Warren, Green, Lawmakers Open Investigation into Texas Energy Grid Operator’s Subsidies to Cryptominers
Texas Electrical Grid Operator Paid Millions of Dollars to Cryptomining Companies to Curtail Operations During Peak Demand
“Bitcoin miners make money from mining that produces major strains on the electric grid: and during peak demand when the profitability of continuing to mine decreases, they then collect subsidies in the form of demand response payments when they shut off their mining operations and do nothing.”
Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), Sheldon Whitehouse (D-R.I.), Edward J. Markey (D-Mass.), Dick Durbin (D-Ill.), and Jeff Merkley (D-Ore.) and Representatives Al Green (D-Texas), Katie Porter (D-Calif.), Jared Huffman (D-Calif.), and Rashida Tlaib (D-Mich.) sent a letter to the Electric Reliability Council of Texas (ERCOT), the operator of Texas’ electrical grid, seeking information about ERCOT’s subsidies for cryptominers, and about how cryptomining is impacting climate change, the stability of the energy grid, and consumers. A previous investigation by Senator Warren and her colleagues revealed that cryptomining uses an exorbitant amount of energy, and the lawmakers are now expressing concerns about ERCOT’s payments to cryptominers during periods of peak energy demand – payments that can comprise almost 10 percent of a cryptominer’s annual revenue.
“I've been working for the last year to make sure the public understands the economic and climate risks from crypto. Cryptominers’ energy use rivals that of entire countries, and taxpayers — in Texas or anywhere in the nation — shouldn’t subsidize their profits, especially when the energy grid is on the verge of collapse. I’m working with lawmakers from Texas to advance greater transparency and ensure consumers understand the risks cryptomining poses to our energy security, our climate, and local electricity costs,” said Senator Warren.
Cryptomining companies are flooding into states like Texas, a “deregulated safe harbor” that has been courting cryptominers, and are using significant amounts of energy:
- Texas is home to one-quarter of the country’s Bitcoin mining and uses 9% of cryptomining computing power worldwide – a share that is expected to reach 20% by the end of next year.
- Industrial-scale miners in Texas are regularly using over 2 gigawatts (GW) of energy, enough to power all the residences in the city of Houston twice over
- In July 2022, ERCOT stated that over 27 GW of crypto load is projected to be interconnected over the next four years – which would represent nearly a third of the grid’s current maximum capacity. In August 2022, ERCOT updated that number to 33GW of electricity – enough electricity to power New York or Florida.
While businesses and consumers are asked to voluntarily conserve power during times of peak demand, some companies – including cryptominers – have enrolled in ERCOT programs under “demand response” agreements, that pay them for curtailing their operations during these times. The lawmakers note that taking ERCOT’s payout rather than continuing to mine for crypto due is often driven by economic incentives: “In simple terms, the Bitcoin miners make money from mining that produces major strains on the electric grid: and during peak demand when the profitability of continuing to mine decreases, they then collect subsidies in the form of demand response payments when they shut off their mining operations and do nothing,” wrote the lawmakers.
Riot Blockchain, the largest cryptominer in Texas, made around $9.5 million from ERCOT’s demand response curtailment program during the July 2022 heat wave – more than the $5.6 million it made from actually selling Bitcoin that month. One report found that in coming years, Texas may pay miners up to $170 million annually through these programs – as climate change that cryptomining is contributing to will further exacerbate extreme weather, creating a feedback loop resulting in further strain and more payouts to cryptominers.
“Cryptomining is adding significant demand to an already unreliable grid, ‘pos(ing) enormous challenges to the transmission and distribution system and to prices’ and contributing to the global climate crisis. Yet at the same time, cryptominers benefit from huge ERCOT subsidies in the form of demand response agreements that come at the expense of ratepayers and establish ‘misaligned incentives between crypto-asset miners and grid operators,” concluded the lawmakers.
The lawmakers are calling on ERCOT to detail the current and projected energy consumption of cryptomining in Texas, the power purchasing and curtailment agreements ERCOT currently has with cryptomining companies, and the impacts of cryptomining’s energy use on the electricity costs to consumers and small businesses, by October 31, 2022.
Senator Warren is an outspoken advocate for reining in crypto to protect the environment, consumers, the energy grid, and the safety and stability of the financial system:
- In July 2022, Senator Warren and her colleagues released the findings from an investigation into seven large cryptomining companies – showing extraordinarily high energy use and climate impacts from cryptomining – and called on the EPA and DOE to take action.
- In May 2022, Senators Warren and Tina Smith (D-Minn.), sent a letter to Fidelity, asking the company to explain its decision to allow Bitcoin investments for 401(k) plans, despite the Department of Labor’s warnings about 401(k) crypto investments.
- In May 2022, at a hearing of the Senate Armed Services Committee, Senator Warren raised the importance of having additional information about the impact of crypto on the environment and energy grid to Secretary of Energy Jennifer Granholm.
- In March 2022, Senator Warren, Senate Armed Services Committee Chair Jack Reed (D-R.I.), Senate Intelligence Committee Chair Mark Warner (D-Va.), and Senate Defense Appropriations Subcommittee Chair Jon Tester (D-Mt.) introduced the Digital Asset Sanctions Compliance Enhancement Act to ensure that Vladimir Putin and Russian elites don't use digital assets to undermine the international community’s economic sanctions against Russia following its invasion of Ukraine.
- In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the various cryptocurrency tools that could make it easier for sanctioned individuals to hide their wealth and lessen the impact of Russian sanctions.
- In March 2022, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren warned that cryptocurrency may allow Russia to dodge sanctions and urged stronger regulation of the crypto market to ensure that countries, drug traffickers, cyber criminals, and tax cheats can’t evade economic pain.
- In March 2022, Senators Warren, Warner, Reed, and Sherrod Brown (D-Ohio), Chair of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Treasury Secretary Janet Yellen, asking about the Treasury Department’s plans to enforce sanctions-compliance guidance for the cryptocurrency industry to ensure that economic sanctions remain an effective tool for achieving foreign policy goals.
- In January 2022, Senators Warren, Whitehouse, Merkley, Markey, and Maggie Hassan (D-N.H.), and Representatives Tlaib, Huffman, and Porter sent letters to six cryptomining companies raising concerns over their extraordinarily high energy usage.
- In December 2021, Senator Warren sent a letter to Greenidge Generation Holdings Inc., which operates a Bitcoin mining facility in upstate New York, expressing concern about the company’s energy usage and its impacts on the environment and consumers.
- In December 2021, during a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren raised concerns over the growing risks presented by stablecoins.
- In September 2021, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren called on regulators to step up to address crypto's regulatory gaps and ensure an inclusive financial system.
- In July 2021, Senator Warren sent a letter to the Securities and Exchange Commission Chair Gary Gensler requesting information about the agency's authority to regulate cryptocurrency exchanges and protect consumers from risks posed by the highly volatile cryptocurrency market.
- In June 2021, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy, Senator Warren delivered remarks on the opportunities and risks that digital currencies present.
- In a June 2021 interview, Senator Warren called the market for cryptocurrencies the “wild west,” and said digital currency is “not a good way to buy and sell things and not a good investment and an environmental disaster.”
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