The Kentucky Public Service Commission issued a decision Friday that aims to help prevent Kentucky Power customers from footing the bill for discounted power rates granted for a 7 MW cryptomining facility in Pike County (Hatfield), known as the Rockhouse facility.
The PSC approved a special contract for the facility with over $2.5 million in discounts, but only with additional conditions placed on the cryptomining company, Cyber Innovation Group, to protect Kentucky customers from the risks of the deal.
These conditions include that Cyber Innovation Group (CIG) cover any increased costs associated with Kentucky Power purchasing any new capacity needed to serve the Rockhouse facility. CIG will also be required to post over $2.5 million in security bonds to protect customers against the risk that it might default as a result of an addendum agreed to in response to concerns raised by the PSC and intervenors in the proceeding.
The additional conditions required under Friday’s PSC order are designed to protect against Kentucky Power’s other customers’ rates going up in the future as a result of the contract with Cyber Innovation Group. In a separate proceeding, Kentucky Power has already proposed an 18% rate increase for its residential customers, and the PSC has yet to approve or deny that proposed rate increase.
The proposed discounts for the Rockhouse facility were opposed by Kentucky grassroots and renewable energy groups, the Kentucky Attorney General, and a group representing Kentucky industrial utility customers.
The public interest groups that had intervened in the case and had previously requested that the PSC investigate this contract include Mountain Association, Kentuckians for the Commonwealth, Appalachian Citizens’ Law Center, Sierra Club and Kentucky Resources Council. They are represented by the nonprofit law firm Earthjustice.
Thom Cmar from Earthjustice, an attorney representing the coalition of public interest intervenor organizations, said, “We are grateful the Kentucky Public Service Commission is trying to protect Kentucky Power customers. I doubt you will find any family in Kentucky who would volunteer to see their electricity rates go up so that a cryptomining company can pay less. Cryptomining companies are notoriously risky customers that are often here today, gone tomorrow. In an ideal world, there would be no discounted rates approved today, but the safeguards will help reduce risk from such a volatile industry. We hope the Commission will keep a close eye on this cryptomining facility and others in Kentucky.”
In Friday’s decision, the PSC found that Kentucky Power lacks sufficient capacity to serve its existing customers and, therefore, should not bring on a new customer at a discounted rate while forcing its other customers to contribute to the costs of buying capacity to serve that new load. In opposing the contract proposed by Kentucky Power for the Rockhouse facility, intervening parties had pointed to the risks that relying too heavily on purchasing energy and capacity from regional markets could result in electric bills going up for Kentucky Power’s other customers.
In addition to the risks cited by the PSC in the order, public interest groups have raised the concern that the Rockhouse cryptomining facility is already running, which means that Kentucky Power is seeking to provide discounts that are not actually needed to gain a new customer. Nor did Kentucky Power provide any evidence that new jobs or economic development would result from approval of this contract.
“Typically, a utility, with approval, provides discounts to draw a company into their service area, bringing good jobs with it. In this case, Cyber Innovation Group’s facility is already up and operating within Pike County in an incredibly volatile industry,” said Josh Bills, Commercial Energy Specialist, Mountain Association. “It is disappointing that the Kentucky Public Service Commission has allowed Kentucky Power to provide $2.5 million in discounts to them, just as they are trying to increase rates for thousands of Eastern Kentucky families, businesses, local governments and places of worship. These discounts should be reserved for locally owned and operated businesses, seeking to add more than just a handful of jobs and providing additional community benefits in some way.”
Bills continued, “The Kentucky Public Service Commission ruling does at least reduce some cost risk to all the other customers served by Kentucky Power by requiring Cyber Innovation Group to bear all added capacity costs from their additional load and to post security bonds to reimburse discounts granted should they close up shop.”
Proof-of-work cryptocurrency mining consumes enormous quantities of energy because thousands of computing machines at each mining site race to solve a complex but meaningless, math problem. There are routinely millions of machines worldwide competing at any given time to solve the same problem.
“The Commission has correctly decided based on the laws of the Commonwealth that Kentucky Power’s ratepayers should not face rate hikes because of out-of-state cryptomining corporations,” said Byron Gary, Program Attorney for the Kentucky Resources Council. “We will keep working to protect Kentucky’s ratepayers from speculative crypto projects.”
Kentucky has become a magnet for cryptocurrency mining companies seeking cheaper energy since China banned the process in 2020. It has more cryptomining computing power than most states and due to its fossil-heavy electric grid, Kentucky generates more carbon dioxide from cryptomining than anywhere else in the U.S. All of the power that Kentucky Power generates is from fossil fuels (approximately 75% from coal and 25% from gas). See fact sheet: https://earthjustice.org/feature/cryptocurrency-mining-kentucky
“Massive cryptocurrency mining operations that don’t pay their fair share–and harm public health with increased pollution–have no place on the Kentucky grid,” said Kate Huddleston, attorney with Sierra Club’s Environmental Law Program. “We’re glad that the state regulators are reducing the risks Kentucky Power customers face from cryptocurrency mining.”
This is the third decision on discounted rates for cryptominers that the Kentucky PSC has issued since August 2023. Last month, the Commission wisely rejected discounts for a massive 250 MW facility in eastern Kentucky (Louisa). At the same time, it unfortunately approved a deal providing over $4 million in discounts for a 13 MW cryptocurrency mine in western Kentucky (Waverly).
The five public interest organizations that intervened, as well as the Kentucky Conservation Committee and Apogee-Climate & Energy Transitions/Earth Tools, wrote a letter to the commission last year which warned that cryptocurrency mining facilities are uniquely risky customers because they are part of a volatile, “boom and bust” industry: “Cryptocurrency mining operations represent a high risk to other customers because operations can be moved easily and the potential for default places other ratepayers at risk of being forced to pay for energy, capacity, infrastructure, or other purchases made for the benefit of the special contract customer that are not fully covered by the customer during its contract term.”
Contact Valerie Holford, 202-365-5336 or valerieholford@starpower.net