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Riot Platforms Pushing Back Against ‘Misguided’ Texas Mining Bill

source-logo  blockworks.co 07 April 2023 20:28, UTC

One of the largest bitcoin miners said it is actively seeking to derail a proposed bill that it claims would lead to a more expensive and less reliable energy grid.

Texas Senate Bill 1751, pushed by three Republican state senators, would prohibit tax abatements on certain bitcoin mining property and require miners in the state to register as flexible load operators with state grid operator ERCOT.

The proposed legislation would also limit miners’ participation in demand response programs to 10% of the total load required by such a program.

Kristine Cranley, director of business development at Texas Blockchain Council, said in an April 1 tweet that this “arbitrary cap” would cause the cost of grid stabilizing services to go up.

Testimony that @lee_bratcher and I gave last week at the committee hearing on SB 1751, an anti-free market bill that proposes an arbitrary cap on miner participation in ERCOT's demand response services, causing the cost of procurement of these much needed grid stabilizing… pic.twitter.com/5uhx1wRseq

— Kristine Cranley (@KristineCranley) April 1, 2023

“Bitcoin mining is uniquely capable of addressing the needs of the grid unlike any other industry because it’s able to shut off in an instant and come back on relatively quickly,” Cranley said during a hearing at the Texas State Senate’s business and commerce committee last week.

Who is impacted?

Analysts at Compass Point Research and Trading wrote in a Thursday note that the bill’s cap on demand response payments could be particularly impactful if Texas has an especially hot summer or cold winter in a given year.

They noted that this would require miners to “make a choice between producing BTC at unprofitable power prices for a portion of the time or curtailing operations with reduced payments to offset the downtime.”

The analysts added that while lack of tax incentives could prevent miners from building new facilities in the state, existing mining facilities would likely be fine.

A spokesperson for Riot Platforms, a company with operations in central Texas, told Blockworks in an email that the proposed legislation would bar Riot from participating in certain economic growth programs and hurt its ability to create jobs.

“This bill would also limit competition in ancillary services by the very businesses that are ideally suited to participate in it,” the representative said. “That will drive up costs for consumers and result in less grid reliability.

“Our team is actively engaged in communication efforts aimed at urging our elected representatives to oppose this misguided proposed legislation,” the spokesperson added.

Riot Platforms had a fleet totaling 94,176 miners, as of March 31 — equating to a hash rate capacity of 10.5 exahash per second (EH/s).

Tax abatements have helped attract bitcoin miners to Texas and revitalize rural communities, Pierre Rochard, vice president of research at Riot Platforms, said at the Texas State Senate hearing. These companies are the top employers in Rockdale and contribute the most in taxes to the Rockdale Independent School District, he added.

Sadly the anti-#bitcoin bill in Texas SB 1751 has passed committee.

Lots of education work ahead, this bill is bad for rural jobs and economic growth. https://t.co/AUSRaCeuTe

— Pierre Rochard (@BitcoinPierre) April 4, 2023

Since breaking ground in Rockdale in 2020, Riot has generated 300 new “long-term, high-paying jobs,” a spokesperson told Blockworks, making it the largest employer in the city. Riot has also partnered with Texas State Technical College to train technicians to fill new jobs it is creating around central Texas.

Riot declined to disclose the breakdown of all taxes it pays, but noted that it pays 100% of the school district’s property tax assessment for the company.

“The company works with our local governments to structure tax incentives that are mutually beneficial to both the company and the local community it serves, similar to our experience in Rockdale, where we do pay significant taxes and we do notreceive a 100% abatement of our property tax obligations,” a spokesperson said.

Marathon Digital CEO Fred Thiel said his company would not be impacted as intensely by the bill as Riot, for example. Still, he said he supports the Texas Blockchain Council’s opposition to the legislation.

Demand response programs reward miners for selling power back to the grid when demand is high — a process in which Marathon does not participate as much in, Thiel explained. Contrarily, Riot earned roughly $9.5 million in power credits as a result of curtailment activity in July 2022.

“For Marathon’s sake, we don’t build this into our business model as a revenue stream that we count on for our profitability,” the Marathon CEO said.

Thiel added that the company does not currently significantly benefit from tax abatements either.

Marathon’s operational hash rate stood at 11.5 exahashes at the end of March. The company operates a wind farm in Texas, and has a mining site in North Dakota. It has revealed plans to expand to the United Arab Emirates later this year.

“These various regulatory moves, or tax moves, don’t really change our perspective on Texas,” Thiel said. “We think Texas is still a great place to locate miners because there’s a huge amount of grid congestion to get power from solar and wind farms in the west of Texas to the population centers in the east.”

Switzerland-based bitcoin miner White Rock Management also operates in Texas.

But the company’s mine operates off-grid and is powered by flared natural gas, which isolates it from any impact the bill may have, White Rock CEO Andy Long said.

“The mining industry has a strong future in the US,” Long told Blockworks. “So while some states are making it harder to mine, others are passing new laws protecting the right to mine, and that kind of competition will keep the market healthy.”

Will it pass?

State lawmakers approved the bill on April 4. It heads to the Texas Senate for a floor vote before it would then move on to the House.

Compass Point analysts said they believe the odds of the bill passing are low, noting that the legislature’s session is scheduled to end on May 29.

“Our conversations with folks on the ground in [Texas] suggests the House is not likely to take up the bill for a vote, which we think likely dooms the legislation,” they added.

Thiel agreed, adding that this bill seems to be singling out bitcoin miners as “the bad guy.”“If you’re a large consumer of energy…it shouldn’t matter whether you’re a steel mill or a bitcoin miner, so that’s something we have issue with,” he told Blockworks. “My belief is that sane heads will prevail and that it won’t be enacted into law.”