interest. Second, the person must prove that the deprivation of the protected interest was caused by a denial of adequate procedural protections.
The miners claim they have two protected property interests that are deprived by the District’s decision to implement Rate Schedule 17. First, they argue that their “tens of millions of dollars” that they have invested in their mining operations in Grant County will be rendered useless by the rate schedule’s “crippling rates.” Second, they assert that they have a protected interest in their current power rate.
While the cryptocurrency miners may claim that they have existing property rights in their investments in Grant County, the investments were not created by existing rules or understandings that stem from an independent source such as state law, the court said.
Rather, the investments were the result of the miners’ own decision making. “Plaintiffs’ theory would require that any time a government entity causes a person’s investment to become less valuable, that person would be entitled to notice and an opportunity for a hearing before the devaluation occurs,” the court noted. “This would essentially make anything of monetary value a property interest protected by the due process clause, a conclusion foreclosed by Supreme Court precedent.”
The miners also argued that they have a protected property interest in their existing utility rate, Rate Schedule 7.
Ultimately, the court determined that the miners are not likely to succeed in proving they have a protected property interest arising from their investments alone or that the District deprived them of a protected property interest by charging them under Rate Schedule 17.
As for the Washington due process question, the court was also not swayed by arguments presented by the cryptocurrency miners.
Irreparable harm question
Meanwhile, the District and the cryptocurrency miners disputed whether implementation of Rate Schedule 17 starting on April 1 would cause irreparable harm to the miners.
The miners argued that the rate increases from Rate Schedule 17 would render their operations “uneconomical” and force them to end their business in Grant County.
They state that they “might even be forced into bankruptcy” by such a rate increase. They argued that the rate increases would increase their rates by anywhere between 295–400%.
But the court noted that because Rate Schedule 17 is being implemented over several years, the miners will not immediately feel the full effects of the rate increases.
“Even if the rate increase occurred all at once, a mere possibility of bankruptcy does not meet the irreparable harm standard.” Therefore, the Court found that the miners had failed to show that they would suffer irreparable harm if Rate Schedule 17 is implemented.
The public interest
In addition, the cryptocurrency miners and the District differed on whether an injunction would be in the public interest.
The miners said that a preliminary injunction is in the public interest because it will remedy the District’s constitutional and statutory violations. They also argued that, in absence of a preliminary injunction, they will have to relocate their operations and cease paying the District millions of dollars in revenue, which will trickle down to harm the District’s other ratepayers.
But the District said that the actions underlying the claims in this case were taken in pursuit of the public interest by protecting the District’s ability to provide service long-term, showing that the public interest favors its position.
The court said that while the miners might have to relocate their operations in response to Rate Schedule 17’s implementation, the “balance of equities” tips in the District’s favor.
“The District, as a government entity, is serving the public by protecting the public’s need for long-term power while addressing the immediate needs and concerns generated by the cryptocurrency’s interest in Grant County.”
The court denied the motion for preliminary injunction.
Rate has a three-year phase in
In late March, Grant PUD noted that the first of a three-year phase-in of the new Rate Schedule 17 for higher-risk “evolving industry” customers would begin as planned on April 1.
Evolving-industry customers whose billing demand is less than 200 KW will see the first of three annual adjustments to increase their all-in electricity rate from the current 4.9 cents per kWh to 13.7 cents per kWh in 2021.
Larger evolving-industry customers will get the first of three annual adjustments to increase their all-in rate from 2.6 cents per kWh to 7.9 cents per kWh in 2021.
The PUD said that like other rate classes for large power users, Rate 17 covers the cost to serve, but includes a risk premium particular to this class. This pricing helps preserve low-cost rates for Grant PUD’s core residential, irrigation and business customer.
By late 2018, cryptocurrency mining in Grant County was using approximately 25.7 megawatts of power. Currently, 15 potential cryptocurrency customers have filed applications for service for a combined 313 megawatts of power, the PUD noted in late March. Grant PUD’s total average annual customer load, county-wide, was 592 MW in 2018.
Other public power utilities moving to address cryptocurrency mining
Other public power entities have also moved to address an influx of cryptocurrency miners including several in Washington State: Chelan County PUD, Franklin Public Utility District, Mason County Public Utility District 3, Benton PUD and the city of Wenatchee, Wash.
New York PSC
The New York Public Service Commission in 2018 approved new electricity rates for public power utility Massena Electric Department that the PSC said will allow high-density load customers, such as cryptocurrency companies, to qualify for service under an individual service agreement.
The PSC said that the individual service agreement tariff includes provisions that will protect existing customers from increased supply costs resulting from the new service.