Bitcoin Under the Big Sky

Northwest Montana is uniquely suited for emerging sites that generate cryptocurrency units using vast amounts of electricity, a development that is forcing utilities to confront a surge in power demands

By Tristan Scott

The Treasure State has a rich history of extracting traditional resources such as gold, silver, copper, zinc, and coal. As these industries decline, however, Montana may be uniquely situated on the frontier of a lucrative new form of mining: bitcoin.

Over the past several years, Northwest U.S. regional electric utilities have been inundated with requests for service from power-hungry cryptocurrency processing loads. The requests for service started in the Mid-Columbia Basin of central Washington — particularly in Chelan and Walla Walla counties — and have since spread throughout the Pacific Northwest, recently extending into this far-flung corner of Montana, where a virtual gold rush is underway.

Electric utilities in the Northwest boast some of the cheapest electricity rates in the nation, due in large part to the low cost of hydropower and its dense network of dams, making the region an attractive location for bitcoin-mining facilities. The sites use computer processors to solve complex math equations and track digital currency exchanges, uploading them to a digital ledger that validates the transactions.

The miners who solve the equation first earn a reward in bitcoin, or any of the other types of digital assets their ultra-fast computers are designed to process.

It’s presented a significant challenge for local utilities unprepared for the inrush of high-ticket customers looking to draw substantial amounts of energy out of the grid as they run vast computer networks 24 hours a day, 365 days a year, using extensive ventilation systems to cool the machines.

Citing the influx of power demands, the Flathead Electric Cooperative’s Board of Trustees on Feb. 21 imposed a six-month moratorium on cryptocurrency mining, with the option of extending the moratorium an additional six months if necessary.

“Electric utilities outside of Washington are now seeing an increase in the number of service requests from cryptocurrency processing loads,” FEC General Manager Mark Johnson said. “Flathead Electric is no exception.”

Flathead Electric Coop General Manager Mark Johnson on March 16, 2018. Justin Franz | Flathead Beacon

“With the sudden interest in locating in Flathead Electric’s service territory, the Cooperative has not had time to fully understand the impact to its electric distribution system from these types of loads,” he continued.

The requests for service have ranged in load size, from less than a megawatt to up to 30 — enough to power tens of thousands of homes.

During the moratorium, FEC staff will evaluate the best way to handle the loads to mitigate the impacts to other members and rethink its rate structures.

Still, some cryptocurrency processing load requests were in progress prior to the moratorium and, while the requests caught the utility off guard, they are “grandfathered in,” Johnson said, meaning they are not subject to the moratorium and the miners worked in concert with FEC to accommodate their requests for power.

While some of the interest has come from as far away as China and other out-of-state companies looking to quickly capitalize on the hype driving the bitcoin boom, it has also included local tech entrepreneurs who have been tracking the industry for years, prior to its explosion onto the mainstream market.

Cryptocurrency cottage industries have been springing up in the region for years, with miners running specialized servers out of their homes or garages — shoe-box size computers arranged in high-density pods, designed to run 24 hours a day to mine the digital currency.

A cryptocurrency mining operation in the Flathead Valley on March 19, 2018. Justin Franz | Flathead Beacon.

Local IT professional Jeff Russell’s foray into the business of bitcoin began as a hobby, but it has since developed into a much larger venture as the price of cryptocurrency like bitcoin rises.

Through his new business, CMH, LLC, Russell and his partners have invested heavily in the construction of a new building to accommodate cryptocurrency miners in the Flathead Valley, leasing space, infrastructure and power to accommodate their needs.

In the first phase of development, slated for primetime in June, the miners will set up shop in 3,200 square feet of space, with CMH providing mechanical ventilation to “move a goodly amount of cool, Montana air through the building” in peak summer months.

The general-purpose facility is capable of housing more than 2,000 servers that can process different types of cryptocurrency depending on the customer’s desire, and Russell said he already has lease commitments for the entire space.

“I felt as though locally we are ideally suited because of access to clean, relatively inexpensive power while benefiting from a relatively cool climate,” he said, noting that cooling ventilation systems will only be necessary during peak summer months.

He understands FEC’s concerns about offering large loads to customers demanding high volumes of power, and said the utility has been a welcoming partner even as it grapples with the rapidly growing business interest.

“From a business perspective, they have to figure out how to offer these services without compromising the needs of their customers, and with so many inquiries they were not prepared to immediately offer such large loads,” Russell said, adding that his long-term business plan includes building out the space. “We are pleased to be one of the first companies to work with them in the area, and we hope the moratorium gives them time to develop a strategy.”

The new wave of interest has caught the attention of economic and power forecasters, as well as elected leaders and government agencies, particularly as large-scale mining sites have recently cropped up near Missoula, Butte and Anaconda.

Kim Morisaki, business development and marketing director at Montana West Economic Development, said her office has received a groundswell of inquiries on the matter, and she’s been quickly educating herself on the finer points of the burgeoning industry.

“In the last six weeks, I have had many conversations with people calling about this with varying levels of seriousness, and it’s forced me to run around and learn more about what this means locally,” she said. “We’ve had people ask about locations and buildings, as well as what might be appropriate in terms of energy needs.”

In the near future, Morisaki said Montana West Economic Development will likely host a community education seminar to educate members of the community about the implications.

At the Lincoln County Port Authority in Libby, executive director Tina Oliphant said she has received numerous requests from businesses eager to use existing infrastructure, including the Kootenai Business Park, which is home to the 400-acre former Stimson Lumber Company site.

“We have been having exploratory discussions with a number of interested parties,” she said. “Nothing is signed and sealed, and we don’t know where it’s going yet, but it could be an opportunity to create wealth in our community.”

Due to its proximity to Libby Dam, Oliphant said the Kootenai Business Park could be ideally suited for a bitcoin mining site while generating property tax revenue, improving buildings and enhancing local businesses.

The Kootenai Business Park in Libby. Beacon File Photo

“Certainly with an emerging technology we are proceeding cautiously, because as a very young business they lack stability and equilibrium,” Oliphant said. “But we are very interested. We’re open for business.”

Statewide, the Governor’s Office of Economic Development has also received numerous requests for information from cryptocurrency mining operations, according to Chief Business Development Officer Ken Fichtler.

“Our official position on the issue is that we support developing the high-technology industry in Montana as a whole. The dramatic increase in interest from these businesses that we’ve seen over the last several months is a testament to the attractive business climate in Montana,” he said. “That said, we are not doing any outbound marketing or other sales efforts to attract cryptocurrency mining operations but we do respond when contacted.”

Among other concerns that business communities have expressed is whether bitcoin is here to stay, or if its volatile market could collapse and send investors packing.

For Russell, cryptocurrency and the blockchain technology employed to monitor its transactions have far-reaching applications that will continue to transform business models in the future.

“I wouldn’t be investing in a sizeable business if I didn’t think there was a long-term future and the need for these facilities to run these ledger networks or blockchain networks,” he said. “It’s sort of like coming out in 1996 and saying we aren’t going to invest in the Internet, and 20 years later you can’t do business without the Internet. It is just an ingrained part of today’s business environment. I think this technology will become a piece of infrastructure that we rely on in the future.”

The energy-intense profile of bitcoin-mining operations has put the sector on the radar of the region’s power forecasters, including Massoub Jourabchi, manager of economic analysis at the Northwest Power Conservation Council.

He has begun tracking the demand for electricity across the region, and said cryptocurrency server farms have not yet presented a problem for electricity reliability.

“It is very energy intensive but we don’t have a very good estimate as to how much power they are using regionally,” he said. “Certainly we have seen some communities declare moratoriums to accommodate the demand and see if it remains consistent, but if you step back on a regional level, our loads have been fairly stable. It’s a tale of two cities depending on where you are located in the region.”

Flathead Electric Coop General Manager Mark Johnson on March 16, 2018. Justin Franz | Flathead Beacon

At FEC, Johnson takes care to explain that the moratorium isn’t meant to shut out potential business opportunities, and recognizes data-mining sites could serve as an economic engine.

Still, facing a surge in large energy requests requires prudence, he said.

“We are definitely supportive of economic development,” Johnson said. “But our principal concern is that we make sure we have enough electricity to protect our customers.”

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