Virtual Currency Meets Wariness As It Plugs Into Cheap Columbia River Power
One of the Northwest’s selling points is its cheap hydropower. That’s why in recent years data centers have sprouted along the Columbia River in both Washington and Oregon.
But in north central Washington, an emerging power-hungry industry is meeting with some resistance. It involves the making and managing of the virtual currency called bitcoin.
Bitcoins are traded on the Internet. They can be converted to cash: one bitcoin is currently worth about $380. One to way to earn bitcoins is to lend computing horsepower to the global bitcoin network. That's known as bitcoin mining.
One place that happens is at Dedicated Hosting Services, a one-year-old company that leases a former machine tool shop on the banks of the Columbia River in Entiat.
"No one notices that anything is going on there because we are so quiet,” company president Michael Cao said.
Powering bitcoin mining
Unlike traditional mining, there are no pick axes and conveyer belts here. In bitcoin mining, the tools are tech know-how and electricity. Lots of electricity.
"Inside there are racks and racks of computers trying to solve a very complicated equation on the bitcoin network,” Cao explained.
Solve the equation, you get an electronic reward of bitcoins. Do it every day all day long, the rewards can add up. Cao and his partners make their money by leasing rack space to bitcoin miners.
Cheap electricity is the attraction for locating bitcoin computers in north central Washington. Some of the lowest electric rates in the nation come courtesy of dams operated by several local public utilities.
But a few months ago Chelan County PUD proposed to roughly double the bitcoiners' power rates.
"This rate change is very narrowly targeted and is discriminatory,” Cao's business partner Jared Richardson said. “The rate changes proposed by the PUD would pretty much wipe out our business in the area.”
Richardson said his mining rig hosting company employs 14 people.
'A finite resource'
The proposed rate hike affects about a dozen existing bitcoin server farms in Chelan County. It comes on the heels of a moratorium on new high-intensity electric hook ups.
"We do have these wonderful assets -- the hydroelectric dams on the Columbia River as well as Lake Chelan -- that generate enough power for the county as well as some extra power that is sold throughout the Northwest and on the West Coast,” Chelan PUD Managing Director of Customer Utilities John Stoll said. “That helps offset rates locally."
But Stoll said this cheap power is "a finite resource." The emerging bitcoin industry has power managers concerned about spare capacity getting gobbled up.
The Wenatchee-based utility is now proposing to charge the bitcoin mines a higher rate than any of its other local customers. That sparked a debate over fairness and what a sustainable business model looks like along the Columbia River.
The PUD admits it is still trying -- like most of us -- to figure out what this whole bitcoin thing is about.
"There are probably stories in business journals every day about, 'The fall of bitcoin,' to: it is the next Internet,” Stoll said.
Stoll said the "volatility" in the digital currency business is also a concern.
"We have seen some operations go in and almost overnight they are gone,” he said. “That creates issues for a utility.”
‘We can collaborate and work together'
A longtime local businessman with a foot in the old and the new has become a go-between in the quest for an amicable solution. Malachi Salcido runs a mechanical contractor business in Wenatchee. Recently, he's expanded into bitcoin mining.
Salcido said the underlying technology -- called blockchain -- could grow into something bigger in Central Washington. But he fears the PUD's wariness could quash the opportunity.
"The utility has said, 'If we do this, we can't keep low stable rates for our customers,’” Salcido said. “My response to them is that is not a good enough answer. Either-or is not a good enough answer. We are all very intelligent. We can collaborate and work together. We have to figure out a way to do both."
Something along those lines may be happening. The elected utility commissioners have put the rate hike on the slow track and directed staff to explore alternatives. The bitcoiners also are looking at alternatives. That includes going to neighboring counties with similar low power rates if and when they decide to expand.
Going to the public
Formal hearings begin February 1 at 1:00 p.m. in the PUD Auditorium in Wenatchee on what Chelan PUD officially calls its "High Density Load" rate proposal. The commissioners have promised not to take action at that meeting.
On Wednesday, February 3, from 5:30-7:30 p.m., the PUD and the bitcoiners will co-host a community forum at Confluence Technology Center in Wenatchee, to share information about their businesses. At this forum, the entrepreneurs want to elaborate on the economic benefits that bitcoin and blockchain technology could bring to the county.
The two adjacent counties with rock-bottom cheap Columbia River hydropower are Douglas and Grant Counties. An unknown number of bitcoin mining operations have established in the Douglas County Public Utility District service territory according to spokeswoman Meaghan Vibbert.
"We haven't seen any problems," Vibbert said in an interview Friday. She said the PUD experienced overall load growth from June 2014 to June 2015 of 1.7 percent, which is in line with recent annual averages.
Douglas and Grant PUDs said they require new customers to pay up front for needed infrastructure.